Friday, February 26, 2010

Deals of the Week is Not Optional

Early in 2009, Cephalon purchased for $100 million an option to buy a smaller biotech, Ception Therapeutics, for $250 million. This week, Ception investors had their big pay day.

Cephalon's decision was dependent upon successful results from Ception's lead project for eosinophilic asthma, the anti-IL-5 antibody Cinquil (reslizumab). An earlier opportunity to exercise its right to buy was thwarted when the same drug didn't pass the muster in a related condition, eosinophilic esophagitis.

The news should cheer private biotech investors, who are largely resigned to accepting downpayments of one type or another to get their exits-by-acquisition deals sealed. In 2009 nearly every acquisition of a private biotech comprised a downpayment plus contingent value rights based on development, regulatory, reimbursement or commercial milestones.

These option-to-acquire deals are designed to similarly share risk and potential upside. And we argued at this week's Pharmaceutical Strategic Outlook meeting that these structures are only becoming further entrenched as biotech investors continue to struggle and the IPO climate remains chilly at best. Outcomes like Ception's help demonstrate that option-structures aren't necessarily low-value deals, which may momentarily stop the handwringing of some venture capitalists.

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Pfizer/Merck/Lilly: Recognizing the merits of pre-competitive collaboration, the three pharmacos announced Feb. 23 the launch of the not-for-profit Asian Cancer Research Group, which will gather pharmacogenomic data on Asia's most prevalent cancers. Initially, ACRG will focus on identifying biomarkers for lung and gastric cancers in Asia. Unlike another pre-competitive venture Pfizer, Merck and Lilly have stakes in--Enlight Bioscience--the ACRG is not-for-profit. The companies hope to gather 2,000 tissue samples from lung and gastric cancer patients in the next two years, at which point the data will be made publicly available to researchers through non-exclusive licenses. Within five years, the database will be updated with clinical data, including quality of life and survival data. "The beauty is that we'll be collecting all the clinical outcome data associated with patients that will really give us an extensive understanding of whether a genetic signature will be linked to either a good or poor prognosis," Pfizer oncology CSO Neil Gibson told PharmAsia News. Lilly will be responsible for managing the open-source data from its Singapore Center for Drug Development site, which it established in 2002 in partnership with Genzyme for research in diabetes and biomarker discovery in cancer.--Daniel Poppy

GSK/Regulus: Call this the collaboration so nice, they did it twice. GlaxoSmithKline and Regulus Therapeutics, a pioneer in the microRNA field, announced a new collaboration Feb. 25, through which they will co-develop and commercialize therapeutics targeting microRNA-122 in hepatitis C and other indications. The deal occurs less than two years after the Carlsbad, Calif., biotech and GSK signed a strategic alliance to discover, develop and bring to market novel microRNA therapies for inflammatory and immunological indications (See our coverage of that deal from “The Pink Sheet” DAILY). Regulus, a joint venture between two pioneers in oligonucleotide technology, Alnylam and Isis, has access to plenty of IP and scientific skills in this fast-moving field. GSK was drawn to additional collaboration with Regulus because it has gotten an inside view on the potential microRNA therapeutics and how they work and because Regulus has done significant preclinical work with “the dominant IP” in the space, Regulus president/CEO Kleanthis Xanthopoulos told us. Regulus could earn more than $150 million in upfront and milestone payments over the course of the partnership, the companies said, although they did not disclose most of the deal terms. Like the previous transaction, this deal breaks the upfront payment into two components – cash and a convertible note that can be transformed into Regulus equity at a time of the company’s choosing. In the first deal, Regulus got $15 million in cash plus a $5 million convertible note. The upfront “essentially covers all of our R&D costs so far to bring the compound to the preclinical stage,” Xanthopoulos said. He said the remainder of the $150 million will be spread out “evenly and at frequent intervals.”--Joseph Haas

Astellas/Basilea: Just a few days after losing one partner, Swiss biotech Basilea on Feb. 24 pulled in another. When Johnson & Johnson exited a five-year partnership on antibiotic ceftobiprole on Feb. 19, most analysts saw this as good news for the biotech, given that the partners were in arbitration over J&J’s allegedly shoddy trial data management and subsequent regulatory delays. Basilea’s fortunes then continued to shine when Astellas stepped in with CHF 75 million ($69.4 million) up front and up to CHF 478 million in milestones for rights to the biotech’s other Phase III candidate, anti-fungal isavuconazole—widely perceived as now more valuable than ceftobiprole anyway. Astellas will lead (and thus fund most of) development and commercialization of the drug, but, significantly, Basilea will participate—paying a minority of development costs and retaining a option to co-promote isavuconazole, which is in development for invasive fungal infections, in the US, Canada, major European countries and China. In fact such participation was a pre-condition of the deal, according to Basilea’s management; not surprising, perhaps, given the extent to which the biotech was apparently left out in the cold in the J&J deal. Astellas’ funding provides a welcome cushion for Basilea given the uncertainties created by a contractual year-long transition period with J&J, and the biotech’s commitment to the European rollout of its severe hand excema drug Toctino. As importantly perhaps, it provides validation of both Basilea’s pipeline, and its attractiveness as a partner despite the unusually acrimonious J&J relationship. --Melanie Senior

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

Financings of the Fortnight Needs a Haircut

The first time we used this awful image to the right was about three years ago, when seemingly well-positioned biotechs destined for snazzy IPOs were running into a wall of scissors and electric razors wielded by public investors.

It turns out that in most cases their arguments that biotech offerings were overpriced were pretty accurate, if you consider how those biotechs that went public during the 2005-2008 timeframe have performed in the market.

We presented the data below (click image to enlarge) at our Pharmaceutical Strategic Outlook meeting this week in New York. An investment in the collective IPOs from 2005-2008 would have returned only 6% as of this Tuesday. Keeping in mind the market value performance illustrated in this chart comes after the steep discounts demanded by public investors, it's an ugly picture indeed. The success stories (among which we'd include Pharmasset, the subject of that 2007 post) are few and far between. In addition to the companies represented by the bars below, eleven were acquired, but the vast majority of those deals were done at valuations well below where companies were when they IPO'd.

Which brings us around to this week's non-debut of Anthera, a closely watched pricing event that wasn't. Anthera was due to raise up to $64 million by selling shares to the public at $13-15 per. That offering was postponed on Wednesday, while investors chewed over a new $8-9 per share price tag that could raise $54 million for the company.

It didn't take long for Anthera to trim that price yet again. Today an amended filing says the biotech will raise up to $42 million by selling shares at $7 apiece. For those of you keeping score at home that's a 50% haircut from the midpoint of its initial range.

Anthera is being watched closely as a barometer for investor interest in biotech IPOs. It's not hard to see that interest isn't exactly rabid.

Eleven Biotherapeutics: This me-better biologics play raised $35 million in a Series A round led by Flagship Ventures and Third Rock Ventures on Feb. 17. Asked to describe whether this was the entirety of the Series A of if more was to come, CEO David St. Hubbins* replied* "Well, I don't really think that the end can be assessed as of itself as being the end because what does the end feel like? It's like saying when you try to extrapolate the end of the universe, you say, if the universe is indeed infinite, then how - what does that mean? How far is all the way, and then if it stops, what's stopping it, and what's behind what's stopping it? So, what's the end, you know, is my question to you." (*For a more accurate version of what Eleven's management actually said, check out this piece in "The Pink Sheet" DAILY.)--CM

Labopharm: Just two months after agreeing to a $25 million standby equity distribution agreement with Yorkville Advisors, this Laval, Quebec, firm took a more conventional route to fundraising, closing a follow-on public offering Feb. 18 that including the overallotment netted $21.6 million. Labopharm, which specializes controlled-release technologies will use the funds largely to prepare for launch of its second US product, Oleptro, a once-daily formulation of trazodone approved by FDA for major depressive disorder on Feb. 3. The company has said it is opening to licensing out the drug or doing some form of co-promotion, and that its FOPO cash would support those efforts as well as launch. Like many FOPOs of recent months, Labopharm’s deal is somewhat warrant-heavy. It sold 13.5 million shares at $1.70 per unit, with each unit comprising a full share and a warrant for half a share. During a 30-month period beginning six months from closing, warrant holders can redeem their warrants for up to 5.9 million additional shares in Labopharm, at $2.30 per share.--Joseph Haas

