A Rare Second Chance at Partnering Success for Vernalis' Underperforming Frova

Vernalis has bought back rights to its Frova migraine treatment in North America from Elan, agreeing to pay $55 million over the next two years. Frova, sold there by Elan and UCB, had failed to reach even the most modest sales expectations. Now Vernalis plans to re-partner the drug, hoping a label-extension to menstrual-associated migraine lands it significantly better terms than its original 1998 deal with Elan. But Vernalis needs to raise money to complete the buyout, and the dynamics of the US migraine market suggest that until it can differentiate the drug on the basis of the MAM label, a huge primary care sales force would be necessary to gain a respectable share of the market.

When Pfizer Inc. launched the seventh triptan migraine therapy into the US market in February 2003 it did so with a bang. The Big Pharma rolled out eletriptan (Relpax) under the considerable steam of 6,000 sales reps, aiming to take a bite out of market-dominating sumatriptan (Imitrex) from GlaxoSmithKline PLC . Barely noticed was the flagging progress of the sixth entrant, frovatriptan (Frova), launched in late 2002 and sold by Elan Corp. PLC , which focused on neurologists, and UCB Pharma Inc., the US affiliate of Belgian conglomerate UCB Group SA, which details primary care physicians (PCPs).

While Elan had managed to capture a respectable 7% market share among neurologists, these doctors write only 1% of total triptan prescriptions. Meanwhile, UCB's 400 reps had made only a barely visible 1% dent in the primary care arena.

Frova's disappointing performance had become a serious dilemma for the product's owner, Vernalis Group PLC , which had licensed the drug to Elan in 1998. That deal had hardly set the world on fire—analysts estimate Vernalis' royalty stream at roughly 10-12%; during the last quarter of 2003 sales of the drug reached $13.7 million. While most biotechs equate success with getting a drug on the market, Vernalis' experience shows that the challenges are far from over.

But thanks to shifting priorities at Elan, Vernalis is now getting what few biotechnology companies get: a second chance at partnering success. In late March Vernalis bought back Frova rights from Elan, paying $5 million on signing and promising an additional $45 million in two annual payments over the next two years. In addition, Vernalis will pay $5 million during 2004 to acquire Frova inventory. Elan will pay about $10 million to UCB to terminate its co-promotion agreement. [See Deal]

Most observers were impressed by the deal price: just one-times the drug's sales over the last 12 months. They had expected worse since Vernalis seemed to want the product back so badly it would have done the licensing equivalent of chewing off its own arm to escape the deal. The company itself is more measured. "With UCB we just didn't have the presence in the primary care physician arena to really be able to build the sales," says Vernalis CEO Simon Sturge. "It's quite evident that the vast majority of scrips for migraine products are initiated by PCPs."

In one respect Vernalis now finds itself in a familiar position: holding all US rights to the underperforming Frova. But both company and product have evolved significantly in the past two years and Vernalis is confident it can land a new and more lucrative deal with a larger and more committed partner. Buying back rights to Frova from Elan "is a good deal," observes Nomura analyst Sam Fazeli. "But only if Vernalis can get a significantly higher royalty and the product reaches at least the same sales levels as it did before." Most analysts place this threshold at roughly twice what Vernalis was getting from Elan—at least 20%.

Vernalis' main problem is that it doesn't have the money itself to finish paying back Elan so will be in a weak dealmaking position—and partners will almost certainly wait it out until Vernalis accepts a lower value deal. Alternatively, Vernalis could raise money prior to making a deal—and says it will do so in the next 12 months—although its self-imposed timeline for repartnering Frova (within six months) seems at odds with this latter option.

Finally, the dynamics of the migraine business in the US suggest that only a massive sales force plugging away for several years will make any sizeable dent in the market; it's no wonder UCB was unsuccessful. Migraine is episodic in nature, and a patient may not renew a prescription for many months. Still, actual new patients are only a fraction (perhaps 20%) of new dispensed migraine prescriptions, explains Bob Caprara, VP of advanced analytics at ImpactRx, a New Jersey-based market research firm which tracks the prescribing habits of PCPs as well as select specialists. Most new prescriptions are actually renewals of therapy for previously diagnosed patients; doctors do not have to make the decision about which product to prescribe—and as Imitrex has dominated the triptan market for so long, it will be hard to displace.

