I brought that up as a topic for discussion at the panel I ran: Should small companies do the R and early D, with Big Pharma doing the big-scale pieces it does best--Phase IIb,III, NDA, and marketing?

Obviously, Merck's Darryle Schoepp, who is an extremely knowledgable and skilled scientist, was not going to embrace that concept--the JNJ neuroscience head has been in that position for two months, but I wouldnt have expected him to jump at it either. On the other hand, during meetings that involved BP management which was less directly involved in R&D, there is a clear acceptance of the fact--to me it's a fact--that small companies are more efficient in turning early R&D dollars into something useful.

I think it's going to vary from company to company in terms of the pace of outsourcing, but I agree with you, the trend will be towards R&early D being much more in small pharma hands. That will be to the benefit of science-strong small companies like Cortex--but not necessarily in the immediate future, the next few months.

But if you start looking out 12-18 months, that is a trend that I expect to become much higher-profile, to the benefit of those companies which survive the next 6-12 months. And I expect Cortex to be one of them.

NeuroInvestment

In theory that is true--but if a slowing tide is slowing all ships (yes I know, it depends whether you're going with it or against it....), to alter an old adage, even multiple partners could all have their timeframes shifting. Hence my reference to midsize--they are more able to break out of the pack. My impression is that the BP's are all reassessing their strategic priorities.

NeuroInvestment

Right--the divergence between BP and microcap valuations of the same IP and compound platform is greater. In fact, that's where private companies have an advantage, because their valuations are not predicated upon market sentiment.

Re: a partnership and upfronts. It remains a question whether RD "only" would be partnered, or whether combo opioid therapy and/or sleep apnea would be included, and to what degree they would affect upfronts as opposed to milestones. Before the meltdown, I at one point made reference to a $20-30 million upfront goal. It could depend on which geographic territories are included, but I'd ratchet that down somewhat--$15-20 million? There was a lot of discussion at Windhover about risksharing, more money being put into performance milestones. But I'm just guessing. A midsize company is more likely to be able to make a snap strategic decision to try to close a deal now than a Big Pharma. Fewer bureaucratic layers.

The possibility of a small PIPE is now higher than I thought it would be pre-crash, because of the timing issue. There is money available, but as several people said yesterday, the terms are "ugly." Cortex has a much better shot at financing--or a partnership-- with Phase IIa data than if they didnt have it. It is not impossible for them to get a deal done before year-end....but all of these factors reduce its probability.

NeuroInvestment

Perhaps it's jet lag, but the analogy and the affective valence eludes me. They have a decent hand--what's not clear is when the game will resume, and whether the rules are being altered--for everyone.

NeuroInvestment

It's a Windhover statistic that Roger Longman noted in passing during a dealmaking presentation--if they have a list, I'm sure it's for sale. I don't have it or need it.

One interesting likelihood--venture capital that usually goes into private firms will be increasingly diverted to investments in public microcaps--but as was described today, the terms will be "ugly."

There is no simple answer to the financing issue--it was discussed and debated all morning--with people from Big Pharma, midsize pharma, and VCs all participating.

I'm not worried about Cortex's ability to handle negotiations with Big Pharma.

NeuroInvestment

I still think Cortex is more confident than many of its peers here. They have POC in a disorder where they have no competition. it's not that they don't have options, but their options are likely to be more spartan than they--or we--would prefer.

NeuroInvestment

I still think Cortex is more confident than many of its peers here. They have POC in a disorder where they have no competition. it's not that they don't have options, but their options are likely to be more spartan than they--or we--would prefer.

NeuroInvestment

You're right, they have to talk to everyone--and not make assumptions that past conversations are necessarily a lock for anything. Here's why: the fiscal meltdown has change the climate for partnering, financing, and M&A. There is an undercurrent of fear at this meeting that is not like anything I have seen in several years. One statistic is that there are over 120 biotechs with less than six months of cash--Cortex is among them. Which means that every Big Pharma can step back and reconsider all of its plans, because they have a menu of options they could not have dreamt of a few months ago, And as one major pharma executive said--he's waiting for biotechs to begin to accept that their valuations are 50% of what they were before the "crash", and to accept offers based on these valuations, not on what they were previously.

