DotW: Stress Test

'Tis the week for stress testing. The IN VIVO Blog is pleased to provide readers with a chance to gauge their own inner angst with this simple diagnostic test.

It's rapid, non-invasive, and can be administered in the point-of-care setting (office or home). (And since it's free, we don't even have to address the potential business model difficulties continuing to dog companion diagnostics, especially in the wake of CMS's proposed decision memo not to cover warfarin testing.)

Please scrutinize the picture above, which shows two identical dolphins joyously leaping out of the water. In a closely monitored, highly scientific study, scientists discovered that in spite of the fact that the dolphins are identical, study participants under stress found differences between the two mammals. The results were statistically significant. Moreover, the number of observed differences closely corresponded to an individual's stress levels. Which leads to this obvious question: what, dear, reader, do you see?

(Pfizer, Forest, and Biovail, we interrupt this post to suggest this could be brilliant marketing for Xanax, Lexapro, Celexa, or Ativan.)

This wasn't exactly the stress test Geithner and group administered to the 19 bank holding companies deemed "too big to fail" when the economy began to unwind last fall. (Too bad--think of the cost and time that could have been saved in what ended up being a weeks'-long endeavor for 150 regulatory officials.) Had Geithner done so, however, it's likely 10 of the 19 companies would have reported perceiving some kind of discrepancy, with Bank of America and Wells Fargo seeing cows and Citigroup some dolphin-related species.

In our own industry, Vanda, Roche-Genentech (at what point will Roche drop the hyphen?), and VeroScience all would have passed with flying colors given the FDA's decision to approve their respective drugs Fanapt (iloperidone), Avastin (for glioblastoma), and Cycloset. As we noted yesterday, Vanda was the big winner with FDA doing an abrupt u-turn on its 2008 decision on the atypical antipsychotic. Shares of the company jumped from less than $1 to over $9 in after hours trading and ended the day Thursday at a healthy $7.84.

Dendreon, too, seems to be in clover (or is that dolphins?). Fresh off positive news from Provenge, the cancer vaccine company hauled in $230 million Thursday night, the second largest follow-on stock offering in 2009. Demand for the for now successful Provenge maker is high with institutional investors (many of whom likely cashed out of Genentech and have money to commit to other life science companies). We're just amazed it took Dendreon this long post-data release to do the raise.

As we transition from APORKALYPSE NOW to APORKALYPSE NOT (yet), state and local health officials can take comfort in the fact that the animal on the right is not--and never has been--a pig. So can VaxInnate, which this week came up with a $30 million Series D, with backing from (among others) The Wellcome Trust. Did VaxInnate take advantage of the highly infectious A(H1N1) hysteria to pull in the additional funds? Probably, given the press release highlights the biotech's work on "a prototype swine flu vaccine that could be available for preclinical animal studies in as early as six weeks". CEO Alan Shaw also notes that the additional money--the company has raised more than $90 million in venture capital if you are tracking--will be used "to support the application of our technology platform to vaccines for other infectious diseases, among them HPV, RSV and the emerging swine flu.”

Who in our industry might fail this stress test? Ipsen and Solvay might be reeling given yesterday's announcement that Testim and AndroGel have been slapped with black box warnings and will require risk evaluation mitigation strategies (ah, the dreaded four letter acronym rears its ugly head again). Renovis also comes to mind. This week parent company Evotec announced it was shuttering the South San Francisco biz, probably by mid-August. And of course there's Targeted Genetics, which revealed during its earnings call that bankruptcy could be in its near future if it can't raise more capital by June.

Do you need dolphin goggles? Then it's most certainly time for...

Chiesi/Cornerstone Therapeutics: IVB thinks it will be a whole lot easier to get great Italian food in Cary, North Carolina in the near future. That's because relatively unknown--at least to us insular U.S.-based folks--Parma, Italy-based Chiesi Farmaceutici is buying a 51% stake in Cary-based Cornerstone Therapeutics. (We'll spare you our cheesy jokes.) In exchange for giving up majority ownership, Cornerstone will gain $15.5 million along with U.S. rights to Chiesi's marketed pig-derived lung surfactant Curosurf for 10 years. While cash was an important part of the hybrid licensing deal, it was the access to products that really made the deal of interest to Cornerstone's executives. Indeed, via this transaction, Cornerstone gets the first right of offer on all other Chiesi drugs intended to be commercialized in the U.S., including a synthetic version of surfactant currently in Phase I studies, Nymusa, a drug to treat sleep apnea in newborns which garnered a positive opinion from European regulators recently, and late stage products in asthma and cystic fibrosis. As a result, the deal continues to move Cornerstone in the direction of becoming a respiratory-focused specialty heavyweight. Last year Cornerstone set itself on that path, reverse merging with Critical Therapeutics and gaining access to Zyflo CR for asthma. With Curosurf, Cornerstone becomes a dominant player in the neonatal space, in part because there is no near term competition to rival the compound. Discovery Laboratories certainly hopes its own synthetic surfactant, Surfaxin, will give Curosurf a run for its money, but given the FDA issued the Warrenton, PA-based Discovery its fourth complete response letter tied to Surfaxin near term approval of that product seems like a long-shot. Investors didn't necessarily get Chiesi/Cornerstone's novel deal structure, sending the stock down initially to a low of $5.60 from $7.80 on May 7. (The company's share price subsequently rebounded closing Thursday at $7.25. The deal reflects that at least some in our industry are thinking about new deal structures that go beyond the more straightforward licensing arrangements that have dominated the news flow. Certainly the deal recalls, imperfectly it's true, last year’s arrangement between Infinity and Mundipharma and the Roche/Genentech tie-up of the nineties. Last November, the privately held pharmaceutical group Purdue (of which Mundipharma is the European affiliate) took a sizeable equity position in Infinity, gaining ex-U.S. rights to Infinity's oncology programs in exchange for covering the biotech's R&D expenses. Another similarly modeled deal was the one between Ipsen and Tercica. The former owned a 25% stake as part of their partnership on Somatuline Autogel. Ipsen went on to acquire Tercica in a three-company buying spree last summer. As Ipsen and Roche’s eventual purchases of their smaller partners shows, these deal structures create an unavoidable tension that often results in outright acquisition at some future date. Whether that is Cornerstone’s eventual fate remains to be seen—and likely depends on the company’s abilities to increase Curosurf sales.

