Ligand Pharmaceuticals Inc. found the U.S. Avinza partner it's been searching for, signing a co-promotion deal with Organon Pharmaceuticals USA Inc. But while the deal fills several holes for Ligand, some observers wanted more.

Ligand in November changed its Avinza partnership with Elan Corp. plc and regained co-promotion rights in North America. Ligand publicly said it had every intention of re-partnering the product, and the deal announced after markets closed Monday is "a beginning and an end of different processes," said Ligand CEO, Chairman and President David Robinson.

"When it became clear that Elan's corporate strategy and business were changing, we clearly had to shift throughout 2002, launch on our own and change the nature of our relationship with Elan," Robinson said in a conference call.

Avinza was approved in March 2002 for the once-daily treatment of moderate to severe pain in patients who require continuous, around-the-clock opioid therapy for an extended period of time. The product is morphine sulfate in extended-release form, sold as capsules. It was developed by Elan, which licensed the U.S. and Canadian rights to San Diego-based Ligand in 1998.

After buying back the rights for $100 million - financed through a convertible notes offering - and reducing the royalty it pays to Elan, Ligand needed a new mate. The signing of the deal marks "the final step of [the] restructuring" of Ligand's Avinza program, Robinson said. (See BioWorld Today, Nov. 14, 2002.)

The reaction to the deal was mixed. One conference call participant said simply, "I don't get it." But for a product that had a less-than-booming launch, the deal brings aboard a significant sales force.

"I don't think the deal is a home run; I give it a solid double," said Alan Auerbach, analyst with Wells Fargo Securities LLC in San Francisco. "The good aspect of the deal is that they are getting a lot of feet on the street - it should be the second largest pain force out there. The other good point is Organon allows Avinza to get to a lot of places Ligand couldn't get to themselves.

"In terms of the economics of the deal, the bad is that there isn't an up-front licensing fee. I think they could have probably gotten from $50 million to $100 million up front and I think that is what people wanted to see."

Auerbach also thought the selection of a different partner might have been better. He said Roseland, N.J.-based Organon Pharmaceuticals USA "doesn't have any expertise in the pain management market." A division of Akzo Nobel NV and a unit of Organon, the company focuses on medicines and products for gynecology, psychiatry, cardiovascular disease, immunology and anesthesia.

"They could have done the deal with J&J or Cephalon [Inc.] and people would have been happier," he said.

Deal Should Strengthen Flagging Avinza Sales

What the partnership does is form a significant sales force behind Avinza. The companies expect Avinza to achieve the No. 2 share in the sustained-release opioid market. To do so, Ligand will promote the product with a 70-person sales group, while Organon offers up more than 700 representatives in three sales areas: primary care, hospital and specialty pain centers.

Ligand will record all sales of Avinza and pay Organon a percentage of net sales that "functions like a tiered royalty," Robinson said. For the first $35 million sold in 2003, Organon would receive nothing. Beyond that, Organon gets 30 percent of sales up to $150 million, 40 percent of sales between $150 million and $300 million, 50 percent of sales between $300 million and $425 million, and 45 percent of all sales greater than $425 million.

The co-promotion involves only the U.S. and is set for 10 years. For the first five years, Organon has an option to extend the agreement to 2017, which is when Avinza's patent expires, by making a $75 million milestone payment to Ligand.

The companies will establish a steering committee with three senior executives from each company, and a chair that will alternate between the two.

Of the tiered co-promotion fees, Auerbach said Ligand is "giving up a lot" in the higher sales, " but in the lower end, I don't think it is that bad." He pointed out that Ligand itself said it was hoping for, in five years, to have 10 percent of the $2.7 billion market, or about $270 million in sales, which would keep the payment at 40 percent or less for the near term. For the fourth quarter, Ligand saw only $2 million in net Avinza sales and 9,060 prescriptions, both below expectations,

"Sales were light in Q4," Auerbach said. "[Ligand] was hoping for $8 million to $10 million, or 16,000 to 21,000 prescriptions.

"Why did they miss the goals they set? They didn't have enough feet on the street. They weren't stocked in enough pharmacies. And they didn't sell as much in retail distribution."

Auerbach said the deal with Organon should shore up Ligand's marketing efforts.

"[Ligand] has addressed some of the problems," he said. "The deal helps them in a lot of areas where they were challenged."

As of Dec. 31, Ligand had $74.9 million in cash. It posted a net loss for the quarter of $6.7 million, or 9 cents per share, up from a loss of $13.1 million in 2001. For the year, it lost $32.6 million, compared to $43 million for 2001. Overall, it had product revenues of $27.3 million for the quarter and $96.9 million for the year. It saw $42.2 million in net sales from its product line of Ontak (denileukin diftitox), Targretin (bexarotene) capsules, Targretin gel and Panretin gel. Ligand has projected total revenue of $160 million to $175 million in 2003 and net product sales of between $125 million and $135 million.

The key for Ligand, Auerbach said, is carrying out its plans.

"I think they need to execute on Avinza, and they need to stimulate their other products," Auerbach said, adding that a lot of growth would need to be seen off label. "Can they do that? I'm sure they can."

Ligand's stock (NASDAQ:LGND) fell 16 cents Tuesday to close at $4.64.