Deals Of The Week: It's All About Access

One of the week's most interesting news events came from across the pond as the International Structural Genomics Consortium (SGC) made waves with news of $48.9 million in new funding and two new big pharma drug partners: Eli Lilly Canada and Pfizer.

Whether it's politics, invites to the cool parties, or the next potential blockbuster drug, what's important these days is access --especially when you are on a budget.

Recognizing that it costs a bundle to lock up rights to the next potential hot new drug (witness GSK's spend on Sirtris), big pharmas are devoting more resources to building relationships with academia and the venture community (whether it's through corporate venture efforts or as a strategic limited partner.) But they are also flirting with precompetitive alliances -- and the expanding pool of participants in the SGC consortium is a reminder of the growing importance of this trend.

Indeed, both SGC's newest consortium members have been active in other kinds of open innovation plays. Back in 2008 Pfizer and Lilly joined PureTech Ventures to stake Enlight Biosciences, an early-stage company developing new technologies --for instance novel drug delivery or imaging capabilities-- that could lead to better medicines. And in 2010, Pfizer also joined forces with four other pharmas to fund Ablexis, a next-generation antibody discovery play founded by ex-Abgenix execs.

Lilly, meanwhile, has spent the last two years building a web portal that allows outside researchers to submit compounds for interrogation using its proprietary drug-discovery assays. The project, which this week was expanded and rebranded the Open Innovation Drug Discovery initiative (OIDD), is part of an ongoing effort by Lilly to promote collaboration via providing biotechs and unis free access to nearly a dozen assays designed to measure cellular responses and mechanism of action data to potentially interesting compounds.

The SGC collaboration, like the Ablexis and Enlight efforts, is also focused on new tools that could be critical to drug discovery. As its name implies, one key element is the creation of three-dimensional protein structures for use in structure-based drug discovery. With the additional funding from Lilly and Pfizer, however, SGC is expanding its focus to epigenetics, a hot area of science that has been the focus of early-stage deal making and spawned the creation of two A-list biotechs, Epizyme and Constellation. SGC aims to use its protein structure and synthesis capabilities in this arena to create new chemical compounds and antibodies that block potential proteins that cause disease by epigenetic mechanisms. The findings, including the actual reagents, will be made available to the worldwide research community.

Why would Lilly and Pfizer, as well as existing SGC consortium members GlaxoSmithKline and Novartis, put money and in-kind med chem resources into an effort that will broadly disseminate its findings to the biopharma community at large? Because the companies are betting they will be more successful competing at the level of the compound rather than in the development of the technology itself. In other words, they have a better chance of creating the first-in-class or best-in-class version of compound X if they have access to better, more robust technologies, which by the way take time and are expensive to develop in-house.

Is such open access going to solve the industry's R&D productivity crisis as some have claimed? Probably not, given the redundancies of human biology and the reality that drug development is intrinsically hard. But a mindset that resources can be shared, thus obviating the need for duplicative infrastructure, is an important step forward and a trend likely to gain steam as successes mount from SGC and other public-private endeavors like the Innovative Medicine Initiative.

In the meantime, IVB is open 24 hours a day, seven days a week with an inside track to the week's deal making news in another edition of...

Karuna Pharmaceuticals/Vanderbilt: In the latest neuroscience-focused tie-up between Vanderbilt University researchers and a biopharmaceutical company, the Vanderbilt Center for Neuroscience Drug Discovery has licensed three preclinical compounds for schizophrenia to Boston-based start-up Karuna Pharmaceuticals. No financial terms were disclosed for the deal, which centers on glycine transporter one (GlyT1) inhibitors designed to address not only the hallucination and delusion associated with schizophrenia but also depression, ahnedonia, and memory loss, symptoms that can prevent patients from holding down jobs and living independently. VCNDD, which focuses on molecules that target the brain’s glutamate system, developed the GlyT1 compounds in part with $10 million in grant funding from the National Institute of Mental Health. VCNDD has been creating a lot of R&D buzz lately: in mid-September, it pulled in an undisclosed milestone payment after delivering preclinical candidates for fragile X syndrome to Seaside Therapeutics; thanks in part to grants from the Michael J. Fox Foundation, it's also advanced three mGluR4 agonists into the latter stages of preclinical development for Parkinson’s disease. Interestingly that latter arrangement allows VCNDD to retain all the intellectual property tied to the mGluR4 agonists. The next step could be another out-licensing, since VCNDD is looking for a biopharma partner to bring them into clinical development.—Joseph Haas

Ipsen/Photocure: Back in June, mid-sized Ipsen promised disgruntled investors it would shift to a specialty pharma strategy in its uro-oncology franchise, jettisoning R&D in favor of late-stage and commercial in-licensing. The company’s Sept. 27 in-licensing of worldwide ex-U.S and ex-Nordic rights to Photocure’s marketed bladder cancer diagnostic, Hexvix, suggests it’s doing what it said it would. There’s no technological or regulatory risk associated with Hexvix: it’s already approved in Europe (since 2006) and in the U.S. (since 2010). The product is designed to induce fluorescence only in malignant cells in the bladder during a cystoscopic procedure, thus improving the detection and resection of non-invasive bladder cancer.The risk is on commercial execution: Hexvix is a drug-device procedure that requires more sophisticated selling than a pill or even an injection.It’s reimbursed in ‘most major European markets’, according to the company, but sales have been patchy. Certainly GE Healthcare, which had held ex-Nordic rights to sell Hexvix since 2006, was apparently happy to give it up, citing a strategic shift away from urology. Hexvix sales are estimated to reach €14 million for 2011, giving an immediate, if small, boost to Ipsen’s revenues. And since the French group will give Hexvix to an existing sales force detailing prostate-cancer treatment Decapeptyl (a GnRh analog), incremental costs will be minimal. Ipsen pays €19 million up front, most of which goes to GE, which built up the current sales base in Europe. Photocure takes €1.5m at signing and €5m tied to some additional transition milestones in the next month, according to COO Kathleen Deardorff. More importantly, the Norwegian group is in line for double-digit sales royalties and manufacturing revenue. It also books top line revenue in the Nordic region, and retains US rights.--Melanie Senior

Lundbeck/Proximagen: Denmark's Lundbeck might be facing the imminent loss of patent protection on its blockbuster antidepressant, escitalopram (Cipralex/Lexapro), but it's still finding the time to look for early-stage product opportunities. It announced September 28 that it was going to work closely with the UK biotech, Proximagen, applying its clinical development expertise to three of that company's research programs in return for an opportunity to negotiate rights to interesting products. The areas of focus? Neuro-inflammation, neuropathic pain and epilepsy. Lundbeck will also make an equity investment of $16.1 million in Proximagen, giving it a 9% stake in the biotech. The companies have been working on setting up the strategic partnership for some time, and the alliance shows how in the competitive CNS space, players like Lundbeck, which is increasingly competing for high priority CNS assets with deeper pocketed pharmas, see an opportunity by aligning ever earlier in the drug development process. Proximagen raised more than $80 million two years ago, and is pursuing a risk-mitigating strategy of acquiring compounds at good-value prices and developing them with partners, while holding onto certain rights, usually for Europe.--John Davis

Biotie/Newron: In a deal weighty with balanced risk, Finland’s Biotie Therapies agreed to acquire Newron Pharmaceuticals of Italy in an all-stock deal. The agreement, which values Newron at €38 million ($52 million) plus €7 million in contingent value rights, gives it the potential upside of Newron’s Phase III Parkinson’s candidate safinamide, already partnered with Merck Serono. If the drug is approved, Biotie could receive milestone payments estimated at €48 million, plus sales milestones worth up to €60 million and royalties. But if the drug fails, Biotie will essentially be out €28 million, since Newron currently has €10 million in cash. It won’t cost Biotie much otherwise, since Merck Serono is funding safinamide’s late-stage trials. Further Phase III data are expected in the first half of 2012. The deal brings very weak returns to Newron’s stakeholders, who have invested about €200 million since 1999, but represents a 38% premium over its last closing price prior to the Sept. 27 deal. Biotie’s other drug candidate, nalmefene for alcohol dependence, is partnered with Lundbeck and is due to be filed for approval later this year; Newron withstood the failure of late-stage neuropathic pain candidate ralfinamide last year. – Paul Bonanos and Melanie Senior

Image: flickrer Ben Zvan / Creative Commons.

