(Adds Portfolio.hu viewpoint, analyst comments) Hungary’s Gedeon Richter Plc. and US drug multinational Watson Pharmaceuticals, Inc. have announced on Thursday that PregLem, S.A., the wholly owned subsidiary of Richter has entered into an exclusive licensing agreement with Watson’s subsidiary, Watson Laboratories, Inc. to develop and market EsmyaTM (ulipristal acetate) in the U.S. and Canada.
In European studies, Esmya has been shown to be an effective and safe treatment for uterine fibroids (myoma), a condition that affects millions of women worldwide. The product is currently in late stage development in Europe and Watson expects to initiate U.S. Phase III clinical studies in 2011.
Under terms of the agreement, Watson will pay PregLem a USD 17 million license fee and will pay royalties based on sales in the U.S. and Canada. Watson will make additional payments based on the achievement of certain regulatory milestones. The companies will also collaborate on additional Esmya formulations, jointly sharing the development costs.
“I am convinced that via the acquisition of PregLem and the commercialization of Esmya, we will create increasing value for our investors“, said Erik Bogsch, Managing Director of Richter.
“Esmya has successfully completed clinical trials in Europe, so we have significant clinical knowledge and confidence in the development requirements as we move to late-stage trials in the U.S. and Canada," said Ernest Loumaye, CEO and Co-Founder of PregLem.
“Esmya represents a significant strategic addition to our portfolio of women’s health products and is potentially the first effective treatment for uterine fibroids in more than 20 years," said Paul Bisaro, Watson’s Chief Executive Officer.
“The agreement enables us to maximize our expertise in developing, registering and commercializing significant therapeutic advances in diseases treated by OB/GYNs. It also forms the foundation for us to further develop a franchise of products and indications in the uterine fibroid category. We look forward to further expanding our relationship with Gedeon Richter and PregLem for future opportunities between our companies," he added.
Uterine fibroids (myomas)
Uterine fibroids (myomas) are the most common benign, solid tumors of the female genital tract, affecting between 20 and 25 percent of women of reproductive age. The condition is characterized by excessive uterine bleeding, anemia, pain, frequent urination or incontinence, and occasional interruption of fertility.
Approximately 300,000 surgical procedures are performed annually to address uterine fibroids, including approximately 230,000 hysterectomies. GnRH agonists are the only approved treatment for uterine fibroids when associated with anemia but their use has been relatively limited due to side effects resulting from the suppression of estrogen to castration levels (hot flushes, depression, mood swings, loss of libido, vaginitis and loss of bone mineral density).
Today’s announcement is yet another evidence that Richter’s management is dead serious about grabbing growth potentials. The two acquisitions it has made this year and the agreements it has sealed since then also reaffirm the expectation that Richter’s profit can increase markedly in 2012-13 and beyond partly as a result of its own organic developments (Cariprazine) and acquisitions (primarily thanks to PregLem).
The Watson deal is positive for several reasons:
- Richter can enter the huge US market, which is extremely tough on the sales side, with PregLem’s key product while leaning on the expertise of a local partner; - Richter is to receive royalty as well as milestone payments from Watson; - the two companies will share development costs on Esmya and other indications in the uterine fibroid category, which reduces risks for Richter at developments.
The question is why doesn’t Richter’s share price rising on such good news. We believe the reason should be sought in short-term uncertainties. Hungary’s Economy Minister, György Matolcsy, has said this week that the government aims to save HUF 100 bn from the HUF 340 bn drugs budget; and it is obvious that the producers will get the short end of the stick here, no matter how the cabinet plans to achieve this goal. Note that a HUF 100 bn saving would equal a 30% spending cut!
Additionally, as the Fiscal Council’s latest report showed yesterday, a law amendment has stripped drug makers from the right to deduct R&D expenses from the 12% special surcharge they must pay. Should this legislation remain as it is, both Richter and Egis could expect their profits to be dented markedly.
“Esmya has successfully completed clinical trials in Europe so we believe there is a good chance that the Phase III studies will ultimately end with an FDA approval in2012. The US$ 17m license fee could add HUF 3.6bn to Richter’s EBIT and increase the bottom line by 5.9% in 2011."
“The subsequent milestones and royalties from Watson’s North American sales that can start late 2012/early 2013 could mean a substantial boost to Richter’s bottom line as well. We expect a positive trading reaction."
Peter Verdult, Morgan Stanley, London
“Assuming a launch in 2013, an 18% royalty rate and $200m peak sales implies an NPV contribution of HUF2,500 (5% uplift to our DCF valuation). Esmya offers innovation, given most patients do not respond to current oral contraceptive treatments, with GnRH agonists effective but posing significant side effects (induces menopause, loss of bone mineral density)."
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