As word spread of newly disclosed details regarding New River Pharmaceuticals Inc.'s deal for NRP104 with Shire Pharmaceuticals plc, so did the rumblings about a possible takeover by Shire - which gave up more in the potential $505 million pact than many observers had speculated.

"It was redacted in the original agreement," noted Krish Krishnan, chief financial officer and chief operating officer for New River. But when the FDA's panel of abuse experts said NRP104 for attention deficit hyperactivity disorder ought to be placed in the same Schedule II category as Adderall XR, "we thought the impact should be known to investors."

The impact wasn't much.

In fact, as Wall Street - already pleased about the approvable letter the previous Friday - inspected New River's SEC filing last week, the company's stock rose. Shares closed 13 percent higher that day, having already taken a 60 percent ride on the FDA letter the day before. UK-based Shire's depositary shares, on the other hand, sank, after sitting shotgun during New River's ride the previous day.

Regulators declared NRP104 capsules approvable for children ages 6 to 12, based on data from the 52-patient Phase II trial and the 290-patient Phase III trial. But Shire had hoped for a less restrictive classification for NRP104 from the Drug Enforcement Administration, which still must decide officially about Schedule II, but usually follows the FDA's lead.

New River and Shire plan to push users of Shire's Adderall XR (the extended release, Schedule II version of Adderall) to try once-daily NRP104 instead.

"We do have some opportunity to go back and make a case [with the FDA]," Krishnan told BioWorld Financial Watch.

New River found what it described as only "limited" potential for abuse, and NRP104 - which binds dextroamphetamine (also an ingredient in Adderall XR) to lysine - seems to act more like a drug that would belong in Schedule IV.

If NRP104 wins favorable scheduling by launch, New River pockets a $300 million milestone payment from Shire. If better scheduling happens within a year of launch, the payment would be $200 million. If it happens by the third anniversary, $100 million.

The most likely scenario, at least when the drug is launched in the second quarter of next year, is a listing in Schedule II, along with the ADHD market's heavy hitters Ritalin (methylphenidate), from Novartis AG, and Concerta (a different formulation of methylphenidate), from Johnson & Johnson. And this turned out to be not such a bad scenario at all, at least for New River.

"At a certain level of sales," as Krishnan put it, "the dynamics shift in our favor."

No doubt. According to the 8-K filed last week, New River gets at least 25 percent of profits from NRP104 during the first 24 months on the market, and at least 50 percent afterward. Even better, the percentages would rise if sales exceed $32 million in 2007, $61 million in 2008, $95 million in 2009 and $125 million in 2010. Analysts predicted New River would seize as much as 66 percent of profits after the first two years, despite the Schedule II problem.

Not bad, especially when added to the news of the approvable letter itself. Short sellers crossed their fingers that the FDA would demand more clinical work, as with Sparlon (modafinil), Cephalon Inc.'s new ADHD formulation of the sleep drug Provigil.

As of early September, the short position in New River's 17 million outstanding totaled 5.9 million. Sparlon vanished as a worry for New River and Shire when Cephalon decided in August to drop the drug rather than continue with trials.

Krishnan pointed to significant advantages of NRP104 over just about anything else. Trials showed the once-daily capsule still was working at 6 p.m. - "a terrific data point. The kid is back home from school, and probably has done his or her homework. And it's not so late that you have to worry about [the drug causing] insomnia."

Although some youngsters have trouble swallowing the capsule, "you can open the capsule and dissolve in water or orange juice and just drink it," he said.

Robert Uhl, analyst with Friedman, Billings, Ramsey & Co., wrote in a research report that the approvable letter for NRP104 could mean an easier road ahead for New River in other ways, as well. Investors "should gain greater confidence in New River's formulation and chemical technology, and its applicability to other pharmaceutical compounds."

Specifically, the letter suggested no "underlying concern at the FDA regarding the addition of an amino acid side chain to a known and widely used pharmaceutical to convert [the resulting compound] into a prodrug."

There's more in the pipeline. In February, New River offered positive data from a Phase I/II study comparing the bioavailability of two formulations of its hydrocodone derivative, NRP290, relative to Vicodin (acetaminophen and hydrocodone, from Abbott Laboratories) tablets in fasted-state adult volunteers.

In its earlier-stage NRP388 program, New River licensed a technology from the Gallo Clinic and Research Center at the University of California at San Francisco to treat chronic pain and reduce opioid tolerance.

After the Schedule II news, what's next for Shire? Analyst David Webber at First Albany laid it on the line in a report.

The pharma firm's options are to take "a 34 percent profit share on its future flagship product - undoubtedly unacceptable," or to return NRP104 to New River, "hazardous given the niche nature of Shire's other ADHD drugs and the arrival of generic Adderall XR in April 2009," or an acquisition.

"Consequently, we think Shire must buy either NRP104 or the entire company," Webber wrote.

The generic Adderall XR would come from Barr Pharmaceuticals Inc., unless the citizen's petition from Shire turns the FDA around, which is about as likely as the DEA ignoring the FDA's advice on NRP104. But at least New River can try for a change from Schedule II, after the launch. Krishnan said there's precedent for success.

"We're [in this for the] long term," he said.

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