Deals Of The Week Wonders Whether Heated Competition To Buy Ache Laboratorios Will Muddy The Brazilian Waters

Could a bidding war for Brazil’s privately held Ache Laboratorios do for Latin America what Abbott Laboratories’ gargantuan purchase of part of India’s Piramal Healthcare did for biopharma M&A in India?

Call it the “Piramal effect,” if you will. Abbott reset expectations among India’s domestic pharma world with its $3.72 billion purchase in 2010 of Piramal’s branded generics business. Brazil hasn’t yet seen the kind of blockbuster deal that would raise prices across the board; the highest value deal in that market to date is Sanofi’s $662 million buyout of Brazilian generics firm Medley Pharmaceuticals in 2009.

Sanofi got in early – staking its claim before big pharma’s buying spree in emerging markets generated significant deal inflation – but the deal hardly lifted the value of Brazilian companies across the board. That transaction was followed by smaller deals, such as Takeda’s $251.5 million (BRL 500 million) buyout of Brazilian branded generics specialist Multilab Indústria e Comércio de Produtos Farma about one year ago, which also included potential for up to BRL 40 million in earn-outs.

But, now comes word that could blow all previous Brazilian deals out of the water – Abbott and two of its big pharma competitors, Pfizer and Novartis, are preparing a second round of bids to buy Ache, Brazil’s leader in the sale of prescription drugs. The rumored price tag for Ache, fourth overall domestically in drug sales when over-the-counter products are included, ranges between $4 billion and $5 billion, a matter complicated by talk that at least one of three ownership families does not wish to sell. Ache’s public stance is that it is not up for acquisition.

Ache reported net earnings of $270 million for the 12 months ending Sept. 30, 2012. Nonetheless, a source familiar with the company told Deals of the Week that Ache remains an appealing investment for big pharma due to higher gross margins than its domestic competition, high top-line growth and strong relationships with distributors. In an emerging-markets competition where it is difficult to acquire worthy assets without overpaying, the three pharmas are facing a reality that a price tag above $5 billion – about 20 times EBITDA (earnings before interest, taxes, depreciation and amortization) – may be required just to get a foot in the door.

One pharma executive who asked not to be named told DOTW that his company is so discouraged by prices for assets in the primary emerging markets that it already is looking to next-generation possibilities such as Nigeria and Colombia.

As an article in The Atlantic notes, for overall business climate, Brazil recently has been viewed as the shining jewel of the so-called BRICS nations (Brazil, Russia, India, China, South Africa), with an average real gross domestic product growth rate of 4% between 2004 and 2010, including an eye-opening 7.5% in 2010. Add in low unemployment and a fairly industry-friendly regulatory environment, and Brazil perhaps was positioned to join China as the top emerging market for biopharma.

An early 2013 Business Monitor International report states that total pharmaceutical expenditure in Brazil in 2011 was more than $28.7 billion, and that total was expected to grow by 7.6% in local currency terms in 2012 (while declining in U.S. dollar spending due to exchange-rate fluctuations.) However, the biopharma opportunity in Brazil is being diminished by drug rebates, which are increasing both in total numbers and in size.

Meanwhile, GDP declined 0.9% in Brazil last year, combining with a 6% inflation rate to tarnish the South American giant’s emergence. Outside investment hoping to tap Brazil’s huge population, highlighted by a rising consumer class, faces what is known as “the Brazil cost” – a combination of high tariffs, poor infrastructure and red tape that increase the cost of doing business, the Atlantic reported.

But industry interest in tapping the Brazilian market cannot be denied. A review of Elsevier Business Intelligence’s Strategic Transactions database reveals six major equity investments in Brazilian biopharma holdings this decade. Beside last May’s Takeda/Multilab transaction, these include:

• Valeant Pharmaceuticals paying $28 million in May 2010 for Instituto Terapeutico Delta, a private branded generics and OTC company focused largely on dermatology;
• Pfizer anteing $240 million plus performance-based earn-outs to acquire 40% of generics firm Laboratorio Teuto Brasileiro in October 2010;
• Amgen ponying up $215 million in cash for Bergamo, a hospital-focused company with an emphasis on oncology, in April 2011;
• Merck investing an undisclosed amount in February 2012 to create and own a 51% stake in a Brazilian joint venture with Supera Farma Laboratorios, Cristalia Produtos Quimicos Farmaceuticos and Eurofarma Laboratorios; and
• UCB Group paying an undisclosed sum with potential for performance-based earn-outs to acquire 51% of specialty pharma Meizler Biopharma. The May 2012 deal included an option for UCB to buy out the remainder of the company.

While we await the outcome of the multi-company pursuit of Ache – GlaxoSmithKline reportedly dropped out of the bidding a while back – other biopharma deal-making was completed in the past week as we tally up …

AstraZeneca/AlphaCore: Following through on CEO Pascal Soriot’s promise to rebuild the company’s cardiovascular pipeline, AstraZeneca announced its third cardiovascular deal in two weeks. In the latest tie up, announced April 3, AstraZeneca’s biologics unit MedImmune acquired private biotech AlphaCore Pharma for an undisclosed sum. The big pharma gains ACP-501, a recombinant human lecithin-cholesterol acyltransferase (LCAT) enzyme that is believed to play a major role in removing cholesterol from the body and also may increase levels of high-density lipoprotein (HDL) cholesterol, better known as “good cholesterol.” A Phase I trial testing the drug met its primary safety and tolerability endpoint and also showed that ACP-501 raised HDL cholesterol in patients taking it. The cholesterol space is a high-risk, high-reward area of drug development, given the growing regulatory and commercial hurdles. But Soriot vowed AstraZeneca would embrace risk as a key to unlocking success in the drug-development process during an overview March 21 in which he unveiled his turnaround plan for the company. Cardiovascular disease is one of three core therapeutic areas the company has committed to. In March, the company signed two deals in the field: an option agreement with messenger RNA developer Moderna Therapeutics for up to 40 programs in exchange for $240 million upfront and a research partnership with Sweden’s Karolinska Institute. - Jessica Merrill

Bind Therapeutics/Pfizer: Nanotech company Bind Therapeutics has inked its second deal with a major player this year, signing a collaboration with Pfizer on April 3. Pfizer will pay Bind to combine its Accurins technology with small molecules provided by the big pharma. Pfizer will pay $50 million in upfront and near-term development expenses per molecule and Bind is eligible for $160 million in regulatory and commercial milestones for each product that reaches the market. Bind did not retain any commercialization rights, but will receive tiered royalties on worldwide sales. The company would not reveal the number or kinds of molecules covered by the deal or the therapeutic area of focus, but did say the agreement covers more than one molecule. The Accurins technology has been explored in the areas of oncology, inflammatory diseases like arthritis and cardiovascular indications. In January, Bind announced a similarly sized agreement with Amgen to develop and commercialize kinase inhibitor nanomedicines to treat solid tumors. - Lisa LaMotta