Today I introduced the Cortex program with "the biggest CNS market I'd never thought about, central control of respiration." Which is true--but it is rough out there.

I literally had a BusDev guy I'd never met from another company come up and almost beg to be added as the 'eleventh' presenting company. And he kept asking--he's grabbing for a lifeline. Not that I make those decisions, and even if I did, I wouldnt have said yes.

From what I could see: Varney, Stoll, Coleman were actively engaged in lots of conversations--this is not a place where anything gets decided, but possibilities can get rejiggered in the minds of pharma companies, in terms of where they want to focus.

The good news? Every Big Pharma company I heard from (and I moderated a panel which included the neuroscience heads of Merck and JNJ) indicated that neuro/CNS is a priority (though Pfizer is restricting themselves to Alzheimer's and schizophrenia). As opposed to cardiovascular and metabolic, both of which have lost favor as BP partnering choices.

Cortex's program has a lot of appeal--but everything has been thrown back into flux, and not just for Cortex.

NeuroInvestment

Excellent point. My metaphor needs to include the consideration that the pedal can only be pressed far enough to spur the system into 'normal/basal' rate of speed--no possibility of a speeding ticket due to a 'heavy foot.'

Thanks.

NeuroInvestment

Rocuronium induced neuromuscular blockade is used in abdominal/thoracic surgery for the most part, so we are already talking about just a subset of surgeries (I don't know what percentage of surgeries involve thoracic/abdominal areas, but this excludes most orthopedic procedures and neurosurgeries, as a starter.)

I don't see any obvious reason to expect a problem with interactions--obviously that will be part of a tox package, since unexpected interactions can crop up with lots of combinations--and I disagree that this creates a clinical dilemma: If respiration depression is intentionally induced by use of a neuromuscular blocker, sugammadex is the possible choice if approved. The same issue would have come up around neostigmine or other previous blocker reversal drugs, the question of an interaction was going to have to be ruled out in any case, sugammedex doesn't make that more or less of an issue. If RD is caused unintentionally by opioid analgesia (or propofol for anesthesia, for that matter), you'd use an Ampakine.

This is IMHO not just a conceptual separation, but also a pretty clear clinical one.

Addendum: Surgery is absolutely not in my area of expertise. If anyone on this Board has a more informed opinion about the surgical context we are talking about, I'd welcome it.

NeuroInvestment

We've discussed sugammadex in the past--and the way that it is complementary, not competitive, with Ampakines/RD. CX717 addresses RD due to pain medications, sugammadex hastens recovery from RD due to muscle relaxants. They operate on different pathways, and neither replaces the other. It's a non-issue, other than Schering-Plough might be a more likely bidder for CX717 if they knew they could get US approval for sugammadex, since the same sales force can sell them to hospitals.

A clumsy metaphor: The pre-Botzinger complex is the foot on the accelerator pedal of respiration. Increasing its activity causes the accelerator pedal to up its input to the respiratory 'engine', which is muscular (the diaphragm).

If opioids decrease pre-Botzinger activity, the signals to the engine are reduced, hence RD. When muscle relaxants are given during surgery, that operates on the other end of the process, basically disconnecting the 'engine' from its brain inputs. The pre-Botzinger complex send signals to accelerate, but in this case the muscular engine cannot respond.

But upping the muscular activity does not replace upregulating the pre-Botzinger activity, any more than boosting engine horsepower makes any difference if one does not tap the accelerator pedal.

It's early here. If there is a flaw in this metaphor, I'm sure someone will point it out.

There are more contexts where CX717/RD is applicable than sugammadex.



NeuroInvestment

A few thoughts:

1) The locus of the artifact was never revealed. But I am pretty sure--unless this was kept hidden by Organon--that they did not find the CX717 'artifact' with Org24448. If they had, the whole 'class effect' issue would have come up again, and Laughren's Psychiatry division would NOT have allowed Org26576 to into depression and ADHD Phase IIs--not when this is still ongoing.

