SEPR update

MoneyClicks: Target Advertising For Financial Sites

SEPRACOR UPDATES

Eli Lilly and Company recently detailed its strategic and operational plans for continued long-term growth. In their plan, Sepracor seems to play a big role as they look to the expiration of the patent on Prozac. As we all know, the two companies have a licensing agreement that allows Lilly to exclusively develop and globally commercialize R-fluoxetine. They feel R-fluoxetine is "an exciting molecule with a good chance of becoming an important new advance in treating depression." In the preclinical studies, R-fluoxetine was shown to "offer greater flexibility in treating depression compared with currently marketed antidepressants." They went further, stating "R-fluoxetine has the potential to provide treatment benefits in a broader range of patients and for a broader range of indications than most currently available antidepressants, including Prozac." Obviously Lilly is excited with this drug. It is certainly going to be in their interest to push R-fluoxetine through the approval process. The sooner Lilly is able to get the "NEW AND IMPROVED" Prozac on the market, the more likely they are to retain market share. If there are significant improvements in the side effect profile over existing antidepressants, the potential for R-fluoxetine would be astounding. Lilly knows all of this and there is nothing like "Big Pharma" fighting for market share. I suspect the marketing push will be huge (and we have probably seen the start with their Prozac infomercial).

The FDA issued a warning letter to Sepracor asserting the company made "unsubstantiated and misleading promotional claims that are inconsistent with the approved product labeling, overstate the safety and efficacy of Xopenex, or otherwise lack fair balance." The FDA went on to say that "many of the same issues objected to below, were the subject of a March 26, 1999 untitled DDAMC letter to Sepracor on its initial promotion of Xopenex." The agency ordered the company to immediately cease distribution of the materials. While stating that the "overall message of product superiority overstates the safety and efficacy of Xopenex" in the next line they state "Xopenex 0.63mg was only demonstrated to be clinically comparable to 2.5mg albuterol sulfate." The FDA is immediately attacking their own complaint. Obviously, a dose of medication that derived "clinically comparable" effects to a dose four times the size is "superior." The FDA goes on to say Xopenex had "only slightly less incidence of certain systemic beta-adrenergic side effects (e.g., tremor, nervousness) and only slightly less change in heart rate and plasma glucose." Again, they are stating the drug is equal or "slightly" superior at one quarter the dose. I suspect that Xopenex (and Sepracor) will be fine and this letter will have little bearing on the future of the company. As the medical community begins to hear and learn about Xopenex, the lower incidence of side effects and improved dosing schedule should win converts at an increasing pace.

Sepracor announced a licensing agreement with the Belgian company, UCB, relating to levocetirizine, an isomer of Zyrtec (racemic cetirizine). Zyrtec was discovered and is marketed by UCB. Zyrtec is currently Europe's leading antihistamine with sales of $250 million in 1998. The company expects worldwide sales approaching $1 billion in 1999. UCB intends to file a marketing authorization application (MAA) (the European equivalent of a new drug application (NDA)) for levocetirizine in early 2000. The company expects the first drug registration in 2002. Currently, levocetirizine is in Phase III clinical trials in Europe. Sepracor has issued patents on levocetirizine in the United States and Europe, which expire in 2013. SEPR also has pending patent applications in a number of other major countries. Under the terms of the agreement, Sepracor has exclusively licensed to UCB all issued patents and pending patent applications regarding levocetirizine in Europe and all other countries, excluding the United States and Japan. Sepracor will begin receiving royalties upon first product sale. Payments will escalate upon achievement of sales volume milestones. The license agreement does not involve the payment of any upfront fees by UCB.