Ra Pharma/Merck: Less than a year after exiting stealth mode, Ra Pharmaceuticals has landed its first partnership, aligning with Merck to help the pharma discover and develop drugs for difficult-to-hit protein targets. Under the agreement announced April 1, Ra will use its proprietary Extreme Diversity platform to find and develop cyclomimetic candidates that can address intracellular protein-protein reactions in multiple undisclosed therapeutic areas. Ra will receive an undisclosed upfront payment and research funding; discovery, development, regulatory and commercialization milestones could bring its full remuneration to $200 million. While the deal stemmed from early conversations between Ra executives and Reid Leonard, head of Merck Research Ventures Fund, it does not include an equity component for the pharma, Ra President and CEO Doug Treco said. It also includes no risk-sharing, such as a co-promotion option down the road. Ra is developing what it terms a new class of drugs, peptide-like molecules offering the diversity and specificity of antibodies along with the attributes of small molecules, such as oral bioavailability. Cyclomimetics, the cyclic polymer drug candidates produced with Ra’s technology, are characterized by their cyclic structure and backbone as well as side-chain modifications that can provide beneficial properties not offered by natural peptides, the company says. It claims that Ra’s platform produces molecules that are highly specific and stable, offering improved cell permeability and potential for increased bioavailability as well as longer half-lives. - Joseph Haas

Astellas/Ambrx: In its latest tie-up with a major pharmaceutical player, Ambrx announced April 5 that it will collaborate with Japanese pharma Astellas Pharma on a series of antibody-drug conjugates (ADCs) in the oncology setting. Astellas will pay the biotech $15 million upfront, as well as $285 million in potential development, regulatory and sales-based milestones to discover and develop an undisclosed number of molecules that use its site-specific ADC technology. Last June, Ambrx inked a deal with almost identical financials with Merck. While details of the targets the companies intended to focus on were not disclosed, it was revealed that they would focus on areas “beyond oncology.” Ambrx also has tie-ups with Eli Lilly and Bristol-Myers Squibb. Previously it had arrangements with Wyeth, Roche and Merck Serono. ADC technology, which allows drugs to be targeted to a specific site carrying a therapeutic payload, have become a hot space since Seattle Genetics got approval of its ADC lymphoma drug Adcetris (brentuximab vedotin) in August 2011. - L.L.

Agios/Foundation Medicine: Agios Pharmaceuticals and Foundation Medicine signed a pact April 4 to use the latter’s clinical assay, FoundationOne, to create diagnostics which could identify ideal patients for Agios’ compounds aimed at cancer metabolism. No financial terms were disclosed. The diagnostic-discovery collaboration will focus on Agios candidates intended to inhibit tumors that carry mutations in the IDH1 and IDH2 metabolic enzymes. The work will seek to identify tumor genomic alterations that would be most likely to respond to Agios’ candidates, and to potentially develop and commercialize companion diagnostics for Agios compounds. Foundation, which developed the FoundationOne genome analysis profiling system for personalized cancer treatment decision-making, raised a $42.5 million Series B financing in 2012 with a syndicate of venture capital and corporate venture outfits. The round was topped off with an additional $13.5 million this past January from individual investors including Bill Gates, Yuri Millner and new board member Evan Jones. Agios, partnered since 2010 with Celgene on cancer metabolism R&D efforts, raised a $78 million Series C round in 2011 and announced plans to branch out therapeutically into rare genetic disorders. - J.A.H.

Novartis/ImmunoGen: ImmunoGen on April 4 updated the status of its 2010 licensing agreement with Novartis to apply the biotech’s Targeted Antibody Payload (TAP) technology platform to create cancer-fighting antibodies for undisclosed targets chosen by the multinational pharma. Under an amendment to the agreement, Novartis has exclusively licensed one compound against a still-undisclosed target, while taking a non-exclusive license to a second compound which can be converted later to an exclusive license. ImmunoGen will receive $4.5 million upfront under the amendment and could earn between $200 million and $238 million in milestones pegged to the two compounds, plus potential sales royalties. Of the upfront money, $1 million is an option exercise fee, while the remaining $3.5 million, which could be credited against future milestone payments, will be paid if Novartis terminates development of one or both compounds. In a same-day note, Cowen & Company analyst Simos Simeonidis called the developments “an incremental positive for ImmunoGen” that helps to validate the TAP platform. In October 2010, Novartis paid $45 million upfront for the license, intended to help it create antibody-drug conjugate (ADC) therapeutics for cancer. The deal offered the potential for up to $200.5 million in milestones for each target leading to development of an ADC, as well as sales royalties on any products reaching market. - J.A.H.

ArQule/Daiichi Sankyo: In our “No-Deal” of the week, collaborators ArQule and Daiichi Sankyo have decided to terminate an early-stage collaboration around Phase I oncology compound ARQ-092. The news comes just months after a Phase III setback of the companies’ later-stage oncology compound tivantinib, which the two companies will continue developing together. Daiichi opted to license ARQ-092 in November 2011 and paid $10 million upfront at the time, as well as Phase I development expenses. ArQule stood to gain $255 million in milestone payments and the deal included development of multiple compounds; the program now has been returned to the Woburn, Mass.-based company. Meanwhile, tivantinib failed to show overall survival in a late-stage trial in non-small cell lung cancer. The drug’s development focus now has been shifted to liver cancer. The partners signed their initial agreement for tivantinib (known then as ARQ-197) in November 2008. Daiichi agreed to pay $60 million upfront, as well as $560 million in milestones to license the c-Met receptor tyrosine kinase inhibitor. - L.L.

Photo Credit: Muddy Amazonia

Deals of the Week Wants Cash on the Barrelhead

 

For pharmas making all but the largest acquisitions, cash is king. From speculative buyouts of preclinical start-ups all the way through bolt-on deals worth a few billion dollars, pharmas typically spend cash rather than swap stock to make their acquisitions. Except in the cases of mega-mergers, a pharma’s purchasing power lies on its balance sheet, not in its share price.

So when Moody’s Investor Service issued a March 18 study of the U.S. companies whose cash coffers were the richest, Deals of the Week couldn’t help but turn an eye to the seven health care companies named in the report. None of them has disclosed a pharma acquisition yet in 2013, but rumors are swirling that one will strike soon.

Pfizer was the wealthiest in the bunch, with $46.9 billion in the till at the end of 2012. That’s enough to place it fourth across all industries, behind only Apple, Microsoft and Google. And although Pfizer had the world’s best-selling drug for several years running until Lipitor (atorvastatin) lost patent protection in 2011, not all of its bounty came from product sales. It did, after all, pare off its nutrition business in an $11.85 billion sale to Nestle SA last year, not to mention its Capsugel unit to private equity firm Kohlberg Kravis Roberts in 2011. Pfizer hasn’t done a pharma acquisition since its (all-cash) takeout of NextWave Pharmaceuticals Inc. in November.

Ninth-place Amgen made four large cash buys in 2012, including deals for Micromet Inc., deCODE genetics EHF, KAI Pharmaceuticals Inc., and Mustafa Nevzat Pharmaceuticals that totaled more than $2.5 billion. But those made a small dent on Amgen’s balance sheet; Moody’s said the big biotech had $24.1 billion at year’s end. The report also noted that 78% of Amgen’s liquidity is located overseas; two of its four large 2012 deals were for non-U.S. companies.

