Deals Of The Week: Academic Drug-Discovery Alliance Capturing Industry's Notice

Nashville hosted the first annual conference of the Academic Drug Discovery Consortium

It’s become a familiar story in biopharma, as Big Pharma X announces that in the wake of the patent cliff, health care-spending pressures in Europe and diminished returns from internal R&D, it will be forced to cut back on R&D spending and make staff reductions primarily in sales and lab positions.

As the industry retrenches on early drug-discovery work, however, the need for innovation has not diminished and so the private sector frequently looks more and more to the academy for early research breakthroughs that might translate into therapies that will bolster the quarterly earnings reports a decade from now. In an effort to take advantage of that trend, some of the more forward-thinking university-based drug-discovery outfits in the U.S. have banded together to create a consortium they hope will facilitate and ease partnerships between academic institutions and the biopharmaceutical industry.

The brainchild of a meeting in Baltimore two autumns ago, the Academic Drug Discovery Consortium was more or less dreamed up by Barbara Slusher, director of the Translational Program at the Brain Science Institute at Johns Hopkins University, and Jeffrey Conn, director of the Vanderbilt Center for Neuroscience Drug Discovery, with input from three other founding institutions: University of North Carolina, Harvard University and University of California, San Francisco.

But in a relatively short time, ADDC’s membership has grown to 83 institutions, including six outside the U.S., and more than 550 individual members. And, just as importantly, big pharma has taken notice.

“They started out with two groups, Vanderbilt and Johns Hopkins, and now they have 83 members,” said Bruce Harris, Roche’s director of academic alliances and an attendee and speaker at ADDC’s first annual conference Oct. 9-11 in Nashville.” All of these institutions are trying to incorporate drug discovery and translate some of the biological discoveries occurring in their laboratories into drug-discovery projects and, if you think about it, that’s an incredible resource for the industry and the early portion of our pipelines.”

It is a necessary development as well. “The area I work in, CNS, probably has been hit the hardest because it’s a risk area where companies are decreasing their internal efforts and several companies have just gotten out (altogether),” said Slusher, co-founder and president of ADDC.

She and Harris both point to an increased government funding interest in translational research that has occurred more or less in tandem with private industry’s cutbacks in discovery work. Specifically, they site the NIH Roadmap efforts undertaken during the tenure of former NIH Director Elias Zerhouni. “This has been a major change in the pharmaceutical industry,” Slusher said. “But as pharma has been decreasing some of its internal efforts, simultaneously what you see is NIH increasing its interest in activities in discovery and translation.”

While overall NIH funding has been roughly flat in recent years, she noted, funding for its National Center for Advancing Translational Science (NCATS) was increased by 11% for federal fiscal year 2013.

ADDC also reflects the exponential growth taking place in academic drug discovery. There were six U.S. academic institutions performing drug-discovery research in 1990, a number that had nearly tripled as of a decade ago. Now, there are more than 100 such units, and 78 of them have membership in ADDC, Slusher pointed out.

In addition to its domestic members, ADDC also has drawn the support of six international research outfits – the Centre of Applied Medical Research at the University of Navarra in Spain, the Karolinska Institute’s Chemical Biology Consortium Sweden, the genetic engineering and biotechnology labs at Shaqra University in Saudi Arabia, the Platform of Chemical Biology and ADME at the University of Strasbourg in France, the Spanish National Cancer Research Centre and Cancer Research UK.

While ADDC has a focus on facilitating partnerships with the private sector, Harris thinks another important role it can play is fostering research efforts across national borders. “I could easily see these U.S.-based academic institutions collaborating on drug-discovery work with their European colleagues,” he said. “Science is global and so are economies, so for them to work together without national boundaries is just natural.”

As Roche searches for programs and assets to invest in at the academic level, Harris said his emphasis will be on the company’s therapeutic areas of focus – oncology, neuroscience and infectious disease. Those priorities dovetail well with what is occurring in U.S. academic research – of the ADDC centers, 73% say they work in oncology, 65% in infectious disease, 63% in neurological disorders and 45% in immunology.

One of ADDC’s initial goals is to create a searchable database of the projects being undertaken by member institutions. Both institutional and individual membership in ADDC is free, meaning this should be a significant resource for academic alliance seekers, like Roche’s Harris. (The organization also is not planning to take a cut from members’ tech transfer deals as a funding mechanism. Instead, it has lined up more than 20 biopharma and service provider firms to sponsor ADDC activities so far, Slusher said.)

Meanwhile, ADDC has no plans, in the near term at least, to serve as a central negotiating point for tech transfer deals or to develop uniform documents and practices for such transactions. Harris said right now that activity seems neither necessary nor terribly feasible.

“I’m not sure that it would be useful to standardize all of the legal documents and arrangements because each university has its own mission within a given state or [based upon] who is supporting it,” Harris added. “They have to go by their own regulations, so having a common set of documents across multiple tech transfer offices at U.S. universities would be a monumental challenge, I think, and probably expensive from a legal point of view.”

And while we await a slew of deals between ADDC member institutions and the biopharma industry, we present this week’s roundup of ....

