Friday, August 07, 2009

DotW: Cash for Clunkers

We're baaack. Did you miss us--or was the respite from DOTW welcome? (On second thought, don't answer that.)

Things in D.C. are beginning to quiet down, as members of Congress head for their home districts and vacations. With healthcare reform stalled, the Obama administration's one piece of good news: cash for clunkers has been an undeniable success--at least for certain auto makers--especially now that the popular programs has been recapitalized.

In our own industry, the deal-making was of a small scale--and certainly involved a few clunkers. But this week the small players have nothing on big biotechs Biogen and Genzyme, which increasingly look like they could join the ranks of industry wrecks.

As part of J&J's recent deal with Elan, the big drug maker received an option to help Elan finance the purchase of Biogen's stake in Tysabri in the event Biogen is bought out and Elan decides it wants full control of the medicine. Biogen cried foul after learning of the arrangement via media reports and an Elan earnings call, saying the arrangement with J&J violates the two biotech's existing Tysabri contract. (Certainly, Biogen has a right to be worried. If the maker of Avonex and Rituxan goes on the block, the financing option on Tysabri could give J&J an advantage over competing bidders and enable the pharma--if it wants--to get the Cambridge-based biotech for a lower price.)

So on July 28 Biogen sent Elan a letter calling for an end to the relationship, triggering a 60-day window in which to effect a break-up. It didn't take long for Elan to respond with a lawsuit, filed in U.S. Federal District Court in New York. Elan is asking the court to stop the 60-day clock that is triggered by Biogen's letter and to expedite a review of the matter. (Read our discussion in "The Pink Sheet" DAILY for more.)

If the Biogen/Elan catfight isn't dramatic enough for you, there's additional entertainment provided by Genzyme, which continues to struggle because of manufacturing problems associated with its Allston plant. As competitors like Shire encroach on Genyzme's money-maker Cerezyme, analysts are beginning to doubt Genzyme's ability to survive the fall-out caused by the manufacturing snafu. On Friday, Aug. 7, Goldman Sachs added the biotech to its Americas conviction sell list. Off-the-record discussions with other industry experts suggest other analysts may follow suit in short order.

Could the events at Genzyme result in the company's sale? It's a good question and one we're pondering. Until such an event transpires, take a look at this week's edition of...

Anesiva/Arcion Therapeutics: Clunker Anesiva got a new engine thanks to this week’s reverse merger with privately–held Arcion Therapeutics. The deal calls for each company to contribute one clinical program to the surviving entity, which will be named Arcion. Anesiva’s existing CEO, Michael Kranda, gets to keep the top spot, and Arcion CEO James Campbell (who is also an Anesiva board member), will become CMO, with Arcion shareholders owning 64% of the newco. Industry watchers have been long predicted consolidation as troubled companies team up with up-and-comers in opportunistic deals; the Anesiva/Arcion tie-up certainly holds a certain logic given Campbell’s dual role at both companies, shared investors (CMEA Ventures and Interwest Partners have staked both players) and the firms' similar focus on novel treatments for pain. Anesiva’s primary contribution to the newco is Adlea, an intravenous formulation of capsaicin that has succeeded in two Phase III trials for post-operative pain in total knee replacement patients; Arcion, which was profiled in Start-Up in January, is developing a topical clonidine gel for diabetic neuropathic pain. For Anesiva, the news means at least a vestige of the company will continue to live on. Once a growing biotech with a marketed product and a stock price nearing $7, Anesiva was down to $315,000 in cash and equivalents at the end of the first quarter as manufacturing challenges forced the biotech to recall its transdermal pain patch Zingo. Baltimore-based Arcion, meanwhile, hasn’t been around long enough to raise a ton of money: InterWest Partners and CMEA staked the company with $8.8 million in a Series A raised in December 2007. The two VCs certainly didn't get an exit out of the deal, but since they already own a chunk of Anesiva, the merger allows them to consolidate their outlays into one, stronger company. We also assume the merger’s allure stems from the promise of Adlea and the management expertise of Kranda (okay, maybe a Nasdaq listing is also a plus). How the new company will be capitalized is still an open question. According to “The Pink Sheet” DAILY, the newco plans to pursue a $20 million private investment in public equity (PIPE) financing in conjunction with the merger--Joseph Haas and Ellen Foster Licking.