Financings of The Fortnight Has No Clue What Will Happen Next

Some people call it "risk/reward ratio." Some people call it "systemic uncertainty." But in the spirit of baseball's Wild Wednesday finish, in which two hallowed teams completed historic collapses and lost their playoff spots in down-to-the-wire, white knuckle fashion, we prefer to quote one of the sport's philosopher-princes, former St. Louis pitcher Joaquin Andujar. His favorite English word was "you-never-know."

The you-never-know bug bites in the strangest places. Life-science VCs have spent much of the past few years pulling back from early-stage long-term biotech bets in favor of more manageable "specialty" companies. But de-risked is a far cry from no risk, as the backers of Zogenix will tell you. As noted in our round-up below, the firm went public nearly a year ago, but the main investors have nearly tripled down on their investment, buying in at the IPO and again at the recent secondary offering as the firm's share price has fallen lower than the odds of, say, the Boston Red Sox breaking their fans' hahts one month ago.

"Wait 'til next year!" was the rallying cry of the old Brooklyn "Dem Bums" Dodgers faithful, perennial runners-up to the mighty Yankees in the golden-age 1950s; Zogenix investors could be saying the same thing. The firm hopes to file for marketing approval of its second product, a single-dose, controlled release oral formulation of hydrocodone, in early 2012, so buying low (again) could make for some well-earned last-laughing.

Speaking of comebacks, few would predict an eventual Mannkind victory in its tilting-at-windmills quest to bring an inhaled insulin to market. Not after the Exubera debacle, not after other contenders with deeper pockets and generations of diabetes experience pulled out, and certainly not after Mannkind has made life harder on itself by overpromising and underdelivering.

But with a breeze of good news at its back -- FDA has greenlighted two Phase III trials for its Afrezza product -- the firm is pressing ahead. Instead of selling stock to raise cash, it wants to test the debt market. No word yet on the rate Mannkind will pay to find the amount it wants to raise -- $370 million -- but the equity side has already weighed in, with the stock up 17% since the company made the debt announcement last week.

FOTF might have its deep-seated prejudices and sympathies on the diamond side, but unless a company is throwing spitballs at the financial rules or patient safety, we have no particular dog in anyone's hunt for financial return or regulatory approval. Though we admit, there's nothing like a good comeback story. One we're working on, which you'll see in the pages of START-UP soon, is the re-emergence of the quest for a cure for HIV/AIDS. Written off as a pipe dream most of the past decade, serious work is underway again. One big question, however, is who'll pay for it. If Big Pharma resources are shrinking and VCs are skittish, can public dollars be deployed in creative new ways?

As the king of all baseball wise men once said, the game isn't over until it's over. Unless, of course, you make too many wrong mistakes. One last piece of Yogic advice: If you come to a fork in the road, take...

Elevation Pharmaceuticals: Elevation unveiled on Sept. 26 promising Phase IIa data for its lead candidate, EP-101, a nebulized bronchodilator for moderate to severe chronic obstructive pulmonary disease. At the same time, the start-up also announced it had drawn down the second tranche, worth $17 million, of its January 2010 Series A. According to Elsevier's Strategic Transactions, that $30 million round, led by Canaan Partners, TPG Growth, Care Capital and Mesa Verde Venture Partners, was the largest A round for a respiratory-focused biotech in the past three years in the U.S. and Europe. During this time there have been 12 such financings, ranging from $8.4 million to $20 million. Elevation investors see EP-101, a reformulated version of glycopyrrolate optimized for delivery with a portable handheld nebulizer, as a blockbuster opportunity. It could provide a significant improvement in standard of care for moderate-to-severe COPD patients, who are expected to number about 1.8 million in the U.S. by the time of the drug’s anticipated market entry in 2016 or 2017, said Elevation CEO Bill Gerhart. Despite the large market, Elevation faces  commercial challenges. Therapies in the respiratory space are maturing, and competing COPD therapies from big competitors like GlaxoSmithKline (Advair), Novartis (Foradil), and Boehringer Ingelheim (Spiriva) will go generic within the next four years, raising the efficacy bar Elevation has to clear. The start-up also faces challenges from younger players like Pearl Therapeutics, which raised a mammoth $69 million Series C in 2010 to push its COPD therapy into Phase IIb. -- Joseph A. Haas and Ellen Licking

Mannkind: Despite the setbacks for its inhaled insulin Afrezza, MannKind is far from drawing its last breath. The firm said Sept. 23 it hopes to sell $370 million in debt, partly to help pay for a pair of pricey Phase III studies needed to get the drug approved by FDA. In addition to the Phase III trials, the proceeds will be used to commercialize the product and build out a manufacturing facility in Connecticut. Afrezza’s development program has been long and tortuous. After two "complete response" letters from FDA, the company said in August that the agency had confirmed designs of two Phase III trials -- one in type 1 diabetes and one in type 2 disease -- using a new next-generation inhaler developed for the product. With the complete response letters, the agency had questioned, among other things, the use of an older inhaler in clinical trials, but the company had hoped new trials would not be necessary. During a Sept. 12 investor meeting, CEO Alfred Mann said the two new trials would include about 1,000 patients and wrap up in the second half of 2012. “We have a clear path to approval now,” he said. But investors know to be wary. Company executives have been prone to overly optimistic pronouncements, such as the near-promise of a big partnership for Afrezza by the end of 2009 that never materialized.-- Emily Hayes

Zogenix: Poster child for the post-meltdown class of biopharma IPOs has to be Zogenix.The specialty delivery play, with a needle-free injectable migraine product, thought it could slip through the tenuous window that opened last year, setting its offering at 6 million shares at $12 to $14 a share. Zogenix slipped through all right, but only with the ugliest of haircuts, with buyers beating it down to 14 million shares at $4 per. Sure, bankers sometimes shoot unrealistically high on purpose as part of the managing-expectations dance, but a 69% discount and all that dilution? On Sept. 16, the public market voted again, as Zogenix priced 30 million shares at $2 each. The stock had been trading near $3 the previous week. No wonder so many VCs ask out loud about the merits of rushing is to go public. According to the prospectus, three of Zogenix's venture investors -- Domain Associates, Clarus Ventures and Scale Venture Partners -- are buyers in the most recent deal, although their ownership percentages in Zogenix will drop. The same investors, plus a few more, were also buyers at the IPO, making up more than half of the proceeds. The IPO isn't an exit, VCs tell us all the time, but the FOPO? Zogenix's top two VCs have now effectively tripled down: Domain has gone from 3.5 million shares before the IPO to more than 10 million, and Clarus from 3.5 million to 9.5 million. Zogenix shares closed Sept. 28 at $2.05. -- AlexLash

Tokai Pharmaceuticals: Massachusetts-based Tokai said it reeled in $23 million for what it called a Series D3 round of financing led by Novartis Venture Fund and Apple Tree Partners. The money will take the company through Phase IIb testing of lead compound galeterone (TOK-001), which it is studying for the treatment of castrate-resistant prostate cancer. Company officials said they've successfully completed a Phase I trial but have yet to release the results. The cash should last Tokai through 2013, said Seth Harrison, chairman of Tokai and a managing general partner at Apple Tree. "We want to go from a Phase II -ready company to a Phase III-ready company over the course of the next one and half to two years," Harrison told "The Pink Sheet" last week. The Phase I trial included 49 patients and began in 2009. The company said the results were"very encouraging" but would not reveal details. Tokai plans to present results of the study at upcoming oncology meetings. The funding comes as other castrate-resistant prostate cancer treatments are hitting the market, namely Johnson & Johnson's Zytiga (abiterone), which J&J acquired when it shelled out nearly $900 million for Cougar Biotechnology; and Dendreon's Provenge (sipuleucel-T), whose launch has failed to live up to investor expectations. Harrison said that Tokai will look into options for an exit once galeterone is Phase III-ready, and toward that end it brought in a seasoned biotech dealmaker, MartinWilliams, to take over from Harrison as CEO. Before Tokai, Williams was chief business officer at RNAi platform firm Dicerna Pharmaceuticals, where he brokered a partnership with Kyowa Hakko Kirin. Earlier, Williams was chief business officer at Synta Pharmaceuticals, where he helped take the company public in 2007 and negotiated a $1 billion collaboration with GlaxoSmithKline for its lead product, the metastatic melanoma treatment elesclomol that later failed miserably in Phase III trials. -- Lisa LaMotta

Photo courtesy of flickr user Blyzz via a Creative Commons license.

