In a creative deal that echoes the strategic tie-up last year between Infinity and Mundipharma, Italy's privately-owned mid-sized pharma Chiesi Farmaceutici is buying a majority stake in Cornerstone Therapeutics, which gets $15.5 million along with U.S. rights for 10 years to Chiesi's marketed lung surfactant Curosurf.
Under the terms of the agreement, Cornerstone, of Cary, N.C., will issue 11.9 million shares of stock, and two execs - CEO Craig Collard and Steven Lutz, vice president of manufacturing and trade - will sell a total of 1.6 million shares to Chiesi at $5.50 per share, leaving the Parma, Italy-based pharma firm with 51 percent ownership of Cornerstone.
Terms also specify that Cornerstone gets the first right of offer on all other Chiesi drugs intended to be commercialized in the U.S.
Curosurf (poractant alpha) is a pig-derived lung surfactant for respiratory distress syndrome in premature babies, and is available in more than 50 countries. RDS affects about 40,000 infants annually in the U.S., where sales surpassed $30 million last year.
Investors seemed unsure about the deal's novel structure, and a sell-off early in the day hurt Cornerstone's shares.
"The downside may be in the short term," Collard said in an interview. "There was certainly a rebound today." Shares closed at $7.25, down only 3 percent, after trading as low as $5.60.
The hybrid licensing deal brings cash, but that was not its main appeal, Collard said, noting that the firm - founded five years ago with his money and Lutz's - has taken no investment dollars since then, and did not urgently need the money from the Chiesi deal.
Recombinant Surfactant Not Necessarily A Winner
Along with the cash comes a product whose commercial path looks less complicated, at least near term, now that FDA again spurned Discovery Laboratories' RSD treatment Surfaxin (lucinactant). That compound received its fourth complete response letter in April (1"The Pink Sheet" DAILY, Sept. 24, 2008).
The fate of Surfaxin is uncertain, Collard said, and "there's nothing else out there." In the most recent complete response letter, FDA said Discovery must tighten a product specification and update safety and other information. Despite the setback, the Warrenton, Pa.-based firm said approval is still possible this year.
Collard said later in the interview that he doubted Surfaxin will win approval this year, if at all.
"Typically, when you're going back and forth with the FDA like this, even if they're successful, they're probably six months to a year or so out," he said, predicting that "Curosurf is going to be able to hold its own whether [Surfaxin is] on the market or not."
Asked whether patients and doctors might prefer a recombinant surfactant to one that's animal-derived, Collard said his firm's "market research went both ways on that. If a product has not gotten through [FDA] three times, how would you feel? There's some hesitancy there."
And it's not as if Chiesi isn't attempting to develop synthetic and aerosolized products of its own for RSD. Currently only in Phase I studies, the Italian drug maker's synthetic version lags far behind in development. Thus Discovery's troubles give Chiesi - and by extension Cornerstone if it exercises a future right of first offer - a chance to make up ground.
Cornerstone's head of sales and marketing served as the product manager for Survanta (beractant), the bovine-derived surfactant from Abbott, "so we had a really good look at what this market is about," Collard said.
Curosurf, which has 59 percent of the market worldwide and only 31 percent in the U.S., has "a lot of opportunity for growth. In this market, there are not very many other products being promoted anymore," he said.
Adding Curosurf will mean expanding the sale forces by 15 staffers, to "just north of 100 sales reps," Collard said. David Price, chief financial officer, noted that for Chiesi in the U.S., Curosurf has been in the hands of Dey LP, of Napa, Calif., which markets the drug in a hospital setting.
"We'll continue to look at the way to promote the product in order to expand the market share as we go forward," Price said.
News of the Chiesi deal came as Cornerstone reported its first-quarter earnings May 7, posting $6.3 million in income, with revenues of $30.7 million. This compares to $669,000 in net income on $9.4 million in revenue in the same period a year ago.
Collard said the arrangement with Chiesi may become even more innovative down the road. "I think they'll go outside even their own portfolio and support the growth of the company," he said. "We may find a product together that we want to [market in the U.S.]," outside of Chiesi's offerings.
Respiratory Drugs Almost Half Of Chiesi's Pipeline
Cornerstone's first-quarter financial results include effects of the transaction late last year that created the respiratory-focused specialty pharma firm: the buyout by Cornerstone BioPharma of Lexington, Mass.-based Critical Therapeutics (2"The Pink Sheet" DAILY, May 2, 2008).
That reverse merger gave Critical Therapeutics a better product array, since it had only one, and let Cornerstone become public.
Cornerstone sells Zyflo CR for asthma (gained through the merger with Critical), the antibiotic Spectracef, AlleRx for allergies, and Balacet 325 for pain. Net product sales of all four medicines were $30.5 million in the first quarter of 2009, compared to $9 million in the same period of 2008, an increase of $21.5 million, or 239 percent.
Cornerstone had $10.7 million in cash and equivalents, and expects to increase its spending by about $4.5 million this year over 2008, but is raising its guidance for net revenues from over $80 million to over $95 million. Income-from-operations guidance is also rising, from at least $10 million to at least $17 million.
Meantime Chiesi sells products in five continents by way of 22 direct affiliates. In 2008, the firm's revenues reached more than $1 billion, up 14.3 percent over the previous year. Chiesi's pipeline includes Nymusa (caffeine citrate) for primary apnea in newborns, which was given a positive opinion by European regulators in April, as well as late-stage products in asthma and cystic fibrosis.
"They have a broad range of [pipeline] products they could bring to the U.S," Collard said, and 45 percent of those products lie in the respiratory area. "It would be a great avenue for them to bring through Cornerstone, and I think that's the plan."
Novel Deals May Provide Future Path For Biotechs
The Chiesi/Cornerstone transaction recalls last year's arrangement between Infinity and Mundipharma and the Roche/Genentech tie-up of the 1990s. Last November, the privately held pharmaceutical group Purdue (of which Mundipharma is the European affiliate) took a sizeable equity position in Infinity (3"The Pink Sheet" DAILY, Nov. 20, 2008).
Mundipharma gains access to Infinity's research and development group, CSO Julian Adams, and will pay all of Infinity's R&D expenses until at least the end of 2013. Costs associated with Phase III studies beginning in 2014 and beyond will be split equally.
The deal includes Infinity's unpartnered oncology-focused discovery and development pipeline for an initial term of three years, with options to extend for two additional one-year terms. But there are differences. For example, Mundipharma got European rights to Infinity products, a piece not included in the Chiesei/ Cornerstone deal.
Another similarly modeled deal was the one between Ipsen and Tercica. The former owned a 25 percent stake as part of their partnership on Somatuline Autogel. Ipsen went on to acquire Tercica in a three-company buying spree last summer (4"The Pink Sheet" DAILY, June 5, 2008).
As Ipsen and Roche's eventual purchases of their smaller partners shows, these deal structures create an unavoidable tension that often results in outright acquisition at some future date. Whether that is Cornerstone's eventual fate remains to be seen - and likely depends on the company's abilities to increase Curosurf sales.
- Randall Osborne (r.osborne@elsevier.com)
This article also appeared in "The Pink Sheet" – May 11, 2009
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