Tersera gives Zoladex a life after death

Analysis

It might have seemed like Astrazeneca’s dump-off had run its course by virtue of there being no significant non-core assets left for the group to divest. But few investors could have banked on the presence of as keen a buyer as Tersera Therapeutics.

Thanks to Tersera Astra has scored a $250m windfall for Zoladex, an old, off-patent cancer drug in its death throes, at least in North America. Based on sellside consensus compiled by EvaluatePharma it is hard to see how Tersera can possibly make a return on its investment, unless of course it sees a price hike as a way to capitalise on Zoladex's anomalous lack of generic competition (see table below).

For a drug first approved in 1989 Zoladex has a strong market position outside North America, posting global sales of $816m last year. However, in the US and Canada, the territories the Tersera deal concerns, revenues were a paltry $69m, and are expected soon to be negligible.

Optimistic

Even an optimistic model of Zoladex’s current North America revenue expectations – assuming that these continue to make up 8.5% of global sales, as they did last year – comes up way short of justifying the $250m that Tersera has handed across to Astra.

This is especially the case because Tersera has also agreed to pay Astra a mid-teen royalty. Once this is deducted, along with the cost of paying Astra to manufacture Zoladex and the cost of promoting it, even a very generous 6.5% cost of capital yields a pretax NPV of the cash flow of just $190m.

However, this scenario assumes pricing in line with that charged by Astra. It is possible that the UK firm felt that the criticism around an attempted price increase would not be worth the bother, and thus was content to cease significant promotion of Zoladex and allow the drug to fade away into insignificance. 

What Tersera just bought for $250m
2016 2018e 2020e 2022e 2024e 2026e 2028e
Zoladex global sales ($m) 816 758 705 665 501 393 300
US & Canada sales ($m; optimistic scenario)  69 64 60 56 42 33 25
Mid-teen royalty ($m; e.g. 15.5%)  (10)  (9)  (9)  (7)  (5)  (4)
COGS & SG&A ($m; 40%)  (26)  (24)  (23)  (17)  (13)  (10)
Pretax cash flow to Tersera ($m) 29 27 25 19 15 11
NPV at 6.5% WACC ($m) 190

What might Tersera, a tiny company, be able to do differently? Very little is known about it, but it styles itself as a speciality pharma company with a focus on selected therapy areas.

It was founded last year with financing from the private equity firm GTCR, and is known to have an interest in one other drug – Ergomar, a generic version of sublingual ergotamine available for treating migraine, and previously owned by Rosedale Therapeutics.

Zoladex is approved for prostate and breast cancers, settings where Tersera insists that it continues to be a mainstay treatment. Despite it having been on the market for 28 years, and its composition-of-matter patents having expired, it does not appear to face any generic competitors – a curious anomaly.

If its main barrier to competitor entry is manufacturing complexity and not patents then it will be interesting to see whether a large price hike is central to making the numbers add up for Tersera.

Before Tersera its chief executive, Ed Fiorentino, and GTCR had founded Crealta, which was sold to Horizon Pharma, and Actient, sold to Auxilium (now part of Endo). It is therefore not hard to see a trade sale as one potential endgame for Tersera, though a business predicated on price increases could find life hard in the current political climate.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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