Shire loses with Dermagraft and wins with Firazyr

Shire is having an up and down sort of day. While the failure of its newly acquired wound healing product, Dermagraft, to move into a potentially valuable new use is a set back for the company’s attempts to build a regenerative medicine presence, US approval for Firazyr comes as a relief.

Already on the market to treat diabetic foot ulcers, the British pharma group has decided to shelve plans to seek approval for Dermagraft in venous leg ulcers; although few held high hopes for the indication it would have helped justify the $750m Shire spent buying the product earlier this year. Meanwhile a green light from the FDA on its hereditary angioedema product means the company can try to start making good on 2008’s $455m purchase of Jerini, and protect its reputation as a canny deal maker.

Lack of completion

Quietly announced yesterday evening, news that leg ulcers will not be pursued in the wake of data from a phase III study prompted Shire’s shares to drop as much as 4% in London, before recovering slightly on the Firazyr news, but remain 3% down today at £19.46. Meanwhile its US-listed ADRs are down 4% since news of the Dermagraft failure broke yesterday.

Although the product achieved a higher closure rate when combined with compression therapy than compression therapy alone, the primary endpoint of complete healing at 16 weeks, requested by regulators, was missed.

This was a high hurdle to clear and one that the product stumbled at once before, in a trial run by previous owners, Smith & Nephew. With a large proportion of these wounds treated successfully with compression therapy alone, Dermagraft was going to need to show highly impressive results to justify both approval and reimbursement, and even then was likely to be restricted to very severe cases.

Analysts valued the indication widely, from $200m to $750m in peak sales, although few were prepared to model revenues ahead of clinical success.

Justification needed

Since the acquisition of Advanced BioHealing in May, Shire has billed the new use as a potentially very valuable opportunity (Shire finds its fourth way, May 18, 2011). And although the company argues the acquisition cost is warranted by the diabetic foot ulcer indication alone, the new arm to its business is expected to receive further cash injections to expand manufacturing and commercial capabilities. Another string to Dermagraft’s bow would have helped justify these investments.

Shire only closed the acquisition of the US company at the end of June, and has revealed little about other products in the pipeline, or plans to sell Dermagraft outside the US. But the pressure is on now for the product, a regenerative bio-engineered skin substitute, to meet expectations in diabetic foot ulcers.

Always a much larger opportunity, Shire has said it competes in a $3bn market and enjoys a 5% share, with strong potential to grow. Analysts in the main agree – after generating $147m last year consensus for sales in foot ulcers in 2016 stands at $344m, according to EvaluatePharma’s sales by indication data.

At the time of the acquisition, UBS analysts said the purchase price would be justified if Shire delivered peak sales of $360m in diabetic foot ulcers.

Needs to deliver

With the jury still out on the company’s other recent acquisitions, Movetis and Jerini, the company also now needs to deliver on the promises of Advanced BioHealing.

While the product that came with Movetis, constipation treatment Resolor, is struggling to win reimbursement in Europe, news this afternoon of a green light for Firazyr was expected but is still encouraging.

Forecasts for the product, launched in Europe in 2008, currently only stand at $175m for 2016. Shire will have to work hard to extract the potential from this product. It has to pay what is estimated to be a 13% royalty on sales to Sanofi – Jerini licensed the product from Aventis in 2001 - and it also owes undisclosed royalties to Abbott Laboratories on North American sales of the drug for the first 24 months following launch, a legacy of a co-development deal between Jerini and Kos which ran between 2005-2007.

As such, the drug probably needs to do a lot better than those forecasts to start justifying the cost of buying Jerini.

However, it did importantly win approval for subcutaneous self-administration, giving Firazyr a potentially valuable edge over rival products. But it is entering a crowded market and Shire will have to fight hard (Adcom vote gives Firazyr new momentum, June 24, 2011).