OLGX Announces Solid Ex-U.S. Licensing Agreement with Servier –
This is from Matt Kaplan from Ladenburg
We Reiterate Our Buy Rating and $4 Price Target on OLGX.
Highlights
Osteologix announces signing of a licensing agreement with Servier for ex-U.S.
rights to NBS-101. Based on the terms of the agreement OLGX will receive: up to
12 million Euros ($15.6 million) in upfront and milestone payments; 30 million Euros
($39 million) of guaranteed minimum royalty payments based on mid- to low- single
digit royalties on product sales. Furthermore, OLGX will receive additional milestone
payments and royalties based on development milestones and sales in Japan.
Importantly, Servier will be responsible for all ex-U.S. expenses associated with the
development, regulatory approval processes and commercialization of the product.
We are impressed with the terms of the deal and by the company, Servier, OLGX
established the agreement with. As the innovator of Strontium for the treatment of
osteoporosis with the introduction of Protelos to ex-U.S. markets, we believe Servier
represent the ideal partner for NBS-101. Additionally, we believe NBS-101
represents an important asset for Servier as it will now allow them to maintain their
Strontium franchise well beyond the anticipated expiration of the Protelos patents
expected in the late 2014 to August 2015 time frame. In our view, this licensing deal
indicates Servier has a high level of commitment to Strontium as a treatment for
osteoporosis. Consequently, we feel the Servier deal reduces the risk NBS-101 will
fail to become a significant product for the treatment of osteoporosis in ex-U.S.
markets.
? Osteologix maintains ownership of U.S. rights to NBS-101. OLGX met with the
FDA in 2009 and based on these discussions, the Company needs to complete an
additional Phase II study examining bone mineral density (BMD) as well as a single
Phase III study to file an NDA in the U.S., which will likely take two years to complete.
If the results of the Phase II BMD clinical trials are positive, we expect OLGX to work
in collaboration with a larger pharmaceutical company to execute a Phase III program
in an effort to seek approval for NBS-101 in the U.S.
? Servier deal reduces risk of dilution. Prior to the Servier transaction we believed
OLGX had cash to fund operations to 4Q 2010. The $15.6 million in upfront and
milestone payments strengthen OLGX’s cash position. However, depending on the
breakdown and timing of the upfront and milestone payments, OLGX may need to
further augment the Company’s cash position to continue U.S. development efforts to
maximize the value of their asset in the U.S. .
? We reiterate our BUY rating. We do not believe OLGX’s current market cap of
$14 million captures the value of either the Servier ex-U.S. partnership or the
potential for the product in the U.S. We continue to believe Osteologix represents a
unique opportunity to invest in a late-stage/Phase III-ready compound which
addresses a large indication at a very attractive valuation. We view the Servier ex-
U.S. partnership agreement as a major value driver for the Company as it
significantly de-risks the product’s potential in these markets. Further, we do not
believe the value of the strong intellectual property surrounding NBS-101 in U.S. is
reflected in the current stock price.
Nordic Biotech K/S remains the largest shareholder. Nordic, a private venture capital firm based in Denmark,
owns approximately 68% OLGX common stock. Additionally, as long as Nordic owns over 20% of the company,
OLGX is only allowed 7 board members, with 3 of the 7 members appointed by Nordic. As the majority
shareholder, all transactions (including, but not limited to: M&A, going private, financings, and other significant
transactions) are subject to Nordic approval (in other words, Nordic has strong veto power).
Protelos (strontium ranelate) sales remain strong and continue to grow. Strontium ranelate, a similar
osteoperosis drug marketed by privately held Servier continues to show sales growth in Europe being very strong
in new markets, with moderated growth in certain countries. As a reminder, Protelos is not approved in the U.S.
Protelos ex-U.S. sales were $205 million in 2007, $248 million in 2008, and $290 million in 2009. The growth in the
revenue from 2007 supports our belief physicians view the potential for anaphylactic reactions essentially as a nonissue
which must be monitored for and is addressable by discontinuation of therapy. The rate of observed
anaphylactic reactions is lower than that seen with several other approved drugs. We continue to believe the
occurrence of DRESS (Drug Rash with Eosinophilia and Systemic Symptoms) associated with strontium ranelate
may be associated with the synthetic ranelate salt (which is not used in any other therapeutic agent). Investors
should keep in mind NBS-101 is strontium malonate which is a naturally occurring salt used in other approved
drugs and has demonstrated an improved efficacy and safety profile over Protelos in clinical trials.
Osteologix appears to have a strong patent estate for NBS-101. NBS-101 fully issued patents in the
European Union, the U.S., Australia and Japan provide coverage through 2024 (with extensions possible
through 2026). The USPTO issued a U.S. Patent titled “Water-Soluable Strontium Salts for Use in the Treatment of
Cartilage and/or Bone Conditions” with specific claims covering NBS-101 (strontium malonate) for the treatment of
osteoporosis and related bone conditions. We believe the U.S. patent covering NBS-101 through 2024 solidifies the
U.S. IP position and will allow the Company to consummate a partnership for the product in 2010. Additionally, OLGX
won its First Opposition in the E.U. when the European Patent Office upheld the Company’s NBS-101 patent in Europe in
April 2009, which we believe validates the findings of enhanced bioavailability (BA) with malonate salt were not “obvious”
and increases the potential value of the product for a partnership in Europe. We believe the upholding of the patent by
the EPO represented an important victory for Osteologix for a number of reasons including: First, it validated the
potential value of the product for a partnership in Europe. Second, it validated the findings of enhanced
bioavailability (BA) with the malonate salt were not “obvious”. In other words, the EPO found, since the malonate
salt is not widely used or a well know salt in drug formulation and it has not already been shown to demonstrate an
increase in BA for a wide range of compounds, it was not “obvious” malonate would increase BA. Third, the EPO
agreed malonate salt definitely increased BA. Importantly, OLGX also filed IP surrounding combination use of
strontium with other therapies, and have applications related to manufacturing, osteonecrosis, and arthritis.
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