Monday, November 30, 2009

IN VIVO Blog's Deals of the Year 2009: The Race for the Roger

Oscar, Schmoscar. It's the Race for the Roger

Welcome to the beginning of the second annual IN VIVO Blog Deal of the Year competition. It's bigger and better than ever before! Not familiar with the 2008 DOTY competition? Read all about it here (start at the bottom and work your way up, if you like suspense).

Starting later this week we'll be nominating deals in multiple categories: one for financing related deals and two M&A/alliance-dominated categories. Once all the nominees have been posted for each category we'll open up the voting for you, our dear readership, to decide the winners. Voting will stay open for a couple weeks over the holiday season and we'll announce our winners (and provide them a forum for an acceptance speech, naturally) in early January.

Changing of the Guard in Health Care Fraud

Michael Loucks, the single most prominent figure in the wave of pharmaceutical industry health care fraud prosecutions over the past decade, has left the US Attorney’s office in Boston after almost 25 years.

As we report in “The Pink Sheet” DAILY, Nov. 25 was Loucks’ last day in the office; he is taking leave time until his official last day on the job, Dec. 19. For most of his career, Loucks has focused on health care fraud prosecutions, helping to establish Boston and its health care fraud unit as the center of industry investigations and settlement activity.

Loucks was most recently First Assistant US Attorney, and served as acting US Attorney upon the resignation of Michael Sullivan in April. Loucks’ departure follows the confirmation of Carmen Ortiz as the new US Attorney for Massachusetts.

It is hard to overstate the impact Loucks has had on the pharmaceutical industry. Consider the ramifications of the first blockbuster case Loucks brought: the prosecution of TAP Pharmaceuticals at the start of the decade. The case focused on the marketing of Lupron and inducements tied to the incentives built into the Medicare reimbursement system for physician administered drugs. The case was settled in 2001 for a then-record sum of $875 million—with evidence gathered from a top executive turned whistleblower, supplemented by tapes of sales pitches, recorded by physicians who had turned state’s evidence.

That certainly got the attention of lots of folks in industry.

The settlement demonstrated that pharmaceutical industry sponsors could be successfully prosecuted under the False Claims Act, introduced the industry to the realities of operating under formal compliance programs, and helped spur legislation to reform the payment system under Medicare Part B. In other words, it helped change the rules of commercial success in the biopharma business.

And it did more than that. The size of the settlement—and especially the nine-figure payment to the TAP whistleblower—helped ensure that industry investigations would become an almost self-sustaining exercise, setting up health care fraud prosecutions as a kind of parallel regulatory system for industry. It also led to the reality for industry today, where (as we put it in “The Pink Sheet”) if you aren’t under investigation, it is because you already settled.

The TAP case was followed by other landmark settlements, like the Neurontin case—which emphatically demonstrated that off-label promotion can be successfully prosecuted despite assertions that FDA’s rules infringe First Amendment rights. The policy response to that case remains very much a work in progress—but only because the implications are so far reaching. (We outlined the issues in The RPM Report, here.)

Loucks is leaving the US Attorney shortly after his office set yet another record for a settlement, recovering $2.3 billion from Pfizer for marketing practices related to Bextra and a handful of other products. As has been the pattern, the case did more than recover money. It drove important changes in Pfizer’s business practices—for instance, the company bowed out of funding continuing medical education activities as the investigation unfolded. And it dovetails with broader policy change by starting to define rules for disclosure of relationships with health care professionals that we suspect will soon be codified by legislation.

No Short Term Impact

Will Loucks’ departure mean any changes in the climate for prosecutions of pharmaceutical companies in the year to come?

In the short term, the answer is almost certainly, “no.” Loucks hasn’t been directly responsible for health care fraud cases in Boston for several years; a large and experienced team of prosecutors remains in place, and it will presumably be business as usual.

It also seems unlikely that the Obama Administration is going to rein in fraud prosecutions; quite the opposite, if the tough talk about fraud and abuse in Medicare is any guide.
And if you think Loucks was some kind of anti-industry zealot, think again. You should have seen the jaws drop when Loucks told The RPM Report’s FDA/CMS Summit in 2007 that he considers himself a conservative Republican and believes, generally speaking, that government intrusion in people’s lives is a bad thing that should be kept to a minimum. (Read more here.)

His successor, Ortiz, was recommended by Massachusetts’ two Democratic Senators (John Kerry and the late Ted Kennedy), so if anything you might expect a more interventionist tone at the top. And there is no reason to expect broad ranging disruptions at the AUSA level: Ortiz herself was an assistant US Attorney, having served in the Boston office since 1997.

But there may indeed be reasons to think the wave of health care fraud prosecutions from Boston is cresting. Ortiz’ focus has been on economic fraud; her list of the 10 most important cases in her career (submitted to the Senate Judiciary Committee as part of the confirmation process) includes telemarketing scams and pyramid schemes—but nary a health care case.
Ortiz is certainly unlikely to slow down the pipeline of pending investigations of health care fraud. But given that she got the job in the midst of an economic crisis, it seems safe to speculate that the priorities at the top may start to shift towards financial cases in the years to come.

Full Impact TBD

But those changes won’t happen overnight, and in the meantime we expect Loucks’ legacy will continue to be defined.

In economic terms, health care fraud prosecutions are lagging indicators. National headlines about record-breaking settlements come only after years of investigation, and inevitably involve assertions by the settling firm that the conduct involved is in the distant past, and does not affect current practice. And that is always true (though sometimes the “distant” past is not so distant, as in the Pfizer case where the allegations included activities as recent as October 2008.)

The pipeline of pending cases in Boston will no doubt include a number of other important settlements with significant commercial and policy implications. There’s just no way to know yet what they are.

Indeed, the last settlement announced under Loucks’ name—involving the long term care pharmacy provider Omnicare and the generic drug manufacturer Ivax—was relatively small and focused on a narrow market segment, but sure seems to suggest some huge cases to come (as we pointed out here.)

So it is still several years too early to even try to quantify the full impact of Loucks’ tenure on the biopharma sector. But this much we know: it is a big impact, and we don’t think it will look any smaller in the years to come.