Beyond Amgen, Johnson & Johnson wasn’t far behind at 13th place with $21.1 billion, while Merck was 15th with $16.1 billion. (J&J-owned Cordis made one device acquisition this month, buying Flexible Stenting Solutions Inc. for an undisclosed sum.)

Moody’s reported that Abbott had $15.2 billion in cash on Dec. 31, enough for 17th on the overall list, but a day later, the company split in two. Its pharma descendant, AbbVie, had $7.98 billion upon launch, according to a March 15 regulatory filing. Rounding out the top pharmas were Lilly at 23rd with $12 billion and Bristol-Myers Squibb at 40th with $6.4 billion.

More broadly, the pharma industry holds about 14% of the $1.45 trillion corporate cash pile, a share which has remained roughly the same for several years. It’s the second largest sector behind technology, which gained share to 38%, while energy is among the industries losing share.

If Big Pharma isn't yet striking, some companies are still buying, licensing, and partnering. You won't get thirty days in the jailhouse, but you won't be abreast of this week's dealmaking news without...

Valeant/Obagi: Canada’s Valeant Pharmaceuticals is again strengthening its dermatology business through acquisition, this time by buying Obagi Medical Products, the maker of several proprietary aesthetic and prescription skin-care lines sold through physician offices. The companies announced Valeant’s plans to acquire the Long Beach, Calif., company March 20 for $19.75 per share in cash, or about $360 million. Valeant’s offer represents a 42% premium to Obagi’s closing share price March 14, the last trading day prior to the disclosure of its fourth quarter and full-year 2012 earnings. The company generated sales of $120.7 million in 2012. Obagi’s portfolio includes a range of skin-care lines, including Obagi Nu-Derm, Obagi-C Rx, Obagi Condition & Enhance and ObagiCLENZIderm M.D. acne therapeutic system. Valeant has built itself into one of the world’s leading dermatology players through acquisitions. Last year, Valeant announced plans to buy Medicis Pharmaceutical for $2.6 billion, positioning it as the largest dermatology player in the U.S. and second in the world behind only Galderma. - Jessica Merrill

AstraZeneca/Moderna: Along with its new R&D strategy and organizational restructuring, AstraZeneca unveiled a massive bet on an early-stage biotech platform March 21 that suggests the big pharma has taken to heart its new CEO’s directive to be more willing to embrace risk. The deal, an option agreement for up to 40 programs across several therapeutic areas with privately held Moderna Therapeutics, carries an eye-catching price tag: $240 million up front, plus potential earn-outs. All told, Moderna, which aims to use messenger RNA (mRNA) as therapeutics, could earn more than $1 billion under the deal with AstraZeneca, announced March 21. That same day, AstraZeneca also unveiled a research partnership in cardiovascular, metabolic and regenerative disease with Sweden’s Karolinska Institute, one of several collaborations between those two groups in recent years. Beyond the $240 million upfront payment – the largest this year in a biotech/pharma collaboration and one of the biggest ever for a deal built around preclinical assets – Moderna also can earn up to $180 million in “technical milestones,” an arrangement Moderna CEO Stephane Bancel described as almost a secondary, contingent upfront payment. Moderna also could bring home development, regulatory and commercial milestones for each drug candidate licensed by AstraZeneca, as well as sales royalties ranging from the high single digits to low double digits. - Joseph Haas

Merck/Cerecor: Well-funded Baltimore start-up Cerecor has licensed a portfolio of neurology drugs from Merck that have shown potential in treating Parkinson’s disease. The program includes more than 2,000 molecules that inhibit catechol-O-methyltransferase, or COMT, a compound that breaks down dopamine in the brain and is linked to improving brain functions such as cognition, motivation and emotion. In a March 20 statement announcing the deal, Cerecor said Merck’s research has improved toxicity issues related to other COMT inhibitors. Marketed drugs in the class include Novartis’s Comtan (entacapone) and Valeant’s Tasmar (tolcapone), which typically are prescribed with levodopa, a synthetic form of the natural dopamine-producing chemical L-dopa. Terms of the Merck-Cerecor arrangement weren’t released, although Cerecor said it will pay milestones and royalties “consistent with other preclinical licenses in neuroscience.” The start-up has a Phase I anti-tussive drug, as well as a group of preclinical D-amino acid oxidase inhibitors obtained from Johns Hopkins University’s Brain Science Institute, in its pipeline. Last April, Cerecor raised $22 million in a Series A round using placement agent Maxim Group; the specific investors weren’t named. Former Celgene CEO Sol Barer is Cerecor’s chairman. - Paul Bonanos

Celgene/bluebird bio: Speaking of Celgene, the Summit, N.J., gene- and protein-regulation specialist has teamed up with 2012 Deals of the Year nominee bluebird bio in a gene-therapy deal (pdf) that will target oncology. Specifically, the two companies will collaborate to develop therapies that modify a patient’s own chimeric antigen receptor T-cells, then re-introduce them to target cancer cells. Although bluebird bio will foot the bill for Phase I trials on clinical products, Celgene will have the option to obtain a global license for each for an unspecified fee; bluebird bio retains the right to share U.S. rights in exchange for reduced milestone payments. Celgene’s upfront payment wasn’t revealed, but total fees including milestones for each product could total $225 million plus royalties. Celgene also agreed to collaborate on CAR T-cell research with scientists at the Center for Cell and Gene Therapy at Baylor College of Medicine, Texas Children’s Hospital and The Methodist Hospital, Houston. The team at bluebird bio also will have access to the scientists, led by Baylor professor Malcolm Brenner. - P.B.

NPS/Takeda: Two assets came full-circle March 19 as NPS Pharmaceuticals re-acquired ex-U.S. rights to a pair of rare disease drugs in a deal that will increase the equity position of Japanese pharma Takeda Pharmaceutical. NPS previously out-licensed the rights to teduglutide and PTH 1-84 in separate deals with Nycomed Pharma, which then was acquired by Takeda. In an unusual deal structure, NPS, which is marketing teduglutide in the U.S. as Gattex and hopes to file PTH 1-84 under the brand name Natpara later this year as a biologic therapy for hypoparathyroidism, brought the ex-U.S. rights to those two compounds in-house in exchange for $50 million in common stock. Down the road, Takeda can earn an additional $30 million, which will be either cash or additional equity at NPS’ discretion, when the two drugs achieve combined worldwide, single-year net sales of $750 million. Takeda holds an equity position of about 7% following this deal, NPS President and CEO Francois Nader said. Both the licensing fee and the sales-based milestone were structured as equity (although the milestone can be paid out as cash if NPS opts) partly to preserve cash, Nader said. An ex-U.S. license to both drugs is just the start of what NPS gains under the deal. The transaction also transfers an inventory of active pharmaceutical ingredients for both drugs to NPS, a less-expensive method for making teduglutide, a glucagon-like peptide 2 (GLP-2) analog, and a pen delivery system that could be used with PTH 1-84. - J.A.H.

