National Editor

Ligand Pharmaceuticals Inc. gained $12.5 million through Royalty Pharma AG's exercise of an option regarding the firm's Phase III selective estrogen modulators (SERMs), and the pair have retooled their deal.

"We're monetizing an asset into the present," said Michael Watts, director of investor relations and corporate communications at San Diego-based Ligand, noting that Royalty has another option for the same amount that it could exercise before the end of the year.

The option taken by Royalty as of Oct. 1 also means Ligand could get up to $2.5 million more in cumulative milestones upon the launch of the three SERMS, provided they are approved by Sept. 30, 2005.

Royalty gets 0.7 percent of sales of the products for 10 years under the terms. Also, payments by Royalty upon exercise of the options are nonrefundable, regardless of whether the products ever make it to market. Any other milestone payments due from Ligand's partners as development nears completion are separate from the deal.

Among the SERMs involved is lasofoxifene, in Phase III studies for osteoporosis at New York-based Pfizer Inc. The others are bazedoxifene for osteoporosis and bazedoxifene plus Premarin for menopausal symptoms, both in Phase III work by Wyeth, of Madison N.J. Ligand is due mid-single-digit royalties on sales from Pfizer and Wyeth.

Plans have not been disclosed according to timelines around which the earlier deal was built, Watts said. Pfizer, for example, has not given specific guidance regarding its filing of a new drug application.

"From Royalty Pharma's perspective, that's an important piece of information," he told BioWorld Today. "It's not a question of speed up or delay. It's a question of what information is available and when."

As a result of the change in timelines, Ligand has restructured the deal to give Royalty Pharma more royalties on sales.

"We thought it was the fair thing to do," Watts said, noting that the original deal was done more than a year and a half ago. "We don't control [development] timing," he noted. "It's dictated entirely by Pfizer and Wyeth."

The SERMS, once they hit the market, are "potentially billion-dollar products," he said. Evista (raloxifene), an osteoporosis SERM sold by Eli Lilly and Co., of Indianapolis, generated $822 million in 2002, up 24 percent over 2001, and "we believe our second-generation products are going to be superior," Watts said, adding that Pfizer and Wyeth remain "extremely bullish" on their respective products.

Under the new changes, Royalty has new options for further buy-ins. By paying another $12.5 million, it could get 0.5 percent more of the SERM products' net sales. That option must be exercised by Dec. 31, or within 30 days of Phase III data being released by Pfizer or Wyeth, whichever comes first.

Another option would let Royalty buy, for $26.5 million in two equal payments during 2004 and 2005, a total of 0.8 percent more of the SERM products' net sales, but the rates due Royalty would drop if SERM sales exceed certain thresholds, Ligand said.

If, by March 31, Phase III data for at least one of the SERM products have not been published, the agreement provides that the options will have no fixed expiration date but would have to be exercised within 30 days of the applicable development milestone.

In the unrevised deal, Royalty had rights to buy another 0.25 percent in the third and fourth quarters of this year as well as the first quarter of next year for $41 million total, plus another 0.125 percent in the second quarter of 2004 for $10.5 million.

Last year, Ligand gained $19.3 million in revenue from its ongoing deal with Royalty Pharma, Watts said - cash that "pretty much drops directly to our bottom line" and can be used for its other efforts.

Ligand's two-part business involves specialty pharmaceuticals, with five marketed products, and corporate partnering of its receptor research, which dates back to the early 1990s and "has been tremendously productive."

The latter program has netted 11 partners "with something north of 20 potential products either in human studies or late preclinical," Watts said.

A deal with Lilly is focused on peroxisome proliferation activated receptor modulators for Type II diabetes, cardiovascular disorders and possibly other metabolic diseases. (See BioWorld Today, May 12, 2003.)

"Lilly has three products already in clinical studies for diabetes and vascular disorders," Watts said, including LY818, expected to enter Phase III next year. "It's on the fast track toward a filing in 2006. That one's moving forward and catching up to the SERMs."

The Lilly compounds carry "roughly double the royalty rate of the SERMs, and those royalty rates we haven't sold any of," he added.

Royalty Pharma, with offices in New York and in Schaffhausen, Switzerland, invests in companies on the basis of royalties and revenue-producing intellectual property.

"It's an interesting company," Watts said. "They're a very sophisticated group of former pharma people and business people."

Ligand's stock (NASDAQ:LGND) rose 10 cents Friday, closing at $12.80.