DotW: Super Models?

As Frank Zappa probably never said, "Recession is the mother of invention." This nutty decade, which sadly Frank didn't live to see, had two of them. (Recessions, that is.) One was quite a doozy. Still is, actually. And between the decade's bookend busts, at least in our little corner of the world, the writing was on the wall. Venture capitalists were losing their taste for adventure, big pharma was tripping over its erectile dysfunction, and everyone was trying to get their heads wrapped around the donut hole.

But, silver lining seekers such as we are, perhaps the greatest legacy of the Oughts -- as in, you oughta fuggedaboutit -- is the experimentation with new models. And not just here.

Which new ideas are flashes in the recessionary pan, and which might be here to stay? Option-based discovery deals were the topic of exactly that debate, as our colleague Melanie Senior heard at a recent industry confab.

How about pharma skunkworks that take pharma compounds and develop them at biotech-like speed? Or the alphabet soup of decentralization (CEDDs, CEEDDs, DPUs) at GlaxoSmithKline -- to which you can now add VPoC?

On the private equity side, royalty monetization definitely gained momentum this decade, while a few funds tried their hands at biotech project financing. One of the highest profile efforts was Symphony Capital, which struck deals with seven biotechs to buy and help develop one or more clinical candidates. The aim was to sell the compounds back to the biotech at stepped-up returns when the drugs were far enough along, say, to entice a big-pharma buyer.

We bring it up, because this week Symphony sold its "Dynamo" venture back to Dynavax technologies. (Recall Symphony funded the venture,which consisted of programs for hepatitis B, hepatitis C, and cancer to the tune of $50 million back in 2006.) On Nov. 10 Dynavax announced it bought back the hep C and cancer programs, having already bought back the hep B program in 2007. But instead of a fat payout, Symphony took everything but cash: stock, warrants, deferments and contingent milestones. With its 13 million shares, Symphony will own about 24% of Dynavax when the deal closes early next year. It will also have in its pocket five-year warrants for two million more shares and a $15 million debt note from Dynavax kicked down the road 20 months and potentially convertible to stock if Dynavax chooses.

Even with its successful sales, Symphony has taken large chunks of stock. (It put $75 million into its GenIsis venture with Isis Pharmaceuticals then sold program--including the compound that became mipomersen--back to Isis for $120 million. But nearly $40 million was in stock.) So even though six of its seven ventures have been "resolved" -- four sold back to the original biotech, two abandoned by the originator -- Symphony still has plenty of assets on its books of questionable value. To put it another way, that model is still on the catwalk. Will Symphony, or models like it, be in vogue next decade?

Ponder that, but meanwhile, tongues are wagging and the paparazzi are jostling, because here comes another simply fabulous edition of....



Sanofi-Aventis/Regeneron: Antibody platform firm Regeneron is getting $160 million a year in research funding through 2017 from Sanofi, an extension of an alliance in place since 2007, and there's no obligation to pay it back. (Free money. There's a new financial model.)

If the research produces mAbs that Sanofi brings to market, Regeneron will have to divert its share of the profits to reimburse half of Sanofi's clinical development costs. After 2012, Sanofi can cut the last four years of annual research funding to $120 million, but still. What's more, there's no equity component. Sanofi bought 19% of Regeneron in 2007 for $312 million as part of their original $870 million research deal, but none this time around, and the existing standstill remains in effect: Sanofi can boost its stake only to 25% through 2011 and 30% thereafter. In fact, Sanofi has agreed to hold onto its shares until the end of 2017. Talk about a long-term play.

So what does Sanofi get out of the deal? Antibodies 'R' Us. In two years, it's already opted to license five Regeneron molecules, the most advanced of which is an anti-NGF antibody already in Phase 2 for osteoarthritis of the knee. (Anti-NGF is suddenly a hot target, as we'll see in a moment.) Regeneron now aims to pump 30 to 40 more antibodies into Sanofi's pipeline in the next eight years.

Abbott/PanGenetics: How hot is anti-NGF, or nerve growth factor? Let us give you 170 million reasons, upfront and guaranteed. Our colleague Chris Morrison does a fine job here elucidating the method behind Abbott's Phase 1, barely-any-biobucks ($20 million in milestones) madness, so we'll simply say this: We have a top candidate for Upside-Down Deal of the Year.

GlaxoSmithKline/Astex Therapeutics: Speaking of topsy-turvy, how about the undisputed sovereign of option-based discovery deals hooking up without an option in sight? Options have been GSK's main risk-spreading modus operandi of late. (Here's a recent one.)
But Astex, one of several biotechs pursuing fragment-based discovery, managed to corral $33 million in guaranteed cash and up to $60 million in milestones that CEO Harren Jhoti is confident will come within two years, all while shifting the R&D work on compounds of interest to Glaxo at lead optimization.

Bristol-Myers Squibb/Alder Biotherapeutics: BMS added a little pearl to its string this week, paying Alder $85 million upfront for rights to Alder's IL-6 inhibitor ALD-518. Bristol will take the compound, currently in Phase 2, forward in rheumatoid arthritis, and Alder will continue development in oncology. (An interesting twist on indication splitting: If ALD-518 comes to market in a cancer indication, Bristol can opt into ex-U.S. rights.) Alder officials said they chose Bristol from the competition because of the pharma's plans to develop '518 in other inflammation indications. Clinical and commercial milestones across multiple indications could add up to nearly $900 million, and BMS has committed to an equity investment up to $20 million should Alder go public. -- Joseph Haas

