Replies to post #70967 on Biotech Values

[ghmm]

BMRN/LJPC/Late stage deal market:

Just a few thoughts on the deal
1. From BMRN standpoint I like it. I was vaguely familiar with Riquent but I don't like the deal because I am overly optimistic on the drugs approval but rather on the limited risk. BMRN basically has three chances to opt in with payments to go on maintaing the option. If they do opt-in then they have to share costs.
2. Not only do they get an opt-in rights but they get a good chunk of equity in the company and can increase it with at least one of the opt-ins. I have to hear the call again but I thought I heard Jeff Cooper say something about possibility of buying out the company in the future.
3. The product if successful would fit BMRN in that it is Orphan and could easily be bought to market. I believe Aselage said about 60 reps for US and same for EU. And if I heard JJ right even with the higher dose the margins would be similar to other biologicals.
4. Biomarin indicated it would be their biggest product (of the current commercial products). They have previously said Kuvan is 400 million, Naglazyme 300 million+. Not sure how they see it as they only get half but I believe 100% of sales would be accounted for on the top line.

If I am a LPJC shareholder (and I am not) I have very mixed feelings. Basically you had to give up half the rights to your drug just to keep funding its development. So your still paying for ALL development costs till Biomarin opts in and you only will end up with half the profits (and milestones). If its a bust it doesn't matter at least you get a shot. If successful you gave up a good deal but what choice was there? I am not all that familiar with LJPC financials but it is a pretty large (900+ patient) study and unless one of the interims hits which is unlikely as I believe the p value needs to be < .001 then you are looking at almost a year of burn before Biomarin starts sharing in the costs.

[DewDiligence]

I give the BMRN-LJPC deal high marks for the detail of the disclosures made to investors. For instance:

…La Jolla could receive up to $289 million in cash through milestones and equity purchases by BioMarin. Specific payments include: $15 million upfront, up to approximately $92.5 million related to clinical milestones, $55 million for regulatory milestones, and up to approximately $126 million for achieving specified annual net sales milestones beginning at $250 million in sales.

…At each of the two interim efficacy analyses (the first expected in the first quarter of 2009 and the second expected in mid-2009) or when the ASPEN study comes to a successful completion, BioMarin may exercise its option to fully participate and share all losses and profits on a 50:50 basis… Depending on the outcomes (non-futile or achievement of p-value, p<0.001) of two predefined interim efficacy analyses in the Phase 3 ASPEN study as well as the complete Phase 3 clinical results, BioMarin will pay La Jolla up to an additional $47.5 to $92.5 million in clinical milestone and full participation payments prior to approval. BioMarin may apply up to $20.0 million of these pre-approval clinical milestones toward additional purchases of La Jolla preferred stock.

If the first interim efficacy analysis results in a non-futile determination by the Data Monitoring Board, BioMarin will pay a milestone of $15 million to maintain its license option. If the second interim efficacy analysis results in a non-futile determination by the Data Monitoring Board, BioMarin will pay a milestone of $22.5 million to continue its license option, $5 million of which may be used to purchase additional equity.

This should be the model for the level of disclosure in these kinds of deals, IMO.

[DewDiligence]

Flowchart of BMRN-LJPC Riquent Deal

Because this deal has so many contingencies, BMRN has smartly
furnished a flowchart that shows the various paths which can be
taken re opt-ins and milestone payments. (This is the chart posted
by ghmm on the BMRN board with digital enhancements for readability.)
Items displayed in purple are the ones deemed most likely by BMRN.