Acusphere, Inc. Issues Letter To Shareholders

October 20, 2009 4:05 PM EDT

TEWKSBURY, Mass.--(BUSINESS WIRE)-- Acusphere, Inc. (ACUS.PK) today issued the following letter to shareholders:

Dear Fellow Shareholders:

As I have done in the past, I want to use this letter to provide Acusphere shareholders with a review of the Company's progress in 2009 and our plans as we move forward in the coming months. While we are very disappointed about the significant delay associated with the need for another clinical trial for our lead product candidate, Imagify(TM), we have not lost sight of the fact that Imagify remains the leader in myocardial perfusion assessment with ultrasound, an important investigational area, continues to show promise in addressing a potential $2 billion market that is growing, and has compelling competitive advantages over the standard of care, nuclear stress testing. We continue to believe strongly in Imagify's potential for the condition proposed, and we are committed to doing whatever we can to realize that opportunity.

So far this year, we have taken steps to fund operations necessary to obtain feedback from the U.S. Food & Drug Administration (FDA) in the complete response letter to our New Drug Application (NDA) - raising over $30 million during the last two years without selling additional equity that would dilute our existing shareholders. Upon receiving FDA's feedback, we restructured our partnership agreements to regain worldwide rights to our Imagify intellectual property and reduced our burn rate dramatically, which has given us needed time to explore potential additional partnerships that could provide the financing necessary for the new clinical trial required for FDA approval of Imagify. Obviously these tasks were much more difficult in the economic environment this year, but we are pleased with our progress to date as I will share with you momentarily.

Imagify Is the Leader in Myocardial Perfusion Assessment with Ultrasound

Ultrasound is one of the least expensive and most convenient ways to image the body, but ultrasound alone is not capable of assessing myocardial perfusion (e.g. blood flow in the heart muscle). The ability to evaluate perfusion in the heart muscle allows for early detection of coronary artery disease - the leading cause of death in the U.S. and many other parts of the world. We believe that Imagify, if approved, has the potential to improve the ability of heart stress ultrasound tests (stress ultrasound) to compete with the nuclear stress test, an inconvenient and expensive standard for assessing perfusion today. More than 10 million nuclear stress tests and stress ultrasounds are performed each year in the U.S., providing Acusphere with a market potential of more than $2 billion per year for Imagify in the U.S. alone. Our Imagify Phase 3 clinical program was designed to demonstrate that the efficacy of Imagify with ultrasound is non-inferior, or equivalent, to nuclear stress. We have evaluated Imagify in more than 1,000 patients thus far and believe that it is well tolerated, with a safety profile similar to other drugs used in this patient population.

Regulatory Requirements for FDA Approval of Imagify

By way of background, in December 2008, the Cardiovascular and Renal Drugs Advisory Committee advised the FDA that additional information should be obtained before approving Imagify for commercial use. In February 2009, we oversaw FDA's successful pre-approval inspection (PAI) of our manufacturing facility and received a complete response letter from the FDA providing feedback on our NDA. In this letter, FDA affirmed the Advisory Committee meeting conclusion, that there were deficiencies in our NDA and another clinical trial comparing the performance of stress ultrasound without Imagify to stress ultrasound with Imagify would be required for approval. We believe that this kind of trial should have a high probability of success. It is well documented in the scientific literature that nuclear stress has higher sensitivity than stress ultrasound alone. Sensitivity is the detection of disease when it is present and is the efficacy parameter that cardiologists and the FDA care most about in the moderate risk patient population in which Imagify is intended to be used. Since we believe our existing Phase 3 data support that Imagify with ultrasound has sensitivity equivalent to nuclear stress, and since nuclear stress is known to have better sensitivity than stress ultrasound without an imaging agent, then we believe Imagify with stress ultrasound would be expected to have better sensitivity than stress ultrasound alone.

At the same time, the probability of success of the new trial, as well as the cost and time required for completion, will be influenced by the specifics of the trial design, which has not yet been negotiated with FDA. As a point of reference, our earlier Phase 3 trials, RAMP-1 and RAMP-2, involved about 320 and 460 patients respectively, incurred costs of approximately $12 and $17 million respectively and required about 24 and 30 months for completion respectively. We will have a better idea of the cost and timing of the next trial once we have negotiated the trial design with FDA. We expect reaching agreement with FDA on the specifics of the trial design will require 6-9 months. We have identified a number of clinical research organizations (CROs) with expertise in myocardial perfusion assessment with ultrasound that could help us with the clinical trial design and FDA discussions.