Sepracor will continue norastemizole Phase III trials on its own despite Johnson & Johnson's decision not to co-promote norastemizole. According to Sepracor, the decision not to market the product was "based primarily on the fact that the respiratory market is not expected to be a strategic focus for J&J," said Timothy Barberich, Sepracor's president and chief executive officer. The two companies had an agreement to co-develop and co-market the drug. Under the agreement, the companies would have jointly funded the development of norastemizole. J&J had an option to acquire certain rights regarding the product in the US and abroad. J&J and Sepracor would have equally shared the costs and profits associated with development, marketing and sales of norastemizole in the United States. Under the terms of the agreement, Sepracor said it still has worldwide rights to all J&J's intellectual property covering norastemizole. In addition, Sepracor is entitled to reference data from the astemizole New Drug Application (NDA) for use in Sepracor's norastemizole NDA filing, expected by the end of 2000. In exchange, J&J will receive a royalties on product sales. The Phase III trials are nearly done and the company is will apply for approval next year. Sepracor has the option to use another drug maker to help it with marketing.

Norastemizole is an active metabolite of astemizole which is currently marketed as Hismanal by Johnson & Johnson. Hismanal's sales have fallen significantly in the past few years with concerns about significant cardiac side effects. In a Phase II study, norastemizole treatment resulted in statistically significant improvements in allergic symptoms, including rhinorrhea, sneezing, itchy eyes and nose, and scratchy throat, compared with placebo. Additionally, there were no differences in incidence and severity of side effects, including cardiac events as measured by ECG, when comparing norastemizole with placebo.

It is unlikely there is a problem with norastemizole itself. More likely is an economic decision by J&J. They probably do not see a significant enough return on the marketing investment they would be forced to make. J&J is having problems suceeding in the markets they have targeted. It would certainly make much more sense to focus their investments rather than training a new sales force. The difference a single drug can make for "Big Pharma" is minimal. On the other hand, a single drug can increase revenues significantly for a smaller company. Even if Sepracor never generates any revenue from norastemizole, this is a company whose future does not rest with a one or two drugs. Sepracor will host a conference call Monday, May 17th at 8:30 a.m. EST. The call in number is 800-230-1059 (USA) and 612-332-1210 (International). The replay number is 800-475-6701 (USA) and 320-365-3844 (International) access code 450450 and will be available after 12:00 p.m. EST. Norastemizole clinical data can be accessed at www.sepracor.com beginning Monday, May 17th prior to the conference call.

Sepracor announced the results of a Phase II, 49-patient, single-dose study of (R,R)-Formoterol. The study compared four doses of (R,R)-formoterol with the marketed dose of Ventolin and placebo. All doses of (R,R)-Formoterol demonstrated an immediate increase in FEV1 (a measure of lung function) after administration. After 24 hours, patients receiving higher doses of (R,R)-formoterol showed improvements in FEV1 greater than 15%, and these improvements were greater than those exhibited by patients on Ventolin or placebo. Side effects (beta-mediated) of patients on doses of (R,R)-formoterol were equivalent to or less than those of patients on Ventolin. (R,R)-Formoterol is a single-isomer form of Foradil and Atock (long-acting bronchodilators). The worldwide market for long-acting bronchodilators was $1 billion in 1998. The drug will be dosed once daily, making it the only long-acting bronchodilator dosed this way. The most comparable long acting bronchodilator we have in the United States is Serevent. Serevent is a wonderful drug used in a number of asthmatics. It has become a more frequently used drug to improve asthmatic control. The difference is the dosing schedule. If (R,R)-Formoterol is equally efficacious to Serevent the once daily dosing will win out. This could be another huge market for Sepracor.

Sepracor has taken quite a pounding recently. There seem to be a number of factors associated with this. The stock has run up significantly in a short period of time. This was associated with Wall Street recognizing the profit potential of the company. It was also due to the momentum players jumping into the stock. What is wonderful on the way up can be tough on the way down. The Wall Street types are happy to take their profits and the momentum players are out as soon as the momentum ends (therefore their moniker).