Astellas Pharma/Ironwood Pharmaceuticals: Hot on the heels of positive Phase III data, Ironwood (nee Microbia) has secured a third regional partner for its irritable bowel and constipation drug candidate linaclotide, adding $30 million to the $125 million in upfront cash brought in by its first two deals. This time it’s Astellas joining the party, taking exclusive rights to develop and commercialize the compound in Japan, Indonesia, Korea, the Philippines, Taiwan, and Thailand. The pact also boasts $45 million in pre-commercial milestone payments plus royalties, and Astellas will run development and pay expenses. Astellas has been busy with BD, most recently landing Medivation’s prostate cancer treatment last month. The Japanese pharma is Ironwood's third partner for linaclotide: Forest snapped up North America rights in 2007 in a co-dev/co-promote arrangement that included $70 million up-front; Almirall got European rights for $55 million in a straight licensing deal. Linaclotide has in some ways been a poster drug for biotech dealmaking success in the tricky lower GI space, an area largely abandoned by bigger pharma companies. Biotechs like Ironwood and Movetis, a J&J spin-out that recently received European approval for its own constipation drug, Resolor, have recently shown they can help fill the development vacuum. -- Chris Morrison

Sigma-Tau Pharmaceuticals/Enzon Pharmaceuticals: Beleaguered by activist investors, Enzon finally spun off its specialty business this week. The $300 million sale to Italian firm Sigma-Tau could also add milestones and royalties; the four drugs in the portfolio, including Oncaspar for acute lymphoblastic leukemia, tallied $28.6 million in third-quarter sales, down one percent from a year ago. The sale comes nearly a year after a failed attempt to spin out the division, while investors kept up the pressure, though from different directions: Carl Icahn wanted Enzon to sell, and DellaCamera Capital didn't. Icahn won, and his right-hand man Alex Denner said the board was evaluating ways to return the cash to shareholders. DellaCamera had focused its campaign on CEO Jeffrey Buchhalter, even convening a shareholder "town hall" this summer to plot Buchhalter's ouster. As of this writing, Buchhalter is still there. -- Joseph Haas

Qiagen/SABiosciences: On the heels of its acquisition of the cancer molecular diagnostics firm DxS, Qiagen is buying SABiosciences, a maker of PCR assay panels, for $90 million. Although PCR panels are primarily a research tool to analyze nucleic acid, epigenetic, and microRNA targets in disease-associated biological pathways, these arrays are also seeing more use in diagnostic evaluations of patients, especially in areas like cancer where diagnosis aims more at individualized profiling of tumor characteristics. (Did someone say personalized medicine?)

With SABiosciences already near its U.S. operations in the Washington suburbs, Qiagen says it will establish it as a Center of Excellence for development of new array content, which, like the assets of DxS, should make Qiagen a more attractive drug-diagnostic partner for pharma. We also see the move as a step toward disease management. And don't be surprised if Qiagen eventually extends its presence into U.S. clinical lab operations. The greater integration of nucleic acid testing into drug labels will boost the need for specialized labs to run such complex companion diagnostic tests and Qiagen is in a position to be a premier player. -- Mark Ratner

Photo courtesy of flickr user Mikael Miettinen

Abbott/PanGenetics Turns Early-Stage Dealmaking on Its Head

Just how big is the $170 million up-front payment that Abbott ponied up for PanGenetics' PG110 anti-NGF antibody yesterday?

Absolutely enormous. In fact so far as we can tell, it's the largest up-front payment for a Phase I project, ever (and Phase I isn't even complete yet). Put the payment in the context of today's earn-out heavy, let's-share-the-risk dealmaking climate, where options-to-maybe-consider-licensing-in-the-future are de rigeur, and it's positively mind bogglingly gigantic. Of course there's a reason for that, which we'll get to below.

So what did Abbott buy? PG-110 is a monoclonal antibody that hits nerve growth factor and is being tested in patients with osteoarthritis pain. Abbott will broaden out the program should that first clinical study prove successful: chronic back pain, cancer pain, diabetic pain, etc.

NGF is a very promising pain target for drug developers. Right now Pfizer leads the way with a Phase III project it acquired when it bought Rinat in 2006 (that candidate, tanezumab, was Rinat's lead molecule--in Phase II at the time). Sanofi's in the game with Regeneron (more on those lovebirds later today in DOTW), with a Phase II anti-NGF mab, and J&J bought rights to Amgen's NGF project AMG-403 for $50mm up-front plus $385mm in milestones.

That last agreement is particularly illustrative of what PanGenetics is perhaps leaving on the table in its Abbott deal, and the main reason Abbott paid such a massive up-front. No doubt this was a competitive situation and PanGenetics was offered all manner of deal terms. But it went with a deal that turns the very notion of early-stage risk-sharing deals on its head. It's essentially an anti-biobucks deal, and it's fundamentally a result of the company's unique business model.

That huge $170 million up-front is accompanied by only $20 million in potential milestone payments. What's more neither the release put out by PanGenetics nor the one by Abbott mentions anything about royalties.

Surely it can't be. A biotech-pharma deal without a downstream royalty? Where the biobucks hardly factor?

That's exactly it. PanGenetics' investors have no downstream piece of PG-110's upside. And it gets more interesting. PanGenetics, says chairman and Index Ventures partner Francesco De Rubertis, is actually set up and run as two separate, asset-focused companies. So the sale of the NGF product (the second product is further along and targets CD40) resulted in an exit for the company's investors.

De Rubertis would not comment on the return Index and others achieved on the deal. (But rest assured it's quite good.) PanGenetics was seeded by Index in 2005 to find early stage antibody assets and quickly develop them to the point where pharma would step in and buy them. A handful of other investors have since come in through two subsequent rounds totalling €36 million (that cash is spread across the two PanGenetics companies evenly). Index holds a 40% stake in each company and the whole 18-person operation is run by ex-Cambridge Antibody Technology CTO Kevin Johnson, who De Rubertis credits with the fast pace of PG-110's development.

We'll get into the nuts and bolts of Index's single asset-focused company creation strategy in the next issue of Start-Up.

