Ondine spinoff validates platform technology

In a tough financing environment, Ondine Biopharma (TSX,AIM:OBP) may have found a magic elixir in a private company spinoff that will develop a new photodisinfection (PDD) product for chronic sinusitis.

“It’s novel but similar to the mining industry, where people take on a piece of a very good project knowing that there’s a good horse and a good jockey and it has legs,” CEO Carolyn Cross says in an exclusive interview with biotuesdays.com.

Under the accord, a syndicate of private equity investors based in Europe has agreed to purchase a majority position in Sinuwave Technologies, a new Ondine subsidiary to work on a PDD solution for chronic sinusitis.  PDD employs photosensitive compounds activated by laser light to deliver targeted microbial destruction as an alternative to the use of antibodies.

The syndicate would receive a 70% stake in Sinuwave in return for an upfront cash payment to Ondine of $600,000 (U.S.) and an initial private placement of $500,000 into Sinuwave.  The syndicate would also provide Sinuwave with up to an additional $1 million by way of equity purchases over a two-year period in two tranches and would have the right to invest a further $1 million in Sinuwave by exercising warrants.

Ondine would be entitled to ongoing management consulting and product development fees, royalties and manufacturing margins and up to an additional $250,000 for achieving regulatory milestones.

“The bigger picture here is that it’s very difficult to get investors at this point in time to fund start-up applications,” Ms. Cross points out.  “We have four terrific applications ahead of us, and each of them is going to cost somewhere between $5 million and $20 million to develop.”

Ms. Cross, a former vice president with Royal Bank Investment Management and co-founder of the medical devices company in 1999, recalls that in her travels seeking financing for Ondine, she came up against investors who liked one of the company’s PDD applications but not the other.  “So we came to the realization that we were going to have to pursue a spinoff strategy.  It would get us the money to make it work and have something for Ondine shareholders at the end.  And what’s also important is it validates our core platform technology.”

The company is very close to a prototype for sinusitis, with plans to start a pilot trial next year.  “We have opinion leaders geared up to support this. We’re doing some work on pursuing additional grant money.  And we have a CEO ready to join us,” she says.

Chronic sinusitis is a severe inflammation and persistent mucus build up, often caused and usually accompanied by a polymicrobial infection.  It occurs up to four times a year and lasts for more than eight weeks.  Patients experience severe facial pain, swelling, headaches and nasal congestion.  It is estimated that seven million people in the U.S. live with chronic sinusitis and experience significant negative impact on quality of life.

The disease is typically first treated with medication, but more than 20% of patients fail to respond, leaving some 1.4 million looking to surgery as an alternative treatment.  Ondine, however, is initially targeting the more than 500,000 people in the U.S. that have failed both medical and surgical therapy, a market that is increasing by an estimated 60,000 people each year.

“That represents a large unmet patient need,” Ms. Cross says.  Sinuwave will need about $7 million over five years to develop its product, and she figures the treatment has a market potential of $300 million five years after launch.  There are no FDA approved products to treat chronic sinusitis, and Sinuwave would be first to market.

Asked about the prospects of using the Sinuwave model for Ondine’s other PDD applications, Ms. Cross replies, “Absolutely.  I like this model, and it makes sense to us.  I don’t know of any other way to finance this in the Canadian marketplace.  Our plan is to spin out our other applications.”

She says Ondine’s business model is changing as a result.  “We’re moving from being a sort of mother ship, where we owned the entire franchise and would develop it for our own benefit, to more of a service provider.  We now recognize that we have to share the ownership and economic benefit with others who will provide the cash at an earlier stage.”  Under the new format, Ondine would provide, among other things, “product development services at a profit, manufacturing services at a profit, and regulatory and clinical advisory and consulting work at a profit,” she adds.

In addition to chronic sinusitis, Ondine has two products in the wings designed to combat hospital-acquired infections and antibiotic resistance: MRSAid for the treatment of methicillin-resistant Staph aureus (MRSA), a high contagious form of staph infection in the nasal passages, and a photodynamic endotracheal tube treatment (PETT) system to prevent ventilator-associated pneumonia (VAP) for ICU patients on mechanical ventilation.

“Addressing the global issue of hospital-acquired infections is both a personal and professional passion,” she maintains.

In the U.S., some 292,000 hospitalizations occur each year with a diagnosis of staph infection, of which 126,000 directly relate to MRSA.  Serious and invasive MRSA infections affect 94,000 patients, resulting in 19,000 deaths.  The highest risk individuals for MRSA infections occur in ICUs, acute care wards, palliative care facilities, inpatient surgery sites and high risk outpatient procedures. In 2009, the total hospital-acquired infection market in the U.S. was estimated at $28.4 billion, of which some $3.2 billion related to the treatment and prevention of hospital-acquired MRSA infections.

Ms. Cross points out that Ondine has tested the feasibility and viability of the MRSA technology in Europe using a lower powered laser and “we know it works.”  A 60- to 70-patient clinical trial is scheduled to start at University College London Hospital later this summer, with results expected in 12 months.

A 12-month study of Ondine’s VAP system by the U.S. National Institutes of Health is also set to start this summer to determine the safety and effectiveness of PDD for the eradication of biofilms in endotracheal tubes.

The incidence of VAP ranges from 10% to 25% in the 1.3 million U.S. hospital patients who require mechanical ventilation each year.  Pneumonia is the leading cause of patient death from hospital-acquired infections, with patients who contract VAP having an associated mortality rate of 24% to 50%.

Ms. Cross is also privately working on a photodynamic therapy called Vitalwave.  It would use the PDD platform and apply it to the birthing canal to prevent the transmission of HIV from pregnant women to the fetus in the Third World, where as many as one baby in four picks up the virus from the mother.  “I’m building it to be expensive, and so I’m taking it outside of Ondine.”

Ondine’s first commercial application of its PDD technology was its Periowave dental product that targets bacteria responsible for mild to severe forms of periodontal disease as an adjunct to standard methods of care.  Approved in Canada and certain countries in Europe, it was sold to Periowave Dental Technologies (PDT) last year in a deal that gives Ondine an ongoing economic stake through fees, royalties, milestones and a sliding scale participation in any future sale.

“We are pursuing opportunities jointly with PDT to try to figure out how to maximize the value.  One of our corporate strategies is to monetize the asset as quickly as possible while retaining some manufacturing and developmental rights.”

Ms. Cross explains that the sale to PDT reflected Ondine’s financial situation last year.  “We needed a large amount of money to take Periowave through the FDA, and we weren’t able to raise funds for that as well as move the other applications along.”

Earlier this year, the FDA accepted Ondine’s Pre-Market Approval application for the Periowave PDD system.  “It makes a lot of sense for this technology to be packaged and sold to one of the major dental companies,” she says.  “But none of the major dental companies were interested until we got through the FDA.”