Deals Of The Week: Isis Rethinks Its Partnering Strategy

 

In its last few earnings calls Isis Pharmaceuticals Inc. has touched on a significant change in its partnering strategy. We spoke with CEO Stan Crooke recently to better understand the implications of these changes for Isis’s top line and operating expenses, and also how they might allow the antisense specialist to enter into more strategic relationships with a few well-chosen partners. 

Isis has been on a deal tear. It out-licensed 5 candidates in 2012, striking three of those deals with Biogen Idec Inc., according to Elsevier’s Strategic Transactions Database. Since 2008, it has collected over half a billion dollars in upfront cash, and hundreds of millions more in milestone payments, not to mention $175 million on the sale of its satellite subsidiary Ibis Biosciences Inc. to Abbott Laboratories Inc.

The new approach was enabled by the size and renewability of Isis’s pipeline – some 28 antisense compounds in clinical development, and about seven in preclinical – and also by recent improvements in antisense technology that have raised the value and attractiveness of Isis’s assets and allowed it to pursue targets in a broad array of diseases including larger population diseases.

Isis puts its candidates into three buckets. The first bucket includes drugs in indications where there’s high target risk and costly and inconclusive Phase II studies.  Its goal is to partner these assets early, sometimes during preclinical development, in option deals where Isis controls development through Phase I or II. Recent agreements in neurology with Biogen (spinal muscular atrophy) and Roche (Huntington’s disease), and in cancer with AstraZeneca PLC (various tumors), conform to this model.

The second bucket is for drugs in indications where Phase II studies are dispositive and predictive of Phase III success, but where Phase III programs are very expensive and complex – for instance, due to a requirement for cardio outcome studies. These indications, typically metabolic disorders or certain cardiovascular diseases, have large patient populations and require a significant commercial effort. Isis’s unpartnered candidates against targets involved in insulin resistance, lipid control, fat metabolism, clotting disorders and coronary artery disease fall in this bucket. “Because we’ve kept them longer, through Phase II proof-of-concept, the terms are more lucrative,” said Crooke.

The third bucket signals the greatest change in Isis’s partnering strategy. From the firm’s founding in 1989, it has focused primarily on partnerships in which it had limited financial flexibility and where its partner controlled development. Beginning around 2010, Isis began to strike deals where it retained developmental control through early and mid stages, and generally took a bigger payment, both upfront and in milestones and royalties.

This third group comprises drugs in indications with clear Phase II and Phase III clinical paths, low-to-moderate total development costs, and the potential for initial rare disease opportunities, with larger-population indications downstream. Crooke said Isis is looking for “a Phase III program that we think we can manage without growing the organization enormously.” In fact, Crooke said Isis may hold onto candidates in the third bucket partway or all the way through Phase III.

The company might even control some drugs through filing, though he conceded that the timing would get tricky. The art is to partner early enough so that the licensee can prepare for launch, but late enough to maximize the value of the asset. Deals over Phase III assets might include a one-year option, though Crooke said he and his team are still evaluating different deal structures.

The first experiment in Phase III out-licensing will be ISIS-APOCIIIRx for patients with high triglycerides; its Phase III trial is slated to begin next year. The Kynamro (mipomersen) deal with Genzyme Corp., in which Isis took $325 million in upfront cash and equity for an asset it had funded through Phase II, may have woken it to the commercial opportunity of holding drugs longer, particularly ones that play out in multiple indications. But where mipomersen’s Phase II trial had to be funded via a private placement and an innovative financing with Symphony Capital, Isis is no longer cash-constrained and will have no trouble managing the late-stage development program for APOCIIIRx and other appropriate candidates. Similar deal terms and a big pharma partner are likely if Isis is successful in licensing APOCIIIRx.

The new deal strategy calls for Isis to crank out three to five drugs per year. At that rate, said Crooke, it will need to grow the organization a bit. And R&D spending, which has until now been relatively stable, will begin to rise as it moves drugs forward faster and retains some into Phase III.

But the river of cash that will be generated by Isis’s numerous existing deals – upfronts, milestones, licensing fees, royalties – should easily cover the costs. Its cash hoard, announced at its August 6 second quarter earnings call, is $590 million. The money will also make possible the next iteration of Isis’s partnering strategy. “What we look forward to in the future,” said Crooke, “is a few strategic partners where we’ll have a partner in a specific space who really knows us and the technology. And we know the partner and what we’re getting.”

Clear sailing, then, as long as the deals keep coming in. However, 2013 has seen a pause in the torrid pace of Isis’s deals. So far into the year, it has struck only the Roche agreement in April.

Still, all that cash set to pour in, and all those changes in the way it does business development, could nudge Isis to rethink its platform business model.  We’ll be examining that possibility in an upcoming issue of IN VIVO. - Mike Goodman

Until then, here’s what the rest of the biopharma world has been up to, deal wise . . . 

Novartis/Ensemble Therapeutics: Building on its research into the inflammatory cytokine interleukin-17, Novartis AG has partnered with Ensemble Therapeutics Corp. to develop an oral small molecule targeting the pathway. The big pharma is one of the leaders in this field of research and has a biologic drug that blocks IL-17, secukinumab, poised for a near-term regulatory filing for the treatment of psoriasis. Several competitors are also looking to bring similar drugs to market, and an oral alternative would represent a compelling commercial opportunity. The terms of the discovery-stage deal, announced Aug. 5, were not disclosed, though it will include an upfront payment, milestones and research funding payable to Ensemble.  For the private drug discovery company, the deal involves its latest-stage asset.  Much of the value of its macrocycle discovery platform, from which it has built a library of more than five million synthetic macrocylic compounds called Ensemblins, is at an early stage. The orally available compounds permeate cells like small molecules do, but like biologics, also bind to protein targets. The company has partnered with several other pharmas including Pfizer Inc., Bristol-Myers Squibb Co., Genentech Inc., Boehringer Ingelheim GMBH and, most recently, Alexion Pharmaceuticals Inc.- Jess Merrill

Bayer/Compugen: Israeli drug developer Compugen Ltd.  landed a drug development deal with Germany’s Bayer AG for two potential cancer treatments whereby the Tel Aviv-based biotech will get an upfront payment of $10 million and could get more than $500 million in milestone payments, not including milestone payments of up to $30 million for preclinical activities, plus royalties on resulting drug sales. Compugen, which has a pipeline of preclinical protein therapeutics and monoclonal antibodies, uses predictive discovery technologies to discover antibody therapies that use the body's natural immune defenses to fight tumors. The NASDAQ-listed biotech’s computational platform uses algorithms to predict which surface membrane proteins could be used as antibody drug targets; these are later validated in the laboratory. The collaboration, announced Aug 7, will focus on two novel immune checkpoint regulators that may play a role in immunosuppression.  Its scientists are developing specific therapeutic antibodies geared to block the immunosuppressive function of these targets and to reactivate the patient's anti-tumor immune response. It’s an area that is drawing increasing attention from drug makers. Compugen depends to a large degree on partnerships to progress its R&D program. Under its latest arrangement, Bayer will get control over further development and global commercialization rights to any new antibody-based cancer immunotherapies the collaboration generates. - Sten Stovall

