Financings of the Fortnight Worries About The Window

"It was wide open a minute ago."

Who’s lining up next? It’s become quite the parlor game, now that the biotech IPO window has been wide open for months. But all the fun might be on hold as Washington works to sort itself out (or get further entangled) and Wall Street starts to worry over the potential economic instability. What if the days of the shutdown turn into weeks? What once seemed laughable has already come to pass, as the Ted Cruz Republicans are proving their disdain for Obamacare with ever uglier self-inflicted wounds. Hey, don’t take our word for it. Ask Grover.

Already we’re seeing a small but ominous sign: There are no IPOs on the list of current road shows, despite the queue of those – including MacroGenics and Relypsa – that are on file. Perhaps the seven biotech IPOs in the last two weeks -- Acceleron, Five Prime Therapeutics, BIND Therapeutics, Foundation Medicine (see description in our roundup below), Ophthotech, Evoke Pharma, and Fate Therapeutics -- were the SEC equivalent of a rush job to avoid the potential politically-induced volatility.

Once biotech IPOs started to show signs of life last fall and then took off this spring, everyone has wondered what would burst biotech’s bubble. Most assumed it would be bankers pushing out too much crappy paper, but perhaps it will be the idiocy in Washington, particularly if it extends past the debt default deadline of Oct. 17. If Wall Street starts steep selling and recessionary fears turn into reality, biotech IPOs will be a swift casualty of the broader market.

For a few more days, at least, the IPO machinery will grind away. The SEC has enough cash under the mattress to keep the lights on for a few weeks, unlike so many other government agencies. But it will clang to a halt if the shutdown drags on; the folks who deal with registrations and whatnot are not deemed essential staff.

Seems all the headlines (and tweets) are focused on the effect on Twitter’s pending IPO, but arguably no sector has benefited more than health care from the IPO changes this year, as all manner of companies at various stages of development have become public. IPO data house Renaissance Capital says health care companies have launched 42 IPOs and raised $7.6 billion this year, the most of any sector. They’ve also scored the highest aggregate returns year-to-date, 64%. (By comparison, our technology compatriots in their hoodies have had 30 IPOs, raising $3.3 billion and gained 44% on average.)

It’s only fair to mention that the health-care numbers include the likes of giant CRO Quintiles Transnational ($947 million raised) and Pfizer’s animal health group Zoetis ($2.2 billion raised), but the argument still holds: A prolonged and wholly unnecessary drought would hurt biotech disproportionately. It’s like the party you’ve been planning with your neighbors has finally started swinging, but the creepy guy with the fake tan across the street who smokes too much calls the cops. Not because the party was too loud, but because he thinks your house’s architecture is ugly. Ruining his property values, or something.

Let’s ignore for a moment the bucket of cold tea, er, water tossed in biotech’s direction, and get on with our parlor game, made all the more intriguing by the JOBS Act rules that allow companies to file in stealth and remain so for weeks on end.

We already mentioned MacroGenics and Relypsa, which filed publicly this week to raise up to $126.5 million. Among companies that haven’t declared – at least publicly -- Moderna Therapeutics would make a fine candidate, says our friend Luke Timmerman of Xconomy. (Moderna CEO Stephane Bancel wouldn’t take the bait and said he prefers to proceed with caution. For more on Moderna’s new Department of Defense grant, see our roundup below.)

OK, who else? Our colleagues at START-UP wrote this summer about Forma Therapeutics’ decision to re-structure itself to make spinouts of single assets easier; CEO Steve Tregay was quick to say that, if need be, the company could convert back to a more traditional corporation and go the IPO route.

“At the time in 2009 when we started talking about [becoming a holding company], it wasn’t obvious you’d see a robust IPO market,” said Tregay. “We knew we wanted to provide liquidity to our shareholders, and we wanted to commoditize assets. Can we convince Wall Street to believe in sustainable R&D companies? We think so. But our first objective was and is to create a sustainable research engine, and to do that we needed to do things differently than the old ‘R-then-D’ model.”

You can’t talk about IPOs without mentioning Third Rock Ventures, which has pushed three portfolio companies public this year. Might we see more before the New Year? If FOTF had to bet (all proceeds going to charity, of course), we’d put a few chits down on Blueprint Medicines, Constellation Pharmaceuticals, and Sage Therapeutics, which just saw interim CEO and Third Rock partner Kevin Starr hand the reins to the former head of Shire’s regenerative medicine group, Jeff Jonas.

