DOTW: Fireworks

The long holiday weekend is upon us--a time for picnics, parades, and pyrotechnics. But before the industry's diehards decamped to beaches and backyards for obligatory BBQs and beer, a few companies made some fireworks of their own.

Abbott Labs, for instance, announced another $20 million investment in Ibis Biosciences, upping its stake in the company to 18.6%, Ibis parent firm Isis Pharmaceuticals said earlier in the week. Readers may recall that Abbott first inked a deal with Ibis back in January, presumably to beef up its diagnostics unit's ability to sell highly automated systems. Presumably Abbott isn't completely sold on the biotech's complicated technology--it has not, after all, yet purchased the company outright. (For more on Ibis and other players in the hospital infectious disease space, check out this June START-UP feature.)

Newsflash! It's a new day at Celera Diagnostics (seriously!). On July 1, the molecular diagnostics player officially cut ties with Applera Corp. and "emerged as an independent company with highly energized employees and its own Board of Directors, all focused on building a strong future." Not too surprising given Invitrogen's recent take-out of Applied Biosystems, Celera's sister company under the Applera moniker.

Not to be outdone, the FDA's Endocrine & Metabolic Drugs Advisory Committee also launched some rockets, but they aren't captivating the industry. On July 2, regulatory advisors voted 14-2 that all new diabetes drugs should undergo longer studies to ensure they don't increase risks of heart problems. benefit. According to panel member and physician Jessica W. Henderson "Showing cardiovascular benefit would be nice to know. But ruling out cardiovascular risk is a need-to-know." The news has already proved troublesome for both Amylin and Novo Nordisk. The share prices of both companies unsurprisingly dropped on the news.

And now a few sparklers to get your weekend started off right...

Shire/Jerini: This week’s late entry into DOTW is an IN VIVO Blog nominee for the "How to Bury Interesting Deal News Immediately Prior to a Holiday Weekend Award". On Thursday morning Shire announced its €328 million acquisition of the German biotech Jerini AG. The deal is certainly creating some fireworks: Price-wise, it’s a doozy. (As loyal subjects of King George, er...sorry, Queen Elizabeth, perhaps Shire didn't recognize the unfortuitous timing of the announcement. Our country's own birthday party--and the hope of alcohol--allows us to overlook such a blatant example of nationalism in the spirit of transatlantic unity. Analysis forthwith.)

Jerini had been for sale for some time—Reuters reported a month ago that the biotech had retained Credit Suisse to explore strategic alternatives, which predictably boosted its share price. But the eventual takeout price, €6.25 per share, is still a significant jump over Jerini’s close yesterday of €3.65, and a 199% premium over the stock’s average price in the past three months. The deal gets Shire worldwide rights to Jerini’s orphan hereditary angioedema product Firazyr (icatibant), a peptidomimetic bradykinin B2 receptor antagonist, which should be launched in Europe later this year. Approvals elsewhere around the globe, including in the US where the drug has hit a regulatory hurdle, are further behind. Shire CEO Angus Russell said on a conference call this morning that non-core assets, such as Jerini’s ophthalmology business, could be spun out or sold.

Icatibant is an unlikely deal driver at least in the sense that Jerini had already sold off rights to the product in the US, in a November 2005 pact with Kos Pharmaceuticals. And when Abbott bought Kos in late 2006, a subsequent portfolio review determined icatibant wasn’t a good fit; the candidate was returned to Jerini in September 2007. Adding injury to insult, earlier this year FDA slapped the drug candidate with a Not Approvable Letter, prompting the company’s sale exploration. Meanwhile the well-documented Genzymification of Shire continues, and clearly the specialty pharma feels it can help reverse the fortunes of icatibant in the US.

AstraZeneca/Cubist: Cubist, with extra room in its anti-infectives product bag, has taken on AstraZeneca’s broad spectrum Merrem IV (meropenem for injection) antibiotic in the US, the companies said Wednesday. AZ’s 2007 sales of the drug were nearly $150 million. The Big Pharma will continue to provide marketing support for the drug while enlisting Cubist to boost sales. Cubist already markets Cubicin, an IV antibiotic for gram-positive infections, with its specialist acute care sales force. Financial terms of the deal were mostly undisclosed, other than Cubist will see a “baseline” of $20 million in annual revenue adjustable upward depending on Merrem sales.