Oncobiologics/InVentiv Health: N.J.-based Oncobiologics Inc. has entered into a risk-sharing agreement with contract research organization inVentiv Health Inc. in an effort to move its biosimilars pipeline forward. Oncobiologics is a small privately-held company, founded in 2011, that has relied on government grants, partnering opportunities, and angel investors for funds. It currently has no drugs in the clinic, but has several preclinical biosimilars and three innovative molecules still in discovery. The two companies will collaborate to develop five biosimilars, beginning with a generic version of AbbVie Inc.’s blockbuster rheumatoid arthritis drug Humira (adalimumab). The collaboration will involve biosimilar versions of four oncology drugs, including Roche/Genentech Inc.’s Rituxan (rituximab), Bristol-Myers Squibb Co./Eli Lilly & Co.’s Erbitux (cetuximab), Roche/Genentech’s Herceptin (trastuzumab), and Roche/Genentech’s Avastin (bevacizumab). inVentiv will share the cost of Phase III development. Oncobiologics was founded by individuals with business, R&D, and process engineering experience in the biologics divisions of major pharma companies. The firm intends to find commercialization partners in the U.S., Europe, and emerging markets, and has struck several deals to that end, but will work with inVentiv to commercialize the products in any territories without partnership agreements. inVentiv’s share of the profits will be dependent on its involvement in those unpartnered territories. Financial details of the transaction were not disclosed.- Lisa Lamotta

Amgen/Array: In this week’s “No Deal,” Amgen Inc. will return glucokinase activator AMG 151 to original owner Array BioPharma Inc., ending a December 2009 collaboration in which the companies jointly studied type 2 diabetes drugs. The tie-up officially unravels October 5, when rights to AMG 151 will revert to Array. Boulder, Colo.-based Array revealed the deal’s termination along with second-quarter earnings on August 7. The Phase II candidate, originally and henceforth known as ARRY-403, was the centerpiece of a deal that netted Array $60 million up-front. Array also received an $8.5 million milestone payment during the life of the deal, which included an additional $658 million in unrealized payments. The collaboration included a two-year research agreement that ended in 2011. The deal was forged when ARRY-403 was still in Phase I. Since then, some doubts have arisen that glucokinase activators can produce sustained glycemic improvement, while further risks of hypoglycemia and increased blood pressure have cast doubt on the drug class’s future in diabetes. Moreover, both companies have replaced their CEOs in the intervening years, and Amgen research and development head Roger Perlmutter has moved on to Merck & Co. Inc. The companies recently completed a Phase IIa study of the drug, and plan to share its results with the scientific community, according to an Array statement. - Paul Bonanos

Deals Of The Week Wonders Whether Heated Competition To Buy Ache Laboratorios Will Muddy The Brazilian Waters

Could a bidding war for Brazil’s privately held Ache Laboratorios do for Latin America what Abbott Laboratories’ gargantuan purchase of part of India’s Piramal Healthcare did for biopharma M&A in India?

Call it the “Piramal effect,” if you will. Abbott reset expectations among India’s domestic pharma world with its $3.72 billion purchase in 2010 of Piramal’s branded generics business. Brazil hasn’t yet seen the kind of blockbuster deal that would raise prices across the board; the highest value deal in that market to date is Sanofi’s $662 million buyout of Brazilian generics firm Medley Pharmaceuticals in 2009.

Sanofi got in early – staking its claim before big pharma’s buying spree in emerging markets generated significant deal inflation – but the deal hardly lifted the value of Brazilian companies across the board. That transaction was followed by smaller deals, such as Takeda’s $251.5 million (BRL 500 million) buyout of Brazilian branded generics specialist Multilab Indústria e Comércio de Produtos Farma about one year ago, which also included potential for up to BRL 40 million in earn-outs.

But, now comes word that could blow all previous Brazilian deals out of the water – Abbott and two of its big pharma competitors, Pfizer and Novartis, are preparing a second round of bids to buy Ache, Brazil’s leader in the sale of prescription drugs. The rumored price tag for Ache, fourth overall domestically in drug sales when over-the-counter products are included, ranges between $4 billion and $5 billion, a matter complicated by talk that at least one of three ownership families does not wish to sell. Ache’s public stance is that it is not up for acquisition.

Ache reported net earnings of $270 million for the 12 months ending Sept. 30, 2012. Nonetheless, a source familiar with the company told Deals of the Week that Ache remains an appealing investment for big pharma due to higher gross margins than its domestic competition, high top-line growth and strong relationships with distributors. In an emerging-markets competition where it is difficult to acquire worthy assets without overpaying, the three pharmas are facing a reality that a price tag above $5 billion – about 20 times EBITDA (earnings before interest, taxes, depreciation and amortization) – may be required just to get a foot in the door.

One pharma executive who asked not to be named told DOTW that his company is so discouraged by prices for assets in the primary emerging markets that it already is looking to next-generation possibilities such as Nigeria and Colombia.

As an article in The Atlantic notes, for overall business climate, Brazil recently has been viewed as the shining jewel of the so-called BRICS nations (Brazil, Russia, India, China, South Africa), with an average real gross domestic product growth rate of 4% between 2004 and 2010, including an eye-opening 7.5% in 2010. Add in low unemployment and a fairly industry-friendly regulatory environment, and Brazil perhaps was positioned to join China as the top emerging market for biopharma.

An early 2013 Business Monitor International report states that total pharmaceutical expenditure in Brazil in 2011 was more than $28.7 billion, and that total was expected to grow by 7.6% in local currency terms in 2012 (while declining in U.S. dollar spending due to exchange-rate fluctuations.) However, the biopharma opportunity in Brazil is being diminished by drug rebates, which are increasing both in total numbers and in size.

Meanwhile, GDP declined 0.9% in Brazil last year, combining with a 6% inflation rate to tarnish the South American giant’s emergence. Outside investment hoping to tap Brazil’s huge population, highlighted by a rising consumer class, faces what is known as “the Brazil cost” – a combination of high tariffs, poor infrastructure and red tape that increase the cost of doing business, the Atlantic reported.

But industry interest in tapping the Brazilian market cannot be denied. A review of Elsevier Business Intelligence’s Strategic Transactions database reveals six major equity investments in Brazilian biopharma holdings this decade. Beside last May’s Takeda/Multilab transaction, these include:

• Valeant Pharmaceuticals paying $28 million in May 2010 for Instituto Terapeutico Delta, a private branded generics and OTC company focused largely on dermatology;
• Pfizer anteing $240 million plus performance-based earn-outs to acquire 40% of generics firm Laboratorio Teuto Brasileiro in October 2010;
• Amgen ponying up $215 million in cash for Bergamo, a hospital-focused company with an emphasis on oncology, in April 2011;
• Merck investing an undisclosed amount in February 2012 to create and own a 51% stake in a Brazilian joint venture with Supera Farma Laboratorios, Cristalia Produtos Quimicos Farmaceuticos and Eurofarma Laboratorios; and
• UCB Group paying an undisclosed sum with potential for performance-based earn-outs to acquire 51% of specialty pharma Meizler Biopharma. The May 2012 deal included an option for UCB to buy out the remainder of the company.

