Cygnus Inc

Cygnus, Inc., at its inception in 1985, was engaged in development and manufacturing of transdermal drug delivery systems, including products for contraception, hormone therapy and smoking cessation. The company also developed the GlucoWatch, a non-invasive glucose monitoring devices for manufacture and commercialization. When GlucoWatch was launched in early 2002, the product sales of GlucoWatch were much lower than expected.^[1] According to the Company, the reasons for failure included adoption barriers for new technology, need for a paradigm shift in the management of diabetes, lack of widespread medical reimbursement, and performance characteristics of the device.

First, the GlucoWatch faced difficulties in its clinical efficacy and reproducibility of measurements. Cygnus did not resolve these technical feasibility issues and was unable to replace the standard glucose monitoring device that was on the market.

Second, Cygnus lacked an effective managed care resources group. Without a substantial reimbursement level, it is very difficult for healthcare organizations to approve the GlucoWatch for its beneficiaries at the price that Cygnus was selling it. Furthermore, Cygnus failed to show the cost benefits of the device.

Third, Cygnus entered into a problematic co-promotion agreement with Sankyo Pharmaceuticals in 2000 that ended unexpectedly. Glucose monitoring products that are new to the market require a sizeable sales force to educate healthcare professionals and end user, and to create product awareness in various marketing channels. After Sankyo left the agreement, Cygnus was very low on cash and reduced the work force by 60%. Cygnus did not have enough resources or infrastructure to perform sales and marketing activities on its own.

In October 2002, the Company failed to meet the minimum price per share and minimum market capitalization listing requirements of the Nasdaq National Market and National Small Cap Market. As a result, its stock was delisted from NASDAQ and transferred to OTC bulletin board. Manufacturing activities and R&D efforts for future products were suspended. Due to Cygnus’ weak financial condition, operating losses, and lack of a marketing partner, the Company’s Board of Directors decided to sell off substantial operating assets, wind-up operations and subsequently dissolve and liquidate.^[2]

In December 2004, Cygnus Inc. entered into an asset purchase agreement with Animas Corporation and Animas Technologies LLC in exchange for $10 million USD in cash. The asset sale was completed in March 2005. The Company retained some cash and equivalents, and accounts receivables but no operating assets and no means to generate revenue, other than pending arbitration with Ortho-McNeil Pharmaceutical Inc. The headquarter lease terminated and Cygnus moved to a single office in San Francisco. The arbitration with Ortho-McNeil was settled in September 2005. Ortho-McNeil paid $4 million USD in cash to Cygnus. The company had planned to wait till this settlement to file its certificate of dissolution.

In November 2005, the Company filed 10Q indicating intention to file Certification of Dissolution. As a result, trading of Company’s common stock on OTC Bulletin Board stopped. The close of business was on November 21, 2005. Cygnus had never been profitable in its 17 years of history.

History

Cygnus Inc. was founded in 1985 in Redwood City, California. The company, at its inception, was engaged in development and manufacturing of transdermal drug delivery systems, including products for contraception, hormone therapy and smoking cessation. The company also began developing non-invasive glucose monitoring devices for manufacture and commercialization. The company was reincorporated in Delaware in 1995.

In 1999, Cygnus Inc. chose to focus solely on glucose monitoring systems and sold their drug delivery business to Ortho-McNeil Pharmaceutical, Inc., a Johnson & Johnson company for $75 million USD in cash, contingent on achievement of certain milestones.^[3] Under terms of the agreement, Cygnus received $20 million in cash at closing. The remaining contingent payments were related to the achievement of certain technical, regulatory and commercialization milestones related to the EVRA transdermal contraceptive patch that was being developed with the R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson company.