GlaxoSmithKline/Vernalis: Vernalis wins DOTW's Monty Python award for "not dead yet" biotech. News Thursday Aug. 6 that the firm was teaming up with GlaxoSmithKline in an option-based oncology research agreement will keep the company alive that much longer. The deal provides Vernalis with $3 million up front cash, and the same amount again as an equity purchase. Vernalis also stands to realize potential payments "in excess of $200 million" (yeah, you know they get carried away with the 'if-all-goes-according-to-plan scenarios') and, maybe, double-digit royalties. For this, Vernalis will do drug discovery against an undisclosed target using its structure-based-drug design technologies. (The target is one that both Vernalis and GSK had been working on previously, according to CEO Ian Garland.) If and when an IND emerges, GSK will have 90 days to decide whether or not to exercise its option to license the compound (s) and take on development and commercialization. Amid today's flurry of option-based deals, where risk is often heavily skewed toward the biotech partner, our first reaction to the press release's "risk sharing" language was "you bet": Vernalis takes all the early risk, with some pocket money, and GSK may--or may not--choose to take on later risk. But this deal is in fact a little more biotech-friendly than that. According to Garland, GSK will pay further pre-IND milestones of "more than $6 million", and the Big Pharma is also committed to doing the IND-enabling studies too (whatever they think of it at that point).--Melanie Senior

Transcept/Purdue Pharma: If Purdue execs were waking up in the middle of the night wondering if their deal with Infinity was going to pay off, then they’ve now got just the thing for a good night’s sleep. Early this week the private pain-focused Pharma licensed US rights (and an option to the rest of North America) to Transcept Pharmaceuticals’ sublingual zolpidem tablet (Intermezzo) back-to-sleep treatment. Transcept gets $25 million up-front and a $30 million milestone at approval (based on that approval’s timing vis à vis its October 30 PDUFA date, i.e. probably adjustable downward if the drug isn’t approved the first time around) plus potential sales milestones. The biotech also gets double-digit royalties on US sales, ranging up to the mid-20-percent range. A year post-launch Transcept can opt to co-promote Intermezzo to psychiatrists. With Intermezzo Purdue continues its expansion into non-pain marketing, a transformation begun with the Infinity alliance. Tiny Transcept—which recently went public via reverse merger with Novacea--gets a partner that it hopes can creatively compete against generic zolpidem (the once-mighty Ambien’s active ingredient) and other marketed and near-market compounds in a crowded sleep market that has seemingly peaked: the market for insomnia meds was just over $2 billion in 2008, down from nearly $2.9 billion in 2007. If approved, Intermezzo’s status as the first drug designed for those middle-of-the-night episodes—essentially sleep-on-demand instead of put-you-to-sleep-every-night—will be an advantage. Whether it’s enough of an advantage to compete in the rough-and-tumble insomnia market remains to be seen--Chris Morrison.

Pfizer/NicOx: Is it fair to call NicOx's glaucoma drug a clunker? We've known for a year that Phase II data associated with the molecule--the awkwardly named PF-03187207--is, at best, a marginal improvement when it comes to lowering diurnal interocular pressure compared to Pfizer's Xalatan. In May, Pfizer indicated the data did not warrant advancing the compound into Phase III trials but remained "committed" to a joint program with NicOx "where the follow-up compounds ...have produced encouraging results." Looks like Pfizer had a change of heart (or maybe an eye-opener?). On August 6, NicOx took back '207 and the preclinical molecules, agreeing to pay the Big Pharma undisclosed milestone payments plus royalties tied to '207's approval and ability to meet predefined sales figures. We give NicOx credit for its masterful spin of the news: the press release focused on the big drugmaker’s decision to outlicense a non-core product rather than the marginal data associated with '207. (Really, what else was the company going to do?) Investors seemed to buy the idea that this was the best possible outcome for a product that has been mired in uncertainty, sending the company's share price up approximately 3% on the news. Certainly, the milestones NicOx has to pay out for the eye programs are likely small change compared to what the biotech might gain if it can partner the programs to another player. But partnering for a reasonable amount is a big if. Pfizer's Xalatan, which racked up $1.7 billion in worldwide sales in 2008, goes generic in 2011, so future glaucoma products like '207 will have to do significantly better clinically to justify reimbursement. Meantime, it's not as if NicOx is radically changing its focus. It's still naproxcinod all the time over at the French biotech. Just to refresh your memory, NicOx plans to submit that molecule, which is a nitric oxide donating version of Naproxen, for approval to European and U.S. regulatory agencies later this year.--EFL

(Image by flickr user dno1967 used with permission courtesy of a creative commons license.)

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