Noven's Acquisition Blues

Noven Pharmaceuticals' (Nasdaq: NOVN  ) $125 million acquisition of JDS Pharmaceuticals has gotten off to a bad start, after a lead JDS drug failed in phase 3 testing. 

The JDS compound in question was a once-daily dosed lithium treatment for bipolar disorder. Currently, there are no once-a-day dosed lithium drugs available for bipolar patients.

The phase 3 trial, which began well before Noven acquired JDS in July, involved 240 people in a double-blind study testing the lithium treatment versus a placebo. The trial compared the improvement seen in the acute symptoms of bipolar patients between the drug and the placebo.

No details on the effectiveness were given, but if the patients treated with the JDS lithium had shown an improvement in their bipolar disorder, there would have been a 15% chance that this improvement occurred at random. As Noven knows, this isn't good enough to pass muster with the Food and Drug Administration. If it wants to bring its lithium product to market, it will have to run another clinical trial that yields more conclusive results.

On the conference call, Noven officials repeatedly mentioned that they were still committed to commercializing this JDS drug. If something is wrong with the drug's delivery profile, its development is likely dead. But if the company just needs to test it in a larger clinical trial, or one with a different study design, development could continue.

Noven had expected to file a New Drug Application early next year if this study succeeded. No timelines were given after this failed study, but officials did mention that it took JDS about nine months to run this clinical trial, and that it will take another three or four months to complete meetings with the FDA.       

Even if the lithium compound's development is shelved, Noven hasn't thrown $125 million down the drain with the JDS acquisition. When it made the JDS deal, Noven officials targeted the acquisition to result in potential sales of more than $500 million from JDS products beginning in 2012.

More than $400 million of those extra sales are expected to come from a non-hormonal menopause treatment that JDS has brought to phase 3 testing. It could compete with other non-hormonal treatments in development, including those from Wyeth (NYSE: WYE  ) .

I think the estimate of more than $500 million in sales starting in 2012 is much too high, considering the markets in which the JDS drugs will compete. Regardless, this once-daily lithium product wasn't pegged as the key compound in determining the success of the JDS acquisition, so it's too early to call the $125 million spent on JDS a waste of cash.

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