CRT/Janssen: Cancer Research Technology, the technology transfer arm of world’s largest charity Cancer Research UK, and Janssen Biotech have joined in the search to find potential new multiple myeloma drugs. The duo hope they can identify molecules and develop potential medicines that block a key protein on a cell-signaling route called the unfolded protein response (UPR) pathway. Teams at The Institute of Cancer Research (ICR), led by Ian Collins in the Cancer Research UK Cancer Therapeutics Unit and Faith Davies in the Division of Molecular Pathology, will work alongside a team at Janssen. Together, Cancer Research UK and Janssen will fund up to 25 scientists, with Janssen providing some of the funding to support the research at the ICR in London. Janssen also will pay future milestones and royalties and take the lead on the clinical development of any potential drugs. The two sides announced their deal on March 21 but gave no financial details. CRT long ago moved beyond simply commercializing and managing the intellectual property generated by the £500 million in research funding provided by Cancer Research UK to five core research institutes across the U.K., as well as to researchers at dozens of other universities and organizations. The breadth of CRT’s academic network – it has sourced and managed IP from more than a dozen global charities and institutes, as well as that of Cancer Research UK-funded research and drug discovery – positions it as an important gateway to cancer-focused research in the U.K. It has a strong in-house drug-discovery capability and access to clinical development capabilities in conjunction with Cancer Research UK’s drug development office. Janssen Biotech is part of the Janssen Pharmaceutical Companies of Johnson & Johnson. J&J earlier this month opened an innovation center in London but a spokesperson for the U.S. drug company said Janssen’s alliance with CRT was not the result of that center’s establishment. - Sten Stovall

Merck Serono/Nordic Bioscience and Merck KGaA/BMS: Merck Serono, a unit of Merck KGaA, said on March 18 it formed a strategic alliance with Denmark-based Nordic Bioscience AS around the German drug maker’s investigational therapy sprifermin, or recombinant human FGF-18, in osteoarthritis of the knee. Under the terms of the agreement, Nordic Bioscience will provide Merck with clinical development services on a shared-risk basis in exchange for a payment structure that includes service fees and potential milestone and royalty payments on the program. Financial terms of the collaboration were not disclosed; however. Merck retains full responsibility for the development and commercialization of the investigational drug. According to the World Health Organization, more than 5% of adults over 40 in developed countries, or more than 30 million people, suffer from osteoarthritis of the knee. A multi-national Phase IIb trial, dubbed the FORWARD study, is expected to begin enrolment in the second half of 2013 to evaluate further sprifermin for inhibition of the progression of structural damage, reduction in pain and improvement of physical function in patients with osteoarthritis of the knee. Sprifermin is a protein thought to induce chondrocyte stimulation leading to matrix synthesis and chondrocyte renewal. It is delivered by intra-articular injection. Two phase I trials in moderate/severe osteoarthritis of the knee previously were completed; a Phase II trial to evaluate the efficacy and safety in patients with cartilage injury of the knee is ongoing. The program was originally was in-licensed in 2004 from ZymoGenetics, a Bristol-Myers subsidiary. The next day, on March 19, Merck KGaA said it inked a deal with Bristol to promote type 2 diabetes drug Glucophage (metformin hydrochloride) under different formulations in China. Under terms of the agreement, Merck Serono and Bristol will co-promote Glucophage in China through a profit-sharing arrangement. Glucophage has been marketed by Bristol-Myers Squibb-SASS in China since 1999. The two companies will tap existing resources and complementary strengths, with Bristol-Myers Squibb-SASS continuing to manufacture Glucophage’s IR (immediate release) formulation. The collaboration will seek to expand the geographic distribution of Glucophage and provide diabetes-related health and medical information including education for health professionals. In addition, the co-promotion will significantly increase outreach to hospitals. Other terms of the agreement were not disclosed. -- S.S.

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Deals Of The Week Wonders What Merck's Latest Biosimilars Move Really Means

Ever since Merck jumped into the biosimilar field in 2008 with a ferocious go get ’em attitude more fitting of an NFL tackle than a big pharma, we’ve been following their progress – and then lack of progress – closely. Back when most pharmaceutical manufacturers were still griping about defending their biologic brands, Merck’s early aggressive ambitions made an interesting case study in how a big pharma might strike offensively by positioning itself as a contender in the biosimilar space.

So the company’s announcement Feb. 20 that it has partnered with Korea’s Samsung Bioepsis to develop multiple undisclosed biosimilar candidates, while delivered quietly in a concise statement, struck us as a noteworthy change in strategy.

You didn’t have to read tea leaves to see that Merck’s original strategy wasn’t working out. In 2008, Merck established a business unit devoted to the field and pledged to invest $1.5 billion and launch six or more biosimilars between 2012 and 2017. But last year, as we reported here, the company closed Merck BioVentures, the unit it created devoted to biosimilars, and folded the research into biologics and vaccines at Merck Research Labs. And Mike Kamarck, the charismatic proponent of biosimilars who led Merck’s charge into the field, left the company.

Now, we can’t help but wonder what the latest announcement means for Merck’s biosimilar strategy.
Is it a reaffirmation of the company’s commitment to biosimilars, albeit through a more modest path, or is Merck effectively washing its hands of biosimilars while still holding out for some hope of an eventual commercial reward? Samsung will be responsible for preclinical and clinical development, manufacturing, clinical trials and registration of any candidates, while Merck will commercialize the products. It’s not clear how much Merck is putting behind the effort either, as the financials of the deal were not disclosed; Merck is paying Samsung an upfront and has agreed to milestones.

Merck declined to offer further insight on the move, but said the deal with Samsung will complement its internal effort. The only biosimilar Merck has in its internal pipeline that has been publicly disclosed, however, is a copy of Roche/Biogen Idec’s Rituxan, the one drug Samsung Bioepsis won’t be developing because the company – formed in 2011 out of joint venture between Samsung Biologics and Biogen – won’t make any biosimilar versions of Biogen products.

Given Merck’s inability to get new drugs to market of late, the decision to take a contract research approach to biosimilars may be the best way for Merck to hold onto the potential commercial upside of biosimilars without the investment internal development requires. Merck ran into the field at high speed, and we admired their optimism, but given the evolving regulatory and commercial dynamics, a cautious path may be the wiser one.

And let’s not forget why the decision to jump into biosimilars was easier for Merck to make than for some other big pharmas: Merck never had a history in biologics and hasn’t traditionally had treasured blockbuster biologic brands to protect. It gained some knowledge of the field and rights to Remicade in certain territories outside the U.S. through its mega-merger with Schering-Plough. But it’s hard to envision Merck’s inexperience as a competitive advantage in a notoriously difficult field like biologics. Development and manufacturing is just as hard for biosimilars, even when manufacturers have a reference molecule to use as a road map.

Three years after the U.S. government laid a regulatory framework for biosimilars, no applications have yet been filed through the new pathway with FDA. Today, while Merck has adopted a more subtle tone when it comes to biosimilars, Amgen – a biologics expert – is crowing about its grand ambitions for the field.

