FDA OK brightens biotech’s options

MiddleBrook mulls sale, partnership deals following $21 million investment

Last month’s approval of its once-daily amoxicillin pulsys pill for treating strep throat in people 12 and older gave MiddleBrook new life, after more than three troubling years that had drained the company of its cash, most of its employees, two key partners and even its name.

Amoxicillin pulsys is the first product from the company’s pulsatile technology, designed to make pills deliver sequential bursts, or pulses, of antibiotics to kill bacteria more efficiently than standard antibiotic therapies. MiddleBrook will market it as Moxatag.

While the company will continue seeking Food and Drug Administration approval for its pill for children, the one-a-day 775-milligram amoxicillin pill for 10 days instead of the standard therapy of three or four 500-mg amoxicillin pills a day is a sweet victory, said Edward M. Rudnic, president and CEO. Amoxicillin is America’s leading antibiotic, with 60 million annual prescriptions, including 15 million prescriptions last year for strep throat alone, according to MiddleBrook information.

Meanwhile, MiddleBrook stands to be sold in the next three to five weeks, according to Gregory R. Wade, health care analyst for Pacific Growth Equities LLC of San Francisco. Rudnic said the company is exploring sale or licensing possibilities.

‘Survival’ was the issue

Not long ago MiddleBrook’s fortunes looked grim.

A bit more than two weeks ago, Rudnic himself said, ‘‘We got to point where profit was no longer the issue — survival was.”

Robert W. Bannon, vice president for investor relations, said, ‘‘We could have only have survived a few months if this [amoxicillin pulsys] wasn’t approved.”

Rudnic, a veteran pharmaceutical executive with experience at Schering-Plough Corp., ER Squibb & Sons and Shire Pharmaceuticals, had developed the pulsatile technology. He founded MiddleBrook in 2000 as Advancis Pharmaceuticals Corp. and it grew to more than 100 employees by 2004, when the company launched an initial public offering at $10 a share.

After that, the company hit a downturn. First, GlaxoSmithKline, the British pharmaceutical giant, ended a licensing agreement to apply the Advancis technology to Glaxo’s antibiotic Augmentin. In response, Advancis trimmed its workforce by 18 percent. Then Sanofi-Aventis, France’s $32 billion pharma giant, sued Advancis for trademark infringement over its name, eventually leading to a new name, MiddleBrook.

Advancis was then stunned in 2005 by a narrow failure in a final clinical trial of a seven-day amoxicillin pulsys therapy for strep throat. Analysts such as Todd Foley of MPM Capital Management Inc. in Boston said the failure of the adult trial ‘‘cast a lot of doubt on their scientific hypothesis,” but he would remain confident in the approach if a children’s trial succeeded. Then the drug’s trial on children also missed FDA marks. Advancis cut expenses by $4 million by eliminating 33 jobs, including six corporate officers, while its stock sank below $2.

Hoping for an upswing

In August 2006, a new phase 3 trial, designed by Advancis, working with the FDA, successfully treated strep in adults and adolescents for 10 days instead of seven. Company executives uncorked champagne bottles and gave employees a paid holiday. In February 2007, the company submitted an application for its lead drug’s approval to FDA, which promised a decision by last month.

During those 10 months, the mood of the remaining 30 employees was tense at times, Rudnic said, but he felt great admiration for those who had ‘‘stood tall.”

‘‘‘You have worked so hard for so many years to get this in the hands of patients who can benefit from it,’” Rudnic said he told his employees. ‘‘‘Why would you leave now?’”

‘‘I said I’ve gotten other approvals before and they have all felt like this,” he recalled. ‘‘I was urging them to concentrate that ‘you want this company on your résumé.’”

What he felt was a positive, on-going dialogue with the FDA. MiddleBrook executives were getting easy questions from the FDA such as how many folds would be on a carton of the drug packages and on labeling, but nothing critical to the medicine, he said. But MiddleBrook’s stock was drifting down because investors expected the company to get hammered again.

‘‘Saying the investors were suspicious would be kind,” Rudnic said. ‘‘They were overly skeptical. Yes, I was getting some pretty nasty looks.”

At the same time, Rudnic was also a director of the Tech Council of Maryland and his time to take over as chairman arrived in 2007. He was concerned about what a failure at MiddleBrook would do for the biotech community if he were chairman. He said he asked the current chairman, John Nyland, ‘‘‘Are you sure you would want me to take over?’”

No time to celebrate

On Jan. 22, the FDA notified Rudnic that some kind of approval letter would arrive the next day. He gathered his directors at 5 p.m. but there was no letter.

‘‘We didn’t know if it would be a clean approval or full of conditions for further testing,” he said. At 5:30 p.m. his regulatory officer brought in the letter. After congratulating Rudnic, one director quickly said it was time for action.

The leaders had known that with approval they would need to seek more financing, but had planned nothing specific. The board stayed late to discuss strategy.

The next day, the stock ran well after the company announced the drug approval.

‘‘So, we had to move fast. All the board members stayed engaged for conference calls,” Rudnic said. He shared with them input from bankers, working from three phones all day, Bannon said.

‘‘It was very hectic,” Rudnic said. The executives ‘‘turned the bankers on at noon,” he said. They priced the deal at 4 p.m. and closed it at 8:30 p.m. Final documents went out to investors at 11 p.m. By 10 a.m. the next day, $21 million had been wired into MiddleBrook’s account.

The company is now talking with ‘‘everybody,” Rudnic said, including pharmas for possible deals to launch the once-daily Moxatag. He anticipates a possible licensing deal or sale to possibly market the pill by the October cold and cough season.

‘‘We certainly think this will be quite valuable in their drive to complete a strategic change and most analysts are predicting the sale of the company within the next three to five weeks,” said Wade, the Pacific Growth analyst.

Wade said it is difficult to tie the pulsatile technology to the efficacy of the treatment, but ‘‘the good news is that potential purchasers will look at the product rather than the pulse.”