Friday, 2 January 2015

Virtual Pharma

One-time stock market highflier Merrion
Pharmaceuticals has slimmed down
to the boss — and nobody else.




 Dr John Fox, Merrion's CEO, and only employee.



GERRY BYRNE reports on the
challenges of drug development


Published in Business Plus Magazine, December 2014 Edition

Daily injections of insulin are
tiresome for diabetic adults, and a
nightmare for untold millions of
children. So much so that when
an Irish bioscience company offers to
replace daily injections with a simple
tablet, you’d imagine that, like the
inventor of the proverbial perfect
mousetrap, potential investors are
beating a path to its door.
You’d think. Truth is that Merrion
Pharmaceuticals (which is offering such
a panacea) runs the real risk of running
out of cash before its promising
product, which could potentially be
worth billions, can reach the market.
Merrion is a former campus
company which in 2004 acquired
GIPET, a promising drug delivery
platform technology, from the rump
of the former Elan, which itself had
developed over its history several
promising alternative methods of
drug delivery, most notably the
medicinal patch.
Some drugs are so complicated that
they are unable to pass through the
wall of the stomach or intestines into
the bloodstream and, like insulin, must
be injected. But Merrion’s GIPET does
exactly what its synonym stands for
(Gastrointestinal Permeability
Enhancing Technology) and it renders
complex molecules soluble so they can
be taken in tablet form.
Merrion did well when it launched
an IPO priced at 405c a share in 2007,
rapidly achieving a market valuation
of €67m. In March 2009, the share
peaked at 515c on some good news
about a research partnership with
Danish insulin market leader Novo
Nordisk that was valued at upwards of
€100m, especially if viable products
were brought to market.
At the time Merrion had an
interesting pipeline of seven products,
only two of which were diabetes
related. The rest ranged from
treatments for breast and bone cancer,
osteoporosis drugs and a medication
to deal with deep vein thrombosis and
other blood clotting issues. At the time
of its 2007 IPO the Merrion
prospectus warned that the sums
raised would be insufficient to see its
library of patents through the full
spectrum of clinical trials. And at the
time diabetic treatments were further
down the list of Merrion’s priorities.
Instead its meteoric shining star
then was a GIPET version of an
existing osteoporosis treatment,
Fossamax. Yet the slings and arrows of
pharmaceutical fortune are such that
the osteoporosis remedy now sits
forlornly on a shelf awaiting funds to
take it into further trials, while
Merrion’s version of two insulin
treatments have leapfrogged ahead
and look set to enter further clinical
trials in the coming year.
The reason for the turnaround in
relative drug fortunes is because
Nova Nordisk smiled favourably
on Merrion’s versions of its
injectibles, while another company
which had shown great interest in the
osteoporosis treatment decided not to
proceed with it, and later sold the
drug in question, Fossamax, to a
South African company.
Merrion is a good example of how
smaller biotech companies have
benefited as the structure of drug
research and development has
changed dramatically over the past 20
years or so. Drug majors once
maintained large R&D departments
which invented new drugs and
prepared new products for market.
Now they have largely abandoned inhouse
research and development.
“Pharmaceutical giants have
downsized R&D and now tend to
search and develop, not research and
develop,” explains Mary Shire, Vice-
President for Research at the
University of Limerick. “They find that
buying promising candidates with
good data is more cost-effective than
investing in their own R&D and this
explains Novo Nordisk’s’ partnership
with Merrion.”
An analogy with the mining, oil and
gas sectors is not entirely misplaced.
Natural resource giants for years have
done very little of their own
exploration, relying instead on a
myriad of independent prospectors
which sniff out promising leads. If they
hit the jackpot, the territory gets sold
to a major mining or petrochemical
giant. If there’s a dry hole, or a lean
horizon, the prospector (and its
investors) takes a hit. It’s why investing
in exploration vehicles is like buying a
lottery ticket: you have a chance of
great riches but an even larger chance
of losing your investment.
Merrion is pharma’s equivalent of an
exploration company. That it has
come up with pay dirt is beyond
dispute, but time, and the structure of
the pharmaceutical market, has not
been on its side.
Nova Nordisk, while showing a keen
interest in Merrion’s tablet versions of
