La Jolla Drug Failure Leaves Few Options

 |  Includes: BMRN, LJPC
by: EP Vantage

In both comedy and licensing deals, timing is everything. Today, there was no hilarity attached to the announcement that a mere five weeks after signing a deal worth up to $289m with BioMarin Pharmaceutial (NASDAQ:BMRN), La Jolla Pharmaceutical's (NASDAQ:LJPC) lead drug Riquent had failed in phase III clinical trials.

An assessment of interim efficacy data from the Independent Data Monitoring Board concluded that it was "futile" to continue the study into the Lupus drug. News that the only product the group has in its pipeline had failed sent shares in La Jolla crashing down 86% in morning trading to a historic low of just 28 cents. BioMarin did not escape unscathed either with its shares falling 3% to $18.90.

The market's treatment of BioMarin, however, looks a little harsh, given that the biotech, which has cash reserves of $586m, had only committed $15m upfront, split into a $7.5m in cash and $7.5m equity investment. As such, what investors might have been punishing the group for was its judgement for licensing Riquent in the first place (La Jolla clinches crucial deal with BioMarin, January 07, 2009).

Poor form

Riquent, which is designed to prevent or delay renal flares in lupus patients, has not had the most illustrious development or regulatory career. It suffered its first setback in 1999 when Abbott Laboratories (NYSE:ABT) terminated a development deal shortly after the drug failed to meet a primary endpoint in a phase II/III trial.

La Jolla bravely struggled on alone and filed an NDA four years later, only for the FDA to issue it with an approvable letter in 2004. In 2006 it submitted and then withdrew a European marketing application for Riquent.

Given that most of the problems associated with the drug had been unclear or inconclusive data, it was a brave judgement call on the part of BioMarin to license the drug. The company was most probably gambling on the fact that if the latest set of data had been positive it would have had to pay a lot more due to the paucity of effective treatments for lupus and its associated conditions.

Riquent had been forecast to have sales of $396m by 2014, generating an estimated $23m in royalties for La Jolla in the same year, according to consensus forecasts from EvaluatePharma. The product was also valued at $448m, according to EvaluatePharma's NPV analyzer, meaning that BioMarin had on the surface bagged a bargain.

Murky future

In a very brief statement La Jolla said that it would provide information on its "strategic direction in the near future". As Riquent was the only drug in the pipeline, this might be a very short thought process.

This latest setback is most probably one blow too far for La Jolla, which realistically has few options, other than to resurrect one of the suspended products in its pipeline.

The most obvious candidate would be LJP 1082, which La Jolla mothballed in March 2006 in an effort to conserve cash. The phase II drug is indicated in thrombosis, but given the already crowded market and the large amounts of money needed to do trials, it is debatable whether both the company and shareholders will have the stomach to go through another development cycle.

Failing a Lazarus-like rebirth of another candidate, the company might just decide to return what remaining cash there is to shareholders and shut up shop.

But even this might prove disappointing. At its last set of results in October, La Jolla reported cash levels of $26m, and burn rates of $14.1m. Assuming a similar level of burn, this might leave the company with $19.1m of cash, when BioMarin's $7.5m is added in, working out to about 35 cents per share of cash, which although 20% higher than the shares are trading at now, would be a poor return.