Loss of partner, funding no deterrent to Replidyne

LOUISVILLE – When the FDA pulled the rug out from under the feet of Replidyne Inc. last October, the principals didn’t let it get them down.

When the company’s partner and primary funder, Forest Laboratories Inc., ended a yearlong collaboration in February, Replidyne’s executives brushed off the dust and got back on the horse.

That’s just the way it goes in the biopharmaceutical business, said Replidyne President and Chief Executive Ken Collins and Chief Scientific Officer Nebojsa Janjic. There’s always regulatory risk.

In the case of Replidyne’s faropenem medoxomil, an oral antibiotic for the treatment of certain upper respiratory infections, the problem was regulatory.

Replidyne (Nasdaq: RDYN) had filed a new drug application with the U.S. Food and Drug Administration based on good Phase 3 clinical results, but the FDA refused approval. That spelled the end of the drug development relationship with Forest.

After Replidyne filed its application, the FDA changed what types of clinical trials are necessary for oral antibiotics. Prior to the change, it had been enough for drug companies to show that a new antibiotic worked as well as existing antibiotics, Collins said.

The new rules require Replidyne to show its antibiotic candidate works better than antibiotics currently on the market. “The FDA now wants superiority. They clearly raised the regulatory bar,” Collins said.

The company is in talks with the FDA to come up with a revised regulatory plan for the drug. If the plan is approved, it could become one of the first products to meet the FDA’s new standards for oral antibiotic development.

“There is the risk that regulatory agencies – FDA or EMEA (European Agency for the Evaluation of Medicinal Products) – will not approve the drug for a number of reasons,” Janjic said. “In our case … that was the result of a change in guidelines. This is something that happens in the industry. We are continuing to talk to the FDA and are looking to overcome this problem.”

Forest and Replidyne ended their relationship, and Replidyne is buying back all the U.S. adult and pediatric rights previously sold to Forest for $50 million. The company is foregoing the potential future milestone payments the contract had specified.

Replidyne doesn’t blame Forest for wanting out. Neither does Ralph “Chris” Christoffersen, a partner with the Boulder office of Morgenthaler Ventures, an investor in Replidyne.

“It’s not a surprising result because once the FDA changed the rules in midstream it made it much more risky for Forest,” Christoffersen said. “Forest commercializes, it doesn’t do development, so it’s not any longer a reasonable partner. Forest and Replidyne decided together they would part ways.”

Although it puts the commercialization of faropenem medoxomil off a few years, Christoffersen characterized that as a “short-term event.” Replidyne now will work with the FDA to rework the rules, and it will either find a partner or do the trials itself. Christoffersen is confidant Replidyne will be able to succeed because it has “a lot of money in the bank.”

Janjic echoed Christoffersen, saying, “We have a strong balance sheet at this time, so we do have the resources to advance the programs in our pipeline.”

The company’s latest filing with the Securities and Exchange Commission shows its assets more than doubled in the nine months between December 2005 and September 2006, increasing from $63,579 to $142,706.

Liabilities increased from $9,396 to $62,456 during the same time frame. This largely was a result of recording the initial $50 million from Forest as deferred revenue.

Replidyne’s pipeline programs include methionyl tRNA synthetase and DNA replication technology, both used for the treatment of bacterial infections.

Risk is inherent in the venture capital world, Christoffersen said, especially in the life sciences. “We don’t like it, but regulatory risk is one of the risks you take whenever you invest in a company that has a product that needs to be approved by the FDA.”

Christofferson breaks down the investment risk in the life sciences this way:

_ The drug itself presents the least amount of risk – 10 percent. “If you get a therapeutic for an unmet need people will buy it.”

_ Forty percent is related to technology, regulatory and product development. “We’re not very good at predicting human biology or medicine. We just don’t know how to predict the science, so you have to do the experiments and sometimes they don’t work.”

_ Fifty percent of the risk is the management team. “If you get the right people in charge you eliminate half the risk.”

Contact Caron Schwartz Ellis at 303-440-4950 or csellis@bcbr.com.

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