Friday, October 11, 2013

Deals of the Week: Value Surprise!

There’s a lot of talk about valuation these days. Sort of like the porridge in the nursery tale, it’s either too high, or it’s too low, but it’s almost never just right.

Start-ups and micro-caps are frequently valued on the strength of their lead candidate, with earlier-stage programs, certainly anything in research, heavily or entirely discounted. But it sometimes turns out that the real value was in these lowly, neglected candidates or technologies and not the glitzy lead.

Acquisitions, particularly serial acquisitions, often delay these early-stage programs, and sometimes bury them altogether. But decades later, the ones that squeak by sometimes go on to dizzying heights.  And in a few rare examples, the companies that birthed these hidden gems go on to do it again and again.

Take Sugen. An early specialist in kinase biology, it was founded in 1991, went public in 1994, and was acquired by Pharmacia in 1999 for $728 million. Pharmacia was acquired by Pfizer Inc. in 2003, and most of Sugen’s staff was let go. The few that remained were absorbed into Pfizer’s La Jolla campus. Sunitinib, a follow-on compound to Sugen’s lead angiogenesis inhibitor SU5416, was filed by Pfizer and approved in 2006 for advanced kidney cancer and gastrointestinal stromal tumor (GIST). 2012 sales of Sutent were a shade over $1.2 billion.

Pfizer’s next cancer launch, another Sugen discovery called crizotinib, was a more interesting story. Former Sugen researcher James Christensen, a senior director of precision medicine at Pfizer’s La Jolla campus, told us that it began as a c-Met inhibitor program in the early 2000’s. Around 2006 there was reason to think that ALK was an off-target effect, but the Pfizer team didn’t know what the application would be. In 2007, Nature magazine published an article on the role of ALK translocation in NSCLC. Xalkori launched 4 years later in 2011. 2013 sales are projected at around $290 million.

Fourteen years later, Sugen has returned many times its purchase price. With ALK screening issues out of the way, Pfizer executives expect Xalkori sales to climb. And Pfizer La Jolla may be working on other Sugen-discovered kinase surprises.

The next example was likewise buried under layers of acquisitions. In 1999, Millennium Pharmaceuticals (now Millennium: The Takeda Oncology Co.) acquired fellow Cambridge biopharm LeukoSite for $585 million. The first LeukoSite alumnus, Campath (alemtuzumab, licensed from BTG PLC in 1997), was ultimately approved for CLL in 2001. It never made much headway in that indication. But Sanofi/Genzyme Corp. are hoping it will fare better in multiple sclerosis, where the company has rights acquired from former Millennium partner Bayer AG in 2009, and have recently won approval for the drug as Lemtrada in Europe. LeukoSite also advanced Velcade (bortezomib) after acquiring ProScript, a foundering Cambridge biotech, a few months before being gobbled up by Millennium. Millennium went on to win approval for it in multiple myeloma, seven years after its initial synthesis, in 2003.

But the real buried value may lie in another LeukoSite antibody, vedolizumab, an alpha-4-beta-7 integrin which is expressed only on lymphocytes. It is essentially a targeted therapy for gut inflammation. Takeda Pharmaceutical Co. Ltd. filed in the U.S. for ulcerative colitis, and FDA recently gave it priority review. Tachi Yamada, head of R&D at Takeda, told us at Elsevier’s recently-held PSA: The Pharmaceutical Strategy Conference in New York that vedolizumab, which we thought had originated in Millennium’s labs, ultimately came out of LeukoSite’s antibody libraries.

Yamada said that when he started at Takeda in 2011, he saw the potential of vedolizumab and put resources behind it. “This was a little bit of a program that was being operated by a group of people under the radar,” he said. “We always understood the value of this library of antibodies, and we are looking through them very carefully for other potential applications.”

Nothing new here. Big fishes eat little fishes. Management hierarchies and scientists change. And so do portfolio priorities. Programs are killed or neglected, and sometimes redirected. And once in a rare while they’re spotted, and quietly pursued. -- Michael Goodman  (Thanks to for use of the photo)

Speaking of the vicissitudes of value, here's the latest edition of . . .

