Medicines Company scoops up drowning Targanta

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This week saw The Medicines Company step in remarkably swiftly to save Targanta Therapeutics from what would have probably been a slow death, following the resounding failure of its antibiotic oritavancin to impress the FDA and win a marketing license late last year.

Targanta did not have enough cash to complete another phase III trial and was going to struggle to raise it, whilst The Medicines Company has managed to pay relatively little upfront for a late-stage candidate. Without an improvement in the funding environment these sorts of "distress-sell" deals are expected to become more common, and as recently highlighted by EP Vantage, there are plenty of other candidates likely to find themselves in need of a knight in shining armour (One-product companies currently on a knife edge, November 27, 2008).

Targanta only received its complete response letter from the FDA in December, which advised another pivotal trial would be needed to win approval. The fact that a takeover offer emerged so quickly could mean that a licensing deal was already being discussed.

Whatever the history, The Medicines Company will have got itself a bargain if oritavancin eventually makes it to market, and whilst failure will be disappointing, the cost should not be too high.

Pay for success

Under the deal an initial $2 a share has been offered, worth $42m. Whilst that is a decent premium on Targanta’s $24m market cap the day before the offer was announced, it compares with a $163m valuation prior to the regulatory disappointment. Further payments are possible on the achievement of certain milestones, such as the US label, the timing of European approval and reaching a $400m sales milestone. If the maximum payout is achieved the deal would be worth $138m.

As such, aside from the cost of another phase III trial, at this stage the downside for The Medicines Company is fairly limited. In December, Targanta suggested the trial would cost at least $30m, and would probably take two years (Targanta takes on a challenge and vows to continue with oritavancin, December 10, 2008).

Strategically, oritavancin would fit well with The Medicines Company’s existing hospital-facing portfolio of drugs, comprising the anticoagulant Angiomax, recently-launched hypertension treatment Cleviprex and, in a couple of years should it win approval, anti-clot drug Cangrelor.

Lead drug Angiomax is forecast to generate peak sales of $439m in 2010 before losing patent protection, therefore finding a replacement is high up on the agenda at The Medicines Company.

Remains to be seen

Whether the new antibiotic will fit the bill remains to be seen, and if a pivotal trial does take two years, it will not reach the market before Angiomax generics. Questions raised by the FDA, regarding some evidence of lower efficacy compared with vancomycin in certain cases and a higher discontinuation rate among the oritavancin patients, are a concern.

However, the urgent need for new, effective antibiotics to treat superbugs such as MRSA and C. difficile means the potential is evident.

Targanta shareholders will clearly be disappointed by this outcome, but given the state of the financial markets and the very slim chance of the group raising extra cash, they probably could not have hoped for more. Meanwhile, in a couple of years time The Medicines Company might be thanking the credit crunch for an opportunity that otherwise would not have presented itself, certainly at this price.

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