Silver-lining deal

INCLINE VILLAGE, Nev.—Seeking to expand its pipeline and dominate the diabetes market, PDL BioPharma Inc. (PDL) has acquired the rights to receive royalties and milestones payable on sales of type 2 diabetes products licensed by Newark, Calif.-based Depomed for the price of $240.5 million in cash.

 

But there is a silver lining timeline in the deal for Depomed.

 

According to the terms of the agreement announced Oct. 21, PDL stands to receive all royalty and milestone payments only until it has received payments equal to two times the cash payment made to Depomed—or $480 million—after which all payments received will be shared evenly between the two companies.

 

“The acquisition of Depomed’s diabetes royalty rights is a significant addition to our income-generating assets,” John McLaughlin, CEO of PDL BioPharma, stated in a news release. “This acquisition allows PDL to participate in a potentially lengthy, diversified stream of royalties on products in different classes across the diabetes area. Our goal is to be the financial partner of choice to leading life-science companies and other institutions seeking to access non-dilutive capital by monetizing their royalty assets, and we are actively looking to expand our portfolio.”

 

The American Diabetes Association, the U.S. National Institutes of Health and the U.S. Centers for Disease Control and Prevention (CDC) estimate 25.8 million children and adults in the U.S., or 8.3 percent of the current U.S. population, have diabetes; some 1.9 million new diagnoses occur per year in people aged 20 years and older. On the global front, 347 million people worldwide have diabetes, the World Health Organization (WHO) reports.

 

Type 2 diabetes (formerly called non-insulin-dependent or adult-onset) results from the body’s ineffective use of insulin, and it accounts for 90 percent of people with diabetes around the world, or 312.3 million people, and is largely the result of excess body weight and physical inactivity.

 

The costs associated with diagnosed diabetes in the United States alone are staggering.

 

The total U.S. costs of diagnosed diabetes in 2012 was $245 billion; with $176 billion for direct medical costs and $69 billion in reduced productivity, according to WHO.

 

As for the terms of the joint agreement, PDL is slated to receive Depomed’s royalties on net sales of Glumetza of 32 percent for the remainder of 2013 and full year 2014, and 34.5 percent in 2015 and beyond.

 

A once-daily extended release metformin product, Glumetza is approved for the treatment of adults with type 2 diabetes and is licensed by Depomed to Santarus Inc. in the United States. For the year ended 2012, Depomed reported royalty revenues of $42.8 million based upon net sales of Glumetza by Santarus, the company states.

 

In the event of generic entry of a Glumetza product in the United States, PDL will share proceeds equally with Santarus based on a gross margin split, according to the agreement. In addition to Glumetza royalties due from Santarus, PDL will receive Depomed’s royalties due from Valeant Pharmaceuticals for sales in Canada and from LG Life Sciences for sales in Korea.

 

Janumet XR is Merck & Co.’s fixed-dose combination product for type 2 diabetes containing sitagliptin, an extended release metformin that was approved by the FDA in February 2012. Depomed granted Merck a license as well as other rights to certain of its patents directed to metformin extended release technology for Janumet XR.

 

PDL will receive Depomed’s very low single-digit royalty on Merck’s net sales of Janumet XR in the United States and other licensed territories through the expiration of the licensed patents pursuant to Depomed’s license arrangement with Merck.

PDL also acquired certain rights to royalties and milestones on products currently in development by Boehringer Ingelheim and Janssen Pharmaceutica.

 

That’s because Boehringer Ingelheim has worldwide rights to Depomed’s Acuform delivery technology for the development and commercialization of certain fixed-dose combination products which include extended release metformin and proprietary Boehringer Ingelheim compounds currently in development for type 2 diabetes.

 

Subject to clinical development and product approval, PDL may receive Depomed’s milestone payments based on regulatory filings and approval events, as well as royalties on worldwide net sales of products sold by Boehringer Ingelheim.

 

Also, Janssen Pharmaceutica has worldwide rights to Acuform delivery technology for the development and commercialization of a fixed-dose combination formulation of Janssen’s type 2 diabetes product candidate, Invokana (canagliflozin), a sodium glucose transport 2 (SGLT2) inhibitor and extended-release metformin.

 

Subject to clinical development and product approval, PDL may receive Depomed’s milestone payments and royalties on worldwide net sales of products sold by Janssen under the Depomed license.

 

Depomed intends to use the sale proceeds to acquire products that will drive long-term growth and build on the company’s commercial expertise in pain and neurology, according to a company news release.

 

“Through this sale of our type 2 diabetes milestone and royalty payments, we have generated a significant infusion of cash equal to approximately 55 percent of our market capitalization without issuing any equity or incurring any debt,” Jim Schoeneck, president and CEO of Depomed, stated in a news report. “We intend to focus our cash balance of over $300 million to fund future product acquisitions capable of driving growth into the next decade.”

 

“We believe that our current products, Gralise, Lazanda and Zipsor, will continue to drive product revenue growth,” Schoeneck continued. “Importantly, we have retained our royalty and milestone interests in our other collaborations, including agreements with Mallinckrodt for MNK 795 and MNK 155, with Janssen for Nucynta ER (tapentadol extended-release tablets) and with Ironwood.”

 

Depomed also retains all rights in any recoveries from its ongoing patent infringement litigation against Purdue Pharma and ENDO Health Solutions, the company stated.