Deals of the Week Plays Moneyball

Sometimes picking a winner is easy. But if you ask a baseball general manager, a moviegoer, or a private equity investor, it's the hidden gems, the fixer-uppers, and the unexpected turnarounds that can be the most satisfying. Such salvage cases lie at the heart of Michael Lewis's 2003 book Moneyball, now a major motion picture, a baseball movie that isn't just that. The story of the Oakland Athletics' shoestring-budget team that enjoyed an amazing 20-game winning streak in 2002, it's described by Roger Ebert today as "a brainy baseball movie about cost-benefit analysis," an underdog story that incorporates business savvy, an understanding of human nature, and the relationship between analysis and instinct. (And if Hollywood can turn a book written by a business journalist about football into an Oscar-winning Sandra Bullock star turn, maybe Moneyball itself will be an unlikely success.)

For some drug makers, finding value in compounds where others don't see it is their own game of moneyball. As we'll discuss in an uncoming IN VIVO feature, central nervous system drug maker Jazz Pharmaceuticals went from trading under $1 in 2009 to a 52-week high of $47.88 this week, on the strength of several critical decisions that maximized value of underappreciated assets. It shuffled its priorities multiple times, eventually focusing on narcolepsy treatment Xyrem (sodium oxybate) -- at one point considered a backup plan, now a fast-growing, $200-million-plus-per-year drug -- while pulling additional value out of Luvox CR (fluvoxamine), a controlled-release version of an SSRI that had fallen out of favor in prior years and was withdrawn from the market by Solvay Pharmaceuticals. It's resulted in a windfall for Jazz as well as its PE stakeholders, including Kohlberg Kravis Roberts and Longitude Capital.

This week, Jazz hopes to have found another Scott Hatteberg, one of Moneyball's hidden talents, in Azur Pharma Ltd., an Irish specialty pharma with which it shares several traits in common. California-based Jazz used its strong equity position to merger with Azur in a stock transaction, giving its shareholders about 80 percent of the combined company. The deal will also allow Jazz to move its headquarters to Dublin, potentially resulting in a massive tax savings. Though many of Azur's strengths lie in CNS drugs, the deal also gives Jazz a beachhead in women's health. Analyst Gene Mack of Mizuho Securities USA wrote in a research note that the newly combined entity, Jazz Pharmaceuticals PLC, could even exceed its projection of $475 million in its first 12 months of existence.

If only the Oakland Athletics could relocate somewhere close to home that would allow them to generate more revenue. (Somewhere very close to the computer on which these words are being written, an Athletics season ticket holder sighs.) As they look up at the teams headed for the playoffs, we invite you to have a look at...

Bristol-Myers Squibb/Ono Pharmaceuticals: In a transaction that involves no cash moving in either direction, Bristol-Myers Squibb has expanded its territorial rights to an oncology antibody acquired in its 2009 purchase of Medarex, while Ono Pharmaceutical gets co-development and co-commercialization rights to rheumatoid arthritis drug Orencia (abatacept) in Japan. Ono can earn unspecified royalties if the antibody, BMS-936558/Ono-4538, an anti-programmed cell death (PD-1) antibody in clinical development in multiple types of cancer, reaches market. Bristol Senior VP-Strategy, Alliances and Transactions Jeremy Levin cautions not to consider this deal merely an asset swap. “It’s less a swap than it is an understanding that we have different strategic imperatives,” Levin said. “So we trade the value of an existing product that we like a lot, Orencia, for a product that we think helps build a tremendously important part of the immuno-oncology franchise.” Under the Sept. 20 agreement, Bristol’s rights to BMS-936558 expand to the entire world other than Japan, Korea and Taiwan; Ono will retain rights to the antibody in those markets (In the original Medarex/Ono deal, Medarex received North American rights to the antibody.) In the U.S., ’558 is in Phase I and Phase II trials in a variety of tumor types and treatment settings, Bristol says, including renal cell carcinoma and melanoma. Ono has advanced the compound to Phase II in melanoma in Japan.—Joseph Haas

Bristol-Myers Squibb/Ambrx: In the second deal under its “String of Pearls” strategy in two days, Bristol acquired worldwide rights Sept. 22 to two preclinical biologic candidates, one for type 2 diabetes and the other for heart failure. Ambrx will receive a $24 million upfront payment from Bristol in exchange for worldwide rights to research, develop and commercialize both ARX618, a fibroblast growth factor 21 (FGF 21) protein nearing the completion of preclinical development in type 2 diabetes, and an optimized version of relaxin hormone in earlier preclinical development for heart failure. The deal is Ambrx’s latest using its site-specific conjugation technology platforms to optimize molecules for big pharma partners, but also its first in two years. Ambrx optimized the two large molecule compounds for development using its ReCODE (Reconstituting Chemically Orthogonal Directed Engineering) technology platform. This technology allows the San Diego-based biotech to modify native proteins with amino acid building blocks beyond the common 20 amino acids known to nature to engineer enhanced candidates for therapeutic use. Beyond the $24 million upfront payment, Ambrx also is eligible for milestone and royalty payments on both programs. Of the two programs, ARX618 is said to be closer to entering clinical development. — JAH

Merck Serono/Peptimmune: Merck Serono, the pharmaceutical division of German conglomerate Merck KGaA, acquired the worldwide rights to PI-2301, a Phase II-ready candidate for multiple sclerosis, from cash-strapped Peptimmune on Sept. 19. While the official news release did not mention it, Merck Serono confirmed to DOTW that it paid $1.5 million up-front to Peptimmune for the rights to PI-2301, a second-generation peptide copolymer thought to offer the potential to enhance the immune system’s regulatory response. The compound has completed a Phase Ib study in MS, but Peptimmune, which is in the process liquidation after filing for bankruptcy earlier this year, no longer had the ability to advance the candidate further. PI-2301 which has a mechanism of action similar to Teva’s Copaxone (glatiramer), is believed to offer potential in a number of autoimmune indications, including Crohn’s disease, rheumatoid arthritis and uveitis. — JAH

Merck & Co./FKD Therapies Oy: Finland is considered by some to be a hotspot for gene therapy research, and is the location of a new company, FKD Therapies, set up to exploit a bunch of gene therapy assets found to be surplus to requirements at Merck. The Finnish company, led by gene therapy veteran Nigel Parker, formerly CEO of Ark Therapeutics, has licensed an alpha-interferon gene therapy from Merck, and has options on two other potential gene therapies. The alpha-interferon gene therapy is slated to go into Phase II trials for the treatment of bladder cancer next year. Along with other Big Pharmas, Merck has not been particularly prolific in licensing out technology and products that have fallen outside its tightened therapeutic focus, post-merger with Schering-Plough; the FKD Therapies deal is believed to be one of Merck's largest out-licensing deals in recent times in the pharmaceuticals arena. The U.S. company has taken an equity stake in FKD Therapies, which is also backed by the German investment bank, Wolbern Invest. FKD Therapies also has options on a recombinant adenoviral p21 gene to treat glaucoma surgery failure, and on a conditionally replicating adenoviral technology for the treatment of solid tumors. — John Davis

Professional Egos, Cultural Norms Clash At Xarelto AdComm

Let’s be honest – we look forward to some FDA advisory committee meetings more than others. Some meetings, such as those convened only because a product is a new molecular entity but with no controversial safety or efficacy issues attached, can be a bit of a yawn from a newsgathering perspective.