MedImmune/Spirogen/ADC Therapeutics: AstraZeneca’s biologics unit MedImmune will expand its early oncology pipeline with a new platform to make potent antibody-drug conjugates through the acquisition of U.K.-based Spirogen. Britain’s second-biggest drug maker said it was acquiring privately held Spirogen Oct. 15, paying up $200 million upfront and with another $240 million in potential earn-outs based on predefined milestones for Spirogen’s ADC technology, which has the potential to directly target cancer tumors while protecting healthy cells. Spirogen has developed a novel class of cytotoxic “warheads” based on pyrrolobenzodiazepine (PBDs), which are DNA minor-grove binding agents that bind to specific sites of DNA in cancer cells, according to MedImmune. This blocks the cell division and growth without distorting the DNA helix of cancer cells, which potentially could prevent the emergence of drug resistance. AstraZeneca is in the midst of a concerted push in oncology under the direction of CEO Pascal Soriot, who has revamped the company’s R&D direction over the past year and selected oncology as one of three focal therapeutic areas for the company. MedImmune now is focused on two key areas in oncology development – ADCs and immune-mediated cancer therapy – and says the acquisition of Spirogen fits that strategy perfectly. In connection with the deal, AstraZeneca simultaneously announced a coinciding agreement with Swiss-based ADC Therapeutics, which has a licensing agreement with Spirogen. Under that arrangement AstraZeneca will pay $20 million to take an equity investment in the company. The investment will be matched by Auven Therapeutics, the majority shareholder in both ADC Therapeutics and Spirogen. AstraZeneca will collaborate with ADC Therapeutics to develop two programs from a defined list and pay an undisclosed upfront payment and development milestones. ADC Therapeutics will have a profit-sharing arrangement and gets the option to co-promote one of the products in the U.S. The products to be developed using Spirogen’s technology are preclinical assets, so the latest deal will not yield commercially viable new medicines for several years. It is not yet clear when the products could move forward into clinical tests. Spirogen has been developing its PBD technology for more than 10 years, including a standalone PBD agent in a Phase II study in acute myeloid leukemia. Its business model has been to partner its technology with pharma and biotech for use in the development of novel drugs. It has a number of industry collaborations, including collaborations with Genmab in June 2013, Genentech in 2011 and with ADC Therapeutics announced in 2012. - Sten Stovall

AstraZeneca/Taris Biomedical: Bladder-disease focused Taris Biomedical signed a research agreement with AstraZeneca Oct. 16 to work on novel treatments for bladder cancer. No financial details were disclosed, but the pharma gets an option to license any products resulting from the collaboration. The partnership will involve using Taris’ proprietary delivery platform in combination with targeted bladder cancer drugs developed by AstraZeneca. The Lexington, Mass.-based biotech says its technology involves a soft and flexible device that is deployed into and retrieved from the patient’s bladder “using standard urological office procedures.” The technology is designed to provide continuous local delivery of a therapeutic agent to the bladder for days or weeks. “Their novel technology has the potential to enable the delivery of the right drugs to the tumor tissue in the right concentration and over a prolonged period,” said Susan Galbraith, head of AstraZeneca’s Oncology Innovative Medicines Unit in a release. “This could combine the ability to target the right tissue – the tumor – with the right genetically targeted therapy and therefore represent a step change in the treatment of this disease.” Taris is a clinical-stage firm focused on developing therapies for bladder cancer, overactive bladder and interstitial cystitis. Its lead candidate, LiRIS, is in Phase II in interstitial cystitis. In April, the biotech raised $12.5 million in a Series C round funded by returning investors Flagship Ventures, Flybridge Capital Partners, Polaris Partners and Third Rock Ventures. - Joseph Haas

AmpliPhi Biosciences/University of Leicester: U.S. company AmpliPhi BioSciences announced an agreement Oct. 17 with a British academic group that has succeeded in identifying and characterizing bacteriophage (“phage”) that kill pathogenic strains of Clostridium difficile, a major cause of hospital-acquired severe diarrhea and vomiting. The University of Leicester  researchers will collaborate with AmpliPhi and another U.K. research team at the University of Glasgow on using the “bacteria-eating viruses” for clinical applications, with AmpliPhi funding the research, making milestone payments and paying royalties on any eventual products sales. In return, AmpliPhi receives rights to patents and intellectual property covering the Clostridium difficile-targeted phage research.
In a September 2013 report, the Centers for Disease Control & Prevention called C difficile an urgent threat, causing 250,000 infections every year in the U.S. AmpliPhi believes it is conducting the only phage-based development program for this critical condition. Phage could yield ideal candidates for treating gastrointestinal infections, as they infect and kill a specific strain or species of bacteria, and should not affect beneficial gut bacteria. The research agreement is the third by AmpliPhi in the past six months, having linked up previously with the synthetic biology company Intrexon and the U.S Army. AmpliPhi expects its first therapeutic phage-based product, targeting Staphylococcus aureus and developed in collaboration with the U.S. military, to enter clinical trials next year. AmpliPhi is headquartered in Richmond, Va., but has operations in Colworth, U.K., and Sydney, Australia. - John Davis

Zydus Cadila/Pieris: India’s Zydus Cadila is teaming with Germany’s Pieris to develop and commercialize multiple novel protein therapeutics derived from the anticalin protein molecule. In an Oct. 16 announcement, the companies said the partnership would combine Pieris capabilities in drug discovery and early drug development with Zydus’ expertise in regulatory affairs and development and manufacturing of biologics. No financial terms were disclosed, but the companies said in a release that they will share licensing revenues under mutually agreed-upon terms. The collaboration is intended to develop candidates to proof-of-concept and then seek out-licensing in Pieris’ commercial territories. The most advanced program under the partnership is PRS-110, an anticalin protein specific for c-MET, a target that has been validated in a broad spectrum of tumor types. The candidate is a pure antagonist due to monovalent target engagement and in animal models has demonstrated the ability to inhibit ligand-dependent and –independent c-MET activity. - J.A.H.

Photo credit: Wikimedia Commons

Financings of the Fortnight Navigates Sequester Seas, Mega Moguls and Mini VCs

With several IPO hopefuls now in registration and a very odd venture round raised by a San Diego biotech, there was plenty of financing news to chew on the past couple weeks. But we’re sailing in a different direction for this fortnight’s most interesting financing.

With the sequester on the horizon, a big question mark looms over National Institutes of Health and other basic science funding. The scientific research lobbying group Research!America (that’s their exclamation point, not ours) says the NIH budget will drop by $2.4 billion, part of $3.6 billion in science research cuts across several agencies, or 7.8% of their fiscal 2011 budgets.