UK Gov't Outlines Hands-Off Approach to Boosting VC

You thought the VC model was broken? Not according to the UK government, which today provided further detail on its plans to support an innovation-focused fund-of-funds to invest in VC funds covering life sciences, clean-tech and digital tech over a 12-15 year period.

The government is coughing up £150 million ($250 million) to kick things off, but expects the fund to raise at least as much again from the private sector, with the lofty aim of eventually creating "the largest technology fund in Europe," potentially worth up to £1 billion.

There's no denying that the UK--and indeed Europe as a whole--needs a shot in the arm. The UK VC market may be the second largest in the world, but it's still tiny compared to the US: only 4% of investor funds go into VC here in Blighty, vs more than 30% across the pond. The UK Innovation Investment Fund will mark a "step change", says the government, "bringing UK VC closer to the US model in scale and scope."

Hang on, hang on. The £1 billion is a best-case; the "biodollars" figure, so to speak. At a minimum, the fund--which will start investing in January 2010--will be worth £300 million. Or possibly more, since Science and Innovation Minister Lord Drayson declared himself "very happy" with the proposals, including forecast private sums, from prospective fund managers (the lucky winner will be announced next month).

Still, whatever its size, the point of a fund-of-funds structure is that it provides a lever effect, pooling money from a range of investors and spreading risk by investing in a variety of VC funds across a variety of sectors. The idea then is to loosen off the stingy, risk-averse shackles blocking much VC investment today by providing them with a slug of money from a fund with sufficient scale, and an appropriately long-term time-horizon, to help reduce risk and increase the likelihood of a return (including in activities such as drug development).

Drayson also asserted that this fund represents a hands-off approach to boosting the sector (contrary to previous interventions, aimed as much at creating local jobs as facilitating long-term sector growth). "There will be no political intervention," he said, explaining instead that the chosen fund manager will be free to make decisions based purely on expected financial return--and free to maintain their particular investment policy. He also mentioned that strategic investors--Big Pharma, for instance--would be free to invest alongside the IIF.

Investors will of course welcome the government's non-interfering policy, but the downside is the risk--to the UK taxpayer--that their money finds its way not into UK biotech or cleantech, but across the pond (or wherever returns are deemed to be most favorable). Indeed, "this fund will have a global scope," clarified Drayson. "We have to be realistic, and go with the market flow."

That said, there is (of course) some small-print. The government has (legitimately) asked that at least the £150 million from its pocket be invested in UK companies--which includes £25 million each to life sciences and cleantech. And in the request-for-proposals document to aspiring IIF managers, it's clearly stated that "managers able to demonstrate greater levels of investment into UK-based businesses" will be favoured (although the manager him/herself can be domiciled anywhere). Those allocating investments both to late-stage opportunities and early/seed-stage ventures will also gain brownie points in the selection process, as will those who demonstrate a willingness to invest in a balanced fashion across the relevant sectors (to avoid ending up with a £500 million cleantech-only fund in 5 years' time, for instance).

In an attempt to move away from the drip-feed funding philosophy that has blighted the European sector to date, the IIF will--hopefully--be big enough to allow, indeed demand, chunky-sized individual investments, thus increasing the chance of growing blockbuster businesses. (Helpfully, the UK government recently removed a barrier blocking such funds from investing more than £10 million in an individual company.)

It all looks pretty good, then, doesn't it? Even a £300 million fund isn't bad. And if Drayson is right in his claim that 2009 will prove a 'vintage year' for VC investments, not least as the economy emerges (is it really emerging?) from a deep downturn, the total available to help save innovative technologies could be a lot bigger still. Just how big is that 'if'?

image by flikrer HowardLake used under a creative commons license

Hamburg for Lunch: The Commish Serves Up Another Helping of Personalized Medicine

For the second time in as many weeks, Food and Drug Administration commissioner Margaret Hamburg hit the lecture circuit to lay out the agency's vision on personalized medicine, though "vision" is perhaps too generous. Much of the speech, which left an unscientific sampling of attendees sitting near us hungry for actual content, was an apology for the agency's slow adaptation to the dawning era of more targeted therapies.

It wasn't all mea culpas and mushiness, to be sure. Speaking to a conference in San Francisco Monday, Hamburg said that her agency was on track to deliver draft guidance on biomarker qualification by the end of the year, an early step in creating a pathway for drug and diagnostic makers to bring more tailored therapies to market.

Introduced as "our friend Peggy" by conference host Steven Burrill, a San Francisco-based merchant banker and venture capitalist, Hamburg also acknowledged the difficulty in creating such a pathway, which will involve merging responsibilities that are now divided between two FDA divisions. "Personalized medicine in the treatment of disease equals the integration of drugs and diagnostics," she said. "It's clear we need to develop a consistent, integrated approach in the evaluation and regulation of products that comprise personalized medicine."

Close FDA watchers might have noticed the speech was at times verbatim to the talk Hamburg gave Oct. 26 during a personalized-medicine gathering in Washington ("The Pink Sheet" DAILY, Oct. 26, 2009.)

She made several conciliatory gestures to the conferees mainly gathered to discuss ways to make money from diagnostics. More than once she included investors among those who need to see "the promise of new therapies," and conceded that their "ability to realize their investments depends on what they see when they look at the FDA."

"Regulatory agencies are not known for openness, and FDA in particular has gained a reputation for being a bureaucracy-bound black box," she said. "And regulatory agencies are not known for being clear, but we need to be. Few runners would show up for a race without knowing the distance to the finish line."

(Not so business friendly, though, was the lunch menu just before Hamburg's speech that featured a build-it-yourself taco bar. For at least one lunch hour, slippery hand-held fajitas were a graver threat to business attire than an opaque regulatory process.)

