Deals Of The Week: U.S./Russia Biotech Joint Venture Driven By An All-Too-Familiar Catalyst

Finding creative ways to fund the lifecycle of biotech companies is not a new issue, but turned out to be the catalyst behind an intriguing joint venture unveiled this past week between U.S. venture capital firm Domain Associates  and the sovereign Russian nanotechnology investment fund Rusnano. On March 6, the pair announced the expansion of a previous working agreement that now will include investments of up to $330 million apiece in biotechs under the Domain portfolio and up to $190 million total to build a GMP-compliant manufacturing facility in Russia.

Rusnano, Domain and its syndicate of investors will back roughly 20 new and existing portfolio companies working in the life sciences field – biopharmaceuticals, medical devices and diagnostic products – creating a multinational medical products company in Russia that will make and market innovative products in Russia, Eastern Europe and the Commonwealth of Independent States.  Last year, Rusnano and Domain had announced a $300 million effort to build from scratch a Russia-based pharmaceutical company from Domain’s portfolio companies. This latest announcement expands each partner’s proposed investment. The investments will lean more heavily to biopharmaceuticals than devices or diagnostics, said Domain Partner Brian Dovey, but there are no pre-set ratios.

“The initial aim is to build a kind of consortium of intellectual property from Domain’s portfolio companies and on that basis establish a recognized regional pharmaceutical company which will develop, conduct clinical trials, manufacture and sell a spectrum of innovative products,” in the specified markets, Rusnano USA CEO Dmitry Akhanov explained.

The Russia-headquartered company and facility that will result from the joint venture will leverage innovations created by the Domain portfolio firms and will obtain exclusive rights to manufacture and market products based on these innovations. The JV also will manage late-stage Russian clinical trials, which will support regulatory approval in Russia, the U.S. and other nations.

“The idea would be to do some clinical trials there – it is less expensive to do them there but that’s not the driving force,” said Domain Partner Brian Dovey. “The driving force is really to include the Russians in the worldwide clinical program, so the products would be [approvable] in Russia. We do have experience with some of our companies doing clinical trials in Russia, and by and large, it’s been a good experience. It’s a pretty well established industry there.”

New streams of cash for Domain’s portfolio companies also drove the deal, he added. Domain and other VCs are discovering that even when they can find an exit for a portfolio company, all too often the transactions are structured exits involving milestones and other earn-outs.

"That’s pretty much the benefit – getting our and [syndicate investors’] companies financed,” Dovey explained. “I think the concept of selling our companies at the end of Phase II leads to a lot of these structured deals, which are less than optimal. If you take your companies further, I’ve been told by big pharma, they’ll pay a lot for more data.”

Much is yet to be determined about the Domain/Rusnano JV – the amount of equity Rusnano will take in a specific company will be determined deal-by-deal, Dovey said, and earn-outs certainly may come into play in those agreements, as well. “[Rusnano will be] just like any other equity owner – there will be a Series C, E or G, [and] all of the investors in that round will be under the exact same terms and conditions as the insiders and new investors,” he added.

Dovey and his team sounded out the other investors in their portfolio companies before making the deal with Rusnano – “Clearly a situation I didn’t want to have occur was to get this whole thing done and then nobody comes to the party.” he said. “It’s been pretty clear to the co-investors as to what I am doing and why … and I think there’s a consensus that it’s a good idea – it’s a whole new source of capital.”

There was some initial pushback when syndicate investors heard the word “Russia,” Dovey added, but as they learned the particulars, they weren’t very difficult to sign on. Speaking of which, there has been a lot of signing on during the past week – more than a dozen deals, from which we offer highlights in our latest edition of  …

Mersana/Endo – Mersana Therapeutics and Endo Pharmaceuticals Holdings are teaming up to challenge Seattle Genetics and other players in the burgeoning antibody-drug conjugate (ADC) space. In a deal announced March 7, the two firms will combine Mersana’s proprietary Fleximer conjugation technology with anti-cancer antibodies discovered by Endo to produce novel ADC candidates against a single, undisclosed oncology target. Most deal terms were not disclosed – Mersana will receive an upfront payment and can earn greater than $270 million in “progress-dependent” milestones, although the extent of the earn-outs will be contingent on whether the duo expands the arrangement to two additional targets. In an interview, Mersana Executive VP and Chief Operating Officer Michael Metzger indicated that expansion of the partnership to additional targets might result in additional up-front money to his firm, but would not specify. “You can make the assumption that the terms replicate deal to deal,” he said. Under the collaboration, Mersana will conduct research and create the ADCs combining cytotoxic payloads with Endo’s antibodies. Endo then will be responsible for product development, manufacturing and commercialization. In addition to milestones, Mersana can earn royalties on worldwide sales of any product reaching market from the collaboration.--Joseph Haas

