Somaxon Pharmaceuticals: "Rest in Peace?"

Last Updated Jan 14, 2010 10:39 AM EST

Somaxon Pharmaceuticals is meeting with the FDA on January 20 to seek clarity as to what additional steps -- if any -- need be taken by the company to move forward with commercial development of its oft-delayed treatment for insomnia, the investigational drug called Silenor (doxepin). Unfortunately, even acknowledgement by regulators of the clearly defined pathway necessary for regulatory approval could come too late as a value-creating event, should impatient insiders decide to finally throw in the towel.

In today's competitive environment, small drug developers need alliances with their better-capitalized brethren to lower R&D costs (cash burn rates) and mitigate risk from the inevitable delays and failures endemic to pipeline development. Looking to maximize the licensing potential of Silenor, Somaxon opted to shepherd the sleep drug through late stage clinical trials alone, resulting in an accumulated deficit of $176 million (as of September 30). With no recurring revenue stream -- and an uncertain future -- the company's auditor slapped a "going concern" label on its 2008 report.

And the patent clock keeps ticking away too. Management has asserted that market exclusivity for Silenor in the treatment of insomnia runs to 2020 in the U.S. A closer scrutiny of regulatory filings reveals, however, that the critical in-licensed patent for use of low-dose doxepin for the treatment of chronic insomnia is scheduled to expire come March 2013.


"Hickory, dickory, dock
Generic ran up the clock
Paragraph IV Certification in hand
The FDA said, "How grand!"
Branded sales went down
Hickory, dickory, dock!" ~ A DJP original verse

In 2004, the company licensed the opiate antagonist nalmefene from Finnish BioTie Therapies for the treatment of impulse control and substance abuse disorders. Phase 3 data in reducing pathological gambling-related urges and thoughts disappointed, and Somaxon contractually terminated drug development in March 2009. With no other key pipeline programs, the financial onus fell upon Silenor to generate long-term value for shareholders.

The company responded in predictable fashion upon receipt of two Complete Response Letters for Silenor -- which the FDA now uses to communicate to a company that its drug will not be approved in current form -- in the past year: tapping existing shareholders for fresh funds (a $6 million PIPE offering last summer) and employee layoffs. The workforce initiative, however, left the cash-strapped company with a deferred severance obligation of approximately $1.66 million, according to its third-quarter 2009 regulatory filing with the SEC.

In its December 2009 Complete Response Letter, the FDA stated "Silenor did not meet the approval standard for efficacy." This remains somewhat puzzling, as no specified request was made of Somaxon to conduct any additional clinical work. Dr. Philip M. Becker, with more than 20 years experience in lecturing and teaching on sleep disorder medicines at universities across the U.S., opined in an email response to me that "low-dose doxepin would have a unique niche in the management of sleep maintenance insomnia, particularly as its abuse potential is exceedingly low."

His colleague, Dr. Haramandeep Singh, who has co-authored several papers with Dr. Becker on the investigational use of low-dose doxepin for the treatment of primary insomnia in adult and geriatric patients, did speculate with me, however, that (even though the FDA did not raise any clinical safety issues in its most recent response) regulators likely wanted to be prudent in regards to Somaxon's Risk Evaluation and Mitigation Strategies (REMS), given recently surfaced adverse reports on other commonly used anti-depressants, especially in the elderly.

Chief executive Richard Pascoe remains optimistic, having told BNET.com in an exclusive two-part interview last week that the company believes Silenor has a unique and differentiated product profile and [Somaxan] is "committed to working with the FDA to seek approval for Silenor and commercialize the product."

"There is no fortress so strong that money cannot take it," said Roman statesman Cicero (106 BC - 43 BC). Notwithstanding the best intentions of CEO Pascoe, if influential shareholders, such as MPM Capital (with about 9.7 percent of total shares) or Scale Venture Partners (holding about a 6.9 percent stake) decide to throw in the towel and perceive the best deal outcome would be to sell off the technology and furniture -- or push for a merger with one of their other biotech holdings -- come spring Somaxon's management could be hearing sounds of "nighty-night."

Related Posts:

An Interview With Somaxon Pharma Ceo Pascoe (Part II): Promise and Problems With Sleep Drug Silenor

An Interview With Somaxon Pharma CEO Pascoe (Part I): Efficacy and Uncertainty of Sleep Drug

  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.