Give us a drug that has hit some regulatory bumps in a hot and highly lucrative therapeutic area, and it raises our journalistic antenna.

So, when we saw the FDA staff’s strongly negative review of the atrial fibrillation claim for Bayer/J&J’s Xarelto (rivaroxaban) – a review that went so far as to recommend a “complete response” action – we knew we were in for an interesting meeting of the agency’s cardio-renal committee on Sept. 8.

Couple that with the revelation that there were going to be some big names participating in the proceedings (Rob Califf! Steve Nissen! Sanjay Kaul! Tom Fleming! – none of whom could be accused of being afraid to share their views on a subject), we were practically salivating.

Our giddiness was further heightened when we saw FDA’s draft questions, which spanned six pages. FDA wanted to know whether rivaroxaban’s efficacy was appropriately studied against warfarin in the ROCKET AF trial, or whether the drug’s efficacy is best viewed against that of Pradaxa (dabigatran), Boehringer Ingelheim’s oral direct thrombin inhibitor that was approved last October.

Most of the committee members – and FDA’s cardiology guru himself, ODE I Director Bob Temple – were pretty clear in their views that the Xarelto sponsors shouldn’t be required to show rivaroxaban’s efficacy against that of another drug on the market for less than a year. (This week’s issue of “The Pink Sheet” offers in-depth analysis of how FDA might continue to use its “as effective” standard.)

Thanks to these views, drug developers appear to have escaped the potential calamity of having to go back to the drawing board to compare their late-stage compounds to the newest kid on the block for FDA approval. (Reimbursement is another story, but we digress.)

Nonetheless, the discussion over the appropriate comparator for rivaroxaban raised the lingering problem of how well clinical trials mimic real world use when it comes to establishing efficacy against another drug, and whether it’s wise to attempt to mimic actual medical practice when that offers a comparison that is far from ideal.

While warfarin may be the appropriate comparator in the eyes of most committee members and top FDA brass, a debate over how well warfarin is used in clinical practice and in the ROCKET AF trial led to a clash of egos and a lesson in cultural norms at the meeting.

One key issue before the committee was how well anticoagulation control with warfarin was managed in ROCKET AF, as gauged by International Normalized Ratio time in therapeutic range (TTR).

In their briefing documents, FDA reviewers took the ROCKET AF investigators to task for what they considered to be the less than “skillful” use of warfarin when compared to other anticoagulant studies.

The mean time in TTR was 55% across the ROCKET AF program, compared with 64% for dabigatran’s pivotal RE-LY trial. The lower TTR in ROCKET so distressed the agency reviewers that they used the word “skillfully” 16 times in their briefing document as they sought to drive home the point that it is difficult to ascertain rivaroxaban’s true efficacy when compared against warfarin that is well managed.

But some in the meeting room didn’t take too kindly to FDA’s characterization of unskillful use of a drug that has been a standard of care for stroke prevention in atrial fibrillation patients for years.

Duke University Vice Chancellor of Clinical Research Robert Califf, appearing on behalf of the sponsors and the study’s executive committee, maintained that the average TTR of 64% for North America was better than U.S. practice in general and comparable to the North American results in other anticoagulant studies.

“This is hardly a result that should be attributed to unskillful clinicians,” Califf said. “I have to say on behalf of the executive committee and over 1,000 investigators, we don’t think we’re unskilled. We think we’re pretty good.”

Califf maintained that the lower overall mean TTR in ROCKET AF was due in large part to the geographical diversity of the study population and the inclusion of patients at higher risk of stroke than in other anticoagulant trials. More than 38% of the patients were enrolled in Eastern Europe, where TTR was 49.7%. Another 15% came from the Asia-Pacific region, where TTR was only slightly better, 52.4%, according to FDA’s calculations.

Regional variations in how quickly patients were brought back for INR assessment resulted in an “artificial” lowering of TTRs in areas where there was a longer delay, such as in Asia-Pacific and Eastern Europe, Califf said.

Warfarin dosing was managed at each site according to local standards, and there was no centralized protocol for managing patients who fell outside of therapeutic range. Site investigators were educated on the importance of keeping INR within the 2.0-3.0 target range.

The geographical distribution of patients, coupled with the absence of a single warfarin dosing protocol, touched off one of the more interesting debates of the day between Califf and Cleveland Clinic’s Steven Nissen, a temporary voting member on the panel.

“Given the fact that I think you guys knew that the TTR was going to be a critical factor in the approvability of the drug, I’m just puzzled why you didn’t make an effort to give sites, particularly Third World sites, some guidance about what to do,” Nissen said to the sponsors. “Basically, you sort of left them on their own, and my concern is that’s why you got such a low TTR” across the ROCKET AF study.

At this point, Califf embarked on a lesson in global diplomacy.

“Dr. Nissen I’m sure you didn’t mean to use the term Third World, because I don’t think that’s an appropriate term anymore, and in fact if you look at the news today you would find what you’re calling Third World actually owns most of our national debt,” said Califf, whose remarks were met with laughter in the room.

“I think the investigators around the world will be highly offended by the sort of American exceptional tone of some of the discussion, not you personally, but – ”

At this point, Michael Lincoff, Nissen’s colleague at Cleveland Clinic and acting chairman of the committee, attempted to redirect the discussion away from geopolitical issues and back to anticoagulants.

“Let’s focus on the subject,” Lincoff said, before he was cut off by Nissen.

“Rob, you showed us that those sites in those countries didn’t do a very good job of managing warfarin. That’s where all this comes from,” Nissen said to Califf.

“But these two concepts are related,” Califf responded. “It’s not that doctors do a lousy job. This is a really hard drug to use and it’s especially really hard to use in various social, economic personality characteristic circumstances. You know that as well as I do.”

“What we felt obligated to do was to do better than standard of practice given the heterogeneity of the practices in those centers,” Califf said. “We spent a lot of time at every site saying how do you do it? Let’s make sure what you’re doing is OK, but let’s not force you to use one specified algorithm. Let’s make sure you make the appropriate dosing changes. I showed you that it wasn’t that they weren’t making the appropriate dosing changes. They just brought the patients back when it was feasible to do it.”

With the sparring over lesser developed countries behind them, the committee continued with its questions and discussion, though later in the meeting other panel members felt the need to weigh in on the skillfulness issue.

TTR is “certainly a marker of skillful care” but is not an effect modifier, Cedars-Sinai cardiologist Sanjay Kaul maintained.

Yet, fellow panel member and cardiologist Darren McGuire, University of Texas Southwestern Medical Center, was quick to take offense. McGuire conceded the TTR rate at his institution is only about 54%, but he noted that numerous patient level characteristics, and not the treatment provided by a given physician, play a role in how well TTR is maintained.

“I will agree with Dr. Califf’s comment earlier. I take some offense at the term unskillful use, because it’s a little bit accusatory and it’s a complicated therapeutic strategy.”

Some committee members said they appreciated the lack of a standardized dosing protocol in ROCKET AF because it more closely mirrored how warfarin is used in clinical practice, which is imperfectly.

The issue of how well INR was maintained came up in the advisory committee review of Pradaxa as well. Boehringer was lauded for the level of control achieved for warfarin in RE-LY, which had an open-label design for that reason (though the trial design also drew criticism). But the INR variability also kept FDA from granting an outright superiority claim; the agency included cautionary language in labeling noting that the benefit was driven by centers where INR control was poor.

