By Mary Welch
Emisphere Technologies Inc. restructured its three-year partnership with Elan Corp. plc., taking back all rights to develop and market the oral form of heparin, while Elan maintains a financial interest in the product's success.
Emisphere, based in Tarrytown, N.Y., now fully owns the technology, marketing and product rights to the joint venture's entire family of oral heparin products. It also assumes full responsibility for Phase III development.
The restructuring was a result of changes in both party's directions as well as the expansion of the possible uses of oral heparin.
"When we started, Elan's perspective was they were a drug delivery company. Since then, they have become a specialty niche pharmaceutical company," said Michael Goldberg, chairman and CEO of Emisphere. "We, at that time, were focused on being a technology licensing company and are now at a stage where we'd rather license out the product than the technology. We concluded that what made the most sense was that the control should be with the partner that was most eager to assume responsibility for the long-term destiny of the product."
Another contributing factor was that in the past three years, the potential uses of oral heparin have expanded beyond the prevention of deep venous thrombosis.
"When we started, we envisioned a joint venture for a market that, while large, was more limited than what we have today," Goldberg said. "Elan went from being an owner of a heparin program to being a partner with Emisphere in the success of the whole family of heparin indications. Through this royalty arrangement and ownership position - Elan still owns 8 percent of Emisphere - Elan will share in the upside of the product without having to divert from their clinical resources. This program would be $20 million plus for each partner for Phase III, which is a significant chunk of Elan's clinical development budget. It just makes sense."
As part of the new deal, Emisphere issued Dublin-based Elan a $20 million zero coupon note. The note, payable in seven years, has an interest rate of 15 percent annually. Elan could receive stock or cash for the note.
"We have the freedom and flexibility to pay back in stock, or cash, and because of complicated tax reasons, it's structured in a two-step process but in reality, it is essentially a convertible stock deal," Goldberg explained.
In addition, Elan may provide Emisphere with up to $15 million in financial aid for upcoming Phase III trials.
"What that means is that we have prenegotiated terms that if we choose to go to Elan, we can request a loan," Goldberg said. "Of course, certain milestones in the product's development would have to be met. But we decide whether or not we go to Elan. Clearly, from a business standpoint, we need to fully utilize the capabilities of a global development partner, meaning it is preferred that we would license the product out at some point during Phase III trials and receive funding from that source as opposed to from Elan. But we can make the determination as to when we participate and on what terms."
In addition, Emisphere will receive $6 million from the joint venture in cash owed for past services. Emisphere will take a charge of $11 million for in-process research and development in its fiscal fourth quarter, which ends July 31.
In exchange, Elan will receive future royalties based on product sales, subject to an annual cap.
Elan contributed about $15 million in equity to Emisphere and about $15 million to the joint venture's development. Last August, both companies contributed $5 million each to the venture's budget.
Heparin is an anticoagulant, antithrombotic compound that is prescribed for a variety of cardiovascular indications, including deep vein thrombosis (DVT). The condition, if left untreated, may develop in between 30 percent and 50 percent of all patients who undergo hip or knee replacement surgery. While not deadly, DVT may lead to pulmonary embolism, which is life-threatening.
DVT is currently treated with heparin given intravenously for up to two weeks. Current annual worldwide sales of this class of compounds, including injectable heparin, injectable low-molecular-weight heparins and warfarin are believed to exceed $2 billion, the company said.
Other medications, such as Coumadin (crystalline warfarin sodium), may be taken orally, but tend to have undesirable side effects. Coumadin, an anticoagulant that acts by inhibiting vitamin K-dependent coagulation factors, is marketed by the DuPont Pharmaceutical Co., of Wilmington, Del.
"The product and opportunities were not nearly as defined as they are today," Goldberg said. "We believe an oral formulation of heparin may be useful in other indications, such as cardiovascular, oncological and inflammatory diseases."
In the beginning of the year, results from the Phase II study were announced, showing that the oral heparin formulations were comparable to injectable heparin. Further results will be presented at the congress of the International Society on Thrombosis and Homeostasis next month in Washington. A Phase II/III FDA meeting has been requested.
Large Phase III Study Planned
"We're waiting for that meeting because we have centers waiting for the word to gear up and start the trials," Goldberg said.
The Phase III trial should involve 2,200 patients in a three-armed study comparing oral heparin to low-molecular weight heparin. "The target of the study will be to show that oral heparin can make claims of superiority over the injected low-molecule heparin, which is the gold standard."
Between 80 and 90 centers across the U.S., Canada and the U.K. will start enrolling about one patient per center per week, for about six months. Dosing will take about a month.
"We expect to launch in 2001," Goldberg said.
The company is in "very active discussions" with potential partners.
"The interest level has been extremely high," Goldberg said. "There's not that many $1 billion-plus products available for license on the market. We've shown in our Phase II that we're comparable to a well-established product. It's a low technology risk for licensing a blockbuster product."
Although he declined to name potential terms, Goldberg said Emisphere was looking for a deal that is "in line with the current existing market for late-stage products."
Emisphere's stock (NASDAQ:EMIS) closed Tuesday at $8.00, up 75 cents.