West Coast Editor

Privately held Stiefel Laboratories Inc.'s acquisition of Connetics Corp. for $640 million represents a happy ending - or beginning - for the firm previously known as Connective Therapeutics Inc.

Connetics began as a biotech firm spun out of Genentech Inc. in 1993, but suffered a Phase III blowup six years ago and turned its efforts to specialty pharma.

"The company was very nimble and came up with a new business model" focused on dermatology, noted Jim Goff, senior director of investor relations for Palo Alto, Calif.-based Connetics.

Stiefel, of Coral Gables, Fla., is paying $17.50 per share in cash, a 62 percent premium to Connetics' average closing price for the past four weeks. The deal is expected to finalize late this year or early next.

Connetics' stock (NASDAQ:CNCT) closed Monday at $17.07, up $5.36, or 45.8 percent.

Relaxin, which the firm had been developing for the autoimmune disorder sclerodoma, failed to meet the primary endpoint of a 24-week, 239-patient trial in October 2000, and the news sent Connetics' shares tumbling by about 80 percent. The company turned its attention to such products as Olux (clobetasol propionate) and Luxiq (betamethasone valerate) foams, marketed for scalp dermatoses. (See BioWorld Today, Oct. 10, 2000.)

"We have not shared a lot of detail around the products in our pipeline," Goff said, though the firm is developing 10 products.

In June 2005, the FDA issued a non-approvable letter regarding the firm's Velac, a combination of 1 percent clindamycin and 0.025 percent tretinoin in a gel to treat acne. The only issue raised in the non-approvable letter was a positive carcinogenicity signal that was detected in a TgAC mouse dermal carcinogenicity study.

"We've talked to the agency, and we have a development path forward," Goff said.

Connetics recently completed a Phase III trial with Extina (ketoconazole) foam for seborrheic dermatitis. Extina's non-approvable letter due to insufficient clinical data came in November 2004, and the company plans to resubmit by the end of this year, Goff said.

Verdeso (desonide) foam, a low-potency topical steroid for atopic dermatitis, formulated with 0.05 percent desonide in Connetics' VersaFoam-EF vehicle, won approval in September and will launch this quarter, he said.

"It's always difficult to comment on the timing of M&A activity," Goff said of the Stiefel deal, and deferred most questions to a proxy statement due in the coming weeks. The merged company will have upward of 3,500 employees worldwide, with more than 30 subsidiaries and sales in more than 100 countries. Founded in 1847, Stiefel is the world's largest independent pharmaceutical company specializing in dermatology. Connetics' 400 employees, including 200 in sales, are "expected to remain in place, certainly for the time being," Goff said.

The firm has a historical link with strong-selling Actimmune (interferon gamma-1b), approved for chronic granulomatous disease and severe, malignant osteopetrosis, from InterMune Pharmaceuticals Inc., a spin-out from Connetics in the spring of 1999. (See BioWorld Today, April 30, 1999.)

InterMune is testing Actimmune against idiopathic pulmonary fibrosis, too. Though the first Phase III study with Actimmune against IPF failed to hit statistical significance, and the drug has not worked against ovarian cancer, hopes are higher for another trial, called INSPIRE. InterMune completed patient enrollment in April, and Wall Street expects to see data in the first quarter of 2008. (See BioWorld Today, Feb. 6, 2006.)

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