We could also take a closer look at biotechs that have raised a few rounds, are deep into the clinic, and whose investor roster includes crossover firms or VCs at the end of their fund cycle. Or firms whose executives have notable track records. (The upcoming START-UP takes a look at one such company, Kolltan Pharmaceuticals, whose cofounder Yossi Schlessinger had a hand in kinase inhibitor developers Sugen and Plexxikon, each of which exited quite handsomely.)

The answer to whether these guesses are correct could already be lying on someone’s desk deep in the bowels of the SEC in a pile of confidential filings, just waiting for the POTUS and both houses of Congress to come together, join hands, and realize that it’s a small world after all. Which is just about as likely as the next Pulitzer Prize being awarded to this edition of…

Foundation Medicine: It isn’t quite four years old, but the cancer diagnostics specialist is already public, and in a big way, its share price nearly doubling the first day it traded and holding those gains for a week. The Cambridge, Mass. company priced its offering Sept. 25 above expectations at $18 per share, ultimately grossing $121.9 million. Foundation sold nearly 6.8 million shares, including a greenshoe option for underwriters, raising substantially more than the five million it planned to sell for $14 to $16 apiece. The young company last year began selling its first product, a diagnostics platform that matches individual cancer genomes with a broad database of genomic alterations in order to optimize care. Stakeholders receiving liquidity via the offering included venture firms Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures; crossover investors Deerfield Partners, Casdin Capital and Redmile Group; and individuals including Microsoft founder Bill Gates, Russian billionaire Yuri Milner, and Digene CEO Evan Jones. The IPO is the third this year for Third Rock, which is on quite a roll. It’s also a notable exit for Google Ventures, which quietly has built a small but influential health care portfolio, led by partner Krishna Yeshwant (and profiled here). With the company’s market capitalization hovering around $1 billion, the investors who pumped in $89 million in two rounds of funding have earned a hefty return. It’s yet another sign that the public markets are welcoming for life sciences companies with a strong story to tell – even young ones. – Paul Bonanos

Arvinas: Many drugs work by blocking or inhibiting proteins and the reactions they cause in the human body, but only about 25% of the roughly 20,000 proteins in the body can be inhibited with molecular therapy. New company Arvinas is pursuing the opportunities presented by a different approach to disease-causing proteins – degradation – and will get its work underway with a $15 million Series A announced Sept. 26. Canaan Partners and 5AM Ventures led the A round, with participation from Elm Street Ventures and Connecticut Innovations, a state-funded venture firm with a goal to keep innovation by Connecticut researchers within the state. Along with the Connecticut Department of Community and Economic Development, Connecticut Innovations is supplying to the New Haven biotech  an additional $3.5 million in non-equity funding, some of which is tied to hiring milestones. The state also took a $1 million equity stake in Arvinas through Connecticut Innovations’ investment in the A round. The company’s work stems from research at Yale University by Craig Crews, a professor of chemistry and pharmacology, focused on inducing a cell’s own protein-degradation capability to bind to specific protein and mark it for degradation, which would remove it from the system entirely. He previously founded the biotech Proteolix, which also focused on protein degradation and was bought out in 2009 by Onyx Pharmaceuticals, bringing that company the multiple myeloma candidate Kyprolis (carfilzomib). – Joseph Haas

Moderna Therapeutics: The Flagship Ventures company said October 2 it had received a grant worth up to $25 million from the US government’s legendary Defense Advanced Research Projects Agency (or DARPA) – birthplace of the Internet -- to develop treatments for infectious disease and bioengineered attacks. The Cambridge, Mass. biotech is working on a new drug modality, in which modified messenger RNA (mRNA) are injected into a patient to spur endogenous production of therapeutic proteins. Shortly after emerging from stealth, Moderna’s platform received validation – and a boatload of cash – from AstraZeneca. But the firm has yet to prove in clinic that its mRNA analogs can evade the immune system, which is primed to recognize RNA as a viral invader, and trigger a patient’s ability to make proteins in the right quantities to fight pathogens. Moderna has raised $40 million from its Series A from Flagship Ventures and individuals, including its own CEO Stephane Bancel, after a long evolution from a Harvard University researcher’s idea to more efficiently create induced pluripotent stem cells. The AZ deal brought $240 million in upfront fees, plus potential milestones and royalties, for the rights to as many as 40 compounds across several therapeutic areas. The DARPA grant runs for five years and focuses on the production of therapeutic antibodies. Moderna’s appeal to public health officials in a pandemic or emergency situation is to simplify the distribution of treatments. Its mRNA-based injectable agent would need to be produced, shipped and stored, but potentially with less complication and cost of other types of stockpiled or rapid-response agents. – Alex Lash

