Inspire Pharmaceuticals (NASDAQ:ISPH) CEO Adrian Adams joined the North Carolina company in the winter of 2010 with goals of expanding its business beyond eye products and commercializing a breakthrough cystic fibrosis treatment.
In January, one month shy of Adams one-year anniversary at Inspire’s helm and days removed from announcing a failed clinical trial on the CF drug candidate, he and the board of directors discussed a possible sale of the company. On April 5, a deal was announced: Merck (NYSE:MRK) would acquire Raleigh-based Inspire for $430 million. That price values Inspire at $5 per share, 26 percent higher than the closing price of Inspire’s stock on April 4.
The steps leading to Inspire’s sale started long before the announced failure of CF drug candidate Denufosol. Inspire said in documents filed with the U.S. Securities and Exchange Commission that the board, senior management and an unnamed outside consultant met several times during Denufosol clinical trials to discuss Inspire’s strategy should the compound fail.
But Inspire also made key hires in anticipation of Denufosol’s success. Last August, Inspire named a new chief medical officer: Dr. Charles Johnson, a Genentech veteran and former director of the Cystic Fibrosis Center at Washington University in St. Louis.
Adams met with three unnamed companies last summer for discussions revolving primarily around possible partnerships or collaborations with Inspire. A fourth company in November discussed a potential ophthalmology partnership that included co-promotion of Inspire’s eye drug Azasite. That company also indicated interest in acquiring Inspire. Adams told the company that Inspire had no plans for a sale, though he would inform the board of directors. Soon the board began weighing an offer from that company and others.
Inspire’s board of directors met on Jan. 2 to discuss phase 3 clinical trial results for Denufosol, which did not meet endpoints set for the study. In light of the failure, the board authorized management to hire a financial advisor to consider the company’s options and three days later, the company contacted Goldman Sachs. A restructuring of Inspire, including abandonment of its pulmonary therapies program, was announced on Feb. 17. The company said it would return its focus to eye treatments in order to reduce the company’s costs and move it toward profitability.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Meanwhile, Inspire and Goldman spent the winter months talking with six companies, including Merck. Inspire said in the filing that Goldman contacted Merck in particular because of Merck’s interest in an all-cash acquisition of Inspire in March 2009. No purchase price was disclosed.
“At that time, the board had considered and discussed the expression of interest, but ultimately determined not to pursue a transaction,” the document said.
A seventh suitor entered the process as recently as March 27 but later withdrew.
Bidding came down to the $5 per share offer from Merck and a business identified only as Company 3, which submitted a final proposal of $4.90. The board chose Merck’s offer as being in the best interest of Inspire shareholders and on April 5, executed the merger agreement before the stock market opened. Merck said in the announcement that Inspire’s products would complement its own ophthalmology products business.
Besides Azasite, a treatment for bacterial conjunctivitis, Inspire’s approved products include Restasis, a dry eye drug, and Elestat for treating itching associated with allergies. Inspire reported $106.3 million in 2010 revenue from its eye products. In a statement, Adams called Merck “the ideal partner to enhance the long-term potential of Inspire’s ophthalmic assets.”
Not everyone is convinced. A week after the deal was announced, a shareholder filed a lawsuit claiming that the offer price was not enough. Luttenberger v. Inspire Pharmaceuticals Inc., was filed in Delaware Chancery Court and it’s possible more suits could follow. The $5 a share price might not be what shareholders hoped for, particularly given the upside expected of Denufosol. But if there is a better offer for Inspire out there, it’s not clear what that offer is.
