Commitment is such a weighty decision, isn’t it? Whether it’s high schoolers obsessed about going steady or 30-somethings who stay over three nights a week but refuse to stash their extra underwear in an available drawer, making the choice to be exclusive is hard. What if things don’t work out? Gulp.
In biopharma land, exclusivity is no less thorny a subject, especially when it relates to options-to-acquire. This week news comes that Novartis, which alongside Cephalon remains one of the most active in inking this specific flavor of option-based deals, is at it again. On November 11, Novartis said it had taken an option either to buy San Diego-based Aires Pharmaceuticals outright or license the biotech’s mid-stage treatment for pulmonary arterial hypertension called Aironite.
Along with the option announcement, Aires said it reeled in a $20 million Series B financing, enough money to finish Phase II trials of Aironite, a nitric oxide prodrug that causes vasodilation and has anti-inflammatory properties. Novartis didn’t officially take part in the financing, but it has ties nonetheless. That’s because the new investor, MPM Capital, made the investment out of its MPM Bio IV NVS Strategic Fund (try saying that three times fast), a side-car fund backed by—you guessed it—Novartis. Existing Aires backer ProQuest Investments also participated in the round.
Details surrounding the option are murky. We know that Novartis paid a separate fee for the right to acquire Aires after it successfully completes Phase II studies of Aironite and, all-in, the deal price could reach $250 million. But the price of the option remains undisclosed, as do values for the initial acquisition payment and the regulatory and sales milestones.
Since its formation in 2007, the MPM/Novartis fund has signed at least eight option deals, including the recent Aires transaction, according to Elsevier’s Strategic Transactions. The Aires deal hews closely to a familiar formula designed to give Novartis an advantage at the deal-making table. Except for the overall buy-out price, the Aires news is reminiscent of Novartis’ March 2009 option-to-acquire Proteon Therapeutics for up to $550 million. That deal, contingent on Proteon’s ability to demonstrate proof-of-concept with its Phase I/ II recombinant human elastase, was also announced concurrently with the first tranche of Proteon's $50 million Series B financing.
Given the cash constraints privately-held start-ups face, option-type deal making has become more common. Such deals might cap investor upside, but the additional non-dilutive cash and greater certainty of an exit mean it’s an offer investors have a hard time refusing.
But as anyone who's watched a Mafia flick can tell you, "hard to refuse" isn't the same as "popular." Some VCs and biotech executives worry that the Novartises of the world will try and wiggle out of the pre-agreed upon terms that trigger an alliance or acquisition. Indeed, there is recent precedent.
In 2007, Radius optioned its mid-stage osteoporosis medicine, BA058, to Novartis for $10 million. According to the terms of the deal, once Radius announces Phase II data for BA058, the big pharma has 90 days to evaluate the information before making a go/no-go decision. At the end of the option period, Novartis can say “no” and walk away, leaving Radius to shop the product to anyone they want, or “yes” and trigger the pre-negotiated deal. The thing is, Radius announced its Phase II data in August 2009, and there’s been no nay or yeah about the option in the intervening period. Math may not be this blogger’s strongest suit, but even a nine-year old can calculate that a decision from Novartis is a year overdue.
Indeed, there’s little clarity on whether any of the options associated with the MPM/Novartis fund have actually been exercised, even though a number of them have undoubtedly reached critical decision points. Does Novartis’ decision regarding BA058say anything about the long-term viability of the option model?
Maybe yes. Maybe no. (Depending on the daisy--er, asset-- it's a little bit like playing effeuiller la marguerite.)Given current uncertainties in the marketplace, it’s a fair bet option-style deal making isn’t going away. And for the cynics in the readership, there are happy endings: Purdue Pharma and Cephalon recently exercised prior options associated with their respective tie-ups with Infinity Pharmaceuticals and BioAssets Development Corp.