While You Were Eating Leftovers ...

As you shake off your turkey-induced coma and try to forget about your miserable fantasy football performance and another burgeoning financial crisis, we welcome you back to the working world.

Aaand unless you're really affected by tryptophan or were hanging out in Tiger Woods' SUV, you probably know that not a whole lot happened in our neck of the woods.

While you were putting up with your in-laws ...

image from flickr user sniffette used under a creative commons license.

Wednesday, November 25, 2009

DotW: You Can Get Anything You Want At IN VIVO Blog

This post is called Deals of the Week, and it's about deals, and the week, but Deals of the Week is not the name of the blog, that's just the name of the post. And that's why I called the post Deals of the Week.

You can get anything you want at IN VIVO Blog.
You can get anything you want at IN VIVO Blog.
Log right in, it's a click away.
Just a finger tap. You don't have to pay.
You can get anything you want at IN VIVO Blog.
Now it all started two Thanksgivings ago, two years ago on Thanksgiving, when Chris Morrison and I started writin' a blog about deals, but not every day, just once a week. And writin' about deals once a week, you know it's a lot of work. (Hint. Hint.) And there's a lot of garbage you gotta sift through, but we decided it would be a friendly gesture on behalf of readers.

So we trolled around the Internet with our shovels and rakes and other implements of destruction (aka Elsevier Business Intelligence's Strategic Transactions database) looking for deals to analyze. But then a big bad editor (also known as Officer Roger) said why are you doin' that? We are closed on Thanksgiving.

And we had never heard of a blog closed on Thanksgiving before (we don't get out much) so with tears in our eyes we drove off into the sunset looking for another place to dump our garbage -- I mean our deals.

We didn't find one. So we wrote our post anyway, went back and had a Thanksgiving Day that couldn't be beat, went to sleep, and didn't get up until the next morning when we got a call from Officer Roger...

And it's been a recurring feature here at IVB ever since. (Fortunately, not another case of American blind justice since we always arrive at the truth of the matter and it doesn't even require 27 eight-by-ten color glossy pictures with circles and arrows and a paragraph on the back of each one.)

In honor of the day, we hope you consider joining the IN VIVO Blog Movement. All you've got to do is walk into the office wherever you are, just walk in and say ,"You can get anything you want at IN VIVO Blog." And walk out.

You know if one person, just one person does it, they might think he's really sick and they won't take him... And can you, can you imagine fifty people a day, I said fifty people a day (okay, we'd really like 1000) walking in, quoting a line from IN VIVO Blog and walking out?

And friends, they might think its a movement. And that's what it is, the IN VIVO Blog Movement.

Remember Deals of the Week? (This is a post about Deals of the Week.) Without further ado, we bring you this week's installment inspired by Arlo Guthrie. Feel free to sing along in four-part harmony. With feeling. 'Cuz you can get anything you want at the IN VIVO Blog. (Excepting Roger.)

Clovis Oncology/Clavis Pharma: What's a letter of the alphabet between friends? Pat Mahaffy and his former Pharmionites at Clovis have started to spend the huge $145 million A round they announced in May. Their first deal is for intravenous CP-4126, what they hope to be an improved version of Eli Lilly's Gemzar, under development at Norwegian firm Clavis.

Clovis is paying $15 million upfront and up to $365 million in milestones to take over clinical trials in pancreatic cancer and other indications and develop a companion diagnostic. Clovis gets rights in the Americas and Europe and will double enrollment to 250 patients in a recently launched Phase 2 for newly-diagnosed advanced pancreatic cancer. Clavis's proprietary platform adds a lipid vector to existing drugs that, if early data bears out, will boost efficacy without adding safety concerns.

For CP-4126, the proposition is to boost uptake of gemcitabine in patients who fare poorly on the parent drug because they have low levels of a nucleoside transporter protein known as hENT1 required for entry into tumor cells. The lipid vector allows gemcitabine to bypass hENT1 and find another way into the cell, Clavis officials say. No doubt careful attention will be paid to the low-hENT1 population in Phase II studies. Pay careful attention, too, to Clovis, to see how far $145 million can take a specialty-focused cancer startup these days. Let's see, $15 million upfront, plus clinical trial costs (including the diagnostic development), plus milestones to Clavis, plus operations in three locations (Boulder, Colo., San Francisco, London), plus other deals the firm no doubt wants to adds up fast. With its mid-recession A round, Clovis showed it could buck economic trends. Will we see a B round soon? As Clavis CEO Geir Christian Melen told "The Pink Sheet" DAILY this week, Clovis's Mahaffy has "strong shareholders with deep pockets." -- Alex Lash

Novartis/Incyte: To whet your appetite for the multi-layered yumminess of turducken, official Thanksgiving Beast of the IN VIVO Blog, check out the deal Incyte announced this week.
It's not just two drugs wrapped into one deal, it's two kinds of upfront cash! Novartis is paying a $150 million signing fee plus an immediate $60 million milestone for rights to two compounds, an oral JAK1/JAK2 inhibitor in Phase III for myelofibrosis, and an oral cMET inhibitor about to enter Phase 1 for multiple cancers. The $60 million is a reward for INCB18424, the JAK inhibitor, having started Phase 3 in July of this year. Novartis gets ex-U.S. marketing rights to the compound in all hematology-oncology indications and will pay tiered, double-digit royalties. Incyte keeps rights in the States as well as rights in the psoriasis indication. For the cMET inhibitor, INCB28060, Novartis takes over worldwide development after Phase 1 and also has worldwide commercial rights with royalties back to Incyte. Incyte also keeps a co-development and co-promotion option on the compound. Total biobucks for the deal could top $1 billion, though with the cMET inhibitor so early in development, chances of Novartis paying every last dollar are roughly the same as seeing a turducken in the wild. -- Alex Lash