Tioga Pharmaceuticals: Just over four years after pulling in $24 million via its Series A financing, GI drug player Tioga Pharmaceuticals completed its Series B round on February 17, raising $18 million from new investor Genesys Capital Partners, which participated with previous backers Forward Ventures, New Leaf Ventures, and BB Biotech Ventures. Tioga is placing all bets on asimadoline, an oral selective kappa opioid agonist it obtained when it spun out of Merck KGAA in 2005. The European pharma had been developing the candidate for musculoskeletal pain, but it failed to show efficacy in early studies. Merck eventually saw more potential in treating the visceral pain and bowel motility associated with IBS and as part of a reorganization to focus on cancer and cardiometabolic diseases, sold the asset to Tioga (for more history on Tioga, see our START-UP profile). Since asimadoline had been extensively tested in the past, Tioga had an advantage that other start-ups typically don’t have, which is to almost immediately start a large-scale efficacy trial, and at a much lower cost. The Series B money will support a US Phase III trial--one of two registration trials needed to get the drug approved in the US—slated to begin in March in 600 patients with diarrhea-predominant IBS. Perhaps Tioga is following in the footsteps of Movetis, another GI-focused company that began operations with discarded large pharma GI assets; and that wouldn’t be such a bad thing–Movetis has managed to bring its chronic constipation drug Resolor to the market in Europe. It also pulled off a successful IPO this past December and is still trading above its IPO price.--Amanda Micklus

Another Snowstorm, Another Complete Response Letter?

The snow is falling and that can mean only one thing – a Complete Response Letter for Amylin Pharmaceuticals’ Byetta LAR (long-acting exenatide). At least that’s what Jon LeCroy, an analyst at Hapoalim Securities, suggests after trying to decipher how the FDA reacts to inclement weather.

For those who weren’t aware, the agency yesterday extended the PDUFA date for the once-weekly diabetes drug from March 5 to March 12. Normally, a delay of a few days isn’t expected to amount to much, if anything. Besides, the agency had signaled PDUFA user fee dates could slip by up to five business days due to the blizzards that shut down the federal government earlier this month.

But LeCroy worries something ominous is under way. Given that PDUFA delays have become the norm, the March 5 date was always uncertain. Until now, in fact, LeCroy assumed the date would just slide by. But the fact that the agency assigned a new and specific date suggests to him that, not only will a decision actually come down on March 12, but the likelihood is it won’t a be positive for Amylin and its two partners, Eli Lilly and Alkermes.

As a result, he’s ballparking approval this way – the odds of a full approval on March 12 are just 20 percent; a Complete Response Letter is a 60 percent bet and there’s a 20 percent chance the FDA will simply miss the PDUFA date. In an investor note, he points out that Xenoport, after all, recently received a PDUFA extension, ostensibly due to bad weather, and wound up with a rejection letter.

In his note, LeCroy writes that he thinks “approval will likely be delayed” until the FDA reviews several studies – including data from ongoing animal trials for twice-daily Byettta – that were requested at the time the Byetta monotherapy indication was approved last October. The last required study on Byetta LAR is expected to be done mid-year and a final report submitted to the FDA next January. “This implies,” he wrote, “that the FDA will not approve (Byetta LAR) until mid-2011."

Unless it keeps snowing, in which case the drug may never get approved.

--Emily Hayes
photo thanks to LD Flickr creative commons

Thursday, February 25, 2010

Merck Puts Up Its Asset-Sale Shingle

Big Pharma has been slow to adopt out-licensing strategies for a plethora of reasons: fear it will regret giving up something that could turn out to be a hit, the perception that out-licensed compounds are tainted, and an ingrained mentality that it could afford to develop everything worthwhile on its own.

Merck is the latest company to change its tune in the face of a resource-constrained reality however; Lilly, Pfizer and others started earlier, by far, as IN VIVO has long tracked. At Elsevier's Pharmaceutical Strategic Outlook conference Thursday morning in NY, David Nicholson, the company's new SVP and head of Worldwide Licensing and Knowledge Management, gave the largely biotech and Big Pharma audience a message loud and clear: Merck's new out-licensing department is open for business-or will be shortly. "We have set up an out-licensing group, headed by Meeta Chatterjee," and are now looking at "what we want to out-license" and "how," he said in a talk with Elsevier's Roger Longman.

"In the past, Merck didn't out-license because out-licensing was traditionally used to jettison "rubbish," but that is not the case anymore," noted Nicholson, who previously headed worldwide licensing at Schering-Plough. The company has some very attractive assets, but there is "no way Merck can afford to develop everything" in its R&D program. "Our R&D model is to generate a lot of output—more than we can deal with. So we have to make some tough choices and it poses the question: What do we do with these other assets?" And who might be potential in-licensors? Take note: Merck's not only interested in talking to biotechs and small pharma—its Big Pharma competitors could take a look too.

Details have yet to be worked out – Merck's looking at the best business models and deal structures for outlicensing and "brainstorming" ideas. And the company is generating a list of out-licensing assets.

Meanwhile, its in-licensing program is also moving forward. Now that its merger with Schering is completed, it's finalizing a list of its revamped pipeline, which it will announce in the next few weeks, and shortly after that it will "be able to talk to the world," Nicholson said.

Nicholson also spoke –albeit generally-- about Merck's partnership strategy going forward, i.e. biotechs will remain an incredibly important to Merck, because "the vast majority of new science is done outside Merck's walls," he said. "There are more opportunities outside than inside," and Merck wants to partner with all kinds of technologies, companies, and at all stages of development."

That includes externalizing discovery- a hot topic within Big Pharma at the moment, especially in light of a recent Morgan Stanley report, which argued that Big Pharma isn't doing worthwhile research and should evolve its "R&D" model to an "S&D" or search and develop model. Nicholson quarreled with the report's conclusions, but noted it did raise "interesting questions" about how much discovery research pharma should be doing internally versus externally.

Nicholson's message –a willingness to work with new kinds of partners in new ways--wasn't new for Merck – but it honed in on a trend that's been ongoing in Big Pharma for several years now, and practiced with more urgency as patent cliffs loom: In a growth constrained reality, companies need to evaluate what they can and can't afford to do internally and work with partners in new ways as they become more cost efficient and upgrade pipelines.

--Wendy Diller

Washing Away Post-Deal Blues With A De-Sanofizer

There's nothing like a gathering of insiders to generate some candid chat about the latest doings, and that's what you can hear at the BioWindhover Pharmaceutical Strategic Outlook conference this week at the Grand Hyatt Hotel in New York. Despite threatening forecasts of snow and more snow (and it's falling heavily right now), some 300 or so people have gathered to swap tales and insights into the latest dealmaking trends.

On the topic of back-end loaded deals, Shelagh Wilson, a GlaxoSmithKline vice president who heads the European arm of the drugmaker’s Center of Excellence for External Drug Discovery, said Glaxo is making a point of adding milestones for achieving reimbursement, not just for achieving regulatory or sales goals. "What is driving all of this is the pressure from the payers for us to produce differentiated medicines, and the risk associated with that,” she said. “We’ve got to be innovative, not just in the drugs we bring forward, we’ve got to be innovative in the early stages of drug discovery, and that means taking more risk."

Of course, a perennial wild card for investors is gauging the FDA's next move, not only as a result of safety scandals - can you spell Vioxx or Avandia? - but with the hiring last year of FDA commish Margaret Hamburg, who continues to insist the agency will become more responsive to such problems. "The biggest issue with us for our in-licensing deals (for our portfolio companies) is misprojecting where FDA is going with regards to safety or efficacy," said Brian Atwood, managing director of Versant Ventures, explaining why his firm doesn't make investments in cardiovascular or metabolic opportunities.

