With U.S Approval, EUSA Set To Prove Value of Transatlantic Spec Pharma Model – And Orphan Focus

Nov 22 2011

Executive Summary

U.S approval of orphan drug Erwinase puts specialty pharma firm EUSA on new growth trajectory, showing the value of its strategy to build a transatlantic infrastructure for niche products – and transitioning it from a commercially-focused to a development-capable organization.

EUSA Pharma Ltd.’s investors promised back in April 2011 that the company’s acute lymphoblastic leukemia drug Erwinase (asparaginase Erwinia chrysanthemi) had the potential to be a “company-maker” drug for the group – by which they meant an asset that could double or triple the firm’s revenues and set it on a new growth trajectory. Following Erwinase’s Nov. 18 FDA approval, Petri Vainio, managing director at private equity firm and founding investor Essex Woodlands Health Ventures, is sticking to his guns.(“EUSA Wins U.S. Approval of Erwinase; Shipping To Start Week Of Nov. 20” — “The Pink Sheet” DAILY, Nov. 18, 2011) “This [approval and subsequent launch] will dramatically accelerate EUSA’s revenue growth rate and improve the company’s profitability,” he said, “giving it the resources to build a rapidly-growing, profitable specialty pharma company.”

It’s a goal that several of the latest-generation of Europe’s in-licensing-focused biopharma firms are striving for, but which few have achieved. Repeating the spectacular success of Shire PLC, which grew from its U.K roots to become an international biopharma firm with a market capitalization of over £11 billion ($17 billion), has proven harder than anticipated (“Specialty Pharma In Europe: Is Long-Term Independence Still An Option?” — IN VIVO, April 2011).
Granted, Erwinase isn’t going to be a huge drug, even by orphan standards: it is approved to treat a minority of ALL patients that are hypersensitive to the standard treatment, aspariginase derived from E. coli. That means about 450-600 children in the U.S. per annum, according to EUSA’s CEO Bryan Morton. But at approximately $150,000-175,000 per patient on average – about double the price of the drug in Europe, where it has been available in some markets for more than a decade – it should still provide EUSA, whose sales currently are just below $100 million, with the boost it and its investors have been waiting for. “We’ll grow more than 15-20%” per annum as a result of this approval, declared Morton, whose goal is for EUSA to reach approximately $300 million in annual revenues (and a $2 billion market capitalization) by the middle of the decade.

From “Specialty Pharma” to “Specialty Development”

As importantly perhaps, the approval of Erwinase marks EUSA’s transition from a purely commercially-focused organization committed to marketing in-licensed, and usually approved drugs, to one that can also navigate late-stage development and approval – what Morton calls a “specialty development” company. EUSA acquired Erwinase via its acquisition of French firm OPi SA in 2007, and although the drug was already approved in some European markets, its U.S development was still Phase II [See Deal]. Getting it past the FDA with a favorable label hasn’t been cheap or easy, Morton conceded (the U.S regulator approved only 35 new medicines in the year to October 2011, although that was higher than most previous years). But the achievement should better position EUSA to attract further development-stage biotech products “from companies out there with assets, but no-where to go for funding,” Morton argued.

Besides its portfolio of ten specialist marketed drugs in oncology, oncology supportive care and critical care, EUSA boasts a credible U.S commercial infrastructure as well as a pan-European presence. This transatlantic philosophy – driving the company from inception in 2006, and provided the basis for its name – sets EUSA apart from most of its European-based peers which built infrastructure in Europe first, then tried (usually unsuccessfully) to tackle the U.S (“European Specialty Pharma In Transition: Is A U.S. Presence Necessary?” — “The Pink Sheet,” Jan. 17, 2011). Also unlike some if its peers, EUSA has emphasized building up its own infrastructure and rep network (albeit on the back of a vigorous acquisition activity), rather than relying on contractors; the company now claims to sell into 80 countries, even though it has just 200 people.

Low Commercialization Costs, High Expansion Potential

This broad geographic presence in theory maximizes EUSA’s in-licensing potential (although thus far, most of its products have come via acquisition). It also minimizes the additional costs required to support Erwinaze in the U.S, where the drug has been available since 2006 on a case-by-case basis through a compassionate means program, and where “lots of people [KOLs] already know about the product,” said Morton. Erwinase will simply be added to products like prostate cancer imaging agent ProstaScint (capromab pendetide) and Quadramet (samarium Sm 153 Lexidronam), indicated for pain relief among bone cancer patients, that EUSA reps are already promoting in hospitals, noted Morton.