Roche/Chiasma: Roche and privately held Chiasma Inc inked a deal Feb. 18 to develop and commercialize the Israel-based biotech’s proprietary pill Octreolin, initially for acromegaly and, afterwards, for neuroendocrine tumors (NET). Their pact brings a new Phase III drug to Roche’s pipeline, targeting both an oncology (NET) and non-oncology indication (acromegaly). It gives Roche worldwide exclusive license to Octreolin, and Chiasma receives upfront payments of $65 million and future milestone payouts of up to $530 million, along with tiered, double-digit royalties on Octreolin net sales. Roche said it decided to partner with Chiasma and commercialize Octreolin in part because of the convenience and improved quality of life an oral therapy might offer patients. The pill may consequently command a higher price to injectables and there appears to be little oral competition on the horizon near-term. Delivering octreotide orally twice daily would be a major advantage for patients with acromegaly as they would avoid the painful monthly injections involved in current treatment options such as Novartis' Sandostatin LAR. - Sten Stovall

Chiesi/Cornerstone: Cornerstone Therapeutics’ majority shareholder is looking to buy out the company. North Carolina-based Cornerstone announced Feb. 20 that it received a letter from its majority shareholder – Italy’s Chiesi Farmaceutici – offering to buy the remaining outstanding shares of the company. Chiesi offered $6.40 to $6.70 per share for the 40% of the company it doesn’t already own – valuing the specialty pharma at $177 million. In a letter from Chiesi to the board of directors of Cornerstone, Chiesi’s CEO Ugo Di Francesco said the company “has adequate liquidity available and excellent relationships with our banks to effect an all cash bid.” Di Francesco added that Chiesi has “conducted an extensive review of Cornerstone based on publicly available information, our own deep experience in the pharmaceutical industry and consultations with our outside advisors.” The Italian drug maker plans “to move promptly” in regard to the bid “and is committed to working vigorously and expeditiously with [Cornerstone] to complete a transaction.” Cornerstone said in a statement that “no decisions have been made by the board of directors with respect to Chiesi’s proposal.” The two companies paired up in May 2009 when Chiesi granted Cornerstone an exclusive U.S. license to sell its porcine-derived lung surfactant Curosurf (poractant alfa) for a 10-year period. In return, Chiesi took an equity stake in the company that now accounts for a 60% share. - Lisa LaMotta

Janssen/Pharmacyclics/Abbott: Partners Janssen Biotech and Pharmacyclics will work with Abbott to develop a molecular diagnostic test to identify patients with a genetic sub-type of chronic lymphocytic leukemia (CLL). Abbott will develop the test using its proprietary FISH (fluorescence in situ hybridization) technology; the test will identify hard-to-treat CLL patients who have a deletion within chromosome 17p (del17p). These patients are likely to respond to ibrutinib, a small molecule inhibitor of Bruton tyrosine kinase (BTK). At the American Society of Hematology conference in December, the partners presented positive Phase Ib/II data in a subset of relapsed/refractory CLL patients with the 17p deletion. The partners have an ongoing Phase II trial for ibrutinib in CLL patients with the 17p deletion. The company expects enrollment in this trial will take about 12 months to complete. On Feb. 12, FDA granted breakthrough designation to ibrutinib to treat two B-cell malignancies: relapsed or refractory mantle cell lymphoma (MCL) and Waldenstrom’s macroglobulinemia (WM). This could mean an approval for ibrutinib as soon as early next year. Pharmacyclics’ share price has been on a white-hot streak since last May, climbing more than 200%. News of the breakthrough designation bumped shares up about 20%. Details of the Abbott partnership remain undisclosed. - Stacy Lawrence

Eisai/Valeant: Valeant Pharmaceuticals announced Feb. 21 that it has acquired U.S. rights from Eisai Inc., the U.S. subsidiary of Japan's Eisai Co. Ltd., for cutaneous T-cell lymphoma treatment Targretin (bexarotene). Eisai received $65 million up front and is eligible for additional payments tied to undisclosed milestones. In March 2011, Eisai granted exclusive rights to Minophagen Pharmaceutical to develop and commercialize Targretin in Japan, expanding that agreement in April 2012 to cover Asia, Oceania, the Middle East, Eastern Europe and other regions. And in a deal similar to the Valeant agreement, in December 2012, Eisai sold U.S. commercial rights to Gliadel Wafer (carmustine) for glioblastoma to Arbor Pharmaceuticals. Gliadel and Targretin are aging products. However, the company’s cancer pipeline – oncology is 70% of Eisai’s revenues – has shown recent signs of stumbling. Farletuzumab, which entered Eisai’s pipeline with its 2007 acquisition of Morphotek, demonstrated disappointing results last January in platinum-sensitive ovarian cancer, not meeting the primary PFS endpoint in its first Phase III attempt. And Halaven (eribulin), approved in the U.S. in 2010 for metastatic breast cancer, missed its primary endpoints last year in a head-to-head Phase III superiority study against Xeloda (capecitabine). Much of the excitement around eribulin at the time of its approval was the likelihood of extending its label, which is now drawn into question. Eisai said the deal with Valeant would maximize the product’s value in the U.S. It went on to add that the agreement would enable Eisai to “strategically reallocate resources to other mid-to-long-term business growth areas” but it didn’t elaborate. As for Valeant, this deal continues its strategy of acquiring what it considers to be undermanaged commercial assets. - Mike Goodman

UCB/ConfometRx: Belgium’s mid-sized pharma company, UCB, is to link up with the Santa Clara, Calif.-based G-protein coupled receptor (GPCR) structural biology firm, ConfometRx, to discover new drugs in UCB’s sweet spot, the neurosciences. As often stated, GPCRs are the target for 25%-30% of marketed products, but GPCR research is hampered by the difficulty in extracting active receptors from cell membranes for use in research and drug screens. ConfometRx is developing crystallization techniques for GPCRs to make the screening process easier for GPCR-targeted drugs and antibodies. The two-year, multi-target research collaboration between UCB and ConfometRx is intended to gain insights into modulating GPCR targets in order to design differentiated drugs, the companies said Feb. 21. ConfometRx will receive an upfront payment, research funding and milestones, but further details of the agreement were not disclosed. UCB is building “super-networks” of innovation, which include tie-ups with Harvard University and the University of Oxford’s medical sciences division over the past three years. ConfometRx already is collaborating on various GPCR-related research projects with Bristol-Myers Squibb, Novo Nordisk and Lundbeck, while other companies active in providing research insights in the GPCR space include Heptares Therapeutics of the U.K., France’s Domain Therapeutics and San Diego-based Receptos. - John Davis

Photo credit: Wikimedia Commons

Red Rover, Red Rover, Let Financings of the Fortnight Cross Over

The Pacific Ocean has the Marianas Trench, the deepest place on Earth, more than six miles down. But Financings of the Fortnight has Crossover Canyon. And this fortnight, it went from zero to 210 million.

