United Therapeutics Replaces Oral Treprostinil With Lilly’s Tadalafil In PAH – For Now

Non-shocking Phase III blowup coincides with U.S. deal for rights to drug already cleared for erectile dysfunction.

United Therapeutics' news of its Phase III fizzle with oral treprostinil in pulmonary arterial hypertension stole headlines Nov. 17, but the company disclosed another bit of same-day news in PAH that some might find puzzling.

From Lilly, United is taking over U.S. commercialization rights to tadalafil, better known as the erectile dysfunction drug Cialis , now under regulatory review by FDA as well as authorities in Europe, Canada, Mexico, and Japan, for PAH. The deal brings Lilly $150 million up front, with rights retained outside the U.S. The Indianapolis firm will manufacture and supply tadalafil for United, as well as buy $150 million of the company's stock.

Lilly's move with Cialis seems unusual given the marketing of Revatio (sildenafil) for PAH by Pfizer. Revatio, a phosphodiesterase-5 inhibitor like Cialis - and, like Cialis, approved earlier for ED (as Viagra ) - seems a good fit with the specialty-pharma model that firms such as Pfizer have made a point of adopting. Lilly, which has made its own noises about moving in the specialist direction, most recently in oncology, surely has the infrastructure to market Cialis for PAH.

On a conference call regarding oral treprostinil results and the Cialis deal, United execs stayed mum on key terms of the latter, saying only that the arrangement includes a standstill provision. Andrew Fisher, senior vice president and deputy general counsel, noted in an interview later that it was unclear whether the standstill related to Lilly's ability to re-sell the stock or acquire more. "We're going to leave it at that," he said, adding that the company usually does not comment on such matters.

The price Lilly agreed to pay for United's stock was not disclosed, and shares tanked on the trepostinil news, closing at $58.62, down almost 32 percent, after trading as low as $56.29. An 8-K filing related to the stock sale shows Lilly's price is .90 multiplied by the lesser of either the average closing price for the five days ending Nov. 14 or the average price five days after Nov. 17.

"It's [about] 10 percent off the average trading price" for the period, and Lilly "will end up getting the benefit of that decline," Fisher said.

Glass half full

CEO Martine Rothblatt worked to spin the deal news and the failure of oral treprostinil results from the FREEDOM-C trial in a positive direction.

On the day's conference call, she noted the revenue potential of tadalafil in PAH is at least as large as revenues gained from Remodulin , United's approved, intravenous version of treprostinil. Adding U.S. rights to tadalafil "portends a doubling of our market cap even after accounting for the modest dilution occasioned by the Lilly's strategic investment in us," said Rothblatt.

Lead product Remodulin has been the main contributor to United's bottom line, and the firm recorded revenues last year of $210.9 million, up 32 percent over 2006.

But even as Rothblatt insisted that United has "more than compensated for the delay in [approval of] oral treprostinil" with the Lilly deal, she also acknowledged "even when a glass is almost full, as ours is today, it's still important to address any missing water."

Rothblatt said United "paid the price all too frequently extracted from biotech companies that skip Phase II studies."

"Phase III dosing turns out to be slightly off, and hence the study cannot achieve its goals with statistical significance," she said. "It's probably useless to question at this point whether or not we should have skipped the Phase II study, for the study we report out today has in fact become that Phase II study."

Patients in FREEDOM-C who started with 0.25 mg doses achieved a greater than 30 meters in the six-minute walk test, but the trial missed statistical significance because too many patients never reached the optimal dosing level. United was "caught surprised with about one-third of our patients under-dosed," Rothblatt said.

While the company remains certain of the eventual approval of a treprostinil pill, the U.S. launch by United in PAH will be delayed from the mid-2009 time frame to at least mid-2010.

An NDA for the inhaled version of treprostinil for PAH is also pending with FDA. If approved, United's drug will join currently marketed prostacyclin analogs for PAH including GlaxoSmithKline's Flolan , which is administered by infusion, and Actelion's Ventavis (iloprost), another inhaled therapy (¹ (Also see "United Therapeutics Reports ‘Solid’ Fourth Quarter As Inhaled Remodulin Gains Fans" - Pink Sheet, 19 Feb, 2008.)).

Analysts see a "buying opportunity"

Whether Lilly guessed that the lack of a dose-ranging Phase II study would trip up FREEDOM-C and pare down the stock making it an even better deal for Lilly is something about which Fisher declined to speculate. "If they were that clever, then more power to them," he said, adding that such guesswork is "not consistent with the tenor of negotiations."

Those negotiations, he added, had been ongoing for quite some time, and only coincided by happenstance with disclosure of FREEDOM-C data.

Oppenheimer analyst Bret Holley wrote in a Nov. 17 research note that Wall Street's response to the negative top-line FREEDOM-C news was a "clear overreaction." Results from another Phase III oral trepostinil trial, called FREEDOM-M, are expected in the first quarter of next year, and likely will prove better, since no background therapy is involved in that study, Holley wrote, and FREEDOM-C's outcomes provide a roadmap for a new Phase II trial, likely to use the 0.25 mg dose.

Joseph P. Schwartz, with Leerink Swann, in a same-day research note wrote that the dosing hitch in FREEDOM-C was not surprising, and regarded "any resulting weakness as an excellent buying opportunity ahead of FREEDOM-M data."

- Randall Osborne ([email protected])