Frazier Healthcare: The veteran venture firm said September 30 it has closed its seventh fund with $377 million committed, topping its $300 million target. Its previous fund was a $600 million vehicle that closed in 2007, and in the intervening years the firm has indicated it will shift some focus toward growth stage companies, although the area is not new to Frazier. There are currently nine companies in its growth portfolio, ranging from makers of health care product packaging and orthotics to dialysis services to outpatient facilities for bariatric surgery patients. To that end, for FH VII it has promoted two members who have worked on the firm’s growth buyout investments. Brian Morfitt is now a general partner, and Ben Magnano is now a partner. That said, Frazier continues to make early stage bets, too. It most recently co-led a $16 million Series A financing for Atterocor, which is developing a small molecule treatment for the adrenal cancer adrenocortical carcinoma and expects to enter the clinic this year. (Look for more on Atterocor in the upcoming issue of START-UP.) Frazier recently participated in the IPOs for Portola Pharmaceuticals, in which it had a 5.6% pre-IPO stake, and Chimerix, with a stake under 5%. It also saw acquisitions for its portfolio companies Trident Health and Incline Therapeutics. -- A.L.

All The Rest: JJDC joined as a new investor in a €31M Series B extension for Merus...Array BioPharma partner Loxo Oncology snagged a $33M Series A...To advance trabodenoson through Phase II for glaucoma, Inotek Pharmaceuticals raised $21M in equity and $7M in debt…Protagonist Therapeutics added $4M onto the $14M in Series B funds grossed this past June…NovaDigm completed a $14M Series B round to support its Phase II vaccine for chronic yeast infections...Lilly Asia Ventures provided a $10M Series C to Tianjin CanSino Biotech…Zindol raised $10M to advance its CINV candidate…Relmada Therapeutics closed on an oversubscribed $8M Series A round that began in July 2012…Opsona Therapeutics added €3M from Omnes Capital onto its €33M Series C announced in April 2013…InterWest Partners led a $1.5M seed investment in Integrated Molecular….Aequus Pharmaceuticals completed a $Cdn1.2M Series A to support work on a transdermal reformulation of the anti-psychotic aripiprazole…advancing research on PDE4 inhibitors for neurological diseases, Tetra Discovery Partners closed on a $1M seed round…BVM Capital seeded K94 Discoveries with $300k…ImmunAid is in the process of raising a Series B financing…the following biotechs completed FOPOs: Synageva BioPharma (rare diseases) $155.7M…Novavax (vaccines and vaccine adjuvants for infectious diseases) $100M…Fibrocell (autologous cell therapy) $45.1M…TherapeuticsMD (generic and OTC women's health products) $33M… KaloBios (antibodies) $30M…Idera Pharmaceuticals (TLR antagonists in autoimmune and inflammatory diseases) $27.7M…StemCells (cell-based therapeutics and tools) $16.2M…and Kythera is proposing an $85M secondary offering…the following completed PIPEs: MorphoSys (antibody libraries) $84.4M…Navidea Biopharmaceuticals (Crede CG III invested) $30M…Ampio Pharmaceuticals (inflammation) $25.3M…Celsus Therapeutics (multi-functional anti-inflammatory candidates) $12.5M…and La Jolla Pharmaceutical (to achieve development milestones for GCS100 and LJPC-501) $10M…Ophthotech, Bind Therapeutics, Evoke Pharma, Enzymotec, and Fate Therapeutics each priced their IPOs…MacroGenics set IPO terms…Relypsa filed to go public…Cleveland BioLabs received a $10M senior secured term loan from Hercules Technology Growth Capital…Pivotal Therapeutics raised $Cdn7M in a combination equity/debt financing…Business Development Bank of Canada's BDC Venture Capital arm raised a $135M fund for health care investments…Gates Foundation and JPMorgan Chase teamed up for a new fund to finance late-stage health technologies…and orphan drug accelerator Cydan added $10M to the $16M raised in April 2013. -- Amanda Micklus