Hoyoung Huh, meanwhile, garnered the day's biggest laugh. The chairman of BiPar Sciences, which Sanofi-Aventis acquired last year for $500 million and now operates as a wholly owned, independent subsidiary, confessed that retaining BiPar's culture can be challenging. So what did some employees do to underscore the point? "If you walk into the BiPar offices, the first thing you do is walk up to a hand sanitizer and it's called 'de-sanofizer,'" he said with a big grin. "It's not that we're trying to be rambunctious or nasty, though." And who was sitting two seats away? Sanofi's Philippe Goupit, vice president of corporate licenses.

Tuesday, February 23, 2010

What's on Steve Nissen's Tape Recorder?

click for larger.

Monday, February 22, 2010

While You Were Upsetting

Big upset at the Olympics last night, but before we get to that there is of course the latest industry news. Until you can get biopharma wrap-ups at ESPN, we'll keep on keepin' on.

While you were pondering reconciliation ...

  • A bad weekend for GSK (after a tough week): a report released by Sens Baucus and Grassley that notes FDA reviewers' 2008 recommendation that diabetes drug Avandia get pulled because it causes "500 additional heart attacks per month" was the subject of about six thousand articles. Oh look, here's one.

  • A good weekend (a good Monday morning, anyway) for Novartis. Oral MS drug candidate Gilenia (f.k.a. FTY720) received notice of FDA priority review and meningococcal disease vaccine Menveo received FDA approval.

  • The NYTimes begins a new three-part series, Target Cancer, with a moving, in-depth look at oncologist's attempts to push forward new targeted therapies for melanoma: earlier failures and hopefully a success story of Plexxikon/Roche's PLX4032.

  • It's almost time for that health care summit at the White House. Reuters reports on the administration's updated proposals, expected out on Monday. Here's a Bloomberg piece on a proposal to limit insurance price hikes.

  • HOCKEY: USA 5 - 3 Canada. Wow.
  • You're probably reading this at about 7am. You know, if you stay up late to watch olympic hockey, it's never too early for a nap.
  • UPDATE: The board battle you've all been waiting for... Icahn v Genzyme. Adam Feuerstein at has the scoop.

    image © VANOC/COVAN

Friday, February 19, 2010

Deals of the Week Has Gold Medals and Free Money on the Brain

That was some spectacle, eh? No we're not talking about Tiger's not-a-press-conference, we're talking about The TOMAHAWK. Pretty incredible.

Meanwhile as USA's Olympic squad surges in (and around) Vancouver the Canadians have been getting some stick on and off the ice and snow. We don't mean to pile on but with Canada's 'Own the Podium' strategy not quite working out yet (there's always hockey, my Canadian friends), perhaps the hosts could learn a little something from one of their homegrown biotech's ability to turn that frown upside down. Or at least, you know, to monetize its losses.

Say what now? On Thursday, Seattle-based oncology-focused biotech Oncothyreon (yes we know that's not in Canada, but the co is an Edmontonian by birth) sold its interest in its 'indirect wholly owned subsdiary' Oncothyreon Canada Inc. and a related company for approximately C$8.425 million to an outfit called Gamehost Income Fund. Essentially the subsidiary houses Oncothyreon's non-monetizable tax losses (the IP and actual assets were transferred to Oncothyreon Inc.).

Niiice, right? Rodman & Renshaw analyst Simos Simeonidis explained it thusly in a note yesterday: "The company “owned” net operating losses from its Biomira days, which were tied to its Canadian subsidiary, and is not allowed to use them for income tax purposes in the US." Useless! Unless ...

"We point to investors that this is essentially free money in the form of non-dilutive capital, since it does not involve the sale of any ONTY shares or any rights to products, and it is simply the monetization of an asset that the company would not be able to use otherwise," pointed out Simeonidis.

Well played Oncothyreon, you get this week's DOTW gold medal. As for the rest of the podium ...

Sanofi/AVIESAN: Sanofi CEO Chris Viehbacher might have already helped shed the Big Pharma’s previous reputation for being inward-looking and somewhat Franco-French in its orientation, but he’s certainly not missing out on local opportunities as he pursues this more externalized approach. This week the group announced a research partnership with the French Life Sciences and Healthcare Alliance (AVIESAN), which groups together all the major health care players in the French academic research community, and agreed to sponsor a young researchers’ support program organized by the CNRS and INSERM. Sanofi says it will invest €50 million into these partnerships over the next five years. It’s all good stuff—enhancing life sciences knowledge, contributing to (and showing off) France’s strong position in the field, and developing projects in areas including aging and infectious disease that can directly benefit patients. But as well as keeping the French government happy (the Strategic Committee for Healthcare Industries has outlined plans to bolster funding for more tie-ups between academia and industry), it also buffs up Sanofi’s CV by positioning the group as a friendly and sharing supporter of national public research. “To encourage creativity, mutual teams, laboratories, technological platforms and even research centers for Sanofi and AVIESAN could be considered,” coos the PR. All that for just €10 million a year—bargain.--Melanie Senior

AstraZeneca/Rigel: AZ is building itself a bit of a reputation for forking out good up-front cash for mid-stage in-licensed assets: this week it signed its third deal in just five months with an upfront cash payment of $100 million or more. This time Rigel was the lucky recipient, granting the Big Pharma worldwide rights to its Phase II oral RA candidate fostamatinib and in exchange banking over $1 billion in potential development and sales milestones as well. Now sure, AZ has little choice but to win such valuable booty—fostamatinib could be among the front-runner oral drugs in a multi-billion dollar market—given the heavier-than-average near-term patent expiry burden the company faces. That’s how come it paid Nektar $120 million upfront for a Phase II OIC candidate in September, and Targacept a record-breaking $200 million for a Phase II depression-busting nicotine channel blocker in December. In the Rigel deal, AZ will cover all future development costs. The milestone payment split is up to $345 million during development, regulatory and first-commercial-sale (we read that as reimbursement!) and up to a further $800 million in sales-related payments (Rigel is expecting a further $25 million in milestones this year). AZ will also pay "significant" stepped double-digit royalties on net sales worldwide. Read our full coverage in "The Pink Sheet" DAILY--MS

Genentech (A Member of the Roche Group)/UCSF: Forgive cheeky pundits if they start calling the University of California at San Francisco's new Mission Bay campus "Genentech North." The agreement announced Feb. 19 is the latest tight connection between the neighbors, a history that stretches back to UCSF professor and Genentech co-founder Herb Boyer and the insulin work of UCSF professor Bill Rutter. Genentech will fund the work of several researchers at the UCSF Small Molecule Discovery Center (SMDC), which is run by ex-Genentecher and Sunesis Pharmaceuticals founder Jim Wells, now head of UCSF's pharmaceutical chemistry department. The team will use prior research from UCSF and Genentech to develop drug candidates, which in turn could trigger $13 million in milestones for the school, and royalties if Genentech brings a resulting product to market. It's the latest example of industry leaning on academia for early-stage and translational work, a trend that FDA drug chief Janet Woodcock this week spoke about at length, with several words of caution. UCSF is a pioneer in cross-over collaborations and deals.The school has in place several "master agreements" with private firms, including Genentech, that allow research groups to strike industry partnerships quickly. This is the first major deal since former Genentech executive Sue Desmond-Hellman took over as UCSF chancellor last summer. -- Alex Lash

J&J/Basilea: J&J handed back to Basilea full rights to ceftobriprole, the Swiss biotech's drug for complicated skin and soft tissue infections (cSSTI), after the CHMP recommended against EU approval of the drug. Unfortunately, no drug exists for complicated big pharma-small biotech alliances (cBPSBA). J&J's decision therein ends a tortuous relationship, which resulted in the drug's rejection by two regulatory agencies and an ongoing arbitration proceeding between the partners. In a conference call, Basilea execs said that they were happy to regain control of development and commercialization of the drug and are determining their strategy for it, including whether to seek a new partner or proceed independently. Execs said the arbitration, which Basilea initiated, is proceeding, with a decision expected by year end. In keeping with the rocky relationship, however, it's not a clean break: Under terms of the contract, J&J still is responsible during a year-long transition period for meeting all contract obligations—including clinical development, manufacturing, and commercialization—of the anti-infective. Basilea execs said they plan to meet with J&J to figure out a plan, which they expect will involve no cost to the Swiss biotcch. --Wendy Diller

image by flickr user LeeLe fever used under a creative commons license

Thursday, February 18, 2010

Swiss Addex Now on BVF's Watch List

Biotechnology Value Fund is making moves. Public records show the high-profile public investor recently grabbed a 6.6% share of the staggering Swiss firm Addex Pharmaceuticals. BVF sometimes makes public its reasons for piling into a stock, but the Feb. 5 document held no clue, and so far BVF hasn't gotten back to us. (We'll keep you posted.)

