Friday, February 13, 2009

DotW: Evolution

It's a hard week not to think about evolution. In case you missed it, scientists, educators, and philosophers of all walks of life took a moment Thursday to observe the 200th anniversary of Charles Darwin's birth.

But as the economy continues to sag, the term Darwinian selection takes on a more pointed tone. As our legislators debated the stimulus plan, the nipping and tucking that ensued resulted in an economic evolution of sorts. Whether it's morphed into something with a snowball's chance in you know where of actually working...well, we'll just have to wait and see.

Certainly the stimulus package didn't include much in the way of benefits for smaller companies in our industry. Not that BIO didn't try, but it's an uphill battle for many biotechs in the current enviroment. Among the newly troubled this week: Haemacure, Telik, Oscient, and Novogen. All four announced cost-cutting moves, restructurings, or pipeline retrenchings.

Big Pharmas aren't in much better shape (we know this is drum we beat loudly and often). As they look to adapt or die, the drugmakers' strategies fall into a number of familiar categories: diversification (Wy-Pfi); acquisition to bridge the patent cliff (Wy-Pfi); outlicensing unwanted or deprioritized assets (Wy-Pfi). [Do you see a pattern here?] Only GSK seems to be attempting to change itself from the inside out, an issue we'll discuss in greater detail in an upcoming IN VIVO feature.

In a "survival of the fittest" environment, we're proud to note that IVB is closing in on its 1000th post. And boy have we changed. Any doubts, check out our very first deals of the week post, launched Oct. 26, 2007.

AstraZeneca/Mayo Clinic/Virginia Polytechnic Institute: Attendees of the BIO CEO conference in NYC this week were likely nodding their heads wisely during the panel session where execs from BMS, GSK, and Pfizer discussed the need for new sources of innovation. We've heard this before, folks. And as pharma evolves its own biz dev practices--with corporate venture capital playing a greater role in some cases--one strategy gaining momentum is to partner with smart academics, especially if the upfront money is miniscule and the deal allows the drugmaker to hedge its exposure in a risky therapeutic area. Following on last month's tie-up between Johnson & Johnson's Janssen division and Vanderbilt University for novel schizophrenia drugs came news this week of another CNS-related industry-academia partnership--this time between AstraZeneca and researchers at the Mayo Clinic and Virginia Tech. The deal centers around a cache of early-stage so-called triple reuptake inhibitors designed to treat depression. Financial terms and milestones associated with the deal were not disclosed. Triple reuptake inhibitors, which are sometimes viewed as the likely replacements for today's popular SSRI therapies, target three key neurotransmitters thought to be involved in depression: serotonin, dopamine and norepinephrine. But adverse side-effects and a growing stable of generic medicines that provide some relief have significantly upped the clinical and regulatory risks associated with this drug class, prompting pharmas to think carefully before wading into the space with a lot of money. As "The Pink Sheet" DAILY reports, one reason AstraZeneca was so interested in the Mayo/Virginia Tech molecules was that the two groups had already spent some money--about $500,000--derisking the molecules through toxicology studies. Nor is this the first time AstraZeneca has looked to academia for novel products in this particular therapeutic space. In October of last year, AstraZeneca announced a research collaboration with Columbia University Medical Center to explore neurogenesis in creating novel treatments for depression and anxiety.

Lundbeck/Ovation: As we wrote in this post, pharmas adapted rapidly to take advantage of biotech's winter by demanding contingent value rights (CVRs)--essentially some form of earn-out--in a majority of 2009 acquisitions. This week's acquisition by H. Lundbeck of Ovation Pharmaceuticals is no exception: the $900 million dollar deal came with a $300 million contingency dependent on the regulatory approval of Ovation's anti-epileptic Sabril. Of course, Denmark-based Lundbeck has been looking for new revenue sources to offset the anticipated loss of its top seller, the anti-depressant Lexapro, whose U.S. patent expires in March 2012. The pharma also has wanted to build up its U.S. marketing and registration capacities, citing the potential of its partnership with Takeda on next-generation anti-depressant Lu AA21004, now in Phase III trials. On a conference call announcing the news, Lundbeck CEO Ulf Wiinberg said the purchase was based on a "sum of the parts evaluation". But clearly one of those parts was the risk associated with Sabril, which has been under FDA review since 2007. Even though signs for Sabril's approval are positive--it recently won the endorsement of the agency's Peripheral and Central Nervous System Drugs Advisory Committee for infantile spasms and refractory complex partial seizures in adults--it's also likely that Lundbeck execs couldn't forget the $100 million they spent last May to purchase EU commercialization rights to Myriad Genetics' Alzheimer's disease drug Flurizan. Just five weeks later, that drug had a stunning Phase III clinical trial flame-out that resulted in the drug's extinction by summer's end. According to "The Pink Sheet" DAILY, Lundbeck's purchase of Ovation won't stop it from additional deal-making. Seems likely future deals will also come tagged with CVRs that help the Danish firm hedge its risk and conserve its own precious cash resources.

