Why some biotechs should never launch a drug

Acacia just became the latest biotech to suffer the curse of seeing one of its drugs approved.

With two US complete response letters under its belt Acacia probably thought that managing to get Barhemsys approved was the hardest thing it would have to do. Wrong!

Today the full horror of Acacia’s attempt at a solo Barhemsys launch was laid bare as the group asked shareholders to agree to a takeover by Eagle Pharmaceuticals – at a valuation an astonishing 30% below its stock’s close on Friday. Acacia is not the first to suffer the curse of a drug approval, something that appears to have brought it to the brink of insolvency.

Indeed, the threat of going out of business lies at the heart of the company’s plea to investors today. Acacia said 2021/22 sales were lagging behind expectations – because Covid – and that to reach breakeven in 2025 it now needed at least $115m of extra cash, which it could not raise without crippling dilution.

Insolvency procedure

Should the proposed takeover by Eagle not be approved “this could lead to ... an insolvency procedure”, states Acacia, whose chief financial officer left five days ago. Yet at present the group has support for the Eagle deal from only its three largest investors, plus management, which together represents less than half its share capital.

Between Barhemsys’s February 2020 approval and Friday Acacia had lost over 60% of its value. Now the group is asking investors to agree to a deal that is 30% lower still, amounting to a valuation of around €95m ($104m), of which only €72m is in cash.

It is scarcely believable that as recently as mid-2021 analysts at Edison Investment Research were still valuing Acacia at €1.3bn, according to the commissioned research firm’s latest note, in a profile webpage on Acacia said to have been updated on March 25.

Edison had been bullish throughout the Barhemsys approval debacle, insisting that the drug was on track as a US filing for post-operative nausea and vomiting was hit by two CRLs in 2018-19. Each was apparently the result of deficiencies at a contract manufacturer.

Just before the drug was approved at last Acacia bought rights to Cosmo’s ByFavo, an ultra-short-acting sedative/anaesthetic, in a deal intended to serve as a springboard to US expansion. In the event this proved to be wide of the mark, as the Covid pandemic prompted broad delays to elective surgery procedures, wiping out demand for both drugs.

Handy excuse?

Still, the pandemic looks at least partly like a convenient excuse. Barhemsys’s disastrous development path before Covid hints at a troubled asset, a view further supported by the absence of any big partner willing to step up and shoulder its commercial burden. And ByFavo too has a long and tortuous development history, having been passed from Cenes to Paion to Cosmo before ending up with Acacia.

At least Acacia can argue that it is not the only biotech to have experienced solo launch blues – think Aurinia’s Lupkynis and Ascendis’s Skytrofa, to give two recent examples. Analysis frequently suggests that biotechs attempting solo drug launches will face significant obstacles to success.

Can Eagle now do any better? Maybe not, but then this company’s exposure will be relatively minimal given the small outlay.

Last week on a financial earnings call Cosmo’s chief executive, Alessandro Della Chà, mused: “In the development stage you believe that it's difficult to develop the project. But then once the drug is approved you immediately realise that the most difficult part is to sell it.”

Thanks to the ByFavo deal Cosmo owns 18.5% of Acacia, and Mr Della Chà is a non-executive director. Whatever could he have been thinking of?

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