Allow us to cogitate upon the news. BVF could be making a straight value play. Addex closed today at 11 CHF per share. That's down nearly 75% from a high of 41.95 CHF just before safety data for its lead candidate tanked the stock in mid-December.

Addex pulled the plug on its lead candidate ADX10059, a metabotropic glutamate receptor 5 (mGluR5) modulator, when its Phase IIb data for migraines revealed elevated liver enzymes. Addex immediately halted another Phase IIb, for reflux. The company was expected to pull in a big licensing deal, but hope for that vanished with the safety revelations.

Obviously BVF thinks the company is undervalued. Addex, after all, has generated a pipeline of molecules via its allosteric modulation platform. But how much will it push for managerial and/or strategic change? CEO Vincent Mutel said in December he didn't think the safety failure of '059 was a class effect that would cripple another important compound in Addex's pipeline. It remains to be seen if BVF will attempt to steer Addex's R&D efforts in a different direction.

Given BVF has done its share of cage-rattling recently, it certainly might. Recall the fund used its 30% stake in Avigen to steer the firm into a merger with MediciNova last August. And last week BVF went public with a suggestion that diagnostics firm Celera, of which it owns nearly 10%, spin out the royalty stream associated with the Phase III osteoporosis drug odanacatib.

Merck is developing odanacatib as a potential replacement for its now-generic Fosamax (alendronate), once a $3 billion annual cash cow. Celera, which has reinvented itself several times since its founding by Craig Venter, doesn't do drug development anymore--its main business is developing diagnostic tests, including ones for cystic fibrosis and HIV genotyping. Still it's owed a "mid- to mid-high single digit" percentage royalty on sales if odanacatib comes to market.

BVF wrote in the Feb. 9 filing that, "if successful, the royalty asset could generate tremendous free cash flow for the Issuer’s shareholders and, accordingly, this single asset could be worth a significant multiple of the Issuer's current market value."

Since October BVF has bought about a million shares of Celera, all in the range of $6.09 to $6.30 per share. Shares closed Thursday at $7.01, giving it a market cap of $574 million.

With at least one portfolio company, however, BVF has bided its time. It holds a 16% stake in Facet Biotech but agreed not to tender its shares when Facet development partner Biogen Idec went hostile with a $14.50-per-share bid last fall. In exchange for permission to up its Facet stake above 15% without triggering a poison pill plan, BVF held fast when Biogen upped its offer to $17.50. Biogen dropped its bid in mid-December. -- Alex Lash

Photo courtesy of flicker user kevin.

XenoPort Experiences Restless Investor Syndrome

File this one under Regulatory Setback Syndrome. The FDA decision to issue a complete response letter to XenoPort and GlaxoSmithKline for their Horizant drug to treat Restless Leg Syndrome appears to have stunned the drugmakers. In a conference call this morning with analysts, XenoPort chief executive Ron Barrett confessed he didn't see it coming until the FDA missive arrived yesterday.

"It certainly did surprise us," he told the listeners, insisting the issue was never raised in any discussions with the agency during the entire pre-approval processs. "Many of the activities that you would expect to happen going into a PDUFA date had and were happening, including the REMS, and this one came out of left field."

What went wrong? The FDA bounced the drug because a trial showed a cancer risk in rats, specifically a prevalence of pancreatic acinar cell tumors in male rats. Interestingly, a similar finding showed up in Pfizer's Neurontin (gabapentin), which is approved to treat refractory epilepsy, and Barrett said the strength of the signal was no worse than what was seen with the Pfizer drug.

The FDA acknowledged that findings in lab animals don't necessarily translate into risk in humans, Barrett continued, adding that the agency "noted that gabapentin products have been available for over 15 years, and they do not appear to be associated with a clinical signal for pancreatic cancer based on analysis of spontaneous reports in the adverse event reporting system."

The issue for the FDA, though, is that treating epilepsy is a more serious matter than Restless Leg Syndrome, a line of thinking that may bolster those who have criticized the marketing surrounding the condition, even though it is deemed to be kosher by the National Institute of Neurological Disorders and Stroke (take a look).

For now, the implications for XenoPort are more immediate and severe than any marketing debate. Glaxo already announced plans to exit research into pain, and Barrett concedes their deal for the drug may be up in the air, possibly threatening further development of Horizant to treat neurothropic pain, where a Phase II trial failed last year, and migraines. Barrett, however, refused to offer any definitive insights on this particular topic. "The question of risk-benefit is something that is going to have to be probed for each indication."

In response to a question about Glaxo's ability to end the deal based on development setbacks, Bennett offered this sobering reply: "I think it's fair to say that any license agreement of this type is going to have termination provisions. And without speaking to language that might be redacted, I think it is reasonable to expect that this agreement is no different than that GSK would have the ability to terminate for reasons that include what you have articulated, among others. So I think people should understand that a termination by GSK is possible in the wake of this news, as well as in the wake of other developments."
Consequently, XenoPort is now suffering from Restless Investor Syndrome - its shares are down a whopping 67% in midday trading to about $6.54 on nearly 10 times normal trading volume. Given these events, Bennett has to be sorry Horizant isn't already available to treat migraines.

arrow thx to austinsdkeys on Flickr Creative Commons

Tuesday, February 16, 2010

While You Were Watching Winter Sports ...

flickr user Stefan introduces the Imperial curling team

We do enjoy the Winter Olympics, if only because we only get to watch fun sports like curling and Nordic Combined about, oh, once every four years. It's brilliant competition, except, well, when it isn't.

Canada's women's ice hockey team beat up on Slovakia 18-0 on Saturday, which isn't much of a game. Nor did we think it was particularly sporting of the canucks, until we remembered that Slovakia was the team that destroyed Bulgaria 82-0 in an Olympic qualifying match. Fair play, Canada.

While you were couch-luging ...

  • AstraZeneca has shelled out $100 million up-front for a global license to Rigel's Phase II oral RA treatment fostamatinib, the furthest along Syk-inhibitor in the industry pipeline. The billion dollars in biobucks that may eventually follow are heavily weighted toward sales milestones, but the deal is still an expensive one for AZ, perhaps a reflection of the company's acute need to bring in late-stage pipeline projects.
  • NICE to Novo: Victoza use should be limited on NHS's dime, er, ten-pence.

  • Bloomberg reports on how Affymax could eat into Amgen's anemia franchise. It's all about pricing.

  • Merck appointed ex-J&J Baby Global Business Unit chief Bridgette Heller as EVP and president of consumer health care.

  • What's that awful smell? It's metformin, reports Reuters. The diabetes drug literally 'stinks' and in a letter to the Annals of Internal Medicine some doctors suggest this may be why patient compliance with treatment is low.

  • The New York Times unpacks GSK, Sanofi, and others' push into global branded generics.

  • We're all for properly handled generic substitution, but come on, Vancouver Olympics organizers, don't send a generic ice resurfacer to do a Zamboni's job.

Monday, February 15, 2010

NICE Snubs Novo With Draft Lira Guidance

You'd think that even NICE would have welcomed with open arms a new, effective treatment option for the UK's nearly 3 million diabetic patients--particularly one that not only lowers blood sugar, but also causes weight loss.

Nah. NICE is playing hardball (again). Its draft recommendation for Novo Nordisk's GLP-1 analog liraglutide (Victoza), although not nearly so damning as last week's preliminary guidance around Sprycel and Tasigna, suggests that the drug be used only in limited circumstances by the National Health Service. 'Limited' means a) as part of triple therapy regimens only (that is, for patients already on metformin and a sulfonylurea, or metformin and a thiazolidinedione, where the above combos aren't quite doing the trick), b) among patients with a body mass index equal to or higher than 35kg/m2 (that's high) and c) only at the lower, 1.2mg daily dose.