Jubilant/University of Alabama/Southern Research Institute: These days drug makers are looking to trim their overly fat infrastructure even as they bulk up on much needed pipeline products. How best to do this while maintaining a lean budget? One increasingly popular approach is to leverage the lower cost innovation available in India and China. (FIPNets!) Another is to take advantage of the knowledge within the world's ivory towers--in other words, deals with academia. In an interesting twist on the virtual R&D model, Jubilant Organosys, one of the go-to India companies for major pharma players, is seeking out innovation by forging ties with the University of Alabama and Southern Research Institute to develop new meds in the oncology, metabolic disease, and infectious disease space. The press release calls it "a unique US-India arbitraged and leveraged partnership." So based on the trickle down economics theory of deal affordability, transactions with emerging-market players provide pharmas more generous terms than with US or European biotechs, but partnerships with academia are an even better bargain. (What about deals with Indian or Chinese universities?) This is the second academic partnership Jubilant has signed this month--it inked an agreement with Duke University on Nov.10 to translate Duke discoveries into new medicines. Specific financial details of the most recent tie-up with UAB/SRI weren't disclosed. But the three groups are definitely working together to identify and develop the most promising targets discovered at their various organizations with the goal of shepherding programs through Phase II before out-licensing to other drug makers. Should a partnership materialize, revenues stemming from these alliances--presumably milestones and royalty streams--will be distributed to the three investment participants in some fashion. -- Ellen Licking

Cephalon/Ception: Okay, it's not really a "no deal"; the Cephalon/Ception transaction is more accurately described as a "no deal yet." That's because Cephalon is extending (we'd say postponing) its option-to-acquire Ception Therapeutics after a Phase II/III study of the smaller co's lead compound, reslizumab, yielded disappointing results in treating the rare autoinflammatory disease eosinophilic esophagitis (EE). Recall that way back in January, Cephalon acquired the rights to buy Ception for $250 million on top of a healthy $100 million upfront pending a positive outcome in the EE trial. It's possible the deal may still come to fruition -- reslizumab isn't leftover turkey, yet -- but now Ception has to prove the drug has the goods (i.e. Phase II data) in a different indication, eosinophilic asthma, before Cephalon ponies up the money. Results from these asthma studies are expected to be revealed sometime in the first quarter of 2010.

There's no question reslizumab, an anti-interleukin 5 monoclonal antibody, is an important asset to Cephalon. It's one of the company’s only near-term pipeline opportunities given the pending genericization of Provigil. Indeed, Cephalon execs highlighted reslizumab and its expected mid-2010 BLA filing as a near-term growth driver during a recent R&D day. It's also clear Cephalon is hitching its wagon to therapeutics that treat inflammation. In addition to the Ception transaction, in the past year the company has inked three deals in the space, with ImmuPharma, Arana, and most recently BioAssets. -- Jessica Merrill and Ellen Licking

Friday, November 20, 2009

Deals of the Week: Swap Meet

People, we seriously need to talk about Eggo Waffles.

But first, a dearth of meaty deals this week has us thinking more about Bristol-Myers Squibb's share-swap/buyback/spin-off of its nutritionals unit Mead Johnson.

We tried to make the point earlier this week that Bristol's move was too focused on short-term gain. Others have pointed out to us that without some sort of short-term gain to appease investors, BMS might not have a medium- or long-term future in which to let it's string-of-pearls strategy play out.

Perhaps that's true. But the biopharma could have found a middle ground, cutting its stake in Mead Johnson down to 50%, for example. Again, maybe that wouldn't be enough. But let's move on.

As our colleagues at OTC Today have put it, BMS went 'full biopharma.' But now that Mead will be an independent company, the question is: for how long? And what does BMS do next?

BMS needs to keep its rivals at bay by maintaining or boosting its worth in the face of two massive patent expirations to make sure nobody can buy them on the cheap. That means good growth from existing and in-line products and potentially spending its $10 billion cash pile on a few more near-market pearls. See, it's simple!

As for Mead, everyone out there says it's just a matter of time before the Nestles and Heinzes of the world come calling. Nestle will surely have the cash thanks to its put-option on Alcon's shares as part of this deal with Novartis. But nobody seems to be talking about any potential pharmaceutical acquirers. What about diversification-loving Sanofi-Aventis? GSK? Even Pfizer?

Our colleagues at The Tan Sheet will take an in-depth look at potential Mead suitors from the worlds of pharmaceuticals, nutritionals and food in Monday's edition. Who are your favorites?

_ _ _ _ _

OK, waffle time. Meanwhile, Kellogg Co., the makers of Eggo Waffles, seem to be having even more trouble than Genzyme in sorting out some manufacturing issues (at least they have a flood-related excuse. And it's not all bad news. We didn't find out this week that Eggo interferes with metabolizing Plavix, for example). These factory problems though have apparently led to a US-wide shortage of this blogger's children's favorite mass-produced breakfast-waffle product. So here's the question: what's the best Eggo substitute?

While we wait for inevitable stories in the press about Eggo-riots and Eggo price gouging, Eggo eBay entrepreneurs, and what not, these deals below don't have to l'eggo of anything, because they're the ...

GlaxoSmithKline/Nabi Pharmaceuticals: GSK's option-based deals often occur in discovery and early-stage development, but it shifted focus much farther up stream to get a toehold on a potential blockbuster, Nabi's NicVAX smoking vaccine. NicVAX is currently in Phase 3, and GSK paid $40 million for an option to grab full rights by the end of Phase 3. Exercising the option triggers another $58 million payout to Nabi, which for the time being has to foot the development costs. The upfront fee will help, as will a $10 million grant from the US National Institute on Drug Abuse. The vaccine is a monoclonal antibody that binds to nicotine and prevents it from crossing the blood-brain barrier and hitting the brain's pleasure centers--receptors that release stimulants such as dopamine. Other milestones include $20 million for successful completion of Phase 3, up to $70 million for US or European Union approval, and up to $61 million for approval in other major markets. In the first of two Phase 3 trials, patients get six injections over six months and try to stay away from the smokes for at least a year. They'll also get counseling. (One piece of advice: Don't hang out with your friends who smoke.) GSK also receives rights to develop a next-generation smoking vaccine based on Nabi patents and technology, regardless of its decision to exercise the NicVAX option. All told, Nabi could earn option and milestone payments up to $500 million, plus sales royalties. Royalties for NicVAX will be 10-15% based on a minimum of annual net sales from $300 million to $600 million. Royalties for next-generation products will range from 7-9% based on the same annual net sales figures. - Alex Lash