The $2.4 billion in NIH cuts alone is $300 million shy of the 2011 external grant totals of the National Institute of Allergy and Infectious Disease, or nearly half the total budget of the National Cancer Institute. NIH director Francis Collins has quoted studies that equate the cuts to 2,300 grants that NIH would not be able to award.

In Boston, which year after year receives the most NIH funding of any American city, health care officials and politicians are warning about 1,700 jobs lost.

As we slouch toward another 11th hour (and 59th minute) Beltway showdown, let’s focus instead for a moment on a small – OK, tiny – counterexample. In San Francisco this week, former Genentech CEO Art Levinson and friends unveiled a new science award, the Life Sciences Breakthrough Prize, which will distribute $3 million to its winners. The inaugural group holds 11, but future years the winners’ pool will be limited to five.

Like we said, tiny. And the prizes are achievement awards, not grants for future projects, so it’s by no means a replacement for NIH’s role. But as fret about the future sources of scientific funding, what caught our eye was the presence of two non-life-science people on the new foundation’s board: Facebook chief Mark Zuckerberg and super-investor Yuri Milner. In 2011, this column made an open plea for Milner to throw some of his vast sums into the life science arena.

Since then, his investment firm Digital Sky Technologies has dipped a toe, joining syndicates for cancer diagnostics firm Foundation Medicine and consumer genome analysts 23andMe. No pure biopharma or device investments yet for Yuri, as far as we can tell, and so far he's following the same late-stage pattern as his highest profile tech investments (both Foundation and 23andMe have marketed products). Still, we’re encouraged by his involvement with a group that is rewarding research-stage biomedical breakthroughs.

High-tech giants are increasingly turning their profits into venture funds, and some of those funds are trickling into health care and the life sciences. Last year, we profiled the nascent health-care ambitions of San Francisco’s Founders Fund -- which came to life in part from Facebook and PayPal investor Peter Thiel’s fortune -- and now we’re starting to see Google Ventures make a health-care splash, too. (In fact, it’s a co-investor with Milner in Foundation Medicine.) Its latest investment is cancer-data analytics firm Flatiron Health, and the new issue of START-UP has a report.

Whether they're high-tech moguls or faces in the crowd at the other end of the spectrum, new sources of life-sciences capital will always be a front-and-center topic for us and our readers. This column has followed a couple crowdfunding efforts, and now our colleagues at IN VIVO have just published a long look not just at crowdfunding but also other ways the biopharma business is tapping into more open or distributed resources. It’s a highly recommended read, as of course are all the latest articles in START-UP and IN VIVO.

Which brings us to that odd round of venture we mentioned up top: San Diego biotech Elcelyx Therapeutics just raised a $20 million Series C round, but the management formed its own fund to lead the syndicate. The entity, GSM Fund LLC, is a “friends and family” group of Elcelyx executives and others from the San Diego biotech community, CFO Martin Brown told FOTF. In planning the round, Brown also spoke with conventional VCs but had this idea in the back of his mind, particularly because Rick Barry, the founder and managing director of now-defunct Eastbourne Capital Management, had wanted to invest in Elcelyx for some time. Under the C round, Barry will join the Elcelyx board of directors. The GSM Fund members have all committed to reserves that, if called, could end up doubling their investment.

What started as a backup plan became the reality, said Brown. “I was keeping a book and pretty soon we had more than enough,” he said. “It just happened that the LLC got a first-mover advantage. The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies. If the financing had taken a lot longer, we would have had to put some of our plans on hold.”

There were really no secondary benefits to the LLC model for Elcelyx itself, Brown added, although it was a different story for the individual investors. “There are advantages for the investors in the way we structured this,” he said. “It’s not a typical VC fund where there are management fees and carry. Every dollar that was invested by the members of the LLC purchased shares in Elcelyx.”

Jeffrey Sohl, director of the University of New Hampshire Center for Venture Research, told FOTF that it’s rare but not unprecedented for angels to create a one-time limited partnership structure to invest in a company as sort of a mini VC.

We have more details on the Elcelyx deal in the roundup below. All you have to do is scroll down. From friends and family to Facebook fortunes, from mega-moguls to mini-VCs, we cover it all here in… 

Elcelyx Therapeutics: For its new $20 million Series C round, privately held Elcelyx led a syndicate by forming its own venture fund, GSM Fund LLC, which takes its name from Elcelyx’s proprietary Gut Sensory Modulation technology. The round includes previous backers Morgenthaler Ventures, Kleiner Perkins Caufield & Byers and Technology Partners. Those three VCs had financed a two-tranche, $21 million Series B during 2011 and 2012. The LLC is structured so that its members can be called upon to double their investment if necessary. The roster includes four area biotech CEOs, four or five local MDs, about a dozen PhDs and a host of biotech executives and lawyers. New board member Rick Barry, one of the GSM Fund contributors, owned 19.9% of Amylin Pharmaceuticals and was a major investor in Telik and Sarepta Therapeutics when he ran the now-defunct Eastbourne Capital Management. Elcelyx is working to bring both a delayed-release version of metformin (NewMet), currently in Phase II, and an over-the-counter weight-loss supplement (Lovidia) to market. “The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies” CFO Martin Brown told FOTF. “If the financing had taken a lot longer, we would have had to put some of our plans on hold.” – Joseph Haas

