Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

It's generally considered good sense to give wasps' nests a wide berth. But PTC Therapeutics Inc. just paid $140 million in cash and stock for the pleasure of sticking its face in one.  

PTC on Thursday bought the Duchenne Muscular Dystrophy (DMD) drug Emflaza from Marathon Pharmaceuticals. The drug is an old steroid widely and cheaply available in other countries. Marathon got FDA approval for it last month and proceeded to price it at a hefty $89,000 per year. 

PTC is already under a cloud as it tries to get its own DMD drug Translarna -- which failed a key clinical trial in the disease -- approved in the U.S. This deal exposes it to even more risk. 

More Pain
The purchase of a controversial and expensive rare-disease drug is the latest blow to PTC Therapeutics shares
Source: Bloomberg

On its fourth-quarter earnings call Thursday, PTC called Emflaza "a classic orphan drug launch" -- "orphan drug" being a term that usually refers to unique drugs for rare diseases, which usually fetch high prices. That definition doesn't really apply in this case. Most orphan drugs aren't decades-old steroids approved largely on the basis of 20-year-old data. And most aren't drugs patients have long been able to import from abroad for about $1,000 a year.

PTC said it will "re-evaluate" Emflaza's pricing. But given how rare the disease is, any price reduction will harm profitability.

Buying Emflaza suggests PTC underestimates the damage the current atmosphere of pricing scrutiny will do to the drug's appeal, and how hard payers, patients and rival drugmakers will work to find possible alternatives. Pricing uproar already caused Marathon to pause Emflaza's commercial launch. Now it's PTC's problem.

On top of all of that, Congressional drug-pricing watchdogs Elijah Cummings and Bernie Sanders sent a letter to the FDA on Wednesday probing the agency's decision approve the drug. 

That's plenty of risk on its own. But it's compounded by the saga of PTC's own DMD drug, Translarna. It's conditionally approved in Europe, but PTC must conduct another study to stay on the market. It was approved in August 2014, but generated only $25 million in sales in the fourth quarter of 2016. Growing sales in cost-conscious Europe will be tough, given PTC hasn't conclusively proved the drug's benefits. It's lucky to still be on the market.

U.S. sales are far more important, but the FDA sent PTC a "refuse to file" letter for Translarna in February 2016, saying its application was not complete enough to be reviewed. The company filed anyway, using the FDA's "over protest" rule. A decision is due by October, but this risky gambit seems unlikely to succeed.

If that effort fails and global Translarna revenue doesn't pick up, then PTC may face a cash crunch. It is already spending on more studies for Translarna and its pipeline. It has now shelled out for Emflaza, may owe future payments to Marathon, and will have to spend to build a sales force in the U.S. and navigate a tricky launch.

Downward Slope
PTC's cash pile looks set to diminish further over the next year after shelling out for a new drug
Source: Bloomberg

Thursday's 12 percent share-price drop will not make future fundraising easier. Shares were at $36.25 the last time PTC raised money in 2014. They're worth less than $10 now. The possibility of a final FDA rejection of Translarna and likely future negative headlines for Emflaza may drive shares down more.   

PTC was smart to realize it needed another revenue generator. It just picked the wrong one.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net