Call October 2011 the month of the small biotech merger bust-up. Close on the heels of the annulment of the Amag-Allos marriage in the US, Biotie Therapies has called off its cross-Europe nuptials with Newron Pharmaceuticals, citing the recent loss of the latter’s partnership with Merck KGaA for Parkinson’s disease drug safinamide (Allos and Amag go separate ways into uncertain future, October 25, 2011).
It may be only a matter of cold feet, however, as Biotie’s chief executive tells EP Vantage a new deal could yet be struck on different terms. But as the two companies could not come to a new agreement in time for Newron’s planned shareholder meeting on Monday – they disagreed on how to value safinamide in the absence of Merck – Biotie decided to call the wedding off.
As individual companies, both Finland-based Biotie and Italy's Newron are in somewhat similar circumstances – both have late-stage products nearing critical milestones and both are unlikely to make it much beyond 2012 without fresh cash infusions (Biotie-Newron tie up points to much-needed consolidation, September 27, 2011).
In the case of Biotie, it is hoping partner Lundbeck will file a European marketing authorisation application for alcohol dependency treatment nalmefene by the end of 2011 and launch by the end of 2012. Thus it structured the all-share deal around the assumption that Newron’s safinamide would succeed in a phase III Parkinson’s dyskinesia trial due to report out in the first half of 2012 and trigger filing milestones from Merck next year.
Instead, Merck’s decision to withdraw from the partnership “changed the economics,” adding potential short-term costs that Biotie was not prepared to absorb, said Timo Veromaa, chief executive of the Finnish company. Thus it executed a break clause, calling it a “material adverse effect,” for which it is eligible for €1.5m from Newron.
“It’s not that they see a lower value” in safinamide, said Luca Benatti, Newron’s chief executive. “The short-term cost is not something they would feel comfortable to cover.”
“We own full rights,” he added. “That’s tremendous upside that was not there before.”
It was not upside that the market was seeing. Newron shares sank 12% to SFr3.70 in mid-afternoon trading – a record low that is also 16% below the closing price on September 26, the day before the merger was announced.
Investors are clearly reading more seriously the statement last week from Merck that it saw “more limited market potential than originally anticipated” in safinamide and had essentially written off any expectations of profit; the termination of the Biotie merger is yet another blow to the prospects of Newron making anything out of the drug.
Meanwhile Biotie’s shares gained 2% to a three-month high of €0.50.
For Newron, this leaves company executives looking for a new partner. Mr Benatti said Merck’s announcement it was abandoning the partnership has spurred new interest in safinamide from larger partners. The drug is a dopamine reuptake inhibitor that is intended to be added on to treatment with levodopa or a dopamine agonist to reduce dyskinesia.
With Merck on the hook for six more months of development costs, likely enough to complete the two ongoing registration trials, Newron does not need to make a decision immediately but cannot dither long. The barriers the company will need to overcome are Merck’s dismissal of safinamide’s value and the fact that the company has had two mergers fall apart in 2011 alone, with a potential tie-up with Santhera Pharmaceuticals disintegrating in February.
Biotie, meanwhile, is in a slightly better position. Without the expected milestones from safinamide, the company may need some “bridging” financing in the near future to get to nalmefene’s launch, but there is also the potential for Roche to exercise an option on its serotonin agonists for Alzheimer’s disease, which would trigger “substantial” milestones, Dr Veromaa said.
Biotie is also looking for more acquisitions, Dr Veromaa said. It already merged with Synosia Therapeutics this year, which brought on board four clinical stage central nervous system products, including the Roche-optioned Alzheimer’s drugs.
He added that the company would consider a merger with Newron with a different structure, suggesting that the marriage could yet be on.
“We walked away from the current deal terms,” he said. “We would not rule out different deal terms.”