The news about a decrease in Prozac sales also played a role in this sell off. As everyone knows, Eli Lilly is developing a reformulated version of Prozac called R-fluoxetine that was discovered and patented by Sepracor. In December, Lilly agreed to pay Sepracor $20 million in upfront fees plus $70 million in milestone payments for exclusive worldwide rights to the compound. SEPR is also to receive royalties from the sales of the drug. Prozac's first quarter sales were reported to have fallen 4%. This seems to have concerned investors about the future prospects of R-fluoxetine. A couple of points are worth remembering. First of all , THIS IS PROZAC! Prozac has become a significant brand in this country (think Kleenex, Coke). Who wouldn't want the "NEW and IMPROVED" Prozac? From a medical standpoint, Prozac is losing sales secondary to less desirable characteristics about the drug. If these less desirable characteristics are removed from R-fluoxetine, physicians will be as likely to use the drug as competitors.

Finally, Sepracor received a letter from the FDA questioning the marketing of its recently approved asthma drug Xopenex. The FDA was concerned about SEPR claiming increased safety. The FDA letter stated "We have determined that the press release makes unsubstantiated and misleading promotional claims that are inconsistent with the approved product labeling, overstate the safety and efficacy of Xopenex, or otherwise lack fair balance. Therefore the press release violates the Federal Food, Drug, and Cosmetic Act and its implementing regulations." The letter goes on to point out the concerns the FDA has with the press release. This letter is not criticizing the drug itself. The drug is approved, now the usage will be based on clinical utility (no matter what the FDA or the company say). The clinical results seem to indicate an improvement over racemic albuterol. If this holds in practice, the sales will follow.

Sepracor announced its consolidated financial results for the first quarter of 1999. For the three months ended March 31, 1999, Sepracor's revenues were $5.1 million, and the net loss applicable to common shares was $30.3 million, or $.93 per share. These results compare with revenues of $8.9 million, and a net loss applicable to common shares of $11.9 million, or $.43 per share for the three months ended March 31, 1998. As of March 31, 1999, Sepracor had approximately $462 million in cash, cash equivalents and marketable securities. In the press release the company discussed the approval of Xopenex. They stated that "Xopenex will be officially launched in April and sold through Sepracor's respiratory sales force directly to pulmonologists, allergists, pediatricians, and primary care physicians in hospitals and clinics in the U.S. In addition to the nebulizer solution, Sepracor is developing Xopenex for use with several delivery systems including syrup, tablet, dry-powder inhaler and metered-dose inhaler." They also discussed the patent (-)-pantoprazole, a single-isomer form of Pantozol. Pantozol is a proton pump inhibitor marketed outside of the US for the treatment of gastroesophageal reflux disease (GERD). Pantozol's sales were approximately $300 million in 1998.

Sepracor has been granted a US Patent on (-)- pantoprazole, a single-isomer form of Pantozol. Pantozol is a proton pump inhibitor used in the treatment of gastroesophageal reflux disease (GERD), peptic ulcer disease and gastritis.
Sales of Pantozol were $300 million in 1998, the worldwide sales of proton pump inhibitors were $10 billion in 1998. Sepracor believes that (-)- pantoprazole may have the potential for increased efficacy. Studies on the single isomer version of Prilosec (a different proton pump inhibitor) suggest a faster onset of action and improved efficacy. It is reasonable to suspect the same will be seen with all single isomer proton pump inhibitors.

Sepracor received final approval from the FDA to market Xopenex (levalbuterol HCl) inhalation solution in two dosage strengths for use with a nebulizer for the treatment and prevention of bronchospasm. Xopenex is the therapeutically active (R)-isomer of racemic albuterol. In clinical trials, Xopenex demonstrated excellent safety and efficacy. The duration of action lasts up to 8 hours.

In Phase III clinical trials patients treated with 0.63 mg of Xopenex demonstrated lung-function responses comparable to those treated with the standard dose (2.5 mg) of racemic albuterol, after the first dose as well as after four weeks of therapy. Patients on 0.63 mg of Xopenex had a lower incidence and severity of beta-mediated side effects, such as nervousness and tremor, compared with those taking 2.5 mg of racemic albuterol. On both day 1 and day 29, 1.25 mg of Xopenex demonstrated the largest mean percent change from baseline in FEV1 compared to other active treatments. Xopenex will be used as a nebulized solution.