Bayer/Maxygen: Also Wednesday, Maxygen announced some welcome news. The Redwood City, CA biotech is selling its hemophilia treatment program to Bayer for $90 million, plus up to $30 million in future milestone payments. The upfront payment is much needed money in Maxygen's bank account and totals more than the company's revenue for the last several years combined. Michael Kind, an analyst with Rodman and Renshaw called the deal "substantial" in a note to investors, considering the bioech's market cap was just over $130 million. For its largesse, Bayer gains access to the biotech's lead drug candidate, MAXY-VII, a next generation Factor VIIa protein for hemophilia widely expected to move to early stage clinical trials in the third quarter of 2008. Bayer, of course, is no stranger to the hemophilia space. It already markets the Factor VIII product, Kogenate. Still the move comes as competition increases in the hemophilia treatment space, likely driven by pharma's desires to deepen its exposure to so-called specialty areas. In February, Wyeth won FDA approval for Xyntha, its own recombinant Factor VIII product; in May, Novo Nordisk also got a thumb's up from regulators for its NovoSeven RT, a new formulation of Factor VIIa protein that can be stored at room temperature for up to two years.

Pfizer/RaQualia and Pfizer/NovaMed Pharmaceuticals: Pfizer made big news in Asia this week, announcing two different deals that suggest change is afoot at the beleaguered giant. As we wrote in detail here, the pharma announced it will spin off some of its Nagoya, Japan research site into a venture-backed start-up, called RaQualia, seeding the 70-person company with with six drug discovery programs, six development programs and three products approved in the US -- Geodon, Zeven and Eraxis. In addition, the company also announced a tie-up with NovaMed Pharmaceuticals, a start-up with operations in both the US and China that has become expert in China's byzantine pharmaceutical sales and distribution network. Under the agreement, which has already come into force, NovaMed will serve as the drug giant's sole distribution and promotion partner throughout mainland China for six of its oncology products--Adriamycin, Daunoblastina, Leucovorin, Methotrexate, Estracyt and Farlutal. The deal is the first of its kind for Pfizer China's oncology portfolio. (Back in September 2007, NovaMed inked a similar deal with Baxter China for three of its oncology products--Holoxan, Mesna and Endoxan.) For more on NovaMed and its strategy, check out this START-UP feature from February.

ThermoFisher/Open Biosystems: Along with induced pluripotent stem cells and genome-wide association studies, RNA interference got top billing in a gee-whiz article about transformative biotechnologies in the Financial Times on Wednesday. The behemoth in research grade instrumentation and analytics, ThermoFisher Scientific, certainly believes so. On Tuesday July 1, the company announced it was acquiring Open Biosystems, which makes a variety of molecular tools for the research market, including analytics for RNAi. ThermoFisher didn’t disclose how much it paid to acquire Open Biosystems, but tools based companies have been commanding a healthy premium as bigger companies race to lock up assets, especially in areas related to the lucrative molecular diagnostics arena. (Recall that Invitrogen spent nearly $7 billion for Applied Biosystems; Hologic ponied up more than half a billion for Third Wave; and Gen-Probe launched a hostile bid for Danish player Innogenetics. And that was just June.) The biobucks were probably quite a bit less for privately held, Huntsville, Alabama-based Open Biosystems, which had just $14 million in revenue last year. Open Biosystems developed its genomic tool kit through a collaboration with researchers at Cold Spring Harbor Labs and Harvard University, and prides itself on a business model built "on a collaborative spirit...inspired by the success of the open source movement in software." It's likely that openness will disappear given that the company will immediately be folded into Thermo Fisher’s Analytical Technologies business unit.