2) So I am leaning towards Athero's hypothesis at the moment--that it is due to some phenomenon that is not directly 'artifact-based', but rather something that comes from a cardiac case in an Org24448 trial. Now--if the CX717 artifact was cardio, that might explain why they'd be going an extra step in checking Org24448 patients, just to confirm no class effect. But this is speculation on my part.

3) Stoll has emphasized the clean cardio profile of CX717 in past CCs (comparing it to stimulant effects on heart rate, BP, etc.)

Again, I don't think they are wondering about a class effect, because if they were, Org26576 would not have been given the go-ahead. It could be something specific to Org24448, and would explain why SP switched 'horses' and stopped the 24448 trials.

NeuroInvestment

True, good points. There is the as-yet undefined question of how one will prospectively test RD prevention in a Phase III--how many patients will have to be run in order to test an Ampakine's effect on a phenomenon which may happen less than 10% of the time in the controlled environment of a clinical trial. But the fact that they don't have to worry about using mushy measures to assess change in deterioration over twelve months of treatment, as in Alzheimer's, is indeed huge. This is comparatively straightforward.

Blade: I never said that the deal 'has to get done' before the end of the year--I certainly hope that it is, but it's not as if they turn into pumpkins Jan 1. On the other hand, while they have money into March--if by December they don't have a pretty clear likelihood of getting all the necessary signatures during January, and the upfront check soon thereafter, they'll have some unattractive financing options.

I personally don't think it will come to that--the as yet unconfirmed possibility of a EU ADHD project as R&R described is a wild card that could provide additional cash (not a lot, but a few months worth).

Enemem is correct that the current climate will make terms tougher, but that must be weighed against the competitive issue--no one else has a horse in this race at this point. I think that is a dynamic that should not be dismissed too quickly.

NeuroInvestment

I agree--I see no hint of a major news announcement at R&R from that communication.

NeuroInvestment

That's right. But so far as it pertains to Cortex, that information takes up a few neuronal circuits for nothing. As someone else mentioned, if some disaster were to take place, someone would acquire Cortex, albeit at an unsavory price. And I suppose Gov. Palin could end up feted at Stockholm's Stadshus in celebration of her contribution to world peace. The likelihood of the latter is now higher than that of the former.

Just my opinion. I cannot objectively prove Cortex will prosper any more than I can prove that Palin will not have her picture up next to Nelson Mandela's.

I don't think it's an uninformed opinion, but I am probably biased on both counts.

NeuroInvestment

Let me put it this way: With the RD1 results so clearly positive, the likelihood of Cortex going 'belly up' is slightly less than the chances of Sarah Palin being nominated for the Nobel Peace Prize.

NeuroInvestment

I don't think you were dreaming, It may have been one of my 'examples'--because it does capture the funneling down of a large number of vaguely interested parties into a small number of highly interested ones, as is paradigmatic in these negotiations. There is a winnowing out process. If these were actual, 'hard' numbers of how many were specifically interested in ADHD partnering, then it didnt come from me, because I did not have access to that kind of detailed info. If I was feeling really motivated, I could check my notes from the post-ADHD period to see if Stoll brought it up--but I'm not that motivated. There is a limited degree of congruence between the ADHD and RD situations.

I have no doubt that there is a lot of interest in the CX717 RD/pain/apnea partnering possibility.

NeuroInvestment

Given that I am supposed to present the 'Top Ten' partnering list, and then chair a panel with the neuroscience heads from Merck, JNJ, and BTG, I'd better show up at Windhover.

But it's unlikely I'll have much insight into who is talking to whom--those assignations tend to happen behind closed doors. And if by chance someone I know from a BP were to come up to talk to me about the RD/CX717 topic--frankly, most big companies would not appreciate having their interest broadcast on an internet discussion board, and I wouldn't do or say anything that might get in the way of the partnering process. I haven't survived in this business for 13 years by being indiscreet, and I am very clear on what the bottomline priority is here.

NeuroInvestment

Near zero.

