J&J's decision to hand back full rights to ceftobiprole to its partner, the Swiss biotech Basilea, and back out of their five-year-old alliance will end a tortuous regulatory story for both partners.

The announcement on Feb. 19 came the day after the CHMP, Europe's drug advisory committee, had recommended against EU marketing authorization of the drug, a broad-spectrum anti-infective initially indicated for complicated skin and soft-tissue infections (cSSI), and after three setbacks at the FDA, including two "complete response" letters ('The Pink Sheet' DAILY, Dec. 30, 2009). The partners have been in an arbitration proceeding for almost a year; Basilea is accusing J&J of inadequate efforts to get the drug approved, given regulators' ongoing concerns around data integrity (Also see "Basilea Takes On Partner J&J In Arbitration Claim Over Ceftobiprole Delays" - Pink Sheet, 2 March, 2009.).

Because of the stormy relationship, the breakup is actually a positive for Basilea, allowing it to re-gain control of the drug's development, with J&J covering all costs during a year-long transition phase. Nor will the hand-back impact the arbitration, which some analysts say now looks more likely to favor Basilea, given the European regulators' feedback on the drug submission's shortcomings.

That said, significant questions and challenges remain for Basilea--not least how, precisely, the hand-over will take place, and how the additional trials requested by FDA will be organized and run during the partners' divorce.

Basilea Considering Ceftobiprole's Options, Including a New Partner

In a conference call, which Basilea scheduled for the same day J&J told the biotech that it wanted out of the relationship, Basilea execs said they were happy to regain control of development and commercialization of the drug and are determining their strategy for it, including whether to seek a new partner or proceed independently. Regaining full rights to ceftobiprole "gives the company much more strategic flexibility," commented Anthony Man, Basilea's CEO. According to Piper Jaffray analyst Richard Parkes, the biotech also will be a much more attractive acquisition prospect, given that it now has three un-partnered drugs either on the market or close thereto.

Man emphasized the CHMP's observation that the drug appears to benefit patients and that its rejection was related to data integrity issues. In a follow-up email to "The Pink Sheet," Basilea executives explained that the regulators cited the drug's "clinical activity" but rejected it nevertheless because the trial data wasn't reliable due to GCP deficits.

Those data integrity issues, which surfaced in 2008, have been at the heart of ceftobiprole's regulatory problems in both the U.S and Europe and hence are also the focus of the arbitration proceeding between J&J and Basilea. FDA concerns about the quality of the ceftobiprole clinical trials came to light in late 2008, when the agency said that an audit revealed deficiencies in study conduct which it needed to investigate further. The timing didn't help, either: ceftobiprole entered late-stage trials just as the FDA was cracking down on its scrutiny of clinical trial sites (Also see "NDA Delays: Blindsided By Site Problems" - Pink Sheet, 1 March, 2008. )

In the partners' original 2005 agreement, J&J paid $25 million up front and pledged up to $310.4 million in milestones, 75% of which were due pre-launch, for worldwide exclusive rights, according to Elsevier's Strategic Transactions database. Basilea isn't saying how much of that money it has received or how much in damages it is seeking from J&J. But public records indicate that it could have pocketed as little as $90 million, including the upfront, some milestones, and a $10 million payment in 2007. Hence, analyst Richard Parkes speculates that the biotech could be in line for as much as CHF 200 million ($186 million) in lost milestones and royalties.

At the time, Man said Basilea didn't have much choice regarding the structure of its deal with J&J; it could not afford to take much control of the drug if it wanted to apply some resources to other parts of its pipeline. Given that the biotech is now in a relatively strong financial position (it had $164 million in cash at the end of 2009, and is well-financed into mid-2011, according to analysts), and ceftobiprole is closer to commercialization than it was a few years ago, Basilea will be in a far better negotiating position should it wish to seek a new partner for the anti-infective.

And Basilea has other assets to offer, including isovuconazole, an anti-fungal agent, which is in Phase III development, with preliminary data expected to be reported in 2011. Ceftobiprole itself is in Phase III trials for a second indication, pneumonia. In addition, the company expects to generate revenues of $32 million to $42 million in 2010, largely from the sale of its first commercial product, Toctino (alitretinion), which it launched in five European countries in 2009 for treatment of severe chronic hand eczema. Additional launches are expected in 2010 in Canada, Italy and Spain.

A Transition Period Leaves Many Questions

J&J's exit, however, could get complicated--at least according to the terms of the contract. The partners' separation won't occur immediately: J&J is responsible during a year-long transition period for meeting all contract obligations--including clinical development, manufacturing, and commercialization--of the anti-infective. Basilea execs said they plan to meet with J&J to figure out a plan for the transition that "ensures proper management" of these activities and which they expect will involve no cost to the Swiss biotech. The initial deal did not stipulate a termination fee from J&J in the event of a break up.

The uncertainties surrounding the transition year planning clearly perplexed analysts on the conference call. J&J retains control of clinical development during the period, including any subsequent meetings with regulators to determine the next steps forward for the drug.

The FDA has asked for two new clinical trials in order for the drug to qualify for approval in the US. J&J has yet to meet with the CHMP to determine what requirements will be needed for subsequent EMEA authorization, Man said. Typically, he noted, the EMEA requires one trial, not two confirmatory Phase III studies per indication.

It is unclear, however, how (or whether) the Big Pharma partner will carry out its duties, especially in light of the controversial way it has handled the clinical trials until now. "Because J&J has not been completely to the top with regards to following their agreement, I am just wondering how likely it is that they are going to follow it this last step Guillaume van Renterghem, an analyst at UBS asked Basilea management.

Basilea executives said that "the specifics, including the timing of the transition process need to be discussed between the parties," although they are contractually obliged to complete the process within a year. As for the nature of the relationship, Basilea management described it as "business-like and professional", with "regular contact."

The latest CHMP decision contradicted a positive opinion recommending marketing authorization for the drug, which the committee issued in Nov. 2008. That earlier decision came before the committee received information about concerns the FDA had over the way the main clinical trials were conducted following an inspection of study sites. Subsequent inspections showed that the Phase III studies supporting the MAA had not been conducted in compliance with GCP, Man noted.

Meanwhile, as the regulatory process drags on, ceftobiprole's patent clock is ticking. Parkes doesn't expect a major market launch before 2014, given the additional trials required, yet key patents begin to expire just five years later in the U.S., in 2019. The company will enjoy a ten-year EU exclusivity period and may also benefit from a five-year Hatch Waxman patent extension. But there's little doubt that ceftobiprole will be a smaller drug than some initially expected: Parkes points to sales of $250 million.

-Wendy Diller (w.diller@elsevier.com) with additional reporting by Melanie Senior (m.senior@elsevier.com)

J&J and Basilea End Ceftobiprole Deal

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