West Coast Editor

Myogen Inc.’s shares dipped on news of a potential $100 million ex-U.S. marketing deal with GlaxoSmithKline plc for the Phase III, oral pulmonary arterial hypertension drug ambrisentan, which comes with a three-year, renewable agreement for Myogen to sell GSK’s intravenous PAH therapy, Flolan, in the U.S.

After trading as low as $35, Myogen’s shares (NASDAQ:MYOG) ended Tuesday at $35.23, down $6.08, or 14.7 percent.

"People are missing the point," said analyst Bret Holley, with CIBC World Markets in New York, regarding the stock drop. "Myogen has basically funded the development of their [PAH] sales force with this deal."

Denver-based Myogen, which said it will start building that sales force in the second quarter, also reported lower-than-expected revenues for 2005, but earnings were not the cause of Wall Street’s reaction, Holley said.

"The headline-grabbing numbers [in the ambrisentan pact] are smaller than some other deals we’ve seen," Holley conceded.

GSK is paying only $20 million up front for ambrisentan. But he pointed out that the vasodilator Flolan sells about $100 million annually.

"We don’t know Glaxo’s cost of goods" for Flolan (epoprostenol, a form of prostacyclin), he said, though some are estimating 28 percent, while guessing at marketing costs, and coming up with a "back of the napkin" margin of about $35 million, which could be seen as "deferred up-front money," Holley told BioWorld Today.

He acknowledged Flolan is going off patent soon - the expiration date is April 2007 - but said no generic competitors are lined up.

Andrew Fein, analyst with C.E. Unterberg, Towbin in New York, said making Flolan is a 16-step process that generic manufacturers would rather not take on. The main reason for both deals, he told BioWorld Today, was for Myogen to build its sales force and PAH presence ahead of ambrisentan’s launch.

"If they accomplish no more than that, Myogen and its management will consider the deal a success," Fein said.

Derek Cole, director of investor relations for Myogen, called Flolan the "gold standard" in PAH, and said the GSK deal for ambrisentan "is more than paying us back for the development costs we’ve incurred so far." Myogen maintains "the lion’s share" of interest in ambrisentan, he added, which is expected to make about 40 percent of its sales outside the U.S.

"The revenue recognition [for Flolan] is still being worked out," he told BioWorld Today, but the money will be used for the PAH sales effort, and the Flolan arrangement will provide Myogen with a "very good handle on the relationships with the prescribing physicians for PAH and their reimbursement agencies, all the dynamics you need going in."

In the deal related to ambrisentan, for which marketing approval will be sought later this year in the U.S. and Europe, London-based GSK gets rights to all territories outside the U.S., and will pay up to $80 million in milestone payments, plus stepped royalties that average in the upper-20 percent range.

Myogen will be responsible for the continued clinical development of ambrisentan, with GSK handling all regulatory and commercial expenses in its licensed territories and the firms sharing the costs of certain additional clinical development activities for ambrisentan.

Analysts at Lazard Capital in New York held their "buy" rating on Myogen but raised the target price to $47 from $45. First Albany, also of New York, also kept its "buy" rating, upping the target price to $51 from $40.

Martin Auster, former analyst with Wachovia Securities, wrote in December that he expected ambrisentan to become the endothelin of choice for PAH physicians, in a market that will grow to $750 million or more by 2010. He modeled $380 million in worldwide sales of ambrisentan 2011.

As an indication, PAH is hot.

New York-based Pfizer Inc.’s oral Revatio - based on sildenafil, the active ingredient in the erectile-dysfunction blockbuster Viagra - won approval for PAH in June. CoTherix Inc., of South San Francisco, has an inhaled PAH drug, Ventavis (iloprost). Silver Spring, Md.-based United Therapeutics Corp. sells the intravenous prostacyclin Remodulin (treprostinil), and has a deal with Aradigm Corp., of Hayward, Calif., to develop an inhaled version.

But the market leader is Tracleer (bosentan), the dual endothelin receptor antagonist from Actelion Ltd., of Allschwil, Switzerland, approved in late 2001. Myogen’s ambrisentan goes after the same target and is described specifically as a non-sulfonamide, propanoic acid-class, type-A selective endothelin receptor antagonist.

Actelion has said it expects that Tracleer sales, which rose 41 percent last year to hit CHF633.2 million (US$482.3 million) will peak at CHF1 billion, and others are lining up to try for a slice of the PAH action.

Houston-based Encysive Pharmaceuticals Inc.’s endothelin receptor antagonist Thelin (sitaxsentan) is under FDA review.

"Ambrisentan appears to compare favorably with Encysive’s Thelin [both are once daily, well tolerated drugs], with two key advantages - suggestions of potentially greater efficacy as measured by six-minute walk test and lack of drug-drug interaction with [the anti-clotting drug warfarin," which Thelin has, Auster said.

Holley wrote in a report Tuesday that, although it’s "difficult to draw precise comparisons between ambrisentan, Tracleer, and Thelin due to differences in trial design and trial duration," the results from Myogen’s ARIES-II trial with ambrisentan suggest the drug "has best-in-class characteristics."

Like Pfizer, Lilly ICOS LLC is trying the active ingredient of a marketed erectile dysfunction drug against PAH. That drug is Cialis (tadalafil), approved in the U.S. in November 2003. Bothell, Wash.-based ICOS Corp. formed the joint venture with Indianapolis-based Eli Lilly and Co. in October 1998.

Myogen’s earnings report showed that, although revenues in 2005 totaled $7 million - well below the $9.9 million predicted by Thomson First Call - Myogen’s loss picture for the year brightened somewhat, tallying $63 million, or $1.68 per share, down from $57.7 million, or $2 per share, in 2004.

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