AZ/Jubilant: We aren't sure how many times we have to say it, but FIPCOs are so old school. FIPNets are where it's at, baby. Not to go all Vince Vaughn on you but they are "so money" these days. At least that's what companies like Lilly and Merck are hoping given the early stage R&D alliances they've struck in India and China. And now AstraZeneca, which has built an enormous R&D presence of its own in China, is joining the FIPNet party. This week came news that the multinational was teaming up with Jubilant Biosys, the Bangalore-based research arm of Indian pharma company, to develop novel drug candidates in the neuroscience area. Financial details of the transaction were light. But as is typical of these deals, the emphasis will be on "shared risk-reward." AZ is putting up research funding for five years. In exchange, it will own worldwide development and commercialization rights to the compounds the Jubilant group develops. Of course, to further incent Jubilant, the Indian company will get development-based milestones, as well as royalties in what could be a very theoretical future. In the press release, AZ's global discovery EVP Jan Lundberg made all the right noises when it comes to FIPNets. The collaboration "complements out internal activities" and "provides a concrete example of the innovative approaches we are taking to deliver a sustainable discovery pipeline with a lean and agile organization," he said. He even managed to sneak in the "more shots on goal" analogy that is now de rigeur from pharma heads of R&D. (Sadly no reference to skating where the puck is going to be.) We totally understand why AZ would want to strike this kind of deal. Depending on the undisclosed economics, it sounds like yet another way to potentially get innovation on the cheap. We aren't so sure about the shared risk-reward mantra, as it looks to us as if it's pretty one-sided. Yes, Jubilant gets some up-front R&D costs covered, but the real money is still on the come and the company won't even have control of the molecules post preclinical. Which is probably why this kind of deal was done in India. As bad as things are in the US and Europe, biotechs here are trying to engineer better terms if they can. And certainly, Jubilant, which has signed a number of deals in recent months including a J/V with Lilly for drug development services last October, is thinking strategically about validation on the world stage.

ZymoGenetics/Seattle Life Sciences: It’s not exactly a spin-out, but if the nascent biotech Seattle Life Sciences looks like a “cousin” of ZymoGenetics, there’s good reason. In a deal announced May 4, ZymoGenetics transferred eight preclinical programs to SLS for future considerations but no upfront cash, in a deal bird-dogged by the startup’s chief science officer, a former ZymoGenetics executive. Seattle-based ZymoGenetics cut its staff by one-third last month and wants to focus on building up its one approved product Recothrom (topical recombinant thrombin), as well as its partnership with Bristol-Myers Squibb to develop the novel peg-interferon lambda for hepatitis C. In seeding the pipeline of previously unknown SLS, whose Web site is currently under construction, ZymoGenetics hopes to eventually monetize parts of its patent estate that it no longer plans--or can afford?--to develop itself. The eight programs – which could yield drugs for oncology and diabetes – will bring ZymoGenetics unspecified milestones and royalties, plus an equity stake in SLS when the new firm completes its initial funding round. SLS Chief Science Officer Steve Jaspers said his company can more aggressively seek financial backers – likely to be venture capital firms or angel investors – now that it has some assets to build with. In 15 years at ZymoGenetics, starting as a bench scientist and moving his way up, Jaspers said all of the molecules acquired in the deal had crossed his desk in at one time or another. During ZymoGenetics’ first-quarter financial call May 5, CEO Douglas Williams said the asset transfer to SLS was a deal that had been in the works for some time and reflects the company’s decision to end R&D in oncology and focus on “selected immunology programs, which is the core strength of the company.” He added that, “we think this is a great way of unlocking some value in IP estate … [and] take what I characterize as non-performing assets and potentially create the opportunity to generate some value there.”
Under the deal, SLS receives platelet derived growth factors and their antagonists (PDGF-C, PDGF-D, PDGF-C Antagonist, PDGF-D Antagonist), a prokineticin 2 molecule and its antagonist (PROK2 and PROK2 antagonist), human beta defensin 3 (HBD-3) and CTRP-1. Jaspers said that instead of targeting one or two specific therapeutic areas, SLS wants to take a flexible approach and develop the molecules in whatever direction appears most promising. The antagonists all have demonstrated vascular angiogenesis activity in animal models, suggesting they have potential as oncology products, he added. In terms of timelines, Jaspers said which program advances and how soon will largely depend on funding. In addition to seeking equity investors, SLS, currently self-financed with a headcount of five, will explore other options like partnerships with biotechs and pharmas, he said. – Joseph Haas