After Hamburg's speech, she sat with conference host Burrill for a short Q&A session, which, far from illuminating the details of FDA's personalized medicine pathway, showed off Hamburg's question-avoidance skills. At one point Burrill asked whether industry taxes in the health care reform bills could diminish FDA's ability to raise future funding through its own fees. Hamburg's answer was brilliantly non-committal: "I think industry understands the importance of having a strong FDA. It's clear in the world we live in that success will have to be a partnership. It makes sense to me that we should have a funding stream that reflects industry understanding of the benefits of a strong FDA."

But at the end of the Q&A Hamburg seemed to shine a little light on comparative effectiveness. Burrill asked if comparative effectiveness was "a friend" to FDA (he likes to describe the world along friend/enemy lines, which makes In Vivo Blog wonder what he thought of the tacos at lunch). Would comparative effectiveness become a way for FDA to regulate pharmacoecnomics, Burrill asked?

Here's what Hamburg said: "In our work to date we have a very clear legal mandate to examine safety and effectiveness of products, it's not compared to this or that. But the truth is, some comparative effectiveness knowledge enters into some of what we do" in labeling, recommendations for first line or second line, risk/benefit acceptance, and the number of drugs available in the space in question. She cited interest in new models the EMEA is considering to look at what she called "economic and value issues."

Hamburg also made a pitch for tighter coupling of FDA and the Center for Medicare Services, or CMS. "It really makes sense for us to create a system where there's more coordination and sharing of information and thinking earlier in the process... To have CMS more involved with FDA in a more collaborative way, to talk about products in the pipeline is something people have advocated for." - Alex Lash

Photo courtesy of the FDA.

Omnicare Settles Long Term Care Kickback Case; Is J&J The Real Target?

Now that federal health care fraud prosecutors have broken the billion dollar barrier in recent settlements, the conclusion of a $98 million settlement with long term care pharmacy provider Omnicare may not have caught your eye. And the simultaneous announcement of a $14 million settlement with Ivax (now part of Teva) for its dealings with Omnicare seems almost quaint. (Read our coverage in The Pink Sheet here.)

Ivax is paying just one percent as much as Lilly did to resolve claims related to its promotion of Zyprexa ($1.4 billion) and only about half-a-percent as much as Pfizer did to resolve claims related to the promotion of Bextra and several other products ($2.3 billion).

It stands to reason, right? The Lilly and Pfizer cases focused on primary care marketing--indeed, the Lilly case was fundamentally about Lilly's efforts to redefine schizophrenia as a primary care market. Primary care is where the money is (or was, at least) so the government is sure to claim bigger fines when it prosecutes in those areas.

It may not be that simple. Omnicare may have settled for less than $100 million, but some of its business partners--including the biggest of Big Pharma--are still on the hook.

Because long term care pharmacy may be a relatively small slice of the overall pharma market, but it is a big piece for some products--and the share of costs paid directly by the government is much higher than in primary care. And, with the launch of Medicare Part D, the unique aspects of that marketplace started to attract a lot more attention, both from manufacturers, who discovered that the quirks of the Part D rules appeared to give long term care pharmacy providers a great deal of leverage in the marketplace, and from the government, which began to ask more probing questions about how exactly that market segment works.

As we reported in The RPM Report at the time, the run-up to Part D prompted a number of new investigations of pharmaceutical industry contracting practices.

And those investigations are continuing.

Where might the next shoe drop? Well, the US Attorney's Office in Massachusetts offers a big hint in its press release announcing the Omnicare settlement.

The United States contends that Omnicare solicited and received kickbacks from Johnson & Johnson (J&J), a pharmaceutical manufacturer, in exchange for agreeing to recommend that physicians prescribe Risperdal, a J&J antipsychotic drug, to nursing home patients. The Government contends that J&J’s kickbacks to Omnicare took multiple forms, including: market share rebates that were conditioned on Omnicare engaging in an “Active Intervention Program” for Risperdal; payments disguised as fees for the purchase of data; payments disguised as educational grants; and fees to attend Omnicare meetings. Omnicare then used its consultant pharmacists to encourage physicians to prescribe Risperdal for their nursing home patients, but failed to disclose to physicians that the recommendations were a condition of Omnicare receiving the rebate payments from J&J.

Okay, so the feds are going after J&J just like they went after Ivax for its preferred generic agreements with Omnicare. But there's more:

After the conduct at issue, the Food and Drug Administration mandated that the label for Risperdal carry a “black box” warning that “Elderly Patients with dementia-related psychosis treated with atypical antipsychotic drugs [including Risperdal] are at an increased risk of death compared to placebo.”

That's the real kicker: the press release in effect accuses J&J of providing kickbacks to increase use of its product in a very vulnerable patient population (nursing home patients with dementia) where regulators subsequently concluded the product may have done more harm than good.

Now, apart from the assertions in the press release, the government hasn't made any formal complaint against J&J; the US Attorney says only that the investigation is ongoing. J&J notes its disclosures about the investigation in its SEC filings.

And that, too, makes for interesting reading. Here is what J&J says specifically about the Omnicare investigation:

"In September 2005, the Company received a subpoena from the U.S. Attorney’s Office, District of Massachusetts, seeking documents related to sales and marketing of eight drugs to Omnicare, Inc., a manager of pharmaceutical benefits for long-term care facilities. The Johnson & Johnson subsidiaries involved responded to the subpoena. Several employees of the Company’s pharmaceutical subsidiaries have been subpoenaed to testify before a grand jury in connection with this investigation. In April 2009, the Company was served with the complaints in two civil qui tam cases relating to marketing of prescription drugs to Omnicare, Inc. The complaints assert claims under the federal False Claims Act and related state statutes in connection with the marketing of several drugs to Omnicare. The government has not yet announced whether it will intervene in these cases."

