Merck to acquire Inspire

Raleigh, NC-After enduring several disappointing drug trials of treatments that once held promise for dry eye and cystic fibrosis, Inspire Pharmaceuticals will become part of Merck & Co. Inc. in a $430 million acquisition.

The deal, announced April 4, has been approved by the boards of directors for both companies. Under terms of the agreement, Merck will pay $5 per share in cash to Inspire shareholders. The price is 26% above Inspire's closing price on April 4.

Warburg Pincus Private Equity IX, LP, which owns about 28% of Inspire's outstanding shares, has agreed to tender all of its shares into the offer.

Once called the University of North Carolina at Chapel Hill's most successful spin-off, Inspire focused on researching potential treatments for protecting mucosal surfaces, such as in ophthalmic and pulmonary diseases. Two potential compounds, initially developed through research begun at UNC, were unable to meet primary endpoints in subsequent clinical trials.

In January, Inspire announced the failure of denufosol tetrasodium in the treatment of cystic fibrosis in its second phase III trial, and shares fell 58% on the disappointing news. In February the company laid off 27% of its workforce to save about $40 million in 2011.

A year earlier, Inspire announced that diquafosol tetrasodium 2% (Prolacria), developed to treat dry eye disease, failed to meet its primary or secondary endpoints. The company is no longer pursuing development of either compound.

Despite these setbacks, Inspire reported earnings of $42.7 million last year-up 22% from the prior year-from its azithromycin ophthalmic solution 1% (AzaSite) for bacterial conjunctivitis, and it hopes to develop the compound as a blepharitis treatment. Phase II trials are under way, with results expected later this year.

Additionally, two compounds for glaucoma treatment are in phase I trials.

Inspire also receives royalties from sales of cyclosporine ophthalmic emulsion 0.05% (Restasis) for dry eye, and epinastine HCl ophthalmic solution 0.05% (Elestat) for allergic conjunctivitis, both of which it co-promotes with Allergan. Epinastine generated $17 million in sales in 2010, but likely will go generic in 2011, according to an April 5 UBS Investment Research report.

Meanwhile, royalties from cyclosporine generated $45.6 million for Inspire, off Allergan sales of $620 million in 2010, the report said.

Merck's portfolio includes tafluprost (Saflutan), a glaucoma treatment under FDA review since March 2011, but its U.S. marketing exclusivity expired on glaucoma drugs dorzolamide hydrochloride-timolol maleate ophthalmic solution (Cosopt) and dorzolamide hydrochloride ophthalmic solution (Trusopt) in 2008 and 2009.