Cosmo/BioXell: Not all European spin-offs from Big Pharma have quickly secured approval of a lead product and filed for an IPO like J&J progeny Movetis. After raising north of 100 million euros since inception, BioXell, the 2002 Roche spin-off once thought to mark a resurgence in Italian biotech fortunes, said on Wednesday it would be acquired by compatriot Cosmo Pharmaceuticals for CHF15.1 million in cash, and Cosmo shares worth another CHF26 million (both companies are listed on the Swiss exchange). The purchase price was at roughly a 17% premium to BioXell's 60-day average. Cosmo, a GI-focused specialty company, will also pay potential earn-outs based on the sale of certain BioXell assets to third parties. BioXell has been on the block since earlier this year when Phase IIb results for lead compound Elocalcitol in overactive bladder disappointed. Interestingly BioXell's now-lead asset is a humanized antibody against nerve growth factor (NGF) receptor TrkA acquired from Lay Line Genomics. Lay Line was also the source of another NGF program, the one PanGenetics just sold last week to Abbott for $170 million in cash.--CM

image by flickr user ken mccown, creative commons.

Financings of the Fortnight Has European Flavor, Movetis Roadshow Fever

Gas up, everyone, it's time for a European road trip. First stop, Turnhout, Belgium, where gastrointestinal biopharma Movetis is gearing up for a trip of its own.

This morning the Belgian J&J spin-out said it filed to raise up to more than €112 million in what could be Europe's first biopharma IPO since Italian biotech Molmed raised €56 million in February 2008 (sorry, MondoBIOTECH).

Is this the kind of discovery-oriented biotech listing that would announce the IPO window is open for the backlog of companies keeping warm by burning through VC cash from insider rounds? Not really.

Movetis spun out of J&J at the end of 2006 with about €60.8 million in Series A venture funding led by Sofinnova (Sofinnova Partners holds 22.5%, Sofinnova Ventures has 16%) and Life Science Partners (16.9%). At the time its lead asset, the newly-approved-in-Europe for a subset of constipation patients Resolor, was already in Phase III. (In exchange for pipeline, J&J held on to 21.2% of the company and received an upfront fee.)

Still this will be a good sign that public investors in Europe are ready to wade back into biopharma plays, even if backing the launch of a specialty product is more than slightly different than backing most other life sciences start-ups.

Movetis said this morning that the price range of the offering was set at €11.25 to €14.25 per share. The offering comprises a public offering in Belgium to retail investors and a private placement to institutions in Belgium and other ex-US territories. The offer opens on Monday and runs through December 2nd, with Movetis shares scheduled to hit the market on December 4th.

The company will spend its haul supporting the commercial launch and post-marketing regulatory commitments for Resolor (prucalopiride) in Europe. The drug, a selective 5-HT4 receptor agonist, received EMEA approval in October for the symptomatic treatment of chronic constipation in women in whom laxatives fail to provide adequate relief.

Movetis plans to launch and promote Resolor itself in markets where it can make do with a lean, specialist sales force. CEO Dirk Reyn told us after the drug's approval last month that in the UK for example, "GI specialists prescribe between 30 and 40 percent" of drugs for this market and where GPs prescribe drugs, they do so under centrally controlled guidelines from bodies such as NICE and local primary care trusts.

In other markets, where GPs have more freedom, Movetis will need to partner to access a primary care sales force. In Italy, for example, "it is more difficult to reach that audience with a targeted approach," Reyn said.

Before leading Movetis, Reyn was head of the worldwide GI marketing group and VP, new business development at J&J's Janssen-Cilag unit. He told us last month that although J&J realized Resolor was unlikely to serve the kind of large, primary care market it was initially intended to reach, smaller companies like Movetis could succeed in smaller, neglected sub-segments of the GI market.

Resolor's label, said Reyn, provides the necessary ingredients for success. By going after patients for which laxatives do not provide adequate relief, "it created the stronger probability of regulatory approval and, secondly, creates a target market that is very defined and which is also more palatable and digestible for payers."

We will see in a couple weeks whether it is also palatable for public investors, too.

Get back in the car, it's time for ...

ThromboGenics NV: Still in Belgium, now, for an hour long drive to the outskirts of Leuven. With significant funding from Belgian and international institutional investors, public Belgian biotech ThromboGenics seems to have gotten the momentum it needs to complete development of its Phase III biologic microplasmin for vitreomacular adhesion. The company announced on November 17 that it raised €42 million ($63 million) by selling 2.6 million shares--approximately 10% of its outstanding stock--for €16, a very slight discount to the 10-day market average. The raise lends weight to the idea that investors increasingly see ophthalmology as an area with large potential and unmet need, or at least an area where they can turn a nice profit. Microplasmin, a potential alternative to surgery also in Phase II for AMD, diabetic retinopathy, and diabetic macular edema, works by dissolving protein formations that link the vitreous to the retina. Beyond microplasmin, ThromboGenics has done a good job of monetizing other pipeline projects through dealmaking. Most notable is its long-term partnership with BioInvent International in which both companies can contribute candidates and split costs and revenues. Initially focused on ThromboGenics’ Factor VIII inhibitor TB402 for deep vein thrombosis and atrial fibrillation, the deal was later expanded to include Thrombo’s placental growth factor (PIGF) blockers. The partners’ work on the latter class of drugs paid off last year when Phase I cancer candidate TB403 from the PIGF program was exclusively licensed to Roche in exchange for €50 million up front and the potential for €450 million in development and commercialization milestones.--Amanda Micklus