But that is not the only investigation involving Risperdal disclosed by J&J. The company's 10-Q filing cites at least 8 other subpoenas received by the company involving promotions of the product:

(1) a January 2004 subpoena seeking information about "sales and marketing of, and clinical trials for" from the Office of Personnel Management (which runs the Federal Employee Health Benefit Program);

(2) a November 2005 subpoena seeking information about "marketing of and adverse reactions to" Risperdal from the Philadelphia US Attorney (which brought the Zyprexa case);

(3) grand jury "subpoenas" related to that investigation;

(4-6) three separate subpoenas from the feds in Boston, Philadelphia and San Francisco "concerning, respectively, sales and marketing of Risperdal by Janssen (now OMJPI), Topamax by Ortho-McNeil (now OMJPI) and Natrecor by Scios" seeking "information regarding the Company’s corporate supervision and oversight of these three subsidiaries, including their sales and marketing of these drugs";

(7) grand jury "subpoenas" in Boston related to those investigations; and

(8) a "HIPPA Subpoena" from Boston a "seeking information regarding the Company’s financial relationship with several psychiatrists."

That tally does not include product liability cases (including some filed by state and federal government payors) involving Risperdal, nor does it include numerous pricing cases that presumably involve Risperdal as well.

We have no idea when or if any of those cases will result in prosecutions or settlements. But if they do, we're betting there will be some big numbers on the table...

While You Were Reforming

You may have heard this already: The US House of Representatives passed a health care reform bill over the weekend. It was a big victory for House Dems, if more of a squeaker than reform proponents would have liked, and now all eyes are on the Senate's bill. Industry, of course, prefers the Senate's version.

What else is going on?

• Bnet is upbeat about Trius Therapeutics potential IPO.
  
• Swiss hearing specialist Sonova said on Monday morning it was buying US cochlear implant maker Advanced Bionics for about $500 million cash.
• Evotec is extending a collaboration with Boehringer Ingelheim. The broader deal is worth Eur 15 million in guaranteed research funding plus milestones and royalties.
• Bloomberg has an extensive look at the cost, and the consequences, of off-label-marketing for Pfizer and fellow pharma law-breakers. Says one judge: “It almost seems as if the pharmaceutical companies said ‘Yeah, yeah, yeah’ to the FDA and then went and did it anyway."

Biovitrum Creates Rare-Disease Focused Spec Pharma with Swedish Orphan Buy

Sweden’s Biovitrum on November 5 stumped up just over half a billion dollars for compatriot Swedish Orphan, buying itself a tidy additional SEK800 million ($115 million) in revenues, an extended commercial network and a couple of near-term launch opportunities.

The move is yet another step in Biovitrum’s transformation into a specialty pharma company—coming just a week after it offloaded UK-based CNS discovery unit Cambridge Biotechnology Ltd., plus a few other assets, to Proximagen Neuroscience. Originally spun out of Pharmacia as a traditional R&D-focused biotech—albeit a particularly lucky one, cushioned by manufacturing revenues from Wyeth around hemophilia drug ReFacto—Biovitrum announced its turnaround ambitions in 2007.

Back then, newly-appointed CEO Martin Nicklasson, fresh from heading up global marketing at AstraZeneca, declared that the group was scrapping its primary care metabolic diseases pipeline, focusing on specialist programs, building out its commercial operations, and better leveraging its large molecule development and manufacturing expertise.

Few could argue with that strategy back in 2007; even fewer can argue with it now. Investors (those that are still around, anyway) don’t value risky discovery; cash and revenues are king. Europe’s always had a penchant for low-risk, revenue-generating in-licensing focused specialty pharma; the downturn has turned that penchant is a passion and it’s probably gone global.

So Biovitrum’s acquisition of Swedish Orphan “is strategically sound,” declares UK-based NomuraCode analyst Samir Devani, even though he acknowledges it came at “a premium valuation.” Unusually during these days of contingency-based dealmaking, the earn-out component of the deal was negligeable—just SEK 425 million ($61 million), associated with sales ramp-up of one of Orphan’s drugs. Over half the upfront will be paid in cash; Biovitrum plans a rights issue.

Still, a full upfront price-tag was to be expected, given that Swedish Orphan is private-equity owned (42% each by Investor Growth Capital and Priveq) and, with comfortable revenues, didn’t exactly need a fire-sale. What’s more, there was probably more than one suitor, since there aren’t that many niche-disease focused, pan-European commercial companies around. “Who else could they [BioVitrum] have gone after?” asks Devani. The Swedish pairing will help generate the estimated operating synergies of SEK 100 million by 2011 (by cutting head-office costs, for instance) and helps on the cultural front. “The two companies fit like a hand in a glove,” crows Nicklasson in the press release.

Orphan’s key asset is the marketed drug Orfadin, used for a rare fatal metabolic disease called Hereditary Tyrosinemia Type 1. NomuraCode predicts revenue of SEK 300 million this year, but more importantly, growth of 15-20% per annum, at least until patent expiry in 2017 in Europe (and 2013 in the US). Further near-term revenue is expected from the ongoing rollout of Multiferon, a form of interferon-alpha used for malignant melanoma, an intranasal vitamin B12 formulation for pernicious anemia (Nascobal) and from cancer drug Yondelis, approved as second-line treatment for soft-tissue sarcoma and in-licensed from PharmaMar in 2007.

Beyond that, Orphan doesn’t offer much of a pipeline; it’s essentially a commercially-focused organization, wooed for its in-licensing and marketing skills (over 60% of its products are in-licensed). That’s why the deal should be instantly accretive, creating a new group—Swedish Orphan Biovitrum—with Nicklasson at the helm, that generates sales from 60 orphan or niche products, has a handful of late-stage pipeline candidates and which is expected to achieve pro forma revenues of SEK 2 billion in 2009.

By 2015, that figure should have more than doubled to SEK 5 billion, according to management, not least thanks to leveraging Swedish’s European sales and marketing infrastructure to accelerate growth of Biovitrum’s existing drugs.

