Zealand Pharma gains 20% after PhIII success clears path to diabetes payday

Zealand Pharma (CPH:ZEAL) has taken a step toward collecting milestones worth up to $160 million (€142 million) and double-digit royalties. The paydays are tied to the success of its diabetes alliance with Sanofi ($SNY), the prospects of which were buoyed this week with the release of Phase III data.

Copenhagen, Denmark-based Zealand expects to pick up around €21 million in milestones this year, with the rest set to follow if Lyxumia and LixiLan can achieve the goals stipulated in the contract with Sanofi. The odds of LixiLan, a combination of Sanofi's diabetes blockbuster Lantus and Lyxumia,  delivering at least some of the possible bounty are shortening. New data from a Phase III trial of LixiLan show it is significantly better than Lantus at cutting HbA1c, setting Sanofi up to take the drug to regulators in Europe and the U.S. over the next 6 months.

Zealand CEO Britt Meelby Jensen

If LixiLan wins approval, Zealand will start raking in a fixed, low double-digit percentage of sales. Given that Lantus generated $7 billion last year, the royalty rate could translate into a significant ongoing source of income for Zealand. CEO Britt Meelby Jensen plans to use the cash to finance the advance of Zealand's pipeline of in-house programs, the most advanced of which is a Phase II treatment for myocardial ischemic reperfusion. "The revenue prospects from LixiLan are important for Zealand to help support the advance and accelerated value creation of our proprietary pipeline."

The product is as important to Sanofi, which is looking to it to cannibalize sales of Lantus before its rivals do so. This commercial consideration has led to speculation Sanofi will use its priority review voucher on the drug. "Sanofi could use its recently acquired priority review voucher to expedite U.S. approval and launch by [the third quarter of 2016], ahead of competitor Novo's Xultophy in this important market," Jefferies analyst Peter Welford wrote in a note to investors. Such an outcome would bring forward the date on which Zealand starts pocketing double-digit royalties.

- read the release
- here's FierceBiotech's take

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