Jounce Therapeutics: Jounce is the latest project incubated by Third Rock Ventures to see the light of day. The firm emerged from stealth mode Feb. 14 to reveal a $47 million Series A round, in which Third Rock was the sole investor. Jounce will attempt to develop cancer immunotherapies using a proprietary development platform, which company executives say will be a broader approach than that taken by some others in the field. Although it hasn’t yet named any specific targets, Cambridge, Mass.-based Jounce has already identified antibodies it plans to develop. A group of three Third Rock partners will serve as Jounce’s interim management team, including Cary Pfeffer as CEO, Robert Tepper as chief scientific officer and Robert Kamen as chief business officer. In an interview with our “Pink Sheet” colleagues, Pfeffer said the 2011 approval of Bristol-Myers Squibb’s cancer immunotherapeutic Yervoy (ipilimumab) for metastatic melanoma spurred Third Rock’s increased interest in the field. After establishing the company quietly later that year, Jounce’s management has built an advisory board that includes key research specialists from the University of Texas MD Anderson Cancer Center, Johns Hopkins University, the University of Chicago and the Georgetown Lombardi Comprehensive Cancer Center. – Lisa LaMotta and Paul Bonanos

Retrophin: The pediatric orphan disease firm, whose shares trade over the counter, raised $10 million in a private placement to help complete what could be a pivotal Phase II trial for its lead candidate. RE-021 is being tested to treat focal segmental glomerulosclerosis (FSGS). With an eye toward the favored status insurers and regulators are granting orphan drugs these days, Retrophin in-licensed the small molecule a year ago from Ligand Pharmaceuticals for $1 million upfront. Ligand had tested the compound to treat hypertension, but in its new indication Retrophin hopes to gain accelerated approval from FDA. The biotech  was founded in 2011 by then-hedge fund manager Martin Shkreli, who has since shuttered his MSMB Capital Management to devote himself to running the company. In December 2012, Retrophin completed a reverse merger with an OTC-traded shell company. Shkreli told FOTF that Retrophin will likely do either another reverse merger with a company on a major exchange or de-list and conduct an IPO.  In the placement, Retrophin sold 3.3 million shares at $3 each, a 6% discount to its close on Feb. 12, the day before the financing was announced. The deal included 1.5 million warrants, each with an exercise price of $3.60. On Feb. 20, Retrophin shares closed at $4.20, giving it a market cap of $35 million. MSMB led a $4 million Series A round in May 2012. – Stacy Lawrence

e-Therapeutics: The UK network pharmacology company said February 11 it would seek to raise £40 million in a follow-on offering, upon approval of its shareholders. The cash would help finish Phase I studies of its lead cancer therapy ETS2101 then move it through Phase II testing in brain cancer and Phase Ib/II testing for several other cancers. The company hopes the clinical activity will lead to licensing in 2017. Part of the new fundraising will come from existing investor Invesco Asset Management, which will boost its stake in e-Therapeutics from 45.9% to 49.9%, the company said. New shares will be priced at 32 pence each, a 4% premium to the closing price February 10. E-Therapeutics is one of a handful of companies to use modeling of disease pathways (sometimes called network biology or systems biology) to identify the critical points to attack and match them with drug candidates. Another publicly traded network-based company with products in the clinic is Merrimack Pharmaceuticals, which debuted on the Nasdaq one year ago. Merrimack has used its network biology platform to build an antibody combination product, which we describe in a feature in the new START-UP magazine. – Alex Lash

All of the Rest: Bind Biosciences, which is selectively targeting disease sites with its Accurin platform, raised an $8.7 million tranche out of a potential $20.25 million from foreign investors… To support its human plasma gelsolin for inflammation, BioAegis Therapeutics closed on a $3 million round… Reports here and here state that Aerial Biopharma has completed the second tranche of its $12 million Series A financing… Ophthalmic implant maker PolyActiva completed a $A9.2 million Series B… Longbow Capital led a £1.5 million financing for UK drug discovery company Domainex… Helmedix, which is developing autoimmune peptides derived from helminthic worms, raised $A1.25mm in funding… Burrill & Co. was the sole investor in Strand Life Sciences’ Series B… To back its work on injectable drug delivery devices, Unilife completed a $12 million registered direct offering… Regenerative medicine company Cytomedix could realize up to $27.5 million in a combination loan and equity financing…  Developer of oncolytic viruses Oncolytics Biotech publicly raised $32 million… In a FOPO, Medgenics, which is delivering therapeutic proteins using the patient’s own tissue, grossed $29.4 million… Imprimis Pharma completed a $9.7 million public sale in support of its drug reformulations using the Accudel system… Cancer therapeutics and diagnostics company Novelos closed on a $5.5 million FOPO… Stem Cell Therapeutics announced a units offering… TetraPhase Pharma filed for an IPO to advance work on antibiotics against multi-drug resistant infections… Ambit Biosciences re-filed for its IPO after withdrawing its offering in June 2011… Deerfield Management loaned Discovery Labs $30 million to support development of its candidates for RDS in premature infants… With commitments of $245 million, Lux Capital closed its third fund focused on energy, technology, and health care. -- Amanda Micklus

Photo courtesy of flickr member potat0man.

Financings of the Fortnight Ponders Neurodegenerative Death And Taxes

The big funding news this fortnight doesn’t come from public or private investors, it comes from taxpayers. As "The Pink Sheet" DAILY reported May 15, the Obama administration formally rolled out its national Alzheimer’s plan, which has been in the works for more than a year.

Alzheimer’s and other dementia-related diseases were already slated to get $450 million in National Institutes of Health funding in 2012, with the same amount proposed by the White House for 2013, but the new plan adds extra money: $50 million right away this year and $80 million proposed for next year, with another $20 million for caregiver support, education, data collection and other services.

Intriguing, then, that in a field where clinical trial costs are often cited as a major barrier to an already-skittish industry getting more deeply involved, nearly half of the extra $50 million for 2012 is earmarked for clinical trials. It won't help struggling biotechs push promising treatments, mind you; $16 million is going toward a prevention trial using the Roche/Genentech-sponsored antibody crenezumab to test still-healthy members of extended families in and around Medellin, Colombia, who share a rare genetic mutation that almost assures them of early-onset Alzheimer’s. The study, which the sponsors consider to be a Phase II adaptive trial, will cost an estimated $100 million. A private research group, the Banner Alzheimer’s Institute of Phoenix, is in charge, and chose crenezumab as the agent last December because it has demonstrated a better safety profile so far in early Alzheimer’s trials conducted by Genentech.