The zero was the number of dollars Radius Health raised trying to go public, and 210 million was the blockbuster financing for Intarcia Therapeutics. How fortuitous. As we noted in our previous column, our colleague Stacy Lawrence is working on a Start-Up feature about the return of crossover investors to biotech, and as if to punctuate her weeks of reporting that you’ll be able to enjoy just after Thanksgiving, Intarcia announced Nov. 15 a $210 million Series C, one of the industry's biggest rounds of private financing in memory, and it did so mainly by tapping crossover investors: the hedge fund Baupost Group, the diversified fund Farallon Capital Management, the multinational giant Fidelity Investments, and two other unnamed institutional investors. Existing venture backers New Enterprise Associates, New Leaf Venture Partners and Venrock also joined. The funding consists of $160 million in equity and $50 million in debt, and it’s all in one shot, Intarcia CEO Kurt Graves told our "Pink Sheet" DAILY colleagues. In other words, they don’t need no stinkin’ tranches.

The money will help push Intarcia’s lead product ITCA-650 in a set of Phase III trials. Intarcia has developed a formulation of the diabetes drug exenatide that can be implanted under the skin up to a year in a matchstick-sized delivery device. Exenatide, an analog of glucagon-like peptide-1, is marketed by Bristol-Myers Squibb and partner AstraZeneca as both Byetta and Bydureon, in twice-daily and once-weekly formulations respectively. The partners paid $7 billion to acquire Amylin, which previously owned the drugs, in June.

Meanwhile, Intarcia was once a whisker away from partnering ITCA-650 but backed off to keep full control. That helps explain the enthusiasm of the crossover investors, who have piled into to some of the year’s largest venture rounds, though none of course as large as the Intarcia deal. Crossovers want to take companies public; M&A is not their preferred exit. In fact, one factor in their resurgence is frustration as they’ve watched strategic buyers pick off the best biotechs before they, the public investors, can get a piece of the action. It’s worth mentioning that these days, those buyouts often happen in wildly favorable circumstances for the buyers – in structured deals with earnouts that only pay shareholders if the acquired company’s products hit milestones, as we explained in the March issue of Start-Up.

So when you see hedge and mutual funds featured in a biotech venture round, it’s a good bet that company will do its damndest to go public. With all that cash riding into Phase III, and a product that could address one of the world’s most burdensome diseases, don’t expect Intarcia and its new shareholders to jump quickly into a buyer’s arms.

The crossover road can be rough, too. Radius Health, with crossovers BB Biotech AG and Brookside Capital in the mix, raised $91 million in 2011 – also with a debt component – merged with a public shell, and pointed itself toward the public markets through a process known as Form 10, which lets a company list over the counter without the hullaballoo of a big IPO. It then opted to try for a big IPO, after all, and filed an S-1 in February. Those dreams were put on hold this week; the company said it would withdraw its S-1 because of general market conditions, and the stock is still not trading anywhere, even on the low-profile, low-volume exchanges.

Somewhere in between Intarcia’s $210 million and Radius’s zero is Ziarco, a new company that said Nov. 5 it received the first $6 million tranche of a potential $27 million Series A round. Consider it a small bite of Pfizer’s old Sandwich. Ziarco licensed four drug candidates that were developed at Pfizer’s now-shuttered Sandwich, UK labs, and part of the venture cash comes from Pfizer’s venture arm. But the lead financier is a very unlikely source: the hedge fund Biotechnology Value Fund, which typically invests in small- and micro-cap biotechs like this one. The crossover move is its first in five years, and it doesn’t seem inclined to make a habit of it. BVF partner Mark Lampert called the Ziarco deal opportunistic. Ziarco has four anti-inflammatory and anti-allergy drugs, on which Pfizer spent more than $100 million on R&D, said BVF’s Lampert. The most advanced is a histamine H4 receptor antagonist that has completed Phase I. CEO Mike Yeadon, who was VP and CSO of the allergy and respiration research team in Sandwich, told our “Pink Sheet” DAILY colleagues it could be a once daily low dose oral treatment for asthma, allergic rhinitis, pain, and inflammatory skin conditions. Pfizer Ventures’ stake is undisclosed, and it will receive milestone payments and royalties as the drugs progress.

Speaking of progress, we're almost to the blurbs. A quick programming note: This week we've added a new twist to FOTF. After the four blurbs, you'll find a lightning-round paragraph that takes you through the rest of the fortnight's financings. We hope you find it useful. Now on the count of three, let's all get a running start and jump headlong into...

Visterra: If the Cambridge, Mass. biotech has its way, Tamiflu will have competition. Visterra said Nov. 9 it closed a $26 million Series A round with $13 million from the Bill & Melinda Gates Foundation, Omega Funds, and its existing investors. The cash will help Visterra push its monoclonal antibody VIS410 into the clinic for seasonal and pandemic influenza. It’s a therapeutic, much like Tamiflu (oseltamivir), which is famously stockpiled whenever a new flu strain emerges amid whispers of “pandemic.” Visterra also sees it used as a prophylactic for first responders and others at near-term risk of flu infection. The infusion of cash from the Gates Foundation was undisclosed, but it’s significant nonetheless. Visterra is the third biotech in roughly a month, and fourth since March 2011, to sell equity to the Gates Foundation. In our previous edition we discussed the Gates investment in vaccine firm Genocea Biosciences. New head of global health Trevor Mundel said this summer the foundation would be more aggressive with its new investment strategy, and so far he’s right. (The upcoming issue of Start-Up takes a deeper look at the Gates biotech investment initiative.) So far, the foundation is targeting platforms, such as Visterra’s antibody discovery technology, so it can help point applications of the technology in directions beneficial to global human health. For example, roughly half of Gates’s Visterra investment is earmarked for a program in infectious disease (but not the flu). The other lead investor in the $13 million tranche, Omega Funds, usually buys shares of venture firms no longer able to hold positions in portfolio companies. But the Visterra investment is primary, not secondary, said Visterra CEO Steve Brugger. – Alex Lash

Abbvie: With a split from its parent company Abbott Laboratories imminent, the pharmaceutical unit AbbVie issued $14.7 billion in debt securities that will help it pay back cash to Abbott, as well as fund dividend payments to future shareholders. The debt issuance -- which included three-year fixed-rate, three-year floating-rate, five-year, six-year, 10-year and 30-year notes – was the largest dollar-denominated offering by a company in more than three years, and a sign that throughout market turmoil, health care reform, and other disturbances, Big Pharma has no problem convincing bond buyers of its seaworthiness. However, AbbVie did receive a slightly lower rating, Baa1, from Moody’s because of its untested independence and its overreliance on sales of rheumatoid arthritis drug Humira (adalimumab). Before AbbVie, the largest dollar-denominated debt offering was from Roche in February 2009 to help pay for its acquisition of Genentech. The company issued $13.5 billion in long-term debt, as well as $3 billion in commercial paper, a form of short-term debt. That same year Pfizer issued $13.5 billion in debt in conjunction with its acquisition of Wyeth. Amgen has also issued more than $10 billion in debt over several years to fund share repurchases. AbbVie issued $3.5 billion of 1.20% senior notes due 2015, $4 billion of 1.75% senior notes due 2017, $1 billion of 2.00% senior notes due 2018, $3.1 billion of 2.90% senior notes due 2022, $2.6 billion of 4.40% senior notes due 2042, and $500 million of floating rate senior notes due 2015. – Lisa LaMotta

Pearl Therapeutics: The Redwood City, Calif. company said Nov. 13 it has closed a $65 million Series D round to help move its combination chronic obstructive pulmonary disease drug, PT003, into Phase III testing by mid-2013. With four years of Phase II testing under its belt, Pearl Therapeutics wants to move into two pivotal trials and, it hopes, attract a partner for PT003. The Series D included the company’s four existing investors: 5AM Ventures, Clarus Ventures, New Leaf Venture Partners, and round leader Vatera Healthcare Partners. The company has raised a total of $167.5 million since 2007, including its $69 million Series C in 2010, which included the same four investors. Pearl expects to file for approval of its combo product, as well as each of the components in three separate New Drug Applications, by the first half of 2015. PT003 is a fixed-dose combination of glycopyrrolate, a long-acting muscarinic antagonist (LAMA), and formoterol, a long-acting beta-2-agonist (LABA). It uses a meter-dose inhaler (MDI) as a delivery device, and since MDI technology is already used with other medications, the company will not have to seek regulatory approval for the device, nor will it have to spend resources educating doctors and patients about the use of the device. – L.L.
 
