Thursday, April 09, 2009

Merck Deal Cushions Cardiome From Financial, Regulatory Turmoil... fact it cushions them from doing much development activity at all, it seems.

Cardiome's deal with Merck, granting the Big Pharma global rights to the oral formulation of its atrial fibrillation drug vernakalant, plus ex-US, Canadian and Mexican rights to the IV formulation, is certainly comforting. The Canadian group gets $60 million up-front, up to $200 million in development and approval milestones, tiered royalties, and maybe another $340 million in sales milestones. Plus Merck pays for all further development (costly Phase III outcomes trials) and, for good measure, grants Cardiome a $100 million credit facility at a cost only slightly higher than Merck's borrowing cost, according to analysts at Leerink Swann.

"We wanted to de-risk our business," crowed Cardiome President & CBO Doug Janzen on the webcast today, "and this deal has absolutely done that from a financial perspective." You bet. Cardiome was willing to trade up-front money in order to get Merck to pay the full development whack. And as for the credit line, "we might not draw any of it down," Janzen admitted. That's because the company's burn-rate will now shrink to just $1 million per month, following a downward trend that began last year. Still, he added, "this means we don't have to worry about capital markets and access to capital going forward."

Nor does Cardiome any longer appear to want to worry about doing R&D, either. "We're in a weird position," Jansen said. "We're a development company, but we don't believe in the risks of building our own pipeline at this point. Three years ago we would have been delighted about spending the returns from such a deal on the pipeline, but that's not where we are right now."

Right now, management says it can "definitely" consider share buy-backs. That is weird--at least for a biotech. (Big Pharma's different.) Now we respect that tumultuous times call for caution and some degree of de-risking. But shelving R&D investment undermines the whole point of being in this business--throwing the baby out with the bathwater, as they say. It's reminscent of what this blogger sees happening in UK biotech--except that here, it's not through choice, and it's certainly not in order to buyback shares. It's because most UK biotechs don't have any money.

There's a bunch of other interesting stuff to say about this deal. What does Merck's endorsement mean for what appeared pre-announcement to be a very shaky franchise? Vernakalant IV , after all, has been stuck at FDA for many months. It's also worth thinking about what Merck's agreement to take on full costs says about the Big Pharma's appetite for risk in building out its own CV portfolio. And what might be hidden behind Cardiome management's polite comments about Astellas, its North American development partner on IV vernakalant (known as Kynapid): "We're still as frustrated as ever and have been up in the air waiting for Astellas to make a decision [as to what to do]," Janzen explained.

But to questions as to whether Astellas' REMS submission was perhaps not up to scratch, or to what Cardiome has learned in terms of holding larger partners to account for heel-dragging, Janzen quickly clarified that the frustration was with FDA, not with Astellas. "There is no motivation for them to go slow, so we trust they are proceeding with effort but with no specific time-frame," he declared.

That's quite generous, really, since Astellas may indeed have been otherwise pre-occupied: recall its hostile bid for CV Therapeutics? That (plus the friendlier foreplay) dragged on for most of 2008.

Still, Cardiome's feeling good about bigger, deep-pocketed partners right now. We just don't feel so good about what its cash-hoarding strategy might mean for biotech's raison-d'etre, and indeed, for innovation.

image from flikrer OliBac used under a creative commons license

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