"Even Pfizer's promotion will take about three years to show up in total market share gains in the dispensed prescription world," Caprara says. "Promotion can influence the physician's prescribing choice for that next new patient who walks into the office but in migraine, unlike other chronic care classes like hypertension or lipid lowering, that new patient may wait several months before having to renew a prescription in this class." For a smaller company to make an impact, contends Caprara, it would still need to "change physician behavior, and even if it can do that, it needs the financial resources and the wherewithal to wait several years before it can reap the return."

Frova and Vernalis Grow Up

In early 2002, Vernalis' prospects rested solely on the success of Frova, and at the time the firm believed that the drug—the sixth triptan to hit the market—would propel it to profitability in two to three years. Frova was supposed to illustrate how a small company could parlay incremental advantages of an unwanted, non-blockbuster drug into significant sales growth in a market dominated by Big Pharma. But the product's path to market was tortuous.

Vernalis (then Vanguard Medica) had originally licensed development rights to the drug from the product's originator, SmithKline Beecham (now GlaxoSmithKline [See Deal]). [See Deal] But SmithKline decided not to exercise its marketing option for Frova, raising questions about the drug's commercial prospects. Vernalis couldn't find a partner willing to offer it a high-value deal and it ended up licensing the product on less favorable terms to Elan in the US and to Menarini Industrie Farmaceutiche Riunite SRL for Europe (where it is sold as Migard). [See Deal]

There were further disappointments. The FDA notified Vanguard only a month after the Menarini deal in October 1999 that it wanted more pre-clinical toxicity and carcinogenicity data to support Frova's NDA. In May 2000 the drug was deemed approvable but additional data requests delayed US approval until November 2001. Launch was delayed for nearly another year while Elan signed up UCB to help promote the drug to primary care doctors. [See Deal] (See "Vernalis' Frova: Mixed Blessing," In Vivo Europe Rx, June 2002 (Also see "Vernalis' Frova: Mixed Blessing" - In Vivo, 1 Jun, 2002.).)

In the event, Frova failed to take off. Elan, by then under the cloud of its accounting problems, decided to focus almost exclusively on its internal pipeline of multiple sclerosis and Alzheimer's disease therapies; it was a distracted partner at best. Thus its willingness to turn the rights to Frova over to its developer for a modest price wasn't surprising. Less than 24 hours after the Frova deal was announced Elan also sold North American and European rights to the anti-epileptic zonisamide (Zonegran), along with the sales force that detailed both drugs in North America, to Eisai Co. Ltd. for $130 million plus up to $110 million in milestones. [See Deal]

Vernalis has also transformed into a different beast, although Frova remains the group's sole marketed product and its most realistic shot at near-term profitability. A merger with British Biotech in July 2003 [See Deal]—which itself had only months earlier revamped itself by acquiring the private UK biotech RiboTargets Ltd. [See Deal]—has transformed the company. (See "New Look for British Biotech," In Vivo Europe Rx, April 2003 (Also see "New Look for British Biotech" - In Vivo, 1 Apr, 2003.).) The firm has a new CEO in Sturge, who holds the same position in Vernalis as he did at RiboTargets and, briefly, British Biotech; a new and highly regarded chairman in Peter Fellner, PhD; and a relatively mature pipeline. Behind Frova are three unpartnered clinical projects: the Phase II V10153 for thrombotic disease and Phase I candidates for cancer pain and Parkinson's disease. Preclinical programs in obesity and inflammation are partnered with Roche and Merck Serono SA , respectively. [See Deal][See Deal]

Frova too is different, now more differentiable than when Vernalis first out-licensed the drug to Elan. The drug's distinguishing characteristic among the triptans, a 26-hour half-life compared to six hours for its nearest competitor, may allow Vernalis to position the drug as a prophylactic. Studies to support a supplemental NDA for the drug in menstrual associated migraine (MAM) began in early 2002 and initial positive data were released in April 2003. The timing of ongoing Phase III studies to support the sNDA should allow Vernalis to finish filing its rolling submission with the FDA by mid-2005.

