Deals Of The Week: Clinical Failures Result From Predictable Business Development Strategy

Wall Street analyst Raghuram Selveraju likens today’s drug-development landscape to the changes seen in men’s professional tennis between the era of Bjorn Borg and John McEnroe and the completely different game played today by the likes of Roger Federer and Novak Djokovic. In today’s tennis, the ball is hit much harder and yet at the same time there is almost no margin for error. Likewise, he says, in drug-development today, companies must navigate tougher regulatory requirements for both efficacy and safety.

“The margin for error is razor thin and if you miss it, you lose big time. Aspirin would not get approved at the FDA in today’s atmosphere,” said Selveraju, managing director and head of health care equity research at Aegis Capital.

His comments reflected the news of Oct. 18 of yet another big pharma/biotech collaboration undone by devastating results in the clinic, the latest being Reata Pharmaceuticals’ termination of its Phase III trial for bardoxolone in chronic kidney disease due to excess serious adverse events and mortality in the study-drug arm. Abbott Laboratories had paid $450 million upfront in 2010 for ex-U.S. rights to bardoxolone, with another $350 million possible in milestones and royalties, and then doubled-down in 2011 by partnering with Reata on second-generation antioxidant inflammation modulators.

Abbott hardly is alone, though, in seeing a major investment in early- or mid-stage biotech science blow up in its face in recent months. In August, Bristol-Myers Squibb had to pull the plug on hepatitis C candidate BMS-986094 due to cardiotoxicity, just months after acquiring the Phase II nucleoside polymerase inhibitor by buying out the company that discovered and initially developed it, Inhibitex, for $2.5 billion.

In January, one of the most-celebrated of big pharma/biotech tie-ups died in the clinic as Pfizer finally gave up on Medivation's Alzheimer’s disease candidate Dimebon (latrepirdine) following several failed attempts to demonstrate efficacy. Then, in March, Merck accepted failure in a $60 million investment in Cardiome Pharma’s oral anti-arrhythmic drug vernakalant in March, saying the regulatory hurdles were just too high. In May, Roche ceased development of dalcetrapib, in-licensed from Japan Tobacco for dyslipidemia, due to lack of significant efficacy data.

And in March, AstraZeneca announced its latest setback in a long collaboration with Targacept around neuronal nicotinic receptors, saying it no longer would investigate TC-5214 for major depressive disorder. That news followed a 2011 decision by AstraZeneca to opt out of a partnership with Targacept around TC-5619 in schizophrenia, which itself followed a 2010 decision to drop an attention deficit/hyperactivity disorder compound, AZD1446, on which the two firms were partnered.

On the surface, it is difficult to find a common thread in these thwarted transactions – as Selveraju pointed out, some of the drugs failed due to safety implications, others due to insufficient efficacy. “What all of these deals had in common was the desperation of big pharma, because its R&D productivity has been dropping and we’ve known that for a long time,” he said.

That desperation leads to the repetition of familiar mistakes which derive from the predictable thinking of too many business development executives at big pharma, Selveraju opined. First, when looking for licensing opportunities, pharmas very often seek out their comfort zone – a potential product for which they can deploy an existing sales force or promote to doctors they already know and communicate with. Also, to be confident in an experimental drug’s preclinical and clinical data, pharmas often want to go into areas where their competitors also have a compound as well as into validated targets.

“Basically, they’re a bunch of lemmings,” Selveraju said. “As soon as a target becomes hot, they all have to have a molecule in that space, hitting that target. We’ve seen that multiple times: with the DPP4 inhibitors, the statins, the S1P inhibitors now, the nucs in hepatitis C.” Bristol paid $2.5 billion for Inhibitex and its nuc in part because months before Gilead had paid $11 billion for Pharmasset and its promising, mid-stage nuc.

“Bristol felt at the time that it could afford to pay a high price for the Inhibitex molecule because this was a validated mechanism of action,” Selveraju said. “What was the real risk that it was taking? All Bristol had to do was what Pharmasset did; Pharmasset wrote the blueprint for them, and they’re home and dry. I’m pretty sure Lamberto Andreotti knew that he was overpaying for Inhibitex but he went ahead and did it anyway, because Bristol thought it was money in the bank. That’s the problem with the way that big pharma does licensing; it only goes after things that it thinks are money in the bank.”

And it’s just not that easy, at least not today. The low-hanging fruit largely has been picked – there is no preponderance of easy-to-hit, druggable targets available to business development groups, Selveraju explained. Faced instead with a panoply of more difficult to address therapeutic indications, business development officials often must make decisions based on incomplete data and at the same time pay out huge premiums because of the competition with other companies to find “the next big thing.”

