Transforming itself from a development company to one that has its own sales force, BioMarin Pharmaceutical Inc. signed definitive plans to acquire Ascent Pediatrics Inc. for $175 million in cash and stock payments over five years.
With Ascent, BioMarin gets the children's asthma drug Orapred and a 66-person U.S. pediatric sales force, which the company hopes to use in marketing its three pediatric products in development. Ascent is the pediatric business of Phoenix-based Medicis Pharmaceutical Corp.
"The fact that this enables us to get a commercial infrastructure much earlier than we could have developed one on our own, and at far less cost, is going to enable us to capture value from our pediatric products," said Louis Drapeau, chief financial officer of Novato, Calif.-based BioMarin. "And it allows us to achieve a major corporate goal of reaching profitability in 2006."
As for the terms, BioMarin will pay Medicis $10 million in cash upon closing, expected this quarter. It will make payments over the next five years totaling $145 million in cash and $20 million in stock (based on the stock's price on the payment due date in 2009). BioMarin also is assuming about $15 million in Medicis' liabilities, representing payments to the original developers of Orapred.
During the transition, Medicis will provide support services to BioMarin for three months following the closing. The deal is structured to give BioMarin full ownership of Orapred and two additional Orapred formulations by 2009, when all payments are made. Until that time, the company will hold a license for the products.
While BioMarin's president and CEO, Frederic Price, calls the acquisition a "marriage made in heaven," some analysts are playing the concerned mother-in-law, wanting to get to know Ascent and Orapred a little bit better. BioMarin's stock (NASDAQ:BMRN) rose only 4 cents on Wednesday, to close at $6.89.
"There's muted enthusiasm today, thinking that Medicis may have gotten the better deal," said Ronald Ellis, an analyst with Leerink Swann & Co. in Boston. "Historically, Ascent has not been a high-growth company. It's a positive for BioMarin that they get a product and a sales force. The question, though, is how complementary the product is."
Ellis also questioned how effective the sales force could be when marketing drugs for mucopolysaccharidosis-VI (MPS-VI) and phenylketonuria (PKU), considering its only experience is in marketing an asthma drug.
But Drapeau said the sales force has a good reputation with pediatricians and intends to leverage its relationships to educate them about BioMarin's products before a launch occurs.
"We're extremely happy with this deal and we don't think one side got the advantage. We think it's a fair deal for both sides," Drapeau told BioWorld Today. "The payments are spread over five years, which really helps us out to make sure we can generate a lot of financing to pay for this deal through the profitability of Orapred."
Price said the company does not plan to conduct any sort of financing in order to pay for the acquisition.
BioMarin expects the drug to have $42 million in sales this year with gross margins of 85 percent.
In addition to Orapred, BioMarin is gaining rights to two additional formulations that are in development: a non-refrigerated formulation called Orapred 2, and a quick-dissolve tablet formulation that could expand the business to older pediatric patients. Price said Orapred 2 will be ready for regulatory submission in the U.S. this year and likely would cannibalize Orapred. It could be on the market in the second half of 2005, while the quick-dissolve formulation could reach the market in late 2006. BioMarin also intends to launch Orapred in markets outside the U.S. beginning in the second half of 2005.
Orapred was launched in 2001 and has since captured more than 50 percent of the share of prescriptions of liquid oral prednisolone, BioMarin said. Its patents do not expire until 2016 and beyond. Asthma affects about 5 million U.S. children. Orapred incorporates a taste-masking technology that reduces the bitter taste associated with prednisolone.
With its own pediatric sales force, BioMarin will launch its pediatric products by itself in the U.S. Those products include Aryplase, which completed Phase III testing and could be the subject of regulatory filings for approval in the U.S. and Europe in the fourth quarter. The company's other pediatric products are Phenoptin, to treat mild to moderate PKU, slated to enter an efficacy trial in 2005, and Phenylase, to treat severe PKU, which could enter the clinic that same year. If all goes well, Aryplase could be on the market in late 2005, and Phenoptin and Phenylase could reach the market in 2007 and 2008, respectively.
The acquisition is part of a plan by BioMarin to keep as much product value in-house as possible.
"We realized that up until this time we did not have the capability of marketing any of our products," Drapeau said. "So we knew that if we could get a viable product that was profitable along with a sales force, it would allow us to leap forward."
The company is taking a different road than it did for Aldurazyme, an enzyme replacement therapy for mucopolysaccharidosis-1 that the FDA approved last year. BioMarin formed a partnership in 1998 for Genzyme General, of Cambridge, Mass., to market the product. (See BioWorld Today, May 1, 2003.)
"We believe that [the acquisition of Ascent] was partially instigated because of their previous interactions with Genzyme, and they do not want to be beholden to a marketing partner who does not pre-market and educate physicians prior to approval of an upcoming product," Ellis said.
For its non-pediatric disease products, BioMarin intends to use marketing partners for Vibrilase to treat burns and wounds, Chondroitinase for spinal cord injury and NeuroTrans for delivering proteins across the blood-brain barrier.
As a result of the acquisition, Price said BioMarin would have a lower-than-expected loss in 2004, which it previously estimated at between $68 million to $70 million. It also expects its loss in 2005 to be decreased significantly due to increased sales of Orapred and to profits generated by Aldurazyme through its joint venture with Genzyme.
Wells Fargo Securities LLC, of New York, acted as financial adviser to BioMarin.