While we await the outcome of the multi-company pursuit of Ache – GlaxoSmithKline reportedly dropped out of the bidding a while back – other biopharma deal-making was completed in the past week as we tally up …

AstraZeneca/AlphaCore: Following through on CEO Pascal Soriot’s promise to rebuild the company’s cardiovascular pipeline, AstraZeneca announced its third cardiovascular deal in two weeks. In the latest tie up, announced April 3, AstraZeneca’s biologics unit MedImmune acquired private biotech AlphaCore Pharma for an undisclosed sum. The big pharma gains ACP-501, a recombinant human lecithin-cholesterol acyltransferase (LCAT) enzyme that is believed to play a major role in removing cholesterol from the body and also may increase levels of high-density lipoprotein (HDL) cholesterol, better known as “good cholesterol.” A Phase I trial testing the drug met its primary safety and tolerability endpoint and also showed that ACP-501 raised HDL cholesterol in patients taking it. The cholesterol space is a high-risk, high-reward area of drug development, given the growing regulatory and commercial hurdles. But Soriot vowed AstraZeneca would embrace risk as a key to unlocking success in the drug-development process during an overview March 21 in which he unveiled his turnaround plan for the company. Cardiovascular disease is one of three core therapeutic areas the company has committed to. In March, the company signed two deals in the field: an option agreement with messenger RNA developer Moderna Therapeutics for up to 40 programs in exchange for $240 million upfront and a research partnership with Sweden’s Karolinska Institute. - Jessica Merrill

Bind Therapeutics/Pfizer: Nanotech company Bind Therapeutics has inked its second deal with a major player this year, signing a collaboration with Pfizer on April 3. Pfizer will pay Bind to combine its Accurins technology with small molecules provided by the big pharma. Pfizer will pay $50 million in upfront and near-term development expenses per molecule and Bind is eligible for $160 million in regulatory and commercial milestones for each product that reaches the market. Bind did not retain any commercialization rights, but will receive tiered royalties on worldwide sales. The company would not reveal the number or kinds of molecules covered by the deal or the therapeutic area of focus, but did say the agreement covers more than one molecule. The Accurins technology has been explored in the areas of oncology, inflammatory diseases like arthritis and cardiovascular indications. In January, Bind announced a similarly sized agreement with Amgen to develop and commercialize kinase inhibitor nanomedicines to treat solid tumors. - Lisa LaMotta

Ra Pharma/Merck: Less than a year after exiting stealth mode, Ra Pharmaceuticals has landed its first partnership, aligning with Merck to help the pharma discover and develop drugs for difficult-to-hit protein targets. Under the agreement announced April 1, Ra will use its proprietary Extreme Diversity platform to find and develop cyclomimetic candidates that can address intracellular protein-protein reactions in multiple undisclosed therapeutic areas. Ra will receive an undisclosed upfront payment and research funding; discovery, development, regulatory and commercialization milestones could bring its full remuneration to $200 million. While the deal stemmed from early conversations between Ra executives and Reid Leonard, head of Merck Research Ventures Fund, it does not include an equity component for the pharma, Ra President and CEO Doug Treco said. It also includes no risk-sharing, such as a co-promotion option down the road. Ra is developing what it terms a new class of drugs, peptide-like molecules offering the diversity and specificity of antibodies along with the attributes of small molecules, such as oral bioavailability. Cyclomimetics, the cyclic polymer drug candidates produced with Ra’s technology, are characterized by their cyclic structure and backbone as well as side-chain modifications that can provide beneficial properties not offered by natural peptides, the company says. It claims that Ra’s platform produces molecules that are highly specific and stable, offering improved cell permeability and potential for increased bioavailability as well as longer half-lives. - Joseph Haas

Astellas/Ambrx: In its latest tie-up with a major pharmaceutical player, Ambrx announced April 5 that it will collaborate with Japanese pharma Astellas Pharma on a series of antibody-drug conjugates (ADCs) in the oncology setting. Astellas will pay the biotech $15 million upfront, as well as $285 million in potential development, regulatory and sales-based milestones to discover and develop an undisclosed number of molecules that use its site-specific ADC technology. Last June, Ambrx inked a deal with almost identical financials with Merck. While details of the targets the companies intended to focus on were not disclosed, it was revealed that they would focus on areas “beyond oncology.” Ambrx also has tie-ups with Eli Lilly and Bristol-Myers Squibb. Previously it had arrangements with Wyeth, Roche and Merck Serono. ADC technology, which allows drugs to be targeted to a specific site carrying a therapeutic payload, have become a hot space since Seattle Genetics got approval of its ADC lymphoma drug Adcetris (brentuximab vedotin) in August 2011. - L.L.

Agios/Foundation Medicine: Agios Pharmaceuticals and Foundation Medicine signed a pact April 4 to use the latter’s clinical assay, FoundationOne, to create diagnostics which could identify ideal patients for Agios’ compounds aimed at cancer metabolism. No financial terms were disclosed. The diagnostic-discovery collaboration will focus on Agios candidates intended to inhibit tumors that carry mutations in the IDH1 and IDH2 metabolic enzymes. The work will seek to identify tumor genomic alterations that would be most likely to respond to Agios’ candidates, and to potentially develop and commercialize companion diagnostics for Agios compounds. Foundation, which developed the FoundationOne genome analysis profiling system for personalized cancer treatment decision-making, raised a $42.5 million Series B financing in 2012 with a syndicate of venture capital and corporate venture outfits. The round was topped off with an additional $13.5 million this past January from individual investors including Bill Gates, Yuri Millner and new board member Evan Jones. Agios, partnered since 2010 with Celgene on cancer metabolism R&D efforts, raised a $78 million Series C round in 2011 and announced plans to branch out therapeutically into rare genetic disorders. - J.A.H.

Novartis/ImmunoGen: ImmunoGen on April 4 updated the status of its 2010 licensing agreement with Novartis to apply the biotech’s Targeted Antibody Payload (TAP) technology platform to create cancer-fighting antibodies for undisclosed targets chosen by the multinational pharma. Under an amendment to the agreement, Novartis has exclusively licensed one compound against a still-undisclosed target, while taking a non-exclusive license to a second compound which can be converted later to an exclusive license. ImmunoGen will receive $4.5 million upfront under the amendment and could earn between $200 million and $238 million in milestones pegged to the two compounds, plus potential sales royalties. Of the upfront money, $1 million is an option exercise fee, while the remaining $3.5 million, which could be credited against future milestone payments, will be paid if Novartis terminates development of one or both compounds. In a same-day note, Cowen & Company analyst Simos Simeonidis called the developments “an incremental positive for ImmunoGen” that helps to validate the TAP platform. In October 2010, Novartis paid $45 million upfront for the license, intended to help it create antibody-drug conjugate (ADC) therapeutics for cancer. The deal offered the potential for up to $200.5 million in milestones for each target leading to development of an ADC, as well as sales royalties on any products reaching market. - J.A.H.

ArQule/Daiichi Sankyo: In our “No-Deal” of the week, collaborators ArQule and Daiichi Sankyo have decided to terminate an early-stage collaboration around Phase I oncology compound ARQ-092. The news comes just months after a Phase III setback of the companies’ later-stage oncology compound tivantinib, which the two companies will continue developing together. Daiichi opted to license ARQ-092 in November 2011 and paid $10 million upfront at the time, as well as Phase I development expenses. ArQule stood to gain $255 million in milestone payments and the deal included development of multiple compounds; the program now has been returned to the Woburn, Mass.-based company. Meanwhile, tivantinib failed to show overall survival in a late-stage trial in non-small cell lung cancer. The drug’s development focus now has been shifted to liver cancer. The partners signed their initial agreement for tivantinib (known then as ARQ-197) in November 2008. Daiichi agreed to pay $60 million upfront, as well as $560 million in milestones to license the c-Met receptor tyrosine kinase inhibitor. - L.L.

Photo Credit: Muddy Amazonia

Deals Of The Week: What Will Soriot's Genentech/Roche Experience Mean For AstraZeneca?

Like Bristol-Myers Squibb, AstraZeneca has maintained a “pure-play” pharma approach to business in recent years as well as a preference for smaller, targeted “bolt-on” acquisitions, rather than the large-scale M&A pursued in recent years by Pfizer, Merck and Roche.

Some Wall Street analysts suggest that may be about to change, as the U.K. multinational announced Aug. 28 that Pascal Soriot, a chief architect of Roche’s successful absorption of Genentech, will take over as its new CEO on Oct. 1, replacing acting CEO Simon Lowth and succeeding David Brennan, who stepped down in April.