“Big pharma chases targets and it chases indications,” he said. “That’s what leads to these deals with outsized valuations and to the disappointingly high failure rate. If big pharma were to take a more pragmatic approach, a more rational approach, then we might not be seeing so many of these failures and we’d certainly be seeing more judiciously priced deals.”

What then is Selveraju’s prescription for better business development practices? It might disappoint those who want pharma to be in the vanguard of innovation. He recommends incremental innovation – using FDA’s 505b2 pathway to develop products with already defined efficacy and safety – as well as biosimilars and re-purposing. Pharma also should focus on niche and specialty indications, and largely eliminate primary care products and the large commercial operations that come with them.

That may be an unappealing remedy for many, but given the spate of recent blow-ups in pharma/biotech deal-making, something needs to change. Right?

In the meantime, the deal-making continues, so we bring you ...

BioCryst/Presidio: BioCryst announced Oct. 18 that it intends to merge with privately held Presidio Pharmaceuticals to create a new company that will be focused on the development of an all-oral hepatitis C treatment. The all-stock transaction, which values Presidio at $101 million, is expected to close in the first quarter of 2013. Closing is contingent upon a $60 million financing, $25 million of which Presidio shareholders already are committed to contractually. The new company will shift its focus to three early-stage HCV drugs – PPI-668, a Phase II-ready NS5A inhibitor; PPI-338, a preclinical pan-genotypic non-nucleoside polymerase inhibitor; and BCX5191, a nucleoside analog. PPI-338 is expected to begin clinical trials in the first quarter and BCX5191 will begin human trials before the end of 2012. BioCryst/Presidio’s biggest advantage at this point – considering how far behind the competition the company is – is its wholly-owned pipeline; possessing three drugs that activate different targets and could potentially could be used in combination gives the company a leg up. This allows the company to test the drugs in various combinations. “Having the ability to do these [combination] studies creates greater value than out-licensing our new nuc after, say, Phase Ib. That was really the rationale for doing this,” said BioCryst CEO Jon Stonehouse. – Lisa LaMotta

Merck/AiCuris: Antiviral startup AiCuris GMBH got its first big pharma partner – and €110 million upfront ($143.5 million) – in a deal with Merck for a portfolio of treatments for human cytomegalovirus, in a deal announced Oct. 15. The deal includes worldwide rights to AiCuris’ lead drug letermovir, which is ready to move into Phase III clinical trials in transplant patients. In addition, Merck gains rights to develop and commercialize a backup candidate and other Phase I assets that work through an alternate mechanism in exchange for the upfront and €332.5 million ($433.7 million) in development, regulatory and commercial milestones. Now AiCuris – a German drug developer spun out from Bayer in 2006 – is focused on finding another development partner for its other late-stage asset, a nucleoside analogue AIC316 for the treatment of the herpes simplex virus. The company is currently seeking a partner for AIC316, which has also completed Phase II testing, according to CEO Helga Rübsamen-Schaeff. The company plans to use the cash from the Merck collaboration to push forward one of the earlier-stage projects; it has earlier stage projects in development for hepatitis B infection, HIV and bacterial infections. For Merck, letermovir and the other HCMV molecules will complement the big pharma’s existing antiviral portfolio, which includes drugs like Isentress for HIV and Victrelis for hepatitis C. The deal marks Merck’s second recent infectious disease collaboration. In July, Merck partnered with Chimerix on a Phase I HIV asset, CMX157, paying $17.5 million upfront for worldwide rights 14120724001. – Jessica Merrill

Kite Pharma/National Cancer Institute: Kite Pharma will enhance its pipeline significantly under an arrangement with the National Cancer Institute in which it will provide R&D funding for novel engineered peripheral blood autologous T cell (eACT) therapeutics for a variety of oncologic indications. The Cooperative Research and Development Agreement (CRADA) announced Oct. 16 also gives Kite an exclusive option to license any or all candidates resulting from the tie-up. Based in Los Angeles, Kite raised a $15 million Series A in 2011 from a 40-investor syndicate including TPG Capital founder David Bonderman. Its initial program was a virus-based alpha fetoprotein (AFP) vaccine to fight against hepatocellular carcinomas that express AFP. NCI partially funded that program. No financial terms related to the CRADA were disclosed, although Kite CEO Aya Jakobovits explained that licensing agreements will be written as needed for the programs her firm might option. The work centers on candidates, some already in the clinic, discovered and developed by NCI using its proprietary tumor-specific T Cell Receptors (TCRs) and Chimeric Antigen Receptors (CARs). Through its surgery branch, NCI already has advanced some of these programs into single-site trials in patients with hematological and solid tumors. Early clinical evidence has shown that patients’ peripheral blood T cells engineered with TCRs or CARs and then administered as an intravenous infusion can recognize tumor-specific molecules that will enable them to traffic directly to tumor sites, become activated upon engagement with the tumor antigen and then selectively kill the tumors, Kite says. – Joseph Haas