And while Erwinase’s approved indication is small, this may only be the beginning, according to Morton, who claims that the drug’s market could double with the addition of patients who don’t overtly show an allergy to regular treatment with aspariginase, but in whom the standard of care (SOC) is nevertheless inactive. The requirement for further trials means an approval isn’t likely for another couple of years, although Morton confirmed that a number of studies in SOC-refractory patients were underway. Still, with some markets like Germany already routinely testing ALL patients for silent inactivation, and perhaps using Erwinase off-label, other countries may move in the same direction. Meanwhile, EUSA will use its U.S BLA to seek further European country approvals for Erwinase in its first indication via the mutual recognition process (for now it’s registered only in the U.K, Portugal, the Netherlands, Ireland and Austria).
EUSA is confident its high-price strategy won’t meet resistance from payers. Jim Mitchum, EUSA president of the Americas, said that the company anticipates the drug will be “very well reimbursed”. He probably takes some confidence from Europe, unusually, where Erwinase’s price has almost doubled over the last year, according to Morton. He claimed the U.K Department of Health in February 2011 approved a 103% price increase for the drug, albeit to a level that’s still under £100,000. Price increases of any size are almost unheard of throughout Europe these days, but this situation likely took into account the drug’s tiny population (50-75 patients in the U.K). It also likely took into account the fact that only one course of therapy with Erwinase is required per patient. The drug, given as a three-times-a-week injection, with treatment duration dependent on disease severity, then allows recipients to complete their ALL treatment regimen, which is designed to deliver a cure for the disease (requiring no later treatment) and which leads to a post-treatment survival rate of up to 90%.

Morton claimed that even without further deals, EUSA could get close to its $300 million revenue goal – assuming an expanded indication for Erwinase, robust reimbursement, and the success of pipeline candidate Leukotac (inolimomab), a murine antibody in Phase III trials for steroid-refractory, acute graft versus host disease following hematopoietic stem cell transplantation. This candidate’s orphan indication means it would fit well into EUSA’s existing portfolio.

But even before EUSA hits these future milestones, the five-year old company may already appeal to larger pharma buyers, particularly as such players begin to embrace orphan drugs thanks to their perceived lower regulatory and reimbursement risk. The company has been profitable, on a cash-flow basis, since late 2010 according to Morton.

And meanwhile EUSA’s investors – which have together ponied up over $275 million to support the firm’s rapid acquisition-based infrastructure build-up over the last six years—may be starting to get itchy feet, particularly given the current uncertain financial climate. With Erwinaze’s approval in the bag, EUSA’s price-tag just went up, perhaps enough to provide sufficiently attractive returns to backers that may not wish to take on further risk for what may prove only relatively incremental reward. Morton has made money for investors before: he founded Zeneus Pharma in 2003 from the $120 million acquisition of Elan’s European sales and marketing business and sold it two years later to Cephalon (now Teva Pharmaceutical Industries Ltd.) for $360 million [See Deal].
Other strategic options are open to EUSA, which has hired Morgan Stanley to help consider them. An IPO is unlikely, but possible: fellow cancer-focused specialty pharma Clovis Oncology Inc. managed in November 2011 to raise $124 million, albeit at the low end of its price range [See Deal]. A reverse merger into a listed shell company is a neat alternative route to the public market, but it’s not clear that that’s the place to be right now. And despite recent successes including that of cancer group Puma Biotechnology Inc., created in October 2011 (which went on to license Pfizer Inc.’s Phase III neratinib), such maneuvers can be complicated, requiring approval from a whole other set of (often disgruntled) shareholders.

Cephalon bought Zeneus for its European infrastructure. EUSA’s value may lie as much, if not more, in its drug portfolio as in its infrastructure, raising the question as to whether its transatlantic scope will be the true value driver “European Spec Pharma Testing New Niches: Emerging Markets, Novel Products” — “The Pink Sheet,” Mar. 28, 2011. But there’s no question that EUSA’s international presence broadens its growth opportunities if it remains independent, and allows it to capitalize on the significant transatlantic exchange of scientific and treatment protocols within the rare diseases community. It also broadens the list of potential buyers to include, for example, non-Western drug firms seeking a ready-made, coherent niche-drug focused organization spanning the U.S and Europe, complete with on-the-ground experts in commercialization as well as development, approval and reimbursement.
Morton’s aiming for double-digit growth every year for the next five years and maintains his ambition to build another Shire. Erwinaze’s U.S. approval takes him a step closer to that, but also, perhaps, to becoming part of another’s hunt for growth.

By Melanie Senior / Email the Author / “The Pink Sheet” DAILY Nov. 22, 2011