About nine months after receiving FDA approval for Estrasorb to treat hot flashes in menopausal women, Novavax Inc. reacquired all rights to the product from its partner King Pharmaceuticals Inc., funded by a $40 million financing.

As part of a strategy announced in May to divest its women's health products and focus on branded prescription drugs in other therapeutic areas, King agreed to return worldwide rights to Estrasorb and any other products that Novavax might develop using its micellar nanoparticle technology.

"We viewed King's plan of a women's health exit as a significant opportunity to negotiate an end to our co-promotion agreement with King, and to regain full worldwide control of Estrasorb," said Nelson Sims, president and CEO of Columbia, Md.-based Novavax.

Novavax intends to market the product in the U.S. through its own sales force, while it pursues regulatory filings overseas and seeks an international partner.

As part of the transaction, the company will issue about 3.8 million common shares to King, of Bristol, Tenn., and will pay $22 million in cash, repurchasing all Novavax convertible notes held by King. Concurrently, Novavax conducted a $40 million financing that will help fund the transaction, which will increase King's ownership in Novavax to 10.4 percent, or 4.1 million shares.

In addition to the reacquired rights, Novavax will gain a portion of King's women's health sales force, as well as $8 million in cash to provide additional marketing and promotional support. The sales force consists of about 50 representatives who will work with Novavax's existing sales organization to position Estrasorb in the marketplace. The total sales force will include about 130 people.

"Estrasorb has significant market potential, both in the U.S. and abroad," Sims said. "And we have the opportunity to take an FDA-approved product and bring it back in-house with terms that are accretive to U.S. earnings over the life of the product."

Estrasorb's intellectual property protects it through 2015. The FDA approved the product in October, and it was launched in the second quarter.

"We initiated our launch by focusing on 1,000-plus Ob/Gyn physicians providing them with patient trial kits," said Ford Lynch, Novavax's senior vice president of sales and marketing.

As for the financing, Novavax is privately placing $35 million in senior convertible notes to a group of institutional investors and 952,381 shares of common stock at $5.25 per share to an additional investor.

The notes carry a 4.75 percent coupon, payable semi-annually, and are convertible into Novavax common stock at $6.15 per share. In addition to funding its reacquisition of the rights to Estrasorb, the financing will add $23 million to Novavax's balance sheet, reduce the company's debt by $5 million and extend the debt terms.

"The transaction significantly strengthens our cash position," said Dennis Genge, the company's vice president and chief financial officer.

Between the $8 million cash payment from King and the funds from the financing, Novavax will have about $40 million in pro-forma cash, taking into account the $22 million that Novavax is paying out for the Estrasorb rights.

That cash figure, Genge said, should take Novavax to profitability sometime around the second quarter of 2006.

Aside from Estrasorb, Novavax has a line of prenatal vitamins, as well as products for vaginal infections and hemorrhoids. Its micellar nanoparticle technologies involve the use of oil and water emulsions that could be used as vehicles for the topical delivery of a variety of drugs and other therapeutic products, including hormones. Another product that uses the MNP technology is Androsorb, a topical testosterone emulsion that has completed two Phase I trials.

The company's other drug delivery technologies, Novasome and Sterisome, respectively, are used to enhance vaccine effectiveness and to deliver long-acting drugs in subcutaneous injections. And the company is conducting research and development on vaccines and proteins for infectious diseases.

Novavax has 39.6 million shares of common stock outstanding. The company's stock (NASDAQ:NVAX) dropped 17 cents on Monday to close at $4.63.

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