On July 27, 2011, Trius Therapeutics (TSRX) announced it had formed a strategic collaboration to develop and commercialize its phase 3 antibiotic, torezolid, in Asia/Pacific and emerging markets (Africa, Middle East, and Latin America) with Bayer Pharma AG (BAYZF.PK). Trius has retained full development and commercialization rights outside the Bayer territory, which includes unencumbered rights in the U.S., Canada, and Europe.
Under terms of the agreement, Bayer paid Trius a $25 million upfront payment and will support approximately 25% of the future development costs of torezolid required for global approval in acute bacterial skin and skin structure infections (ABSSSI) and pneumonia. In addition, Trius is eligible to receive up to $69 million in certain development, regulatory, and commercial milestones, along with double digit royalties (we model 15%) on sales. On the conference call, CEO Jeff Stein noted that 50% of these milestones are pre-commercialization.
We are particularly excited about the deal for a number of reasons:
- Firstly, Bayer is an outstanding commercial partner, with expertise in anti-infectants including Cipro and Avalox. Bayer has the financial strength and experience to launch torezolid in Asia, including China, and potential emerging markets across the Africa and the Middle East. Bayer just recently moved its commercial operations for Asia to China. We expect Bayer to commence clinical work in China / Japan shortly.
- Secondly, the $25 million upfront payment provides Trius with much needed cash to continue the ongoing phase 3, TR-701-p3-A, program. As of May 2011, this trial was about 65% complete. Bayer will also reimburse Trius for approximately 25% of global development costs, including 100% in China and Japan. This is great news for Trius, considering Bayer is going to pay 25% of the cost to develop the drug in territories for which it does not hold rights. This funding includes unfinished preclinical and CMC work. Also, Trius can earn up to $69 million in potential backend milestone, which include additional indications into skin and lung infections. Respiratory infections like Avian Flu and SARS are significant medical concern in Asia, and we believe torezolid has significant potential to treat lung infections, a key differentiator from Cubists Cubicin, in China and Japan.
- Thirdly, Trius retains the unencumbered rights to develop, commercialize or separately partner in the U.S., Canada, and the EU. We believe the above deal with Bayer is just a taste of what could come in terms of a U.S. or European deal for torezolid following successful completion of the first phase 3 trial. Bayer might be the ideal partner for Europe, but we expect that Trius management will wait for the phase 3 data to maximize the potentiail deal for shareholders.
- Finally, it validates our belief that torezolid is a potential blockbuster drug, with differentiating factors from both Pifzer’s (PFE) Zyvox (linezolid) and Cubist’s (CBST) Cubicin (daptomycin), and reinforces our assumption that Trius can sign a significantly larger deal for torezolid in unlicensed territories in 2012.