Amdipharm Group/Cinven: Two months after buying another U.K.-based specialty company, Mercury Pharma Group, the European private equity company Cinven has acquired the Patel family-owned niche pharmaceuticals business Amdipharm for £367 million ($593.3 million). Buyout specialist Cinven said in August that its strategy was to consolidate the specialty pharmaceuticals sector, and after the Amdipharm acquisition it is continuing to hint at more international acquisitions to come. Amdipharm was founded in 2002 by brothers Vijay and Bhikhu Patel, to acquire medicines from research-based pharmaceutical companies, particularly medicines for niche indications and patients, both branded and generics. It has annual revenues of more than £110 million, and the founders will retain a significant minority stake in the business after it is combined with Mercury. Amdipharm's business is international, with products sold in more than 60 countries, while Mercury is more U.K.-focused. The brothers founded in 1984 the U.K.-based pharmaceutical distributor and importer Waymade Healthcare PLC and are active in generics through the generics marketer Sovereign Medical. – John Davis

AstraZeneca/Charles River: AstraZeneca has tapped yet another outsourcing partner to conduct in depth research, most recently choosing Massachusetts-based Charles River Laboratories to provide it with safety assessment and development drug metabolism and pharmacokinetics testing. The British drug maker on Oct 17 said it chose the U.S. CRO as its preferred strategy partner, raising their previous ad hoc relationship to another level. The news comes hard on the heels of AstraZeneca’s discovery partnership with Chinese CRO Pharmaron Beijing. Charles River was selected from a shortlist of competitors who tendered for the role, which will see it and AstraZeneca work closely as partners and allow the CRO to intimately understand the pure pharma group’s portfolio. The current plan is to work together on small-molecules. But both hope that their arrangement can expand into large-molecules involving AZ’s U.S.-based biologics arm, leading to eventual partnering in promising discovery areas that AZ wants to outsource under its new R&D regime. Charles River’s Chief Science Officer Nancy Gillett says that hopefully would come from both sides working together and understanding AstraZeneca’s preferences, formats and reporting times and trust-building. AstraZeneca will be committing at least 10 scientists. Most of the work will be conducted in AstraZeneca’s R&D site in Edinburgh, Scotland, while several Charles River sites will be used in the U.S. Gillett said the partnership as currently outlined will involve at least 100 researchers at Charles River and probably more as time passes. Charles River currently has another larger-scale partnership with an as-yet unidentified big pharma company which extended an in vivo pharmacology collaboration into an in vivo biology partnership. Charles River has relationships with most big pharma companies but the AstraZeneca relationship will be unique for the CRO. It will have a six-person steering committee and a multi-layered governance structure from the bottom up that aims to improve the partnership over time. James Lynch, vice president of global drug metabolism & pharmacokinetics at AstraZeneca, said the deal is all part of trying to simplify its supplier base, in this case bundling most of what it had outsourced in the toxicology and DKMP space. He said the difference between the Pharmaron deal and that with Charles River is that with the Chinese CRO, AstraZeneca effectively is buying a capacity which will have AstraZeneca-dedicated scientists there who will work exclusively on AstraZeneca chemistry and drug metabolism screening for the British-based company. The Charles River partnership’s preclinical work will be later in the value chain and in the research and development process, focusing on early development through to late development to make use of Charles River’s width and breadth of science in a scalable manner, depending on individual program requirements. The three-year agreement extends into 2015. AstraZeneca began the process of transferring programs to Charles River earlier this year. AstraZeneca’s latest partnering arrangement is another example of pharma’s changing working paradigm, in response to its need to improve efficiencies, maximize resources while raising productivity and also be able to make fast decisions around its portfolios. This trend allows global CROs such as Charles River to get involved, offer capabilities to come in and take control of portions of portfolios, freeing up big pharma scientists who then can focus more on discovery and science decision-making as they progress compounds into development. – Sten Stovall

