Despite the commercialization agreement for Octreolin, Chiasma suffers from cash flow problems.
Sources inform ''Globes'' that drug developer Chiasma Inc. has fired a third of its workforce. In February, the company signed a commercialization agreement for its lead product with Roche AG (SWX: ROG) for a down payment of $65 million, and up to $540 million in milestone payments. Despite the agreement for Octreolin, initially for acromegaly (giantism) and subsequently for neuroendocrine tumors, Chiasma suffers from cash flow problems.
Despite the agreement, Chiasma apparently did not receive the full $65 million, but used part of it to repay debts and return money to investors. The rest of the money was invested solely in developing the projects for which Roche acquired the rights, in order to meet the milestones set in the agreement and receive the future milestone payments several years down the road. Despite everything, the company is still valued at tens of millions of dollars.
Under the commercialization agreement, Roche will finance Chiasma's development costs for Octreolin, but Chiasma apparently still faces other costs related to the drug. As a result, the company cannot move forward on projects in earlier development stages, and some of these projects' staffs have been fired.
Chiasma developed a platform which can be used to develop a range of drugs. This raises the question: if the technology is so promising, why haven’t its investors given the company more capital to develop additional products quickly to create more winners? There could be several answers: the age of the investment funds backing the company; investors' wishes to be sure that Octreolin will meet its targets before assuming more risks; or that the company simply to find another promising application of the technology, which would make the risk worthwhile.
Chiasma's main investors are Abingworth LLP, Arch Venture Partners, MPM Capital, F2 and F3 Ventures, and 7 - Med Health Ventures. Previous investors included Ofer Hi Tech Ltd. and Innomed.
In addition to Octreolin, Chiasma independently brought a second product to the clinical trials stage: a treatment for kidney disease. However, a market study by the company concluded that the market has moved on, and that it was not worthwhile to pursue development of the drug at this time. The joint development agreement with Novartis AG (NYSE:NVS; LSE: NOV; SWX: NOVZ) for the drug was terminated.
Despite the extensive layoffs, Chiasma is a success story. The agreement with Roche is moving forward on schedule, and Roche's down payment is still extraordinary, compared with down payments for similar technologies in recent years.
Chiasma CEO Frederic Price has been appointed as chairman, and Dr. Roni Mamluk, who invented the company's technology, has taken over as CEO. Price is known as an executive who saves troubled companies, and Chiasma's investors apparently decided that his rescue skills are needed in more than one place.
Acromegaly is caused by over-excretion of the growth hormone, causing extreme growth of bones and organs. It can cause heart problems, excessive sweating, sleep disorders, and shorten sufferers' lifespan, if not treated. The global acromegaly market is estimated at $1.8 billion a year, of which Novartis takes in $1.4 billion for its injectable treatment Octreotide. Octreolin is an oral version of Octreotide.
The clinical trial of Octreolin found no side effects in patients after nine months. In the past, Mamluk predicted that the study would be completed in 2014, and if successful, the product could be launched in early 2015. This is probably the next important milestone in the Roche commercialization agreement.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
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