NicOx: Three hour drive to Paris, now, where NicOx is tapping into the French government’s latest hand-out to help top-up a planned €30 million private placement. Still short of a US partner (and thus of a partner's money) for recently-submitted naproxcinod, the company says the capital increase will allow it to “significantly advance” its launch preparations for the drug. More specifically, in line with its long-stated goal of becoming a fully-integrated specialty pharma, NicOx will create a specialist sales and marketing infrastructure in the US. The government-supported Fonds Stratégique d’Investissement, set-up late last year to support local mid-sized companies in key growth sectors, will invest €20 million in total across the two-step financing (for a 5.1% stake in the biotech), which will include a subsequent rights issue (when market conditions permit) that may take the total fundraising up to €100 million. (That’s a fair chunk from the FSI, given that average investment size was initially slated at €5-10 million.) CEO Michele Garufi has long worked to secure a commercial partner for naproxcinod, but this now looks unlikely to materialize before the drug is approved. Despite the hit it will take on dilution, the company is right to raise cash while it can, particularly given its downstream ambition. But although this move shows NicOx’s confidence in its product, it should be wary of under-estimating approval risk--even for an anti-inflammatory drug that’s based on a well-known, proven NSAID, and claims better safety than naproxen.--Melanie Senior

And off to Munich, Deutschland! On November 16, Germany-based 4SC grossed €30 million ($44.7 million) in a collateral rights offering of 10 million shares to existing backers. Stock was sold at €3, a 10-day market average. In 2008 the medicinal chemistry and discovery company's drug development pipeline (and expenses) took off when it purchased eight oncology projects from Nycomed, which was exiting the space. 4SC expects the new funds will take it through 2011 and allow it to complete proof-of-concept studies for its two lead candidates: resminostat, an HDAC inhibitor for hepatocellular carcinoma and non-Hodgkin's lymphoma and 4SC101, an oral DMARD being tested with methotrexate for rheumatoid arthritis. --AM

Fate Therapeutics: OK, one stop in the US of A, so we'd probably better fly. Stem-cell concern Fate's $30 M Series B round was led by returning investor OVP Ventures and includes corporate funders Genzyme Ventures, Astellas Venture Management, and a mystery third company. (The corporate venture train keeps on rollin'.) Fate officials told us they won't need cash for two years, but from their list of activities it sounds like they'll spend every penny. One on side, they're racing to create a commercial supply of pharma-grade induced pluripotent stem cells, the kind drug companies can use for all kinds of screening and testing. (They're not the only ones who want to supply the world with stem cells or create screening tools.) Fate could help licensees differentiate cells, or sell them the pluripotent versions. CFO Scott Wolchko said to look for license deals in the next 12 months. The company will also be its own customer. It's got one small molecule in Phase 1 that aims to redirect hematopoetic stem cells and help cord-blood transplant patients recover faster. The drug, FT1050, is the first test of the company's proposition that it can modulate a patient's own stem-cell populations, using small-molecule triggers, for therapeutic effect. OVP's Carl Weissman joined the Fate board, and all the Series A subscribers joined the B round. -- Alex Lash

image courtesy flickr user mrlerone used under creative commons

Thursday, November 19, 2009

Julie Brill Nominated to FTC: A Message to Drug Manufacturers?

The Obama administration may have sent a subtle message to drug manufacturers Monday, when it nominated Julie Brill to be one of two new commissioners at the Federal Trade Commission. The message? Make sure your marketing practices don’t collide with consumers’ best interests.

Brill has overseen consumer protection for states since 1988, with a major emphasis on watching over the pharmaceutical industry. She spent most of that time (1988 until February 2009) in Vermont, as assistant attorney general, when the state became an epicenter for cracking down on drug marketing practices.

You’re familiar with Vermont’s public disclosure of manufacturer payments and gifts to physicians? Yep, Brill was behind that. How about the law cracking down on using physician prescribing data for marketing purposes? That was one of hers too.

And there were those big settlements with PBMs, when they were accused of switching patients’ prescriptions for their own financial advantage. Brill was an important driver behind that deal. Interestingly, FTC very recently opened an investigation into the practices of one of the biggest PBMs, CVS Caremark, and how they impact consumers (see “The Pink Sheet” coverage of this investigation here).

Of course, Brill has other interests – privacy and antitrust issues are big ones – but as a commissioner, she’ll have a big say in what practices get investigated.

She still needs to be confirmed by the Senate, and the process will involve a hearing before the Commerce Committee, which is chaired by Sen. Rockefeller, not one known for his kind words about the pharmaceutical industry. It will be interesting to see how much of that hearing will focus on her pharma-related activities (see more about Julie Brill here in “The Pink Sheet” DAILY).

Plavix Label Change: Good For Effient Now, Bad For Brands in the Long Run?

The Food & Drug Administration's public health alert on Plavix is, as we point out in "The Pink Sheet" DAILY, a nice boost for Eli Lilly and Daiichi Sankyo, who market the competing platelet agent Effient.

But the back story to this regulatory action merits closer attention by all pharmaceutical sponsors. This is no ordinary labeling change, and the implications of how the regulatory response came about only underscore how difficult it will be for all sponsors who hope to sustain (or revive?) the blockbuster model in the years to come.

This labeling change suggests a model for application of pharmacogenomic research that biopharma companies will find very threatening: it sure looks like sponsors hoping to build blockbuster franchises are at a huge disadvantage against payors hoping to limit those opportunities.

And that's why this labeling change may end up being bad news for all brands in the long run--very much including Effient.

First, the news: FDA has revised Plavix labeling to emphasise that the Bristol-Myers Squibb/Sanofi Aventis blockbuster doesn't work too well in patients who are poor metabolizers of the drug. In particular, FDA is concerned about impairment of the CYP2C19 metabolic pathway, whether because of genetic variations or coadministration of other drugs, including the widely used proton pump inhibitor omeprazole (Prilosec).

Okay, none of that is actually news. FDA first issued the warning in January, and quietly modified Plavix labeling in May.

What is news is that FDA has decided that information is now a formal warning, rather than a milder precaution--and, more importantly, the agency chose to amplify that warning (especially regarding PPI use) via a media conference call.

It is easy to see why Lilly and Daiichi would be pleased: anything that complicates the decision to prescribe Plavix will help them make the case that doctors should prescribe Effient (and, as we've already pointed out, they need all the help they can get).