Sturge estimates that 80% of the nearly 30 million migraine sufferers in the US alone are women, of which half have MAM. "It's the major part of the market and we strongly believe that we need a good primary care sales force, ideally with women's health care experience, to reach the potential that our market research indicates the product can achieve," he says.

Financing the Payment Plan

Sturge says that Vernalis has been in preliminary discussions with potential partners since before inking the deal with Elan over Frova. With the deal completed, he says, Vernalis has been approached by at least a half a dozen more interested parties. But while re-partnering Frova may be first on Vernalis' agenda, analysts suggest that raising cash to pay off Elan is the top priority. "None of this happens unless they can raise money to underwrite the buyout," notes one.

At the end of 2003 Vernalis had £24.2 million ($43.8 million) and an operating loss of £17.3 million, not including charges related to consolidation—hardly enough to make $25 million worth of payments to Elan this year. And since Elan and UCB have stopped promoting Frova, sales are sure to drop off.

But analysts note that 50% of revenue for the drug is generated by repeat prescriptions, and Vernalis will now book 100% (Elan will provide 12 months of transitional services—such as manufacturing, import and distribution—as part of the deal). "I don't think sales will fall off a cliff immediately," says Sturge. Regardless, as Vernalis aims to re-partner Frova in the next six months, boosting its cash reserves in the meantime to avoid dealing its crown jewel from a weak position seems prudent. "They absolutely need to raise money," opines Code Securities analyst Samir Devani. "They'd be crazy to enter serious negotiations when a partner knows they need the money."

Partnering Options

Some observers feel that Vernalis' best bet—at least in the short-to-medium term, before Frova is approved for MAM—would be to hire a contract sales organization. Indeed Sturge confirms that Vernalis is exploring "some transitional arrangements" for the drug. "It doesn't take long to get a sales force trained and up and running in the field, so renting a sales force like that is an opportunity," says one analyst.

Teaming up with a CSO would give Vernalis full oversight of the marketing messages used by Frova sales reps; something it lacked when Elan and UCB were selling the drug. It would also allow Vernalis to buoy its revenue stream from Frova until it receives the MAM label extension and can offer potential partners a concrete advantage in the saturated triptan market. Finally Vernalis will also be able to discern how exactly doctors are responding to Frova's unrivaled half-life, which will be key to leveraging a possible MAM label into substantially higher sales. Positive feedback in this regard would go a long way toward reassuring a potential partner about Frova's prospects. "The commercial impact of adding MAM to the label is still highly debatable," sums up Devani. "For a partner to put its name and money behind it at this stage is going to be quite challenging for Vernalis."

Considering the regulatory and commercial knocks Frova has already taken, the product may present a primary care- or women's health-focused drug firm with an opportunity to secure a marketed product at an unusual discount. Big Pharma candidates without triptans include Schering-Plough Corp. , Abbott Laboratories Inc. , Novartis AG , Eli Lilly & Co. , Roche and Wyeth . Even firms such as Forest Laboratories Inc. , which memorably leveraged citalopram (Celexa), a late-entry to the depression market, into a blockbuster, or Warner Chilcott PLC , the acquisitive and US-looking Northern Irish women's health-focused firm, may also have room for Frova. And other mid-sized players such as Reliant Pharmaceuticals LLC, Kos Pharmaceuticals Inc. , and Sunovion Pharmaceuticals Inc. have succeeded to various degrees in the primary care arena and could also potentially benefit from taking on the drug.

But the commitment necessary to take on the entrenched Imitrex, upstart Relpax and others might dissuade firms from pursuing Frova deals until the product has sufficiently differentiated itself from the triptan crowd by way of the MAM label. Even then the product may not reach projected sales thresholds for most large firms. On the other hand, re-launching the product may prove too costly for companies without Big Pharma pockets, particularly as Vernalis is after a substantially higher royalty than it earned under Elan. As such, raising money to pay off Elan and hanging on to the product and marketing it via a CSO until the MAM indication is approved may be the small firm's best bet.

--by Christopher Morrison

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