In addition to the NIH’s $16 million, Banner is putting up $15 million. Genentech will pay the remaining costs, but it’s unclear who will pay if the cost runs beyond $100 million. (Genentech spokeswoman Robin Snyder declined to speculate on additional costs but said the company doesn’t expect funding to be an issue.)

However it plays out, the fact of mighty Roche getting subsidies for as much as one-third of a major trial is, at the least, a sign of the importance of making progress – any progress at all – in Alzheimer’s R&D. We’re not complaining; if $16 million of our national treasure brings about an Alzheimer’s breakthrough, or simply speeds the progress toward one, it’s money well spent and a pittance compared to the costly burden of the disease now and a generation from now.

But to be clear: Neither Banner nor NIH accrue any rights to crenezumab, which Genentech licensed from Swiss biotech AC Immune in 2006, so if the trial points toward crenezumab as a viable treatment, Genentech/Roche could be sitting on a gold mine. The trial is expected to run five years, with an interim analysis after two. At that point the investigators would evaluate continuation of the trial to support an application for approval, said Snyder. “We are hopeful that the trial will support an indication, the specifics of which are yet to be discussed with regulatory authorities,” she wrote in an email. “If it works we would like crenezumab to be as broadly available to patients who may be eligible.”

The Banner Institute plans at some point to test the same antibody in people at higher risk for the more common form of Alzheimer’s.

A side note: Steering millions of federal dollars toward potentially groundbreaking Alzheimer’s trials hasn’t yet provoked the same skepticism as the millions being steered toward other drug discovery and development efforts under the new translational center known as NCATS.

Funding crucial Alzheimer’s trials is of course a different proposition than, say, repurposing drugs that have sat on industry shelves or fallen out of use, one of the mandates of NCATS, which had a $575 million budget this year. But both efforts are dollars spent that, in a parallel universe, perhaps, might have gone toward basic biomedical research, a common refrain from critics. (Our START-UP colleagues, who profile a different source of funding for biotech innovation every month in the “Capital Matters” column, wrote about one of the NCATS programs, the Therapeutics for Rare and Neglected Diseases, or TRND, a few months ago. You can read it here.)

Our friends at Pink Sheet are all over the NCATS story, and we suggest you follow along. It will require a subscription, but to paraphrase the late Donna Summer, they work hard for the money. So hard for it, honey. Rest in peace, disco queen, and same to you, go-go king. No one loves to love you, baby, more than…

Arena Pharmaceuticals: Wasting little time, Arena announced May 16 it priced a secondary stock offering and grossed $60.5 million just six days after an FDA advisory committee voted 18-4 in favor of Arena’s weight-loss drug lorcaserin. Arena sold 11 million shares at $5.50 per share, although shares reached as high as $7.02 on May 11, the day of the committee vote. Shares closed May 16 at $5.67. The vote doesn’t guarantee approval of lorcaserin, but it’s a notable reversal. The panel voted down the drug in September 2010, largely due to data that showed an increase in tumors in rat studies. A reassessment of that data, plus new information on the tumors’ causes, reassured the panel this time around that the cancer risk is negligible. Obesity drugs need to meet only one of two criteria set out in FDA’s draft guidance on weight management products: they either must provide a 5% weight loss in 35% of patients on-treatment and twice as many patients on-treatment as on-placebo; or there must be at least a 5% difference between weight loss in the active-product and placebo groups. Lorcaserin met the former standard, but not the latter. (More details about the panel’s decision is here, courtesy of our Pink Sheet colleagues.) Lorcaserin’s PDUFA date is June 27, so Arena’s new cash reserves give it a boost for commercialization, although in a deal expanded just before the committee vote, Eisai owns commercial rights to the drug in the US, Mexico, Canada and Brazil. Underwriters Jeffries & Co. and Piper Jaffray & Co., with help from BMO Capital Markets, have the option to sell up to 1.65 million additional shares. Two other sponsors of obesity are vying for FDA approval. Qnexa from Vivus has a PDUFA date of July 17, and Orexigen Therapeutics, which agreed to conduct a cardiovascular outcomes trial, hopes to re-file Contrave for approval in 2014. -- Cathy Dombrowski and Alex Lash

OncoMed Pharmceuticals: One of the first cancer stem cell companies, OncoMed is now hoping to cash in on the cancer stem cell hype (which just happens to be the subject of a forthcoming feature in Start-Up magazine). After all, OncoMed, founded in 2004, is a relative graybeard of the field, with a couple of alliances under its belt and three programs in the clinic. Tiny Verastem notched a $63 million IPO in late January without anything yet in the clinic, and another company, Stemline Therapeutics, filed its IPO papers in April. OncoMed hasn’t set terms yet, but it won’t be a surprise if it aims sky-high. Venture backers have put at least $170 million into the company since its founding, most of it coming in a massive Series B in 2008. There are seven venture funds and one strategic investor with stakes of 5% or more in OncoMed, led by U.S. Venture Partners (17%), Latterell Venture Partners (12%), and GlaxoSmithKline (12%), which also owns options for worldwide rights to two OncoMed antibodies. GSK can exercise the options at either the end of Phase I or Phase II proof of concept trials. OncoMed owns exclusive rights to its lead compound, the antibody demcizumab, and is currently testing it in two Phase Ib trials, both in combination with chemotherapy agents.  -- A.L.