Ok, so patients that aren't quite so obese as 35kg/m2 could also qualify for the drug, "if it is considered that the drug's use could help to achieve levels of weight loss that could be beneficial in treating other conditions caused by being obese", the NICE press release concedes.

But a quick read of the full appraisal consultation document reveals that even among those tightly-defined patient groups, drug treatment should only be maintained if the individual loses at least 3% of body weight after six months (that's not far off the threshold for an actual weight-loss drug) and sees a reduction in blood sugar levels of at least 1 percentage point.

It seems, at first glance, to be a case of "damned if you do, damned if you don't" for Novo. After all, weight loss is supposed to be a nice side-effect of the diabetes drug--one that could lead to lower incidence of co-morbitidies--yet it's apparently being used to limit its reimbursement.

Although NICE concedes that liraglutide "may have some advantages over particular its effect on weight," it appears to rule out the higher dose point blank, and is asking for further analyses on the cost-effectiveness of liraglutide on patients with a lower BMI, which it says were not presented.

NICE was also unsatisfied with the extent of the data comparing liraglutide in triple therapy with other combinations of oral drugs, including for instance DPP-4 inhibitors, and felt that the LEAD-1 trial comparing liraglutide to rosiglitazone used an insufficiently high dose of the glitazone.

It's impossible to cover all the various permutations and combinations in diabetes therapy, however--and Novo did submit data from six trials in over 4000 patients. All except one of the trials showed that the drug reduced HbA1c levels significantly better than comparators, which included rosiglitazone (Avandia), sitagliptin (Januvia, the DPP-4 inhibitor), insulin glargine (Lantus), placebo, and Lilly/Amylin's exenatide (Byetta, the only other GLP-1 out there). The exception: the LEAD-2 trial, comparing liraglutide with glimepiride (Amaryl), which showed up liraglutide's weight advantage although no significant difference in blood sugar lowering.

Perhaps NICE's conclusion isn't such a surprise, though, considering the fate of Byetta in the UK (which you can read about in NICE's Type 2 diabetes guideline document). In brief, Byetta's "not recommended for routine use in Type II diabetes", with the same six-month benefit hurdles as described above, deemed as "expensive" and "not cost-effective for an unselected population as compared to commencing human insulin therapy."

As such, Novo's VP Europe, Viggo Birch, admitted that "given what they [NICE] have done for exenatide, this is what you'd expect in the first round." Still, "I'm not happy with it," he continued. "We have a much better product [than exenatide] and much better data." Novo's looking for reimbursement as second-line therapy, "at least for important patient subgroups," and a relaxation of the BMI-based restriction, since this, Birch claims, "isn't fair; it was plucked out of the sky."

There's a crack in the door, though. NICE will hold another meeting on March 18, allowing Novo and others time to comment and submit further data supporting wider use of the drug. And in its full diabetes document, NICE does acknowledge, with regard to Byetta, some uncertainty as to whether GLP-1s would be deemed cost-effective if the [health economic] model "fully reflected the negative quality of life issues of insulin, including fear of hypoglycaemia, and the costs of support and patient education for modern intensity of insulin dose titration" and added that the "more obese require much higher insulin doses, such that insulin costs alone can easily exceed those of exenatide."

Still, reading between the lines, we suspect this preliminary appraisal for Victoza is a call not just for more analysis, but also for a cost-sharing scheme of some description to help smooth the drug's passage past the cost-effectiveness watchdog.

That's not likely, according to Birch. "It [a cost-share scheme] is not really on the radar for this product right now." Perhaps with reason: after all, Victoza's hardly the most expensive drug to cross NICE's desk--the low dose costs GBP 954 per year, compared to tens of thousands of pounds for some cancer treatments.

But given the growing prevalence of diabetes, "NICE is probably wary of giving free rein to something that [may become] so huge" comments one analyst.
The question is whether its hard-ball stance on Victoza ideally balances the concern over escalating drug costs, with that of the escalating costs of the disease itself (plus consequences), estimated to eat up about 10% of the health care budget.
image by flikrer Roland used under a creative commons license

Friday, February 12, 2010

PhRMA Changes Leaders: A Dozen Candidates We Bet Won’t Get The Job

PhRMA CEO Billy Tauzin is stepping down at the end of June. We pointed out in our first post that he leaves some pretty big shoes to fill--so, naturally, we want to do our part to help.

We’ve come up with a list of 12 potential replacements for Tauzin. But before we tell you who they are, we should also say that we bet none of them gets the job.

Yeah, our tongue is firmly in our cheek on some of the candidates. But more importantly, we bet PhRMA will go in a different direction this time and look for someone less high profile than Tauzin (or almost any of the potential replacements we suggest).

PhRMA has traditionally preferred a leader who is not a nationally known political figure, someone with specific expertise in critical areas. Before Tauzin, its two heads were IP attorney Gerry Mossinghoff and international trade lawyer Alan Holmer.

In part that’s because PhRMA’s members recognize that, while national politics dominates the headlines, their business is built on the fine points of intellectual property, regulatory nuance and complex pricing/reimbursement policy.

But its also because—let’s face it—Big Pharma CEOs don’t want someone telling them what to do. Tauzin was hired to lead the board, and that’s what he did. But we’re betting the PhRMA board isn’t going to look to be led again any time soon.

Still, we can’t help imagining different national figures who might help PhRMA improve or adjust its position in Washington, and so offer you the follow list of possible candidates for the top job at the trade association….

Former Senate Majority leader Tom Daschle: Why not go all in on the Health Care reform deal by hiring the man who was supposed to run health care reform in the White House? Just don't forget to pay the driver!

Connecticut Democratic Sen. Chris Dodd: Probably the biggest name PhRMA could go after among current Dems in Congress. Dodd is retiring rather than face a tough reelection battle, and has a good relationship with Pfizer, a big Connecticut employer.

Pennsylvania Sen. Arlen Specter: He hasn’t been a Democrat for long, having pulled a Billy-Tauzin-in-reverse and changed parties last year. Pennsylvania is a big pharma state, and Specter has a strong record in support of R&D and intellectual property.

Richard Gephardt: The former House Democratic leader has done a lot of work with PhRMA on issues like supporting science in America. He also has pull with the labor unions. He’d be great--at least until November.

A health system CEO: Glenn Steele (Geisinger) and Dan Cortese (Mayo) both got consideration as potential heads of the Centers for Medicare and Mediciad Services because their respective institutions are viewed as models of innovative payment and delivery networks. Selecting someone like that would show PhRMA is serious about delivery reform in health care.

Biotechnology Industry Organization CEO Jim Greenwood: PhRMA lost a big member when Roche acquired Genentech and decided to follow Genentech’s decision to maintain a membership in BIO only. Since then, PhRMA has stepped up longstanding efforts to recruit smaller companies--even modifying its tagline in ads to brand itself as “America’s pharmaceutical and biotechnology research companies.” And its biggest members have been steadily bioteching themselves. So why not just merge the two groups?

America’s Health Insurance Plans CEO Karen Ignagni: If Tauzin’s health reform dealmaking is the problem, then Ignagni's refusal to deal must make her the solution. Plus she’s shown a Tauzin-like political flexibility, having once been a single-payor advocate before taking the reins of the group most committed to protecting private health insurance in the US.

Bill Thomas: Too many Democrats? Then why not tack Republican. The long-time Ways & Means Committee Chairman was the key architect of Medicare Part D-- which may be all the health reform PhRMA needs (or gets) in the end. Downside: Amgen would quit the association right away. (Or is that an upside?)

Former HHS Secretary Michael Leavitt: The former head of HHS under George W. Bush is a well respected former governor who has pull with his old constituency, a definite advantage over other candidates who would have that missing from their resumes. Leavitt has long held that you can’t have health reform without Medicare reform.

Mark McClellan: While we’re on the subject of former Bushies and skilled candidates who could play both sides of the aisle, how about former FDA Commissioner, former CMS Administrator, former Clinton Administration health economist, and current head of the Engelberg Center for Health Care Reform Mark McClellan. McClellan implemented Part D and would be the kind of detail-oriented CEO that Tauzin was not.