Okay, so this sounds almost reassuringly like a classic story of head-to-head competition in a blockbuster class, and how the regulatory process can play to one side's advantage. Plavix is dinged, Effient benefits.

But this is nowhere near that simple.

Because there are third parties involved: payors and pharmacy benefit managers. The interaction between PPIs and Plavix was first publicized by Aetna and by Medco, both of whom used claims data to suggest an association between PPI use and diminished outcomes for patients treated with Plavix.

Its not just that payors capitalized on a safety issue: they really drove the regulatory response and the application of a newly discovered pharmacogenomic marker. In Medco's case at least, Chief Medical Officer Robert Epstein told us, the whole idea was to find a way to test the emerging theory that CYP2C19 genotyping may predict Plavix response. Since Medco didn't have genotyping data on patients in its database, it looked at concomitant use of omeprazole instead, since the PPI is a known inhibitor of the 2C19 pathway.

FDA's first public health alert followed the Aetna and Medco claims studies; the latest one came after Bristol and Sanofi conducted a drug interaction study confirming the observational results. That's certainly not a regulatory model sponsors are eager to consider--especially since we would be willing to bet that the observational research that triggered the warning cost Medco much less than the clinical trial the sponsors were forced to conduct to confirm it.

Medco, at least, isn't done. As we reported here, the company is now taking the next step, conducting a large scale observational study to test the hypothesis that the superior efficacy demonstrated by Lilly in its head-to-head study of Effient vs. Plavix can be explained by the inclusion of poor metabolizers of Plavix in the comparator group.

And Medco's interest most definitely is NOT in helping either brand in this class.

Medco's interests include advancing the company's positioning as a leader in therapy management, particular as it comes to applying pharmacogenetic knowledge. And Medco certainly wants to work with its payor clients to make sure insured members receive the best possible care.

But what Medco wants above all is to carve out a long term market for generic clopidogrel--and in effect limit Effient's share (as well as the share of all future brands in the class)--to whatever slice can't be held for the generic.

The study design, as Epstein explained to us, is simple: Medco will (at its own cost) run a genetic screen on patients prescribed Plavix to identify those who properly metabolize the drugs. It will then compare 14,000 of those patients to 14,000 Medco members who receive Effient, and see if there is a difference in cardiovascular outcomes.

Medco clearly expects to demonstrate that there is no meaningful difference between the two.

Now this whole thing could backfire on Medco. Its data could end up suggesting superior outcomes even when the comparison arm is enriched for Plavix response. (And Medco has registered the trial on, so while we doubt they would trumpet that result, they can't just bury it either.)

And the study could by itself end up promoting the launch of Effient. Certainly, Lilly and Daiichi are only too happy to have Medco's support in spreading the message that their drug is active regardless of that specific genomic marker.

Indeed, as part of the screening effort, Medco is likely to drive some conversions from Plavix to Effient: patients who are genotyped as poor metabolizers will be informed of that status (as will their physician). Medco will not make any recommendations, but it is safe to bet that many identified as poor responders to Plavix will switch therapies. Given that 30% or so of the population has the genotype in question, Medco is likely to notify about 6,000 people that they may not be getting the full benefit of their antiplatelet therapy with Plavix.

But that only underscores the bigger point. Medco is willing to make a relatively big investment--and even to help grow a potential blockbuster franchise in the short term--in order to help limit the size of that market in the long run.

And it will cost Medco far less to do that than it costs for sponsors to bring potential blockbusters to the market in the first place.

Now, Epstein wasn't willing to disclose how much this undertaking will cost, but he did suggest it isn't terribly expensive. Medco collects the outcomes data already, so the only cost will be running the genotyping program. Medco will be doing the tests in house, via its own CLIA-certified lab test, so that expense will be kept as low as possible.

All in all, that is not a trivial expense for a pharmacy benefit management company to take on spec, but we're willing to bet it is less than 1% what it cost for Lilly to "prove" the superiority of Effient in a head to head trial.

Which is why, when it comes to trying to establish blockbusters in an era of high payor influence and ever advancing knowledge of the heterogeneity of drug response, it seems like the odds are stacked in favor of those who want to keep market sizes small.

Look for much more on this topic in an upcoming issue of The RPM Report.

image from flickr user mafleen used under creative commons.

Wednesday, November 18, 2009

Hard to Get Excited about BI's Flibanserin

You might have missed the 12th Congress of the European Society for Sexual Medicine in Lyon, France, this week. If you did, US Phase III results for Boehringer Ingelheim's flibanserin might have passed you by, too.

The drug--a serotonin 5-HT1A receptor agonist, 5-HT2A antagonist and partial dopamine agonist--is in development for Hypoactive Sexual Desire Disorder among pre-menopausal women. The condition is characterized by a decrease in or lack of sexual desire "that causes distress to the patient, may put a strain on relationships, and is not due to the effects of a substance....or another medical condition."

So we're not going to downplay the importance of this condition, despite suspecting that many might be surprised to learn that it is one--including most women suffering from it, according to Dr. Sheryl Kingsberg of University Hospitals Case Medical Center in Cleveland, Ohio. (Prevalence may, according to Kingsberg, be as high as one-in-ten.) We won't downplay it, even while predicting it will provide more fodder, if ever there was fodder, for industry critics seeking evidence that pharma invents diseases.

But we can't help raise some red flags when it comes to the likelihood of getting this drug past the regulators (let alone the reimbursers) for HSDD. Aside from whether the disease exists (and granted, we mustn't forget that depression was ignored/denied for many years), there's the issue of highly-subjective scoring and accounts in the trials. (How else to run a study measuring how many 'satisfying sexual events' (SSEs, another new acronym for you) a woman has, and just how satisfying they are, aside from asking her to write it into her e-diary?)

Then there's the issue that the pooled data from these two, six-month Phase III trials among a total of over 1,300 pre-menopausal women wasn't exactly compelling (at least to our untrained eye...): women in the highest-dose flibanserin group enjoyed an increase of only about one SSE per month compared to those on placebo. (And it doesn't appear from the release that there was even a statistically significant increase in primary endpoint SSEs in the European flibanserin trials.)

