Deals Ot The Week Searches For Meaning In Deal Breakups

 It’s been a ghoulish week for deal-making – only half a handful of deals made it onto our list of noteworthy new transactions.

We could not spot one, large or small, involving big pharma or specialty companies. Nor could we see any particularly compelling reason for the interlude. A number of the largest and most active deal makers are adjusting to new leadership and reorganizations, among them Shire PLC, AstraZeneca PLC, Bayer AG, Merck & Co. Inc., and Teva Pharmaceutical Industries Ltd. Certainly, the abrupt resignation of scientist-executive Jeremy Levin as CEO of Teva was a management deal gone bad, leaving the world’s largest generics company adrift and its board of directors on the defensive against a bewildered and angry Wall Street.

That led us to reflect on business deals gone bad and – a trip to the virtual deal cemetery – Deals of the Week’s ‘No Deal’ designation. For the year to date, DOTW has tracked 10 noteworthy terminations, a figure that is in line with stats for the past three years. It’s impossible, or rather meaningless, to speculate much about commonalities among these deals. It’s likewise impossible to extract trends based on, say, the ratio of deals that don’t pan out to those that do. Discarded deals covered a range of therapeutic areas and most involved a big pharma abandoning a biotech collaboration. But breakups occurred at all kinds of points in time and at different phases of development.

A romp among the headstones: GlaxoSmithKline PLC pulled out of a licensing agreement with ChemoCentryx Inc. in September, over Crohn’s disease candidate vercimon following a Phase III miss; ChemoCentryx is trying to figure out why the GSK-led study failed while the Phase II succeeded. Teva itself was the source of several ‘No Deals’ in the course of the year, as its new CEO – now gone – and his management team undertook a pipeline review that resulted in handing back solid tumor therapy Rx 3117 to Rexahn Pharmaceuticals Inc. Also canned was the Israeli generics maker’s much larger, high-profile four-year-old biosimilars pact with biologics manufacturer Lonza Group, which is doing its share of soul-searching and dealing with its own management upheaval.

Amgen Inc. ended a 2009 collaboration around a Type-2 diabetes program with Array BioPharma Inc. Perhaps the fissure with the biggest ramifications was AstraZeneca’s termination of a collaboration with partner Rigel Pharmaceuticals Inc. around the Phase III rheumatoid arthritis drug fostamatinib. Although that deal involved only one asset, it was expensive – AZ paid $100 million upfront – and emblematic of AZ’s ongoing pipeline problems.

But we couldn’t bear to end the week on such a downbeat note, with an energetic meeting like Partnering For Cures about to begin on Monday in New York. This meeting, funded by The Milken Institute, now in its fourth year, is a showcase for venture philanthropy and aims to bring together non-profit disease foundations, patient advocacy groups, investors and biopharma companies in order to look for ways to fund gaps in financial support of innovative medicines for deadly diseases.--Wendy Diller (Thanks to Hollywood Gothique for photo)

Leukemia & Lymphoma Society/ Stemline Therapeutics: One of the few deals announced this week involved one such venture philanthropy initiative. On Oct. 29, the non-profit Leukemia & Lymphoma Society and two-year-old biotech Stemline Therapeutics Inc. announced a partnership to speed up development of a cancer stem cell therapy, SL-401, for the treatment of acute myeloid leukemia and blastic plasmacytoid dendritic cell neoplasm. The latter is a rare hematological disorder with characteristics of both leukemia and lymphoma. LLS is committing more than $3 million to help develop the drug and support an educational program around BPDCN.

The drug has demonstrated efficacy in patients with advanced AML and BPDCN, including multiple durable complete responses in both indications, a greater than 80% overall response rate in BPDCN, and an improvement in overall survival of third-line AML patients relative to historic data, the companies said in a press release.

