Biotie-Newron Tie up Points to Much-Needed Consolidation

September 27, 2011 Biotie-Newron tie up points to much-needed consolidation

Jonathan Gardner

Biotie Therapies' all-share deal to acquire struggling Newron Pharmaceuticals represents a much-needed consolidation among the weaker beasts of the European biotech herd. The Finnish company picked up Newron, which had effectively put itself up for sale earlier this year, in a €37m ($51m) deal that could help it strengthen its CNS pipeline.

The combined company might potentially have two products on the market in the next two years and a broader pipeline is certainly a positive. However, as Biotie’s alcohol dependency drug may meet resistance from addiction specialists and Newron’s lead candidate is in the tricky area of Parkinson’s disease, the future of the merged group is far from assured.

Questions

Biotie and Italy-based Newron are two companies struggling to make it in the difficult world of drug development and thus the transaction announced today could be seen as merger of equals. Newron was on the ropes following the failure of ralfinamide in 2010 (The bell tolls for Newron's neuropathic back pain candidate, May 6, 2010) and earlier this year had been in merger talks with Santhera, which has suffered its share of setbacks in the degenerative diseases space (Catena once again Santhera's downfall, May 20, 2010). Merger plans with Santhera fell apart in February.

Biotie’s position is somewhat better: its partner Lundbeck is preparing a European application for nalmefene, which is aimed at reducing but not necessarily eliminating alcohol consumption among heavy drinkers. Mixed results – Lundbeck acknowledges that the compound did not meet all of its endpoints at all times during the trial – along with a cultural tilt toward counselling and abstinence by addiction specialists raise questions about whether nalmefene will succeed on the regulatory and commercial stage (Nalmefene data positive but concerns remain, June 15, 2011).

Biotie's move on Newron has similarities to its all-share purchase of Synosia Therapeutics in February this year, a deal valued at €94m which gave Biotie some clinical stage assets including tozadenant (SYN-115) in phase IIb for Parkinson's.

Milestones

If nalmefene is not successful, Merck KGaA-partnered safinamide will be next up in the merged company queue as a treatment for Parkinson’s dyskinesia, a side effect related to the diminishing effectiveness of levodopa. Phase III data in combination with levodopa is expected in the first half of 2012 with a filing possible in the second half.

It is the fate of safinamide on which a chunk of the deal value rests. Newron shareholders become eligible for an additional 8.5 million shares on a filing of safinamide either in Europe or the US as a levodopa add-on, with another 8.5 million shares available for filing as a dopamine agonist add-on.

At yesterday’s closing price, the milestones add a potential €7.2m to the value of the deal, and would give the former Newron shareholders 21.5% of the merged company if they are added to the shares offered at acquisition.

With the exception of the UCB-partnered tozadenant and nepicastat in phase II studies for post-traumatic stress disorder, also held by Biotie, the remainder of the combined company’s pipeline is phase I or earlier.

The deal also brings along a welcome €10m in cash from Newron and a less welcome €2.16m in debt owed to the Italian government. The former can be added to Biotie’s €17.6m to give the combined company a decent cash cushion.

The two companies spent a combined €11.6m in the first six months of 2011, so there is no immediate need for capital, but milestone-generating clinical or regulatory success or a fund-raising will probably be necessary sometime in the next two to three years. Without it, the new company could find itself engaging in further M&A activity.