Event - Valeant’s recent efforts reduce dependence on retigabine

Analysis

It may not be the best predictor of future approval in the US these days, but Valeant Pharmaceuticals International and partner GlaxoSmithKline, will be hoping to get some sort of steer in gaining US marketing authorisation later this year with either a yes or no from the EMA when epilepsy drug ezogabine, formerly known as retigabine, comes up in front of the regulator later this month.

While a yes, which is expected by the end of June, would be a big boost to sentiment, the drug faces an up hill battle to carve out a decent sales niche given the increasing competition in the epilepsy market as top sellers such as Topamax have come off patent.

Product Ezogabine (previously retigabine)
Company Valeant Pharmaceuticals International /GlaxoSmithKline
Market Cap Valeant $3.41bn
Glaxo $90.9bn
Product NPV Valeant $98m 
Glaxo $328m
% of Market Cap Valeant 2%
Glaxo 0%
Event type European approval
Date End of June

Many are also not holding their breath and are expecting a potential delay to the US approval, not only because of recent misses by the FDA’s neurology panel, but also because ezogabine is currently the only GABA agonist and potassium channel agonist in development following the failure of the group’s other drug VRX698, as such an advisory committee could be called to examine its use.

Ezogabine was filed in the US late last year and is due to discover its fate in that country by August 30.  But if it does get approved it will be up against surprising newcomer Vimpat, which has generated impressive sales and will also be trying to differentiate itself from an onslaught of generic challengers (Therapeutic focus – Tough market for new wave of epilepsy drugs, April 23, 2009).

The FDA also appears to be taking a much harder line on drugs that also do not offer clear benefits and last month Dainippon’s Stedesa was knocked back by the regulator (Dainippon receives an unwelcome knock back to Stedesa, May 4, 2010).

Glaxo, which licensed the drug as a potential replacement for Lamictal in August 2008 for an upfront fee of $125m and milestones up to $545m, will also be keen to get a return on its investment. As part of the deal the two groups share equal profits from sales in the US, Canada, New Zealand and Puerto Rico, while Valeant receives 20% of sales in the rest of the world.

However, as a replacement for Lamictal the drug has a lot to live up to and is unlikely to fully plug the gap; consensus peak sales are forecast to be $484m according to Nomura, a long way from the $2.2bn that Lamictal achieved in 2007.

Low expectations

This is also reflected in the rather modest valuation for the drug, which currently stands at $98m for Valeant, a long way from the group’s current market capitalisation of $3.41bn. So it looks as if big things are not predicted for ezogabine, which is forecast to provide Valeant with $51m of royalties by 2016 and also faces the prospect of losing patent protection by 2018.

Thankfully for Valeant the success of the drug appears to be becoming less of an issue with Valeant’s recent turnaround in fortunes, largely driven by its recent aggressive acquisition spree, which has most recently seen it buy Aton Phama, a company specialising in ophthalmology and orphan drugs, for $318m.

Turnaround

This latest purchase is part of the revival in Valeant over the last two years led by chief executive, Michael Pearson, who has increased the focus of the group on dermatology and neurology drugs, cut costs and slimmed Valeant’s geographical reach from over 80 countries to focus on the US, Latin America and parts of Eastern Europe.

It has been a move applauded by the markets who have rewarded the group with a doubling of its share price over the last year to $46.07.

It is this acquisition streak that has seen Valeant buy more than 15 companies and products in the last two years that have led some to argue that rather than sit back and bank the royalty stream from ezogabine that Valeant should instead sell the remaining rights to Glaxo to help if fund even more purchases.

This move although unusual would be consistent with the group’s attempt to morph into an even larger specialty pharma player. But if Valeant does take this bold step and sell to Glaxo, when the acquisition frenzy does slow down investors will be expecting the company to demonstrate some organic growth from its acquisitions and if it cannot it may well be punished for giving up a potential cash cow.

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