Merck/Theravance: Merck inked a deal Oct. 19 with San Francisco-based Theravance for the discovery, development and commercialization of treatments for hypertension and heart failure. Merck will pay Theravance $5 million upfront, as well as research funding. Under the deal, Theravance also could earn $148 million in milestone payments for the first indication as well as royalties. The deal is the second in as many weeks for Theravance. It just granted Alfa Wassermann an option to its gastrointestinal motility disorder compound velusetrag. Theravance also maintains an ongoing relationship with GlaxoSmithKline for the development and commercialization of respiratory disease therapeutics. Merck has said over the last year that it has plans to maintain its presence in the cardiovascular space despite many of its competitors pulling out of the area. Yet, the pharma announced in August that it had made the decision to put one of the key cardiovascular drugs in its pipeline, MK-0524B, on hold indefinitely. MK-0524B was a combination of the investigational drug Tredaptive (long-acting niacin/laropiprant), aka MK-0524A, and Merck’s blockbuster simvastatin (Zocor), which went off patent in 2006. The combination was meant to lower the amount of fatty substances in the blood like LDL cholesterol and boost HDL cholesterol. It no longer will be put forth for FDA approval in 2014 as Merck had intended. – LL
Photo credit: Wikimedia Commons

Deals of the Week Sets Sail For The Galapagos

Abbott is readying for two major steps in its evolution. Most prominently, it’s preparing to split its pharma division from its diversified medical products business this year, creating two public companies from one. But it’s also preparing for December 2016, when its best-selling drug loses patent protection. Abbott’s injectable Humira (adalimumab) for rheumatoid arthritis and other autoimmune diseases is currently among the world’s top sellers, with $7.9 billion in 2011 sales, representing more than 46% of Abbott’s global sales of proprietary drugs. With less than five years’ time left on the clock, not to mention a looming threat of competition from oral drugs or lower-priced alternatives, Abbott is already looking for a successor.

With that evolution in mind, Abbott made like the HMS Beagle and set sail for the Galapagos this week – specificially Galapagos NV of Belgium, where among the tortoises and finches lay the crown jewel GLPG0634, a selective JAK1 inhibitor that’s already shown promising data in a Phase IIa study in rheumatoid arthritis, and is expected to enter a Phase IIb dose-range-finding study soon. In an extremely rich deal for a mid-stage candidate, Abbott paid $150 million up-front to claim worldwide rights to the drug, and will pay a second $200 million licensing fee if the Phase IIb study yields data that satisfy a set of pre-determined but undisclosed criteria. Additional milestone payments could add $1 billion more to the deal, while Abbott remains on the hook for double-digit royalty payments if GLPG0634 is ever commercialized.

For Abbott, it’s a way to make doubly sure that its autoimmune franchise is extended. Last summer, the company paid $85 million up-front to license German biotech Biotest’s BT-061, a Phase II antibody that binds to the CD4 protein and slows overreactions of the immune system. That gives it two potential successors to the same blockbuster drug, providing insurance that its sales force will have something else to sell once Humira begins to fade. And it gives Abbott another promising molecule to talk up on its current road shows, in anticipation of the looming split and the public offering that will accompany it.

It’s also just the latest in a series of deals in which Abbott has outbid and outspent its peers for assets that still carry plenty of risk. The company has twice paid Reata Pharmaceuticals top dollar for its compounds, buying ex-U.S. rights to chronic kidney disease treatment bardoxolone for $450 million in 2010 and nabbing a group of pre-clinical antioxidant inflammation modulators for $400 million late last year. If it’s going to be an independent company, Abbott’s pharma division would do well to be better-balanced, with a diverse group of revenue-generating products. Without the diversified medical products business to balance things out, its weaker quarters on the pharma side may be all the more obvious – and damaging.

That’s one reason why Galapagos’s drug seemed like a natural selection for Abbott and why we hope you’ll join us on another pun-filled voyage of…

GlaxoSmithKline/Angiochem: In the latest of a series of rare disease deals, GlaxoSmithKline has forged a collaboration with Montreal, Canada-based Angiochem to develop drugs that cross the blood-brain barrier (BBB) to treat patients with lysosomal storage diseases like Tay-Sachs disease and Fabry disease. Currently marketed enzyme replacement therapies for lysosomal storage diseases do not cross the BBB, and so do not ameliorate neurological symptoms. Angiochem is able to engineer enzymes so that they bind to the LRP (lipoprotein-receptor-related protein-1) receptor in brain tissue and are transported into the CNS. Angiochem is eligible to receive up to $31.5 million in upfront cash, research funding and other fees for one undisclosed enzyme product, although it could receive more than $300 million if GSK exercises certain rights to other compounds and pays sales-related royalties. GSK set up a rare diseases business unit in 2010, and has since then forged deals with the likes of U.S. biotech Amicus Therapeutics for its Phase III Fabry disease therapy, Amigal (migalastat), and with Dutch company Prosensa for PRO-051, its Phase III potential Duchenne muscular dystrophy therapy. – John Davis 

