Friday, December 02, 2011

Deals of the Week Checks on Gilead/Pharmasset Ripples

The $11 billion Gilead Sciences paid for Pharmasset and its promising Phase II nucleoside polymerase inhibitor on Nov. 21 opened eyes, but also sparked a great deal of speculation. Particularly, what would this record-shattering deal mean for other biotechs with un-partnered candidates for hepatitis C?

Deals of the Week posed the question to Mark Schoenebaum, the highly vocal biotech and pharmaceuticals analyst for ISI Group. “It’s unknown,” he responded. Well, so are the combatants in next year’s Super Bowl, but presumably the football analysts at ESPN have their guesses.

“There’s speculation that it was a competitive process to get Pharmasset, so presumably there’s more than one company willing to pay a big number,” he continued. “So it begs the question why wouldn’t [the losing bidders] just have gone after Inhibitex, which has shown similar potency" [with Phase II nucleoside INX-189 to Pharmasset’s PSI-7977]? Idenix, in contrast, so far has not shown similar potency [with nucleoside polymerase inhibitor IDX184]. These companies in short could have turned to Inhibitex or Idenix, but he observed, “They’ve already chosen not to.”

That is a minority opinion on Wall Street, if a perusal of market analyst commentary in the past week is a good indication. Headlines about Inhibitex like “And Then There Was One … INX-189 Represents The Best Chance to Compete with Gilead’s New Hep C Franchise” (Brean Murray, Carret & Co., Nov. 29) have been plentiful.

While Inhibitex has dominated the chatter, fueled in part by new data indicating INX-189 might work better in combination with current HCV standard ribavirin than PSI-7977, Idenix and Achillion have benefitted too. William Blair & Co. upgraded Idenix’s stock to “outperform” and raised its target share price from $4 to $10, while it nudged up Achillion’s target price from $7 to $8. Meanwhile, Wells Fargo initiated coverage of Achillion with a rating of “outperform.” (Achillion CEO Michael Kisbauch, who has steered the company through multiple ups and downs, has wasted few opportunities in recent weeks to talk up his company as a burgeoning M&A target.)

Achillion will not be the sought-after party, if other HCV players, such as Merck, Roche or BMS try to match Gilead’s acquisition. While it can boast a pipeline of five clinical candidates for HCV, all are protease inhibitors, NS5A inhibitors and NS4A inhibitors — that is, certainly not first-in-class. Idenix has two clinical candidates for HCV, although its non-nucleoside polymerase inhibitor (aka “non-nuc”) currently is stalled (apparently for financial reasons) in Phase IIa.

However, Idenix has IDX184 in Phase IIb, and that class is considered the hottest item in hepatitis C as companies race to develop a combination of direct-acting antivirals that will render long-scorned (but effective) pegylated interferon unnecessary in treatment of the virus.“Presumably, people are trying to get a hold of nucleosides right now,” Schoenebaum said, dismissing Achillion as a likely acquisition. “Protease inhibitors, NS5A inhibitors and non-nucs seem to be a dime a dozen. The whole premise behind the Pharmasset acquisition was to get a nuc.”

While Inhibitex seems positioned ahead of Idenix, thanks to cure data that range closer to PSI-7977’s impressive mid-stage stats, Schoenebaum is reluctant to say that company is the next hot takeout candidate or even that a bidding war could occur among big pharma for either of these properties.“In biotech, companies that everybody thinks are going to get bought generally aren’t,” he cautioned – and vice versa. “In the last few months, people said ‘Pharmasset isn’t going to get bought, it’s too expensive now.’ Well, it got bought. Now, everyone is saying Inhibitex is going to get bought – it might. But often those are the ones that don’t get bought.”

