Friday, November 13, 2009

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.

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