LLS wouldn’t provide much information about the compound or the deal, but it has a long track record in funding early stage research in blood cancers and getting some of those projects into the clinic.  It awards about $60 million in grants to academic investigators each year, and at any one time has about 300 grant-sponsored projects underway. Because of its close, long-standing ties to academia, it has deep expertise in science and a network of contacts that can facilitate progress of successful development programs, said Louis DeGennaro, the society’s chief mission officer and a scientist by training.

The effort to bring industry closer into the LLS fold began after DeGennaro joined the organization eight years ago, when it had the broad grant program for academics but little else in place to facilitate getting promising research projects through what is referred to as ‘the valley of death’. About 10% to 15% of the projects it funded moved into development, but it was tough to do FDA-compliant studies in an academic environment, he recalled in an interview. In 2008, DeGennaro started the society’s Therapeutic Acceleration Program to assist investigators and companies in filling in that gap, harvesting programs from its research portfolio as well as early-stage programs underway at biotech companies that could be effective in treating blood cancers, but were not being developed because of economic or other concerns.

LLS provides these companies with non-dilutive capital, expertise and access to networks of key opinion leaders and contract research organizations; in exchange, the recipient company has to agree to continue work on the project for a period of time after LLS funding has ended. The largest subsidy to date is $12 million, and the development timeline of interest is from late preclinical through Phase III.

LLS does not ask for equity or take a typical private-sector return; it seeks comparatively small milestone payments tied to approval of the drugs it funds in major markets, as well as a small royalty. The aim is to provide enough capital for companies to advance a compound to the point where they can attract private-sector funding. Nor does LLS retain intellectual property on the products it funds; it wants the asset to be unencumbered when its owners look for outside financing, he added.

One LLS relationship in particular, with Celgene Corp., continues to expand. About a year and a half ago, the organizations entered into a partnership, which Celgene is supporting, and which LLS and Celgene are administering. In its simplest terms, the partners use a grant program to vet and fund early-stage research, and Celgene gets first right of negotiation for intellectual property coming out of the programs over a protected period of time. If it is interested, the big biotech then has the right to negotiate with the academic investigator and his or her institution. LLS does not participate in any deal Celgene works out.--WD

Cancer Research Technology/ Chroma Therapeutics: Cancer Research Technology (CRT), the commercial arm of the charity Cancer Research UK, is accelerating its support of early biotech research through a deal with the U.K.'s Chroma Therapeutics Ltd.

With funding from the CRT Pioneer Fund (CPF), Chroma will move a lead molecule, a mitogen-activated protein kinase (p38) inhibitor, towards clinical trials, with the CPF receiving rights to further develop and commercialize any resulting products, CRT announced Oct. 31. Chroma attaches chemical motifs onto drugs that are freely transported into cells but then cannot exit. The therapeutic molecule then accumulates within tumor-associated macrophages, reprogramming them to attack tumors, the company explained. The deal is the third made by the $80 million asset-centric CPF, which was set up in 2012 by CRT, the charity, and the European Investment Fund.--Sten Stovall, John Davis
 

Adimab/ Alector: The formation and financing of Alzheimer’s disease-focused Alector LLC ties what its founders call “unique biological insight” with the prolific antibody discovery platform of Adimab LLC – and demonstrates private investors’ appetites for making distinct bets on discovery and development opportunities.  

Alector, which announced an undisclosed amount of Series A financing Oct. 31, is the second R&D-focused biotech to spring in part from Adimab’s antibody discovery engine. The company is not a spin-off of Adimab; instead it holds a license to Adimab’s technology and aims to exploit novel biology elucidated by co-founders Asa Abeliovich and president and CEO Arnon Rosenthal.

The terms of the deal between Adimab and Alector are extremely flexible. In the near term, Alector will cover fee-for-service costs associated with Adimab’s discovery process. But it essentially accesses Adimab’s antibody discovery technology for free. Downstream there are different flavors of project-specific licensing options depending on Alector’s financial and strategic priorities. These range from heavy upfront and milestone deals that are royalty free through to all-royalty deals that are back-end loaded.