Deals Of The Week Watches GSK, Non-Profit Partner Adhere On Medication Management

On the face of it, GlaxoSmithKline PLC’s deal with the non-profit Community Care of North Carolina to improve medication management seems like a pro forma marketing initiative between an aggressive Big Pharma and a local provider of health care services.

The agreement, announced Sept. 18, calls for the drug company and the care network to develop health information technologies that help providers identify patients with medication management problems and determine solutions for them.

But look one step further and the tie up points to how Big Pharma is responding to changing dynamics among its core customer base. As reimbursement emphasis shifts from paying for volume to paying for value, biopharma has been working furiously to obtain more data on the effectiveness and cost savings benefits of the drugs in its R&D and commercial portfolios. But it is struggling against payer skepticism over bias built into its data, the rapidity of change, and a perception that, currently, reshaping of the health care system is largely in the hands of payers, providers and politicians. Many of the initial risk-shifting arrangements, endorsed by the Patient Protection And Affordable Care Act and now underway as Accountable Care Organizations, for example, were formed by providers and/or payers, with pharma limited to the role of supplier.

This new initiative places GSK in a different role entirely. While it is a small endeavor, it has endorsement of senior management, says senior director of U.S. payment and delivery reform, Jon Easter, who spearheaded the effort and whose job is to help the company learn from new health care delivery systems and payment models. The initiative is strictly about learning - there’s no marketing component and any independent business opportunity would be a secondary benefit.

CCNC coordinates care across roughly 1,000 health care provider types, including 110 hospitals and more than 1,700 primary care practices, serving 1.5 million people in North Carolina. GSK is dedicating data analytics experts and knowledge of comprehensive medication management to the collaboration, and CCNC is contributing experience in tailoring medication management interventions, gleaned from years of experience with patients with drug therapy problems. If all goes well, the partners, who began working on the project earlier this year, will  make a decision on whether their IT is marketable broadly to health care systems across the U.S.

The funding and staff time are shared evenly, as is ownership of any emerging intellectual property. The IT system will allow health care providers and payers to easily analyze individual patients’ medication challenges in real time and help determine which interventions in which setting of care would yield optimal results.

CCNC’s VP, Pharmacy Programs, Troy Trygstad, who has led his organization’s multi-year efforts to optimize medication management and resources, says a confluence of several trends made the timing ripe for such a relationship. “It was where we are at in the maturation of our medication management process. And, regardless of ACA, the larger system is going through a need to do more with less. Also, pharma is investing in figuring out how to work with healthcare ecosystems to maximize value.”

GSK, in a press release, distinguished the partners’ approach as relying on “small data,” as opposed to “big data” solutions. “Big data” currently dominates any conversation about the use of IT systems in health care, but the partners are banking on internally developed predictive analytics and algorithms to create customized approaches that allow doctors or other care givers to determine, sometimes in advance, what a patient’s specific barriers are to adherence, enabling them have meaningful conversations with patients in real time. Providers will have access to select information such as patient prescription fill history and hospital data.  Importantly, the system is also designed to work in a range of different settings, across multiple IT systems, avoiding integration and inter-operability issues that have been a drain on many big data approaches.

The collaboration does not involve specific patient information changing hands between the organizations and is independent of GSK’s core drug business. A recent favorable Office of Inspector General ruling in August on another manufacturer’s hospital discharge venture, designed to reduce hospital readmission rates, may have helped pave the way for the partners’ commitment. The ruling said that such a service did not run afoul of federal anti-kickback laws.

Pilot programs are underway. CCNC is already using the system across its network. The partners also have established a Community Medication Management Collaborative with the Indiana University Health Bloomington Hospital involving roughly 50,000 patients who use the hospital and its outpatient clinics and services. That pilot consists of two parts: the logistics and analytics platform supplied by the CCNC/GSK partnership and a pharmacy care arm, in which CCNC is providing its process and technical insights to Bloomington to incorporate into the latter’s own pharmacy care protocols as appropriate.