Extending Cash Runway for Exploring Potential Strategic Partnerships

By Reducing Burn Rate and Selling Non-Critical Assets

As noted, we have worked diligently this year to reduce our cash burn rate dramatically through a substantial reduction in force, termination of the lease on our former headquarters in Watertown, Massachusetts, renegotiation of our intellectual property (IP) agreements, elimination of all of our secured debt and associated monthly payments and delisting from NASDAQ. As a result, today we have just five employees, have pushed out payments on our IP agreements that would have been due in 2009 to 2013 and have eliminated significant public company expenses.

In parallel, we have sold several non-critical assets to generate cash. In June 2009, we raised $1 million by selling our royalty interest in our early stage pain product to Cephalon Inc. We have also generated cash by selling equipment that is no longer needed. In a more significant move, today we are announcing that we have sold equipment in our commercial manufacturing facility in Tewksbury, Mass., to Hovione Farmaciencia SA, for total anticipated proceeds of $2.5 million. $1.9 million was received at the closing and the remaining $0.6 million will be received upon meeting certain conditions that we expect to meet in 120 days. We also have given our landlord notice that we do not intend to exercise our option to renew the lease when it expires in April 2010. A significant outcome of this transaction is that we will no longer be required to make rent payments under the lease. This manufacturing facility was required to file our NDA and complete our PAI. With the successful completion of these activities, we do not need a commercial manufacturing capability until we finish the next Phase 3 trial and are ready to resubmit the Imagify NDA. We have identified multiple contract manufacturing organizations (CMOs) that are qualified to produce clinical trial material and commercial product for us, so we no longer need our own manufacturing facility. Upon reviewing our resubmitted NDA, FDA will conduct a new PAI and require us to demonstrate that Imagify made by the CMO is comparable to Imagify used in clinical trials. Our successful PAI earlier this year and our track record in making Imagify in multiple manufacturing sites in the past, gives us comfort that the technology transfer to the CMO will be successful.

As a result of these cost cutting activities, our average monthly burn rate has decreased from $3.4 million during 2008 to approximately $300,000 going forward. As of October 31, 2009, we expect to have an unaudited cash balance of approximately $2.4 million. In addition, our liabilities and contractual lease obligations net of deferred revenue to Cephalon have decreased from $46.3 million as of December 31, 2008 to $10.3 million as of September 30, 2009, of which about half is not due until 2013. At this reduced burn rate, our cash should fund operations into the second quarter of 2010, giving us additional time to explore potential strategic partnerships to finance Imagify's continued development.

Positioning Acusphere as a More Attractive Partner

Another significant achievement in the past months has been our success in regaining worldwide rights to Imagify with no future payments of any kind due to any of our former partners. At the beginning of this year, Cephalon held rights to Imagify in the U.S. and Nycomed held those rights in Europe and certain other countries. Cephalon has no expertise in cardiology or imaging and had obtained these rights opportunistically at the end of 2008 when there was the potential for regulatory approval in the short-term to a drug with very significant commercial potential. In return, Acusphere received the funding needed to complete the FDA review process. When it became clear that FDA would require another trial before approval, Cephalon was more interested in maintaining its strategic focus on pain, and chose to exercise its right to better economics on its license to our pain product instead of exercising rights to Imagify. Nycomed had been an excellent partner since 2004, but its strategic focus had also changed with its subsequent acquisition of Altana, a sizeable transaction, and its divestiture of Angiox, the only acute care cardiology product in its portfolio, which had been a strategic fit with Imagify. Both partnerships terminated amicably. As a result, Acusphere now owns 100% of the upside in Imagify and has an opportunity to find a new partner or partners with the appropriate expertise and strategic commitment to Imagify's long-term success.

Status of Partnership Discussions

Upon regaining worldwide rights to Imagify in June 2009, we began discussions with larger pharmaceutical companies about a potential acquisition or partnership as a means to fund and complete the clinical trial that FDA requires for approval as well as the production of needed clinical trial material, which we estimate will require 14 months and $2.5 million. So far, several companies have expressed interest in Imagify, with discussions progressing to the senior team and CEO level. We are confident that we have a compelling story for potential partners - Imagify is the leading ultrasound contrast agent for perfusion imaging, it addresses a potential U.S. market of $2 billion, substantial data already exists in more than 1000 patients and the trial required by FDA should have a high probability of success.