Re: Prialt/ziconotide/SNX-111. That's been available for four years. It's been a disappointment, mainly because it's very easy to get serious cognitive side effects. No RD risk that I know of, but it's never become anything near the competitive factor that it was expected to be back in its Neurex 'snail juice' days.

NeuroInvestment

I havent been a big fan of Remoxy. The Durect time release technology should reduce abuse appeal by making the drug-uptake curve less steep (i.e. attenuating the 'rush'). It's not specifically intended to avoid RD--maybe Enemem would know whether titrating the rate of opioid uptake would affect likelihood of RD. My guess is--not enough to make a real difference.

NeuroInvestment

Buzz around partnerships is more likely to be stoked by bankers. Potential partners don't want leaks, because it drives up the price (certainly of any equity buy). Cortex is pretty conservative and as you note, able to keep news in-house, so they are less likely to deliberately and selectively leak (if prospective partners thought Cortex was leaking in order to drive up the price, that might taint the negotiations--Cortex won't risk that). Each negotiation occurs under a CDA, so while Cortex can disclose that there are offers (if they choose), they would not be able to say anything about the terms or source.

A lot of bankers have their own meetings, so I expect that most of the attendees at Windhover will be pharma industry types. And at the rates Windhover charges, there won't be many, if any, retail investor types.

My personal expectation is that the Windhover conference will not have any effect on stock price--but may help with the partnering discussion process. The investment community will be more salient at the R&R conference a week later, and that's where more 'buzz' could possibly be initiated.

NeuroInvestment

I don't know if they are attending--my participation in the conference would, if anything, be a disincentive for them. I have lavished praise on CEPH when warranted, but have also been critical, and CEPH may be the most thin-skinned company I cover.

But Cephalon is not a company that would be relying upon Windhover as a source of info regarding a partnering opportunity so central to their interests. They (and other obvious candidates) are without any doubt in conversation with Cortex (conversation doesn't necessarily mean anything more than that). Windhover-type conferences sometimes can elicit interest from an unexpected quarter, a company considering getting into (or out of) an area. More often, it's just a convenient way for companies who have already spoken to meet in person for further discussion, since there are lots of people all in the same place at the same time. It's not a context where deals are finalized, it's a step along the way.

NeuroInvestment

Postscript: The deal means have been trending up. The 2007-May 08 CNS deal averages were:

Upfront: $30 million
Milestones: $812 million

Again, the milestones should not be thought of being closely related to real money. Someday I'll do an analysis of what actually gets paid out of those biobuck bonanza totals. But the big milestone numbers do look good in headlines and press releases.

NeuroInvestment

There is one CNS partnership Cephalon signed that remained as such: they partnered their tyrosine kinase inhibitor CEP-1347 with Lundbeck in 1999. It was about to start PhI, and did not have human POC for its intended target, Parkinson's. The terms were: $14.4 million upfront, of which $12 million was an equity buy. Cephalon received $12 million in R&D funding over 3 years, and was eligible for $13.5 million in milestones plus royalties. At some point the companies agreed to split development expenses, but CEP-1347 failed in Phase IIb--in 2005.

That deal was pretty much inline with upfront averages (mean CNS upfront payment for a preclinical compound 1992-2002 was 12.5 million) but very short on milestones (1992-2002 CNS preclinical milestone average was 95 million).

It should be noted however, that the 2003-8 means for upfront and milestone payments for preclinical CNS programs are up 13% and 186% respectively.

Since the obvious next question is what the 2003-8 means for compounds with Phase IIa data are (CNS only):

Upfront mean: $27 million
Milestone mean: $470 million

Of course, milestone means are almost meaningless, since they are inflated by the absurd biobuck totals in some deals, which will never be paid. But the increase of 780% over the 1992-2002 mean does point to a much improved valuation of programs with Phase IIa POC.

NeuroInvestment

A couple days ago I cited Cephalon as a very high likelihood candidate given their Fentora exposure. So we are in agreement. Endo is even more analgesia-centric. There is also a slew of small companies with various opioid iterations, but not big enough to be appealing partners.

NeuroInvestment

Again, devilish details. To me, $40 million upfront would be fine. But you'd have to weigh that against the milestone/royalty rates offered, the number of compounds required, etc. But I'd take $40 million up front if everything else was acceptable.