The deal points to how GSK – and potentially other drug companies – might leverage their expertise in drug-related data analytics to help various sectors of the healthcare system work with ‘adjacencies’ to adjust to an environment in which core constituents are increasingly driven by the need to demonstrate the value of their products and services in improving patient outcomes. Other companies, such as Merck & Co. Inc., have undertaken different approaches, establishing revenue-generating health care IT ventures; Merck's Vree Health helps hospitals deal with pressures of ACA’s emphasis on reducing hospitals’ 30-day readmission rates. The common thread: all  work with stakeholders on figuring out systemic value while remaining entirely separate from their core drug franchises.

Easter said GSK agreed to work with CCNC not only because the non-profit is a neighbor and already provides care to thousands of local GSK employees, but also because it is nationally known for its cutting-edge work in patient medical homes and medication management.

As GSK works to understand the big picture in medication management, select deals this week centered around the smaller, scientific universe.--Wendy Diller

Chiesi/Cornerstone: Italy’s mid-sized pharmaceutical company Chiesi Farmaceutici will purchase the 40% of North Carolina-based Cornerstone Therapeutics Inc. that it didn’t already own, according to a Sept. 16 announcement. Chiesi will pay $9.50 per share in cash, and, in exchange, obtain a sales organization based in the U.S.  According to an SEC filing in February, this transaction has been underway for some time. Months ago, Cornerstone revealed that Chiesi had been willing to pay $6.40 to $6.70 a share for the piece of the company.

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 10 years. The drug was first approved in the U.S. in 2009 for the treatment of respiratory distress syndrome in premature infants. At the time, Cornerstone also obtained the first right of refusal on any drugs or technologies that Chiesi plans to launch in the U.S. In return, Chiesi received 11.9 million Cornerstone shares valued at $70 million based on the company’s stock price at the time. Chiesi also gave Cornerstone $15 million in cash and agreed to buy another 1.6 million shares from Cornerstone’s CEO and EVP of manufacturing for $5.50 each, a transaction that totaled $8.8 million. As a result of the transactions, Chiesi became the majority shareholder.

This is Chiesi’s second acquisition in as many months – the company bought Denmark’s Zymenex AS in August for its Phase III rare disease therapy Lamazym (rhLAMAN). The structure and financial terms of the acquisition were not disclosed.--Lisa LaMotta 

Teva/Cancer Research Technology: Teva Pharmaceutical Industries Ltd. has teamed up with Cancer Research Technology Ltd. to study and develop cancer drugs that modulate DNA damage and repair response processes in cancer cells.

The three-year alliance between Cancer Research UK’s technology transfer arm and Israel-based Teva echoes one struck between CRT, AstraZeneca PLC and the Cancer Research UK Paterson Institute for Cancer Research at the University of Manchester to develop potential new drugs to target a key protein involved in DNA damage response (DDR), in a deal that would give AstraZeneca first rights to any molecules discovered and builds on an earlier 2010 collaboration.

No financial details were disclosed for either of CRT’s projects in DDR. Both reflect CRT’s expanding role as a bridge builder between research-based Big Pharma and academia.

Together with Cancer Research UK, CRT has created a hub of expertise in DDR-related basic, translational, and clinical research that is based on Cancer Research UK's extensive network of top UK universities, and its five cancer research institutes – Gray Institute, Oxford; Cancer Research UK Cambridge Institute; London Research Institute; Paterson Institute, Manchester; and the Beatson Institute, Glasgow. This hub will provide the foundations for CRT's and Teva's work towards developing novel therapies based on DDR-related targets for the treatment of cancer.

DDR plays a key role in protecting cancer cells from the damaging effect of chemotherapy – creating an in-built antidote to the toxic effects of the anti-tumor drug. AstraZeneca underscored the area’s importance to its oncology strategy by in-licensing Merck’s MK-1775 for study in certain types of ovarian cancer earlier this month.--Sten Stovall

Cleveland Clinic Innovations/Shield Biotechnology: Cleveland Clinic Innovations, the corporate venture arm of Cleveland Clinic, has spun off a company based on research from the Lerner Research Institute, Cleveland Clinic’s translational and clinical research center. The company, Shield Biotech, will complete preclinical development of a preventive breast cancer vaccine. It expects to file an IND and commence two proof-of-concept Phase I trials in women with triple-negative breast cancer within two years. The amount of investment capital raised from external sources was not disclosed. The trial will report out in approximately three years from initiation.