Janssen/GSK: Johnson & Johnson’s Janssen Pharmaceuticals Inc. is determined to own a hefty slice of the oral hepatitis C market. The company now has Phase II antiviral candidates in three different classes, thanks to an Oct. 8 deal with GlaxoSmithKline PLC giving it worldwide rights to GSK2336805, an inhibitor of the non-structural 5a protein. Financial terms weren’t released.

Janssen already has an earlier-stage NS5a inhibitor in its pipeline, but plans to study ‘805 in combination with its other oral direct-acting antivirals. Potential two- and three-drug cocktails could include combos with protease inhibitor simeprevir, which has a Nov. 28 PDUFA date, and/or non-nucleoside polymerase inhibitor TMC647055. Janssen is already testing simeprevir in combination with Gilead Sciences Inc.’s nucleoside polymerase inhibitor sofosbuvir and Bristol-Myers Squibb Co.’s NS5a inhibitor daclatasvir, but the new deal gives it a chance to own all the parts of a combo therapy.

With the sale, GlaxoSmithKline has effectively exited the oral HCV arena, although it will complete an ongoing Phase II trial of ‘805 in combination with ribavarin and pegylated interferon. GSK and Vertex Pharmaceuticals Inc. agreed in November 2012 to conduct a Phase II study of ‘805 with Vertex’s nucleoside polymerase inhibitor VX-135. -- Paul Bonanos

Quintiles/Muscular Dystrophy Association: Quintiles, the global CRO, is reaching further into the world of patient registry development. The Muscular Dystrophy Association has tasked it to develop a neuromuscular disease registry which will provide real world evidence to help researchers, physicians, and patients understand the cause of the disease and identify effective treatments. Financial details were not disclosed. 

MDA will use the registry to study the natural history of muscular dystrophy and related muscle diseases such as ALS and SMA, collect information on practice patterns, inform care guidelines, and improve the quality of patient care. The registry is currently available at 25 clinics within MDA’s national network, with plans to expand to their full network of 200 clinics by 2015.

A Quintiles spokesman wouldn’t comment on the CRO’s plans to grow its registry practice, but he noted that patient registries “are an increasingly important component of real-world evidence development.” The CRO has touched the world of registries before through its Quintiles Outcome division which specializes in observational and real-world research. Quintiles said that the unit, “our real-world and late-phase division, has managed patient registries previously.” -- Michael Goodman

Vivus/Auxilium: Auxilium Pharmaceuticals Inc. stuffed another men’s health drug into its sales reps’ bags Oct. 11 when it licensed rights to Vivus Inc.’s Stendra (avanafil) in the U.S. and Canada. Auxilium will pay Vivus $30 million up front for the erectile dysfunction drug, and is on the hook for an additional $15 million contingent upon a label revision for the drug that reflects an even-better-than-Dominos-Pizza-15-minutes-or-less onset claim.  Further regulatory and sales milestones could eventually take the total outlay to $300 million, and Vivus will receive an undisclosed royalty on sales.

When Auxilium launches the drug at the end of 2013, Stendra will complement its Testim testosterone gel and other men’s health products. (FDA approved the drug in April 2012, though Vivus had yet to launch it.) Auxilium hopes to differentiate the product from its entrenched competition – led by Pfizer’s Viagra (sildenafil) – based on the onset claim. In July 2013, Vivus licensed rights to market the drug in Europe, Australia, and New Zealand to Menarini Group, for $21 million up front plus milestones and royalties.

Vivus, beset by multiple changes at the top of its management ranks this year, is largely valued on the promise of its Qsymia (phentermine/topiramate) obesity drug. With Stendra in the hands of a men’s health specialist, Vivus and new CEO Seth Fischer should now be able to focus on improving sales and/or finding a partner for its main asset. -- Chris Morrison

Lilly/Hutchison MediPharma: Eli Lilly & Co. and Chi-Med's Hutchison MediPharma Ltd. subsidiary have signed an agreement to co-develop and market a small-molecule drug discovered by Hutchison, HMPL-013 (fruquintinib), for treating a variety of solid tumors. Under the agreement, Lilly is to pay Hutchison as much as $86.5 million in upfront payments and development and regulatory milestones, plus tiered royalties based on net sales if the drug reaches the China market. The two firms will share future development costs, which would be carried out by Hutchison. Additional terms were not disclosed.