P&G/ARYx: Burying bad news just before the holiday weekend, ARYx revealed late Wednesday afternoon that its pact with P&G had come to an abrupt end. P&G utilized a one-time thirty day cancellation option to end the collaboration, which covered the late stage development and commercialization of that biotech's ATI-7505, currently in Phase II trials for chronic constipation and functional dyspepsia. Under the terms of the intial 2006 tie-up, ARYx received an up-front of $25 millon and development, regulatory, and commercialization milestones of up to $391 million. But one of the stipulations of the deal was that the ARYx had to complete a Thorough QT (TQT) study showing that ATI-7505 didn't cause the same heart rhythm irregularities that forced Janssen Pharmaceutica to pull its blockbuster 5HT4 agonist, Propulsid, back in 2000. ARYx's publication of it TQT results, which also came yesterday, would have triggered a Tier 1, or highest, milestone payment from P&G based on the original deal terms. Despite the fact that ARYx's TQT study met its primary endpoints, P&G decided to exercise its get-out clause and returned all rights to the drug to the biotech. Dr. Paul Goddard, ARYx's CEO, remained stoic in face of adversity, promising investors that the drug will move forward into late-stage development once it's in the hands of a new partner. "This decision by P&G does not in any way diminish our confidence in ATI-7505," he said in a press release.

(DOTW is a team effort. This week's write-up includes contributions from Chris Morrison and Roger Longman.)

(Picture courtesy of Flickr user Barry Yanowitz through a creative commons license.)

The Downsizing Opportunity: Pipeline on the Cheap?

The IN VIVO Blog was in Michigan last week, attending a profiting-from-downsizing symposium.

Would Pfizer—we wondered at the Michigan Growth Capital Symposium--use its pull-out from the state (and the near-term freedom of some 2350 full-time Michigan-based Pfizer employees) as a way of pursuing an alternative research strategy—an experiment in externalization?

The venture world is all over Pfizer right now, looking for preclinical and clinical programs. And they’d particularly love ones that come wrapped with some of their key scientific supporters. Theoretically, we reasoned, the Michigan shut down could allow Pfizer to at least keep some of these researchers tied to the mother ship by letting them – on the VCs’ dime – take ownership of programs Pfizer will be shelving. Meanwhile, Pfizer would get equity and some kind of option on the programs, should they prove interesting to its marketers. If uninteresting to them, the program still might prove commercially worthwhile, giving Pfizer a nice equity upside.

But from the discussions in Michigan, and subsequent chats with VCs, it’s increasingly clear that Pfizer—despite an ongoing program to study how it should go about out-licensing or spinning off internal assets—isn’t moving fast enough. Its best Michigan-based researchers will soon be working for other companies, including Pfizer competitors. And when they're gone so will be the best conduits to, and conductors of, Pfizer's unwanted research programs.

Not that Pfizer is uninterested in venture opportunities that provide it relatively low-cost access to interesting programs. But if our Pfincubator post is to be believed, Pfizer would prefer to win cheap access to programs it didn’t create. That seems to be the intention behind its San Diego venture idea, in which Pfizer swaps infrastructure and capital for a start-up’s equity and options on its research output.

Success of that program seems just a bit more likely than an experiment at Novartis. Its pharma division’s option fund aims to co-invest with other venture funds but get, along with its equity, an option on its investee’s product. Since most VCs we know aren’t in the habit of giving co-investors in a round a better deal than they get (in this case, Novartis would get equity at the VC price plus the option), we don’t think this arrangement will get much traction. We’re likewise skeptical that VCs backing the start-ups Pfizer hopes to woo to its San Diego facilities will be particularly happy about ceding product rights for cheap space and some cash. We’ll be happy to be proven wrong.

Indeed, neither the Pfizer nor the Novartis venture adventure leverages its parent’s real differentiable assets—de-prioritized research programs. And it is only with that kind of unique asset (money and space are commodities) that a drug company can create the opportunity to get both equity appreciation and pipeline help. Novartis in particular should understand the value here: its only major recent primary care launch, Tekturna, came about because a small, privately held company, Speedel, created a product out of a de-prioritized Novartis program—on which Novartis had kept an option.