Alector and Adimab are separate companies, but the newco is part of the Adimab family tree. Alector’s chairman and co-founder is Tillman Gerngross, co-founder and CEO of Adimab, and co-founder of Arsanis  (a similar Adimab-offshoot in the infectious diseases space) and other companies. Adimab co-founder and COO and Arsanis director Errik Anderson is also an Alector co-founder. And Alector’s backers – the company simultaneously announced an undisclosed Series A financing – are Adimab investors Polaris Venture Partners and Orbimed Advisors; Polaris general partner Terry McGuire and Orbimed general partner Carl Gordon, both Adimab directors, also sit on the Alector board.--Chris Morrison

 

And then there's the:

Numab/Sucampo: Yes, there’s another “No Deal” this week. The Zurich, Switzerland-based company Numab AG announced Oct. 29 that it had reacquired rights to an investigational bispecific antibody fragment, ND003, from its collaborator, Sucampo AG, a subsidiary of Sucampo Pharmaceuticals Inc., and intended to develop the compound further as an inhaled therapy for severe asthma. Further financial details of the agreement were not disclosed.

The two companies entered into a multi-target collaboration in 2011, just months after Numab was founded, aimed at discovering high-affinity antibodies with sub-picomolar affinities against difficult-to-reach targets. Sucampo would retain exclusive commercial rights to any potential products identified, in return for research funding and other potential payments.

Numab says it is now raising Series A financing to advance ND003 and another compound, the potential anti-inflammatory ND007, to the next value inflection point.  ND003 is expected to be administered by inhalation, thereby attacking lung-resident eosinophils that play a role in severe asthma but are difficult to reach with systemic-administered antibody-based products, the Swiss company noted. ND003 targets interleukin-5 receptors on eosinophils, rapidly depleting their number. --SS, JD

Deals of the Week Hopes Its Labors Aren’t Lost

When bidding for a union contract, it’s essential that one’s proposals wind up in the right hands. That’s one lesson that can be taken from Shakespeare’s Love’s Labour’s Lost, which draws much of its comedy from a series of letters whose private content ends up in more public hands. As the characters’ secrets are revealed in a sort of 16^th Century version of a botched reply-to-all, hilarity ensues. All’s well that ends well in this one, because everyone wants to get together as the curtain falls.

But unwanted and misdirected proposals are a lot less funny. In matters of love, they break hearts. In other realms, the results can be disastrous as well – like, say, the realm of biopharma deals. (Ham-fisted a transition as that may be, you knew I’d get there somehow, didn’t you?) For example, if you’re Canada’s Paladin Labs – last spotted in another recent literary-minded installment of this column, complete with dusty Brit – you’ve laid down a glove for cold medicine maker Afexa Life Sciences, only to witness the gallant entry of a white knight from stage left, Valeant Pharmaceuticals, ready to exeunt with its prize. (More on that later.)

Sometimes, though, all it takes a little persistence to be appreciated. Pfizer, for example, has been courting pain drug developer Icagen for years – their partnership was initiated in 2007 – but only recently expressed a desire to put a ring on it and acquire the company outright. But although its $6-per-share offer for the portion of the company it does not already own has garnered the support of Icagen’s board, it hasn’t yet won over all the necessary shareholders, some of whom are holding out for what they perceive as fair value for the company’s assets.

As of this writing on Friday morning, the deal is very close to being done, with just a few thousand shares standing between rejection and betrothal. Pfizer has extended its tender (trap) offer twice, with Icagen’s decision expected by late Friday afternoon.

