Inspire Pharmaceuticals Inc. (ISPH) recently announced that it has amended the terms of its agreement with long time partner Allergan Inc. (AGN). The deal was for the development and marketing of dry-eye treatment Prolacria, which failed to meet the primary endpoint in late stage trials. The collaboration also involved another dry-eye treatment, Restasis (cyclosporine), and any other human ophthalmic formulation of cyclosporine.
As per the terms of the amended agreement, which extends through 2020, Inspire Pharma will continue receiving royalties on global sales of Restasis and Allergan’s any other human ophthalmic formulation of cyclosporine for the rest of 2010 at the current rate. In 2011, the royalty rate will climb down by 3% and in 2013 the rate will be slashed further by 25 basis points. Finally, in 2014, the royalty rate will be cut by an additional 50 basis points and will remain at that level through December 31, 2020.
Under the newly framed terms of the deal, Inspire Pharma will have complete control over the development and commercialization of Prolacria. If and when Inspire Pharma resumes the development of Prolacria and receives regulatory approval to market the drug in a specific country, it can offer Allergan the marketing rights of that particular country. However, if Inspire Pharma decides against offering the said rights to Allergan, Inspire Pharma will lose its rights to receive royalties on the sales of Restasis and Allergan’s any other human ophthalmic formulation of cyclosporine generated in that particular country.
In the previous deal, Inspire Pharma used to receive royalties from Allergan on sales of Restasis and Allergan’s any other human ophthalmic formulation of cyclosporine. Inspire Pharma also received milestone payments on the achievement of certain pre-defined targets for Prolacria. The earlier arrangement also had a provision for a 30% reduction in royalties received by Inspire Pharma from Allergan in the event of the former terminating the development of Prolacria and choosing not to co-promote Restasis.
We currently have a Neutral recommendation on Inspire Pharma, which is supported by a Zacks #3 Rank (short-term Hold rating). We view this revised deal as a positive for Inspire Pharma as it clearly states the responsibilities of both the companies along with a well-defined revenue stream.
Inspire Pharma currently plans to cease the development of Prolacria and shift focus to its pink-eye treatment, Azasite, and its cystic fibrosis program.
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