Deals Of The Week: Clinical Failures Result From Predictable Business Development Strategy

Wall Street analyst Raghuram Selveraju likens today’s drug-development landscape to the changes seen in men’s professional tennis between the era of Bjorn Borg and John McEnroe and the completely different game played today by the likes of Roger Federer and Novak Djokovic. In today’s tennis, the ball is hit much harder and yet at the same time there is almost no margin for error. Likewise, he says, in drug-development today, companies must navigate tougher regulatory requirements for both efficacy and safety.

“The margin for error is razor thin and if you miss it, you lose big time. Aspirin would not get approved at the FDA in today’s atmosphere,” said Selveraju, managing director and head of health care equity research at Aegis Capital.

His comments reflected the news of Oct. 18 of yet another big pharma/biotech collaboration undone by devastating results in the clinic, the latest being Reata Pharmaceuticals’ termination of its Phase III trial for bardoxolone in chronic kidney disease due to excess serious adverse events and mortality in the study-drug arm. Abbott Laboratories had paid $450 million upfront in 2010 for ex-U.S. rights to bardoxolone, with another $350 million possible in milestones and royalties, and then doubled-down in 2011 by partnering with Reata on second-generation antioxidant inflammation modulators.

Abbott hardly is alone, though, in seeing a major investment in early- or mid-stage biotech science blow up in its face in recent months. In August, Bristol-Myers Squibb had to pull the plug on hepatitis C candidate BMS-986094 due to cardiotoxicity, just months after acquiring the Phase II nucleoside polymerase inhibitor by buying out the company that discovered and initially developed it, Inhibitex, for $2.5 billion.

In January, one of the most-celebrated of big pharma/biotech tie-ups died in the clinic as Pfizer finally gave up on Medivation's Alzheimer’s disease candidate Dimebon (latrepirdine) following several failed attempts to demonstrate efficacy. Then, in March, Merck accepted failure in a $60 million investment in Cardiome Pharma’s oral anti-arrhythmic drug vernakalant in March, saying the regulatory hurdles were just too high. In May, Roche ceased development of dalcetrapib, in-licensed from Japan Tobacco for dyslipidemia, due to lack of significant efficacy data.

And in March, AstraZeneca announced its latest setback in a long collaboration with Targacept around neuronal nicotinic receptors, saying it no longer would investigate TC-5214 for major depressive disorder. That news followed a 2011 decision by AstraZeneca to opt out of a partnership with Targacept around TC-5619 in schizophrenia, which itself followed a 2010 decision to drop an attention deficit/hyperactivity disorder compound, AZD1446, on which the two firms were partnered.

On the surface, it is difficult to find a common thread in these thwarted transactions – as Selveraju pointed out, some of the drugs failed due to safety implications, others due to insufficient efficacy. “What all of these deals had in common was the desperation of big pharma, because its R&D productivity has been dropping and we’ve known that for a long time,” he said.

That desperation leads to the repetition of familiar mistakes which derive from the predictable thinking of too many business development executives at big pharma, Selveraju opined. First, when looking for licensing opportunities, pharmas very often seek out their comfort zone – a potential product for which they can deploy an existing sales force or promote to doctors they already know and communicate with. Also, to be confident in an experimental drug’s preclinical and clinical data, pharmas often want to go into areas where their competitors also have a compound as well as into validated targets.

“Basically, they’re a bunch of lemmings,” Selveraju said. “As soon as a target becomes hot, they all have to have a molecule in that space, hitting that target. We’ve seen that multiple times: with the DPP4 inhibitors, the statins, the S1P inhibitors now, the nucs in hepatitis C.” Bristol paid $2.5 billion for Inhibitex and its nuc in part because months before Gilead had paid $11 billion for Pharmasset and its promising, mid-stage nuc.

“Bristol felt at the time that it could afford to pay a high price for the Inhibitex molecule because this was a validated mechanism of action,” Selveraju said. “What was the real risk that it was taking? All Bristol had to do was what Pharmasset did; Pharmasset wrote the blueprint for them, and they’re home and dry. I’m pretty sure Lamberto Andreotti knew that he was overpaying for Inhibitex but he went ahead and did it anyway, because Bristol thought it was money in the bank. That’s the problem with the way that big pharma does licensing; it only goes after things that it thinks are money in the bank.”

And it’s just not that easy, at least not today. The low-hanging fruit largely has been picked – there is no preponderance of easy-to-hit, druggable targets available to business development groups, Selveraju explained. Faced instead with a panoply of more difficult to address therapeutic indications, business development officials often must make decisions based on incomplete data and at the same time pay out huge premiums because of the competition with other companies to find “the next big thing.”

“Big pharma chases targets and it chases indications,” he said. “That’s what leads to these deals with outsized valuations and to the disappointingly high failure rate. If big pharma were to take a more pragmatic approach, a more rational approach, then we might not be seeing so many of these failures and we’d certainly be seeing more judiciously priced deals.”