With that in mind, perhaps we’ve got a rarity for this Labor Day weekend: a cliffhanger episode of…


Valeant/Afexa: With two highly acquisitive companies bidding for Afexa Life Sciences, the maker of Cold-FX flu medicines, only one could win its heart. Already in the midst of a buying spree, Canada’s Valeant Pharmaceuticals proposed a sweeter -- and friendlier -- deal than rival bidder Paladin Labs for Afexa, swooping in with a white-knight offer on Aug. 30. Valeant’s cash bid is worth 71 cents per share, or about $76 million, a 29% premium to Paladin’s hostile bid of 55 cents per share, or $56.7 million. The new offer from Valeant will give Afexa another 30 days to weigh any other better offers. Valeant has the option to match any higher offers or opt for a $3.75 million termination fee. Valeant has made several acquisitions this year, largely adding to its dermatology business. Afexa, however, is destined to be slotted in with Valeant's over-the-counter products portfolio, according to CEO Michael Pearson. Paladin, meanwhile, has been on a spree of its own, most recently acquiring drug formulator Labopharm last month; it hasn't yet decided whether it will improve its offer. – Lisa LaMotta

Merck/ZymeWorks: Privately-held ZymeWorks of Canada inked its first Big Pharma partnership this week, worth an undisclosed upfront plus research, development, and regulatory milestones totalling up to $187 million (that’s US dollars). As early stage research collaborations go, the Merk/ZymeWorks deal is pretty standard. There’s no yearly R&D support in addition to the upfront; the relationship is also target specific, meaning it doesn’t preclude the start-up from partnering its technology, which creates so-called bi-specific antibodies, with other interested parties. Because it raises the 8 year-old company’s profile far higher than the biotech’s prior deals (which in terms of industry have been limited to Xoma) and therefore could be the springboard to larger, more lucrative alliances, the Merck tie-up is an important landmark. That’s undoubtedly what CTI Life Sciences, ZymeWorks’ main backer is hoping. Whether an acquisition eventually transpires will likely depend on how well molecules derived from the biotech’s proprietary Azymetric platform perform in the clinic. Back in the 2006 to 2007 time frame, biopharma rushed to lock up next-generation antibody capabilities, as companies like Bristol-Myers Squibb (Adnexus), GlaxoSmithKline (Domantis) and Merck (GlycoFi) tried to bolster their in-house biologics expertise while accessing validated targets locked up by first generation technologies. That trend has largely switched to licensing – most next-gen antibody players are still so early that risk averse pharma doesn’t want to spend the money acquiring platforms that may only be useful in the creation of specific compounds. – Ellen Licking

Adimab/Novo Nordisk and Adimab/Biogen Idec: Adimab, a purveyor of yeast-based antibody discovery technology, this week announced separate two-program discovery deals with Novo Nordisk and Biogen Idec (pdf), and said it was on pace to double its number of partnered candidate programs for the second straight year. Adimab CEO Tillman Gerngross said the privately held company now has 24 partnered programs and is aiming to finish the year with 35 - five in 2009, 10 in 2010, and 20 this year. Two programs might not sound like a lot, but unless either of those companies -- or any of Adimab’s eight other biotech or Big Pharma partners – wants to ante up some serious cash to bring Adimab’s technology in-house, that’s all they’ll get. Currently, explained Gerngross, Adimab limits partners to two programs apiece. Biogen and Novo, for example, each have selected two undisclosed targets against which Adimab will deliver fully human antibodies. The big biotechs get options to commercialize antibodies generated through their collaborations and Adimab gets upfront payments and preclinical and clinical milestone payments and royalties. Those and other existing deals are structured as project-based research licenses and companies later can opt for a commercial license around a program (so far only Merrimack Pharmaceuticals has done so, around MM-151, a three- antibody cocktail designed to bind three distinct epitopes of the epidermal growth factor receptor). Gerngross says the company typically commands $10 million to $20 million in total pre-commercial milestones and a mid-single-digit royalty per program, a price he describes as "in-line with competing technologies." Adimab's involvement in the programs begins and ends with antibody discovery, a process that typically takes eight weeks. So far Adimab has built a successful business on discovery, on the cusp of positive cash flow and no need to raise additional cash. Time will tell if it can sign the kind of big-money partnerships that would give its venture investors a successful return. - Chris Morrison

