Eurand's Zenpep Delayed by FDA

EURX: Zenpep Approval Delayed 3 Months, but Still a Buy

Yesterday (June 22), Eurand N.V. (EURX - Analyst Report) announced that the US Food and Drug Administration (FDA) advised the company that it has extended the June 2009 user fee goal date for the New Drug Application for Zenpep (pancrelipase capsules) by three months. The company said in the news release that the FDA did not request that the company provide any further information, but attributed the reason for the delay to the need for additional time to review the current submission.

Based on the new information, we believe Zenpep has a high probability to get the FDA approval by the end of third quarter and will be launched in 4Q09. We have adjusted our model to reflect the change by reducing Zenpep sales in 2009, but keep sales number after 2009 intact.

Zenpep is One Key Growth Driver for EURX

As a reminder, Zenpep (EUR-1008) is the company’s lead product candidate, which is a new porcine-derived proprietary enzyme replacement product for the treatment of exocrine pancreatic insufficiency (EPI), a deficiency of digestive enzymes normally produced by the pancreas that can result from a number of diseases, including cystic fibrosis and chronic pancreatitis. This deficiency of enzymes results in poor digestion and reduced absorption of nutrients and, if left untreated, causes malnutrition, which can lead to impaired growth, impaired immune response and shortened life expectancy.

Eurand has completed two phase III trials for Zenpep in cystic fibrosis patients suffering from EPI. One pivotal phase III trial was completed in November 2006 and evaluated Zenpep in patients over the age of seven. The primary endpoint of this trial was to compare the coefficient of fat absorption following oral administration of Zenpep versus placebo in patients with EPI.

Another supportive phase III clinical trial was completed in September 2006 and evaluated Zenpep in pediatric patients under the age of seven. The primary endpoint of this trial was the percentage of "responders", defined as those patients without the presence of excess fat in stools and signs and symptoms of mal-absorption. The company reported results for both trials in April 2007 and the trials successfully met all their respective defined endpoints.

In June 2008, the FDA issued an approvable letter for Zenpep; however, the approvable letter does not require the company to conduct any further clinical studies. Both Eurand and its raw material supplier submitted responses to the FDA and the FDA accepted the responses in late Jan 2009 and set the PDUFA date in late 2Q09.

However, on Jun 22, 2009, Eurand announced that the FDA advised the company that it extended the June 2009 user fee goal date for the New Drug Application for Zenpep by three months. The FDA did not request that the company provide any further information, but attributed the reason for the delay to the need for additional time to review the current submission.

We Remain Optimistic on Zenpep

In the absence of any requests from the FDA for additional clinical data, we remain optimistic of Zenpep’s chances of receiving approval and being launched in the U.S. in 4Q09. Zenpep received fast track designation from the FDA in January 2007 and was granted a Priority Review status. We believe Zenpep, if approved, will be one of the first PEPs to be FDA-approved under the recently published FDA guidelines.

In April 2008, the company announced that filing for Zenpep in the E.U. is eligible for Community (Centralized) Marketing Authorization submission. Approval under this process will result in simultaneous approval of Zenpep in 27 countries while providing the company with 10 years of marketing exclusivity.

The company intends to commercialize this product on its own in the US by establishing a specialty sales and marketing organization (about 30 sales reps) that will target the approximately 120 Cystic Fibrosis Treatment Centers and selected gastroenterologists and pulmonologists. The company plans to out-license commercial rights to Zenpep in regions outside the U.S., including Europe and Japan.  We estimate peak sales for Zenpep will be in the range of $250 millions, with a 25 percent share of the EPI market.

EURX Still On Track to Achieve Profitability in 2009

EUR-1048 is co-developed by EURX with GlaxoSmithKline (GSK - Analyst Report). EUR-1048 is a fast-dissolve formulation of GSK’s Lamictal using the company’s Microcap taste-masking and AdvaTab oral disintegrating tablet technologies. The FDA approved EUR-1048 in May 2009 to be marketed as GlaxoSmithKline's Lamictal ODT (lamotrigine) Orally Disintegrating Tablets.

Lamictal ODT provides Lamictal in a pleasant-tasting tablet that disintegrates on the tongue and that may be taken with or without liquid. Lamictal ODT is indicated for the long-term treatment of Bipolar I Disorder to lengthen the time between mood episodes in people 18 years or older who have been treated for mood episodes with other medicine. Lamictal ODT is also used together with other medicines to treat certain types of seizures (partial seizures, primary generalized tonic-clonic seizures, generalized seizures of Lennox-Gastaut syndrome) in people 2 years or older or alone when changing from other medicines used to treat partial seizures in people 16 years or older. Lamictal ODT will be available in 25 mg, 50 mg, 100 mg, and 200 mg strengths and is expected to be available in pharmacies in early July 2009.

Eurand will receive an undisclosed milestone payment upon launch, revenue for manufacturing Lamictal ODT tablets for GSK, royalties on net sales of the product and milestone payments in connection with Lamictal ODT achieving predetermined sales levels in the U.S. marketplace.

Net sales of Lamictal, one of the world's top 60 pharmaceutical products based on annual sales, were $1.3 billion in the U.S. in 2008. Eurand retains exclusive worldwide manufacturing rights to Lamictal ODT and, subject to certain conditions; either Eurand or GSK may have certain rights to commercialize the product in a particular country outside the U.S.

Given our expectations of the approval and launch of Zenpep in 2H09, coupled with the US approval and launch of EUR-1048 by GSK in 2Q09, we believe that the company is on track to achieve profitability in 2009.

We reiterate our Buy rating for EURX with a price target of $18.