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Cosmo Pharma CEO Sees $1.5 Billion Dye Luring Buyer by 2013

Cosmo Pharmaceuticals SpA (COPN), the developer of a dye that may help detect pre-cancerous colon growths, plans to use the product to lure a buyer within the next year, Chief Executive Officer Mauro Ajani said.

More than 10 companies have expressed interest in the dye, called Methylene Blue MMx, and the company expects to start talks before April, Ajani said in an interview at Cosmo’s headquarters in Lainate, near Milan. The company probably won’t sell rights to the product separately because it would reduce the appeal of the company to a potential acquirer, Ajani said.

“Usually a pharma company wants to buy when the company that is going to be bought retains the rights,” he said. “What I can tell you for sure, in one year we will understand what our way out will be.”

Cosmo is preparing to test Methylene Blue MMx in the third and final stage of trials usually required for regulatory approval, and plans to seek marketing clearance in the U.S. and Europe next year, Ajani said. Results from the second stage of tests are expected in the next month, he said. The product may reach $1.5 billion in sales, said Chris Tanner, Cosmo’s chief financial officer.

“We have so many companies that have already shown interest in the project that it should be very easy to find a partner,” Ajani said. “If the outcome is positive, we have a major opportunity to reach an important agreement with a big company.”

Cosmo’s Ownership

Ajani founded Cosmo in 1997, took it public on the Swiss exchange 10 years later and owns 43 percent of the stock. He has an arrangement with other executives that gives him control of 53 percent of the shares, Tanner said.

Cosmo has gained 54 percent this year, compared with a 14 percent gain in the Swiss Performance Index. The stock dropped 0.8 percent to 26.1 Swiss francs as of 9:25 a.m. in Zurich, giving the company a market value of 391 million Swiss francs ($417 million).

Cosmo is testing Methylene Blue MMx as a tablet that patients take before a colonoscopy, the procedure in which surgeons thread a camera through the rectum and colon to look for and remove polyps and lesions, which can become cancerous. About 30 million people will have the procedure this year in the seven largest markets, Ajani said.

White Light

In most cases doctors use white light to check for abnormalities in the colon, said Matt Rutter, a consultant gastroenterologist at the University Hospital of North Tees in the U.K. In as much as 5 percent of cases they use an older form of methylene blue in a spray applied via a catheter that’s inserted with the camera, Rutter said. The process adds about 15 minutes to a standard half-hour procedure, he said.

If it works, Cosmo’s tablet “would speed up the procedure and allow you to focus on detecting the lesions rather than applying the dye,” said Rutter, who’s also a member of the British Society of Gastroenterology committee that sets guidelines for endoscopies in the U.K. He said he has no financial ties to Cosmo.

Currently doctors only use methylene blue in patients who have a tendency to develop pre-cancerous polyps, or who have bowel inflammation that puts them at risk of cancerous changes, Rutter said. Evidence that Cosmo’s product benefits other groups of patients could expand the usage to as much as 20 percent of cases, he said.

“It’s something that is improving an existing procedure and therefore should gain a relatively high acceptance rate and have fast uptake,” Peter Welford, an analyst at Jefferies International Ltd. in London, said in a telephone interview.

Peak Sales

He said he expects the product to reach peak annual sales of about $100 million, assuming it’s used in as much as 30 percent of colonoscopies and sells for about $70. That’s a conservative estimate, Welford said.

Cosmo expects to charge at least $100 for the product, because it will replace the need for single-use catheters that cost about $85, and will save doctors time, Tanner said. The pill’s advantages may enable Cosmo to capture as much as half of the entire colonoscopy market, he said.

“I presume that the company will want us to use it in every case, but at that price it wouldn’t be possible,” Rutter said. “Unless the price came down then it would still be only used in a small minority of patients.”

Methylene Blue MMx uses Cosmo’s patented technology to distribute the dye evenly throughout the colon. The same technology is the basis of all Cosmo’s products, including Lialda, the drug for ulcerative colitis that the company licensed to Shire Plc (SHP) in 2001. Manufacturing fees and royalties from Lialda accounted for about half of Cosmo’s sales of 33.5 million euros ($43.8 million) last year.

To contact the reporter on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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