Egalet: In its second incarnation, Danish pain management firm Egalet Ltd. has raised $14.3 million in Series B financing. The firm restructured and recapitalized in 2010, shedding its cardiovascular program to focus on its abuse-resistant Egalet technology for the development of opioid and non-opioid pain medications.  The company is preparing to advance lead candidate EGP066, an extended-release form of morphine, into Phase III studies. The Egalet platform creates tablets that erode at a controlled rate to produce prolonged- or delayed-release delivery. It also prevents the drug ingredient from being easily extracted, which deters drug abusers from chewing, snorting, or injecting it. First-time investor CLS Capital joined returning shareholders Atlas Venture, Omega Funds, Sunstone Capital, and Index Ventures, which committed to a two-tranched €2 million ($2.6 million) Series A round in August 2010.  Prior to the recap, Egalet A/S had raised at least $60mm in venture financing. In December 2009, it out-licensed its CV compound, the beta blocker EGP042, to RedHill Biopharma. The firm has a second formulation technology, Parvulet, that creates a soft pudding-like substance that can be eaten with a spoon. Farther down its pipeline are extended-release versions of oxycodone, hydrocodone, and hydromorphone. -- Amanda Micklus

Dynavax Technologies: Like Arena, Dynavax is a veteran biotech hoping to soon celebrate its first product launch, with the hepatitis B vaccine Heplisav now before the FDA for review. Dynavax tapped the public markets, raising $74.4 million on May 9 before deductions and expenses. It sold 17.5 million shares at $4.25 apiece, adding more than 10% of its share count to the outstanding base. If that’s not enough dilution, underwriters have the option to sell another 2.6 million shares. What’s more, Dynavax also announced just before the share sale that longtime CEO Dino Dina will step aside for a more commercially experienced successor. He’ll remain CEO until the search is complete, and he’ll also keep his board seat, Dynavax said. Investors didn’t take kindly to the CEO news or the offering, which was priced 17% below the previous day’s close of $5.09. Shares have continued to decline, closing May 17 at $3.76. But Dynavax needs the cash, as it owns full rights to Heplisav, for now at least, and says it intends to launch it independently in the US. Historically, biotechs that keep worldwide or at least US rights to their first commercial products fare better in the long term, but a successful launch is no guarantee. Dendreon’s prostate cancer treatment Provenge (sipuleucel-T) and Human Genome Sciences’ breakthrough lupus drug Benlysta (belimumab), both hailed as welcome additions in under-served indications, have faltered badly out of the gate. That's led to new management for Dendreon and, for HGS, a hostile takeover bid from marketing partner GSK. -- A.L.

Image courtesy of flickr user brain_blogger. How appropriate.

NIH as Partner: New Director Collins Will Stress Royalties, Not Price Oversight

"Partner of choice" is a cliche in the biopharma business development world, but the US National Institutes of Health is trying to breathe new life into the concept under its new director, Francis Collins.

As we report in "The Pink Sheet" DAILY, Collins is making partnerships with industry a key priority as his tenure begins--with an emphasis on shepherding more new scientific ideas far enough into development to make them more viable as licensing candidates. Collins is emphasizing the need to "de-risk" scientific ideas to draw greater interest from pharmaceutical industry partners in areas like rare diseases.

If he succeeds, NIH may find plenty of interested partners waiting on the other side, since "rare" diseases are becoming far more attractive as the blockbuster model erodes.

That all sounds great, but there is one question that is sure to follow any successful effort by NIH to "de-risk" large numbers of interesting compounds: if the US government takes more of the risk out of drug development, shouldn't companies sell any resulting products at lower prices?

Collins, at least, doesn't see it that way. When asked exactly that question during his first press conference as NIH director, Collins responded by citing his experience when NIH briefly tried to enforce "reasonable pricing" terms under its technology transfer agreements. The effort came in the early 1990s, when Bristol-Myers Squibb licensed Taxol from the National Cancer Institute, and the combination of taxpayer funding for early development of the compound coupled with the need to source the drug from the rare Pacific Yew tree prompted Congress to demand that NIH talk with Bristol about the price of the drug.

NIH and Bristol came to terms, and Bristol still had a blockbuster product (arguably the first ever in oncology). But biopharma companies balked at that model, and the "reasonable pricing" clause disappeared.

Collins has no interest in bringing it back. "The debates about reasonable pricing clauses," he said, "made it very clear to me watching it that this was a third rail for the pharmaceutical and biotech companies. The idea of their being some kind of government intervention in terms of setting pricing for products that they had brought to market through clinical trials and FDA approval would make them very uninterested in approaching such a project in the first place."

"But I do think there is a model here that could achieve some of that in a way that would be more acceptable," Collins said. The goal will be "an arrangement where the compound is licensed, the company then takes it through clinical trials and FDA approval, but the license involves a royalty that would then return to the government to support research if in fact the product makes some money."

"So there you are not regulating the cost of the compound that the company is going to set, which seems to be the deal breaker, but you are engineering a system that allows some payback to the public for the public investment."

That formula is one that biopharma sponsors love--since it means not only that companies maintain pricing flexibility, but that NIH actually has a stake in the commercial success of their compound. And that support is all the more important in areas like rare disease, where small patient numbers make eye-popping prices common.

Francis Collins to Head Up NIH

Francis Collins will be named NIH Director, according to sources familiar with the process.

Picking Collins gives the Obama Administration someone with a long history at NIH to head the agency. The geneticist was director of the National Human Genome Research Institute until last year (he took over NHGRI in 1993). Along with Craig Venter, Collins was credited with helping to map the human genome in 2000.

After leaving NHGRI, Collins joined the Obama Transition Team with a focus on NIH. Collins has made news most recently by discussing the coexistence of science and religion; he is an Evangelical Christian.

Collins would replace current Acting NIH Director Raynard Kington and take over a $29 billion budget and 18,000 employees.

