Kythera Doubles Down On Double Chins With Bayer Buyback

The biotech buys back rights to its own drug after attaining a more advantageous financial position and successful late-stage results.

Typically biotechs seek out big pharma partners to help them fund global development and commercialization, but that story doesn’t usually end with the biotech pulling out of the deal. In an unexpected twist, Kythera Biopharmaceuticals Inc. asked Bayer Consumer Care if it could get its drug back.

The now public company told investors on March 10 that during its efforts to build a global aesthetics company, “it became obvious to us that the highest value play was for us to regain control of ATX-101 outside of the US and Canada,” said Kythera chief executive Keith Leonard.

Kythera is paying Bayer $33 million in stock and a $ 51 million promissory note, payable no later than 2024. Bayer is also eligible to receive certain long-term sales milestone payments on annual sales outside of the U.S. and Canada.

The medical dermatology company began operating in 2005 as Dermion Inc. after gaining rights to its lead product, ATX-101 from the Los Angeles Biomedical Institute.

In mid-2006, it settled on the name Kythera and raised $100 million in four venture rounds before going public in 2012.

The deal with Bayer Consumer Care in 2010 gave Kythera $43 million upfront for the ex-North American development and commercialization rights to ATX-101, a treatment for submental fat. Bayer later paid another $33 million after Phase III clinical trials in Europe produced favorable results (Also see "Deals Of The Week: Pfizer/FoldRx, Takeda/Orexigen, Bayer/Kythera ..." - Pink Sheet, 6 Sep, 2010.).

“Remember, at that time, we were a private company trying to fund Phase III trials during a challenging economic environment with a very high cost of capital,” noted Leonard. “While that was the best financial decision at the time, we now believe that this is the right time to reacquire the rights from Bayer.”

Good Times For Kythera

As Leonard pointed out, circumstances for the biotech have changed dramatically since it inked its deal with Bayer. Kythera, trading under the symbol “KYTH,” went public in October 2012 and sold 4.4 million shares at $16 per share – at the top of its proposed selling range of $14 to $16 (Also see "A Pair Of Biotechs Bet On The IPO Market" - Pink Sheet, 11 Oct, 2012.). The successful IPO came before today’s IPO frenzy, during an economic time that wasn’t kind to new biotechs entering the market; previous 2012 IPOs entered the public arena at a discount of about 25% to the middle of their filing range (Also see "More And Better Biotech IPOs, But Step-Ups Still Lag" - Pink Sheet, 1 Oct, 2012.).

Success followed success when the company netted $112.8 million through a follow-on public offering of 2.6 million common shares at $45.75 in October 2013 [See Deal]. The good fortune was earned; ATX-101, a treatment for what is more commonly known as a double chin, reported out positive results in a clinical program that included more than 3,000 patients across 23 studies.

ATX-101 relies on the adipolytic agent deoxycholate to break down fat cells without affecting surrounding tissue and represents a non-invasive alternative to liposuction. The company has previously compared the drug to Allergan’s successful wrinkle-reducer Botox (onabotulinumtoxinA) (Also see "Kythera Readies NDA For Double Chin Drug ATX-101" - Pink Sheet, 18 Nov, 2013.).

In its S-1 filing with the Securities and Exchange Commission in 2012, Kythera pointed to the more than $2 billion spent in the U.S. in 2011 on facial injectable products like Botox. Kythera sees an opening in the market – drugs like Botox are generally not used on the lower part of the face and FDA has not approved non-surgical options for treatment of double chin. The company predicted annual global sales of $500 million for ATX-101. Leerink Swan analyst Seamus Fernandez predicts $300 million in international sales for the injectable.

In the last few months, Kythera has added several people to its management team in an effort to add to its commercialization expertise. Frederick Beddingfield and Elizabeth Sandoval joined the company as chief medical officer and chief commercial officer, respectively, from Allergan. Jeff Webster and Frank Watanabe joined Kythera as SVP of operations and VP of strategy and corporate development, respectively, from Amgen.

“Kythera approached Bayer about the opportunity to buy back the rights to ATX-101 outside of the United States and Canada. After a review of our current strategic dermatology priorities, we agreed to their request to sell back the rights,” said a Bayer spokesperson.

Bayer's dermatology unit, formerly known as Intendis, already sells prescription medicines for acne, eczema, psoriasis, mycoses, rosacea and hemorrhoids. The company had intended to push into aesthetics, but “that this doesn't look like the right path forward for them at this time,” commented Leonard. A Bayer spokesperson said the company has not ruled out moving into aesthetics in the future.

Moving forward, Kythera intends to follow through with its second-quarter NDA filing with FDA for ATX-101. The Calabasas, Calif.-based company said it is planning “multiple ex-US filings in the next 12 months,” but has yet to determine which will be priorities. Leonard noted that Kythera, originally intended to file in the EU next based on the milestone structure with Bayer, but is now considering the Asian and Latin American markets as well. The company has $190 million in cash on hand to fund the filings.