Auspex Pharmaceuticals: Amid all our talk about public investors crossing over into the mezzanine rounds of private companies, we noticed that Auspex is having a different conversation. The San Diego-area company that makes deuterium-modified compounds has raised a $25 million Series D round that it hopes will fund its lead drug, an analogue of tetrabenazine, a treatment for chorea (involuntary spastic movements) associated with Huntington’s disease (HD). The original version, Xenazine, is marketed by Valeant Pharmaceuticals International through Lundbeck in the U.S. for the same indication. New investor Panorama Capital led the Series D round, with participation from existing investors Thomas, McNerney & Partners, CMEA Capital, and Sloan Biotech Fund. Gaurav Aggarwal of Panorama joins the board with the financing. Auspex has raised a total of $60 million since its 2007 inception. “We like the near-term nature of the product and the uniqueness of it,” Aggarwal told our friends at "The Pink Sheet". He was confident that Auspex could go public even if the syndicate can’t sell the company. Another deuterium modification company, Concert Pharmaceuticals, has advanced its lead candidate for diabetic neuropathy nephropathy into Phase II. Deuterium is an isotope of hydrogen, and substituting it for hydrogen bonds makes a molecule more able to withstand enzymatic breakdown and thus stay in the body longer. It also creates new chemical entities, their developers say. The patent office agrees: on Nov. 15 it granted a composition-of-matter patent to Auspex for its deuterium-substitute version of Pfizer’s JAK kinase inhibitor tofacitinib, which the FDA approved on Nov. 6. – A.L. 

The Best of the Rest: Shanghai Jingfeng Pharma’s venture round brought in $30 million led by Vivo Ventures…an OrbiMed-led Series B for Cardioxyl Pharma totaled $28 million…Roche Ventures and MedImmune Ventures participated in Ambit Biosciences’ $25 million Series E supporting quizartinib clinical trials… fellow diagnostics companies Metamark Genetics, Epic Biosciences, and Advanced Cell Diagnostics each raised Series B financings…STAR antibody platform play Alethia Biotherapeutics closed a $4.7 million Series B…Avexxin raised an undisclosed amount in Series B financing for chronic inflammatory disease development…Vivo Ventures and New Leaf Partners joined as new shareholders through MEI Pharma’s $27.5 million PIPE…Tavistock Life Sciences led a $Cdn26.1mm private placement for MethylGene…vaccine adjuvants developer Isconova raised SEK50mm through a rights issue…Idera Pharma completed a $7mm converted preferred stock and warrants sale…small-molecule cancer drug developer Array BioPharma’s FOPO grossed $65.7 million…in the only completed IPO of the fortnight, breast cancer testing company Atossa Genetics raised $6.5mm without taking a haircut…Enanta filed to go public, hoping to advance its anti-infectives…Cardiovascular diagnostics company Singulex postponed its IPO … AstraZeneca completed a $2 billion two-tranche bond issue… insurance provider Aetna raised $2 billion from the sale of senior notes to fund its acquisition of Coventry Health Care.

Photo courtesy of flickr user bumeister1 via a Creative Commons license.

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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Deals Of The Week: Living With The Constancy Of Change In HCV Drug Development

One of the frequent thematic tropes found in the music of Canadian prog-rock trio Rush is the constancy of change, that change is constant, and constantly changing, etc. Anyone trying to follow hepatitis C drug development probably understands that message.

Just when it appeared that nucleoside polymerase inhibitors were the way to go in the effort to develop a paradigm-changing combination of all-oral, direct-acting antiviral drugs for the virus, a pair of recent setbacks in the “nuc” arena have made other classes of drugs and the companies developing them more relevant, and potentially more valuable.

Hence, the reported increased interest in Achillion Pharmaceuticals, which expects to produce early data for a proprietary combination of a protease inhibitor and an NS5A inhibitor during the first quarter of 2013. Once thought in danger of being left behind as the M&A mavens at big pharma circled Pharmasset, then Inhibitex, and continued to kick the tires on Idenix Pharmaceuticals, Achillion now is considered by many Wall Street analysts to be on the radar screen of HCV players such as Merck & Co., Bristol-Myers Squibb, Roche and possibly others.

Achillion raised $41.7 million in a registered direct offering just before Labor Day, placing 6.4 million new shares with QVT Financial LP at $6.57 per unit, its closing price on Aug. 31. That marked the New Haven, Conn.-based biotech’s third significant fund raise since August 2010, as it brought in $60.9 million through a follow-on public offering in June 2011, and $49.1 million under a PIPE (private investment in public equity) deal in August 2010.

But Wall Street widely expects that Achillion will have some big pharma R&D machinery behind its HCV efforts soon, maybe even before the Phase II combo data for protease inhibitor ACH-1625 (sovaprevir) and NS5A inhibitor ACH-3102 are unveiled.  (The firm also will disclose Phase I proof-of-concept data for ‘3102 this fall.)

Dismissed as barely relevant in the combo race as recently as earlier this year, Achillion may get a second chance thanks to the disastrous safety issues encountered by Bristol’s expensive nuc prospect, BMS-986094. The pharma paid $2.5 billion to buy that drug’s developer, Inhibitex, only months before shutting development of the drug down entirely in mid-August due to cardiotoxicity that killed one patient and hospitalized eight others.

The news then got worse or better, depending on your perspective, when FDA placed Idenix’s nuc, IDX184, and second-generation compound, IDX19368, on clinical hold because of concerns about their similarity in chemical structure to the Bristol nuc. It’s important to note that the “nuc” class is by no means dead – Gilead Sciences is still viewed as the leader in the HCV combo race thanks to the eye-opening data its nuc, GS-7977, is producing. And Vertex Pharmaceuticals is bringing a nuc licensed last year from Alios BioPharma into the clinic, as well.

Achillion has an analyst day presentation slated for Sept. 27, and with the expectation for POC data with ‘3102 and drug-drug interaction data for the ‘1625/‘3102 combination expected this quarter, Robert W. Baird & Co. analyst Thomas Russo thinks a partnership prior to the combo trial would make sense. “While lack of visibility makes this timing impossible to predict, generally speaking we’d view [a] non-exclusive collaboration positively because it would add shots on goal, external validation, and perhaps regimens that would augment investor excitement and conviction,” he wrote in an Aug. 8 note.