Enemem: I have no idea what's being offered--other than I already said that so far as equity buys are concerned, I would not expect huge premiums.

NeuroInvestment

I am not aware, offhand, where any Big Pharma company has shown that kind of commendable foresight and perspective. That's not how they tend to operate. If anyone has seen an example of this, I'd be interested. But I doubt it.

NeuroInvestment

The premiums you suggest are too high. Why would a prospective partner offer $40 million for 10 million shares when the market price says it should cost them $8 million? Offering them warrants to purchase shares at an even higher price if the indication-they-want fails is not likely to be an appealing consolation prize.

I don't think that Stoll and Varney are in any way closed to unusual terms. Indeed, if someone offered a deal like that, they'd take it in a second. Don't hold your breath.

NeuroInvestment

I meant both. There are tiny microcaps for whom big moves on little volume are not that striking. But Targacept is not a neophyte company, and for them to have that kind of volatility without news is, in my experience, pretty amazing. After all, they have about 4.00 per share in cash, so it is surprising that no buyer would step in when they aren't even trading at cash value (they ended at 3.38 today).

NeuroInvestment

The devil is and will be in the details. Targacept also recently ran into a Phase IIb problem--an Alzheimer's trial that failed, cutting their value in half and leaving them vulnerable.

Not all companies like to acquire--for quite a while, there has been a trend towards partnering rather than buyouts, because Big Pharmas didnt really want to deal with the upfront cost of a buyout, and the integration of the acquiree into the BP. A consistent exception is Cephalon, whose history has tended towards buyouts--and when they licensed from Lafon, they eventually bought out Lafon entirely. Cephalon would almost have to be interested in this RD angle given their Fentora exposure, and my guess is that if they were to make an offer, it'd be more likely an acquisition offer (they have an interest in ADHD as well--but zero in neurodegeneration, so the high-impacts would either be in jeopardy or spun out).

I personally am agnostic about the outcome--whatever works to finally unlock value-- but I believe that, especially in this climate, it would be tough to get an offer more than 50% over market, if that. I have not tracked the mean premium (maybe Dew has), his recent list was of the outliers, the rare exceptions. 50% over market would be 1.20/share. To me that would not be acceptable.

There is a point where it would become a tough decision. For me personally, I don't think that comes unless and until one is talking in the 3.00/share range. Then one has to really look at the upside potential in staying independent, weighed against the costs and risks. At 5.00 per share, the decision would be really easy, but the likelihood of someone offering $375 million for a company with a drug only ready for PhIIb is IMHO zero.

NeuroInvestment

Before we worry too much about the few cents per share dropped today, look at a company like Targacept--a good company, lots of cash, and two partners. They dropped 35% today on a volume of just 30,000 shares. That's amazing.

NeuroInvestnent

With everything else going on, little attention is being paid to RD and the level of actual or potential BP interest. I personally see no reason to think that multiple company interest would necessarily be perceived by, and responded to by, those driving trading volume and share price. When the smoke begins to clear from the current madness, attention may shift to these quieter stories.

NeuroInvestment

I agree with all of those points. For those inclined to perceive'Machiavellian' behavior by BP's, the logic is impossible to sustain when looking at situations with more than one interested party.

NeuroInvestment

There is a counter which has been presented before: The scenario of waiting til Cortex is near-dead only works if there is just one interested party.If there is more than one, it becomes a game of 'chicken', and a question of who will blink first.

RD in and of itself may not be such a draw, but the company which can market an Ampakine for RD can:
1) detail it along with its own proprietary opioids. Hospitals and surgical suites will want to hear about and have access to a better RD drug, and this means that the marketing company can provide 'one stop shopping' for analgesics and the RD-drug.
2) eventually, I would expect the marketing company to try to develop a combination drug (this would have some regulatory hurdles to surpass, but there is a path to approval for a drug whose components are both approved)combining an opioid with an Ampakine---this could be marketed as the only opioid which has no risk of RD. In this analgesia market, that would be a huge marketing advantage.