Nuron/Akshaya – Exton, Pa.-based specialty biologic drug and immunotherapy developer Nuron Biotech said March 5 that it had acquired license to a platform to develop multi-antigen vaccines for the hepatitis B virus from Akshaya Bio of Edmonton. Financial terms weren’t released. Nuron acquired technology and rights to Chimigen, a chimeric vaccine platform with which it says it can discover both therapeutic and prophylactic vaccines that provoke T-cell and B-cell immune responses. The platform could yield its first clinical candidate by next year, Nuron said. The company also acquired an option to license Akshaya’s hepatitis C virus immunotherapies, which also include therapeutic and preventative vaccines. The deal diversifies Nuron’s offerings, such as the Phase III candidate NU100 (interferon beta-1b) for multiple sclerosis; it also is working on a re-launch strategy for the HibTITER vaccine, marketed in the 1990s by Wyeth to prevent Haemophilus Influenza Type B infections in infants and children. Nuron licensed Japanese rights to the HibTITER product to Mitsubishi Tanabe Pharma Corp. last month.--Paul Bonanos

Foundation Medicine/Array BioPharma – Array BioPharma and Foundation Medicine announced a partnership March 6 in which Array will use Foundation’s next-generation sequencing technology to analyze tumors and identify patients who may best respond to its targeted therapies. FMI, which emerged from stealth mode in 2010 advised by a team of experts in next-generation sequencing, has already has signed five other pharma partners, including Sanofi and Johnson & Johnson. In February, Foundation received Clinical Laboratory Improvement Amendments (CLIA) certification from CMS for its genomic sequencing lab, allowing the company to receive clinical samples from most U.S. states. The company is developing a test that will transition next-generation sequencing from research to routine clinical practice.--Jessica Merrill

Apexigen/GDBP – Shanghai’s Gansu Duyiwei Biological Pharmaceutical (GDBP) has negotiated a licensing agreement with privately held Apexigen to develop its VEGF2-targeting humanized monoclonal antibody APX004, for the treatment of certain cancers and angiogenic diseases. Under the March 6 agreement, GDBP receives exclusive rights to research, develop and commercialize the drug in China. Apexigen will retain all rights to APX004 outside of China. While financial terms were not disclosed, Apexigen did receive an upfront payment and is eligible for milestone payments based on the progress of the drug and royalties. Spun out from Epitomics in July 2010, Burlingame, Calif.-based Apexigen also has a partnership with Simcere, a Chinese drug manufacturer. Simcere filed an IND in China in March 2011 for APX003, another monoclonal antibody from Apexigen’s pipeline. Apexigen is focused on developing biobetters for inflammation, cancer and metabolic and immune disorders, and has rights to Epitomics' high-affinity rabbit monoclonal antibody technology, RabMab, and mutational lineage-guided humanization technologies.--Lisa LaMotta

Medicago/Mitsubishi Tanabe – Mitsubishi Tanabe Pharma Corp., which claims to be the top domestic vaccine company in Japan, is attempting to stave off ambitious vaccine plans from competitors via partnerships. The company signed a deal with Medicago Inc. for next-generation vaccines, starting with a rotavirus vaccine that would take on Rotarix, Japan's first and only rotavirus vaccine. Mitsubishi Tanabe signed the deal with Medicago, based in Quebec City, Canada, March 7, disclosing only that the companies will collaborate on several vaccines using Medicago's virus-like particles (VLPs), starting in the spring on a rotavirus vaccine project. Since VLPs mimic native viruses but cannot replicate in the body, Mitsubishi Tanabe says it aims to "create a new rotavirus VLP vaccine that overcomes challenges associated with existing live virus vaccines." If Mitsubishi Tanabe and Medicago do manage to develop a rotavirus vaccine, it would compete with GlaxoSmithKline's Rotarix, a live virus vaccine that entered the Japanese market in 2011. GSK co-promotes Rotarix in Japan with Daiichi Sankyo, and the two companies formed a joint venture last week to collaborate on development and commercialization of vaccines in Japan. That JV was announced just a few days after Japan’s largest pharma, Takeda Pharmaceutical, outlined an ambitious plan to join the top-tier of global vaccine manufacturers – such as GSK – within just a few years’ time.--Daniel Poppy

Photo Credit: The Catalyst Museum, courtesy of Wikimedia Commons and the publication Chemical Engineer