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Somaxon Pharmaceuticals (NASDAQ:SOMX) has finally delivered a deal on Silenor, and it is an unusual one. For a fixed fee and royalties, Somaxon has hired the OTC sales force of consumer products giant Procter & Gamble (NYSE:PG) for a September launch of the insomnia medication, a deal that leaves the smaller partner with nearly all of the potential revenue but also nearly all of the risk.

The deal points up the need for brand awareness in the highly competitive and genericised insomnia space as Somaxon executives focused on the reach P&G’s sales force will provide with primary care physicians, pharmacies and managed care plans. Somaxon shares jumped 29% higher Wednesday to reach $4.34 on news that a long-sought deal had finally be secured, a healthy gain but still less than half the $9.21 they closed at on March 18, following FDA approval of Silenor (Somaxon wins approval for Silenor and hunt for partner begins, March 19, 2010). Investors clearly remain skeptical about the commercial potential of this product, even with P&G on board.

Somaxon now plans a September launch of Silenor, a low-dose version of the antidepressant doxepin hydrochloride. The California company’s pitch on the sleeping pill is that it is not a controlled substance like so many other sleep-assistance drugs and therefore carries reduced risk of dependence, addiction or withdrawal.

Launch sequence commencing

On word of the deal, analysts from Jefferies increased their 12-month price target on Somaxon to $10 from $9 along with their 2015 sales estimates for Silenor to $322m from $257m.

After spending $108m in R&D in the last six years to develop Silenor, Somaxon’s bank accounts were nearly empty following FDA approval, with just $4m in cash left. With its stock riding high in March, the firm raised a timely $52.8m by selling 6.9 million shares at $8.25, a discount from the $9.51 they closed on March 25, the day the offer was priced.

Although the buyers of that offer are probably smarting at today's share price, the new cash did allow Somaxon to hire the French contract sales organization Publicis Touchpoint Services to give it 110 dedicated sales representatives to target the top 30% of insomnia drug prescribers.

The partnership with P&G nearly doubles that sales force to 215, with the reps from the Cincinnati firm focusing on their strengths in primary care physicians along with pharmacies and managed care plans, Somaxon executives said in an investor conference call Wednesday. Since Warner Chilcott (NASDAQ:WCRX) bought P&G's prescription drugs unit, the reps have largely been pitching the few remaining P&G OTC products, including Prilosec OTC.

With intense competition in the insomnia market, ensuring that Silenor is side-by-side with Lunesta and Ambien on pharmacy shelves will be critical to Silenor’s commercial success, as the launch could run aground if patients, once prescribed, cannot get the drug.

Likewise, getting on managed-care formularies will also be important, although Jeffrey Raser, Somaxon’s senior vice president and chief commercial officer, said Silenor will be priced at below the average of the three branded products on the market.

No check collector

Under the deal, Somaxon executives estimate that they will pay P&G no more than 15% of net sales. Each party will be responsible for paying for their own sales force, and in a sign that the risk is still firmly in Somaxon’s hands, it will also pay for all other commercialization costs.

Presumably, all costs related to development of line extensions or OTC formulations would belong to Somaxon also. But significantly, P&G would have right of first refusal on an OTC product, where the consumer products giant retains a significant presence. Somaxon executives highlighted this part of the deal as a wise lifecycle management strategy.

In its unusual deal with P&G, Somaxon has structured a partnership that will allow it to be more than just a check collector. However, should the team stumble out of the blocks, it looks like only Somaxon will be the partner to take a fall.

Source: Somaxon Will Do More Than Just Collect Checks in P&G Deal