Ovation Pharmaceuticals' venture capital backers get their exit while H. Lundbeck obtains a portfolio of marketed products and a promising pipeline of central nervous system candidates in a $900 million acquisition announced Feb. 9.

Denmark-based Lundbeck has been looking for new revenue sources to offset the anticipated loss of its top seller, anti-depressant Lexapro (ecitalopram), whose U.S. patent expires in March 2012. The pharma also has wanted to build up its U.S. marketing and registration capacities, citing the potential of its partnership with Takeda on next-generation anti-depressant Lu AA21004, now in Phase III (¹ Also see "Lundbeck/Takeda Advance Novel Anxiety Candidate To Phase III" - Pink Sheet, 18 December, 2007.).

During a same-day conference call, Lundbeck CEO Ulf Wiinberg said the purchase was based on a "sum of the parts evaluation" and that he was impressed by Ovation's performance in the advisory committee reviews of its anti-epileptic Sabril (vigabatrin).

To purchase the private Deerfield, Ill., specialty firm, Lundbeck will pay $600 million upfront, with another $300 million contingent on U.S. regulatory approval of Sabril, which has been under FDA review since late 2007.

Sabril recently won the endorsement of the agency's Peripheral and Central Nervous System Drugs Advisory Committee for two indications - refractory complex partial seizures in adults and infantile spasms. In addition, FDA has determined that if approved, Ovation will develop separate Risk Evaluation and Mitigation Strategies for each indication (² Also see "The REMS Double Down: Two Indications, Two REMS For Ovation’s Sabril?" - Pink Sheet, 19 January, 2009., p. 19).

In addition to Sabril, access to Xenazine , an oral drug for Huntington's chorea launched last November, was a key driver of the deal. Also important, said Wiinberg, was Ovation's managerial experience, especially its scientific, regulatory, and commercial expertise in areas of high unmet need.

"They have professional interactions with key opinion leaders within CNS, all patients' organizations, FDA and all the payors," he said. "And they have a strong track record in development of products, in getting products approved with the FDA."

Both companies' boards have reviewed and agreed to the deal, which is expected to close in March, Wiinberg said. Ovation currently is owned by GTCR Golder Rauner, which staked it with a $150 million private placement in 2002 (³ [See Deal]).

Ovation team expected to stay on

Wiinberg also described the deal as a "sales synergy acquisition," saying it would save Lundbeck the cost of launching its own U.S.-based sales outfit following the approval of Lu AA21004. Instead, the company has a ready-made force in the 70-person sales team inherited from Ovation. Wiinberg added Lundbeck already has talked with Ovation management about retaining its 283 employees as the specialty pharma becomes an integrated subsidiary of Lundbeck.

Although less than 50 percent of Ovation's business is in CNS, Lundbeck called its products and candidates in that space a good fit with its own CNS portfolio. In addition to Sabril, also in Phase II study for stimulant addiction, Ovation brings in a pair of Phase III programs: clobazam for the rare epileptic condition Lennox-Gastaut Syndrome, and an intravenous formulation of carbamazepine for epilepsy.

Outside the CNS space, Ovation and partner GTC Biotherapeutics won FDA approval for ATryn (recombinant antithrombin III) for hereditary antithrombin deficiency on Feb. 6 (⁴ 'The Pink Sheet,' Feb. 9, 2009, In Brief). Lundbeck estimates a U.S. patient base between 3,000 and 7,500 people for ATryn.

Those compounds will complement Lundbeck's existing pipeline, led by serdolect, filed at FDA for schizophrenia during third-quarter 2008, and four Phase III programs: 'AA21004 for depression, bifeprunox for schizophrenia, desmoteplase for acute ischemic stroke, and nalmefene for alcohol dependency. Phase III programs for the latter two compounds were initiated in December 2008. Lundbeck expects to file the antidepressant for approval next year, with filings for the other three expected after 2010.

Acquisition won't prevent other deal-making

Lundbeck says the purchase of Ovation is manageable and won't prevent other business development activities in the near future. It is funding the deal with roughly $466 million of its own cash, along with $432 million from a loan at just under 8 percent interest by Nordea and Danske Bank.

CFO Anders Gotzsche said Lundbeck would pay back the loan within a year, although it has a two-year window to do so. The pharma, which will detail its 2008 financial performance on March 4, expects to have $259 million cash on hand after paying out the Sabril-related milestones to Ovation.

Gotzsche particularly drew attention during the call when he predicted the acquisition would generate U.S. revenue over the long term that would exceed what it makes currently through Lexapro. For third-quarter 2008, Lundbeck reported total revenue of $485 million, with $104 million derived from Lexapro, along with $212 million in EU sales of the drug, where it is called Cipralex . U.S. sales of Lexapro were down 14 percent, year over year, due in part to Lundbeck's decision to reduce inventory with U.S. marketing partner Forest Laboratories.

Decreasing the revenues Lundbeck will gain through the deal are royalties it will owe on sales of Xenazine and ATyrn - neither royalty rate has been disclosed publicly. Ovation has a pre-existing deal with Canada's Biovail to commercialize Xenazine in the U.S. and to jointly develop follow-on indications of the molecule (⁵ Also see "Prestwick Buyout Scores Huntington’s Drug For Biovail" - Pink Sheet, 17 September, 2008.).

Gotzsche said the acquisition should become accretive to revenues in 2010, producing strong growth in top-line earnings through 2011, and then yielding strong EBIT growth from 2012 onward.

Making a big move more essential for Lundbeck was last year's failed in investment in Alzheimer's disease candidate Flurizan (tarenflurbil). Lundbeck bought EU commercialization rights from Myriad Genetics for $100 million in May, only to see the compound fail to reach two efficacy endpoints in a Phase III trial the next month (⁶ Also see "Lundbeck/Myriad Marriage: Short But Not Sweet" - Pink Sheet, 30 June, 2008.).

Lundbeck and Ovation have done business previously, as the Danish firm divested exclusive global rights to the mature schizophrenia drug Buronil in 2004 (⁷ [See Deal]). Ovation does not list Buronil among the drugs it sells, but is investigating its active ingredient, melperone, for Parkinson's-related psychosis. That program has reached Phase II.

-Joseph Haas (j.haas@elsevier.com)

Lundbeck Looks To Replace Lexapro Earnings Through Ovation Purchase

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