And this means there is not only the issue of what can be gained by partnering, but also what could be lost if someone else does the deal.

So--waiting is not "all an interested Pharma partner needs to do"--because that risks losing the prize altogether.

That's my counter. Arguments to the contrary would be of interest.

NeuroInvestment

I had and have no objection to your stating your opinion on what should be done now. I did have an objection to the renewed vituperation against Cortex management on the basis of the share price having shown so little rise post-RD1 data. Given the context of the market crash, it made zero sense.

So far as selling the company now is concerned: There was a post recently showing a history of some unusually high premiums over the market price--200+ percent. Those are the exception, not the rule, and you'd need a premium over 100% to get to your 2.00 target. That's unlikely, perhaps not impossible.

Right now the bottom-feeders are buying the companies which plummeted the most during this recent crash--which of course is not necessarily over. Cortex doesnt fall into that category, since YTD, it's still up a fair amount.

Respiratory depression is not a obvious, high-profile indication. It's not sexy like Alzheimer's, but those who think Cortex would have been better off pursuing AD instead of AD or RD are not paying attention to the sheer glut of AD programs out there. A low-impact in AD would not be perceived as a high-value candidate in that crowd. Cortex has an opportunity to raise the RD profile this fall both in presentations and as they (and prospective partners) discuss the market research they did. Unlike AD or ADHD, Ampakines are the only new game in town for RD. I don't think that value has yet percolated into the stock price, my opinion is that it gradually will. But based on personal investing agendas and styles, others may prefer a buyout. I don't think Cortex management has taken anything off the table. In terms of being proactive, pursuing a partnership is where they can be most effective--it's within the context of partnering talks that such an offer could start to mutate into an exploration of a buyout.

NeuroInvestment

To complain about Cortex's share price in the midst of the most mind-boggling global fiscal crisis of our lifetime is to totally not "understand the reality of our predicament." But believe what you want.

NeuroInvestment

I suppose that if you had been in New Orleans during Hurricane Katrina, you would have been heard complaining that, after all the time and work you'd put into visiting New Orleans, the beignets were cold. How dare they serve you cold beignets? They should be fired.

NeuroInvestment

<<COR finally comes out with good news during the worst financial meltdown in modern history. Ah, what timing!>>

A rhetorical question: Where do you think Cortex's share price would be today if they had either: 1) not yet released data, or 2) the Phase IIa RD-1 data had been negative?

While we can all wish that circumstances had been such that the news had been released in the summer (and no, I'm not going to descend into that cesspool of an argument again), one could well argue that fortunately, they did release the data just in time to partly innoculate the share price against the contagion of the market crash. I'm not saying this was intentionally timed that way, it's just that, when appraising the level of fortune/misfortune attendant to Cortex, there is another way to look at it.

NeuroInvestment

My thanks to Dew as well. I don't track non-CNS buyouts, but looking at the top tier of that list, clearly there is some precedent for better premiums than I was speculating about.

NeuroInvestment

1) It was Phase IIa. Phase I is safety only.
2) The initial market would indeed be huge. I don't know how often JCAH (hospital-accreditors) requires drug turnover, but I doubt they'd allow them to replenish/replace less than annually (perhaps it may depend on the stability of the specific compound).
3) My hope is that the competition between a few interested bidders would provide enough upfront money to make a PIPE unnecessary, at least at these very low levels.
4) A $3-4 buyout "soon" is not going to happen,because of Cortex's share price. I don't remember a buyout in recent times going more than 75% or so over the market price. Someone else may know of an outlier, but 3-4x the market price? I don't recall ever seeing anything like that in pharma.

In response to an earlier post--I'm not sure that the current share price stasis is due to people not wanting to buy Cortex until a partnership is done--right now is not a time that a lot of people are sure what is going to happen, and money is staying on the sideline. Over the next few weeks, IF the situation becomes more stable globally, some money will return to selected targets, and Cortex is the most attractive/underpriced micropharma as I know of.

Caveat: I'm probably biased. And I don't know a thing about non-CNS opportunities.

NeuroInvestment