Dainippon Sumitomo/Boston Biomedical: Japanese pharma Dainippon Sumitomo is bolstering its U.S. presence, with a focus on oncology through the acquisition of private U.S. biotech Boston Biomedical, announced Feb. 29. In a back-end loaded deal, Dainippon will buy Boston Biomedical for $200 million upfront and an additional $540 million in development milestones and $1.89 billion in sales milestones if net sales reach $4 billion. In exchange, Dainippon will gain two potential first-in-class drugs targeting cancer stem cells and a drug discovery platform. BBI608 is expected to begin Phase III clinical testing later this year for colorectal cancer and BBI503 is in Phase I/II testing in multiple solid tumors. But Dainippon also gains a new oncology research center; the company said it plans to maintain the BBI headquarters in Norwood, Mass. as an oncology R&D base in the U.S. Its North American business, which operates under the subsidiary Sunovion Pharmaceuticals Inc., sells Latuda (lurasidone) for schizophrenia and drugs it gained through the 2009 acquisition of Sepracor: the sleep aid Lunesta (eszlopiclone), Xopenex (levalbuterol) for asthma, Brovana (arformoterol) for chronic obstructive pulmonary disease and Omnaris for allergies.The company’s primary focus in North America has been on the atypical antipsychotic Latuda, which launched in the U.S. about a year ago. Dainippon formed a global oncology business development office in June 2011 to spearhead efforts to enter the oncology drug development space. The company was already familiar with BBI, however; the two have been partners since March 2011 when Dainippon acquired Japanese rights to BBI608 for $15 million upfront. – Jessica Merrill

Avanir/Concert: Avanir, which brought a light-selling dextromethorphan formulation to market in 2010, is making a deeper plunge into developing drugs based on that active ingredient, as the Aliso Viejo, Calif.-based biotech in-licensed multiple deuterium-modified dextromethorphan (d-DM) compounds from Concert Pharmaceuticals on Feb. 29. The deal included an undisclosed up-front payment to Concert, which also can earn research, development and commercialization milestones of up to $200 million and sales royalties starting in the single digits and potentially increasing to the low double-digits if one or more of the compounds reaches market. Concert uses its DCE Platform (Deuterated Chemical Entity Platform) to alter existing therapeutic compounds to improve their plasma exposure, among other benefits. Avanir plans to develop the d-DM molecules in undisclosed neurological and psychiatric indications – it will assume all development responsibilities, while Concert will provide manufacturing support for IND-enabling studies. Previously, Concert brought in an $18.3 million upfront payment and a $16.7 million equity investment from GlaxoSmithKline in a 2009 deal giving GSK options to several DCE-modified compounds. In 2011, the companies chose CTP298, a deuterium-modified version of HIV drug atanazir, for further development. To date, Concert has earned at least $16 million in milestones under the GSK collaboration. Avanir obtained FDA approval of Neudexta (dextromethorphan hydrobromide 20 mg/quinidine sulfate 10 mg) for pseudobulbar effect in 2010 – the company thinks d-DM compounds could be therapeutically effective without the addition of an enzyme inhibitor like quinidine.—Joseph Haas

Nektar/Royalty Pharma: Risk-free cash now, or potential for risk-bearing cash later? Nektar Therapeutics opted to take the lump sum this week when it sold two royalty streams for previously out-licensed drugs to Royalty Pharma, a firm designed for such transactions. The deals netted Nektar $124 million in cash, which it will use primarily to pay down the $215 million in convertible debt it has accumulated. Nektar gives up its share of future sales of UCB Pharma's rheumatoid arthritis and Crohn's disease drug Cimzia (certulizumab pegol) and renal anemia treatment Mircera (methoxy polyethelene glycol-epoetin beta), which it had partnered away in 2000. If the drugs don't meet certain undisclosed sales thresholds during the next two years, Nektar would have to pay a Royalty Pharma affiliate $3 million next year and $7 million during 2014. Nektar's top unpartnered assets include NKTR-102, a Phase III metastatic breast cancer candidate also studied in several other cancers, and NKTR-181, a mu-opioid analgesic drug soon to enter Phase II that's designed to cross the blood brain barrier slowly and thus thwart abuse. It also has NKTR-118 for opioid-induced constipation and NKTR-119 for pain, both being developed under a partnership with AstraZeneca. - P.B. 