He added that Bristol and Abbott Laboratories have been demonstrating in the lab that high sustained virologic response (SVR) rates can be attained by antiviral combos not including a nuc. “Achillion’s pipeline features PIs and NS5A inhibitors that look best-in-class, complementary, and reasonably likely to succeed in interferon-free combos – all under its roof and/or via external collaboration,” Russo said. “We believe big players will fight on for some period longer, with some looking to fill gaps in their HCV pipelines and others perhaps looking for a complete solution.”

Sovaprevir, in triple-combination testing with existing standards ribavirin and pegylated interferon, has demonstrated effective inhibition of viral replication without generating “meaningful resistance,” an unending concern in the protease inhibitor class, wrote Brean Murray Carret & Co. analyst Brian Skorney on Aug. 9. “Although not a clear home run … [this is] a characteristic we believe is unique to only handful of antivirals in development for hep C,” he added.

Now, on to our weekly roundup of:

Merck KGaA/Symphogen – Danish biotech Symphogen AS has licensed its lead oncology product, Sym004, a mixture combining two antibodies targeting the epidermal growth factor receptor (EGFR) on tumor cells, to Merck KGaA for an upfront payment of €20 million ($25 million). Symphogen was evaluating Sym004 in two Phase I/II studies, which have shown initial signs of the drug’s clinical benefit and have been transferred into Merck’s control. The deal underlines the growing interest in combination therapies for cancer, as well as Merck’s desire to build on its marketed EGFR-targeted anticancer, Erbitux (cetuximab), which is its second largest-selling product, garnering sales of €855 million ($1.13 billion) in 2011. Merck receives exclusive development and commercialization rights for Sym004 worldwide, and now will fund all further development of the compound. In return, Symphogen receives the upfront and potentially could earn €225 million in clinical development and regulatory milestones, as well as €250 million in combined sales performance milestones and royalties on net worldwide sales, bringing the total potential value of the deal to €495 million. Merck is much in need of clinical-stage products that it can advance quickly following a string of late-stage product failures, which have prompted a management reorganization and the start of a cost-saving program including job losses at its R&D facilities in Switzerland, and across functions in Germany. – John Davis

Valeant/Medicis – In a move to become a leader in dermatology, Valeant Pharmaceuticals announced Sept. 3 that it has agreed to pay $44 per share, or $2.6 billion, for Scottsdale, Ariz.-based Medicis Pharmaceutical – representing a 39% premium to Medicis’ closing price of $31.56 on Aug. 31, the last trading day before the deal was announced. The Medicis acquisition, which will be funded entirely with debt, adding to the company’s $7.6 billion debt (as of the end of 2011), will make Valeant the largest dermatology player in the U.S. and second only to Galderma SA in the rest of the world. While Valeant has interests in several specialty pharma areas including dentistry and branded generics, the largest part of the business belongs to dermatologics with a focus on acne, eczema, and topical antivirals. Medicis brings a handful of products that will be complementary to Valeant’s current portfolio including the oral acne product Solodyne (minocycline oral), which will fit in with the company’s topical acne offerings. The company also makes aesthetic injectables like Restylane, Perlane and Dysport – which fit in with Valeant’s collagen stimulator Sculptra. Valeant expects $225 million in synergies – an estimate the company considers conservative and does not take into account any revenue upside or further upside from anything that may come out of the Medicis pipeline. According to Wells Fargo analyst Michael Tong, the deal will nearly double Valeant’s dermatology business, which was expected to produce revenues of $958.7 million in 2012 (analysts estimated Medicis would bring in approximately $820 million in revenues in 2012). – Lisa LaMotta

Medivir/Novadex – Achillion is not the only player in the HCV space looking to take advantage of recent stumbles by Bristol and Idenix. Medivir AB, which is developing Phase III protease inhibitor simprevir (TMC435) in tandem with Johnson & Johnson unit Janssen Pharmaceuticals for hepatitis C, announced a deal with Novadex Pharmaceuticals Sept. 6 in which it acquired a package of preclinical HCV assets, including novel nucleoside polymerase inhibitors. A release said the deal will include an upfront payment and potential milestones, but did not disclose specific terms. Medivir said the deal will include intellectual property and prodrug technologies that will further strengthen its HCV platform and know-how. The prodrug technologies could be applied to both protease inhibitors and nucleoside analogues to enhance their overall pharmacokinetic profiles, the company added. TMC435 also is being tested in combination with Bristol’s NS5A inhibitor daclatasvir (BMS790052) under a collaboration between Janssen and Bristol that was extended in April. – Joseph Haas

ImaginAb/MacroGenics – Two privately held companies in the antibody development space agreed Sept. 5 to collaborate on a pair of imaging products that could support ongoing development of new therapies. Los Angeles-based imaging specialist ImaginAb said it would develop a clinical imaging product for inhibition of the CD3 T-cell receptor based on an anti-CD3 therapy belonging to MacroGenics of Rockville, Md. The companies did not specifically name teplizumab as the therapy, but that is MacroGenics’ most advanced anti-CD3 program.ImaginAb also will develop a companion imaging agent for an immune-regulating B7-H3 target; MacroGenics’ Phase I clinical candidate, MGA271, addresses B7-H3. ImaginAb’s agents typically are used by partners to select patients and monitor responses to clinical treatments. The two companies share at least one investor, the oncology-focused Nextech Venture of Zurich. MacroGenics has raised more than $125 million from a long roster of venture investors since it was founded in 2000; five-year-old ImaginAb announced its $12.5 million Series A round in March 2012, and already has forged partnerships with drug companies such as Astellas Pharma and Oxford BioMedica, as well as a variety of cancer research organizations. Last month, ImaginAb named Eleven Biotherapeutics CEO Abbie Celniker as chair of its board of directors. – Paul Bonanos

Pfizer/SFJ Pharmaceuticals – Pfizer and SFJ Pharmaceuticals announced a collaborative development agreement Sept. 7 to conduct a Phase III trial for dacomitinib (PF-00299804), a pan-human epidermal growth factor receptor (pan-HER) inhibitor in advanced lung cancer. To be conducted at multiple sites in Asia and Europe, the Phase III trial will test the agent in patients with locally advanced or metastatic non-small cell lung cancer with activating mutations of epidermal growth factor receptor. SFJ will fund the trial and provide clinical development supervision as needed to prepare dacomitinib, an oral, once-daily, small molecule inhibitor of the HER-1, HER-2 and HER-4 tyrosine kinases, for regulatory filings as a first-line treatment in advanced NSCLC. If the compound obtains regulatory approval, SFJ will be in line to earn milestone and other earn-out payments. No other financial details were disclosed. This is the second collaboration between the world’s largest pharma and San Francisco-based SFJ, founded in 2009 a co-development partner for pharma and biotech. Earlier this year, the two partnered to run a Phase III trial in Asia of Inlyta (axitinib) for adjuvant treatment of patients at high risk of recurrent renal cell carcinoma following nephrectomy. – JAH

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