Pfizer and Novartis aren’t alone in their unwillingness to let start-ups take over assets on their shelves. Most companies won’t. Pulling together all the relevant information is expensive, invasive, and potentially competitive. It actually took the shutdown of all of its early-stage research efforts for Procter & Gamble Pharmaceuticals to try to monetize some of its unrealized value. It’s getting equity in a new Cincinnati-based spin-out, Akebia Therapeutics, which is developing two ex-P&G programs: an angiogenesis promoter (initial target: peripheral artery disease) and a Fibrogen-like EPO inducer. P&G also out-licensed two other programs—one for heart failure and one for atrial fibrillation, but these went to established companies, one large, one small.

But that doesn’t mean pharma shouldn’t do it – at least as an experiment in an alternative research strategy. Roche is the leader here—in deals, for example, with new companies, like Synosia and Amira, based around Roche IP. Lilly has certainly done plenty of out-licensing to already existing companies, like Vicuron and Cubist, but its recent deal with Versant Ventures to exploit its Chorus development division is a big step in the start-up direction.

The real question is whether more pharmas will begin to take advantage of the enormous opportunity to experiment with virtualized R&D – at very little cost to themselves. With the retirement of Pfizer's R&D chief and its most senior opponent of out-licensing, John LaMattina, it's likely that Pfizer will reassess the strategy it's so far pursued. In that reassessment, they'll soon realize that if they don’t provide some of the key research assets, they can’t hope to get low-cost options on what the start-ups do with them.

Can P&G Stomach the Risk Even When It's Reduced?

P&G Pharmaceuticals has been the Henny Youngman Rodney Dangerfield! of the drug industry: it couldn't get no respect. And so last year it remade itself, becoming what it calls a “search and development organization,” apparently on the model of Shire and Endo.

When it announced it was abandoning discovery, in February 2006, P&G was both admitting it couldn’t compete in research—and that it couldn’t stomach the risk. It laid off, or transferred, most of its researchers; it has spun off at least three research programs (more on that in another post); and now it’s got 45 people scouring the earth for licensable products in its chosen therapeutic areas: gastro-intestinal, musculo-skeletal and women’s health. Two key criteria: P&G only want drugs for patients that have “high involvement in their disease”; and they want products for which the development risk is “reduced.”

They’ve got some ambitious goals. To reach their growth targets, they want to launch one new product every 4-5 years – and that drug needs to become – echoing Jack Welch’s famous maxim for GE—number one or two in its category. To get to their launch target, P&G figures it will need to do 2-3 deals per year.

The question, however, is whether the kind of products that get to be #1 in their categories are also the kind of products that P&G management will be willing to pay for. It’s a challenge, admits Jeff Davis, who runs new business development. P&G has a shareholder base which demands 4-6% growth a year—that’s the kind of growth that justifies not reduced-risk research, but no-risk research, the sort that figures out how to get more or less pulp into orange juice or no-drip caps onto detergent bottles.

Moreover, while Big Pharma isn’t generally ponying up for reduced-risk development projects (in general, they still want NMEs), spec pharma is, and paying Big Pharma-sized upfronts. But P&G figures it can win these deals by emphasizing its consumer-focused marketing approach (it had an entire team of R&D, finance and marketing execs outfitted with an electronic system that, for a week, at all times of day, signaled them to react to the unpleasant gastrointestinal events of ulcerative colitis patients). And if—as this blogger believes--spec pharmas are going to be P&G’s biggest dealmaking competition, then P&G really will have an interesting advantage.

The pitch worked for Aryx Therapeutics, one of two companies with whom P&G has signed deals since its reorganization (the other is Nastech, for nasal-delivered parathyroid hormone). The Aryx drug, for GERD and gastroparesis, hit all the P&G criteria: a GI product (for GERD and gastroparesis) and risk-reduced (works like Propulsid but, apparently, avoids the drug-drug interactions which killed it). “We had three virtually identical term sheets,” says Aryx VP and COO John Varian but chose P&G because of their “focus on the consumer.”

Still, P&G is hardly burning up the dealmaking track. They’ve done two deals since their restructuring—the last in July 2006. Davis is confident that in ’07 his group will be able to get to terms sheets on 2-3 programs. There are plenty of biotechs who'll appreciate the P&G approach. But we wonder whether the Consumer King will tolerate the risk of signing them.