Ultimately commitment is a leap of faith—or at least a flying leap. Here at IN VIVO Blog we’ve got your exclusive line-up of deal making news. It’s time for another edition of…
Clovis Oncology/Clavis Pharma: News flash! IN VIVO Blog has learned that several other firms were also involved in this deal: Cleavis, which is working on DNA repair mechanisms; Clyvis, an under-the-radar Scottish start-up; and Clivus, with the latest advances in phrenology! Of course we jest. The real deal here is just between Clovis and Clavis, announced Nov. 11, and it expands upon the November 2009 tie-up that saw Clovis pay Clavis $15 million upfront for partial rights to CP-4126, a reformulated gemcitabine currently in Phase II for pancreatic cancer. The reformulation with Clavis's Lipid Vector Technology aims to promote gemcitabine uptake in patients with low levels of the nucleoside transporter protein hENT1, which normally allows gemcitabine into cancer cells. Several studies suggest a significant percentage of pancreatic cancer patients, perhaps up to 67%, have low levels of hENT1, and the partners are working on a companion diagnostic to sort low- from high-hENT1 patients. With the expanded deal, Clovis pays $10 million immediately for full global rights, plus $30 million in Asian milestones and up to $165 million in sales milestones. Clovis is still on the hook for the $365 million in milestones attached to the development and commercial rights it originally bought for North America, South America and Europe. -- Alex Lash
GlaxoSmithKline/Xenoport: The partners on the restless-leg syndrome (RLS) treatment Horizant said Nov. 8 they had amended their February 2007 agreement to give the San Francisco Bay Area biotech the right to pursue development of the drug for diabetic peripheral neuropathy (DPN) and additional indications in the US. All ex-US rights previously granted to GSK have reverted back to Xenoport, as well, and the firms have made undisclosed financial adjustments in milestones and royalty rates to reflect the new responsibilities. GSK remains responsible for US approval of Horizant – formerly known as Solzira and burdened with a track record of clinical and regulatory misses – for restless-legs syndrome and post-herpetic neuralgia. The drug failed a Phase II trial for DPN in 2009, then FDA rejected Horizant for RLS in February 2010, issuing a complete response letter and prompting investors to bail on Xenoport. But FDA has accepted GSK's response and has issued a new PDUFA date of April 6, 2011. Under the original deal, GSK paid Xenoport £40 million upfront, promised up to £298 million in milestones, and sales royalties. -- A.L.
Eli Lilly/Avid Radiopharmaceuticals: Lilly announced a deal this week, but not the blockbuster M&A investors have been hankering for. Even as ratings agencies downgrade the Indianapolis pharma, Lilly is sticking to its strategic guns, replenishing its pipeline with bite-sized transactions centered on late-stage assets. The company’s decision Nov. 8 to purchase Avid Radiopharmaceuticals, a privately-held diagnostics company that specializes in the detection of chronic diseases through brain imaging, is further evidence of Lilly’s mindset. It also shows that despite the risks of Alzheimer’s drug development (semagacestat, anyone?), Lilly still believes in this therapeutic arena. Lilly will pay $300 million upfront to acquire all outstanding shares of Avid and another $500 million tied to regulatory and commercial milestones to get its hands on the biotech’s molecular imaging agent, florbetapir F18, which is pending FDA approval. While such a large sum isn't unusual for a biotech with a late-stage asset in a valuable therapeutic area like oncology, it's almost unprecedented in the diagnostics arena, where M&A targets generally have marketed assets and are acquired not by drug companies but by fellow diagnostics specialists. Given the risks associated with Alzheimer's, technologies that help prevent costly late-stage failures like semagacestat are worth a premium. And Lilly, determined to push forward its remaining Phase III Alzheimer's drug, the antibody solanezumab, certainly can’t afford to repeat its semagacestat outcome. But those peculiarities mean the startling deal price for Avid is likely the exception rather than the rule. Meantime, Avid’s backers, which include Safeguard Scientifics, Alta Partners, Pfizer Strategic Investment Group, and Lilly's own corporate venture group, can celebrate a tidy exit. Based on the deal’s upfront alone, investors stand to realize an estimated 4x return on their venture, having put in just under $70 million since Avid’s 2004 founding. -- Lisa Lamotta and E.L.
Pfizer/Biovista: This week’s deal between Pfizer and Biovista illustrates yet again the thrifty mindset at work in the halls of the the biggest pharmas. To discover additional uses for existing compounds, Pfizer has inked a pilot research collaboration with privately-held Biovista that gives the big drug maker access to the service firm's proprietary datamining technology, which uncovers potential utility in various therapeutic areas, including oncology, ophthalmology, metabolic disease, and CNS disorders. Biovista will collaborate with Pfizer’s Indications Discovery Unit to identify up to three novel indications for each of the Pfizer candidates being evaluated. In return, Pfizer will pay Biovista an undisclosed upfront payment and success-based milestones. Biovista has inked numerous partnerships around its technology, including one earlier this year with the FDA to help regulators identify and understand the mechanisms resulting in adverse events. Biovista isn't content to remain a service play; in 2009, the firm started its own drug development program based on repositioned compounds in CNS diseases. Pfizer, meanwhile, continues to try to wring value from every compound in its research pipeline. This is the second repositioning deal the behemoth has inked in 2010 alone. In May, it announced it was teaming up with Washington University in a $22.5 million, five year collaboration designed to find new uses for a 500-compound Pfizer data set. -- E.L.
Image courtesy of flickrer dmixo6 under a creative commons license.