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Genaissance Gambles 20 Percent of its Shares to Revive Merck Antidepressant


If everything turns out one particular way, Merck may eventually own a majority stake in Genaissance Pharmaceuticals.

In a deal announced last week, Genaissance will use its haplotyping technology in an attempt to resuscitate an antidepressant once abandoned by the German drug maker, as well as by GlaxoSmithKline.

Though it has been anticipated by the pharmacogenomics industry for years, no one has yet successfully used pharmacogenomics technology to recover a failed drug. Genaissance hopes to be the first by using its HAP technology to link patient genotypes and responses to the antidepressant, a selective serotonin inhibitor and 5HT1A agonist called vilazodone.

To get the chance, it will give Merck 370,000 common shares up front, along with milestone stock payments and royalties from the drug and any accompanying molecular diagnostic. The upfront payment totals 1.2 percent of Genaissance stock.

“This is kind of a bold move on Genaissance’s part. It’s kind of brave for such a small company,” said Jim Golden, vice president of research at Life Science Insights, a market research firm. There are still enduring questions about how to connect biomarkers to efficacy or toxicity, said Golden. “The jury is still out on how this whole biomarker-pharmacogenomic thing is going to work.”

The upfront payment is valued at about $1.2 million, and the milestone payments of Genaissance stock may total another $43 million, said Genaissance CEO Kevin Rakin. According to the agreement, the payments cannot transfer more than 19.9 percent of ownership to Merck, he added.

The SSRI market in the United States is worth more than $13 billion, Rakin said. It is also a fragmented market, where each product has “no more than a 23 percent share,” he added.

The important issues are the portion of the population that would need the drug, and the price of the drug-diagnostic companion products, said Golden. “There are a lot of SSRIs on the market, and to actually associate a biomarker to it, I don’t see a lot of physicians [issuing a diagnostic test]. Even if it’s a novel SSRI, I don’t see big dollar signs for this,” he added.

Merck stands to lose little if Genaissance’s try at vilazodone is not successful, Golden said.

About 50 percent of patients respond poorly to first-line depression therapies, and discontinuation rates are “very high,” said Carol Reed, Genaissance vice president of medical affairs, in a conference call to investors last week. “There is a very large unmet need for drugs that can clearly demonstrate efficacy,” she said.

“There’s no mechanism like this out there,” the dual mode of action” as an SSRI and a 5HT1A partial agonist, said Rakin.

As for the willingness of physicians to prescribe a drug-test combination, Reed said market research indicates that primary-care physicians and psychiatrists “who each prescribe about half of all SSRIs for depression” are “enthusiastic” if vilazodone results in a decline in discontinuation and better compliance.

The data from treatment of more than 1,000 depressed patients showed that vilazodone has a safety profile at least comparable to other SSRIs, Reed said.

During the first half of 2005, Genaissance hopes to begin enrollment for Phase II clinical trials that will include pharmacogenomic characterization of patients, Rakin said in the conference call last week. Two trials will identify markers of response to vilazodone for depression and confirm the validity of these markers in a second, independent cohort, he added.

By the second half of 2006, Genaissance hopes to have Phase II data with validated markers and a marketing and development partner, Rakin said in an interview. The drug might make it to market in 2010, he added.

The strategy is going to work — maybe not for Genaissance and Merck, but eventually, said Sam Tetlow, author of the Cambridge Healthtech Institute report “Successful Pharmacogenomics Business Models.” “SSRIs have consistently negative reactions to a certain patient population,” he told Pharmacogenomics Reporter this week. That drawback, of course, helped lead the US Food and Drug Administration to put SSRIs, as well as tricyclic antidepressants, on the shortlist as candidates likely to benefit from genetic screening, added Tetlow.

Besides, Merck and Genaissance wouldn’t try if it wasn’t worth their effort, Tetlow said. Moreover, it will be a validation for pharmacogenomics if Genaissance can get as far as a new drug application filing, he added.

If the drug does make it as far as an NDA filing, Merck will begin to have more than passing interest in the fate of vilazodone: The $43 million in milestone payments Genaissance is slated to pay in stock are “backended at the time the NDA is filed and up to first commercial sale,” said Genaissance’s Rakin.

The actual number of shares Merck will inherit depends on the Genaissance stock price calculated at the time the milestone occurs. “In theory, you would hope those milestones occur at the time the value of the company has increased because the value of the company should increase as a drug becomes approved,” Rakin said during the conference call.

Merck could become the majority stockholder, depending on how high a theoretically successful vilazodone sends Genaissance’s stock prices. The top institutional investor in Genaissance, Legg Mason, owns 2.8 million shares, or about 9 percent of outstanding shares, a stake worth about $11.6 million under current pricing. The remaining institutional investors and mutual funds own fewer than 1 million shares each. Altogether, institutions and mutual funds own a total of 31 percent of the company, while insiders own a total of 26 percent.

Vilazodone had five disappointing turns in Phase II trials with depressed patients: Two studies compared the drug to a placebo and three more pitted it against an active comparator and a placebo, said Genaissance’s Reed in the conference call. In each one, vilazodone failed to “show statistical superiority to placebo for the primary endpoint,” she said. The comparator also failed, she added.

The antidepressant’s failure was partly due to a general phenomenon of antidepressant studies — a “high placebo-response rate,” said Reed during the call. “Statistical significance was shown for secondary efficacy endpoints as well as subpopulations in our exploratory analyses,” she added.

Originally discovered by Merck, vilazodone moved under a license agreement to GlaxoSmithKline in 2001 after Merck abandoned Phase II trials, said Rakin in the conference call. Glaxo gave up on the drug in April 2003, and Merck decided to go through Genaissance to get it to market, Rakin said. “We’re able to start at the Phase II stage and determine within a relatively short period whether we can proceed to a well-defined Phase III human trial that includes genetic markers,” he added.

“Instead of just waving our arms around and saying, ‘We can improve clinical development,’ we’ve actually got a Phase II drug that were applying our technology to, and saying, ‘let’s prove it, let’s show it.’ And by doing that we think we not only can get it through development, but bring a superior product to market,” said Rakin.

“There have been many different variations on the serotonin theme, and I wouldn’t expect that we are going to meaningfully increase our efficacy or decrease the side effects by working with the same old neurochemical targets,” said Jerrold Rosenbaum, chief of psychiatry at Massachusetts General Hospital. Rosenbaum has served on several ad hoc advisory panels examining the potential of similar drugs, and has seen data about this drug “over the years” and didn’t expect that it would “change the world.”

— CW


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