Wall Street analysts won’t be the only ones eagerly watching the next moves in the HCV space – we’ll be on hand in the In Vivo Blog and "The Pink Sheet" to give you all the play-by-play. Now, read ahead for news on other intriguing, if not record-shattering, business development happenings over the past week. It’s time for the latest installment of …

Transcept/Purdue: On Nov. 23, FDA approved Transcept Pharmaceutical’s Intermezzo (zolpidem tartrate) for middle-of-the-night waking. A week later, the biotech’s partner Purdue Pharma exercised its option to commercialize the first-of-its-kind sleep agent in the U.S., Canada and Mexico. Intermezzo is the first fruit of Purdue’s efforts in recent years to diversify away from reliance on its flagship product OxyContin. Intermezzo was approved despite two complete response letters and lingering FDA concern about the potential for abuse and next-day impairment. As Glenn Oclassen, CEO of Transcept, announced during a business update call on Dec. 1, Purdue plans to launch Intermezzo in the second quarter, “and to invest approximately $100 million to support the first 12 months of sales and marketing.” Oclassen stated that the terms of the deal include milestone payments, royalties and a Transcept option to co-promote the drug to psychiatrists “as early as the first anniversary of the commercial launch, and as late as approximately four and a half years post launch.” But the most valuable aspect of the deal, he told investors, lies in the base royalty on U.S. sales; Purdue will pay Transcept tiered royalties ranging from the mid-teens to the mid-20% level. On exercise of the co-promote option, Transcept is entitled to additional co-promotion royalty from Purdue on net revenues from sales to psychiatrists. This additional royalty ranges from a high of 40% down to approximately 20% depending on when, post launch, Transcept begins marketing to psychiatrists. The syndicate of investors that backed the biotech included NEA, Newleaf, and Interwest.--Mike Goodman

Servier/MacroGenics: Among the dozens of antibodies MacroGenics acquired when it bought Raven Biotechnologies in 2008 was MGA271, which targets a protein over-expressed in a variety of cancers. This week, French biopharma Servier purchased an option to license the drug in Europe and many emerging markets for $20 million up-front, which it can exercise for another $40 million upon receipt of Phase I data. MacroGenics would retain rights in North America, Japan, Korea and India, while Servier’s option covers the rest of the world. MacroGenics began dosing patients in July for a Phase I study, but complete data isn’t expected for two to three years, at which time Servier has a limited window in which to exercise the option. The antibody targets B7 homolog 3, one among many B7 immune receptors that affects T-cell growth. MacroGenics CEO Scott Koenig said the March 2011 approval of Bristol-Myers Squibb’s ipilimumab, which acts on a similar pathway, spurred interest in the compound, as did an increase in published literature about the mechanism of action. MacroGenics will continue to fund the Phase I study itself, but if Servier exercises its option, the two will fund ongoing trials jointly; ongoing milestone payments could add $390 million more to the deal. In October 2010, MacroGenics announced a pair of partnerships with Boehringer Ingelheim and Pfizer simultaneously; the company took back diabetes drug teplizumab from Lilly after development was halted following receipt of discouraging Phase III data. – Paul Bonanos

Infinity/Mundipharma: Mundipharma has extended its R&D collaboration with Infinity Pharmaceuticals, making a $50 million commitment Nov. 29 to fund continued development of PI3 kinase inhibitor IPI-145 and other programs. Ultimately, that dollar amount could be increased to include funding for mid-stage Hedgehog pathway inhibitor IPI-926. Infinity is completing Phase II trials in pancreatic cancer and myelofibrosis and then will seek an end-of-Phase II meeting with FDA to determine the compound’s future development path. Mundipharma began its collaboration with Infinity in 2008 under a “big brother” arrangement in which the biotech swapped the majority of its promising pipeline in exchange for independence from the capital markets. Last year, Mundipharma agreed to provide another $110 million in R&D funding for Infinity’s programs in 2012. In total, Mundipharma has provided R&D funding of $50 million in 2009, $65 million in 2010 and $85 million this year. Including the additional commitments set for next year and 2013, Mundipharma’s total contribution to Infinity’s R&D efforts will be at least $360 million.—Joseph Haas.