To close a transaction on terms that are attractive for our shareholders, we must address a number of issues. The cost, timing and risk profile for the next trial will be easier to predict once the specifics have been designed and agreed to by FDA. Regulatory standards for approval have been evolving in this field. In addition, we no longer have internal clinical or manufacturing capability that is specific to Imagify because of our reduction in force. And finally, our limited cash position puts us in a vulnerable negotiating position.

Our efforts in 2009 have been focused on addressing these issues:

    --  Regaining worldwide rights to Imagify has given potential new partners a
        reason to meet with us
    --  Reducing the burn rate and selling non-critical assets has given us the
        time to learn what the issues are and begin to address them
    --  Identifying and qualifying CROs and CMOs with expertise in our product
        and technology enables us to outsource our clinical trials and clinical
        trial material production, activities that we had previously staffed
        internally, and allows us to operate at a much lower cost structure in
        the future than we had in the past

2009-10 Goals

We have many important goals for the rest of 2009 and early 2010:

    --  Retaining a CRO to design the next clinical trial and obtain FDA
        feedback will make the cost, timing and risk profile of that trial more
        predictable (Q4)
    --  Prepare a synopsis of our proposed trial design for FDA (Q4)
    --  Meet with FDA for feedback on this synopsis (Q1)
    --  Prepare clinical protocol based upon FDA feedback for FDA (Q1)
    --  Finalize protocol and obtain agreement from FDA (Q2/3)
    --  Determine whether the European standards for regulatory approval are
        different from those in the U.S. and develop a new plan for the
        Marketing Authorization Application (MAA) filing in Europe
    --  Continue discussions with potential strategic partners about funding the
        production of clinical trial material and the new clinical trial

In closing, I want to thank our shareholders for your understanding that, with our reduced cost structure and only five employees, we have not been able to respond to investor questions on a timely basis as we had in the past when we had an Investor Relations department and more than 100 employees. I also want to thank you for remaining supportive during these very difficult months and for playing an important role in the continued development of our exciting drug candidate, Imagify.

Sincerely,

Sherri C. Oberg

President and CEO

About Acusphere, Inc.

Acusphere is a specialty pharmaceutical company that develops new drugs and improved formulations of existing drugs using its proprietary microsphere technology. We are focused on developing proprietary drugs that can offer significant benefits such as improved safety and efficacy, increased patient compliance, greater ease of use, expanded indications or reduced cost. Our lead product candidate, ImagifyTM (Perflubutane Polymer Microspheres) for Injectable Suspension, is a cardiovascular drug for the detection of coronary artery disease, the leading cause of death in the United States, for which a New Drug Application (NDA) was submitted to the U.S. Food & Drug Administration (FDA) in April 2008 and filed in June 2008. Imagify and the Company's other product candidates were created using proprietary technology that enables Acusphere to control the porosity and size of nanoparticles and microspheres in a versatile manner that allows them to be customized to address the delivery needs of a variety of drugs. For more information about Acusphere visit the Company's web site (www.acusphere.com).

Forward-looking Statements

The above press release contains forward-looking statements, including statements regarding, the NDA submission for Imagify and likelihood of regulatory approval and the commercial opportunity for Imagify. There can be no assurance that Imagify will be approved for the indication the Company is seeking, or at all. The Company's actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including anticipated operating losses and existing capital obligations, uncertainties associated with research, development, testing and related regulatory approvals, including uncertainties regarding regulatory evaluation of the Company's statistical analysis plan and clinical trial results and uncertainties regarding the potential effects of not achieving clinical endpoints, limited time to date for the Company to review the details of the clinical trial results, capital needs and uncertainty of additional financing, uncertainties regarding the cost, timing and ultimate success of the qualification of the Company's commercial manufacturing facility in accordance with applicable regulatory requirements, complex manufacturing, high quality requirements, lack of commercial manufacturing experience, dependence on third-party manufacturers, suppliers and collaborators, uncertainties associated with intellectual property, competition, loss of key personnel, uncertainties associated with market acceptance and adequacy of reimbursement, technological change and government regulation. The Company notes that effective as of March 3, 2009, pursuant to a Form 15 filing made with the SEC, it is not currently required to file periodic reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date of this press release or to reflect the occurrence of unanticipated events.

    Source: Acusphere, Inc.

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