Company watchers differed over the half-empty, half-full glass of a $125 million financing agreement signed by La Jolla Pharmaceutical Co. (LJP) with Healthcare Royalty Partners (HCR) for Giapreza (angiotensin II), approved late last year and introduced to the market in March to increase blood pressure in adults with septic or other distributive shock.

In return for the cash, San Diego-based LJP has agreed to provide HCR tiered royalties on worldwide net sales. Built into the arrangement are step-downs based on hitting annual thresholds. Through Dec. 31, 2021, the rate will top out at 10 percent. Starting the year after, the maximum could increase by 4 percent if an agreed-upon, cumulative sales goal has not been met, and, starting Jan. 1, 2024, the maximum could increase by 4 percent if sales have fallen short of a different agreed-upon threshold. The deal is subject to maximum payments to HCR of 180 percent of the $125 million to be received by LJP, and then the payment obligations would expire.

Jefferies analyst Eun Yang conceded that the deal "addresses capital needs beyond 2018 given [the] high burn rates, but giving away about 10 percent of sales is not positive, particularly so early in the launch cycle, in our view," she wrote in a report. She said she doesn't expect the company to break even until around 2022 or 2023. "In the absence of a potential buyout, we see risk/rewards as unfavorable," she wrote, maintaining an "underperform" rating on the shares. The company could not be reached.

H.C. Wainwright's Edward White saw the matter a different way. "We assume HCR did its due diligence on Giapreza, the market, and LJP's marketing and sales plan, so we think this deal should give investors more confidence in Giapreza's success," he said, and noted in a report that, "with the influx of cash, the company may have a longer cash runway before it has to revisit the capital markets." But White, too, acknowledged the downside of the arrangement: La Jolla's surrender of some cash flow from the product.

Giapreza bears a wholesale acquisition cost of $1,500 for a 1 mL, 2.5 mg/mL vial. Cowen analyst Phil Nadeau noted that "a number of parameters must be estimated to calculate the average revenue per patient, so it cannot be known with great precision," but he guessed that the pricing would translate into average revenue per patient of $5,000. LJP, which also reported earnings last week, recorded $800,000 in first-quarter Giapreza revenue. Nadeau said he "expect[s] it to take several quarters for Giapreza to get on hospital formularies before it can be adopted, and therefore anticipate the launch to slowly build momentum through 2018."

Early in 2017, LJP disclosed positive phase III results from the ATHOS-3 study with Giapreza, then known as LJPC-501, in patients with catecholamine-resistant hypotension (CRH) associated with distributive shock. The mortality rate for CRH is higher than such disorders as myocardial infarction, congestive heart failure or pneumonia. In the U.S., the syndrome affects one-third of patients in intensive care units. Specifically, it involves dangerously low blood pressure with adequate cardiac function in patients who cannot achieve target mean arterial pressure, despite adequate fluid resuscitation and treatment with vasopressors such as catecholamines and/or vasopressin. About 500,000 distributive shock cases turn up in the U.S. per year, about 200,000 of which turn into CRH. More than 50 percent of CRH patients die within 30 days. Angiotensin II, the major bioactive component of the renin-angiotensin system, acts as one of the body's central regulators of blood pressure. (See BioWorld Today, Feb. 28, 2017.)

No reimbursement surprises so far

Thus, it's in CRH that early adoption will most likely come. The "desperate need" there means "physicians are willing to try any drug that might increase blood pressure in order to maintain vital organ perfusion," said Cowen's Nadeau, based on his checks with doctors. "Nonetheless, our consultants have suggested that Giapreza has the potential to be used in earlier lines of therapy, should it demonstrate a mortality benefit or improvement on catecholamine-associated morbidities." He put U.S. CRH estimates somewhat lower than LJP, at about 120,000, and noted that the company has calculated that 313,000 patients get second-line therapy and 745,000 patients are given first-line therapy for distributive shock. Nadeau held to his 2018-2022 sales estimates for Giapreza of $40 million, $150 million, $300 million, $450 million and $535 million, respectively.

LJP's earnings tally listed selling, general and administrative expenses of $23 million as compared to the Cowen estimate of $14 million, and R&D costs of $28 million vs. Cowen's $23 million guess. The first-quarter net loss was $50.5 million, or $2.22 per share. Adjusting for the proceeds from the royalty financing, the company showed a pro forma cash balance of $279 million.

Sounding cautious was Suntrust Robinson Humphrey analyst Yatin Suneja. "Given the early nature of the launch, management commentary was encouraging but measured, and our visibility on end-user demand is rather limited," he wrote in a report, naming the keys to uptake of Giapreza as increased awareness, inclusion in treatment guidelines, and favorable reception from pharmacy and therapeutics committees.

"In terms of reimbursement/access, management indicates that, thus far, the mix of sites with no restrictions and some restrictions for Giapreza is in-line with the company's extensive market research conducted prior to the launch," he said, though the picture remains unclear. It's important, he added, "in light of no script data and access challenges with hospital-based launches, for investors to understand" the challenges for the new-to-market therapy.

Distributive shock, wherein abnormal blood vessel flow deprives tissues and organs of blood, made scientific news last week in the Journal of the American Medical Association. Published research found that using vasopressin with catecholamine vasopressors vs. catecholamines as a monotherapy led to fewer episodes of lower atrial fibrillation risk in patients with distributive shock.

Shares of La Jolla (NASDAQ:LJPC) closed Friday at $29.11, down $2.05.