GlaxoSmithKline/ Daiichi Sankyo: Just two days after Takeda Pharmaceutical Co. Ltd. unveiled more details about the global expansion of its new vaccine business – which it expects to become the top vaccine supplier in Japan - Daiichi Sankyo announced March 2 a vaccines joint venture with GSK that would create the number one vaccines business in Japan. The 50-50 joint venture Japan Vaccine Co., Ltd. will be led by co-CEO representatives from each company. The JV’s stated goal is to join GSK's extensive vaccine pipeline with Daiichi Sankyo's domestic manufacturing, sales and development presence. Keeping all things equal, the companies will sell their prophylactic vaccines into the JV, and will earn for 50-50 profits. Daiichi Sankyo and GSK will also split the ¥100 million start-up capital for the venture, and each will send three executives to sit on the six-member board. Each company will be responsible for their own research, preclinical and pre-proof-of-concept and ultimately manufacturing of their own products. Japan Vaccine will step in for development after proof-of-concept. GSK has been vocal about growth opportunities in Japan. The firm's Japan business grew 30% from 2010 to 2011, largely on the back of the human papillomavirus vaccine Cervarix (human papillomavirus types 16,18), which was added to a government reimbursement program for vaccines in 2010. Since then, Japan has leapfrogged to become Cervarix' largest market. The joint venture will begin operations July 2.—Dan Poppy

Image of Conrad Martens' painting of the HMS Beagle reproduced courtesy of the Wikimedia Commons.

2011 Alliance of the Year Nominee: Abbott/Reata

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Do you like sequels? We know, they're never quite as good as the original (we're looking at YOU, Temple of Doom). But sometimes they surprise on the upside. And that was the case for last week's Abbott/Reata deal, which just makes it in under the wire to close out our 2011 DOTY competition nomination process.

Last week Reata said Abbott would pay $400 million up-front for worldwide co/co rights to its preclinical stable of antioxidant inflammation modulator compounds. That's on top of the $450 million up-front that Abbott paid Reata last year for ex-US rights to the company's lead AIM compound, bardoxolone. Those of you with long memories may remember that the first Abbott/Reata deal put in a suprisingly iffy showing in the 2010 DOTY contest, finishing with just 7% of the vote. The sign of a strong field, perhaps, but equally likely is the voting public wasn't swayed by the large upfront payment for Reata's Phase II asset.

This time around there are some more interesting wrinkles. First, it's a preclinical deal. And that means, among other things, a measure of DOTY revenge. Last year's DOTY/alliance winner was Celgene/Agios, which at $130 million upfront was until last week the largest ever downpayment on preclinical assets, according to our Strategic Transactions database. Reata's haul vaults it to the top of the preclinical deal charts, by a mile.

Second, Abbott isn't paying Reata milestone payments. This is an oft-discussed but seldom-seen type of structure that allows Reata to cash in immediately and set itself up as an independent biotech for years to come, and to plan for the potentially burgeoning clinical pipeline it may have in a year or so.

That brings us to the third facet that makes this deal sequel better than the original: its broad scope. The global agreement covers a wide range of molecules in several therapeutic areas, with the two companies slated to split development and commercialization costs, as well as profits, equally, except for rheumatoid arthritis and other autoimmune indications. In those categories, Abbott will cover 70% of costs and also take 70% of any profits.

Finally, the Abbott angle. You've seen the Abbott split-up (one of our M&A noms this year) and know about Abbott Pharma's continued reliance on Humira. The bet Abbott has made on Reata's compounds -- at least $850 million so far, not counting any clinical expenses around bardoxolone -- suggests the Big Pharma sees the AIM platform as a key aspect of its diversification strategy going forward. 

Who knows, perhaps bardoxolone clinical success could set this Abbott/Reata sequel up as part two of an epic trilogy. For that you'll need to wait for a future DOTY competition.

image via thisblogrules

Deals of the Week Notes the Holiday Generosity

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This week's Reata/Abbott deal with the monster upfront (as opposed to last year's Reata/Abbott deal with the monster upfront) got us thinking about the vague notion we get around this time each year: that up-front payments tend to get larger after the leaves have fallen off the trees.

Do buyers really get into the holiday spirit, or have we just had too much of a different sort of spirit to keep us warm? This year it seemed simple enough to dig up the data in Strategic Transactions, and so we have.