Meantime, and here's the real crunch, 15% of women in that same high-dose flibanserin arm dropped out due to side-effects (versus just 7% on placebo) which included daytime sleepiness, dizziness, fatigue, anxiety, dry mouth, nausea and insomnia. Not to worry, said lead study author and professor of psychiatry and neurobehavioral sciences at the University of Virginia, Anita Clayton, MD, on a webcast announcing the results. "These are side-effects often seen with CNS-acting medications, which affect the brain. They tended to be transient."

For the women, we can only hope those discomforts were worth it for the additional SSE. As far as the regulators go, we reckon it's unlikely that they wave through a centrally-acting drug (in the same broad class as Arena's Phase III obesity candidate lorcaserin, or Sanofi Aventis' insomnia hopeful eplivanserin, which received a complete response letter in September) whose complete mechanism of action is unknown, and which leads to considerable (if not apparently too serious) side-effects, for an indication that took 20 minutes to describe on a recent webcast announcing the results. (Flibanserin is thought to affect the sexual desire/drive component of HSDD, by acting on brain neurotransmitters.)

We're not saying this drug candidate will never be approved; we're just saying we think it's unlikely to happen fast. (Fortunately, Boehringer has other, far bigger, fish to fry.)

Granted, there aren't currently any FDA-approved drugs for HSDD among pre-menopausal women, explains Anita Clayton; couples counseling is about it. And if the SSE data wasn't that exciting, women did report significantly improved sexual desire & functioning, and less distress related to low sexual desire.

image from flickr user michelle brea used under creative commons license

Genzyme: Contents Under Pressure

Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.

The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel. (Note this is the second time the Big Biotech has been dinged by regulators in the span of months. In September, FDA also shot down plans to expand the indicated use of pediatric leukemia drug Clolar to adults.)

The sad thing is the situation is entirely of Genzyme's own making. Don't think so? Let's review.

The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.

And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting "the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there."

Too bad that realization didn't happen one year ago. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.

What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.

On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter relates not to a new problem created by Genzyme's decontamination efforts but arising because of "an older piece of equipment". As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&A session with analysts, "There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address."

Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, "allow us to move more quickly to address those issues." Does everyone feel better now?

In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. True, the most recent news has changed little for the company near-term. The complete response on Lumizyme was widely expected by analysts and, amazingly, the particulate contamination didn't provoke a demand from regulators that Genzyme recall the product.

But regulators' hands were likely tied, in part because of the life-saving nature of Genzyme's medicines and the current lack of approved therapies that could substitute for Cerezyme and Fabrazyme. By the middle of next year that won't be the case. Shire is clearly gunning to steal market share from Fabrazyme with its Replagel product, which has been approved in Europe since 2001. In October, Shire announced plans to submit a BLA for its medicine in the US before year's end.

And the potential competitive threat to Cerezyme is even greater. The FDA has already authorized the use of competing products from both Shire and Protalix despite lack of formal regulatory approval. To date, the headaches required to negotiate the administrative hurdles of the emergency access programs have limited the erosion to Cerezyme's market. But note that Shire filed its NDA for its Vela product in September; if the agency grants the drug a priority review, it could be on the market by March 2010.

That's only four months from now. Can Genzyme get its act together in the meantime? The firm is increasingly vulnerable; it can't afford another announcement like Friday's. The summer shut down already created an opening for competing products to cannibalize on one of Genzyme's main money makers. Another "Dear Health Care Practitioner" or Form 483 letter and the current rumblings of dissent will move from the fringe as patients and investors rightly demand to know: who's minding the store, and why didn't Genzyme execs ensure supply of its most important drug by building up reserves when they had a chance?

Moreover, the company's share price is under pressure, hovering perilously close to its 52-week low and Genzyme has cut its earnings forecast four times this year alone. According to Adam Feuerstein over at The, adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year.

Much as we were ridiculed for discussing a potential sale of the company three months ago, its impossible to deny that Big Pharma's love affair with hyper-specialist products continues unabated. Any doubts, look at the recent deal between GlaxoSmithKline and Prosensa in Duchenne muscular dystrophy.

Oh, and did we mention that Carl Icahn, who has a reputation for homing in on troubled biotechs and turning them around in time to sell them, disclosed a stake in the Big Biotech on Monday night? Coincidence, you say? (We have 1.45 million reasons to say that's not likely.)

Would GSK or that other convert to ultra-niche, Novartis, pony up the money to buy Genzyme before the biotech cleans its own house? It's unclear. But one thing seems obvious: if Termeer can't clean up the mess that's been brewing in Allston, someone else--either Icahn or another shareholder activist--will.

Image courtesy of flickrer massdistraction via creative commons license.

Tuesday, November 17, 2009

Bristol Says Buh-Bye to Formula for Stability, Hello to Buyback

It's no secret that Bristol-Myers Squibb has spent the last couple years solidifying its stance as a pure biopharma play. We've documented the moves as they've happened: spinning out orthopedics (Zimmer) in 2001, jettisoning OTC, medical imaging, and wound care (Convatec) in 2005, 2007, and 2008 respectively, and inking deals to divest variety of emerging markets businesses this year and last.

And we like a contrarian argument--BMS is zigging toward focus as the rest of the industry zags toward diversification. Is the company better positioning itself for sale? Going all in on the only thing it thinks it does well to try to stick it out for the long haul ahead of a monster patent cliff? Whatever, it's ballsy, and we think they're all the more interesting to watch because of it.

And we really thought Bristol was onto something interesting when they IPO'd Mead Johnson earlier this year. Back then they convinced us of the merits of offloading a smallish chunk of the nutritionals unit that it is now essentially using to fund a stock buyback. Let The Pink Sheet explain:

In the stock swap transaction, Bristol investors who choose to tender their shares will receive approximately $1.11 of Mead Johnson shares for every $1 of Bristol. Bristol won't receive cash for the deal, but the transaction will be accretive to earnings in 2010 by reducing the number of Bristol's shares outstanding, thus increasing earnings per share. The exchange offer will also be attractive to shareholders because it is expected to be tax free.
So Bristol's 170 million Mead Johnson shares, if all exchanged, would give the biopharma company a ten-cent pop in EPS next year. Plus with all those shares retired, the company will improve its cash flow by paying out $350 million less in dividends (er, that's provided it doesn't raise its dividend on the remaining shares). MJN shares are way up since the IPO, so why not take advantage of that valuation bump and allow management to focus on growing the core business and build on the 'string of pearls' strategy with the $10 billion it expects to have by year end?

