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Jonathan Ross Goodman, president and CEO of newly formed company Knight Therapeutics with Jeffrey Kadanoff, CFO in their new space in Montreal, February 28, 2014. Knight Therapeutics Inc. inherited a U.S. priority review voucher from Paladin Labs when it launched in February. The vouchers are designed to provide an incentive for companies to develop drugs for tropical or pediatric diseases.

Christinne Muschi/The Globe and Mail

A Montreal-based pharmaceutical company has announced plans to auction a valuable and rare certificate that allows companies to speed up the U.S. Food and Drug Administration's approval process.

Knight Therapeutics Inc. inherited a U.S. priority review voucher from Paladin Labs when it launched in February. The vouchers are designed to provide an incentive for companies to develop drugs for tropical or pediatric diseases. Once that drug is approved, the FDA may award the company a voucher that can be redeemed to speed the upper limit of the review process on any future drug from 10 to six months. As an added incentive, the company can sell the voucher to another firm that is developing a drug in a different area.

Only four vouchers have been issued by the FDA since the priority-review voucher program was implemented in 2007, and only one has been used.

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Tuesday's announcement by Knight follows California-based BioMarin Pharmaceutical Inc.'s $67.5-million (U.S.) sale of a priority-review voucher to Sanofi SA and Regeneron Pharmaceuticals Inc. two weeks ago, in another test of the developing and potentially lucrative voucher market at work. Sanofi and Regernon have said they plan to use the voucher to speed the development of a cholesterol drug.

Jeffrey Kadanoff, chief financial officer of Knight, says earning the voucher was a two-step process.

"First, you do your good deed, which is getting a drug approved for a disease like malaria, tuberculosis, cholera, or in our case, leishmaniasis," he said in an interview, referring to the African sandfly disease that kills 50,000 people a year. "Then the voucher can be used for any new drug application."

A voucher's value lies in the fact that pharmaceutical makers can sell them, allowing a small company such as Knight to transfer the certificate to a firm that stands to gain from a speedy review process on a lucrative drug.

Knight was launched in February by Jonathan Goodman, former CEO of successful drug distributor Paladin Labs, after he sold the company for $3-billion to Endo Health Solutions.

Knight has retained a bank to sell its priority-review voucher but says it will only do so if it attracts the right price. It will begin taking bids Monday.

Since one of the four vouchers granted so far was sold in late July and the other is owned by Johnson & Johnson, the scarcity of available vouchers could drive up the value.

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"Ours is the only one for sale, or known to be for sale at the moment," Mr. Kadanoff added.

He explained the rush to be first to market in the competitive pharmaceutical industry is part of what makes the voucher attractive.

"I can gain market share, or take away [another company's] market share," he said, adding that Knight doesn't have any drugs in the pipeline in the near future to take full advantage of the voucher.

Mr. Kadanoff added that the priority review also adds at least four months of patent life to a particular drug, which can be lucrative for larger companies developing medications with high commercial value.

The new company, which was listed on the TSX Venture exchange in April, is flush with cash from early investment.

With a $400-million market cap, $200-million in cash on hand, and no debt, Mr. Kadanoff said Knight could sell the voucher in a deal not just for cash, but also for royalties, Canadian product rights, or any combination.

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The priority-review voucher program was first proposed by three Duke University professors in a 2006 in the journal Health Affairs.

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