With AstraZeneca struggling through a severe patent cliff – Seroquel (quetiapine) lost U.S. patent protection earlier this year, with Nexium (esomeprazole) slated to follow in 2014 and Crestor (rosuvastatin) in 2016 – full-year worldwide pharmaceutical sales are projected to decline by 16% this year. Bernstein Research analyst Tim Anderson wrote following the Soriot announcement that AstraZeneca’s five-year financial outlook is “uninspiring,” due to a thin late-stage pipeline and a mixed track record of R&D success.

“Doing small bolt-ons, like AstraZeneca has previously described, probably won’t be enough for the company to change its trajectory quick[ly] enough,” Anderson opined in an Aug. 29 note. “Doing a larger acquisition (>$20B in size) would more immediately accomplish this goal, in our view, and AstraZeneca would likely be able to borrow an amount of this size such that its dividend would remain secure and its share buybacks might even continue.”

Bolt-on transactions have been the order of the day recently at AstraZeneca. The firm has been active in acquiring companies with late-stage or marketed products to bolster its flagging R&D pipeline, the most recent being the joint acquisition with Bristol of Amylin Pharmaceuticals. With the purchase, AstraZeneca, which will incur a cost of around $3.5 billion, and Bristol obtained two marketed anti-diabetic GLP-1 agonists, Byetta (exenatide) and Bydureon (exenatide extended-release).

AstraZeneca also announced the $1.27 billion acquisition of Ardea Biosciences to gain access to the Phase III gout drug lesinurad, on June 23. Along with bolt-ons, the company’s business strategy has focused heavily on returning cash to shareholders through share buybacks. Brennan, who announced he was stepping down on April 26, after the company reported an 11% decline in revenues year-on-year in the first quarter of 2012, was an advocate of the buybacks strategy.

But Anderson believes Soriot will be emboldened by his experience in merging Roche with Genentech, a process in which insiders say the exec successfully managed both the process and the people. “He knows both the science and the commercial side of the pharmaceutical business, and he proved himself to be a leader when folding in Genentech,” Anderson wrote. “The Roche/Genentech tie-up continues to function well, all things considered. With this experience in hand, could he be tempted to do a bigger deal at his new company?”

Another analyst, Eric Le Berrigaud of Bryan Garnier & Co., does not see major philosophical changes in the near term, however. “Soriot comes from a company that drives a pure-play strategy in the pharmaceutical industry, which suggests a change in strategy from this perspective at AstraZeneca is unlikely, i.e., no diversification on the horizon.” Just the same, Le Berrigaud also predicts that smaller-scale business development activity will continue at AstraZeneca at its recent hectic pace.

So there you have it – either Pascal Soriot will be a change agent at AstraZeneca in favor of big M&A to turn around the pharma’s prospects … or he won’t.

Yet another perspective, from our sister publication PharmaAsia News, posits that Soriot will try to replicate at his new address the strong emerging markets performance enjoyed by Roche. Particularly in China, Roche has soared in emerging market sales growth, while AstraZeneca has underperformed the industry, and in a business segment it identifies as a priority, no less,

Roche has shunned branded generics in its emerging market strategy – a business pathway pursued vigorously by AstraZeneca – and instead focused on selling innovative specialty products such as high-priced biologics, despite the potential reimbursement hurdles. The strategy has paid off – Roche reported 37% year-over-year sales growth in China during the second quarter, while AstraZeneca sales grew by 12% in that country and only 1% worldwide on the quarter.

As always, your crack deal-watching team has labored to bring you the latest edition of:

Sunovion/Elevation – Sunovion Pharmaceuticals will pay $100 million upfront and up to $430 million total to buy out privately held Elevation Pharmaceuticals in a deal announced Aug. 30. Central to the deal is Elevation’s Phase IIb candidate for chronic obstructive pulmonary disease (COPD), EP-101, which combines an aerosolized formulation of glycopyrrolate with a proprietary inhaler device, the eFlow Nebulizer System. In addition to the upfront, Sunovion (the CNS/respiratory disease-focused company created by the merger of U.S. specialty pharma Sepracor and Japan’s Dainippon Sumitomo) will pay Elevation up to $90 million in development milestones, up to $210 million in commercial milestones and potentially another $30 million if other Elevation programs are developed successfully. Elevation claims that EP-101 is the only nebulized, long-acting muscarinic antagonist (LAMA) bronchodilator in development – the intended indication is for moderate to severe cases of COPD. Phase III trials are slated to begin in the second half of 2013. The buyout provides an exit for Elevation’s venture capital backers, including Canaan Partners, Novo Ventures, TPG Biotech, Care Capital and Mesa Verde Venture Partners. Founded in 2008, Elevation raised roughly $44 million over two financing rounds. Most recently, the biotech announced a $30 million Series B in early January, but had only drawn down a $12.4 million first tranche of that round at the time of the sale’s announcement. – Joseph Haas

Janssen/Genmab – Janssen Biotech has turned again to Genmab to boost its R&D pipeline, this time licensing worldwide development and commercialization rights to the Danish biotech's clinical-stage, CD38-targeted monoclonal antibody daratumumab, in a deal valued at a hefty $1.1 billion. For that sort of money, one would expect a lot of competition for rights to the molecule, and indeed that was the case – Genmab's CEO Jan van de Winkel claimed to be still receiving approaches from other companies the day before he sealed the deal with Janssen on Aug. 30. More than a dozen companies apparently expressed an interest in the asset. The agreement includes an upfront license fee of $55 million, an equity investment of $80 million and up to $1 billion in development, regulatory, and sales milestones, in addition to tiered double-digit royalties. Just weeks before, the two companies had concluded a much smaller deal, valued at $175 million, under which Janssen Biotech will evaluate Genmab's newer bispecific antibodies against a range of therapeutically relevant targets. Daratumumab targets CD38, found widely on the surface of multiple myeloma cells, and it has the potential to be a first-in-class drug for the treatment of multiple myeloma and other hematologic cancers. Initial data have shown it offers a potent and broad spectrum of anti-cancer activity. Janssen looks to be the ideal partner, as it already markets a multiple myeloma therapy, Velcade (bortezomib), in some countries. Genmab has executed a noted turnaround in fortune, after needing to slim down and restructure in 2009-2010. Now, all three of its active clinical-stage products have big pharma partners, and its cash runway extends out four years, at which point royalty and licensing revenues just might be large enough to sustain the company. – John Davis

Alnylam/Monsanto – Alnylam Pharmaceuticals has inked an agreement with big agriculture firm Monsanto that puts Alnylam’s intellectual property in the service of developing next-wave pesticides and other agricultural products. The deal announced Aug. 28 brings Alnylam a $29.2 million upfront payment with the potential for downstream milestone payments and royalties, along with research funding. In exchange, the companies have an exclusive 10-year arrangement in which Monsanto will apply Alnylam’s RNA interference technologies to its BioDirect platform, which aims to bring innovative biological solutions to farmers. Alnylam in turn sent $1.4 million of the upfront to Isis Pharmaceuticals, under a 2004 arrangement in which Alnylam licensed IP for double-stranded oligonucleotide therapeutics that mediate RNAi. Isis also is in line to receive a portion of any milestones or royalties that Alnylam earns under its partnership with Monsanto. According to Alnylam Chief Business Officer Laurence Reid, the agreement with Monsanto is ideal because it gives his company a new source of non-dilutive funding from which it can finance its internal RNAi therapeutic development program, dubbed “5x15.” Alnylam staff will be involved somewhat in technology transfer efforts with Monsanto, but the agriculture firm will do most of the work and will provide research funding for whatever assistance it needs from Alnylam. Neither company would provide much in the way of specifics about how RNAi would be used to create next-wave agricultural products, with a Monsanto spokesperson saying it was still “early days” for determining what kinds of products might evolve from the partnership. “Our collaboration with Alnylam relates to work we have in discovery,” she said. Such products might be used to control devastating agricultural pests and diseases. Monsanto has calculated the annual worldwide market for agricultural biologics at about $1.7 billion. – JAH

