Emisphere on the brink

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Thank you and good night. While this might not be the signing off epitaph for Emisphere Technologies, it is hard to think what else the company might say following yesterday’s news that its lead product, SMC021, had failed in phase III osteoporosis trials, thereby destroying its last material chance to turn its ailing fortunes.

Unsurprisingly, with yet another failure under its belt the share price reaction was savage. The troubled stock, which had already fallen 33% this year helped by a similar trial disappointment in osteoarthritis last month, fell by 75% yesterday to a new record low of 39 cents. With only approximately $4.7m in cash, a sum the company estimates will only last it until May 2012, and little else in its pipeline to drive short-term value it might be finally time for Emisphere to throw in the towel (Emisphere continues to run out of chances, October 17, 2011).

No cigar

In what was its make or break trial SMC021, which uses Emisphere’s Eligen technology, failed to show statistically significant difference between its ability to prevent new vertebral fractures at three years compared with placebo; it also failed on a secondary endpoint of preventing non-vertebral or other clinical fractures over three years.

In its stock market statement Emisphere said, however, that those taking the drug overall experienced fewer vertebral fractures than expected.

While some might hold out a slender hope that development partner Novartis might try to revisit the drug, which in all fairness did show some benefit, even if it was not statistical - in an era when companies are cutting their R&D costs and portfolios more readily it is unlikely that the programme will progress much further.

Even if Novartis does decide to carry on, by the time it has completed the required data analysis of all the phase II and III osteoarthritis and osteoporosis trials needed to green light further studies, Emisphere will have almost certainly run out of money.

Limited options

Some have suggested that equity restructuring could be an option for Emisphere, but it is hard to see how that might be achieved. In its last fundraising attempt the group only managed to get $7.5m, and with yet another failure behind it and little else in the clinic to draw on, willing investors will be in very short supply.

The company’s financial situation means that the debt markets are almost certainly closed to it and as for cost cutting it is hard to imagine that Emisphere, which has undergone several clinical setbacks is not already running with a skeleton crew of staff on a shoe-string budget.

To make its precarious situation worse, Emisphere has a $31m convertible loan due next September. The group was counting on positive data from SMC021 and the milestones that it could bring to either refinance the debt or covert it into an equity price of $3.78.

Therefore, the most likely option for the group now is bankruptcy. If Emisphere does declare itself bankrupt some of its partners, Novo Nordisk in particular, might pick up the group’s Eligen technology, which seeks to reformulate injected medicines into oral or inhaled therapies, in order to continue research into reformulation of some of its insulin products and production of an oral GLP-1 drug. But as Eligen has so far had more misses than hits this is not a guaranteed option.

Reversing to go forwards

Emisphere could, however, live on through its one remaining asset, its stock market listing. Although reverse mergers have declined since the height of the financial troubles in 2008/2009, it is still a viable option for some private companies looking to go public (Nabi's demise and cash could attract IPO hopefuls, November 11, 2011).

Although Emisphere is lacking an essential ingredient to generate widespread interest - cash - it still might be a cost effective way for a well financed company seeking to make its stock market début. Emisphere’s goodbye might be someone else’s hello.

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