Above you can see that upfront payments really have trended upward (at least according to Excel's trendline tool). To create this chart and trendline it's important to note we didn't include every biopharma alliance. Rather we used our favorite dataset: alliances/licensing deals where the licensing partner or senior alliance partner was a commercial-stage pharma or biotech company (so that's Big Pharma, Big Biotech, the large Japanese and European players, and revenue generating specialty pharma companies of all stripes), and where we know the up-front payment. The data charted above ranges from 2007 through this week, and comprises 329 datapoints.

UPDATE: See below for Median (blue) and Mean (red) charted by month.

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If the Reata deal described below does skew the results, it's only by the tiniest smidgen. And -- we went back and checked! -- looking at each year on its own, this upward trend is the case for every year individually, since 2007, even the years when Abbott doesn't throw down a multi-hundred million up-front. Some years the trend is more pronounced than others, but each year it's pointing in the same direction.

So what to make of this fourth quarter generosity? It probably has something to do with buyers wanting to get deals done under the year-end budget wire. Or maybe it's a holiday miracle. Also miraculous? 2011's penultimate ...

Abbott/Reata: Another financial record in biopharmaceutical deal-making tumbled as Abbott Laboratories Inc. agreed Dec. 12 to pay Reata Pharmaceuticals Inc. $400 million upfront in exchange for a worldwide license to co-develop and co-commercialize the biotech’s preclinical antioxidant inflammation modulator (AIM) compounds. Reata has discovered and developed AIM compounds to treat central nervous system, respiratory and autoimmune diseases. The previous recorded high amount paid upfront for a preclinical biopharmaceutical asset was Celgene Corp.’s 2010 deal with Agios Pharmaceuticals Inc., in which Celgene paid $130 million upfront for a three-year exclusive option on Agios’ cancer candidates based on “metabolic rewiring." With Reata’s upfront take more than tripling the previous record, recent weeks also have seen deals in which Gilead paid the highest buyout fee for a clinical-stage biotech in its $11 billion tender for Pharmasset, while Janssen Biotech NV paid the largest single-asset upfront this year less than a week ago for the right to co-develop Pharmacyclics’s Phase II hematological cancer candidate PCI-32765. Reata is extending an existing relationship with Abbott, which previously filled its coffers in a 2010 licensing agreement for bardoxolone methyl, considered to offer the potential to become the first treatment to reverse the progression of chronic kidney disease. Reata is funding Phase III development of bardoxolone under its partnership with Abbott, but the big pharma will play a much larger development role in the AIM programs. The global agreement covers a broad range of molecules in several therapeutic areas, with the two companies slated to split development and commercialization costs, as well as profits, equally, except for rheumatoid arthritis and other autoimmune indications. In those categories, Abbott will cover 70% of costs and also take 70% of any profits.—Joseph Haas

Bristol-Myers Squibb/Simcere: Bristol-Myers Squibb Co. and Simcere Pharmaceutical Group have inked a second collaboration to develop a BMS drug candidate in China. The companies said on Dec. 13 that they will co-develop the CETP (cholesteryl ester transfer protein) inhibitor BMS-795311, with Simcere holding exclusive development and commercialization rights in China. Simcere will pay all development costs. The arrangement in essence is an out-licensing deal involving a drug candidate that BMS stopped working on in preclinical development because of “portfolio reasons,” although it “continues to believe in the scientific promise of the compound.” At least three multinationals have CETP inhibitors already in clinical development in Western markets, making BMS a late-comer. Moreover, the class was notoriously set back by Pfizer’s catastrophic experience with torcetrapib, which dramatically increased the rate of cardiovascular events in a Phase III trial. Nevertheless, initiating development in China could be a good option for a high risk project because of the lower trial costs and the country’s large, treatment-naïve population. Simcere is becoming the go-to local company for MNCs. BMS and Simcere say the business model is similar to a deal they signed in Nov. 2010. That deal involves the preclinical MET-VEGFR-2 inhibitor GMS-817378. Under that deal, Simcere is responsible for obtaining clinical trial approval in China and conducting those trials through proof-of-concept Phase IIa. BMS’ involvement with the drug in later stage trials is yet to be determined. –Dan Poppy