Merck/Insmed: Sanofi's new CEO, Chris Viehbacher, promised a message of change earlier this week, but it's not completely clear how that particular pharma plans to access innovation. As we noted here, the pharma has a somewhat diversified portfolio so it doesn't need to pull a Pfi-eth (not that it has the cash), but it certainly isn't sounding the clarion call to follow-on-biologics. Contrast that with Merck, which is now clearly in a two-horse race with Israeli giant Teva Pharmaceuticals to become the the dominant player in the FOB space. As we wrote here, this week the company announced it was bulking up in FOBs with the $130 million acquisition of Insmed's follow-on biologics platform. The deal, announced on February 12, gives the big pharma's Merck Bioventures unit two additional clinical stage programs--a Neupogen follow-on called INS-19 currently in Phase III, and a Neulasta follow-on in Phase I known as INS-20--as well as preclinical versions of Epogen and an interferon-beta 1b molecule."Insmed's pipeline of follow-on biologic candidates presents the opportunity to expedite Merck's entry in the biologics marketplace," said Frank Clyburn, SVP and general manager of Merck Bioventures in a press release announcing the news. But this deal was also very much about adding manufacturing capacity--50,000 square-feet based in Boulder, Colorado and 70 protein experts to staff it to be exact. Even better, apparently the Boulder plant offers yeast-fermentation capabilities essential to the glycosylation process Merck is already using via its next-generation GlycoFi technology. The site’s production capacity, along with the expertise of the existing staff “gives [Merck] in my view an accelerated head start on developing these products,” Geoffrey Allan, President and CEO of Insmed, asserted in an interview with "The Pink Sheet" DAILY. Relying heavily on the proprietary glyco-engineering technology housed in GlycoFi, Merck already had one FOB in clinical development--a Phase II pegylated erythropoietin for anemia called MK2578 designed to compete with Amgen's Aranesp. But even with GlycoFi's technology in house, Merck clearly felt the need to add additional capabilities--and quickly--to reach its product launch goals of six FOBs in the 2012 to 2017 time-frame. Certainly Teva upped the ante last month with its deal with Lonza for the manufacture of an unspecified number of biologic products. The question now: will Merck's latest move spur competitors who've up until now shown only tepid interest in FOBs into making a move?

Novartis/Portola: Portola continues to gun for DotW's "Little Biotech That Could Award". (Have we told you we have many awards?) The company had planned to adopt traditional wisdom and wait for Phase IIb data before partnering its anti-thrombotic elinogrel, a competitor to BMS/Sanofi-Aventis's Plavix and Daiichi Sankyo/Lilly's prasugrel. But Novartis played God Father and offered the privately-held biotech a deal it couldn't refuse: $75 million up-front, plus another $500 million in milestone payments and royalties on worldwide sales. Even better, those milestones aren't all in the distant future. The biotech stands to receive another hefty payment of $75 million when the compound enters Phase III trials, which is widely expected to happen mid-2010. With the chances of an initial public offering slim to nil--unless you are selling baby formula and have profits to boot--some Portola backers might raise their eyebrows at the Novartis deal, as it complicates an exit by way of merger or acquisition. Portola has raised $218 million in equity through several venture rounds, including $60 million last summer as well as a $20 million debt placement. So for backers to make their money back, some pharma is going to have to want Portola badly or the investment won't amount to an exit as much as a write-off. And with the lead asset partnered, potential buyers (other than Novartis, of course) might be scared away from looking seriously at the company. Marci C. Dier, Portola's chief financial officer, doesn't exactly agree noting that the biotech has two plays in thrombosis, a very large therapeutic space of avid interest to the larger drugmakers. (The company's second drug is an oral Factor Xa inhibitor in Phase IIb trials called betrixiban.) "Partnering one compound doesn't reduce our optionality, in terms of exit," she said. Indeed, practically speaking the Novartis tie-up--or something like it--had to happen because of the development dollars needed to push elinogrel forward. Phase III trials in thrombosis can involve 20,000 to 30,000 patients. Bottom line for Dier: The still-growing anti-thrombotics space is so lucrative that a takeout is not beyond the pale. If hungry enough - or desperate enough - a big pharma player could, after all, buy Portola and pay off Novartis for elinogrel rights.

