On January 26, 2011 Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) reported it has acquired privately held CyDex Pharmaceuticals, Inc. for a combination of cash and contingent payments (Press release, Ligand, JAN 26, 2011, View Source [SID1234517134]). CyDex, based in Lenexa, Kansas, had 2010 revenue of $16.3 million and EBITDA of $7.6 million, and will operate as a wholly-owned subsidiary of Ligand.
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CyDex shareholders will receive $31.2 million for the merger in upfront cash, a $4.3 million cash payment on the one year anniversary of closing, and will be entitled to contingent cash payments related to certain transactions and pursuant to a revenue share plan. In addition, Ligand paid approximately $800,000 at close for an adjustment for working capital.
"This transformational acquisition accelerates Ligand’s financial growth and provides a unique and broad basket of new assets to further expand our business and long-term potential," said John Higgins, President and Chief Executive Officer of Ligand. "Ligand will now combine the royalties from seven marketed drugs, along with the substantial revenue from the selling of Captisol(R), to advance Ligand toward its goal of turning cash-flow positive with substantial future growth opportunities. This growth will be largely fueled by what Ligand believes is an industry unprecedented portfolio of more than 50 fully-funded partnered development programs, creating a myriad of new revenue stream possibilities."
"CyDex has created a very successful business around the Captisol drug reformulation technology over the last several years and the company has significant growth potential," said Ted Odlaug, former President and Chief Executive Officer of CyDex Pharmaceuticals. "We are very impressed with Ligand’s business model, success in deal making and commitment to continue driving the CyDex business to even greater success. We believe Ligand’s broad licensing network and business acumen, coupled with the opportunity to share in future upside in the business, created an attractive exit for CyDex shareholders."
Acquisition Rationale
The acquisition of CyDex’ cash-flow positive business will accelerate Ligand’s projected financial growth.
— Ligand’s projected 2011 revenue is expected to more than double versus
Ligand’s stand-alone revenue as a result of the transaction, not
including any new licensing revenue (i.e. SARM) or accelerated growth in
Promacta(R) royalties.
Ligand’s asset portfolio (including development stage programs and marketed drugs) will greatly expand to more than 60 programs, significantly increasing the opportunity for new revenue streams over the next few years.
— The existing CyDex portfolio includes numerous high-quality license and
royalty bearing agreements, including Onyx Pharmaceuticals for
carfilzomib and Prism for Nexterone(R).
— Post-merger corporate portfolio is comprised of 7 marketed drugs and
more than 50 fully funded partnered collaborations.
CyDex diversifies Ligand’s business by adding a proprietary and well-validated platform in the increasingly important drug reformulation segment of the pharmaceutical industry.
— Ligand believes that drug reformulation has become an increasingly
valuable solution to the issues related to market erosion due to generic
competition and continued clinical and regulatory uncertainty.
CyDex Brings the Following to Ligand:
Significant Annual Revenue – CyDex currently generates annual revenue from four marketed drugs, material sales from the selling of Captisol, and license and milestone payments.
Onyx Collaboration – CyDex and Onyx Pharmaceuticals entered into a collaboration in 2005 (originally with Proteolix) to develop the Captisol-enabled IV formulation of carfilzomib for refractory multiple myeloma. Onyx has recently reported positive Phase II data for this program and plans to file an NDA in 2011 with the FDA. CyDex is eligible to receive milestones, royalties and Captisol material sales revenue from this program.
Prism Collaboration – Prism Pharmaceuticals recently received marketing approval from the FDA for the Captisol-enabled IV form of amiodarone, to be marketed as Nexterone. Prism plans to launch Nexterone in the near term. Nexterone was developed by CyDex and licensed to Prism in 2007. CyDex is eligible to receive milestones, royalties, and Captisol material sales revenue from this program.
Large Pharma Captisol-Supply Relationships – CyDex currently has multiple material sales collaborations with undisclosed large pharmaceutical companies. These collaborations have Captisol-enabled drugs in clinical development and CyDex anticipates selling Captisol to these partners in the coming years for clinical and commercial use.
Industry Recognized Captisol Technology Brand – Captisol is recognized in the pharmaceutical industry as a powerful answer to the solubility challenges frequently faced by drug-development companies. CyDex’ success is primarily based on solving drug formulation problems, particularly in the area of IV and topical formulations. CyDex has also developed an extensive Drug Master File (DMF) to which its partners can refer when filing with regulatory agencies around the world, adding significant value to the Captisol brand.
Internal Pipeline of Captisol-Enabled Drugs – CyDex is currently developing four proprietary Captisol-enabled drugs for future potential licensing:
— Clopidogrel IV in Phase I for thrombosis
— Melphalan IV in Phase II for stem cell conditioning
— Budesonide/Azelastine nasal in Phase II for seasonal rhinitis
— Topiramate IV in Phase I development for epilepsy
Acquisition Funding
The upfront acquisition payment to CyDex shareholders is comprised of $11.2 million of Ligand’s internal cash and $20 million borrowed on a 42-month secured term loan from Oxford Finance Corporation. Oxford is a specialty lender that has originated loans ranging from $500,000 to $40 million to more than 200 companies. Ligand is also exploring additional financing options for up to a further $10 million in borrowing, for a potential total borrowing of $30 million.
2011 Financial Outlook
For 2011, Ligand expects total revenues to be $22 million to $24 million. The guidance assumes approximately $13 million to $14 million of revenue (partial year accounting) from the CyDex business, and approximately $9 million to $10 million of revenue from the original Ligand business, before any revenue for new licensing agreements.
Ligand’s 2011 operating expenses are expected to be $16 million to $18 million, with an average cost of goods as a percentage of material sales to be approximately 35%. CyDex non-cash amortization expense estimates are expected to be determined in the near-term. If Ligand borrows an additional $10 million during 2011, it anticipates ending 2011 with approximately $20 million of cash. By the end of 2011, Ligand expects its operations to be profitable and cash-flow positive.