Biovail/GlaxoSmithKline and Biovail/Acadia: Biovail earns Deals of the Week's twofer award, inking two different but related deals in its attempt to become a neurology powerhouse. On Monday, the company plunked down $30 million upfront for rights to Acadia's Phase III Parkinson's disease psychosis drug pimavanserin. Acadia could reap an additional $160 million in milestone payments, should the new chemical entity be approved for PDP and Alzheimer's disease psychosis. On Biovail's May 6 earnings call, CEO Bill Wells made clear that when it comes to partnering he prefers back-end loaded deals like Acadia. "Wherever possible, we'll limit our upfront payments and structure the aggreement such that additional funds are provided as the product meets certain milestones and presumably the risk profile improves," he told investors and analysts. Maybe the desire for derisked assets explains why the specialty pharma was willing to shell out $510 million to GlaxoSmithKline for U.S. rights to the generic Wellbutrin XL (bupropion). But there's development risk and then there's marketing risk. GSK and Biovail have had a long and complicated partnership concerning this particular anti-depressant; the two first teamed up in 2001 in a product swap deal that gave GSK worldwide marketing rights to Wellbutrin (with Biovail continuing to manufacture and supply the product) in exchange for the topical antiviral Zovirax. Wells tried to make the case on the earnings call that this second deal is all about strengthening the base and increasing cash flow via a product that noone can argue Biovail doesn't know well. "The incremental cost associated with bringing in this product is minimal, practically nil, so almost all of the revenues of this product drop to the bottom line in terms of cash flow. So it's extraordinarily efficient," he told analysts on the call. Still sales of the drug have been hit hard by the introduction of generic versions, slumping 70% last year to $68 million. Thus, it's hard to understand why Wells believes Biovail can expect yearly "incremental cash flows of $80 million to $90 million, growing to $120 million to $130 million in year 2010" for Wellbutrin especially when he made very clear that Biovail is unlikely to spend much effort marketing it. "The product is a genericized product, so there is no sales effort that goes with it," he said. Analysts clearly didn't get the logic of the Wellbutrin deal. GMP Securities analyst Cosme Ordonez called the forecast "difficult to understand". We can see the logic of adding Wellbutrin to an existing basket of goodies, especially given that it would be an easy sales call to make while pushing Aplenzin, a once daily alcohol-resistant form of bupropion that launched in April. Only problem is Biovail partnered U.S. rights to Aplenzin to Sanofi Aventis in December so this deal doesn't give it sales and marketing synergies. Instead it seems to create additional competition, with the renewed success of Wellbutrin potentially stealing market share from Aplenzin or vice versa. But should Biovail be able to generate revenues in the realm it forecasts, its certainly true Wellbutrin will smooth out earnings. Something else that will surely help: drastically cutting the quarterly dividend from 37.5 cents to just 9 cents.

Covidien/VNUS Medical Technologies: Cross off buying a Toddler 2T outfit for Covidien, the soon-to-be two-year-old already bought its own gift. The former Tyco Healthcare company stepped up with an acquisition of publicly traded VNUS Medical Technologies for $440 million. Device watchers--hello self--have been naming Covidien as one of the most likely mid-tier device companies to step up and take the load off Medtronic, which has done the bulk of the buying this year. Covidien, afterall, is an amalgamation of several high profile acquisitions completed over the past decade, so it's no stranger to growing by buying. And it's made some big buys in recent years including deals for Scandius Biomedical, Confluent Surgical and Vivant Medical. But more importantly, Covidien officials have made it clear that they want to grow through both internal and external development. To help with the former, the company established a corporate venture unit to help. But Covidien didn't have to look far or wide for the publicly traded VNUS. The San Jose-based company makes products that treat vericose veins and venous reflux disease, which can cause swollen veins and discoloring of the skin. Covidien will roll the VNUS Closure device into its growing vascular business (which is still digesting the purchase of Covidien's quiet acquisition of venture-backed Bacchus Vascular completed in March.) With VNUS, Covidien didn't stint, paying VNUS at $29-per-share, a 36% premium to the Thursday closing price. Covidien expects the deal to be completed by June 30, one day after Covidien celebrates the second anniversary of its split with the once troubled Tyco. Count us as relieved. We already gave Covidien the gift of an IN VIVO profile last year. We weren't quite sure how we could top that one.--Tom Salemi

(The In Vivo Blog would like to reassure readers that no dolphins--or cows--were harmed in the writing of this post. Many thanks to flickr user tidewatermuse who provided the image under a creative commons license.)