The back and forth at Xarelto review begs the question of whether better data is gained by mimicking real world use, though it may mean imperfect use of a standard of care, or if tightly controlled trial practice is a better comparator for convincingly demonstrating efficacy in the minds of regulators and payers.

While answers may not be quickly or easily forthcoming, it’s an issue that other anticoagulant sponsors should be prepared to address.

– Sue Sutter

Photo, "Triplets of Cap Hill," by Flikr user daniel spils, reproduced under Creative Commons license

At PSA: Thinking Primarily About Primary Care Rx

Has the life gone out of primary care drug market?

Referring to the category as “dead” is hardly a jaw dropping comment in today's marketplace given regulatory and reimbursement hurdles. Indeed, when it comes to launching successful drugs into traditional mass-market categories, as an industry, biopharma's track record is painfully diminished.

But surely better ways exist to describe the state of primary care, a business that is of vital importance to pharma. A panel of experts will discuss the topic on the afternoon of Sept. 22 at Elsevier’s annual Pharmaceutical Strategic Alliances conference. Yes, the landscape is challenging, with the advent of generics, diminishing physician autonomy, increasing interest in accountability for costs, and greater complexity in sales strategy. But pharmas are adapting. McKinsey director David Quigley and colleagues forcefully outline this evolution and the corporatization of American health care in this month’s issue of IN VIVO. Quigley will also be on the PSA panel, where he will lead off the discussion by pointing out key commercial trends.

True, the widely-cited Express Scripts 2010 Drug Trend Report calculates that specialty spend (inflammatory conditions, MS, cancer, anti-coagulation, growth deficiencies, and pulmonary hypertension) is rising far faster than money spent on traditional medicines (high cholesterol, diabetes, high blood pressure, depression, asthma, and ulcers). The former accounted for 25% of all payer drug spend in 2010 – and grew nearly 20% from 2009 to 2010, albeit off a smaller base, compared to less than 2% growth for the latter.

Worrisome statistics, but primary care is still the bulk of Big Pharma's bread and butter. And execs like Pfizer's Adele Gulfo, who will likely have responsibility for at least one ultra-high profile launch in the next year, believe the key to a successful commercial strategy in mass market drugs rests -- as it has historically -- largely on doctors’ interaction with manufacturers. Other top commercial executives set to give their thoughts on successful drug launches in 2012 and beyond include Wael Fayad, VP, business development at Forest Laboratories, and Riad el-Dada, SVP, diabetes and obesity, at Merck.

The tools driving that doctor-sales rep interaction, however, may be changing – although in proportions one might not expect, based on media hype. Traditional ‘reach and frequency’ and “mirrored territories’ may be strategies of the past. The panelists are likely to have lots to say on this issue. The best route to success, of course, is addressing unmet medical need with a truly innovative offering. But it's the road that may be steepest: not every drug can be a Januvia(Merck)or the anti-coagulation medication apixiban (Pfizer/Bristol).

So, they talk about the best ways to think about me-too drugs (or not). Forest Laboratories, for instance, is an expert in maximizing the value of drugs that are latecomers to competitive categories--witness the slow build of its anti-hypertension drug Bystolic. Can Forest pull off another slow-build surprise with its new anti-depressant Viibryd?

On the whole, these panelists – as PSA attendees will hear -- have a surprisingly vibrant attitude towards primary care – one likely to hold up over time, given that biosimilars should start making a dent in demand for older, until now, protected specialty brands. Industry doesn’t expect biosimilars to have a significant competitive impact until 2015. Then, the seasoned primary care experts will be able to show specialty executives a thing or two about what's what and help them weather the onslaught of low-priced competition and tightening payer control over utilization.

Deals of the Week: Riding in Cars with Pharma

Move over Lewis Hamilton and Jenson Button?

GlaxoSmithKline said yesterday that it had partnered with the McLaren Group, the British Formula One team owner and luxury sports car manufacturer. And sorry, sales reps, it's not for a company-car upgrade.

Instead GSK is after McLaren's expertise in engineering, technology, analytics, and strategy modelling, according to the Big Pharma's release. McLaren's own statement talks up the automotive guru's so-called Mission Control center, a base from which the company concocts its race strategy that will be replicated at GSK's London office to "drive faster decision-making around variables such as wholesaler stocking, inventory management, pricing, responding to retailer requests, competitor activity, and market and customer needs [for GSK's nutritionals business]. This facility will reflect a perfect synthesis of the McLaren/GSK collaboration."

Nowhere in either release did someone say: "VROOOOOOOOOOOM!"

The deal, initially scheduled to run through 2016, appears to combine management consulting strategies and potential technological innovations that could improve GSK's R&D processes. We'll have more to say next week once we've talked to someone in the driver's seat. Meanwhile, cue the Tracy Chapman, 'cause you know who else got a fast car?

VBI Vaccines/Epixis: Cambridge, Mass.-based immunotherapy developer VBI Vaccines agreed to pay an undisclosed amount to acquire its partner Epixis, a French developer of vaccines based on virus-like particle technology. The two initially collaborated on a cytomegalovirus vaccine following a June 2010 deal. The acquisition gives VBI outright ownership of the program, as well as Epixis’ platform and a hepatitis C program also under development. Backed with $40 million in Series A funding from Clarus Ventures, 5AM Ventures and ARCH Venture Partners that includes a recent $4 million extension, VBI has been engaged historically in the discovery of thermostable vaccines that do not require cold storage. Although a Series B round is in the works, VBI will also pursue non-dilutive partner revenue, likely beginning with an Asian partner for the HCV program acquired with Epixis. Either event could occur before VBI’s six-month supply of cash runs out, according to CEO Jeff Baxter. VBI intends to fund the CMV program through Phase I at minimum before seeking a partner, Baxter added. Epixis’ entire staff of six will continue with VBI, with four accepting full-time positions and two becoming senior advisors. The deal was completed six weeks ago, but its announcement was delayed until Epixis published a key research paper on hepatitis C virus in trade journal Science Translational Medicine. – Paul Bonanos

Vanderbilt University/Seaside Therapeutics: Researchers at Vanderbilt’s Center for Neuroscience Drug Discovery achieved a milestone in their work with Seaside Therapeutics to discover and develop a drug for fragile X syndrome, the most common genetic cause of autism. Seaside and VCNDD signed a three-year, $4.5 million research agreement in 2008 to develop metabotropic glutamate receptor subtype 5 (mGluR5) modulators for fragile X based on discovery work done by the university’s researchers. On Sept. 15, VCNDD announced that drug-like mGluR5 molecules are in final preclinical studies, after which they will be turned over to Seaside for clinical development, possibly to begin in 2012. Just one example of the increasing alliances between biopharmaceutical companies and academia, the Seaside/VCNDD arrangement was expanded in 2010 to work on developing and optimizing small-molecule muscarinic acetylcholine subtype 1 (M1) antagonists for fragile X, autism and other brain development disorders. The two groups currently are collaborating on clinical trials to test STX209 (arbaclofen) in those indications. VCNDD also has ongoing partnerships with Johnson & Johnson in schizophrenia and with the Michael J. Fox Foundation in Parkinson’s disease. – Joseph Haas

Cellectis/Cellartis: With such similar names, these two European research-tool companies, with activities in genome engineering and stem cells respectively, were probably already getting each other's mail. Perhaps all those "oh that's not us, you mean ..." interactions were bound to lead to something? But seriously, one of the drivers of the €30 million ($41.5 million) acquisition of the Swedish Cellartis by the French Cellectis, announced Sept. 15, seems to be France's desire to have a global leader in stem cell technologies in its backyard. The state strategic industry investment fund, or FSI, is bankrolling the acquisition with help from a wealthy French industrialist, Pierre Bastid. Together they're making a €50 million investment in Cellectis. Cellartis's attractions include its ability to produce hepatocytes and cardiomyocytes from human embryonic stems cells, used by pharmaceutical companies like AstraZeneca for predictive toxicology studies, and a very early-stage research collaboration with Novo Nordisk on the development of a stem cell approach to the treatment of diabetes. Cellartis's investors are to receive €16.4 million in cash and 1.93 million Cellectis shares for the company, and the deal is expected to close at the end of October. – John Davis

Financings of the Fortnight Welcomes All Ye Who Enter Here

By our measure, at least five new health-care funds debuted or made news in recent days. Count with us:

1) Longitude Capital Management filed a document that showed it has raised $159 million toward a target of $375 million for its second fund.