Hospira/Orchid – For the second time, injectable generics seller Hospira struck a deal with India’s Orchid Chemicals & Pharmaceuticals to boost its antibiotic-manufacturing abilities. Hospira said Aug. 29 that it would pay about $200 million to acquire Orchid’s 12-year-old, 50,000-square-meter active pharmaceutical ingredient manufacturing facility in Aurangabad, India, which houses 640 chemists, engineers and technologists. The deal also includes a research and development facility in Chennai, home to 160 scientific professionals. Hospira says the acquisition will support manufacturing of key antibiotic products, including wide-spectrum beta-lactam antibiotics such as imipenem-cilastatin and injectable meropenem. The new deal is expected to close in the fourth quarter, and be break-even to slightly accretive to earnings in the first year following its close. In a deal that closed in March 2010, Hospira paid $381 million for another of Orchid’s antibiotic-manufacturing complexes and associated R&D facilities, where it manufactures finished-dosage-form injectable generics. Orchid plans to keep its cephalosporin manufacturing business, which supplies Hospira with that drug. – Paul Bonanos

Merz/Shionogi – Merz Inc., the U.S. affiliate of Merz Pharmaceuticals GMBH, announced Aug. 27 the acquisition of Cuvposa (glycopyrrolate, coincidentally the same active ingredient in Elevation’s COPD drug, EP-101, noted above) from Shionogi & Co. Financial terms were not disclosed. Cuvposa is an oral solution for sialorrhea, over-excretion of saliva, specifically for pediatric chronic severe drooling associated with neurological conditions such as cerebral palsy. Cuvposa indirectly reduces the rate of salivation by preventing stimulation of acetylcholine receptors located on peripheral tissues, including salivary glands. FDA approved Cuvposa as an orphan drug in 2010, and it has been available in the U.S. through specialty pharmacy since April 2011. It is the only FDA-approved treatment for this condition. Merz, Inc. CEO Bill Humphries said the acquisition of Cuvposa “is a promising addition to our neurology business and reflects our commitment to becoming a recognized leader in the treatment of movement disorders and related conditions.” Merz, Inc. develops and commercializes products in the U.S. for its German parent, and its portfolio comprises neurology, aesthetics and dermatology products. – Michael Goodman
Photo credit: Roche

Deals of the Week Wonders, Will Artemis Help AZ In Its Hunt for Late-Stage Pipeline?

It's no secret that AstraZeneca needs to bolster its late-stage pipeline. Sure, there's Brilinta, but even assuming it comes through the payer-tests unscathed (a big assumption), it alone won't drive the kind of growth the Big Pharma needs.

AZ has undergone a major pipeline clear-out, under the auspices of its newish, high-profile R&D chief Martin Mackay (ex-Pfizer). At the same time, the Big Pharma's sticking with the high risk, all-eggs-in-innovative-pharma-basket strategy. Indeed, it's not even allowing itself, as several of its (diversified and non-diversified) peers are, to stretch the definition of innovative to include biosimilars.

So it falls to AZ's business development team to come up with the goods, and prove those proponents of diversification wrong. Enter project Artemis -- named after the Roman goddess of hunting. That program's all about "re-defining the relationship between business development and R&D," according to VP, strategic partnering business development Shaun Grady. We all know that, in this era of externalization, R&D and BD are inextricably linked; so it is at AZ that not only does each of the iMeds (innovative medicines units) have a 6-8 strong BD team, but, most recently, they in addition have 4-6 extra individuals who are not BD folks, but are scientists, Grady explains, "dedicated to scouting, searching and evaluating" potential projects, "finding breaking science...and allowing the BD folks to be more transactional."

In other words, there are now an awful lot of people within AZ looking outside of AZ for good ideas. "It's a big step forward," says Grady of the changes, adding that his internal dealmaking targets are "stretch...but realistic." AZ's last late-stage deal was a regional effort, gaining access to denosumab in Japan in May 2011 (a co-promotion arrangement with Daiichi, which acquired rights from Amgen in 2007). The company has been recently proactive around repurposing (Galderma and Alcon deals) and has put a stake in some early stage opportunities this year (Heptares, PTC deals, among others); but given that AZ hasn't done anything since February 2010 (with Rigel, for fostamatinib) to bolster its mid-to-late-stage clinical pipeline, we should perhaps expect a flurry of pre-Christmas partnerships. That has happened before (deals with Targacept, Novexel, Biovitrum, and Trellis were inked in December 2009).

The ever-closer links between R&D and BD at all pharma firms lead us to suspect that the R&D overhaul at AZ must have had some effect on BD? In fact, Grady maintains, the BD group has been an "anchor" of stability throughout. "We've been doing this [buz dev] for years," he said. We provide an anchor; all these new ideas are great, but we must just get on...". Get on with the transactions, that is -- assuming that appropriate assets can be found to transact upon. And the definition of appropriate is changing in our new, payer-driven world. Indeed, "we decided to pan two or three projects that looked, on the face of it, attractive, but where we felt the differentiation was insufficient," said Grady, in very payer-aware terms.

AZ has recently hired Genentech veteran Greg Rossi to head up its new Payer Evidence function. So we can expect yet another new and increasing influence on BD. Could project Pluto be forthcoming? (Pluto: Roman God of wealth.)

While you wait for that, we bring you, as quick as Mercury, the latest edition of ...

Foundation Medicine/J&J: We thought something was afoot when the CEO of Foundation Medicine and the VP of biomarker research for J&J’s Janssen Biotech unit were seen huddling side-stage before they joined a panel at our Pharmaceutical Strategic Alliances conference in late September, a one-on-one that continued for well over an hour after the conference ended. Thirty-two days later, the companies announced a collaboration that will apply FMI’s cancer genomics test capabilities to identify potential biomarkers for use in J&J’s oncology drug development. It was the fourth large pharma collaboration this year for FMI, which emerged from stealth mode in April 2010 advised by a team of world-renowned experts in next-generation sequencing and a mission to better understand cancer biology. FMI is developing a sequencing-based test that drug developers can run up front in clinical trials to better identify who will respond to a drug and why. “For the price of handful of molecular markers you can get a complex description of the molecular make-up of the entire tumor,” FMI CEO Mike Pellini told the audience at PSA. In addition to its use as a supporting tool for pharma, Pellini says the test, which identifies molecular alterations in more than 200 cancer-associated genes, could launch commercially next year, anticipating insurers will pay $3,500 to $4,500, according to a recent Forbes story on the company. A week before announcing the deal with J&J, FMI closed an expanded $33.5 million series A financing, enticing Google Ventures and Kleiner Perkins Caufield & Byers to join with founding investor Third Rock Ventures.--Mark Ratner