Triple-negative breast cancer has a high rate of recurrence and does not respond to current forms of adjuvant therapy. The research will be led by Shield’s CSO Vincent Tuohy, an immunologist at the Clinic’s LRI. “We have proposed that breast cancer may be effectively controlled by providing healthy cancer-free women with pre-emptive immunity against emerging breast tumors” said Tuohy. “We propose to provide women with an immune defense or shield.”  CCI has played an important role in the biomedical innovation landscape, particularly with the reduced involvement of venture capital in early stage funding and company creation.

CCI functions like a super-charged university tech transfer office, identifying promising research at its parent, licensing technology, launching companies, finding investors, and even helping with certain aspects of commercialization ([A#2012800153]). Since its founding in 2000, it has launched 63 companies that have received nearly $700 million in investment. Therapeutic or prophylactic medicines are the smallest category of inventions at CCI, and as such a rarity among its spin-off companies. Medical devices are by far the largest category.--Michael Goodman

ChemoCentryx/GlaxoSmithKline: In our “No-Deal” of the week, GSK, following the late August announcement that vercirnon missed the primary endpoint and a key secondary endpoint in the Phase III SHIELD-1 study, has returned the compound along with all data, back-up compounds and related intellectual property to ChemoCentryx. The Mountain View, Calif., biotech announced Sept. 18 that it will conduct a review of the unfinished trial data to determine if there is a different path forward for the CCR9 chemokine receptor inhibitor.

While the multinational pharma is ending development of the compound also known as Traficet-EN or CCX282, the disappointing outcome will not scuttle a larger collaboration between the two firms that dates back to 2006. GSK continues to develop a CCR1 inhibitor, CCX354, in rheumatoid arthritis that it licensed in 2011 under an option agreement, and is expected to make a decision about whether or not to exercise its option for CCX168, an inhibitor of complement receptor C5a now in Phase II for renal vasculitis.

On Aug. 23, GSK revealed that it had ceased dosing in the 2,500-patient four-trial SHIELD program testing vercirnon after one of the trials, SHIELD-1, failed to meet the primary clinical endpoint of induction of response in Crohn’s disease, as well as a key secondary endpoint of maintaining clinical remission ([A#14130823003]). ChemoCentryx hopes it can determine a clinical path forward for the candidate by evaluating design differences between its successful Phase II trial and the failed GSK study. --Joseph Haas

A Pleasantly Familiar BIO 2012 Approaches…

Even as the health care world and nation, for that matter, await a landmark U.S. Supreme Court decision, BIO 2012 approaches June 17-21 in Boston. Its stresses and routines are, in light of the momentous changes underway in the macro-environment, for once pleasantly familiar. There are so many panels on the typical hot topics -- ranging from partnering and finance, to structuring companion diagnostics deals, to real-world evidence and health outcomes research, meetings with key contacts, and festivities -- that they almost dissipate discussion of the implications of the post-SCOTUS decision for biopharma.

That said, there’s a prevailing sense in the industry and on Wall Street that many marketplace trends accelerated by the Affordable Care Act were in the works prior to its passage and are likely to continue regardless of what happens to the act itself. The decision will obviously have very specific implications for biopharma as a whole and for individual companies and products, but the winds of change are in the offing.

At top levels of pharma, contingency planning has been ongoing, with companies and lawyers strategizing in great detail. One conversion for example concerns the legal basis for recouping money already paid out to government because of various ACA provisions in the event the court overturns all or parts of ACA. Our reimbursement team in Washington has been tracking the discussions, most recently a notable report by CMS Office of the Actuary released on June 12 in an online version of Health Affairs. 

Regardless of the political and judicial tides, the stats help firm up a picture of the stakes at hand for biopharma. As reported in "The Pink Sheet" DAILY, the Centers for Medicare & Medicaid Services projects that spending on prescription drugs by public and private payers will jump 8.8% in 2014 over 2013 -- the year major coverage expansions under the ACA are scheduled to begin. If the ACA had not passed at all, that jump would have been only 4.1%. 