2) A new entity called Navimed Capital, founded by The Carlyle Group's former health care guys, said it would start investing in later-stage companies looking for expansion capital. Managing director Ryan Schwarz declined to chat while they were in fundraising mode, but at Carlyle Schwarz was involved in two $600 million funds, so let's assume for now Navimed is going large, too.

3) A former OrbiMed Advisors partner is looking to raise $400 million for a hedge fund focused on small publicly-traded health-care firms, VentureWire reported.

4) General Electric said it and four venture firms were putting up to $100 million to work to spur submissions of new ideas in breast cancer diagnostics. It's not immediately clear how much of that cash would become awards from a panel of judges and how much would turn into equity investments by GE and its VC friends. (When FOTF sees the phrase "up to" in front of a big number, we think "biobucks.")

5) Our own colleagues have the scoop on Merck making at least $500 million available in two corporate venture funds, one of which FOTF disclosed this spring.

Even if all those nine-digit numbers don't pan out, it's a lot of cash potentially shaking out of the money tree and into the health care sector. But based on the latest dreadful venture fundraising data -- in the second quarter, the lowest number of funds raised capital since 1995 -- we probably shouldn't read too much into it. Mind you, those data are for all venture sectors, not just health care. But who's going to argue that health care is more attractive right now than other sectors? Anyone?

Well, OK. Atlas Venture partner Bruce Booth is. Or at least he argued earlier this summer, in a paper co-written with one of the new Navimed partners (who calls himself "The Bij," no less) that, oh yes indeed, the life sciences have been more attractive than other sectors (to which we add the standard boilerplate caveat that past results are no guarantee of future performance). For the record, we also believe there's a good argument to make for a little more respect for the life sciences, and biopharma in particular, a point we emphasize in START-UP magazine's upcoming VC Survey feature.

But we won't go so far to suggest that the fundraising news this fortnight signals a resurgence. After all, there's a massive backlog of IPOs -- planes on the tarmac, if you will, waiting for economic thunderstorms to pass -- but only 7% are health care related. And there's very little optimism in our corner of the world about the near future. From our life-science VC survey, less than 20% of our respondents said an IPO was a likely outcome for their maturing portfolio companies in the next five years. This week, Abingworth partner Jonathan MacQuitty said at a networking event that "maybe three" of the 35 or 36 privately held firms in Abingworth's portfolio would do IPOs. (There's more on one of Abingworth's companies below.)

This is why VCs are trying new models like asset-based financing, or welcoming corporate venture firms into their syndicates in hopes of having more potential acquirers down the road. It's all about widening the funnel. Otherwise, you can check in any time you like, but you might never leave. Could be worse. At least the room service is fast, the showers are hot, and you get a complimentary copy of...

InterMune: Padding its pockets in time for the European launch of idiopathic pulmonary fibrosis drug Esbriet (pirfenidone), InterMune could gross as much as $231 million in a concurrent public offering of equity and debt announced September 13. It's coincidentally (we assume) the same day its former CEO was banned from doing business with federal health care programs for his role in off-label marketing of InterMune's drug Actimmune. The biotech will sell 4 million common shares at $24 each and is separately offering $135 million in seven-year 2.5% convertible senior notes. Underwriters can buy an additional 600,000 shares and $20.25 million in notes through the 30-day overallotment period. News of the financing sent the stock down to $24.20 the day the deal was announced after trading in the $25 to $27 range the previous week. The cash will help build its EU commercial infrastructure for Esbriet, which the company is handling itself because of the niche patient population for IPF, a rare and fatal disease for which there are no treatments. On September 15 the company launched Esbriet in its first European territory, Germany, and is charging more than expected: $51,000 per patient per year, higher than the target range of $32,000 to $45,000 previously set by management. The price hike comes even though a few companies have recently withdrawn their drugs from Germany due to tough comparative benefit assessments under new pharmaceutical reimbursement laws. Launches in other major EU countries are planned for 2012. In the US, InterMune needs cash for pirfenidone's Phase III ASCEND trial, which enrolled its first patient in July. The double-blind placebo-controlled trial was triggered by an FDA complete response letter in May 2010 that requested additional testing to provide more evidence of pirfenidone’s efficacy in reducing lung function decline. Trial results are expected in mid-2013, with a potential FDA approval in early 2014. -- Amanda Micklus

Orphazyme: The rare-disease bandwagon keeps rolling. Danish biotech Orphazyme has just completed a €14 million ($19 million) Series A fundraising, despite being founded only two years ago. The tiny firm is developing therapies for lysosomal storage diseases, following in the much larger footsteps of Genzyme and Shire. VCs have tabbed the subsector as one of the most attractive as they search for diseases both regulators and payors look favorably upon, although there are signs that Big Pharma's enthusiasm for the space could bring more regulatory demands from developers. Another rare disease start-up to nab an eye-opening Series A was Ultragenyx Pharmaceutical, which we noted here. The Orphazyme investment also adds to the mini-explosion of Series A rounds in Europe over the past month: five since the middle of August that total a not-to-be-sneezed-at $84 million. The round included funds from new investor Aescap Venture, which joined existing investors Novo Ventures and Nordic-based Sunstone Capital. Novo Seeds, another fund associated with Novo A/S, originally provided seed capital to Orphazyme when it was set up in 2009, based on the work of founders Thomas Kirkegaard Jensen and Marja Jaattela of the Danish Cancer Society. The researchers showed that heat-shock proteins (HSP), which are produced by cells when they are subjected to higher temperatures or other stresses, stabilize the cell membranes of lysosomes, acting as "molecular chaperones." Orphazyme is developing a recombinant version of HSP70, named Orph-001, currently in animal studies. It could be possible for a single HSP to treat a number of lysosomal storage diseases,which consist of a group of around 45 rare genetic disorders. Many of them are untreatable and mainly affect children who die at a young age. Useful therapies have been developed only for a handful of these disorders such as Gaucher disease and Fabry's disease. -- John Davis

Valeritas: The maker of V-Go, an insulin delivery device for Type-II diabetics, reeled in a massive $150 million Series C round, but it wasn't easy. The firm was burning more cash than expected; it notched its FDA 501(k) clearance for V-Go in December but needed manufacturing capacity before launch. In stepped private equity firm Welsh, Carson, Anderson & Stowe to lead the C round, but at a hefty price: a controlling stake in the company. "We found someone with deep pockets," said Tom Rodgers, a partner at Advanced Technology Ventures, one of Valeritas' existing investors. FOTF caught Rodgers and fellow Valeritas investor Jonathan MacQuitty of Abingworth at a networking event this week, where MacQuitty said Valeritas' cash burn made closing the round more nerve-wracking than the syndicate would have liked. Valeritas plans to use the money from the latest round of financing to finish the manufacturing of the product and begin its commercialization. CEO Kristine Peterson told our Pink Sheet colleagues that the Bridgewater, NJ company has yet to determine how large the sales effort will be, but expects its commercialization efforts will get underway at the end of 2011 or the beginning of 2012. The company expects V-Go, a hybrid patch/pump, to fill the gap between the 94% of diabetics that use injectible pens and syringes and the more expensive, complex insulin-delivery pumps that often cost thousands of dollars. While insulin pumps replace the need for periodic injections, they require the use of a catheter and those patients to be attached to the pump most of the time. V-Go would allow patients to have the convenience of a typical pump without its disadvantages. Many pharmaceutical companies interested in diabetes are now offering complementary devices to go with their pharmaceutical offerings, and simpler is often the order of the day. Valeritas' other returning investor sare MPM Capital, Pitango Venture Capital, ONSET Ventures, HLM Venture Partners, Agate Medical Investments, CHL Medical Partners and Kaiser Permanente Ventures. -- Lisa LaMotta and Alex Lash


