Broken promises force ARYx to assess strategic options

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ARYx Therapeutics is learning the dangerous downside of promising big deals with big pharma. The company is slashing its staffing for the second time in four months - to less than 20 people – and has hired Cowen & Co to help it assess "strategic options" after negotiations to partner its heart drug, budiodarone, fell through.

The announcement on Friday drove shares in the company to record lows, closing down 48% to $1.47 as investors deserted a company with a dwindling cash reserve and two unpartnered late phase candidates. Whilst budiodarone, also known as ATI-2042, has shown efficacy in reducing time spent in atrial fibrillation (AF) among patients with paroxysmal AF, the other, tecarfarin, has failed in phase II/III trials to show superiority to warfarin (ARYx under pressure to deliver deals as promised, July 9, 2009).

Life preserver wanted

The latest staff cuts – from 56 to "fewer than 20" – may be one of the few options the company has to keep itself afloat until a partner can throw it a lifeline. With $14m in cash as of September 30, 2009 and a forecast cash burn of $21m in 2010, the company’s financial outlook is not bright, and whilst it did obtain a committed equity financing facility to sell up to $35 million of stock to Commerce Court Small Cap Value Fund over two years, even more valuable would have been multimillion-dollar licensing fees on better terms and with fewer strings attached. In October 2009, analysts at Wedbush said they believed budiodarone could have commanded a $40m upfront payment.

It is far from clear what strategic options the company is considering. With no partner in sight for its AF or anticoagulant drugs, it would be surprising if an outright sale of the company were not on the table. As a listed company, it makes an attractive target for a reverse merger by private companies wanting access to the public equity markets, a trend that has increased as smaller companies have struggled with difficult markets. According to data from EvaluatePharma the number of reverse takeovers has more than doubled from six in 2008 to 14 in 2009.

In the shadow of a blockbuster

However, white knights for budiodarone or the company may be in short supply as it is not clear that ARYx’s leading drug is superior to products already on the market. If it were to be approved and hit the market on its forecast launch date of 2013, budiodarone would trail by four years the launch of Multaq, Sanofi-Aventis’ AF drug that launched in 2009 and is forecast to achieve nearly $2bn in sales in 2014.

The phase II trials for budiodarone showed it to be superior to placebo in reducing AF burden, or time spent in AF, among patients with pacemakers and paroxysmal AF. It did not, however, test whether the drug prevented cardiovascular hospitalisations, nor whether it was effective among patients with persistent AF or atrial flutter, as Multaq is.

However, ARYx’s marketing pitch is as a developer that makes safer drugs through use of its RetroMetabolic Drug Design technology that repurposes older molecules to eliminate known safety issues. As budiodarone is based on amiodarone, used in the US to treat AF for 25 years with numerous documented side effects, the hope is that the newer drug will achieve the same efficacy with fewer side effects. Compared with amiodarone, budiodarone undergoes rapid metabolism via plasma and tissue esterases, with the goal of reducing tissue accumulation and toxicity.

A safer drug might be able to differentiate itself on the market. However, with Multaq already on the market with a black-box warning among patients with congestive heart failure, and with the safety profile of the base molecule, the FDA may ask for head-to-head trials of budiodarone before it would consider approving it, an expensive and high-risk venture for a small, cash-strapped company.

ARYx appears to be cursed by one product that was not quite effective enough and one product that may be too late to market. Now it is waving to the lifeguards in the hope that somebody will rescue it before it drowns.

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