Basilea Pharmaceutica

Basilea Pharmaceutica

Basilea Pharmaceutica is a public European biotech company listed on the SIX Swiss exchange under the ticker BSLN.SW As of Dec 13th 2011 it shows a market cap of CHF 315M (USD $333M). From its last financial report (6 months ended June 2011), it sits on CHF 243M cash, the debt/equity ratio is 0.44 and net loss is CHF 20M Basilea is currently developing several products in the anti-infective area and has one product commercialized for the treatment of chronic hand eczema (CHE) in a number of countries in parntership with global pharmaceutical companies. (Article originally published in December 2011)

Toctino (alitretinoin)

Basilea’s marketed drug is Toctino, an A-vitamin derivative delivered orally once-daily for the treatment of patients with severe hand eczema refractory to topical corticosteroid treatment. It is approved in 18 countries and is being sold in 10 including Canada, Israel and some of Europe’s major markets i.e. France, Germany and the UK. Toctino will be marketed in 10 European countries and Mexico under an agreement with Spain’s Almirall SA (ALM.MC). The June 2010 deal amounts to $37M in total value. To date, $7.1M has been realized. A distribution agreement for Canada was struck with Actelion (ATLNE.SW) in August 2010 with a total projected value of CAD 3.7M. A regulatory filing in the US is anticipated in 2012 after reporting data from a Phase III clinical trial that are expected at the end of 2011.

Since its launch, Basilea has been reporting increasing yearly sales of the drug: CHF 17.3M in 2009, 29.2M in 2010 and 15M for the first half of 2011, up 11% (or 24% in local currencies) compared to 1H 2010. The company has recently lowered its 2011 guidance from CHF 40M to 32-34M mainly due to the strenght of the Swiss franc and the present pressure on pricing because of healthcare austerity measures. As the company states, market penetration and negotiation with national health authorities have been slow as it’s deemed as a costly treatment not subject to reimbursement by some health agencies such as Denmark’s.

Around 10% of the world’s population develops hand eczcema, with severe eczema amounting to 5-7% of those cases. Hence, at an average price of $2,500 – 5,000 USD for the 12 – 24 weeks treatment respectively and 30M revenues in 2010, there could be still plenty of room for the sales to grow over the next few years, even more if the drug is approved in the US.

Ceftobiprole

Ceftobiprole is currently listed in Phase III clinical trials. According to the company, they’re in the process of examining data generated in previous clinical studies for pneumonia in order to determine data quality for potential filings. Data from this analysis will be out soon as the company stated they’d complete review due 4th quarter 2011.

The development of this compound has been somewhat troublesome in the past. Basilea won a litigation in November 2010 against its former partner Johnson & Johnson that brought in $130M after a Dutch arbitration court found that J&J had breached a licensing agreement for the antibiotic ceftobiprole. This drug, intended for the treatment of complicated skin infections, appeared effective in clinical trials at treating methicillin-resistant Staphylococcus aureus, or MRSA, a common source of hospital infections and a public health problem. Ceftobiprole has been rejected once by the EMA after finding the trials didn’t follow good clinical practices and twice by the FDA which requested additional clinical studies.

Isavuconazone

The next compound in advanced development is isavuconazone, a broad spectrum triazole for the treatment of fungal infections. Phase III clinical trials are being conducted in partnership with Japan’s Astellas Pharma under fast-track designation from the FDA. Both companies inked a deal in February 2010 triggering an upfront payment for Basilea of $73.4M and up to $468M upon achievement of certain development and sales milestones plus double-digit tiered royalties on sales. Data from these trials are expected some time during 2013. Previous results from a Phase II study in oesophageal candidiasis met its primary and secondary endpoints of clinical cure and therapeutic responses respectively.

In major markets, 9 million patients are at risk for invasive fungal infections of which 2 million are being treated. There’s a high medical need to overcome the problems of current therapies with regards to resistance, side effects and effectiveness. This market has a high competition from generics.

Conclusions

Basilea Pharma is an example of how the current economic environment and the need for tighter pricing policies on drugs are affecting biopharmas’ income statements. Also, the company has had a troublesome history of delays in running clinical trials and getting its drugs to the market. The company’s near-term catalysts are US Phase III results of Toctino which I expect them to be positive and the clinical data audit of Ceftobiprole that could serve for potential regulatory filings for pneumonia. A potential US approval of Toctino in late 2012 or early 2013 would open the doors to the world’s largest market for severe eczema although the company will very likely have to find a partner for that territory. Trading now at approximately 33 Swiss francs (USD $35) with a market cap of 315M (USD $333M) and close to record lows, I consider Basilea Pharmaceutica undervalued and probably poised for a turnaround after this last summer’s market mayhem drove its price 50% down given that news from its near-term catalysts comes up positive.

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