By Kendra Marr
Washington Post Staff Writer
Thursday, July 3, 2008
Edward M. Rudnic, MiddleBrook Pharmaceuticals's chief executive, plans to leave the company he founded in exchange for an outside investment of $100 million.
MiddleBrook has been openly searching for a buyer over the past year. In the meantime, it agreed to the investment from Equity Group Investments, founded by Chicago billionaire Sam Zell, in an attempt to save its once-daily amoxicillin treatment for strep throat called Moxatag.
The Germantown biotech had previously considered a sale to another company, hoping for one that had a large sales force targeting primary-care physicians so that it could widely market the recently approved Moxatag.
The news sent the Germantown biotech's stock plummeting 51 percent, to close at $1.52, as the company deviated from investor's buyout expectations.
"This is a classic case of investor disappointment," said John T. McCamant, editor of the Medical Technology Stock Letter.
MiddleBrook announced late Tuesday that Equity Group Investments would install a new commercially focused senior management team when the deal closes in late August or early September. In addition to Rudnic, Chief Financial Officer Robert C. Low will leave.
Rudnic is the second executive to announce his departure from a local biotech in a week, following David M. Mott's decision to leave MedImmune, based in Gaithersburg, at the end of the month. Mott presided over the sale of Maryland's most successful biotech to British drug giant AstraZeneca.
Rudnic, who has weathered several ups and downs at MiddleBrook, has been the face and voice of the region's biotech industry. If there's a biotech meeting, Rudnic is usually speaking. If there's a task force or council, he is on the board.
"He is absolutely a pillar of this community," said Julie Coons, chief executive of the Tech Council of Maryland. "He is a leader in the biotech industry. Not only emerging, but accomplished executives look to him as a model of how to grow a company."
Three of MiddleBrook's largest stockholders -- HealthCare Ventures, Rho Ventures and Deerfield -- have agreed to vote in favor of the $100 million investment. "This is the alternative we thought would be best for the company going forward," MiddleBrook spokesman Robert Bannon said.
MiddleBrook began actively investigating its next move after winning Food and Drug Administration approval in January for Moxatag, which delivers the drug in time-released bursts, instead of requiring patients to swallow several doses a day.
Within 24 hours of the approval, the company announced that it would raise $21 million in a private placement of stock. In February, it brought on Morgan Stanley to help it explore strategic alternatives, which included selling MiddleBrook. Instead, the deal was made for the investment.
"This is an alternative," McCamant said, "but not the alternative the street wanted."
MiddleBrook will sell 30.3 million common shares at $3.30 each to Equity Group and issue a five-year warrant to purchase 12.1 million shares at an exercise price of $3.90 each.
The company has also agreed to buy back its Keflex assets, an anti-infection drug sold last year to Deerfield Management, for about $11 million.
Two Equity Group managing directors, along with former Adams Respiratory Therapeutics senior executive John Thievon, will join MiddleBrook's current board, which will expand to nine members. Thievon replaces Rudnic as chief executive. David Becker, another former Adams executive, will replace Low as chief financial officer.
Equity Group's investment allows MiddleBrook to move forward with Moxatag and continue development of drugs using the same time-release technology, called Pulsys.
The new management, who will work to launch Moxatag into the marketplace early next year, puts a powerful sales and marketing team behind MiddleBrook. While with Adams, another recipient of Equity Group investment, Thievon launched the Mucinex brand and built the franchise -- best known for commercials featuring Mr. Mucus, an animated green ball of phlegm -- into more than $350 million in annual revenue.
"What the incoming management is looking to do is replicate the success they had previously at Adams," Bannon said.
Both Rudnic and Low have long-term consulting agreements to work with MiddleBrook.
"They'll continue to be very close with the company," Bannon said.
Still, the investment marks the beginning of the end of Rudnic's MiddleBrook drama.
Nine years ago, Rudnic, who had left a senior drug company job and the accompanying $3.5 million in stock options, sketched out the beginnings of MiddleBrook at a friend's dining room table.
In 2005, its Pulsys technology failed, forcing the company to lay off about half of its 100 or so employees, including senior executives. It also cost the company a partnership with big drug company Par Pharmaceutical.
The next year, another attempt narrowly failed. MiddleBrook had burned through cash to get its product through the final stage of development. It reduced its workforce again.
The company, which first sold shares to the public in 2003, has yet to post a profit.
And a future sale remains a possibility.
"I don't think this rules it out," Bannon said.
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