This won't be Biovitrum's last acquisition. But as the company grows, life will get tougher--as for any spec pharma group. Orphan drugs might not cut the mustard for a larger group--and niche products will be harder to find anyway, given that Big Pharma is also officially now on the hunt.

Maybe SOB will be acquired by a larger suitor, like Zeneus or Celltech before it. Or, even better, maybe it will stumble upon its own Adderall, the ADHD drug that made lucky Shire Pharmaceuticals' fortune.

DotW: Sesame Street

In case you failed to run a Google search this week, you may not have realized that on Tuesday Nov. 10, Sesame Street turns 40. You gotta admit, the show doesn't look a day over five--and that's without Botox.

If you've forgotten how to get to Sesame Street, we have a few reminders--and ear worms-- appropriately tailored for the biopharma industry--hey, it's our version of personalized medicine and it doesn't require a companion diagnostic.

1. Baby We Were Born To Add: For all the CFO types who reported earnings this week--from King, Biovail, Acorda, Facet, Crucell, and dozens of others (25-plus on Thursday alone).

2. It's Not Easy Being Big (er, I mean) Green: In honor of Merck's Dick Clark and Pfizer's Jeff Kindler, of course. And for you Wyeth and Schering types, Kermit offers the definitive explanation on why size matters.

3. Soliloquy on B: For all those biotechs with less than 6 months of cash who are pondering whether 'tis better to--you guessed it--be or not to be.

4. Get Along: Our legislators--Republicans and Democrats not martians and muppets--working to pass a health care reform bill. (GSK and Pfizer execs you can skip this one. The creation of ViiV suggests you've already learned this lesson. We're waiting for the ophthalmology collaboration.)

5. ABC-DEF-GHI: Maybe Big Bird can explain what I. P. O. means to biotech investors. Alimera and Aldagen can only hope.

6. Near and Far: For any biotech exec mulling an acquisition tied to earn-outs. Hint: if you are having trouble seeing the relevance, substitute 'upfront' for 'near' and 'earn-out' for 'far'--or read this amusing rant.

7. Ma Nah Ma Na: Biotech and Big Pharma CEOs who need to change the subject fast when dogged by a reporter. Start singing this, and the press will be crooning "doobie do" along with you.

8. Honker Duckie Dinger Jamboree: Because JP Morgan is only two months away. It's the latest; it's the greatest; it's the only place to be.

9. Just the Way You Are: For Roger Longman, from the IN VIVO Blog Staff.

This week's edition is brought to you courtesy of the letters D, O, T, W, and the number 4.

Roche/Alnylam: Roche’s willingness to pay $331 million up front for access to RNAi pioneer Alylam’s technologies two years ago raised eyebrows because of its price tag and generous (at least for Alnylam) non-exclusivity provisions. Now the companies say they are pleased with their progress and ready to move into the next phase of their relationship: a collaboration to jointly discover and develop specific RNAi compounds for select therapeutic areas, using a shared potpourri of experimental delivery technologies to move the chosen RNAi drugs to their targets. Commercial rights in the US will also be shared, and, ex-US, Alnylam gets royalties and additional milestones. Alnylam has become the poster-child for how to do business development right: although it is an early stage company, its deal-making savvy, expertise in a young and rising field, and IP have enabled it to snare at least three deals with Big Pharma potentially worth billions of dollars. But it's hard to tell whether any more deals like this one with Roche are in Alnylam's future. Most Big Pharma interested in RNAi have already placed their bets and Alnylam's prices are out of reach for nearly all smaller players. Too bad. Looks like there won't be a repeat Deal of the Year for Alnylam this time around.--Wendy Diller

Takeda/Amylin: In recent months, Big Pharma has resisted the urge to gobble up obesity compounds, leaving the market littered with late-stage, unpartnered assets. But on Nov. 1, Takeda announced it was teaming up with Amylin, taking two obesity candidates off the table: pramlintide/metreleptin and davalintide. For Takeda, the deal is an opportunity to build on its heritage in diabetes and metabolic disease, and the price tag shows its desperation. Depending on how the research progresses, the drugs could help fill the holes left by setbacks with the company's DPP-IV inhibitor alogliptin and the genericization of Actos. Under the arrangement, Amylin will receive $75 million upfront and development and sales milestones that could total more than $1 billion. (Near and far, people.) Amylin is also eligible for double-digit royalties on sales. Importantly, Amylin gets someone else to foot what is sure to be a pricey development bill for two drugs that will probably need cardiovascular outcomes studies. Amylin will be responsible for development of potential candidates through Phase II for regulatory approval in the U.S., while Takeda will lead development beyond Phase II in the U.S. and all development outside the U.S.--Jessica Merrill

Biovitrum/Swedish Orphan: Swedish company Biovitrum got in on the deal-making action just one week after unloading its drug discovery unit, Cambridge Biotechnology (CBT) and a number of its own drug development programs to Proximagen Neuroscience. Cuz really who needs drug discovery when you can market a portfolio of 60 orphan/hyper-specialist products? Yep, that's what Biovitrum is buying, having made the decision to plunk $501.59 million down to access Swedish Orphan in a transaction that included a modest earn-out. The move completes Biovitrum's evolution in the specialist direction; Swedish Orphan is one of those new "rare disease players" with two proprietary drugs, Multiferon and Orfadin, along with a diverse in-licensing portfolio of another 50 products. Therapeutic areas include oncology, metabolic disorders, hematology, infectious diseases, urology/nephrology, and emergency medicines. Given Big Pharma's suddenly got religion about playing in the ultraniche disease space--remember GSK's tie-up with Prosensa?--it's interesting to speculate on the deal terms, especially the upfront cash. A competitive bidding process or just PE backers unwilling to accept those terms? The combined company, which will go by the name Swedish Orphan Biovitrum (The name recalls a certain Swedish chef--sorry, wrong group of muppets) forecasts sales of over SEK 5 billion (roughly $716.30 million ) by 2015, with an EBIT margin of over 30% based on its current portfolio and pipeline. Check back with IN VIVO Blog later for a more detailed discussion of the deal.--Ellen Licking