Company Organizational Structure

Executive Officers as of February 1997

Gary W. Cleary, Ph.D 54 Chairman of the Board of Directors and Chief Technical Officer
Gregory B. Lawless, Ph.D 57 President, Chief Executive Officer and Director
Neil R. Ackerman, Ph.D 53 Senior Vice President, Research & Development
Craig W. Carlson 48 Vice President, Corporate Marketing and Strategic Planning
James F. Grady, Jr., Ph.D 48 Vice President, Operations and Human Resources
John C. Hodgman 42 Vice President, Finance and Chief Financial Officer; President, Cygnus Diagnostics
Stephen N. Kirnon 34 Vice President, Business Development
Alan F. Russell, Ph.D 55 Senior Vice President, Scientific Affairs

Founder of Cygnus Inc. Dr. Cleary, the Company's founder and Chairman of the Board of Directors, also served as the Company's President and Chief Executive Officer from its inception until July 1986. Since 1986, Dr. Cleary has served as Chief Technical Officer of the Company. During his professional career, Dr. Cleary served as an investigator with the U.S. Food and Drug Administration and held research and management positions at Cutter Labs, Alza Corporation, Key Pharmaceuticals, Inc. and Genentech Inc. Dr. Cleary holds an M.B.A. in Health Sciences from the University of Miami, a Ph.D. in Pharmaceutical Sciences from Rutgers University and a Pharm.D. in Pharmacy from the University of California, San Francisco.^[4]

On July 9, 1999, John C Hodgman, President and Chief Executive Officer, succeeded Gary W. Cleary, Ph.D., as Chairman of the Board of Directors. (Dr. Cleary resigned as Chief Technical Officer effective the same date.) Dr. Cleary served as Chairman Emeritus of the Board from July 9, 1999 until February 22, 2000, when he resigned from the Board of Directors.^[5] The new organizational structure of Cygnus Inc is represented below:

Executive Officers in 2000-2005:

Neil R. Ackerman, Ph.D 56 Senior Vice President, Research & Development and Scientific Affairs
Craig W. Carlson 52 Chief Financial Officer and Senior Vice President, Finance
John C. Hodgman 46 Chairman of the Board, President and Chief Executive Officer
Barbara G. McClung 45 Senior Vice President, General Counsel and Secretary

Technology

The company’s flagship product was the GlucoWatch system that provides the patient with real-time blood glucose readings and alarms for hypoglycemia and hyperglycemia. In December 1999, Cygnus received the CE Certificate for the GlucoWatch system that is required for selling products in Europe. Cygnus Inc. also filed a Pre-Market Approval application (PMA) for the GlucoWatch system in USA. The PMA received a unanimous recommendation for approval with conditions by the US FDA Clinical Chemistry and Clinical Toxicology Devices Panel of the Medical Devices Advisory Committee. GlucoWatch was approved by the FDA in 2001 as an adjunct to traditional fingerstick home blood glucose testing.

How the GlucoWatch Works

All diabetes monitoring technologies deal essentially with the same problem, accurately and conveniently measuring blood glucose levels. There a number of different techniques for accomplishing this and several technologies on the market utilizing different approaches. The GlucoWatch, originally developed by Cygnus, uses a process called reverse iontophoresis to detect blood glucose.

In this method, a 300 micro-amp electric current is directed between two skin-contacting electrodes on the underside of the device . As the current flows through the intervening skin, fluid is drawn into two collection disks which serve as anode and cathode. Glucose molecules are drawn into the cathode disk and are measured by an internal sensor. The resulting signal is processed internally to arrive at a measured blood-glucose concentration. This calculated blood glucose concentration is then reported on the LCD screen of the device in units of mg/dl.

