Protox gets credibility boost from Warburg Pincus

An equity injection of up to $35 million from private equity giant Warburg Pincus represents a huge vote of confidence in Protox Therapeutics (TSX:PRX) and its lead PRX302 drug for enlarged prostate or benign prostatic hyperplasia (BPH), with the drug potentially able to target two other diseases: prostate cancer and prostatitis.

“We went through an incredible amount of scrutiny with respect to the investment they decided to make,” CEO Dr. Fahar Merchant says in an exclusive interview with biotuesdays.com.  “The due diligence team they brought together was quite amazing. They brought in experts in intellectual property, pricing, reimbursement, market research, drug development, regulatory activities, including a former director of the FDA urology division.”

Subject to shareholder approval in a vote on Nov. 16, 2010, Protox is in line to receive an initial $10 million investment at the end of the month and an additional $25 million investment if the FDA gives the company a special protocol assessment before Sept. 30, 2011 for its Phase 3 clinical trial with PRX302.

On closing the first tranche, three members of the current board will be replaced by Warburg Pincus nominees, including Dr. Lars Ekman who will be appointed chairman of the board.   Within 90 days of the closing of the first tranche, an additional independent designate acceptable to the company and Warburg, as well as an additional Warburg designee will be appointed to the Board. After the second tranche and fully exercising its warrants, Warburg Pincus will own up to 59% of Protox.

Dr. Merchant recalls how intrigued he was that an investor the size of Warburg Pincus agreed to meet with him and hear the Protox story while he was making the rounds in the U.S. earlier this year.  “It didn’t make sense that they’d meet with us about the small financing rounds we had been doing.  So my antenna was raised.  They came to us later and indicated they would like to do something substantial,” he recalls.  “The past few months were incredibly intensive.”

In response to the Warburg Pincus deal, Dundee Capital Markets analyst David Martin moved Protox to “full coverage”, with a “buy, speculative risk” target and 12-month price target of 85 cents.  The target would increase to $1 after the second tranche is received, he writes.  The stock closed Friday at 44.5 cents.

“We view it very positively that such a strong partner has stepped forward to support PRX302 through its final stage of development,” Mr. Martin said in a new research report.  “We believe that with the cash and validation provided by Warburg Pincus, the long term risk/reward for Protox has become very attractive.”

Asked how hard it was to give up independence, Dr. Merchant admits that Protox did its own due diligence on Warburg Pincus.  “Historically, what we saw was that Warburg Pincus is an excellent partner.  They work very closely with their investments and they bring considerable resources to the table, not only cash but also networks of expertise, from scientific and regulatory to Big Pharma.  I am absolutely delighted that we now have the right resources on all fronts.”

And asked about corporate culture, Dr. Merchant points out that Warburg Pincus “really likes what we’ve been able to do so far with the amount of money we’ve brought to the program.  They’re impressed with our cash management and the way we operate as a sort of semi-virtual company.  They want us to maintain the same structure as we have now.  About the only thing they would like us to do is to enhance the size of our development team and execute on the Phase 3 trial.”

The investment from Warburg Pincus is expected to fund Protox through to a registration filing of PRX302.  Since all of the company’s studies have been in Canada, Protox’s priority is to file an IND with the FDA in the current quarter. Thereafter, the design, duration and size of the pivotal trials will be discussed with the regulatory agency.

Without having to rely on a Big Pharma partner to complete the pivotal trials, Protox is in a good bargaining position to negotiate a distribution deal.  “There are quite a few parties interested in the program, and I think that if we take it all the way, we will have a much better outcome from the financial viewpoint in a partnering transaction.  That’s an ideal position to be in.  On the other hand, if we find we’re getting a transaction that’s likely to be just as good post-data, why not proceed? So, we are open-minded on any transaction that provides substantial value to our shareholders.”

Last April, Protox signed a $75 million (U.S.) regional license agreement with Kissei Pharmaceutical of Japan for the development and commercialization of PRX302 for enlarged prostate, prostate cancer and other diseases of the prostate in Japan. Kissei already sells Urief for mild-to-moderate BPH in its home turf.

Analysts have previously suggested that potential partners in the U.S. and Europe for the drug include Boehringer Ingelheim, GlaxoSmithKline, Astellas Pharma, Sanofi-Aventis, Merck, Watson Pharma, Pfizer, Abbott and Endo Pharma.

Dundee’s Mr. Martin writes that with a Phase 2 asset such as PRX302, Protox could have expected a 10% to 15% royalty on future sales if a pharma deal was done now. Instead, assuming Phase 3 data are positive, either the company will “potentially be acquired with full economics, or a license deal may be struck with royalties likely in the 20% to 30% range.”

He estimates that the U.S. second line BPH market alone is in the range of $1 billion a year, assuming two million men who have discontinued oral BPH medications, treated at $1,000 per shot every two years.  A 20% penetration in the U.S. would generate sales of $200 million annually.

Enlarged prostate is the most common health problem in men over 60 and affects the quality of life of more than 50 million men worldwide.  The top six selling drugs for enlarged prostate have annual sales of $5.2 billion in the U.S., U.K., France, Germany, Italy and Japan, according to a survey by Decision Resources. However, side effects, such as sexual dysfunction, fatigue, hypotension, dizziness and headaches, have been attributed to drugs now on the market.

Dr. Merchant says that administration of PRX302 is minimally invasive and requires a single treatment in a doctor’s office, with ultrasound-guided needles that inject the drug into both lobes of the prostrate.  There are reimbursement codes already in place for the procedure, which uses technology similar to how urologists perform a biopsy of the prostate.

In June, Protox announced positive six-month data from its Phase 2b study in patients with moderate to severe BPH.  The study used the International Prostate Symptom Score (IPSS) used by regulators to approve BPH drugs.  The score is based on a questionnaire of symptoms on a scale of zero to 35, with a score of 20 and above representing patients with severe symptoms.

Dr. Merchant says PRX302 was able to improve IPSS anywhere from 8.5 to 11 points, compared with existing drugs, which tend to improve symptom scores by three to six points.  The study also demonstrated a statistically significant improvement in peak urine flow rates, confirming the drug was having an important impact on BPH symptoms.

“It was good to see that the improvement we obtained is typically what you expect to see in surgery but without sexual dysfunction, morbidity, hospitalization and side effects,” he adds.  “We were very pleased from multiple points. First, we met our primary endpoint, and we got the type of improvements that would make it attractive for the urologist to use this drug instead of surgery or other oral therapies.  And the important part was the desirable safety profile of the drug.”