Former Senator John Breaux: He lost out to Tauzin the first time around for the PhRMA job, how’s about a second go around? He’s a moderate Democrat with friends all over Washington.

Maine Republican Senator Olympia Snowe: Give us the 60th vote for health reform and we will give you Tauzin’s old job! That would never happen…would it?

PhRMA Changing Leaders; Will It Change Tack in Health Care Reform?

The sense of uncertainty surrounding the impact of health care reform on the biopharmaceutical industry just went up with the news that Pharmaceutical Research & Manufacturers of America CEO Billy Tauzin will step down at the end of June.

The timing of Tauzin's departure should have been perfect. If health care reform had made it through as planned ahead of President's Day, now would be the perfect time for Tauzin to take a bow and leave the implementation to his successor. After all, Tauzin is 66, he has been with the association for just over five years--and is also past the five-year milestone in his recovery from intestinal cancer. If only health care reform was done, it would all seem so right.

But health care reform, to put it mildly, is in a state of flux, and so is PhRMA’s famous (or is it infamous?) $80 billion dollar deal for health care reform (or was it a $90 billion dollar deal, or more?).

As it happened, the timing of the announcement (late in the evening on a snowbound week in Washington) took a lot of people by surprise.

So naturally, everyone is wondering the same thing: Are things about to get REALLY bad for Big Pharma?

There are certainly good reasons to worry. First, as we pointed out here, the Democratic leadership appears to be convinced that one of the critical factors in the sour public mood for reform is frustration with the process—and, at least among some prominent Democrats, the PhRMA deal is a case in point.

And its not like Republicans are any happier with the PhRMA deal. Indeed, we are hearing something close to glee at the prospect that the industry will be asked to make the $80 billion contribution to fund other priorities before the year is through.

No question. It could get ugly. But it is far too soon to press the panic button.

Right now, no one can say for sure what will happen on health care reform. It is still possible that a bill very close to the one that looked ready to move in mid-January can make it into law. Failing that, big things could still move through Congress: things like filling in the Medicare Part D donut hole, follow-on biologics legislation, or health insurance reforms that would make expensive drugs more affordable for many people.

What Tauzin’s announcement does is give PhRMA flexibility: if things go well, they can keep the deal, either by working through the last steps of the process during Tauzin’s final months, or by sticking with it under his successor. And they can do so while fending off critics who claim it was a sweetheart deal all along: after all, the guy who cut the deal is out of a job, right?

On the other hand, Tauzin’s departure makes it much easier to turn to a scorched earth strategy if it comes to that. If the focus shifts from reform to punitive taxes, new rebates, populist measures like reimportation and price negotiation, then PhRMA will find it much easier to just declare the deal dead and take the gloves off in return.

We do think, however, that it’s a shame about the timing. Tauzin’s five plus years at PhRMA were a remarkable time, with the association pulling off the nearly impossible feat of transitioning from a quintessentially Republican organization into one that, if anything, may find itself too closely aligned with the suddenly not unstoppable Democratic majorities in DC.

You don’t have to agree with the policy to appreciate the skill it took to pull that off, building alliances across the spectrum of advocacy organizations in DC and across the aisles in Congress.

Sure, Tauzin wasn’t perfect--in the wake of the departure announcement, we’ve heard the rumbling that he didn’t focus enough on the details to translate the framework of “the deal” into the fine print that would make it work.

But we’d bet anything that PhRMA would be much worse off today if he hadn’t built bridges with organized labor, universal coverage advocates and other groups that don’t always see eye-to-eye with Big Pharma.

And we can honestly say that, while we know plenty of people who don’t agree with Tauzin’s positions, we’ve never met anyone who didn’t like him personally.

Those will be some pretty big shoes to fill. And in our next post, we’ll offer our thoughts on who PhRMA might pick to try….

DotW: Shovel Ready

We've been observing and reporting for months now as various industry finance types predict the end of the recession and in particular the biotech funding drought. Call it what you like -- new beginnings, green shoots, fluffy-tailed optimism -- it has come in many forms. Some have pointed to the robust demand for follow-on offerings. Others saw glimmers of goodness in the fourth-quarter venture data. Last week, Ironwood Pharmaceuticals' IPO made some hearts go pitter-patter, though not enough to buy shares at $15 a pop.

No one's turning cartwheels yet, and probably won't anytime soon for fear of drawing the glare of suspicious regulators or, gulp, Paul Volcker. But let's face it, those who do God's work can't help but look on the bright side of life. Forgive them their happy-go-lucky trespass.

On the other side of the fence we terminally skeptical journalists tend to look askance at casually thrown glass-half-full assessments -- or at least we should -- so our ears prick up whenever we hear anything to the contrary.

Apparently the big storms this week (if you insist upon a hyperbolic descriptor, IVB prefers "Snowzilla") put a damper on more than federal bureaucrats and travel plans. It's a bit harder to find green shoots under all that white. At the BIO CEO & Investor conference panel this week in New York, a spasm of rational non-exuberance actually broke out. A Lazard banker admitted that the IPOs so far "haven't been very encouraging." A managing director of a private equity fund said confidence is returning to the market in general, but for volatile sectors like life sciences, "it will take longer."

The panelists went on to note that VCs in a Lazard survey said they're starting to return to early-stage companies. (Overall, ninety biopharma companies raised $1.2 billion last quarter according to DowJones Venture Source, which helped boost 2009 above the $4 billion mark.)

Color us skeptical on that one. So many indicators are pointing in the other direction. The ten-year return data for venture capital as an asset class remains ugly. Only the 2002 vintage class shows a positive net return to LPs, according to Cambridge Associates. Hey, optimism! Just like now, 2002 was a year to get in at the bottom, right? Sure, if you think 1% is a tidy little return. And unlike more recent vintages, 2002 investments should be maturing by now, so it's hard to see that 1% getting much better. Let's face it: venture as an asset class is damaged goods. Firms had a hell of a time fundraising last year, and even the head of the National Venture Capital Association predicts a major shakeout this year.

We just don't see how you can sustain a vibrant biotech startup ecosystem with a lot less venture money washing around, unless a bunch of the surviving funds get that ol' time early-stage religion. On a conference panel several years ago, one West Coast VC teased an MPM Capital partner by giving him the nickname "Go big or go home." Are we now going to hear VCs publicly chide each other with "Let's Get Small!"?

Let's just say we're not counting on that jalopy for a ride to the prom. So who's going to pony up for the startups? Merck business-development exec Barbara Yanni said something at the BIO confab this week that caught our eye: "The prices for licensing deals have gone up, and I'm talking about the real money, not the biobucks," she said. "The upfront money has increased for Phase I deals [and] Phase II deals as well."

Pharma's corporate venture largesse helped during the recession. Could its BD budgets also help fill the startup funding gap? We ran a few searches in the indefatigable Strategic Transactions database to see if Yanni was right. It looks like total upfronts for Phase I deals have indeed risen the past three years but not in a trumpets-and-hooves, to-the-rescue kind of way. Seventeen Phase I deals that reported an upfront payment in 2007 totaled $782 million, 17 deals in 2008 totaled $1.1 billion, and 21 deals in 2009 totaled $1.15 billion.

For Phase II, 40 deals in 2007 totaled $1.7 billion in upfronts, 34 deals in 2008 totaled $1.4 billion, and 39 deals last year totaled $1.8 billion.

We'll check back in a few months to see how 2010 is playing out, but so far there's no evidence that pharma companies are shifting tons of cash into upfront payments for early-stage partnerships. They certainly didn't do so this week. Deal-making was yet another thing muffled by the Blizzard King. Perhaps biz-dev poobahs were too busy having snowball fights. Whatever the case, it makes for an awfully quiet...