Problems with the GlucoWatch

There were a number of serious problems with the GlucoWatch that helped prevent widespread adoption and continued use of the device. First, the GlucoWatch was not a replacement for standard glucose monitoring and was never shown to conclusively improve clinical outcomes for users. After a full two-hour “warm up” period, the GlucoWatch required daily calibration with standard test strips and was only designed to run over 12-hour durations. In addition, the accuracy of the device was questionable. In several studies, measurements from the GlucoWatch were shown to deviate as much as 30% from standard finger-prick test strips. The reproducibility of measurements also was shown to decrease due to environmental changes. For example, changes in temperature, jostling and perspiration were all shown to dramatically influence measured blood glucose concentrations. In comparison to standard test strips, the GlucoWatch was significantly more expensive. According to one cost breakdown, the GlucoWatch along with all its replaceable components (battery, adhesive gel electrode pads, etc.) cost about three times what it would cost to take 8 finger-prick measurements per day. Finally, the GlucoWatch was uncomfortable for many. In one particular study, 99 out of 99 participants experienced skin reactions during a 6-month period of use, with 48% of those reactions evaluated as moderately severe by doctors. In the same study, the primary reason (chosen by 76%) cited for the declining use of the device over the 6-month period was “skin reactions”.

Competitors

Other than the GlucoWatch, the FDA has approved one other minimally-invasive device for diabetes management called the MiniMed Continuous Glucose Monitoring System. This device was approved by the FDA in 1999 .

The Minimed Paradigm system uses a needle-like glucose sensor which is inserted subdermally to measure blood glucose concentrations. This sensor is connected by wire to a small computer with an LCD to report current blood glucose concentration. Measurements are taken every 10 seconds, with the number displayed being the averaged result over the previous five-minute period. According to the FDA website, the MiniMed is intended for short-term (3 days) use only, to measure daily blood-glucose trends as ordered by a physician.

Failed Deal with Sankyo

Cygnus's troubled relationship with Sankyo Pharmaceutical began on an optimistic note in November 2001 when the two companies signed a co-promotion agreement for marketing the newly approved GlucoWatch Biographer. Under this agreement, Sankyo's primary responsibility was promoting the glucose monitor to health care professionals. Meanwhile, Cygnus was responsible with the marketing, distribution, customer service, along with the R&D, regulatory, and clinical activities. Sankyo promised to pay $10 million to Cygnus as milestone payments. In the early months of 2002, the first generation GlucoWatch Biographer began selling on the market while second generation GlucoWatch G2 Biographer was approved. Subsequently, in July 2002, the agreement was expanded to increase Sankyo's responsibility to marketing, managed care and government contracting, and distribution of the product. An additional $15 million in milestones was to be paid by Sankyo, therefore taking the total milestone payments up to $25 million. Sankyo got an increased percentage of net sales in return. To put this agreement into effect, Sankyo took important steps such as using retail channels for marketing, increasing the specialty sales force for GlucoWatch Biographer, and devoting additional managed care resources to support reimbursement.

Despite the FDA approval later in 2002 for pediatric use, the sales of the GlucoWatch Biographer were never encouraging as customer and physician complaints kept pouring in. The deal turned sour on October 2, 2003 when Sankyo ceased to honor the contract, citing California Commercial Code, Section 2609, which allows a party to cease contractual obligations until the counterparty assures the party of due performance. Additionally, Sankyo refused to pay the $6 million that it owed Cygnus. As a result, Cygnus had to cut its workforce by 60% and decided to file a litigation suit seeking $450 million in damages. However, the litigation was brought to a premature end by an out-of-court agreement under which Sankyo paid Cygnus $30 million and transfer all the titles and inventory related to GlucoWatch Biographer back to Cygnus. After the departure of Sankyo, Cygnus was in no position to market the GlucoWatch itself.

Deal with Animas

Animas Corp. entered into a definitive agreement to acquire certain assets of Cygnus for $10 million in cash . The assets included substantially all of Cygnus’ intellectual property rights, fixed assets, supplier, manufacturing and license agreements, inventory and tangible personal property. Animas has acquired over 237 U.S. and foreign patents in the fields of continuous glucose sensing, extraction of interstitial fluid by reverse electro-iontophoresis and electrochemical sensors. The transaction was consummated in March, 2005. Anmas Corp was acquired by Johnson and Johnson in 2006. Animas Corp. was aware that GlucoWatch was flawed in various factors that hampered its market acceptance. Some technical flaws included excessive skips, excessive warm-up time, limited wear-time, susceptibility to interference by perspiration, skin irritation, excessive bulkiness, and inaccuracy. Animas incorporated improvements in the device and evaluated the commercial and technical feasibility of implementing such improvements. They reconfigured the GW2 GlucoWatch Biographer to the third-generation GW3 GlucoWatch Biographer. The efforts by Animas Corp did not materialize into the product’s success. In July 2007, Animas ceased sale of the GlucoWatch G2 Biographer system. Sale of AutoSensors and customer support was provided till July 2008.