Roche/Arrowhead: After an expensive foray into RNAi, Roche is handing off its substantial portfolio to Arrowhead Research Corporation, in exchange for a 9.9% stake in the company, right-of-first-negotiation to programs, and earn-out potential. The Oct. 24 deal followed last November’s announcement by Roche that it was ending its active involvement in the development of RNAi therapeutics. The transaction brings Arrowhead three RNAi delivery systems and three siRNA formats, including the so-called Canonical siRNA structure Roche licensed from Alnylam Pharmaceuticals in 2007 for $331 million upfront. Arrowhead also will take possession of Roche’s state-of-the-art RNAi subsidiary site in Madison, Wisc., and personnel, which the big pharma originally acquired through the purchase of Mirus Bio for $125 million in 2008. In exchange, Arrowhead issued the pharma a promissory note transferring more than nine million shares of its common stock, with a plan to eventually give Roche up to an additional 1.5 million shares, or their equivalent cash value. In tandem with the deal, the Pasadena, Calif.-based nanomedicine firm closed on a $4 million private placement to augment a recently announced $5.5 million financing and entered a three-year, $15 million credit facility with Lincoln Park Capital, which it can draw down as needed. Roche also receives a limited right of first negotiation to three existing RNAi therapeutic candidates transferred to Arrowhead, and similar claims to five other unspecified clinical candidates. For specified candidates, Roche will be entitled to a 3% royalty on net sales should it not enter licensing agreements for those candidates. In addition, Arrowhead will owe Roche milestones – said to range between $2.5 million and $6 million – for achievements such as first regulatory approval of an RNAi therapeutic and sales milestones.—Joseph Haas 

Biogen Idec/Portola: Just months after Merck & Co. returned all rights to Phase II anticoagulant betrixaban to Portola Pharmaceuticals, the privately held biotech is entering the partnering waters again. This time, Portola has inked a lucrative licensing deal around a Phase I spleen tyrosine kinase (Syk) inhibitor and backup compounds with Biogen Idec. Under the deal announced Oct. 27, South San Francisco, Calif.-based Portola receives $45 million upfront -- $36 million in cash and a $9 million equity investment by Biogen giving that company a 2.8% stake in Portola. Portola retains the right to co-promote the lead compound, PRT062607, thought to offer potential in rheumatoid arthritis and lupus, as well as the follow-ons. In addition, Portola could earn up to $508.5 million in development and regulatory milestones, while Biogen will cover 75% of the development costs for the Syk inhibitor program. Portola CEO Bill Lis would not provide a specific breakdown of the milestones other than to clarify that they all could be realized prior to commercialization. “Everything thereafter is a profit-share on a 75/25 basis globally,” he explained. Biogen will lead development of ‘2607 in rheumatoid arthritis and lupus, while Portola will lead development in smaller indications, which Lis said could include immune thrombocytopenia. Portola is very likely to opt in to commercializing ‘2607 should it reach market, he added, and will lead commercialization in smaller indications.--JAH

Karo Bio/Karo Bio: There are plenty of instances when a biotech spins off its early-stage R&D to free up a particularly promising asset that dominates the biotech's value. Typically this can happen when a pharma acquirer swoops in to buy that lead asset (witness the Domain 'one-two punch), spinning out the earlier work into a newco. This week Swedish biotech Karo Bio has foregone the sale and cleaved off its preclinical R&D into a newco, intended "to become autonomous in operations as well as ownership." As intended the split gives investors the option to fund both Karo Bio's preclinical assets or its late-stage eprotirome program, a thyroid hormone receptor agonist about to enter Phase III dyslipidemia studies. (The kind of move some investors feel best aligns investor and management incentives -- as such we expect to see more of these.) The move comes a day after acting-CEO Per Bengtsson landed that job permanently, and he'll stick with eprotirome but not the Karo Bio brand.  The early-stage assets, for which the company will announce a plan within the next six months, get to keep the Karo Bio name; EprotiromeCo needs to find a new name without the benefit of an IVB naming-poll. Sorry guys.-- Chris Morrison

Cubist/Adolor: This week Cubist Pharmaceuticals diversified its portfolio with its acquisition of Entereg maker Adolor in a deal announced Oct. 24 worth $190 million up-front and another $225 million in contingent payment rights (CPR). Adolor wasn’t exactly on life-support, but the maker of the peripherally acting mu-opioid antagonist hasn’t exactly triumphed when it comes to building revenues for Entereg, which posted 2010 U.S. sales of just $25 million. Moreover, the company hasn’t had it easy when it comes to partnering. In late December, Pfizer pulled out of a deal with Adolor around two pain products; this past June the company bought back Entereg rights from long-time partner GlaxoSmithKline for $25 million. Still owning 100% of Entereg looks to have been a smart decision given the Cubist deal; the upfront alone is 7.6x what it cost Adolor to gain full control of the product and take questions about who’s driving its commercial strategy off the table. Cubist has been intent on moving beyond its anti-infective chops, looking for hospital products that can be sold at the same call point as its successful Cubicin. In addition to a marketed product, via the Adolor acquisition Cubist also gets an interesting call option on a pipeline product, ADL5945, which has promising Phase II data in the opioid induced constipation indication. Still there’s quite a bit of risk associated with ‘5945 and many analysts think Adolor could be too late to the game with its compound; thus, the deal’s CPR structure means Cubist isn’t taking 100% of the risk for the compound. Indeed, if ‘5945 is approved in the US with what Cubist deems an unfavorable label, the milestones owed Adolor shareholders drop from as much as $3.00 per share to just $1.25 a share. – Ellen Licking

  
Biotie Therapies/Newron Pharmaceuticals: Without Merck Serono as a father figure, guiding the hand of Milan-based Newron Pharmaceuticals, the Italian biotech suddenly looked less attractive to Finland's Biotie Therapies. It's only seven days since Merck Serono sent back the late-stage potential Parkinson's disease therapy, safinamide, to Newron, but time enough for Biotie's directors to terminate their planned merger with Newron, laid out at the end of September, and to say they were entitled to a merger break-up fee of €1.5 million. One of Newron's attractions would have been milestone payments from Merck as safinamide progressed towards the market; these will no longer be received, although Merck has promised to finish off some of the clinical work. Newron, which had €10 million in cash and an option on another CHF27.5 million ($32 million) from financing firm Yorkville at the half-year stage, said safinamide would be an attractive opportunity for any company with a commercial capability.--John Davis

image from flickr user pilar torres used under creative commons license

What Biotech Wants From Big Pharma Partners: Survey Says!?

With Big Pharma's internal R&D productivity in the proverbial toilet, business development plays a critical role in securing drugmakers' future wellspring of innovation. Thus, what biotechs think of pharma as partners matters, perhaps more than it ever has before.

Two companies that can pat themselves on the back? Roche and Merck & Co., who took home top honors as best partners in a recent survey of biotech execs published by the Boston Consulting Group.

GSK, Novartis, Eli Lilly and Pfizer also scored well, with one biotech – Celgene – sneaking onto the leader board with the third-highest proportion of respondents having a favorable impression of the company’s partnering capabilities. (Celgene's appearance shouldn't surprise our blog readers; in our 2010 Deals of the Year competition, the biotech, whose deal making prowess will be analyzed more completely in an upcoming IN VIVO feature, chalked up wins in two different categories.)

The BCG survey is the fourth in a series, following similar efforts in 2003, 2006 and 2008. The goal, says BCG partner Simon Goodall, is to determine the key characteristics companies are looking for in a partner, and which buy-siders are best fulfilling those wishes.

The survey was sent to about 500 heads of business development and chief executives during the summer of 2010, and the results are based on approximately 100 responses. Interestingly, BCG found that changes in Big Pharma corporate leadership could impact the perceptions of potential biotech partners quite quickly; despite Chris Viehbacher’s short tenure at Sanofi-Aventis, for instance, biotechs believe the French pharma is a more attractive partner because of its more outward-looking focus.