The prescription drug industry, in short, stands to benefit more than most healthcare sectors – and CMS believes that this is because many of the newly insured (22 million estimated) who are driving the spending jump are younger and healthier individuals. Thus, they are more likely to utilize physician services and drugs than hospitalizations and medical devices, which are domains of the aging. Notably, most of the newly insured will benefit because they qualify for Medicaid as a result of the ACA (19.6 million), and only a minority will take advantage of the new state-based health insurance exchanges (3.1 million).  

The message from some corners of Wall Street has been that whether the ACA survives or not, the reforming U.S. landscape presents some investors with abundant opportunities. Provider consolidation, cost-cutting, coordination of patient care, and re-allocation of risk are trends well underway in the marketplace. 

At a recent Jefferies & Co. investment conference, private equity leaders drove home that point: Despite the ACA’s importance -- one panelist summed it up as the most important healthcare legislation since Congress passed legislation creating Medicare in 1965 -- they also noted that the “horse is out of the barn” in terms of reform. 

The private equity investors -- who have a bias for buying ongoing businesses with revenues -- do not, for a variety of reasons, play heavily in the world of early-stage discovery and innovative R&D-driven companies (too much risk, few choose to have internal clinical expertise that is necessary to make long-term bets on innovation). That said, the deals they make now have implications down the road for biopharmas, as drug companies see their customer bases consolidate and everyone in healthcare looks to cut costs, and as consumers take a more active role in shaping their own health care decision making. All on the panel agreed, for example, that employer-sponsored health care insurance, now the source of insurance for less than half of the U.S. population according to statistics presented an ISPOR meeting earlier this month, will go away. The replacement is likely to be defined plans, along the lines of current retirement plans.

What all this means in the biopharma deal making world will be food for thought for years to come. Meanwhile, ordinary deal-making in pursuit of material matters continues: immediate revenues, long-term innovation, or goals in between, with all its routine pleasures and tribulations, as the latest crop of partnering news shows in …

Upsher-Smith/ Proximagen - After teaming up twice since 2008 with Proximagen and acquiring a 16% stake in the U.K. biotech, Upsher-Smith Laboratories announced on June 13 that it is buying out its partner for £223 million (~$347 million). The proposed acquisition includes additional contingent-value rights that could boost the deal value to nearly $555 million, based on the “future success” of two Proximagen compounds: a vascular adhesion protein-1 (VAP1) inhibitor, which is entering Phase I in rheumatoid arthritis, and PRX00933, in Phase III for obesity and diabetes. Privately held Upsher-Smith has obtained unanimous support for the purchase from Proximagen’s board of directors as well as irrevocable undertakings from shareholders representing 72% equity in the biotech to accept the deal. That 72% includes the 16% already owned by Upsher-Smith. For each Proximagen share, Upsher-Smith has agreed to pay £3.20 (about $4.98), representing a 16% premium over Proximagen’s closing share price on June 12 (£2.75/$4.28). A relationship between the two companies dates back to 2008, when Upsher-Smith agreed to a potential $232 million collaboration with Proximagen for an undisclosed upfront payment plus development and sales milestones to obtain worldwide rights to PRX1, a levodopa prodrug still in preclinical development for Parkinson’s disease. Nearly two years later, in April 2010, Upsher-Smith licensed North American rights to tonaberstat, a neuronal gap junction inhibitor now in Phase II for epilepsy in refractory patients. Under that deal, Upsher-Smith took over development, regulatory and commercial responsibilities for the compound, with Proximagen retaining commercial rights in Europe. The companies would split royalties and milestones evenly if tonaberstat were sub-licensed outside of North American or Europe.--Joseph Haas

