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ROWELL's SECOND GENERATION GALLSTONE-DISSOLVING DRUG, URSODEXYCHOLIC ACID

Executive Summary

ROWELL's SECOND GENERATION GALLSTONE-DISSOLVING DRUG, URSODEXYCHOLIC ACID, should reach the NDA filing stage during 1985, according to a recent registration statement filed by Reid-Povident with the Securities & Exchange Commission (SEC). The filing was submitted in connection with Reid-Provident's planned merger with Rowell. Ursodeoxycholic acid, licensed from a West German firm, appears to be as effective as Rowell's Chenix (chenodiol) product but with fewer side effects, the company said. In several European countries where ursodeoxycholic acid is marketed, it has "tended to replace chenodiol," the prospectus notes. "Rowell has acquired clinical studies from others under arrangements which would require Rowell to pay a royalty of 3% of any net sales of the product in the U.S. for a period of five years from the date of first commercial sale," the SEC filing explained. "Rowell has also entered into an agreement with the West German pharmaceutical company relating to the marketing of ursodeoxycholic acid. Under the agreement the two companies will share technology and costs related to the preparation of a NDA for the product, in exchange for which Rowell will pay to the West German company a royalty of 6% of any net sales of the product during a period of 20 years after the product is first sold commercially." Ursodeoxycholic acid is one of two principal specialty products under development at Rowell. The second product, licensed from the same West German firm, is a treatment for ulcerative colitis. The drug, Reid-Provident suggested, "might eventually be used in conjunction with Rowell's controlled-release technology to treat certain other inflammatory conditions in the gastrointestinal tract." Rowell and the German firm have entered into preliminary agreements relating to exchange of product information and U.S. distribution of the product. According to the prospectus, Rowell anticipates a NDA filing for the drug in 1986. Reid-Provident is seeking to raise between $7 mil. and $11 mil., through the sale of between 2.3 mil and 3.7 mil. common shares at $3 per share, to help fund the merger with Rowell. The merger, announced in January, is valued at $17.5 mil. ("The Pink Sheet" Jan. 21, p. 3). The company has commitments from Rowell Chairman/President T. H. Rwoell and his sister M. R. Alleguire to purchase at least $2 mil. and up to $3 mil. of the stock. B. G. Gottwald, brother of Reid-Provident Director F. D. Gottwald, has also agreed to purchase $1 mil. of the shares. Reid-Provident pointed to Rowell's specialty R&D activities as one area of potential synergy between the two companies. "Rowell's research and development activities, which are directed toward the development of specialty pharmaceutical products and related technologies, are expected to complement those of the company," Reid-Provident asserted. "Historically, [Reid-Provident's] research and development activities have been directed toward the improvement of manufacturing techniques for existing compounds. More recently, however, such activities have also been directed toward the development of specialty pharmaceutical products through applications of new technologies." The prospectus also asserted that the merger will strengthen Reid-Provident's marketing "in areas outside, as well as Rowell's marketing within, the southeastern U.S." Reid-Provident added that the merger will broaden its customer base. Both firms have been engaged in delivery system work. Rowell has U.S. and Canadian patents for a technology that "utilizes controlled surface erosion of orally administered products" to attain sustained drug release. Noting it has attempted to license nongastrointestinal uses of the technology, Reid-Provident pointed out that the first out-license was to Ciba-Geigy in 1984 for controlled-release lithium. Reid-Provident, the prospectus stated, "is developing novel dosage form delivery system products to treat migraine headaches and certain cardiovascular disorders." Rowell's specialty products business is built around Chenix, Cortenema, an Rx hydrocortisone retention enema for ulcerative colitis, Balneol, a pernianal cleansing agent, Protocort, a hydrocortisone hemorrhoid treatment, and Hydrocil Instant, a bulk forming laxative. The U.S. patent for and rights to Hydrocil were sold to another pharmaceutical company in 1983, with ethical and institutional marketing rights licensed back to Rowell, the prospectus explained. Noting the licensing rights expire on July 31, 1985 and OTC marketing has not yet begun, the filing cautions "there can be no assurance that Rowell will receive any royalty payments from the sale of" Hydrocil. The specialty business has accounted for an increasing portion of Rowell's operations. In 1980, specialty products represented 25% of corporate sales ($2.2 mil.) versus 75% ($6.6 mil.) for branded generics. By fiscal 1984 the specialty group accounted for 45% of corporate volume ($6.6 mil.) versus 55% ($8.3 mil.) for branded generics. McKesson accounted for 11% (about $1.6 mil.) of Rowell's $15 mil. fiscal 1984 sales and was the mfr.'s largest customer, according to the SEC filing. Rowell's second largest customer, with 6% ($898,000) of sales, was Ciba-Geigy. Rowell manufactures controlled-release lithium for Ciba-Geigy. Sales to approximately 400 whslrs. represented approximately 62% (about $9.3 mil.) of Rowell's business, direct sales to pharmacies 18% ($2.7 mil.), and sales to hospitals 9% ($1.3 mil.).
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