Merck eyes ophthalmology market

Pharma acquires specialty drugmaker Inspire Pharmaceuticals for $430 million

Amy Swinderman
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WHITEHOUSE STATION, N.J.—Seeking to expand its ophthalmologybusiness and sow the seeds for future growth with a diversified portfolio,Merck & Co. Inc. has acquired Inspire Pharmaceuticals Inc., a specialtypharmaceutical company focused on developing ophthalmic products based inRaleigh, N.C., for $430 million.
That price tag is actually being considered as a "valuedeal" by most investors, as Inspire, plagued by a recent late-stage clinicaltrial failure, had been considering laying off more than a quarter of itsworkforce.
Neither company responded to requests for interviews, andboth have been mum about the deal, announced April 5.
According to mediareports, Inspire entertained bids from two other suitors before acceptingMerck's offer to purchase all outstanding common stock of Inspire at a price of$5 per share in cash, a 26 percent premium to the company's common stockclosing price on April 4.
As part of the deal, Warburg Pincus Private Equity IX LP,which owns approximately 28 percent of the outstanding shares of Inspire, hasagreed to tender all of its shares into the offer. Having been unanimouslyapproved by both company's boards of directors, Inspire's board recommendedthat the company's shareholders tender their shares pursuant to the tenderoffer. Pending completion of the tender offer, regulatory and other customaryclosing conditions, Merck will acquire all of Inspire's remaining sharesthrough a second-step merger.
"Merck continues to build upon its long-term commitment toimproving therapeutic options for the treatment of eye diseases," Beverly Lybrand,Merck's senior vice president and general manager of neuroscience andophthalmology, explained in a statement as the rationale for the deal. "Thisacquisition combines the talented commercialization organization at Inspirewith the excellent team already in place at Merck, thereby strengthening ourophthalmology business and positioning us for future growth with an expandedportfolio."
Founded in 1993 based on research conducted at theUniversity of North Carolina (UNC) at Chapel Hill, Inspire began operations twoyears later, and in August 2000, the company completed an initial publicoffering of common stock.
Inspire's scientists are focused on the potential of P2Y2receptors and their agonists to treat diseases involving deficiencies in thebody's natural mechanisms for protecting mucosal surfaces, including ophthalmicand pulmonary diseases.
Inspire's key product is Azasite, which is a treatment forpinkeye cause by bacteria. Inspire also makes the dry-eye treatment Restasis,which is sold by Allergan, and Elestat, which treats itchiness caused byallergy-related pinkeye. The latter is currently at risk for genericcompetition.
Azasite generated $13.2 million in revenue during the fourthquarter of 2010. Inspire reported $30.2 million in overall revenue in the sameperiod, but said in January that it would cut 65 jobs, or 27 percent of itsworkforce, to concentrate on eye care drugs after the late-stage clinical trialfailure of an experimental cystic fibrosis treatment, denufosol.
"This deal helps address the needs of patients and customersin ophthalmology and creates value for both companies," Lybrand stated.
Adrian Adams, president and CEO of Inspire, added: "As oneof the world's leading healthcare companies, Merck is the ideal partner to enhancethe long-term potential of Inspire's portfolio of ophthalmic assets. Based uponan extensive analysis of various strategic options … we believe thiscombination provides a compelling and timely opportunity for our shareholdersto realize the value of their investment in Inspire."
Wedbush Securities analyst Liana Moussatos, who had valuedInspire at $7 a share, says Inspire "was taken out at a discount," "becausethey had the bad news with the pulmonary franchise, and Elestat now has genericcompetition and they will lose that royalty stream."
"Inspire could see the writing on the walls; the pulmonarypipeline wasn't going to pump out the drug candidates," agrees Motley Fool contributor Brian Orelli."This isn't s a life-changing event like Merck's $41 billion purchase ofSchering-Plough, but if Merck could do 100 more of these deals, I'd bet they'dcollectively produce a lot more than Schering ever will."

Merck and Sun Pharmaform emerging markets joint venture
MUMBAI, India—Merck & Co. Inc. also announced last monththat it has created a joint venture with Sun Pharmaceutical Industries Ltd., anIndian pharmaceutical company, to develop branded generics in emerging markets.
The companies said they will focus on "innovative brandedgenerics" that bring together combinations of medicines using platform deliverytechnologies designed to enhance convenience for patients in emerging markets.
According to the companies, during the coming decade,emerging markets are expected to drive 90 percent of the world's pharmaceuticalgrowth, with 75 percent of that growth coming from branded generics. In thesemarkets, the growing burden of chronic disease, such as cardiovascular disease,diabetes and hepatitis, along with an increasing population and economicprosperity, is leading to an increased demand for branded generics, thecompanies say.
The joint venture will be structured through Merck and SunPharma's respective subsidiaries. The collaboration will be managed by a jointboard and leadership team consisting of members of senior management from bothcompanies. Financial details of the joint venture were not disclosed.

Amy Swinderman

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