Novartis/Debiopharm: Novartis is hedging its hepatitis C bets with this deal for Debiopharm's Phase IIb cyclophilin inhibitor Debio 025 (alisporivir). Novartis is on the threshold of approval for the albinterferon alfa-2b Zalbin, which it licensed from Human Genome Sciences, but Debio 025 has a completely different mechanism of action, targeting a human protein that is co-opted by the virus to help it replicate. It's the second cyclophilin inhibitor for Novartis, which also has the earlier-stage program NIM811 in its pipeline. No surprise Novartis is trying more than one approach; it has already suffered two failures of other in-licensed HCV treatments, as our Pink Sheet colleagues noted this week. For Debio 025, the Phase IIb study now under way will assess longer-term safety and efficacy in combination with standard of care in treatment-naïve patients with HCV genotype 1, the most common variant of the virus in the Western world. Novartis gets worldwide rights except for Japan, but other details or terms weren't disclosed. The companies don't expect a marketing submission before 2014. -- John Davis

Biovail/Alexza: Contuining its pursuit of specialty CNS opportunities, Biovail will pay Alexza $40 million upfront for U.S. and Canadian rights to the inhaled antipsychotic AZ-004 (Staccato loxapine), its lead program. Alexza submitted the product, reformulated with its rapid-acting single-dose Staccato inhaler to quickly calm agitated schizophrenic or bipolar patients, for U.S. marketing approval in December. Loxapine was originally approved in the 1970s but taken off the market last decade. It's the second deal of the year for Biovail in CNS, and both hinge upon a delivery device. The Canadian firm licensed Amgen's glial cell line-derived neurotrophic factor in January for therapeutic uses in CNS indications. Biovail then partnered with MedGenesis Therapeutix to use its catheter system that delivers drug to the brain. A side note from the deal: It comes nearly six months after Alexza bought out its private-equity funding partner Symphony Capital, which had put up $50 million in late 2006 to develop AZ-004 and two other programs in a separate venture called Symphony Allegro. Symphony's project financing model has borne mixed results, but it had to switch gears when Allegro fell apart. Alexza last August bought back its programs from Symphony for 10 million common shares and 5 million warrants to buy stock at $2.26 a share. Alexza will also pay Symphony an undisclosed slice of the partnering cash from Biovail. Get the full backstory on the Symphony-Alexza drama at today's Financings of the Fortnight, a.k.a. DotW's Smarter Brother.

Merck/AnaptysBio: On Monday San Diego biotech AnaptysBio announced its second deal in as many months, saying it would discover novel antibody therapeutics against an undisclosed disease target for Merck & Co. AnaptysBio will apply its somatic hypermutation (SHM) platform to generate candidates and Merck will be responsible for worldwide development and commercialization; AnaptysBio gets upfront cash, plus potential milestones and royalties. For the details on the biotech’s technology, check out our November 2007 Start-Up profile. The short version: it aims to replicate the natural process of mutagenesis occurring in B cells, involving steps of immunoglobulin recombination, mutation, affinity maturation and selection. The Merck deal follows closely on the heels of a similar pact with Roche signed in January. (See the Strategic Transactions record here.) Getting as close as possible to how B-cells react to antigens to create antibodies is clearly very promising and is also at the heart of another biotech’s platform. Adimab, which employs engineered yeast to discover antibodies with the Made-in-B-Cells label, also has deals with both Merck and Roche. Ah-ha. AnaptysBio was initially backed by Avalon Ventures. In late 2007 it raised a $34 million Series B led by Novo AS, with Avalon, Frazier Healthcare ventures and Alloy Ventures, Numenor Ventures, WS Investment Company, and Nick Lydon, PhD, the former pharma scientist and biotech entrepreneur who advises Avalon and sits on AnaptysBio’s board. -- Chris Morrison

Boehringer Ingelheim/SSP: BI's tender for the remaining 40 percent of its Japanese subsidiary SSP will allow the German pharmaco to "more aggressively" pursue OTC switches, the company said Feb. 10. At 710 yen ($7.89) per share, which Reuters estimated at $365 million total, the offer comes a few months before Boehringer's patent exclusivity for its benign prostatic hyperplasia drug Flomax (tamsulosin) expires in April. BI is one of many big pharmas looking to diversify into consumer health and boost its "switch" skills. Two mega-mergers early last year (Schering-Plough/Merck, Pfizer/Wyeth) brought the trend to the forefront, and other firms followed their lead, such as Sanofi-Aventis’ acquisition of Chattem. The BI buyout would give SSP an overseas avenue to market its products, including cold medicines, vitamins and an OTC insomnia medication. SSP also will gain access to Boehringer's research and development capabilities. The tender offer closes April 13. Boehringer said it would merge SSP with another subsidiary, Boehringer Ingelheim Japan Investment. SSP will be the surviving company. -- Elizabeth Crawford

Novavax/ROVI: Better yet, ¡No deal! That's because Madrid-based ROVI was supposed to license Novavax's vaccine technology to develop seasonal and pandemic flu vaccines, and the Spanish government was supposed to build the country's first flu-vaccine plant in Granada (lovely town, by the way). The deal called for a $3 million upfront plus milestones and royalties. ROVI was to get marketing rights in Spain and Portugal. Not so rapido, folks. Novavax announced rather curtly on Feb. 8 that the companies could neither agree on "acceptable terms" nor "obtain the necessary funding commitments."

Merck/Anacor: The partners advanced through Phase II Anacor's treatment AN2690 for onychomycosis, a fungal infection of the nail and nail bed, but the new expanded Merck decided to give the program back to Anacor, the Palo Alto biotech said Friday, Feb. 12. Anacor says it will kick off Phase III tests as soon as the rights are transferred back. It cut the original deal with Schering-Plough in 2007 when AN2690 was in Phase IIb. It received $40 million upfront, the right to sell $10 million to S-P in equity, and the promise of as much as $505 million in milestones. No word immediately how many of those 'stones rolled Anacor's way. It is looking for a new partner for the program.
Photo courtesy of flickr user oddharmonic.

Tauzin Stepping Down at PhRMA

Word came last night that Billy Tauzin, the 13-term Louisiana congressman who took up the reigns as head of the Pharmaceutical Research and Manufacturers of America after a bout with cancer, will step down from his post.

Interestingly PhRMA has commissioned an adaptation of the famous Stewart-Adams-Strouse musical to commemorate Tauzin's five-year tenure as the head of the industry lobbying group.**

An official announcement from PhRMA is expected today, and "The Pink Sheet" will have all that covered. Meanwhile, who's going to play Tauzin in the musical? Our money's on Pierce Brosnan. Have you seen "Mamma Mia"?

**Not really.

Financings of the Fortnight's Symphonic Overtones

Not to hijack FOTF for what is clearly DOTW territory, but how about that Alexza deal with Biovail, eh?

Alexza licensed its novel loxapine formulation, which is being developed for schizophrenia and bipolar patients with acute agitation and is delivered via its Staccato single-dose inhaler, to serial CNS in-licensor Biovail yesterday for $40 million up-front and--you know what? You'll have to wait for DOTW to get the rest of our take on the deal (or read up on it in Thursday's Pink Sheet Daily). [You could also come to our annual Pharmaceutical Strategic Outlook confab (Feb. 24th and 25th in NYC) and get the skinny straight from Alexza's CEO Tom King.]

But this being a financing post, what interests us most for now is how Alexza was able to get its drug candidate through the clinic in the first place. (It awaits an FDA decision later this year). The answer: project financing.

But here's the rub. Even though Alexza's drug has been quite successful in the clinic--and now on the deal front--the biotech's arrangement with Symphony didn't have its financier singing the sweetest of tunes.

In 2006 Alexza got $50 million from Symphony to push forward two projects, effectively forming a newco to fund their development (Symphony Allegro). Symphony also got 2 million warrants to buy Alexza shares at $9.91 apiece. AZ-004 and AZ-002 (the latter drug, a Staccato formulation of alprazolam, posted "inconclusive" results in a Phase IIa study in patients with panic attacks) could be repurchased by Alexza following proof-of-concept for a set price--nearly twice what Symphony paid. Alexza whisked 004 through the clinic pretty quickly, but for Symphony's model to work, Alexza's share price needed to rise enough for the biotech to access non-dilutive funding to take the programs back from Symphony (see the deal specs here).

