Merger With Oncogenerix, Inc.
In January 2012, DARA Bio (DARA) announced it has entered into a transaction to merge with privately-held Oncogenerix, Inc. of Mount Pleasant, SC. Oncogenerix is a specialty bio-pharmaceutical company focused on the identification, development and commercialization of branded and generic oncological bio-pharmaceutical products. Oncogenerix is presently engaged in two key areas of product development, oral liquid formulations of U.S. Food and Drug Administration (FDA) approved products and sterile injectable cytotoxics. Oncogenerix is now a wholly-owned subsidiary of DARA Bio.
Oncogenerix's lead product is Soltamox, a U.S. FDA approved (in 2006) oral liquid formulation of tamoxifen citrate primarily used to treat breast cancer. Soltamox is the only FDA approved oral liquid formulation of tamoxifen available for sales in the U.S. The product was licensed from UK-based Rosemont
Pharmaceuticals, Ltd. Rosemont currently sells Soltamox in the UK and Ireland.
Tamoxifen was originally developed by over 30 years ago. The product was first commercialized as Nolvadex by ICI Pharmaceuticals, later acquired by AstraZeneca Plc. Sales of tamoxifen oral tablets peaked at $1.1 billion in 2001. It is now widely available as a generic tablet for as little as $50 per month with tier 1 coverage. A typical course of treatment on tamoxifen involves daily dosing for up to five years.
…A Commercial Ready Asset…
DARA plans to launch Soltamox in the third quarter 2012. The commercial supply will be sourced from Rosemont, with DARA paying cost plus a small royalty (we estimate mid-single digits) on sales. We expect that DARA will build a sales force of approximately five full-time representatives to promote Soltamox around the U.S. The company's promotional efforts will focus around physician and pharmacy education about the benefits of an oral liquid formulation of tamoxifen. Patients undergoing radiation treatment or with oral mucositis may find it difficult to swallow the tamoxifen oral tablet. The liquid formulation provides easy of administration and convenience of dose. Post-menopausal women with hormone positive breast cancer may be on a number of oral medications. Soltamox provides differentiation from solid dose medications. This may lead to improved compliance.
We believe awareness is key to the Soltamox uptake, especially at the pharmacy where Soltamox can be suggested to the patient if there is evidence or a mention of difficulty swallowing (dysphagia). According to the National Cancer Institute, approximately 230,000 women were diagnosed with breast cancer in 2011. The one-year mortality rate is roughly 17%. There were an estimated 350,000 prescriptions written for generic tamoxifen in 2011. DARA will focus on high tamoxifen prescribers, leading cancer centers, and brand awareness to drive sales.
Soltamox has approximately 1.5% of the tamoxifen market in the UK and Ireland. We see the opportunity as similar, perhaps a tad bigger, in the U.S. We expect that Soltamox will command a premium price to the generic, perhaps as much as $250 per month, and gain tier-3 formulary coverage. We expect that DARA will offer a co-pay assistance program to patients so that the out-of-pocket expense for Soltamox vs. generic tamoxifen is negated.
With an estimate 2% share of the U.S. tamoxifen market, we see peak sales of Soltamox at roughly $25 million. We forecast sales in the first year of launch will be around $3 million, growing to near $25 million around the time of the patent expiration in 2018. The benefit to DARA is that patients starting on Soltamox will most likely continue on the drug for up to five years. We think sales will build slowly, but as awareness grows each patient turns into an annuity stream for the company, eventually leading to a highly profitable venture for DARA.
Former Oncogenerix, Inc. CEO, Christopher Clement, has joined DARA Bio as the company's Chief Operating Officer and member of the board of directors. We note that an additional member to the board of directors will be appointed representing Oncogenerix shareholders in the near future.
…Our Take On The Deal…
We like the deal from a commercial standpoint. Soltamox offers peak sales in the U.S. of approximately $25 million. We believe the potential for Oncogenerix to license additional oncology or oncology-care products in the future marries well with DARA's phase 2b ready asset, KPN5500 for chemotherapy induced peripheral neuropathy (CIPN). The ability to acquire a commercial asset with $25 million in peak sales for only $1.73 million in stock is a big win for DARA shareholders. Couple that with the upside in future licensing and pipeline expansion at Oncogenerix makes us believe DARA's future looks brighter post deal. Besides Oncogenerix, we are intrigued with the potential for an alliance with UK-based Rosemont Pharma.
Rosemont controls the rights to Soltamox in Latin America and Asia as well. Rosemont manufactures (cGMP) and supplies over 140 liquid medicines including, including both licensed and unlicensed products. Rosemont is looking to expand its pipeline and DARA, with five specialty oncology representatives coming on board later this year, will be looking to expand its promotional efforts. We would not be surprised to see DARA and Rosemont collaborate on future products for the U.S. or Ex-U.S.