Moreover, views of Roche and Merck were not hurt by their respective mega-acquisitions of Genentech and Schering-Plough. And Japanese companies – which scored poorly in earlier surveys and were largely indistinguishable in potential partners’ view of their characteristics – have made great strides both as a group and individually. Several now score above the average overall.

“In 2003 the results told us that everyone was awful,” recalls Goodall. Less than one in three companies received a positive overall response from BCG’s list of biotech partners. Those results improved in 2006, and again in 2008, with nearly half garnering positive responses. At the same time the list of biotech ‘wants’ shifted from solid commercial capabilities to a willingness to allow biotechs to retain control over their assets. At last reckoning, in 2008, the full impact of the financial crisis was yet to be felt by the biotech community, says Goodall. “They felt they wouldn’t be as badly affected as pharma,” he says.

The financial meltdown and its impact on the biotech financing climate have helped to shape biotechs’ current wish list of important partner characteristics. In 2010, practical considerations like clinical and sales/marketing capabilities, alongside a partner’s ability to add value to a biotech’s compound, rose to the top of the list. Fuzzier characteristics, including ‘responsiveness during the deal negotiation process’, ‘fit with corporate culture,’ and ‘alliance management capability’ faded in importance. Even so, “organizations are thinking more carefully about how they project a partnership image,” says Goodall. “There’s a careful orchestration and coordination and companies are recognizing they need to make decisions more quickly, and be more efficient.”

BCG has not divulged the “losers” in its survey (feel free to ruminate in the comments below), and so we’ll have to make do with analyzing which pharma companies performed the best against key characteristics in the eyes of the respondents.

Ranked as a percentage of responders that agreed a company exhibited particular criteria, Roche struck gold in four categories, as the company is most associated with deal structure flexibility, executive leadership, alliance management, and manufacturing expertise. Merck led in five categories: responsiveness, BD/licensing group access, therapeutic areas of interest (tied with Novartis), control over development, and ‘develop and prosper,’ a metric related to post-deal success.

Pfizer and Novartis took honors in three categories apiece. Novartis took the prize for TAs of interest, regulatory capability, and research expertise. Pfizer excelled in global reach and access/reimbursement, as well as in an area it would perhaps rather forget: ‘pay highest price.’

Price tags aside, on the whole it appears that industry is moving in the right direction -- and when business development is companies' best hope at securing the next generation of important, valuable drug candidates, that's good news for everyone.

UPDATE: you can request a copy of the survey here.

Managed Care Has More Faith in the Big Pharma Model Than Big Pharma Does

That, at least, is the lesson we took from a preview of Quintiles’ new survey of biopharma executives, managed care executives and consumers released June 15. Dubbed The New Health Report, the survey includes some interesting data on different perspectives about Big Pharma business development activities.

Including this nugget: To the question, “What is the impact of large biopharma mergers on innovation?” 53% of biopharma execs said they reduce opportunities for innovation, versus only 15% who see mega-merger as improving innovation; on the other hand, 39% of managed care executives see mega-mergers as improving opportunities for innovation, versus 37% who see them reduced.

In other words, more managed care executives seem to be believe that consolidation in the Big Pharma sector will improve R&D productivity than do biopharma execs.

There’s more.

Quintiles also surveyed attitudes about other business development and structural trends in pharma, asking whether each group expects to see more partnerships, more mergers, more focus on emerging markets, and more outsourcing.

In each case, biopharma executives see doing more—in essence, painting a picture of an industry that relies on external R&D and external (ie, non-US/EU) markets. That’s no surprise, especially to readers around here.

Managed care execs, on the other had, were less likely to predict “more” of those activities. (See chart).

Put another way, they appear to have greater faith that pharma companies can deliver sufficient returns on their own and in established markets than do industry executives themselves. (Or, perhaps, they have greater skepticism about biopharma companies’ ability to follow-through on their intentions to look outside.)

Those discrepancies are interesting, but we sure don’t know what to make of them. Are biopharma companies doing a better job of putting on a brave face about R&D productivity when they talk to their customers than they are with their own employees? Or do “outsiders” with a big stake in the industry have a better read on how business development activities really play out?

What do you think? We invite your comments.

PS. There is much more in the Quintiles report on attitudes about the industry; the full report is available here.

Notes From BIO: Pim's Cup Runneth Over

Greetings from Chicago! Fantastic weather for early May, an economy on the upswing, not to mention a certain conference that's in town, make the City of Big Shoulders particularly lively this week. One way to take the temperature of a conference -- and last year's BIO in Atlanta barely broke a sweat -- is to check in with the folks scrambling for deals and having hushed conversations in discreet corners.

Before BIO got fully underway Monday morning, it was already hard to find a quiet place to sit. One of our first chats was with Willem "Pim" Stemmer, the inventor of the DNA shuffling technology that underpinned Maxygen, which last year transfered most of its assets into a joint venture with Astellas Pharma, and the recently-IPO'ed biofuel firm Codexis. (Maxygen also birthed the next generation protein play Avidia, which Amgen bought in 2006 for $290 million plus earnouts.)

Stemmer's latest endeavor also aims to squeeze several companies from one. The parent, Amunix Inc., is working on two things. The first is an ion-channel research program, with Pfizer as the first customer. The second, which started as a side project, is a half-life extension technology called XTEN that adds a recombinant polypeptide chain to known molecules, without the manufacturing and safety concerns of pegylation. That's the claim, anyway, and it was enough to convince European VC Index Ventures to solely fund a spin-out, Versartis, charged with developing Amunix's lead compounds, the first of which is an XTEN-enhanced version of the diabetes drug exenatide.

Now comes a second spin-out called Ios, so newly dubbed that it doesn't have a Web site. Ios will hold Amunix's ion-channel program, which Stemmer told IVB he wants to become a "research hub" with several pharma partners and a goal of being acquired in the next two to four years. For drug leads, it is testing venom toxins against ion channel targets, using XTEN for half-life extension. Stemmer was in Chicago this week unfurling the Ios banner and scouting for discovery deals to replace or supplement the existing three-year deal with Pfizer that expires at the end of the year.

Unlike Versartis, which is strictly a product development company, Ios will include Amunix's microprotein platform technology, Stemmer said.

Photo courtesy of flickr user paraflyer.

New Pfizer BD Chief Peck Talks Consumer Health

Checking in from the Burrill Consumer Digital Health conference near San Francisco this week: Pfizer's new head of worldwide business development Kristin Peck (pictured) was on a panel Monday, which piqued our curiosity: Is this a signal from Pfizer (also a sponsor of the show) that it doesn't want to be left off the Pharma 3.0 map?

You might remember that at our PSO conference in February, Ernst & Young's Carolyn Buck-Luce talked up her firm's vision of Pharma 3.0, complete with a Sims-ish schema of a happy, busy neighborhood of interlinked businesses and organizations. Or, as we're all called these days, "stakeholders."

Microsoft was there. Patient organizations, hospitals, doctors, and insurance companies were there. Drug companies were not there.

Which, perhaps, is why Peck was there, on stage in a hotel under the SFO flight path, before the forever-pink-shirted Steve Burrill, talking about the so-called Pharma 3.0 world and Pfizer's place in it. Through a spokeswoman, Peck declined an interview, so we had to gather our first impressions of her from the fifth row of the ballroom.

Here's one: If Pfizer does deals as fast as Peck talks, there will be little rest for those who write about them. Peck also had a bushelful to say on every topic of the panel, which thankfully was structured as a conversation, not a series of PowerPoint talks. A few of her points:

* The health care reform bill wasn't comprehensive. It was just a step to improve Americans' access to health care, but it doesn't address how to reorganize care or reduce costs.