Crescendo Bioscience: The developer of molecular diagnostics wins this fortnight's financing daily double in one of the more unusual maneuvers we've ever seen. First the firm, which in November launched its first test VectraDA for monitoring rheumatoid arthritis disease activity, just closed a $31 million series C financing, which was led by Aeris Captial and included existing investors Mohr DavidowVentures, Kleiner Perkins Caufield & Byers, and others. But Crescendo is adding a $25 million loan from diagnostic innovator Myriad Genetics, which includes a three-year option to acquire Crescendo at a multiple of revenues once those revenues hit an initial threshold. According to Crescendo CFO Bill Salisbury, the multiple that would be applied is higher the faster revenues are growing. If Myriad does not exercise, the debt is to be paid off in years four to six. And if Crescendo goes public during the option period and Myriad still declines the option, Myriad can convert the debt to equity at the IPO price. The unusual combination of a loan plus an option makes this portion of the recent fund-raising non-dilutive to Crescendo’s investors. It also assures that Crescendo can continue to operate independently: both parties saw the latter as a critical element for the deal until Myriad decides to exercise the option, says Salisbury. The deal is in keeping with Myriad's goal of diversifying revenues outside of oncology. Myriad acquired specialist testing lab Rules-Based Medicine in April for $80 million, adding expertise in the development of companion diagnostics in cancer, infectious diseases and neurological and inflammatory disorders. Of note, and to pound on a theme we've emphasized all year in IN VIVO, Myriad, Crescendo and Rules-Based Medicine all adopt the specialist CLIA lab, drill-down-deep-into-a-disease-area model predominant in complex diagnostics development today. This way of delivering tests and related services has been common in oncology and genetic testing, in part to assure the quality of gene and gene expression based tests requiring DNA amplification, which require a high level of operator expertise. We’re now seeing it in other disease areas and with other kinds of analytes as the foundation for building franchises in those specific diseases, unlike the traditional horizontal big-box diagnostics model aimed at getting as many tests onto a single proprietary platform as possible. Crescendo’s Vectra DA test may use a set of relatively easy to measure quantitative protein markers. But in rheumatology, diagnosis relies mostly on tools around signs and symptoms, which are highly subjective. As Myriad’s interest attests, it’s an area where it makes sense to try to innovate using complex biomarker strategies and a strong information component. -- Mark Ratner

Photo courtesy of Flickr user iti+minibebi through a Creative Commons license.

Merck's $500 Million Venture Bet -- Industry's Latest and Largest Attempt to Get Closer to VCs

Today in the newly released September issue of IN VIVO we're reporting that Merck & Co., until recently one of the few large pharmaceutical companies seemingly disinterested in playing venture capitalist, is placing a significant corporate venture bet.

Two bets, actually. We told you a little about the first one -- The Global Health Innovation Fund -- back in March, but back then details were thin. And since the Spring that fund, set up to invest in non-pharmaceutical health care spaces, has doubled in size to $250 million (and it may yet grow some more). It's led by ex-J&Jer Bill Taranto and has a remit to invest capital in service-oriented businesses like home health as well as health IT, and other so-called 'adjacencies' where Merck may see itself as a future player. Internally the GHIF strategy is referred to as 'Pharma Plus'; so far it has made a handful of (undisclosed) investments.

Meanwhile Merck has been quietly shopping a second initiative to prospective venture partners. And here's where it gets very interesting.

The Merck Research Venture Fund, also staked with $250 million, is an effort to partner up with traditional VCs to gain access to innovative companies early on in their life-cycles. Merck plans to invest in a handful of funds as a strategic LP (in the US, in Europe, in China, and elsewhere), provide 'advice and guidance' from Merck scientists to those funds' portfolio companies, and hope it secures an inside track on those biotechs or their programs when they mature to the point that Merck's business development group can step in. So far Merck has teamed up with one (undisclosed) venture fund.

The initiative has echoes of Lilly's Mirror Portfolio, though Merck SVP and head of worldwide licensing and knowledge management David Nicholson avoids the explicit comparison and notes that Merck isn't routinely taking options on nor contributing assets to the biotechs in which it invests. As Merck may sometimes invest in a side-car structure it has also drawn comparisons to the MPM Capital-Novartis tie up and others like it.

All of these structures are part of industry's efforts to access innovation earlier on in the value chain, externalize increasingly large portions of their own R&D efforts, and pump money into a venture community that has served as the lifeblood of its future product opportunities.

Response to the MRVF among venture capitalists we talked to has varied from deep skepticism to reluctant acceptance. No doubt there are plenty of life sciences venture funds out there that could use Merck's money and see the idea of guidance from Merck scientists as a plus. But the idea, voiced by Nicholson, that Merck's involvement would fundamentally enable greater financial returns for the funds' other LPs was uniformly questioned.

Will the best entrepreneurs want Merck poking around in their companies? Will Merck's early involvement put off other potential pharma investors or acquirers? Does the value of Merck's involvement -- again it's just 'advice and guidance' -- outweigh the potential drawbacks?

The fact that its first venture partner prefers to remain anonymous, for now, suggests to some that the answer to this last question is no, at least for venture firms who have fundraising options. "Only the funds that need their money will accept it," said one VC we spoke with.

That was a fairly common sentiment, but one Nicholson shrugs off and one that is hard to measure. The success of the MRVF -- and indeed the GHIF and other pharmas' initiatives to get closer to venture firms and their portfolio companies -- can't be gauged for years.

Only when Merck starts signing deals with these now-fledgling biotechs -- or failing to do so -- will we know whether its $500 million was money well spent.

You can read the whole feature here. Or come see us at next week's Pharmaceutical Strategic Alliances meeting in New York where we'll be discussing the MRVF and pharma's other R&D experiments.

image courtesy flickr user spaceyjessie used under creative commons license.

Mundel Quits Novartis And Humbly Enters The Gates of Philanthropy

If you'd been slogging away trying to develop drugs for a pharmaceutical giant for the last three years, and one of the world's richest men offered you what is probably the highest-profile job in global health, you'd take it, wouldn't you?

So, apparently, would Trevor Mundel, Novartis' drug development chief, who this week announced he'd be leaving the Swiss group by year-end to become executive director of The Bill & Melinda Gates Foundation's Global Health Program.

It's a chance to do some good, leave behind the profit-motive, get back to basics. Indeed, Mundel declared himself "humbled" and "deeply honored" to take up the post, according to this WSJ piece. He isn't the first of Novartis' R&D chiefs to be attracted by the opportunity to contribute more broadly to global health goals: Paul Herrling, one-time head of global research, moved in 2003 to lead the not-for-profit Novartis Institute for Tropical Diseases in Singapore (although he has made clear his view that such activities do, at least indirectly, make business sense too).

Herrling's influence has since extended beyond Novartis: he was appointed, somewhat controversially, earlier this year to become part of a WHO group evaluating funding for projects in neglected tropical diseases.

As for Mundel: by quitting pharma outright to pursue philanthropic goals, he follows in the footsteps of Tachi Yamada, previously R&D chief at GSK, who retired from his position within the Gates Foundation earlier this year and is returning to pharma (Takeda) as well as a new role in venture capital (at Frazier Healthcare).

Yamada apparently drove the Gates health program through a vigorous expansion phase, to which Mundel is now expected to bring some focus and pick out the winning programs, according to this WSJ story quoting Jeff Raikes, the foundation's chief executive.