Sepracor plans to internally develop at least nine of the 16 Sepracor ICE Pharmaceuticals under investigation. They also have "several compounds that are being developed for licensing to pharmaceutical partners and have already licensed five such major compounds. By the end of 1999 they "intend to have twelve ICE clinical programs underway." Sepracor is planning on having its own portfolio of respiratory products in the near future. They will have Xopenex, norastemizole for allergies and formoterol (a long acting bronchodilator).

There are 14.6 million Americans with asthma. The number of deaths secondary to asthma has increased 117% since 1979. Racemic albuterol, an equal mixture of (R) and (S) isomers, is the world's leading bronchodilator for asthma, with estimated worldwide sales of $1.2 billion in 1998. Sepracor will sell Xopenex for about $1.75 a unit, comparable to brand-name products such as Ventolin and Proventil. The price will be a premium to that of generic versions, which sell for about $1.21 each.

HUGE news on Sepracor!!!!! They finally inked a deal with Eli Lilly & Co. for R-fluoxetine (Prozac isomer). The deal is a license agreement that will enable Lilly to exclusively develop and globally commercialize R-fluoxetine. Sepracor will receive an up-front milestone payment and license fee of $20 million. The company will also receive up to $70 million in additional milestone payments based on the progression of R-fluoxetine through development. In addition, Sepracor will receive royalties on R-fluoxetine worldwide sales beginning at product launch. In exchange, Lilly will receive exclusive worldwide rights to R-fluoxetine for all indications and uses. Lilly will be responsible for all subsequent development work on R-fluoxetine, regulatory submissions, product manufacturing, marketing and sales. In the Boston Globe, Timothy J. Barberich, Sepracor's president and chief executive said royalties could go as high as 15%. Prozac sold $2.6 billion in 1997. If the new drug is able to capture revenue anywhere close, Sepracor has vast royalty stream that is coming. If R-fluoxetine is able to sell $2 billion (reasonable given the growth in anti-depressants and the NEW, IMPROVED Prozac cachet) the revenue stream is $300 million. We believe this makes our estimates of $9.29 per share by the end of 2001 even more attainable.

November 11, 1998--Sepracor announced the results of a 186 patient, Phase II trial to evaluate the efficacy of (S)-oxybutynin in treatment of urinary urge incontinence. The study was a two-week double-blind, randomized, placebo-controlled trial. The purpose was to evaluate the ability to reduce urinary frequency and to evaluate the anticholinergic effects of the drug.

S)-oxybutynin reduced urinary frequency by up to 18% vs. placebo. Urinary frequency was reduced anywhere from 1.9 to 2.8 episodes per day dependent on dose. Incontinence was reduced up to 1.3 episodes per day. This was 42% better than the control and 33% better than placebo. Up to 50% of the patients in the study had 50% or better improvement in incontinence. 29% of the high dose patients achieved full continence.

(S)-oxybutynin was well tolerated in this study. Only 14-16% of the patients experienced significant dry mouth. Comparing these results to a study with both tolterodine and oxybutynin (two other medications used for this indication) looks promising. In patients taking oxybutynin 69% had a dry mouth. Patients with tolterodine showed 30% with dry mouth. Of course, comparing results from two seperate studies is not always a reasonable approach, but it does give us another piece of information.

According to Dr. Paul Rubin, Senior Vice President, Drug Development, "Without any attempt at dose optimization, this study clearly shows that (S)-oxybutynin reduced both urinary frequency and incontinence episodes while demonstrating good tolerability. The results of this trial appear to validate preclinical observations that (S)-oxybutynin imparts a spasmolytic effect independent of its anticholinergic properties."

These results are very exciting for this company. There are up to 13 million people in the United States that suffer urinary incontinence.