Renovo Group (LSE: RNVO) and Shire Pharmaceuticals (LSE:SHP) have amended a licensing agreement originally signed in 2007 to Juvista, a drug which reduces scarring by enhancing tissue regeneration.
In 2007, Renovo signed an $825m licensing agreement with the FTSE 100-quoted biopharmaceutical firm to develop and commercialise Juvista in every country in the world, except those in the EU (the rights to which have been retained by Renovo). Under the 2007 deal, Renovo has already received an upfront payment of USD$75m and an equity investment of USD$50m. Contingent on the successful development and commercialisation of Juvista, Renovo will become eligible for further milestone payments of up to $700m as well as escalating royalties on sales.
Under the revised terms announced this morning, Shire will retain its right to sell Juvista in the United States, Canada and Mexico, but will no longer maintain the right for other parts of the world outside of the European Union (NYSEARCA:EU). The original 2007 agreement outlined that Renovo would retain the rights to commercialise Juvista in the EU, with Shire essentially taking it everywhere else. Renovo will now have the right to commercialise Juvista outside of the three territories retained by Shire.
It would certainly appear that Shire is more than content with retaining North America and Mexico, as the original financial terms of the agreement have remained intact, with the exception that Shire has agreed a new USD$5 million milestone payment to Renovo on commencement of a clinical trial by Shire, but after the first Phase III trial reports – due in H1 2011.
“We are delighted to refine our strong collaboration with Shire on the development and commercialisation of Juvista. Shire retains the rights to the major North American market where they have a significant sales infrastructure,” Mark Ferguson, CEO of Renovo Group commented. “ Renovo gains the rights to the rest of the world, and the ability to sublicense in any or all of its territories, providing an opportunity to generate significant additional future revenues.”
Juvista is Renovo’s flagship drug. Aimed principally at patients undergoing surgery, or who have very recently undergone surgery, Renovo describes Juvista is a “first-in-class pharmaceutical product candidate” that is aimed at improving the subsequent appearance of surgical scars.
Market research conducted by Renovo shows a high rate of patient dissatisfaction with scars from recent surgical procedures, as well as an appreciation of improvements in scar appearance.
Meanwhile, despite there being 42 million surgical procedures every year in the US, and a further 41.8 million in the European Union, there are currently no marketed pharmaceuticals in the US or Europe for the prevention and reduction of scarring in skin - hence Renovo believes that there are multi-billion dollar markets in the EU and US for Juvista.
The Milestone and Royalty payments agreed between Renovo and Shire for the development and sales of Juvista are unchanged from the original agreement. The revision also does not affect Renovo’s guidance that it will have £25-30 million in cash when the Phase III trial reports in H1 2011. In fact, the new agreement increases the upside potential if the trial is successful.
On acceptance of a BLA filing with the FDA, Shire will pay Renovo US$25m and on approval US$50 – $150m depending on the “breadth of the indication on the approved label.” Additional milestones sales payments up to $525 million will also be paid to Renovo, and the company will also receive escalating royalties on Juvista sales.
Shire also retains the right to use data from Renovo’s current EU Phase III trial to support its North American regulatory filings; both companies will have access to each other’s data for additional regulatory filings; and a collaboration committee between Renovo and Shire will be formed to oversee the development programmes.
Panmure Gordon commented on the revised licensing deal, saying the new terms on Juvista increase strategic flexibility and could pave the way for a further licensing deal in ex-US territories, a prospect that was previously blocked under the terms of the original agreement.
The broker said: "The company’s outlook on its cash reserves remains unaffected and we make no changes to forecasts. We find investment in Renovo compelling at these levels. The technology risk is low for its stage of development and the stock is trading at a discount to cash. A residual value of up to 18p should also protect downside. Renovo remains our small-cap biopharmaceutical stock pick for the year and thus re-iterate our Buy recommendation and 74p price target."
Panmure Gordon is forecasting that the company's cash burn is likely to be in the region of £15 million per annum over the next three years. Consequently, it believes that Renovo has sufficient funds to complete its European phase III trial of Juvista, as well as its Adaprev and Prevascar trials. Even after these investments, the company would still have a residual cash balance in the region of £25-30 million, it added.
Disclosure: I hold no position