So what does Mundel's track record of picking winners look like? Critics may say not great -- under his watch, Ilaris was rejected for gout, Tasigna stumbled in some types of stomach cancer, and COPD drug indacaterol was held up. But Mundel also oversaw the development of multiple sclerosis drug Gilenya, the first significant oral MS therapy to reach the market. He also beat BMS's Sprycel to a first-line therapy indication for Tasigna. Indacaterol (Arcapta Neohaler) got there in the end. And Mundel oversaw a period of industry-beating growth in R&D spend, according to analysts at Sanford Bernstein, although it's unclear how well this has translated into pipeline assets (certainly the Phase III pipeline remains relatively small).

Most importantly perhaps, Mundel introduced into Novartis, upon his arrival in 2003, the concept of translational medicine -- the early assessment of the relevance of lab-based medicine to patients. Indeed, it was this approach that led to Ilaris' resurrection in the first place, following the compound's failure in RA: it came back in 2009 as a drug for a rare genetic disorder called Muckle-Wells syndrome.

And translational medicine was a critical piece of the puzzle for Novartis at the time, shortly after it had appointed academic Mark Fishman to spice up discovery research. As such, Mundel "bridged the gap between Mark [Fishman]'s somewhat esoteric, anti-commercial but very innovative research programs, and the market-focused, number-crunching trials necessary to get Mark's compound on the road to market," notes a former Novartis executive.

Mundel's next challenge will be similar: helping turn research ideas into real drugs to save real lives. But there's rather less money to spend (even Gates' pockets aren't bottomless): the Foundation's $1.5bn-$2bn in annual health research grants is about a quarter of Novartis' burgeoning R&D budget. And there won't be any stock options.

PSA Update: Dealing with Diagnostics

Last week, we added Mike Pellini, CEO of the cancer genomics start-up Foundation Medicine, to our Pharmaceutical Strategic Alliances Conference panel that will be discussing strategies for sharing risk in relationships between pharma companies and diagnostics developers. Mike was president and COO of Clarient Labs until its sale to GE Healthcare last year – one of several notable M&A transactions involving CLIA lab-oriented assets.

We recruited Mike after Iain Miller, head of theranostics strategy and business development at BioMerieux, told us he was taking a new position as global head of personalized medicine at GE Healthcare, where he started this week. Iain will still be at PSA to talk about Biomerieux’s deals with Ipsen and GSK around predictive cancer biomarkers and now, also a bit about his new role at GE, which includes the challenge of leveraging the value of Clarient and bringing additional assets in around it. With Iain’s move and Mike’s addition, we maintain a balance on the panel between larger and smaller company perspectives. Rounding out the session are Nic Dracopoli of J&J and Risa Stack of Kleiner Perkins Caufield & Byers, an early and frequent investor in companies developing complex, high-value diagnostics, the vast majority of which are performed in the CLIA setting.

The potential value a CLIA lab brings to pharma as well as other players like GE is a subject we’ve discussed in several IN VIVO features this year, including in the current (Sept.) issue, where we ask the question “Is Diagnostics the New Biotech…and Will Pharma Embrace It?”

The two fields share obvious historical parallels including common starting points, first with the use of antibodies as targeting agents and probes, and later with genomics. In both cases, the same core assumptions existed around using those tools to unlock the power of the biological perspective. And there was a need for physicians, potential development partners, and regulators to get their arms on a unique and innovative set of promising technologies.

Pharma’s interest in the new wave of complex diagnostics is two-fold. It clearly needs to be able to ensure the development and distribution of companion diagnostics for its targeted therapies – why some argue risk sharing is inevitable, if not yet in evidence. For some, diagnostics also appears to have regained its appeal as a way to diversify: think Novartis with Genoptix or Eli Lilly with Avid Radiopharmaceuticals.

Unlike big box diagnostics companies, which are primarily interested in running as many tests as possible on their platforms, the developers of complex diagnostics tend to be vertically oriented. They feature the kind of narrow and deep focus on a specific disease state that is required for adoption and payment of high-value offerings. Those capabilities fit well with – and some would argue are essential to – the biomarker discovery efforts now woven into virtually all of new drug development. On the commercial side, they also offer the potential to leverage the value of a specialized sales force.

Pharma has danced with diagnostics but also maintained its distance, much as it did with biotech in its early days, keeping in touch via alliances until the emergence of product franchises it could acquire. But unlike biotech, where products and franchises are basically additive to a portfolio, there’s a co-dependency with diagnostics, at minimum in the area of companion diagnostics and potentially more broadly, as an increasing number of diagnostics and related services emerge that help direct the choice and management of therapy over all.

The question is: What business models best address this evolution. Is collaboration and risk-sharing the way to go? Are diagnostics franchises now becoming investible assets for pharma such that they will be swallowed lock, stock, and barrel (and if so, which underlying tools and technologies will be most sought after)? Let’s see what the experts at PSA have to say.

Join us September 23.

No Biosimilars on The Horizon, Says Sanofi's Viehbacher

He was talking about biosimilar Lantus, of course, which is the company's most important drug.

During a Q&A session following Sanofi's Sept. 6 'strategy and outlook' seminar for investors, Chris Viehbacher said he didn't expect biosimilars to have "a significant impact on our performance" before 2015.

On one level, he may be justified in brushing off biosimilar insulin, given this is a high-volume, (relatively) low -price play that's unattractive to most competitors -- particular those lacking significant production capacity.

What's more, the insulin market is increasingly about pens and peripherals -- precisely what Sanofi is pushing as it shifts "from Lantus brand-management to Lantus-based solutions," as SVP Diabetes Pierre Chancel put it (and described in this 2010 IN VIVO feature). Hence Sanofi's focus on the SoloSTAR pen (which accounts for 40% of new Lantus scrips in the US), the BGStar glucose monitoring devices, and a forthcoming integrated device for Lantus dosing with a patient-driven titration algorithm.

Such strategies show how biopharma companies are evolving to think beyond the drug -- a topic that will be discussed on September 22 on stage at the Millennium Broadway hotel, the first day of Elsevier's 21st annual Pharmaceutical Strategic Alliances meeting. (And Sanofi will be well represented, with Dennis Urbaniak, Chancel's US deputy in diabetes, weighing in.)

Still, it would be wrong to dismiss biosimilar insulin entirely, however. Lilly has two basal insulins (including a copy of Lantus) starting Phase III this year -- and that's a company, like partner Boehringer Ingelheim, with nothing to lose, but a lot to gain, by entering the basal insulin game.

And certainly biosimilars more broadly remain as hot as they were pre-summer; indeed, the season's continuing economic woes make the prospect of cheaper biologics even more relevant. FDA expects to have its biosimilars guidance in place by the end of 2011, thus paving the way for the second-generation wave of biosimilars, including copies of Enbrel and Rituxan. (Better late than never, we say, although who knows where the user-fee debacle will end up)

Will these more complex biosimilars succeed commercially where many of their first-generation brethren thus far haven't? And will they be just cheap copies, or are innovator-cum-biosimilar players like Merck justified in calling them an entirely new 'proposition', representing 'value and quality', and supported by a well-known brand? And just how abbreviated is FDA's new biosimilars pathway anyway?

In case Urbaniak and other Sanofi execs responsible for Lantus are interested in the answers to such questions, they should stick around for the second day of PSA, which kicks off with a panel that's a veritable who's who of biosimilar experts. Not only will the discussion feature the biosimilars chiefs at Merck and Pfizer (Michael Kamarck and Diem Nguyen respectively), but add in Sandoz's Mark McCamish, FDA's Janice Soreth and Momenta's CMO James Roach and there will be insights into every facet of the biosimilar biz.

Indeed, the companies these panelists represent make up a big chunk of the competition that will determine whether the $50 billion biosimilars opportunity becomes a reality -- and whether Viehbacher's right not to be concerned.

See you there!

Image courtesy of flickrer Old Shoe Woman used with permission under a creative commons license.