BioWorld International Correspondent
LONDON - SkyePharma plc is pioneering a new route to financing clinical development, by raising US$30 million in private equity to fund Phase III trials of DepoMorphine in return for a portion of future royalty and revenue streams.
The agreement with Paul Capital Partners LP, a U.S. purchaser of health care royalties, is thought to be the first deal of its kind by a UK biotechnology company.
Don Nicholson, finance director of SkyePharma, told BioWorld International, "We are looking at a $30 million cost for Phase III - a big trial for us and a big risk. We do have the financial resources, but this way someone else takes the risk.
"This deal removes the financial impact [of doing the trial] from the profit and loss account, and means it does not delay the move to break even. This is important as investors place a higher value on companies that are nearer to profit than on [ones that are] loss making." SkyePharma, based in London, expects to break even in the second half of this year.
Nicholson said the deal is preferable to seeking a marketing partner prepared to fund the trial. "Even major pharma [companies] would balk at spending $30 million on R&D, and I believe the guarantee that we have funding for Phase III will help us secure a better deal with a marketing partner."
This is based on the company's experience with another product, Solaraze. "Companies that would not even consider it in Phase III, rang to offer $20 million to $30 million up front once we had approval," he said.
DepoMorphine is a sustained-release formulation of morphine for moderate to acute post-operative pain relief. In Phase II there was a significant and dose-dependent decrease in the demand for additional pain medication over 48 hours post-surgery.
The Phase III trial will involve about 750 patients in the U.S. and Europe, in a variety of surgical procedures over 18 months. Under the agreement with Paul Capital, SkyePharma will receive $30 million over two years to fund clinical development and regulatory submission. In return, between January 2003 and December 2014, Paul Capital will receive 15 percent of the annual royalties and revenues from DepoMorphine and three other SkyePharma products - Xatral OD, Solaraze and Depocyt - up to an agreed ceiling.
Once the ceiling is reached the royalty rate will fall to 3 percent for the remainder of the time until December 2014. If DepoMorphine fails to get approval, Paul Capital will not be compensated.
Nicholson said he would consider this type of funding for future projects and would recommend it to other biotechnology companies. "There are times when you don't want to ask shareholders for more investment, or you can find development partners, but it is not at the right price."
The majority of the Paul Capital fund is focused on purchasing royalties related to approved products, but it does have capital available to purchase royalties in Phase III. "Royalty interest sales represent one way to transform a risky asset into an immediate positive impact on both the income statement and the balance sheet," the company said.
Martin Austin, who joined Paul Capital in 2000 to develop European business, told BioWorld International that other European biotechnology companies are interested in raising funding in this way. "It is not for everybody, every day. But there are a great number of companies in this wave of the biotech revolution which need alternative forms of financing.
"The equity market is a yo-yo, and while some companies have got huge amounts of cash, a lot have got undervalued assets, and this type of funding can prove very beneficial."