two of the Danish firm’s insulin
formulations, is not yet ready to fully
step up to the plate. The company has
signed a development agreement
which is worth €58m in phased
payments to Merrion to assist it to
nurse its products through the
minefield of clinical trials which can
easily cost tens of millions. Merrion
received €2m of payments in the past
year.While this gives Nova Nordisk an
option on Merrion’s patents, it doesn’t
commit it to doing a licensing deal.
Despite being based on existing
approved drugs, Merrion’s diabetes
products face a tough and very
expensive series of clinical trials to
satisfy the US Food and Drug
Administration that they are both safe
and effective. Like most of Merrion’s
drug prospects, they have already
succeeded in Phase One trials, where
the reformulated medication employing
GIPET has been successfully tried out
on a small sample of patients.
Phase Two requires a much larger
patient sample, upwards of 300
patients, but a further Phase Three
must then be trialled, where thousands
of patients are tested over a longer
period of time. Even at this stage
Merrion will not be out of the woods
because the drug’s performance must
be sampled over a further period,
Phase Four, to ensure no harmful side effects
occur with time.
Elan’s famed Tysabri, which is used
to treat Multiple Sclerosis, despite
passing successfully through Phase
Three trials, had to be temporarily
withdrawn in 2005 after Phase Four
monitoring revealed that two patients
were struck by a rare brain infection.
The FDA subsequently decided that
the benefits of the drug outweighed
the risks and it was allowed back on
the market.
A successful drug is doing well if it
reaches full market availability within
eight years. But the statistics for
drug success and failure are not
encouraging. For every 1,000
promising compounds identified, only
a handful are likely to reach the market
within a reasonable period of time. And
90% will fail during clinical trials.
An analysis by Forbes last year
estimated the cost to a US drug major
of launching a new drug in excess of
$5 billion, after adding on the price of
those that had failed. On a standalone
basis, the average new drug still costs
in excess of $1 billion to develop.
Merrion has the advantage of using
already approved drug molecules in its
GIPET-based compounds and
therefore is unlikely to need hundreds
of millions to get them over the line.
Chief executive Dr John Fox, a clinical
research veteran of pharmaceutical
giant Shire and Merrion’s former
director of research, still reckons he
would need more than €40m to
conduct clinical trials on its most
complicated formulation, a GIPETbased
treatment for post-menopausal
women recovering from breast cancer.
“We still have a couple of other
interesting projects but we don’t have
the cash to exploit them without
someone else coming in,” says Fox.
“However, we have a tremendous
industry validation with Nova Nordisk
and they are now entering the pointy
end of the development. This is where
it is starting to get serious and they
believe that it is going to get under the
market, and they have a huge
investment in taking this forward.”
Despite the promise held out by the
Nova Nordisk collaboration,Merrion
itself couldn’t be in worse shape. All of
its staff have been let go and its lab
equipment sold. Its Citywest HQ is on
the market at a valuation of some
€200,000 less than previous book
value. Income, apart from anticipated
further stage payments for the
development of the two insulin
compounds, has dried up and the
company had little more than
€300,000 in cash when it last reported.
Merrion’s sole objective is now
protecting its intellectual
properties, continuing its
collaboration with Nova Nordisk and
attempting further licensing deals for
the GIPET patents. “We really are a
virtual organisation now and you are
talking to the only salaried employee,”
quips Fox.
As if things couldn’t get much worse,
the company’s main debt, a €5m loan
from the investment vehicle of the
family of the late Tony Ryan, is due for
repayment. Following the intervention
of Declan Ryan, who is also a major
Merrion shareholder, repayment has
been stayed until September 2015.
Interest continues to be paid on the
loan although Fox admits its looming
deadline poses a concern.
Fox recently did a deal with
Portuguese pharmaceutical synthesiser
Hovione to produce under contract the
drug materials he will need for the
forthcoming insulin clinical trials.
“This allows the technologies to be
developed and marketed even though
Merrion does not have its own
business development team anymore,”
Fox explains.

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