Affymetrix/eBioscience: The funding pressures on academic and government R&D programs that have caused the market caps of sequencing companies like Illumina and Life Technologies to plummet similarly affect Affymetrix and its array business. Affy also has to be cognizant of the looming threat posed by sequencing, as both next-gen and targeted resequencing machines drive down the costs and widen the breadth of genomic analyses over all. Hence the company’s articulated strategic plan to diversify into markets downstream of genomics and discovery – a goal its acquisition of eBioscience, a maker of consumables for single cell, proteomic, and genetics analysis and the number two player in flow cytometry reagents (behind Becton Dickinson Pharmingen) -- fits nicely. Through prior acquisitions Panomics and USB in 2008 and 2007, respectively, the company gained a foothold in the cytogenetics and life sciences reagents businesses, supplementing its core gene expression technology. Now, Affymetrix is paying $330 million cash, or 4.5x revenue and 14x EBITDA in 2011. The steady expansion of the reagents business makes sense. Although many of eBioscience’s competitors – including BD, Sigma-Aldrich, and Beckman Coulter – have deep pockets and could make growing market share difficult, these companies have not been very aggressive in filling their channels with the reagents needed to implement newer, innovative R&D approaches like single-cell analyses.--Mark Ratner

Curis/The Leukemia & Lymphoma Society: Curis has paired up with The Leukemia & Lymphoma Society to develop CUDC-907, a Pi3K and HDAC inhibitor that has shown preclinical promise as a treatment for B-cell lymphoma and multiple myeloma. Under the terms of the agreement, LLS will fund half of development costs – up to $4 million – from now until proof of concept at either Phase Ib or Phase IIa. Curis expects its first payment from LLS for an undisclosed portion of the $4 million will be at the beginning of the third quarter next year, shortly before the company files an IND. LLS stands to receive 2.5 times its original investment -- $10 million – should ‘907 reach commercialization, whether through Curis itself or with the help of a partner. The partnership with the society will help move the pre-clinical asset forward; something Curis couldn’t do on its own. The company recently received an $8 million milestone from Big Pharma partner Roche, when its subsidiary Genentech filed an NDA for Curis’ late-stage asset vismodegib. Curis expects to begin collecting revenue from the drug in 2012. -- Lisa LaMotta

PTC Therapeutics/Roche: PTC and Roche announced Nov. 28 that they have entered into another venture, the first between the Big Pharma and the biotech since their deal in 2009. PTC, based in South Plainfield, N.J., will receive $30 million upfront and has the potential to earn $460 million in development and commercial milestones, as well as double-digit royalties. In exchange, Roche will have an exclusive worldwide license to PTC’s spinal muscular atrophy (SMA) program, including three pre-clinical assets and potential back-up compounds. Roche will handle all development funding. The collaboration includes the participation of the SMA Foundation, which has contributed $13 million to the funding of the program so far. The SMA Foundation has three clinical sites at Harvard, Columbia, and the University of Pennsylvania, where it hopes that the clinical trials will take place once the PTC compounds move into the clinic. SMA is caused by a lack of the SMN1 gene. These patients have a “back-up gene” called SMN2, but SMN2 has a splicing defect and fails to produce the proper protein, as would the SMN1 gene, Virani explained. PTC has been working to develop a method that could help fix the splicing issue with the SMN2 gene.—L.L.

Elan/University of Cambridge: The sale of its drug formulation and manufacturing unit to Alkermes Inc. earlier this year has been transformational for Elan Corp. With that deal, the Dublin, Ireland-based biotech has been able to reduce its debt pile from $1.2 billion to $600 million, and is now able to concentrate on making targeted research investments in the neuroscience field, like the $10 million tie-up announced this week with researchers at the University of Cambridge. The new Cambridge-Elan Centre for Research Innovation and Drug Discovery will bring together researchers from Elan's research facility in South San Francisco, Cal., with academics in Cambridge, U.K., in a 10-year effort to find innovative therapies for Alzheimer's and Parkinson's diseases. They will be evaluating the role of protein misfolding, long thought to be a cause of neurodegenerative conditions like Creutzfeld-Jakob disease.— John Davis

image from flickr user JPott used under creative commons license

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