Intarcia/Quintiles: Diabetes treatment developer Intarcia Therapeutics says a pharma partnership is imminent for its implantable pumps that deliver the GLP-1 analog exenatide. But first, Intarcia has worked out a deal with Quintiles, the world’s largest contract research organization, to conduct six Phase III trials on its product. Specific financial terms weren’t released, but Quintiles revealed that it made two simultaneous investments in privately-held Intarcia. One is non-dilutive, designed to bring returns as the product, ITCA-650, reaches unspecified milestones. Quintiles also took an equity stake, although finance group global VP Chip Gillooly said that investment was smaller than the product investment. Intarcia CEO Kurt Graves said the company is in late-stage discussions with two “finalist” pharma partners, with the aim of retaining 50% of U.S. rights. Negotiating both a CRO deal and a pharma partnership simultaneously saves several months’ worth of time on ITCA-650’s development clock, he added. The devices, which can be implanted for up to a year, delivers a controlled-release formulation of exenatide, the compound in Amylin’s Byetta and Bydureon that’s known for regulating insulin and glucagon production in the pancreas. Graves said that Amylin has no composition-of-matter patent on the drug, leading Intarcia to believe it has freedom to sell the drug in another form. – Paul Bonanos

Enlight Biosciences/ AstraZeneca and Enlight/ Novo Nordisk: Enlight Biosciences announced on Dec. 15 the identities of its two newest partners: AstraZeneca, and Novo Nordisk. The Pink Sheet previously wrote about the formation of the partnerships, but at the time, Enlight could not reveal the companies’ identities. Terms were not disclosed, but the deals give each drug company an opportunity to participate in Enlight's novel business structure in which pharma companies collaborate at a pre-competitive stage to exchange ideas about unmet medical needs, contribute to the evaluation of technology solutions, and select and guide early development of novel technologies, with opportunities to make investments in commercialization. To fund these endeavors, each pharma “member” pays an upfront fee (the figure for its first six members was $13 million, according to its website). Once an opportunity is identified, Enlight proposes an idea for launching a start up company around the technology and members have the option to invest at varying levels. They will, in exchange, have opportunities to participate in any returns that accrue. So far, Enlight has launched two companies, Endra (molecular imaging) and Entrega (oral delivery of proteins). For AstraZeneca, and its biologics arm, MedImmune, it’s an opportunity to collaborate with peers and contribute to development of novel tools, the company said in a statement. Novo Nordisk expects to apply its expertise in protein engineering and expression, formulation and delivery to bring new therapies to market. – Michael Goodman.

Eli Lilly/TransPharma: In a "No Deal" signaling just how tempting - and how hard - it is to improve osteoporosis treatment, Eli Lilly & Co. has dropped its options and licensing agreement with Israel’s TransPharma for a transdermal patch formulation of Forteo (teriparatide), Lilly's well-established injectable parathyroid hormone analogue. The companies formed the collaboration in June 2008, when Lilly committed $35 million upfront to development of TransPharma's ViaDor-PTH1-34, a then-Phase II-ready patch-formulation of teriparatide. The Big Pharma chose not to pursue its option on the product after the drug failed to meet its primary endpoint in a Phase II trial, despite showing strong efficacy and safety results in a Phase Ib trial. Forteo has a niche in osteoporosis, for difficult to treat cases, because it is the only drug on the market with bone building properties, despite a black box warnings. But its sales -- $830 million in 2010 -- are flattening. The race to create a more convenient version of Forteo is hotly contested, with California-based Zosano Pharma Inc. also competing to get transdermal delivery systems for PTH approved. Lilly is also developing a nasal spray version of the drug. Zosano recently secured an Asian partner to market their drug and is preparing for a phase III trial. Both companies have planned to seek shortcut approval via the 505(b)(2) pathway, so the distinctions between their technologies – and how well they work-- will be crucial in the long run. -- Lisa LaMotta, Malorye Branca.

Actelion/ Trophos: Lilly isn’t the only company to pass on an option this week; Swiss biotech Actelion Pharmaceuticals Ltd. decided not to exercise its option to acquire privately held Trophos SA, after the French company reported Dec. 13 that its lead compound, olesoxime, had not reached its primary endpoint in a Phase III study in amyotrophic lateral sclerosis, better known as Lou Gehrig's disease. Actelion and Trophos paired up in 2010, providing Trophos with a $13 million upfront and Actelion with the option to buy the company for $163 million. --John Davis

Takeda/Affymax: And Takeda Pharmaceutical made a no-go decision on a regional deal, by deciding to pass up on the opportunity to market partner Affymax's anemia drug Hematide, in Japan. The companies are partnered elsewhere in the world, including in Europe and the United States. Takeda said in a statement that the drug was not a good fit for its strategy in Japan, although it has survived most of the final-phase trials there. The partners plan to explore other options for the drug in Japan. --Wendy Diller