Flipping for the win at Strongbridge Biopharma

Strongbridge's deal with Novo Nordisk over Macrilen tops up the former's cash pile and pays off debt just 10 months after the company licensed the project from Aeterna Zentaris.

Executives at Strongbridge Biopharma must watch a lot of TV programmes about home improvement, because they have just pulled off the biotech equivalent of a real estate flip – selling Macrilen to Novo Nordisk for $182m up front just 10 months after licensing the product from Aeterna Zentaris for $24m.

The transaction will save Strongbridge the cost of marketing the adult growth hormone deficiency treatment, which was threatening to drain resources just as the company is trying to get its Cushing’s disease project Recorlev through regulatory approval. Strongbridge shares closed up 58% yesterday, partially reversing the substantial decline in the group's valuation this year; it tapped investors once with a share offering, but had to pull another citing adverse market conditions.

Opportunity knocks

Strongbridge executives said they had not been shopping Macrilen, a growth hormone secretagogue receptor agonist, but rather that the transaction was an “opportunistic” one that emerged because Novo believed that the product would pair well with its own growth hormone therapy, Norditropin.

The deal will relieve Strongbridge from the duty of paying for its Macrilen sales team – its selling, general and administrative line had surged 80% to $47m for the first nine months of 2018, following the January deal with Aeterna. To fund the 23-person team, Novo will pay $20-25m over three years.

Moreover, the $145m in cash and $36.7m equity investment from Novo has allowed Strongbridge to retire $79m in debt, part of a debt facility the company restructured when licensing Macrilen to allow it to borrow up to $100m, as well as boosting its cash reserves. At September 30 Strongbridge had $67m in the bank, and executives gave a pro-forma number of $148m after accounting for the Novo cash and debt retirement.

The January deal required Strongbridge to pay 15% royalties on annual sales up to $75m and 18% for more than that. In addition milestones are due, starting at $4m if Macrilen brings in $25m in annual sales. From Novo, Strongbridge will receive royalties described as “low double digits” and falling to single digits.

On the question of how future royalty payments would be structured, Strongbridge's finance chief, Brian Davis, said: “All rights and obligations are Novo’s upon closing. The royalties to us are not impacted by the royalties to Aeterna Zentaris.” If his assertion is correct Novo could end up paying total royalties in the high 20% range in addition to the sales force funding, a steep price for a project forecast to reach $64m in sales in 2024, according to EvaluatePharma's consensus of sellside analysts.

As for Novo, the deal is an example of a bolt-on that will allow the Danish group to mitigate falling sales in other areas, said its chief executive, Lars Fruergaard Jørgensen, on a media call today to discuss its third-quarter results. Novo's profit disappointed but the company's stock was up 2% this morning as it said it planned to shed a total of 1,300 jobs in total this year. Many of the cuts had already been announced as part of a previous restructuring (Novo casts its net wider but shrinks in the process, September 19, 2018). 

Accelerated approval?

Strongbridge now has other priorities. The company is pressing on with its plans to discuss a regulatory submission for Recorlev with the FDA in early 2019. Results from the phase III Sonics trial in endogenous Cushing’s disease had executives hoping for accelerated approval (Strongbridge steps on the gas with Cushing's project, August 9, 2018).

Full data from the single-arm trial were recently released at the European Neuroendocrine Association meeting: at the end of a six-month dose maintenance phase 30% of 94 patients recruited into the trial had seen their 24-hour urinary free cortisol levels normalise. The main safety concern is liver enzyme elevations – 11% of patients experienced ALT elevations of >3x the upper limits of normal. This puts the project on a par with Novartis’s Signifor, Recorlev’s main rival.

A confirmatory placebo-controlled trial of Recorlev, called Logics, is under way. Strongbridge said it had expanded the population from 35 to 54 patients, and readout has now been pushed back to late 2019 instead of early in the year.

In many cases, trial expansions and delays can be taken as bad news. However, to take on the might of Novartis – which has a clinical-stage project in osilodrostat in addition to Signifor – Strongbridge will need a robust data package.

Should the FDA want data from Logics before making a decision, Strongbridge will be glad for the extra cash from the Macrilen deal.

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