And that didn't happen. Alexza's shares were waaaaay under water, despite the clinical success of 004. For the biotech to buyback its programs from Symphony Allegro, the terms of the deal needed to be renegotiated. In June 2009, the companies did just that: Alexza bought back 004, 002 and 104 (a low dose version of 004 for migraine, added to the deal in 2007) for about $18 million in a stock transaction that gave Symphony about a 23% stake in the biotech.

Symphony still hasn't earned back its $50 million, even on paper. Its 23% stake is valued somewhere around $33 million (its warrant coverage--under the renegotiation that's 5mm warrants to buy shares at $2.26 for five years--has bobbed above and below the surface since the terms were amended). Even the Biovail deal didn't seem to move investors, who pushed shares of Alexza lower on the news, to close at $2.62 on the day.

For more on Symphony's model--and the hard times it faces as investors are increasingly unmoved by positive clinical news--see this January 2009 IN VIVO feature and this June 2009 story from "The Pink Sheet".)

Symphony had seen the model work before (its deal with Isis, for example) but without help from the public markets, it was dead in the water. AZ-004 may get the nod from FDA later this year and turn into a success for all concerned, and a relief for Symphony. Allegro was much more of a project than it bargained for.

Ironwood Pharmaceuticals: Is it one of the financings of the fortnight? For sure. Have we already given you our take on this deal? Yes (blog), yes (Pink Sheet Daily) and yes (Pink Sheet). Are we going to do it again? Not so much. Eh, not yet, anyway.--CM

Alnara Pharmaceuticals: This Cambridge, Mass.-based biotech really brought home the bacon for liprotamase, its Phase III recombinant, non-porcine pancreatic enzyme replacement therapy, by raising $35 million in a Series B round that closed Jan. 28. (Click here for our Strategic Transactions deal record.) Liprotamase, being developed as an oral, non-systemic tablet for exocrine pancreatic insufficiency in cystic fibrosis patients, successfully completed its Phase III development program last fall. Currently available PERTs are made by harvesting pancreatic enzymes from pigs. MPM Capital, which led the Series B round, sees great potential in the product and will place its managing director, Ashley Dombkowski, on the company’s board. MPM was joined in the round by returning investors Third Rock Ventures, Frazier Healthcare and Bessemer Venture Partners. Noting that Alnara remains on track to file an NDA for liprotamase this quarter, Dombkowski hailed the medicine's “positive long-term safety and nutritionally relevant data” and said the filing will place Alnara “on the cusp of significant value creation opportunities.” In addition to the imminent filing, Alnara also is developing a second formulation of liprotamase for the pediatric CF population. --Joseph Haas

Syndax Pharmaceuticals: When START-UP profiled Syndax Pharmaceuticals in the 2007 A-List group, the young biotech had essentially just started operations with an HDAC inhibitor program in-licensed from Bayer Schering AG, and a platform built on theory that epigenetic changes to the tumor phenotype would restore targets that sensitize tumors to treatment and reduce resistance to targeted combination therapy. A few years later, investor interest in this cancer player has not waned--on February 3, Syndax filed a Form D revealing it’s raised an additional $9 million on top of the $40 million Series A from 2007. (MPM Capital, Domain Associates, and Pappas Ventures are among the company’s previous backers.) And Syndax could still draw down another $7 million in this tranche, bringing the Series A total potentially to $56 million. Syndax is still awaiting Phase II data on entinostat (SNDX275)--its lead candidate from the Bayer deal targeting the HDAC isoforms 1, 2, and 3--in combination with a number of drugs including erlotinib and azacitidine. Trial results are expected at the end of 2010. For venture backer MPM, this is the second big investment in epigenetics; the VC has also heavily backed Epizyme, which in October '09 announced its $40 million Series B.--Amanda Micklus

Merus BV: Corporate venture continues to be a relatively reliable source of funding for early-stage biotechs. (For our takes on corporate venture, see here and here). One of the most active corp VCshas struck again: the Novartis Option Fund (part of the Novartis Venture Funds) was a lead investor on Merus BV’s €21.7 million ($30.7 million) Series B financing, announced on January 29. Pfizer, Bay City Capital, Life Science Partners, and Series A backer Aglaia Oncology Fund also participated. Merus, a seven-year-old Dutch biotech, has two platforms (both derived from the MeMo transgenic mouse): one produces full-length bispecific antibodies; the other, called Oligoclonics, generates combinations of three to five monoclonal antibodies sourced from one clonal cell line (the PER.C6 line, exclusively licensed from Crucell NV in 2004). Merus believes this Oligoclonic mixture of multiple antibodies, which have the same immunoglobulin light chain variable so that all binding sites are functional, will be more efficacious than a single monoclonal antibody. The Series B is the first disclosed amount of venture financing for the company (it raised an undisclosed sum in its January 2006 Series A). With the current round, Merus expect to have enough cash to move its candidates for oncology, inflammation, and infectious disease into Phase I. Meanwhile, as is its M.O., NOF has secured an exclusive option to the cancer program in exchange for an up-front payment and milestones, all of which could total $200 million, plus sales royalties.--AM

flickr image by Lady T 220 used under a creative commons license

Thursday, February 11, 2010

Vernalis Buys Back Migraine Drug's EU Royalties

For a small drug, Frova (frovatriptan) sure has had a busy couple of years. After it failed the entrance exam for a menstrual migraine label in the US late in 2007, Frova pushed its parent, UK biotech Vernalis, close to the edge of bankruptcy. (Frova's original parent, until 1994: SmithKline Beecham).

Fortunately, the likes of financiers Paul Capital Healthcare were to hand, willing to pony up emergency cash in exchange for future royalties on Frova in the regular migraine indication. Vernalis' April 2008 deal with Paul Capital brought the biotech a €18.4 million life-line, in the form of a loan, to be re-paid along with hefty interest with 90% of the Frova royalties that Vernalis was receiving from European commercialization partner Menarini.

After a good deal more asset-selling and cost-slashing, Vernalis staggered back to life. Ex-Acambis CEO Ian Garland took the reins in late 2008, creating a new management team around him.

So today, a more confident, nearly-back-on-its-feet Vernalis has agreed to pay Paul $32.57 million (£21 million) to regain 100% of those Frova royalties and wipe the debt off its books. Vernalis is seeking the funds to pay Paul off via a placing and open offer, designed to raise about £28.5 million after expenses. (The royalties would have gradually come back to Vernalis, according to a sales-linked formula, but not for another 3-4 years, and only if sales reached a certain level.)

Paul Capital, of course, has done well out of Vernalis' troubles. For starters, it charged a cheeky 42% or so interest on its initial loan--over which troubled Vernalis, with no option at the time of raising money from the disgruntled capital markets, would have had little negotiating power. Second, the financing group has nearly doubled its money in under two years--an ultra-fast return which likely helped the deal meet Paul's required internal return hurdle. "Paul Capital was under no obligation to do the [second] deal," explains Vernalis' CFO David Mackney, "and initially they didn't want to," he adds.

But Vernalis' new management didn't want, either, to miss out on the growth of one of its assets--Frova's sales were up 15% in 2009, to €32.4 million. And the last thing it needed, as a cash-burning biotech, was heavy debt on its books (although as Mackney admits, Vernalis wouldn't likely exist today if it wasn't for that initial Paul transaction). This deal, with the placing, eliminates Vernalis' debt, reduces its cash burn (since it doesn't have to hand money over to Paul anymore) and extends its cash runway beyond 2012, potentially for as long as four years.

As for dilution: who cares? This is a company starting from scratch, whose original investors have already lost out, but whose newer backers may have something to gain, if all goes to plan. Besides, UK pre-emption laws mean existing shareholders can avoid dilution if they want by putting up more money; Vernalis' existing major shareholder, Invesco, has agreed to increase its holding to up to 46% of issued share capital by subscribing to two thirds of the offer.

Vernalis plans to use most of the remainder of the placing proceeds (about £7, by our calculation) to invest in its own pipeline and/or to seize in-licensing or acquisition opportunities. Such a move would reduce the firm's cash runway, sure. But although having an enormous runway is a nice story, particularly amid the rest of the UK's rather shaky biotech sector, it's not really the point of the business, is it?

image by flickrer Artysmokes used under a creative commons license