A vascular endothelial growth factor (VEGF) inhibitor, fruquintinib demonstrated clinical activity in patients with various heavily pre-treated advanced cancers, according to Hutchison MediPharma. Currently, a single arm Phase II study is on-going in China with results expected to be released in early 2014. In July 2013, HMP received Phase II/III Clinical Trial Application approval from China FDA. In the planned Phase II/III clinical trials, fruquintinib will be studied in patients with a variety of solid tumors.

“The collaboration with Lilly will allow for fruquintinib to be developed across various tumor types in China and at a far greater speed than if we went alone,” said Chi-Med CEO Christian Hogg in a statement. 

“In Lilly’s emerging markets business, we are focused on providing patients with innovative medicines from our own pipeline and through collaborations with respected science-based companies such as HMP,” added Jacques Tapiero, Lilly Senior Vice President and President of Emerging Markets. -- Tamra Sami

Novartis/ImmunoGen: Novartis AG has taken exclusive rights to ImmunoGen Inc.’s antibody-drug conjugate (ADC) technology for use in developing cancer therapies against an undisclosed target. This is the second license Novartis has taken onthe technology; the first, in 2010, involved a predetermined number of oncology targets, selected by Novartis. In 2010, Novartis paid ImmunoGen $45 million upfront and up to $200.5 million in milestones for each target resulting in a cancer compound, and royalties. Milestones in the latest deal are also valued at up to $200 million, not including the undisclosed upfront.

Novartis is responsible for development, manufacturing and commercialization of the products.  ImmunoGen’s ADC technology, known as TM1, uses a tumor-targeting engineered antibody that links to a cancer therapy and delivers that therapy to the cancer cells; it aims to be better tolerated and more effective. Roche/Genentech Inc.’s Kadcyla, which combines ImmunoGen’s ADC technology and Roche’s well-established trastuzumab antibody, recently was approved in the U.S. and elsewhere for previously treated HER2-positive metastatic breast cancer patients. ImmunoGen also has partnerships with Bayer Healthcare, Amgen Inc., Biotest AG and Sanofi.

Despite a string of platform deals, FDA approval of a key cancer agent that validates the biotech’s ADC platform, and a wildly optimistic run up overall in biotech stocks, ImmunoGen’s stock has traded within a narrow range for the past 12 months.  Investors are waiting for more data on its lead in-house compound, IMGN901, a small cell lung cancer drug which hit a delay last spring due to dosing adjustment in PII trials. -- Wendy Diller

Takeda/Immunomedics: Takeda will return rights to the humanized anti-CD20 antibody veltuzumab to Immunomedics Inc., not because of any issues that arose in clinical trials, according to Immunomedics, but because of lack of progress on the program. Immunomedics had filed arbitration proceedings against Nycomed (now owned by Takeda) concerning delays in the development of veltuzumab, which the company argued was a material breach in the licensing agreement. Neither Nycomed nor Takeda completed a single trial on the program. Immunomedics says it will continue to pursue arbitration procedures for damages due to the delay in development.

It is weighing its options for the program including signing a new partner or developing it independently. Nycomed in-licensed rights to veltuzumab in non-cancer indications in July 2008 for $40 million up-front and $580 million in potential milestones, with the aim of developing the drug for rheumatoid arthritis. After Nycomed was acquired by Takeda in 2011, it changed the development plan to focus on lupus instead, resulting in further setbacks, according to Immunomedics. In addition to the $40 million up-front payment, Immunomedics also received a total of $20 million in three follow up payments. Immunomedics is separately studying veltuzumab for the treatment of lymphoma. -- Jess Merrill

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