AstraZeneca/Micromet: Your "No deal" deal of the week has been one months in the making. Remember when AstraZeneca/MedImmune opted out of a codevelopment deal for Micromet's blinatumomab, an antibody being studied in hematological cancers. The March deal gave MedImmune the option to reacquire North American commercialization rights if the antibody won FDA approval. At the time, neither company detailed why AZ was exiting the collaboration, but Micromet's CEO Christian Itin speculated the antibody's therapeutic focus on rare malignancies might not be seen as enough of a lucrative opportunity to merit the Big Pharma's attention. (Clearly AZ didn't get the message about ultraniche diseases.) Now the staged divorce is complete (and you thought staged acquisitions were all the rage.) On November 5, Micromet announced it had bought out MedImmune's option on the North American commercialization rights to blinatumomab, bringing an end to a partnership that began in 2003. To regain full rights to its lead program, Bethesda, Md.-based Micromet will pay MedImmune a $6.5 million upfront fee, undisclosed regulatory and strategic milestones and low single-digit royalties on North American sales of blinatumomab should the Phase II mAB reach the market. --Joe Haas

Corporate VCs Star In Financings Of The Fortnight

Oh, venture capitalists. After Dow Jones released its third quarter investment numbers for venture capital two weeks ago, we decided to mine our database to see if all flavors of vc--traditional and strategic--were equally affected. It wasn't terribly surprising to discover that investment from traditional VCs had plummeted--as we noted in our previous post, it's hard to commit money when your pockets are empty.

But to our surprise, investing by strategic groups also dropped in the same period. (You want to know by how much? You'll have to check out the Valuation Watch column in the November START-UP.)

Hang on a minute. Haven't we been arguing for months that corporate venture groups will play a starring role in new company creation, filling the vacuum left by financially struggling traditional players? We have, and we stand by that assesment for the forseeable future--or at least until we see the fourth quarter numbers.

On the one hand, the improving market conditions could make biotechs less willing to accept money from corporate VCs, especially if the funding comes with strings attached. On the other hand, the public markets are still decidedly chilly, suggesting that for the time being, privately-held biotechs will have to hitch their exit aspirations to dreams of lucrative acquisitions by bigger pharma and biotech companies.

But that means finding better ways to capture potential acquirers attention, other than fat sandwich boards that scream "Buy Me!" (If that works, will you let us know?) Certainly one way to forge those ties with pharma is through their corporate venture groups. Perhaps more importantly, even as some limited partners have signaled they are ready to dive back into the risky venture waters, that money is still on the come. Corporates have capital at the ready now, and at least from October's numbers they seem prepared to use it.

Indeed, since October 1, at least eight private biotechs have raised money from corporate venture groups, including three in the past two weels alone. All of which suggests corporate venture's starring role in early stage biotech funding is not yet waning. Still if you doubt us, read on for a round-up of the past two week's financing news.


Probiodrug AG: On November 2, German biotech Probiodrug announced it pulled in more than €36 million ($54 million) through a Series B financing, a pretty significant venture round in the biotech sector, but by no means the largest this year. (Remember Pharmion spawn Clovis Oncology’s $145 million Series A in May and Hyperion Therapeutics’ $60 million Series C round a month later?) Probiodrug’s financing, which was co-led by first-time investors BB Biotech and Edmond de Rothschild Investment Partners also included other new backers Life Sciences Partners and Biogen Idec’s New Ventures. (Corporate Venture!) The German firm is--or maybe was is the better descriptor--widely regarded as an expert in dipeptidyl peptidase (DPP) IV inhibition, a critical mechanism in treating Type II diabetes. In 2000, its work in this area led to an exclusive global licensing deal with Merck, research from which eventually produced the marketed drug Januvia--although not without some bumps, including the failure of the lead compound around which the Merck deal was centered. Four years later Probiodrug got out of DPP R&D altogether via an asset sale worth $35 million to OSI’s Prosidion division. The retrenching set the stage for further evolution. In 2007, the biotech, which had raised $52 million since its initial founding in 1997, merged with drug discovery firm Ingenium Pharmaceuticals in a deal that also included a €20.6 million Series A recapitalization. Probiodrug’s new focus in on inflammatory and CNS disorders, especially the big kahuna, Alzheimer’s disease.—Amanda Micklus

Aldagen: Regenerative cell therapeutics developer Aldagen has revived its plans to go public, filing an S-1 on October 28. Only a day earlier it disclosed in a Form D filing that it sold $7.3 million through the issue of convertible bridge notes—the first fund raise it’s done since bringing in $18.4 million through a Series D in April 2008. Founded in 2000, Aldagen is developing adult stem cells that have high concentrations of aldehyde dehydrogenase, an enzyme that controls the developmental state of progenitor and stem cells. The biotech firm believes these stem cell populations have a greater ability to differentiate into multiple types of cells and tissues. Its lead candidate, ALD101, is used to improve the engraftment period after umbilical cord transplants for inherited metabolic diseases in children. Completion of the pivotal Phase III trial is expected in the first quarter of 2011. As the biotech looks to an NDA filing, it will likely rely on help from the recently formed Alliance for Regenerative Medicine—an effort in Washington to facilitate the regulatory and reimbursement pathway for stem cell drugs. The company says the net proceeds of its IPO, along with cash and cash equivalents (approximately $8.8 million at September 30, 2009) and interest income will sustain operations for two more years. Aldagen is the latest biotech to test the IPO waters after scupppering a previous attempt last year due to market conditions. Earlier this week ophthalmology player Alimera also announced it would try to go public after canceling its first try this past April.—Amanda Micklus