What then is Selveraju’s prescription for better business development practices? It might disappoint those who want pharma to be in the vanguard of innovation. He recommends incremental innovation – using FDA’s 505b2 pathway to develop products with already defined efficacy and safety – as well as biosimilars and re-purposing. Pharma also should focus on niche and specialty indications, and largely eliminate primary care products and the large commercial operations that come with them.

That may be an unappealing remedy for many, but given the spate of recent blow-ups in pharma/biotech deal-making, something needs to change. Right?

In the meantime, the deal-making continues, so we bring you ...

BioCryst/Presidio: BioCryst announced Oct. 18 that it intends to merge with privately held Presidio Pharmaceuticals to create a new company that will be focused on the development of an all-oral hepatitis C treatment. The all-stock transaction, which values Presidio at $101 million, is expected to close in the first quarter of 2013. Closing is contingent upon a $60 million financing, $25 million of which Presidio shareholders already are committed to contractually. The new company will shift its focus to three early-stage HCV drugs – PPI-668, a Phase II-ready NS5A inhibitor; PPI-338, a preclinical pan-genotypic non-nucleoside polymerase inhibitor; and BCX5191, a nucleoside analog. PPI-338 is expected to begin clinical trials in the first quarter and BCX5191 will begin human trials before the end of 2012. BioCryst/Presidio’s biggest advantage at this point – considering how far behind the competition the company is – is its wholly-owned pipeline; possessing three drugs that activate different targets and could potentially could be used in combination gives the company a leg up. This allows the company to test the drugs in various combinations. “Having the ability to do these [combination] studies creates greater value than out-licensing our new nuc after, say, Phase Ib. That was really the rationale for doing this,” said BioCryst CEO Jon Stonehouse. – Lisa LaMotta

Merck/AiCuris: Antiviral startup AiCuris GMBH got its first big pharma partner – and €110 million upfront ($143.5 million) – in a deal with Merck for a portfolio of treatments for human cytomegalovirus, in a deal announced Oct. 15. The deal includes worldwide rights to AiCuris’ lead drug letermovir, which is ready to move into Phase III clinical trials in transplant patients. In addition, Merck gains rights to develop and commercialize a backup candidate and other Phase I assets that work through an alternate mechanism in exchange for the upfront and €332.5 million ($433.7 million) in development, regulatory and commercial milestones. Now AiCuris – a German drug developer spun out from Bayer in 2006 – is focused on finding another development partner for its other late-stage asset, a nucleoside analogue AIC316 for the treatment of the herpes simplex virus. The company is currently seeking a partner for AIC316, which has also completed Phase II testing, according to CEO Helga Rübsamen-Schaeff. The company plans to use the cash from the Merck collaboration to push forward one of the earlier-stage projects; it has earlier stage projects in development for hepatitis B infection, HIV and bacterial infections. For Merck, letermovir and the other HCMV molecules will complement the big pharma’s existing antiviral portfolio, which includes drugs like Isentress for HIV and Victrelis for hepatitis C. The deal marks Merck’s second recent infectious disease collaboration. In July, Merck partnered with Chimerix on a Phase I HIV asset, CMX157, paying $17.5 million upfront for worldwide rights 14120724001. – Jessica Merrill

Kite Pharma/National Cancer Institute: Kite Pharma will enhance its pipeline significantly under an arrangement with the National Cancer Institute in which it will provide R&D funding for novel engineered peripheral blood autologous T cell (eACT) therapeutics for a variety of oncologic indications. The Cooperative Research and Development Agreement (CRADA) announced Oct. 16 also gives Kite an exclusive option to license any or all candidates resulting from the tie-up. Based in Los Angeles, Kite raised a $15 million Series A in 2011 from a 40-investor syndicate including TPG Capital founder David Bonderman. Its initial program was a virus-based alpha fetoprotein (AFP) vaccine to fight against hepatocellular carcinomas that express AFP. NCI partially funded that program. No financial terms related to the CRADA were disclosed, although Kite CEO Aya Jakobovits explained that licensing agreements will be written as needed for the programs her firm might option. The work centers on candidates, some already in the clinic, discovered and developed by NCI using its proprietary tumor-specific T Cell Receptors (TCRs) and Chimeric Antigen Receptors (CARs). Through its surgery branch, NCI already has advanced some of these programs into single-site trials in patients with hematological and solid tumors. Early clinical evidence has shown that patients’ peripheral blood T cells engineered with TCRs or CARs and then administered as an intravenous infusion can recognize tumor-specific molecules that will enable them to traffic directly to tumor sites, become activated upon engagement with the tumor antigen and then selectively kill the tumors, Kite says. – Joseph Haas

