Tuesday, February 24, 2009

Basilea to J&J: See You in Court

Johnson & Johnson might want to phone Philadelphia Phillies GM Ruben Amaro, Jr.

No, the diversified health care giant probably isn't looking for a utility infielder or a starting RHP. But it does find itself in a situation Amaro has quite a bit of recent familiarity with: dealing with players (in J&J's case, a partner) seeking arbitration.

This off-season the (World Series Champion) Philadelphia Phillies and GM Amaro have avoided arbitration proceedings with all ten players who were eligible--locking up stars like Cole Hamels and Ryan Howard to multi-year deals. Johnson & Johnson just has one arbitration hearing to worry about right now: Basilea Pharmaceutica's claim filed today related to delays in approval of the companies' ceftobiprole antibiotic in the US and EU. (Of course J&J has a little institutional experience with arbiters too ... with EPO.)

Basilea watchers woke up to a flurry of announcements today beyond its planned annual results--not least the news that the antibiotic's EU approval process has been delayed so that good clinical practice (GCP) inspections could be carried out by EMEA. The EU's committee for medicinal products for human use (CHMP) has already recommended the drug for approval, but that recommendation must now be revisited post-inspections, and the delay could put potential approval well into next year.

Meanwhile Basilea is burning through its roughly CHF293 million cash balance and the estimated CHF100 million payments related to EU approval are for now out of reach. Anticipating approval and gearing up for a commercial launch--it had planned to co-promote the drug in the US and areas of the EU--will further add to the firm's costs. Adding insult to injury on today's call management had to deal with disgruntled shareholders annoyed with the company's shares' precipitous drop.

This is just the latest delay in ceftobiprole's commercialization. In the US, where J&J is also the drug's sponsor with FDA, an NDA was submitted in May 2007. But in March 2008 the companies received an approvable letter and in late 2008 FDA's complete response letter identified further data integrity and study conduct issues, and requested a new audit plan for CRO monitoring.

Basilea has been careful to say that it is pleased with the data from the drug's pivotal studies, saying that the problems were instead related to monitoring and quality assurance, and that issues related to the data and the process of monitoring the data were distinct. "The issues that have been brought up ... indicated that [regulatory authorities] had questions about the monitoring of the trial, the quality assurance program ... these are questions about how the trials are monitored and run and this has caused a delay," said CFO Ron Scott on Basilea's earnings conference call this morning. "The mechanism we have to address that delay is the arbitration process."

Presumably the arbitration process isn't the first port of call when a dispute like this arises, indicating an unsurprisingly frazzled relationship between the partners. So what does Basilea want out of arbitration? "Certainly we have not received our milestone payments yet," and the value of the opportunity lost not having ceftobiprole on the market in Europe and the US, noted Scott. Essentially, "compensation for the impact of the delay on Basilea," he said.

That impact is far from fully measured right now--and Basilea declined to disclose when arbitration will begin, only saying that typically these types of arbitration procedures might take one to two years, regardless of what is stipulated in a contract about a timeline for the process. Barring a settlement, the ruling will be in the hands of the Netherlands Arbitration Institute.

Basilea's move to take J&J to court is rare, and should make for an interesting dynamic at joint steering committee meetings. But the ingredients for further disputes--higher regulatory hurdles, increased out-sourcing of clinical trials, and more biotechs than ever facing ostensibly life-or-death FDA or EMEA decisions--are abundant.

Hey J&J: Amaro's office is at Citizen's Bank Park, Pattison Ave., Philadelphia.

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