Advanced Magnetics builds market presence with reacquired agents

August 31, 1994

Sterling Winthrop deal may be "terminable" due to saleContrast agent developer Advanced Magnetics is moving quicklyto take advantage of the chaos reigning in the contrast agentmarket as U.S. firms realign with European owners. The

Sterling Winthrop deal may be "terminable" due to sale

Contrast agent developer Advanced Magnetics is moving quicklyto take advantage of the chaos reigning in the contrast agentmarket as U.S. firms realign with European owners. The Cambridge,MA, firm has reacquired licensing rights to several of its agentsand is building a direct sales force to market the products itself,according to president and CEO Jerome Goldstein.

Consolidation struck the U.S. contrast agent industry likelightning this summer as the top two U.S. contrast suppliers,Sterling Winthrop and Squibb Diagnostics, were sold to Europeanfirms. Norway's Hafslund Nycomed said in June that it would purchaseSterling Winthrop's diagnostic imaging business from Sanofi (whichbought Sterling from Eastman Kodak), while Bracco of Italy revealeda plan to buy Squibb Diagnostics a month later (SCAN 7/13/94 and8/10/94).

The deals are producing the inevitable fallout that comes fromindustry realignment. Advanced Magnetics is one of the firms readyto pick up the pieces. The company said this month that it hasreached an agreement in principle with Bristol-Myers Squibb toreacquire marketing rights to AMI-227, an MRI contrast agent AdvancedMagnetics had sold to Squibb Diagnostics. Squibb had dubbed theagent BMS 180549.

Advanced Magnetics will pay Bristol-Myers $1 million in cashand up to an additional $2.75 million in future royalties. Aspart of the transaction, Bristol-Myers returned to Advanced Magneticsa warrant for the purchase of 600,000 shares of Advanced Magneticsstock. Advanced Magnetics will acquire all the clinical data andproject information necessary to complete development and filea new drug application (NDA) for AMI-227, an agent for use withMR angiography and imaging of the liver, spleen and lymph nodes.The agent has completed phase-two clinical trials.

Advanced Magnetics had considered reacquiring the agent forsome time, and the sale of Squibb Diagnostics to Bracco gave thecompany its chance, according to Goldstein.

"The opportunity to regain control of our product fora very modest payment was too good to resist," Goldsteinsaid.

The reacquisition of rights to AMI-227 adds to a stable ofproducts Advanced Magnetics has brought back under its wing inrecent months. Last October, the company regained from Bristol-Myersthe rights to AMI-HS, an agent for imaging of the liver.

Advanced Magnetics may also pursue marketing rights to Feridex,an agent it licensed to Sterling Winthrop (SCAN 10/6/93). Sterling'ssale to Nycomed may give Advanced Magnetics the opportunity toreacquire U.S. rights to that agent as well, Goldstein said.

"If Sterling Winthrop completes the sale of its pharmaceuticalbusiness and Sanofi sells the diagnostic imaging part to Nycomed,we believe our agreement with Sterling is not assignable to anotherparty, and that agreement will be terminable," Goldsteintold SCAN. "I'm not saying I'm going to terminate it, butit will be terminable."

Advanced Magnetics filed an NDA for Feridex in February withthe Food and Drug Administration (SCAN 3/2/94). The company'sEuropean marketing partner for Feridex, Guerbet of France, filedfor regulatory approval of the agent in Europe last year underthe trade name Endorem.

Finding opportunity in chaos. As a relatively small contrastdeveloper, Advanced Magnetics traditionally has pursued licensingdeals with other companies as a means of marketing its products.Due to industry consolidation, however, the company has decidedthat the time is right for building its own sales and marketingforce to sell its agents, in part with employees let go from Sterlingand Squibb as the companies are reorganized.

Goldstein sees the contrast industry as one with opportunitiesripe for the picking. U.S. drug industry executives seem shell-shockedby the onset of managed care and health-care reform, he said.

"American drug executives are so panicked by the unknown,and life has been so easy for them for so long. They are not assharp as they might be," he said. "It is interestingto note that people who are so active in mergers and acquisitionsare principally the European companies, who have been prosperingfor years under what the American drug industry is so afraid of."

Despite their experience with regulation, however, the newEuropean owners of Squibb and Sterling Winthrop will take sometime to get up to speed on the vagaries of the U.S. market, providinganother advantage to domestic firms with well-developed businessplans.

Advanced Magnetics has a sizable war chest available to builda sales and marketing force, with a cash position of over $40million, Goldstein said.

"If (the European companies) are willing to spend hundredsof millions of dollars on acquisitions in this marketplace, Ithink I can make a little investment in it too," Goldsteinsaid.

In other Advanced Magnetics news, the company lost a skirmishin the patent lawsuit filed against it by Dr. David Stark. Starkfiled the suit in the U.S. District Court of Massachusetts in1992, alleging that Advanced Magnetics misappropriated trade secretsregarding six of the company's MRI contrast agents (SCAN 5/5/93).Stark asked to be named as an inventor on those patents.

The district court granted Advanced Magnetics' motion for summaryjudgment and dismissed the lawsuit last year, ruling that Starkdid not file his claims in a timely fashion. On appeal, however,the U.S. Court of Appeals for the Federal Circuit ruled this summerthat the lack of timeliness rationale cited by the lower courtwas not applicable. The litigation has been remanded to the districtcourt for trial, and Advanced Magnetics believes that the casewill be merged with another lawsuit filed by Stark working itsway through the state court system.