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 is boosting the need for specialized labs to run such complex companion diagnostic tests. -- Mark Ratner

Photo courtesy of flickr user Mikael Miettinen