Novo Nordisk/ JDRF --Novo Nordisk has partnered with the Juvenile Diabetes Research Foundation to develop novel immunotherapies for the disease, the partners announced June 13. As part of the agreement Novo anticipates taking over select JDRF-funded research programs to move them into the clinic faster. “The money flow is entirely one way from Novo Nordisk to JDRF,” said Novo Nordisk’s Matthias von Herrath, the director of the Danish company’s newly opened Type 1 Diabetes R&D Center in Seattle. In exchange, JDRF will share its databases and research expertise with Novo Nordisk and potentially hand off certain research projects, currently in the hands of small biotechs or academic researchers, to the specialty pharma. In the area of type 1 diabetes, Novo Nordisk’s main research emphasis is on the development of immunotherapies that direct the immune system to protect, rather than attack, beta cells. Type 1 diabetes occurs when the body’s immune system attacks and destroys the glucose-responsive, insulin-secreting beta cells of the pancreas. The disease usually occurs in childhood and requires lifelong use of insulin. JDRF is invested in several vaccine projects for type 1 diabetes, including research partnered with Selecta Biosciences and Parvus Therapeutics.--Jessica Merrill

Newron Pharmaceuticals SpA/ NeuroNova AB -- In the autumn of 2011, the future outlook for Newron Pharmaceuticals was looking bleak; rights to its lead product, safinamide, an add-on therapy for Parkinson's disease, had just been returned by the licensee, Merck Serono, and subsequently a planned merger with Finland's Biotie Therapies had been taken off the table. But fast forward nine months, and its prospects are decidedly more promising, with new licensees found for safinamide and now another merger in prospect. On June 13, Newron announced the proposed acquisition of Swedish neurogenesis company NeuroNova AB in an all-share transaction valued at €15.4 million ($19.3 million). The acquisition will bring two potential growth factor-based products to Newron – these compounds, when infused directly into the ventricles of the brain, may be active in stimulating stem cell proliferation and be potential therapies for neurodegenerative diseases, Newron says. But perhaps more importantly, NeuroNova's venture capital backers, Investor AB and HealthCap, along with grants from the EU Commission, are expected to provide a further €16 million in funding for Newron. The hugely experienced Nordic life sciences investors have vowed to support Newron's desire to become a European-based CNS-focused biotech.--John Davis

 

Stiefel/Basilea -- Stiefel, the dermatology unit ofGlaxoSmithKline, has acquired global rights to the eczema drug Toctino (alitretinoin) from Swiss drugmaker Basilea  as the compound nears approval in the U.S. The Research Triangle Park-based derma paid £146 million ($228.5 million) in cash for rights to the oral drug, which is already approved in 29 countries for severe chronic hand eczema in patients who do not respond to topical corticosteroids. Toctino is sold in 14 of those countries, and Stiefel acquired distribution agreements in Europe, Canada, Mexico, Israel and Korea as part of the deal. If FDA approves Toctino, currently in Phase III, Basilea will receive a milestone payment of £30 to £50 million, as well as low double-digit royalties after three years have passed. Basilea reported CHF 31 million ($32.6 million) in Toctino sales during 2011; the company said it will use the proceeds from the drug’s sale to support ongoing development of a portfolio of anti-infectives, including ceftobiprole for treatment of pneumonia in hospitals and isavuconazole for fungal infections. – Paul Bonanos

Polyphor/ Boehringer Ingelheim -- In a research collaboration and licensing agreement announced on June 12, Polyphor Ltd will apply its MacroFinder drug discovery technology to targets selected by Boehringer Ingelheim to identify and optimize novel macrocyclic drugs. Although specific terms were not disclosed, Polyphor will receive an upfront payment, research funding, and milestone payments as candidates progress through development and onto the market.  The Swiss-based biopharma is also eligible for royalties on sales of approved products.  Although the targets were not disclosed, a scan of the literature shows macrocyclic drugs addressing a wide spectrum of disease states. The MacroFinder platform generates synthetic, macrocyclic molecules able to modulate extracellular protein-protein interactions and other complex biological targets, enabling optimal activity, selectivity, and ADMET properties such as cell permeability and oral bioavailability. Macrocyclic chemistry is enjoying a resurgence in the industry; two weeks ago, Genentech inked a similar deal with macrocyclic specialist Ensemble Therapeutics. For Polyphor, backed by Biomedinvest and Novartis Venture Fund, the tie-up with Boehringer is its fifth discovery deal since 2008. Boehringer has also been active, signing a spate of recent discovery deals, the most significant being with Forma Therapeutics to screen and optimize oncology candidates.

image by flickr user zelenyoko via creative commons