Teva/Sinclair IS Pharma: As part of its gradual transformation from a generic drug company to a full-fledged pharma with its own branded products, Teva Pharmaceutical Industries Ltd. licensed commercialization rights in specified EU markets to oncology supportive product Episil from Sinclair IS Pharma on Aug. 31. Terms of the licensing deal were not disclosed. Teva obtains commercial rights to the drug in Germany, Spain, Poland, Switzerland and the Czech Republic, while Sinclair IS Pharma, a U.K. specialty firm formed by the April 2011 merger of Sinclair Pharma PLC and IS Pharma PCL, will retain rights to co-market the product in Spain and Germany, where it has an existing sales force. Episil is an oral spray to treat pain associated with oral mucositis, a side effect of chemotherapy and radiotherapy during cancer treatment. Sinclair IS Pharma was created through a stock-for-stock transaction valued at €53.2 million ($85.3 million) with the intention of establishing a specialty pharma with pan-European exposure. In a statement, the firm’s CEO Chris Spooner said the rationale behind the merger was to broaden the sales reach of IS’ portfolio through Sinclair’s commercialization operations. “This is the first in what we expect to be a number of marketing and co-marketing partnerships,” he said. — Joseph Haas



Merck/Addex: Addex Pharmaceuticals said on Sept. 2 that Merck was returning rights to the companies’ programs targeting metabotropic glutamate receptor 4 (mGluR4). Addex pledges to push forward with development of the small molecule positive allosteric modulators in CNS diseases, namely Parkinson’s disease. The companies have been working together on mGLuR4 programs since the research collaboration began in 2007. Merck took sole responsibility for the programs about a year ago, and now returns the rights just about the time it would be expected to pick a clinical candidate (Addex’s pipeline chart shows the programs nearing the end of the lead-optimization stage); not only would that likely trigger a milestone to Addex, but it also represents a point when development costs increase. The mGluR4 deal may be a delayed casualty of the Merck/Schering-Plough megamerger which added Schering’s now-Phase III preladenant (MK 3814, nee SCH420814) to the mix in 2009. That adenosine 2A receptor antagonist is jockeying with a similarly late-stage molecule from Kyowa Hakko for the lead in the class. But the mGluR4 space has seen its share of attention too – albeit earlier stage – with investments from the likes of the Michael J. Fox Foundation, Novartis and Merck-Serono, the last of which is teamed up with Domain Therapeutics. With CHF 50 million in the bank as of the last quarterly statement but later-stage fish to fry, Addex is likely to look for a new partner to fund development of the program, sooner rather than later. – C.M.

Genzyme/PTC Therapeutics – As part of its portfolio review following its acquisition earlier this year by Sanofi SA, Genzyme has decided to restructure its partnership with PTC Therapeutics around ataluren, a small molecule in development for genetic disorders caused by nonsense mutations. In 2008, Genzyme paid $100 million upfront, with potential for as much as $337 million in development, approval and sales milestones, for commercial rights to the protein restoration therapy in all territories outside the U.S. and Canada. In 2010, however, ataluren failed to demonstrate a statistically significant effect, as measured by distance improvement in the six-minute walk test, in nonsense mutation Duchenne/Becker muscular dystrophy. On Sept. 2, PTC announced that Genzyme had returned its commercial rights to ataluren in that indication, but would retain an option to commercialize the drug outside the U.S. and Canada in other indications. PTC said it would continue development of the compound in both nmDBMD and nonsense mutation cystic fibrosis. Citing its portfolio assessment, Genzyme Chief Operating Officer David Meeker said, “our option to reengage the collaboration reflects our belief in the potential of this approach for the treatment of nonsense mutation genetic disorders.—J.H.

Image courtesy of Flickr user UMTAD, the University of Minnesota's Theatre Arts & Dance program, reproduced under Creative Commons license.

Let's Fall in Love (With New Business Models)

How does the song go?

Adimab does it / Ablexis does it
Even Stemmer's Amunix has done it
Let's do it / Let's find a new corporate structure that allows us to separate drug discovery from development so that we can sell the assets more easily!

Ahem.