Takeda/Xoma: Collaboration updates don't generally pass muster as we're trawling through the week's news for DotW candidates. But we are making an exception for Takeda's expanded agreement with Xoma announced this week. Perhaps it also shows how our thinking has evolved in the fiscally turbulent time--the non-dilutive money Takeda is plunking down--$29 million--is nothing to sneeze at these days. The two companies first teamed up in November 2006 with the goal of using Xoma's antibody phage display libraries and optimization technologies to discover and develop therapeutic antibodies. (This was Takeda's measured step into large molecules.) By 2007, when Takeda was sufficiently interested in biologics to start its own center focused on proteins and anitbodies in San Francisco, the collaboration was far enough along to warrant an increase in the number of antibodies being investigated. In addition to the upfront fee, this latest expansion could provide Takeda with potential downstream milestones and royalties--if the products ever reach the marketplace. Xoma will likely only net $21.5 million from the deal thanks to an estimated $7.5 million it will need to pay for taxes and other costs, but that money is an important lifeline for the company. In recent months the troubled Berkeley, Calif.-based company has cut its workforce 42%, down-sized its manufacturing capabilities, and stopped development of all other pipeline products to focus on its Phase II interleukin 1b inhibitor. It also restructured its oncology collaboration with Novartis, relinquishing a 30% stake in the lymphoma/multiple myeloma candidate HCD122, in exchange for $7.5 million and up to $14 million in milestones. Like so many other biotechs, Xoma has adapted to the new market reality where cash now is far more important than future--and highly theoretical--biobucks.

Thoratec/HeartWare: In medtech sectors where it can take decades to get a device to market, companies face the real and ever-present danger that by the time they launch their latest generation product, their technology has already been leap-frogged by competitors, especially small, innovative private companies. Thoratec was facing exactly that challenge. With 2008 sales of $313 million, Thoratec dominates the market for ventricular assist devices, pumps that provide a last ditch bit of love to patients with chronic heart failure. Its latest left ventricular assist device (LVAD), a small axial flow pump called the HeartMate II, took off like gangbusters when launched in the second quarter of 2008. However, HeartMate II is a second generation pump, and smaller, third (and some might call them fourth) generation versions that don't require implantation in the abdominal cavity are already in early stages of commercialization. Thus, as companies such as MicroMed Cardiovascular and HeartWare International prepared to make a run on Thoratec, the company was forced into action. On Feb. 13, it offered to acquire HeartWare for $282 million, half in cash and half in stock. The deal gives Thoratec a broad portfolio of ventricular assist devices, including the newest and latest technology, positioning it to capture growth in a market that has always been sorely underpenetrated for lack of the right technology. Medtech Insight forecasts LVAD sales of $210 million by the end of next year, but that’s only a tiny fraction of the market’s potential. CanAccord Adams analyst Jason Mills estimates that more than 25,000 patients in the U.S. alone might be candidates for LVADs--making it a $2.5 billion market--Mary Stuart.

(Image courtesy of flickr user practicalowl through a creative commons license.)

1 comment:

MC5 said...

Interesting that little has been noticed regarding one of the most productive Pharma/Academic collaborations, a seven-year diabetes/obesity alliance between Takeda Pharm and Beth Israel Deaconess Medical Center in Boston. BIDMC molecular biology researchers provide novel validated targets that go into HTS at Takeda with the goal of identifying candidate drugs to take the place of Actos, which goes off patent in 2011. It must be working well as the parties have agreed to renew the alliance twice since 2003.