Pulmatrix: Pulmatrix obtained further validation of its technology for developing broad-spectrum anti-infective drugs Nov. 2, bringing in a $30.2 million Series B led by two new investors, ARCH Venture Partners and Novartis Bioventures Fund. (There it is again. The all important corporate venture backing.) The company also won a $2.2 million grant from the National Institutes of Health to advance work on its lead program, PUR003, currently in Phase Ia/IIb studies as a treatment for influenza. Together the two transactions should give the biotech a financial runway for 18 months or more, says CEO Robert Connelly. Of the $30 million in new funding, $7 million covers bridge funding the privately-held biotech has already burned through. Pulmatrix declined to say whether the financing was a step-up round, other than to note “we were happy with the valuation and financing terms.” (Did you expect a different answer?) In addition to completing the flu study, the VC funds will enable Pulmatrix to launch studies of ‘003 in chronic obstructive pulmonary disease and asthma, while the grant money will support ongoing preclinical studies to extend the spectrum and efficacy of the molecule.—Joe Haas

Virdante: Virdante Pharmaceuticals, a new privately-held biotech focused on antibody-based therapeutics for autoimmune and inflammatory disorders, closed an extended Series A financing on Oct. 29, bringing the total raised since January 2008 to $47.75 million. New investors in the round were led by Thomas McNerney & Partners and also included Osage Partners. They join the initial investors in the Cambridge, Mass.-based newco: Clarus Ventures, Venrock, MedImmune Ventures and Biogen Idec New Ventures. (Ooooh! Two strategic investors. Theoretically that boosts the chances of a higher return upon acquisition.) CEO John Ripple said the company’s business model is to develop and commercialize its own proprietary pipeline and “apply our technology to development candidates from a select group of corporate partners.” We’re guessing MedImmune and Biogen Idec will be among that select group, given their investment in the biotech and its Sialic Switch technology, licensed exclusively from Rockefeller University.—Joe Haas

Image by flickrer Herve Boinay used with permission through a creative commons license.

Option-Based Deals are Here to Stay

Or at least, they're not just a short-term symptom of a buyers’ market, according to a panel of experienced option-dealers talking at Bio-Europe in Vienna on Monday.

And no, this wasn’t just Big Pharma wishful thinking; biotech executives were piping the same tune (although granted, that may have been because their new, deep-pocketed partners were within earshot; the need to woo a partner who has taken only an option is, after all, even more urgent than the requirement to sweet-talk a committed licensing partner—at least until that option is exercised). “I certainly think they [option-based deals] are here to stay,” said Nigel Clark, VP Business Development at Vernalis, which signed such a deal with GSK in August.

The point is that Clark and others aren’t necessarily correlating the rise of option-deals with the state of the public markets—although it appears irrefutable, at least to this blogger, that their recent rise has been driven at least in part by the lack of financing or exit alternatives for biotech.

Indeed, our own Roger Longman (well, now only one-fifth our own, but still fully with us in spirit) argued during our recent Pharmaceutical Strategic Alliances conference in New York that any pick-up in public markets (of which there are, still, some positive signs) would likely spell the end of option-based deals and a return to the uncapped investment model (remember that?).

But for Avila Therapeutics’ CEO Katrine Bosley--who signed a deal with Novartis in July--the capital markets aren’t the main factor driving option-based deals (although she acknowledges they will and do influence them). Instead, their rise reflects what she calls a “profound shift” within (some) Big Pharma: a willingness to have less control over partnered programs. This, Bosley continued, is part of the growing “organizational experimentation” among large drug firms.

The assumption is, then, that such a cultural change will be longer-lived than public-market cycles. That assumption could be quite easily challenged. But as Bosley pointed out during corridor-chat after the panel, option-based deals aren’t always good news only for the Big Pharma, in terms of their low cost, limited risk and minimal hassle/resource requirements. They can also be very attractive to biotechs, too.

Granted the biotech has sufficient financial resource (and yes, that’s a big if), it may prefer the full development control that an option-based deal grants it, believing it could advance the program far faster and more efficiently than the Big Pharma. (This is another reason Big Pharma also cites for doing these deals.) The biotech may, in this situation, prefer to shoot for higher downstream rewards—confident that it will achieve the milestones necessary to access them-- and be willing to sacrifice some up-front payment (and certainty). In sum, “the option-structure could still make sense if cheap capital becomes available,” says Bosley. Plus, if the asset is attractive enough, the downside of a non-exercised option is limited since there would likely be plenty of alternative interest anyway.

Roger’s right too, of course: a return of the capital markets will change the nature and number of alternatives available to biotechs, and dealmaking will change—option-based deals as well as regular licensing deals. (Although it’s interesting to note that according to GSK’s Shelagh Wilson, VP & Head of the European arm of their Center of Excellence for External Drug Discovery, which pretty much does nothing but option-based deals, the value of such transactions, in up-front and milestone terms, hasn’t changed much over the last four years.)

But perhaps the biggest influence on the long-term viability of option-based deals will be whether they deliver a sufficient number of well-developed products to Big Pharma—products that can be slotted successfully back into late-stage pipelines and that are worth the money paid to secure them.

It’s too early to count how many of the options within the recent dealmaking glut are exercised. “There are lots of experiments going on; we’ll have to see [in three or four years] what the data say,” Bosley concludes. If option-deals prove to be part of Big Pharma’s solution—and help biotechs build up their companies along the way—they’ll stick around, whatever the capital markets. GSK's Wilson is bullish: “I can’t imagine a return to the pre-option days. I don’t see those coming back,” she asserts.
image by flickrer mollypop used under a creative commons license