References

Specific

1. ^ Pollack A. Companies That Seek Cures Now Fight for Life | New York Times | [cited 10/12/2008]. Available from: http://query.nytimes.com/gst/fullpage.html?res=9D07E7DD163EF930A35752C1A9649C8B63&sec=&spon=&pagewanted=3
2. ^ Mukhey A. No action request letter. Cygnus, INC.file no. 0-18962; request for modified exchange act reporting. 2006.
3. ^ Cygnus completes the sale of its drug delivery business to ortho-McNeil pharmaceutical | market wire | find articles at BNET [homepage on the Internet]. [cited 10/12/2008]. Available from: http://findarticles.com/p/articles/mi_pwwi/is_199912/ai_mark09990630.
4. ^ SEC info - cygnus Inc/DE - 10-K - for 12/31/96 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/dRqWm.89G1.htm.
5. ^ SEC info - cygnus Inc/DE - 10-K - for 12/31/99 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/dRqWm.5CK3.htm.

General

• Pollack A. Companies That Seek Cures Now Fight for Life | New York Times | [cited 10/12/2008]. Available from: http://query.nytimes.com/gst/fullpage.html?res=9D07E7DD163EF930A35752C1A9649C8B63&sec=&spon=&pagewanted=3
• Mukhey A. No action request letter. Cygnus, INC.file no. 0-18962; request for modified exchange act reporting. 2006.
• Cygnus completes the sale of its drug delivery business to ortho-McNeil pharmaceutical | market wire | find articles at BNET [homepage on the Internet]. [cited 10/12/2008]. Available from: http://findarticles.com/p/articles/mi_pwwi/is_199912/ai_mark09990630.
• SEC info - cygnus Inc/DE - 10-K - for 12/31/96 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/dRqWm.89G1.htm.
• SEC info - cygnus Inc/DE - 10-K - for 12/31/99 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/dRqWm.5CK3.htm.
• Takahashi D, Xiao Y, Hu F, Lewis M. A survey of insulin-dependent diabetes-part I: Therapies and devices. Int J Telemed Appl. 2008 [cited 10/12/2008]:405796.
• MiniMed Inc. SUMMARY OF SAFETY AND EFFECTIVENESS DATA. MiniMed Inc.; 1999.
• SEC info - cygnus Inc/DE - 10-K - for 12/31/02 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/dVut2.2A5x.htm.
• SEC info - cygnus Inc/DE - 8-K - for 7/9/02 - EX-99.1 [homepage on the Internet]. [cited 10/12/2008]. Available from: http://www.secinfo.com/d11MXs.32tj.d.htm.
• SEC info - cygnus Inc/DE - 8-K - for 10/6/03 - EX-99.1 [homepage on the Internet]. [cited 10/9/2008]. Available from: http://www.secinfo.com/dr6nd.24uv.d.htm.
• Cygnus accepts Japanese payoff | oakland tribune | find articles at BNET [homepage on the Internet]. [cited 10/12/2008]. Available from: http://findarticles.com/p/articles/mi_qn4176/is_/ai_n14560380.
• SEC info - cygnus Inc/DE - 8-K - for 12/23/03 - EX-99.2 [homepage on the Internet]. [cited 10/10/2008]. Available from: http://www.secinfo.com/dr6nd.268u.c.htm.
• ANIMAS CORP (form: 8-K, received: 03/24/2005 11:12:58) [homepage on the Internet]. [cited 10/12/2008]. Available from: http://yahoo.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?SessionID=zTNOCmmKL9_XVi2&ID=3559138