Because with or without this buyback BMS has that $10 billion. And management focus was more or less guaranteed when it sold 13% of the company in February 2009. What BMS loses when it takes its Mead Johnson stake down below 50% is the ability to consolidate the unit's sales and earnings. It also loses a relatively strong emerging markets business (Mead's second largest market is China).

The move prioritizes short-term gain over long-term stability. Since BMS sold Zimmer in 2001 the orthopedics company's value has doubled while BMS's has more than halved. The IPO strategy would have worked well there--BMS could have held on to some of that value and cash flow--and it seemed to be working well with Mead Johnson. The cash flow gains from this buyback are a band-aid on the wounds inflicted by the loss of exclusivity on Plavix and Avapro (40% of 2008 revenues). Why not pursue some middle ground while keeping a majority stake in the company?

Back to the 'Sheet for Bristol CEO Jim Cornelius' answer:

"We've always said that one of the main considerations in retaining our ownership position in Mead would be our confidence in the strength and sustainability of our biopharma business in 2013 and beyond," Cornelius said. "The split is a sign of that confidence, as we have made excellent progress in advancing our biopharma business in addition to the new product portfolio."
We aren't arguing that his confidence is misplaced. But BMS could continue to strengthen its biopharma business even with Mead's as an outrigger.

image thanks to flickr user joel p under creative commons license

Monday, November 16, 2009

Fate Seals $30 M Series B, Gets Corporate Venture On Board

Fate Therapeutics has lined up $30 million in a Series B venture round as it pushes development of its lone clinical candidate, works toward making mass supplies of induced pluripotent stem (IPS) cells, and lines up licensees for its IPS platform.

Its Series A venture backers all re-upped, said CFO Scott Wolchko, and three corporate funds jumped in: Genzyme, Astellas Pharma, and an undisclosed party.

Fate will use part of the cash to push its candidate FT1050 through Phase 1. Fate hopes to have data next spring, and one alternative is to advance it into a Phase 2/3 pivotal trial by the end of 2010, said Wolchko. The small molecule is aimed at adult hematopoetic stem cells to help cord-blood transplant patients recover from their transplants faster. Genzyme and Astellas have commercial experience in the transplant area and could provide significant guidance, Wolchko said. Genzyme outbid Millennium Pharmaceuticals in 2006 for a Canadian firm whose product, Mozobil, helped prepare hematopoetic stem cells for collection and autologous transplant. Astellas has built the immunosuppressive Prograf into a $2 billion a year franchise and is trying to fend off generic attack from Novartis.

With FT1050 a key data point to watch for is time to engraftment, or how long a patient's immune system takes to bounce back from the transplant. Shaving several days off the time to engraftment could be a signficant clinical benefit.

FT1050 is Fate's first test of its larger proposition of using drugs to redirect or enhance the healing properties of a patient's own stem cell populations.

Fate is also working on the flip side of the problem: how to use small molecules and proteins to rewind cells back up to pluripotency. Fate cofounder and Scripps Institute professor Sheng Ding said in October his team had found a combination of drugs to speed up the reprogramming process and boost the yield of induced pluripotent stem (IPS) cells, though much work remains before Fate's process can produce industrial-scale amounts of cells that it or other drug companies can use for conventional drug research or, farther down the road, for cell therapy applications.

Wolchko, who directs the firm's business development efforts, said he expects to cut license deals for the platform technology within the next 12 months even if the production methods haven't reached industrial scale. "There are lots of parties we're talking to with different areas of expertise," Wolchko said. "Some might create cardiomyocytes for toxicity screening, or some might see it as a solid foundation for cell therapies; some of the applications might take five to ten years to materialize."

Even without licensing fees, Fate now has two years of capital in its pocket.

Photo courtesy of Flickr user anarchosyn.

While You Were in Orlando

Aha, it's AHA weekend. No mickey mousing around down there in FLA, time for some big drugs to put up some big data. Or something. Hope you had a nice weekened.

While you were refusing to run the football (looking at you Andy Reid...) ...

  • AHA: The big weekend news was more bad news for Merck's Zetia/Vytorin franchise, as Abbott's Niaspan wins the weekend. Forbes' take here, Reuters here.
  • AHA: Brilinta beats Plavix in reducing further serious cardiac events post heart attack. An analysis of the toughest patients in the massive PLATO study adds to Brilinta's advantage, reports Reuters.
  • AHA: The Medicines Co says cangrelor is not dead yet. A full analysis of the Phase III CHAMPION study (which did not hit its clinical endpoints) suggests "cangrelor significantly reduced the composite endpoint of death, Q-wave myocardial infarction (MI) and IDR," says a release.
  • NYT: Drug prices keep going up! You don't say ...
  • BMS: Mead Johnson shares have risen nearly 90% since Bristol-Myers Squibb Co. IPO'd its nutritionals business earlier this year, and now BMS is using that boost to finance a share buy back. That February 2009 IPO let BMS focus on its core biopharma business while consolidating MJ's top and bottom line--a nice stabilizer for the company. But this weekend BMS said it would spin off the company (reports Bloomberg), exchanging Mead shares for tendered BMS shares--and boosting EPS in the process. More on this later!
  • POC: Addex Pharma's lead allosteric modulator ADX10059 passes a big test, hitting all primary and secondary endpoints in a Phase IIb monotherapy trial in GERD patients. A second trial, as add-on to PPI therapy, will read out in January. Next step, partnership?
  • WTF: At least it was bipartisan. The NYT reports that Genentech lobbyists ghost-wrote health care reform related statements and speeches for 22 republican and 20 democratic Congressmen.
orlando postcard image from flickr user StevenM_61 used under creative commons

Friday, November 13, 2009

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

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.