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A marriage of convenience and passion
March 2011
by Kimberley Sirk  |  Email the author
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LAJOLLA, Calif.—Ligand Pharmaceuticals started the year off by purchasing privately held CyDex Pharmaceuticals Inc. for a combination of cash and contingent payments. CyDex, based in Lenexa, Kansas, will operate as a wholly owned subsidiary of Ligand. The purchase is the fifth acquisition Ligand has made in the past two years.

CyDex is known for Captisol, a patent protected, uniquely modified cyclodextrin, whose chemical structure was rationally designed to maximize safety and optimize insoluble drugs. It is patent protected until 2029.

The well-regarded drug formulation technology improves the solubility, stability, bioavailability, safety and dosing of active pharmaceutical ingredients. Routes of administration include injectable, topical and oral pharmaceuticals. CyDex is focused on developing and commercializing new products that use Captisol to address the limitations of currently marketed drugs.

This specialty made the company attractive to Ligand—but was not the only reason why Ligand courted CyDex.

Robert McKay, senior director of investor relations for Ligand, says the deal was attractive because of CyDex's revenue stream, and the complementary nature of the two businesses.

"CyDex is a mirror image of Ligand's business model," McKay says. "Our drug discovery and formulation capabilities match well. We were also in the place as a company where we needed to make an acquisition to accelerate our financial growth and to interest investors."

McKay describes a timeline where his company, first established in 1987 in San Diego around technology born from the Salk Institute, made a name for itself in the 1990s with five U.S. Food and Drug Administration (FDA) approvals on its drugs and then experienced acute growing pains.

In the mid- to late part of the last decade, the company began to collapse and then rebuild, McKay says, realigning its staff, holdings and looking toward a new vision for positive cash flow.

"Ligand rebuilt with four years of work, putting together a new company," he explains. "We are assembling a wide portfolio of products to be sustainably profitable."

Then came the interest in and courtship of CyDex, which McKay describes as a validation that Ligand's strategy was on the right track.

"We first engaged with CyDex in spring of 2010," he says. "Then other suitors emerged, and the bidding become quite competitive."

McKay would not comment further on the competition for CyDex, but says that the other companies in the race at that time knew CyDex better than Ligand did.

"We knew we were on to something. But in the end, CyDex still called Ligand," he said.

What Ligand was onto was the acquisition of the well-established Captisol drug delivery technology.

CyDex describes its focus as the pursuit of licensing agreements with established pharmaceutical companies that are interested in using the Captsol technology to improve product candidates in their pipelines. Five FDA-approved, Captisol-enabled medications are now being marketed by three CyDex licensees: Pfizer Inc., Bristol-Myers Squibb Co. and Prism Pharmaceuticals, and the company boasts license and supply agreements with a number of pharmaceutical companies worldwide with Captisol-enabled product candidates in their pipelines.

CyDex shareholders will initially get $31.2 million in cash, an additional $4.3 million on the one-year anniversary of closing and other perks related to other specific transactions that may occur over time. Ligand estimates that once brought fully into the fold, the combined company will see a cash flow double that what Ligand experienced alone last year.

In addition to bringing into its stable an established company with a strong cash flow coupled with a stellar reputation and bright future, Ligand officials say that since 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, the marriage was one of passion and convenience.

"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 CEO of Ligand, in a prepared statement.

"Ligand will now combine the royalties from seven marketed drugs, along with the substantial revenue from the selling of Captisol, to advance Ligand toward its goal of turning cash-flow positive with substantial future growth opportunities," Higgins continued. "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."

Although CyDex company officials did not respond to requests for comment on this arrangement, former CyDex president and CEO Ted Odlaug said in a prepared statement that he believes that Ligand and CyDex will dovetail well.

"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," says Odlaug. "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."

McKay says that CyDex employed 14 people when the two companies met, and nine will remain under the new structure as redundancies are eliminated.
 
Code: E031122

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