Collins, along with National Heart, Lung and Blood Institue Director Elizabeth Nabel, UCSF's Executive Dean for Research at the School of Medicine Keith Yamamoto, and Yale Geneticist Rick Lifton were all understood to be on the NIH shortlist.

While Collins appears by all accounts to be the choice, we caution that health care posts in particular have been subject to volatility. So things could change. (photo courtesy of National Geographic)

Psyched Out: Brown's Marty Keller to Step Down

Yet another prominent academic is being replaced as a psychiatry department chair and the move coincides with an investigation by the U.S. Senate Finance Committee into conflicts of interest. The latest resignation involves Brown University's Martin Keller, who will step aside at the end of June, according to a memo issued on Monday by Edward J. Wing, the dean of medicine and biological sciences at the Brown's Warren Alpert Medical School (here's the back story). He'll be replaced by Steven A. Rasmussen.

In recent months, Emory University's Charles Nemeroff stepped down as chair of his psychiatry department and Stanford University's Alan Schatzberg resigned as lead investigator of an NIH grant. (UPDATE: We neglected to note that Stanford is also searching for a new chair, although a Stanford spokesman say the two events are unrelated). What Nemeroff and Schatzberg have in common with Keller is a probe spearheaded by U.S. Senator Chuck Grassley, who is upset that some academics are simultaneously accepting pharma industry consulting fees and grants while also conducting NIH research into various meds sold by various drugmakers (see here).

Since 1995, an NIH regulation has required scientists to report to their universities any “significant financial interests” they hold in research projects financed by the agency. Those are defined as income or equity interest of $10,000 from a company or 5-percent ownership of its stock. The universities, in turn, are required to tell the NIH whether they were able to manage or eliminate the conflicts in order to avoid bias in the research findings. The probe has also pressured the NIH into making personnel changes (see here).

As for Keller, the Brown psychiatrist is a controversial figure for his role in studying Glaxo’s Paxil antidepressant. Why? He was the lead author of an infamous study published in 2001 in the Journal of the American Academy of Child and Adolescent Psychiatry that Paxil was “generally well tolerated and effective for major depression in adolescents.” The study was used to widely promote the pill, which became a huge seller, but was plagued by ghostwriting charges, and results were worse than imagined.

For the record, Brown made no mention of the Senate probe. And a Brown University spokesman maintains Keller submitted a letter in August 2007 in which he indicated plans to resign this year. In any event, Wing did write the following: "During Dr. Keller's tenure the department has been widely acknowledged as one of the top ten psychiatry departments in the country. It is currently one of the largest departments in the Division of Biology and Medicine in terms of full time faculty members as well as external funding. Please join me in thanking Dr. Keller for his many accomplishments and fine leadership as chair."

Yale's Rick Lifton: On the NIH Shortlist

I just tweeted this but for the people not on my twitter feed, Rick Lifton is being strongly considered as head of NIH. 

Lifton is Chairman of Genetics at Yale and a professor of molecular biophysics and biochemistry. So he's got that going for him (Caddyshack reference anyone?). He received his training from Brigham and Women's Hospital after getting his medical degree and PhD from Stanford. 

He says his research has focused on genes causing renal disease. 

Our understanding is that Francis Collins, NHLBI's Elizabeth Nabel and Lifton are on the NIH shortlist. We'll let you know when we hear more. 

Last Call: Novartis Gets Vaccine Bricks & Mortar Money

Novartis isn't taking any chances about missing the last call from the government's cash spigot for vaccine manufacturers.

The Swiss company collected the most recent installment of its $865 million in support from the US government before a potential change in attitude towards corporate subsidies by the Obama Administration.

Novartis collected the most recent, and biggest, chunk of that support ($486 million) on January 15, five days before the Obama Inauguration.

Significantly, the new piece includes bricks and mortar, just the kind of direct support to one company – especially a non-US one -- that is most threatened by the change of administration in Washington. Many observers expect the Obama Administration to channel more funds in health to paying for beneficiaries to receive health products and services rather than to support the companies that provide those products and services.

[Editor's note: The publishers of IN VIVO Blog, “The Pink Sheet" and The RPM Report will host a webinar Jan. 29 on the outlook for vaccine developers under the Obama Administration. Dack Dalrymple, Chris Colwell (McKenna Long & Aldridge) and Isabelle Claxton (GlaxoSmithKline) will analyze the prospects for the vaccine business in the next four years. For more information, visit: http://www.windhover.com/ezine/html/ac0109-2lp.htm.]

The January 15 Novartis grant is an eight-year commitment to help Novartis finish building and qualifying its Holly Springs, N.C. facility for the production of cell-culture flu vaccine (seasonal and pandemic/prepandemic). The new money is for “design, construction, validation and licensing.”

The company got $220 million from the Department of Health & Human Services in 2006 (before selecting Holly Springs as the manufacturing site) to begin developing a cell-based vaccine. Novartis says that the first round of funding “was not for the facility, land or building.” The $865 million also includes funding for development work on adjuvants and a chunk awarded to Chiron to help get its flu vaccine production back up to par just prior to the major Novartis purchase of Chiron to get into vaccines in a big way.

By collecting commitments for $865 million from the U.S. government over the last three-plus years, Novartis has successfully defrayed much of the cost of expanding into the vaccine business. The company paid $5.7 billion to buy the part of Chiron that it did not already own in early 2006. The grants do not obviously relate directly to the cost of the initial purchase; but as a marker of the size of support for the Swiss company’s engagement in the vaccine business, the US funding represents more than 15% of that initial investment.

Novartis indicates that commercial production from Holly Springs is more than three years away. “Construction activities will continue until late 2010,” the firm says. After than, “engineering and process validation will start,” continuing through 2011-2012. FDA clearance procedures will follow the process validation.

