Sepracor Inc. entered a potential $155 million deal with GlaxoSmithKline plc covering its insomnia product Lunesta in Europe and elsewhere, about six weeks after it filed for European approval of the drug.
Sepracor is entitled to a $20 million up-front payment in the deal and up to $135 million more in potential milestone payments, as well as escalating double-digit royalties on resulting sales. London-based GSK got commercial rights everywhere except the U.S., where Sepracor already sells the product; Japan, where Eisai Co. Ltd. licensed rights in July; and Mexico and Canada.
The deal follows the company's second-quarter earnings report in July in which it reported significantly lower earnings than anticipated and lowered its guidance for the year, sending shares down that day 28.7 percent to $27.29. The stock (NASDAQ:SEPR) gained 85 cents on the news Tuesday to close at $28.24.
"They could not have found a better partner than GlaxoSmithKline for the European market," said Biren Amin, senior vice president at Stanford Group Co.
Amin told BioWorld Today, however, that the $20 million up-front payment suggested its was a "low-risk" deal for GSK, with most of the deal's potential back-end loaded, or triggered by late-stage events such as approvals and sales thresholds.
Angela Larson, a specialty pharmaceuticals analyst at Susquehanna Financial Group, agreed that GSK was an attractive partner for Lunesta, and she liked the royalty rate attached to the deal. "What we don't know," Larson told BioWorld Today, "is when the $135 million in milestone payments are timed to hit. Those are difficult to include in our forecast."
Sepracor, of Marlborough, Mass., did not break out further the milestone potential. A spokeswoman there did clarify some confusion generated by the press release, saying the initial payment of $20 million was included in the deal's $155 million potential. That leaves $135 million more in potential payments to Sepracor.
Lunesta (eszopiclone) would be marketed by GSK in its territories as Lunivia. In addition to milestone and royalty payments, Sepracor would be compensated for supplying product to GSK. Sepracor said approval in Europe is targeted for the second half of 2008, and it estimated the European insomnia market at $500 million. The recent deal with Tokyo-based Eisai covering Japan included an undisclosed initial payment along with potential milestones and royalties, with Sepracor targeting approval there in 2010 or 2011.
Lunesta was approved in the U.S. in late 2004 and launched in April 2005. Sales of the insomnia drug were $566.8 million in 2006. Second-quarter 2007 sales were $143 million, up 2.7 percent from the year-earlier quarter.
Larson said she did not believe Lunesta sales are being hurt by the approval earlier this year of generic Ambien, but rather has "just hit the top of its growth curve." She said the deal with GSK provided a long-term growth opportunity, but "people are still concerned about the near term" due to pressure on the company's respiratory franchise.
Amin described Lunesta sales as "flat" and attributed that to a slowing market and to one that's "highly dynamic," with patients switching to and from Lunesta, from Sanofi-Aventis Group's Ambien and other products, and also from pressure from the generic version of Ambien, which health plans favor due to its lower cost.
The respiratory franchise at Sepracor is led by Xopenex inhalation solution, a short-acting beta-agonist for the treatment or prevention of bronchospasm in patients with reversible obstructive airway disease. Its revenues for the second quarter were $104.9 million, down from $115.7 million in the 2006 period. Sales are expected to remain under pressure in the near term due to reimbursement issues.
Sepracor has products in early clinical trials and preclinical development for depression and anxiety, and other indications. It reported having $861 million in cash and investments as of June 30, with net income of $6.1 million in the second quarter.