It needs work. Cole Porter's version was a little snappier.

But our toes are tapping because, yet again, an early-stage firm with a promising technology -- or in this case, an experienced drug-discovery team -- is launching with a novel structure tailored to the new reality of the biotech business. The firm is Inception Sciences, and its two founders, Brad Bolzon and Peppi Prasit, are fresh off the pending sale of Amira Biosciences to Bristol-Myers Squibb, which you can read about here.

The next edition of "The Pink Sheet" Daily will have a more detailed explanation of Inception, which, like the movie, is a bit tough to get the old noggin wrapped around. In general, however, Inception follows in the footsteps of other biotechs that want to:

- Keep the platform or discovery technology in a holding company and the development-stage assets in separate corporate entities, thus creating the opportunity for more streamlined acquisitions.

- Let investors invest "a la carte."

- Find a way to return cash to investors faster without selling the underlying science.

There are several variations on the theme, as our little ditty above indicates. Amunix has created a half life-extension technology now behind products in two spin-outs: Versartis and Diartis. There's also Nimbus Discovery, which our START-UP colleagues wrote about here, and the antibody platform firm Adimab and its clone Arsanis.

Still, not everyone can hum the tune: the extra layers of administration and bureaucracy can be too much for a lean biotech with inexperienced backers. But in a business where the people with the cash are growing ever-more impatient, it's not a trend going away soon.

Adimab, Arsanis, and Platform Cloning -- a New Biotech Model?

Adimab, the yeast-based antibody discovery company that has amassed a strong portfolio of partnerships and skyrocketed to a north-of-$500m valuation, has always said it had no plans to do its own development work. If only the company could clone itself, perhaps it could venture down the development path without getting distracted from its discovery platform opportunity -- and the high multiples that can be extracted from a company that doesn't need a ton of development financing.

Enter the clone, Arsanis.

Arsanis is a biotech essentially seeded with Adimab's technology platform that will apply this yeast-based antibody discovery engine to developing drugs against infectious disease targets. The company will run research out of Vienna, Austria and plans to hire 20-25 employees in the next few months, according to founder and chief scientist Eszter Nagy, MD, PhD.

Adimab doesn't own Arsanis (though it stands to make money if Arsanis succeeds), but Adimab's investors do. The new company has raised about $10 million from SV Life Sciences, Orbimed, and Polaris, three Adimab backers. We've spoken to all those firms, to Adimab, and to Arsanis' Nagy, who hails most recently from Intercell. We'll have more on Adimab's strategy, the new company and the advantages of the model for its venture backers in a forthcoming issue of START-UP.

For now suffice it to say that Adimab has enabled a newco with its technology, helped put together a familiar syndicate to back it, and those investors can now put more money to work behind that Adimab platform. If Arsanis is successful we bet you'll see additional Adimab clones in other therapeutic spaces where Adimab's brand of faster/cheaper/better antibody discovery can yield "an unfair advantage," as one of Adimab/Arsanis' venture backers puts it.

How the company defines success remains to be seen. The $10 million should see the company all the way through to "compelling preclinical proof of concept" for a couple of antibody programs against unmet needs in infectious diseases, the players tell us, all within the next two years.

Nobody involved with Arsanis has suggested this strategy is new to biotech, but we haven't seen it work exactly like this before -- perhaps the closest comparator are the twin antibody firms Medarex and Genmab.

Meanwhile, Tillman Gerngross and Errik Anderson, Adimab's CEO and COO (founders and board members at Arsanis), have with their team transformed Adimab from a C-corp to an LLC, something we reported in December, and plan to expand the company's slate of discovery collaborations. The LLC transformation -- no easy feat according to all involved -- allows the biotech to return money from forthcoming collaborations to shareholders in a tax-efficient way.

It also dispels the notion, Gerngross says, that Adimab is for sale. "We're completely uninterested in short-term liquidity. We don't want what has happened in the past, where the company gets bought and then has a limited impact," he says. "We have a greater ambition."