Holly Springs will eventually produce bulk prepandemic vaccine (vaccines designed against projected pandemic strains), the MF59 adjuvant to permit lower doses of antigen in the flu vaccines and other cell-based vaccine products. By the January 15 contract, Novartis is committed to provide two commercial-scale lots of prepandemic vaccine annually to HHS for at least three years.

The new funds will help pay for the regulatory clearance, which can be a significant cost. The Congressional Budget Office has recently estimated that the FDA approval process can add approximately 25% to the initial construction cost for a new vaccine plant.

CBO, in fact, analyzed the projected government and private spending to develop cell-based vaccine manufacturing in mid-September of last year. At that point, CBO reported that HHS was intending to spend up to $600 million to support the creation of new facilities for cell-based manufacturing – as opposed to the traditional egg-based production system. The Novartis contract does not leave much left (about $115 million ) from those estimated funds.

CBO noted that Novartis says that the total cost for Holly Springs will exceed $600 million. As we reported soon after the Chiron purchase, Novartis has said from the start that Holly Springs would cost between $600 million and $700 million. CBO says other vaccine industry sources have estimated that it should cost Novartis less (about $400 million). Novartis is indicating that the final cost could be well over $1 billion.

The other big participants in the flu vaccine expansion: primarily Sanofi-Pasteur, GlaxoSmithKline and Medimmune (AstraZeneca) have also been beneficiaries of HHS largesse. Sanofi and Medimmune have received respectively $77 million and $55 million to retrofit existing flu vaccine plants.

Novartis, however, claims that it will eventually contribute a larger share (60%) to the total cost of Holly Springs than other manufacturers have put into government-supported retrofit projects. Sanofi and Medimmune each put about 25% into the projects funded by the government. CBO said that companies should be expected to put more in for the development of new cell-based manufacturing facilities.

GSK is developing a site in Marietta, Pennsylvania purchased from Wyeth for increased flu and pandemic production in the US. GSK is nearing the stage to seek FDA approval for filling and packaging of vaccines for use in the US from antigens made overseas. GSK has been reluctant to accept much direct funding for construction for the vaccine production projects: people close to the GSK effort say that the restrictions inherent in government contracts reduce the value of the subsidy funds.

The Bush Administration has really created a new vaccine industry in short order by pumping in money, making use of the public concern for a potential pandemic. Now, the new producers are likely to lobby the new administration to make sure that the products from the new production capacity find an adequate market.

The Lucentis/Avastin Investigation: “The Story is Far From Over”

If you thought the battle over Lucentis and Avastin was confined to FDA, CMS and NIH, you’re wrong. Now Congress is jumping into the fray in significant fashion as is typically the case when the government feels they are overpaying for something.

On October 18, Senate Special Committee on Aging Chairman Herb Kohl (D-Wisc.) sent a letter to Acting CMS Administrator Kerry Weems asking why Medicare was paying a steep premium for Lucentis when the “chemically similar” cancer drug Avastin can be used off-label for age-related macular degeneration at a fraction of the cost.

The letter was in response to Genentech’s decision to cut off distribution of Avastin to compounding pharmacies, which are responsible for creating micro-doses of the drug that are tolerable in the eye. For more on Genentech's strategy, see this feature in the December RPM Report.

Kohl asked two questions of CMS: 1) How much has Medicare spent on the two drugs since 2005?; and 2) What measures has CMS taken to reduce expenditures on Lucentis, such as using Avastin?

Now things are starting to heat up. On November 7, 14 and 16, Kohl launched a formal investigation by sending two letters to FDA Commissioner Andrew von Eschenbach asking for all documents related to FDA field inspections and one letter to Genentech president of product development Susan Desmond-Hellmann, respectively. Kohl asked Genentech for essentially any document related to the Lucentis/Avastin dispute, from the company’s decision-making to meetings with FDA, NIH and CMS.

“We’re trying to figure out what really happened,” says one Senate staffer involved in the investigation. The committee is receiving “conflicting stories” from FDA, CMS, NIH, Genentech and the compounding pharmacies, the staffer says.

The Aging Committee has interviewed officials from Genentech and received documents from the government agencies. However, investigative staffers are still waiting for more evidence to come in.

The investigation is focused on several questions, according to the Senate staffer. First, “what happened during the FDA inspection” of Genentech’s San Francisco facility and the reason for the destruction of several lots of Avastin at the site.

Second, the staffer says, Genentech had agreed to take part in the National Eye Institute-sponsored head-to-head CATT study of Lucentis and Avastin if the design were changed to focus more specifically on safety and the trial was extended to allow for longer follow-up. “This summer, Genentech had a change of heart,” and the committee wants to know why the company changed its mind and chose not to participate in the trial and charge the government retail price for Lucentis.

Third, there was “initial concern” that Health & Human Services General Council Daniel Meron may have been unduly influenced to reject designating the CATT study a demonstration project in order for CMS to fund the trial. Then-Acting CMS Administrator Leslie Norwalk had approved the demonstration project.

The Office of the General Counsel justified its decision by saying it was obvious the demo project would improve the quality of the clinical trial and would benefit from having Medicare beneficiaries participate in it, therefore a demonstration project was not needed to prove it.

As a result of the CATT study delay, Kohl is developing legislation that gives CMS authority to waive co-pays for patients participating in government-funded clinical trials and comparative-effectiveness studies. Co-pays present a study design challenge because beneficiaries can be unblinded to what drug they are receiving because it represents a percentage of the total drug cost. In other words, the higher the co-pay, the more expensive the drug.

The Senate staffer says this type of situation occurs routinely with head-to-head studies but the CATT study is the “most egregious” example.

The Senate Special Committee on Aging will wait to receive more documents over the next several weeks, and after review, decide whether to hold an oversight hearing. “We have enough to hold a Q&A hearing right now, but we want to wait until we have all the documents,” the staffer says. “The story is far from over.”