Amdipharm Group/Cinven: Two months after buying another U.K.-based specialty company, Mercury Pharma Group, the European private equity company Cinven has acquired the Patel family-owned niche pharmaceuticals business Amdipharm for £367 million ($593.3 million). Buyout specialist Cinven said in August that its strategy was to consolidate the specialty pharmaceuticals sector, and after the Amdipharm acquisition it is continuing to hint at more international acquisitions to come. Amdipharm was founded in 2002 by brothers Vijay and Bhikhu Patel, to acquire medicines from research-based pharmaceutical companies, particularly medicines for niche indications and patients, both branded and generics. It has annual revenues of more than £110 million, and the founders will retain a significant minority stake in the business after it is combined with Mercury. Amdipharm's business is international, with products sold in more than 60 countries, while Mercury is more U.K.-focused. The brothers founded in 1984 the U.K.-based pharmaceutical distributor and importer Waymade Healthcare PLC and are active in generics through the generics marketer Sovereign Medical. – John Davis

AstraZeneca/Charles River: AstraZeneca has tapped yet another outsourcing partner to conduct in depth research, most recently choosing Massachusetts-based Charles River Laboratories to provide it with safety assessment and development drug metabolism and pharmacokinetics testing. The British drug maker on Oct 17 said it chose the U.S. CRO as its preferred strategy partner, raising their previous ad hoc relationship to another level. The news comes hard on the heels of AstraZeneca’s discovery partnership with Chinese CRO Pharmaron Beijing. Charles River was selected from a shortlist of competitors who tendered for the role, which will see it and AstraZeneca work closely as partners and allow the CRO to intimately understand the pure pharma group’s portfolio. The current plan is to work together on small-molecules. But both hope that their arrangement can expand into large-molecules involving AZ’s U.S.-based biologics arm, leading to eventual partnering in promising discovery areas that AZ wants to outsource under its new R&D regime. Charles River’s Chief Science Officer Nancy Gillett says that hopefully would come from both sides working together and understanding AstraZeneca’s preferences, formats and reporting times and trust-building. AstraZeneca will be committing at least 10 scientists. Most of the work will be conducted in AstraZeneca’s R&D site in Edinburgh, Scotland, while several Charles River sites will be used in the U.S. Gillett said the partnership as currently outlined will involve at least 100 researchers at Charles River and probably more as time passes. Charles River currently has another larger-scale partnership with an as-yet unidentified big pharma company which extended an in vivo pharmacology collaboration into an in vivo biology partnership. Charles River has relationships with most big pharma companies but the AstraZeneca relationship will be unique for the CRO. It will have a six-person steering committee and a multi-layered governance structure from the bottom up that aims to improve the partnership over time. James Lynch, vice president of global drug metabolism & pharmacokinetics at AstraZeneca, said the deal is all part of trying to simplify its supplier base, in this case bundling most of what it had outsourced in the toxicology and DKMP space. He said the difference between the Pharmaron deal and that with Charles River is that with the Chinese CRO, AstraZeneca effectively is buying a capacity which will have AstraZeneca-dedicated scientists there who will work exclusively on AstraZeneca chemistry and drug metabolism screening for the British-based company. The Charles River partnership’s preclinical work will be later in the value chain and in the research and development process, focusing on early development through to late development to make use of Charles River’s width and breadth of science in a scalable manner, depending on individual program requirements. The three-year agreement extends into 2015. AstraZeneca began the process of transferring programs to Charles River earlier this year. AstraZeneca’s latest partnering arrangement is another example of pharma’s changing working paradigm, in response to its need to improve efficiencies, maximize resources while raising productivity and also be able to make fast decisions around its portfolios. This trend allows global CROs such as Charles River to get involved, offer capabilities to come in and take control of portions of portfolios, freeing up big pharma scientists who then can focus more on discovery and science decision-making as they progress compounds into development. – Sten Stovall

Merck/Theravance: Merck inked a deal Oct. 19 with San Francisco-based Theravance for the discovery, development and commercialization of treatments for hypertension and heart failure. Merck will pay Theravance $5 million upfront, as well as research funding. Under the deal, Theravance also could earn $148 million in milestone payments for the first indication as well as royalties. The deal is the second in as many weeks for Theravance. It just granted Alfa Wassermann an option to its gastrointestinal motility disorder compound velusetrag. Theravance also maintains an ongoing relationship with GlaxoSmithKline for the development and commercialization of respiratory disease therapeutics. Merck has said over the last year that it has plans to maintain its presence in the cardiovascular space despite many of its competitors pulling out of the area. Yet, the pharma announced in August that it had made the decision to put one of the key cardiovascular drugs in its pipeline, MK-0524B, on hold indefinitely. MK-0524B was a combination of the investigational drug Tredaptive (long-acting niacin/laropiprant), aka MK-0524A, and Merck’s blockbuster simvastatin (Zocor), which went off patent in 2006. The combination was meant to lower the amount of fatty substances in the blood like LDL cholesterol and boost HDL cholesterol. It no longer will be put forth for FDA approval in 2014 as Merck had intended. – LL
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