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12:00 AM
Nov 02, 2009
 |  BioCentury  |  Finance

Ebb & Flow

Last week's low-money down acquisition of Metabasis Therapeutics Inc. (NASDAQ:MBRX) by cancer and inflammation play Ligand Pharmaceuticals Inc. (NASDAQ: LGND) is the latest example of a structured acquisition with contingent payouts over time.

Ligand could get the infectious disease and metabolic company essentially for free, since the $3.2 million cash payment up front would be largely offset by its share of an undisclosed cash milestone upcoming from Roche (SIX:ROG; OTCQX:RHHBY) under a 2008 deal to apply Metabasis' HepDirect liver-targeting technology to the pharma's nucleosides to treat HCV.

Metabasis shareholders will get about two-thirds of a potential $191 million in total milestones under the Roche deal, and two-thirds of royalties or other proceeds under the partnership.

They would also get 50-90% of any proceeds related to other Metabasis programs, some of which would drop to 10% over time.

Ligand would receive the other one-third of payments under the Roche deal and the remainder of the proceeds of other programs.

Metabasis shareholders will receive about $1.8 million in cash after the company's net liabilities. Stockholders also will receive four tradable contingent value rights for each Metabasis share. The CVRs will entitle the shareholder to cash payments as often as every six months as cash is received from various triggering events.

Ligand has committed to spending at least $8 million on R&D for Metabasis' other programs within 42 months of the transaction closing, unless both a glucagon antagonist program and a thyroid receptor beta agonist program fail or a licensing event occurs for at least one of the two programs. The most advanced thyroid receptor beta agonist is MB07811, which is in Phase Ib for hyperlipidemia. The glucagon program is in preclinical development.

Separately, GlaxoSmithKline plc (LSE:GSK; NYSE:GSK) disclosed in its 3Q09 earnings that it suspended the Phase III ELEVATE trial of Ligand's Promacta eltrombopag after interim data showed an imbalance in the risk of thrombotic events.

The trial was evaluating the ability of Promacta to reduce the need for platelet transfusions in patients with chronic liver disease undergoing elective invasive procedures. GSK has worldwide rights to the compound (see B30).

On the week, Ligand shares fell $0.32 (16%) to $1.70.

Royalty safety net

PDL Biopharma(NASDAQ:PDLI) set the stage last week to fulfill a March 2008 promise to investors to distribute half the value of its antibody humanization royalties to shareholders. The company formed a subsidiary,QHP Royalty Sub LLC, that will issue $300 million in senior secured notes due in 2015. The notes will bear 10.25% interest.

PDL said it plans to use a "sizable portion" of the proceeds to pay a special cash dividend to its shareholders, to be determined by PDL's board on Nov. 11. The size of the dividend is to be disclosed the following day, with the per-share dividend announced in early December. The company expects to pay the dividend to shareholders this year.

CFO Cris Larson told Ebb & Flow the company issued the debt via a subsidiary solely to protect the investors in the new debt from any potential bankruptcy on the part of PDL.

To secure the notes, PDL will transfer to the subsidiary 60% of the royalties it receives from four Genentech Inc. drugs, Avastin bevacizumab and Herceptin trastuzumab for cancer, Lucentis ranibizumab for wet age-related macular degeneration (AMD) and asthma drug Xolair omalizumab. In 2008, royalty revenue from these products accounted for $216.3 million of PDL's total royalty revenues of $275.5 million.

The QHP unit also will hold the royalty rights for future products that may be licensed by Genentech, a unit of Roche (SIX:ROG; OTCQX:RHHBY).

The patents upon which these royalties are based expire in late 2014. According to Larson, the royalties will pay off the subsidiary's debt in 2013, after which QHP will automatically cease to exist.

Larson said the royalties will likely continue to pay out until 2016, as she expects it to take about 24 months to sell all the patent-protected inventory.

In May 2008, PDL paid a $4.25 per share cash dividend totaling about $500 million. At June 30, the company had $445 million in long-term debt and $192.7 million in cash.

On the week, PDL shed $0.11...

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