* Reform was only one step, but adding 30-million-plus Americans to the ranks of the insured might be enough of a shock to the system to prod innovation. The big question: Will the millions of new customers force doctors to embrace innovative changes? Doctors are "a large part of the problem" if they're not driving the change, she said. When a top pharma exec accuses another group of being slow to change, you can't help but raise an eyebrow and jot in the notebook "pot-kettle-black." That said, Peck isn't a pharma lifer. She joined Pfizer in 2004 after a consulting career -- and not just on pharma issues. She has real estate and financial services on her resume, too. In other words, a big change from her predecessor, Bill Ringo, who was at Pfizer only a couple years after nearly three decades at Eli Lilly.

* When fellow panelist and Wellpoint chief technology officer Carl Dumont mentioned an online tool available to Wellpoint customers to help them make health-care decisions, Peck said that if patients can't get access to the tool at the point-of-care -- when doctors are advising (or telling) them what kind of procedures they need -- what good will it do?

* Concentric rings of "community" will drive a lot of consumer adoption of health-related technology. When a person receives a disease diagnosis, for example, which community will he or she share it with? Family? Friends? Bosses and workmates? Other health care providers? How about yoga teachers, acupuncturists, and therapists?

We're watching Pfizer keenly post-Wyeth absorption to see how much of its business development shifts from traditional M&A and licensing to the network of providers, tech firms, patient advocates, and others making patient (or, if you prefer, "consumer") connections. One such deal Pfizer recently struck was with Keas, a provider of online care-plan templates.

No doubt we'll continue to have our hands full with Pfizer's takeovers, buyouts, and Phase II license deals ornamented with upfronts and milestones, but Peck's presence at today's conference could mean we'll soon see a lot more diversity among its BD targets.

Vertex: What's a Biodollar Worth, Ctd.

A few months after announcing that its European telaprevir milestones were up for sale, Vertex said last night that it had signed a deal--actually a two-part deal--that would net it $155 million for the future payments from J&J.

Oddly it's the second such deal this week (as you can see by our repeated use of the photo to the right) and the second such deal in, oh, ever? Correct us if we're wrong but we haven't seen this sort of thing outside of this deal and Dow selling its milestones to Valeant.

In any case, $155 million isn't bad for $250 million worth of biobucks--of course Vertex may have to pay it all back, see below. The biobucksbuyers weren't named, as they weren't in Vertex's sale of its royalty stream on GSK's HIV protease inhibitors. CFO Ian Smith said on a call yesterday with investors that there were four buyers, with one principle investor.

Interestingly Smith broke down the kinds of buyers Vertex thought might be interested in the milestones: equity investors, royalty stream buyers, and "folks that move in the middle that do debt and equity and all kinds of top securities."

The royalty buyers were interested, but wanted a piece of Vertex's royalty from J&J, which is in the mid-20% range. That was a deal-breaker for Vertex. The equity guys--if they believed the product would be a success and therefore saw merit in buying the milestones--thought their money would be better spent buying Vertex shares, where they'd see a better return on investment. So Vertex "ended up with... more convert debt equity type money, still high quality," said Smith.

So let's take a look at the two part transaction: in transaction A, Vertex gets $120 million cash in exchange for notes securitized with $155 million in J&J milestone payments. If the payments come through as expected, by 31 October 2012, the milestone buyers get the cash. If these payments don't come through, Vertex makes up the shortfall--in any case, the buyers get $155 million, but Vertex pays nothing before 31 October 2012. In transaction B, Vertex gets $35 million in cash in exchange for $95 million of J&J milestones related to launch in any two territories. If those milestones don't come through, Vertex doesn't have to pay a dime.

Why the split? Smith again: "From an investor's perspective, they have effectively provided Vertex with $155 million which, to a certain point, is interest free. Upon the achievement of milestones, they then get their return on the $155 million." But "the allocation between $120 million and $35 million, it's important, but it's mainly important from the tax perspective of how the transaction came together."

From Vertex's perspective--and we'd define that as the 'going all-in on telaprevir' strategy--the biotech gets access to cash at a reasonable cost. Smith pins that down around 15% cost of capital, "depending on your probability of success with the milestones."

So what's a biobuck worth? In this case, that still depends, ironically, on whether telaprevir is approved and launched in Europe. For the investors who paid out $155 million, they'll get either $155 million or $250 million in return in three years (it's hard to see a middle ground). For Vertex, they get 62% of the value up-front, and if the drug fails, they pay it back.

Of course the milestone sale wasn't the only news out of Vertex yesterday. The company provided a corporate update with a few tidbits: chief commercial officer Kurt Graves has resigned, the company is pushing forward with VX-509, a JAK3 inhibitor going into Phase II in RA, and financial guidance has been updated--Vertex expects a wider loss this year. You can read all about it in "The Pink Sheet" DAILY.

Some observers have been concerned about Graves' departure (the market doesn't like something about the announcement, as Vertex's shares are off more than 6% today). But we see this as a natural consequence of Vertex CEO Matt Emmens' arrival. We don't know anything about the particular circumstances of Graves' exit, but think about it like this: when your CEO is at the core an R&D guy (Josh Boger), you bring on a top commercial guy (or gal!) to help transition the company as your product nears the market; Graves was hired out of Novartis in 2007.

But earlier this year, Vertex went and got itself a new CEO, Emmens, who is a commercial guy (read this September IN VIVO feature Q&A with Emmens about Vertex's transition for more background). His and Graves' skill-sets overlap significantly. Emmens even noted on the call yesterday in response to a question from a concerned analyst that "from my perspective, Kurt and I had very similar backgrounds ... my background is commercial and has been in a variety of areas. And I plan to get involved. We are not behind ... by any means."

Meanwhile Vertex plans to end the year with about $800 million. That is if they don't find something else to sell.

unadulterated version of image by flickr user mackius used under a creative commons license. we're really getting a lot of mileage out of a photo and a little amateur MS Paint work.

Merck/AZ Cancer Deal: Will Intra-Big Pharma Development Deals Move Beyond the Serendipitous?

Is that a mek inhibitor, sir?

Merck and AstraZeneca are expected to announce today that they're teaming up to test a combination of two early-stage oncology candidates. The companies are billing the deal as a first-of-its-kind collaboration--and fair enough: we can't think of another time two large companies have done this kind of deal with two molecules so far from the market.

The Big Pharmas will test Merck's MK-2206 and AZ's AZD6244 (a.k.a. ARRY-886, the compound was acquired from Array Biopharma in 2003) in a Phase I safety and tolerability trial. Costs will be split evenly, the program will be steered by a joint committee, and Merck is the sponsor of the trial.

The reason so few Big Pharma-Big Pharma development deals get done is that they're very tricky; control, valuation, overlap with other, non-partnered projects--these and other things present high hurdles for two large companies to come together in even basic ways. Of course there are plenty of reasons to take a stab at such deals--several of which are outlined in this February IN VIVO piece from Bain & Co. But if these alliances aren't discouraged institutionally, they're certainly not highly sought after either. In fact this deal came about not through any lets-be-friends business development outreach program at Merck or AZ, but by chance encounter.

"This was driven by two scientists meeting at an airport security checkpoint," Merck chief strategy officer and SVP worldwide licensing and external research Merv Turner told The IN VIVO Blog.

One scientist from Merck, one from AZ, they got chatting, and presumably between removing their laptops from their cases and putting their shoes back on, the special and awkward intimacy that comes from publicly surrendering all liquids and being patted down by a stranger wearing latex gloves worked its magic. WSJ's Ron Winslow has more color on the actual conversation, which apparently included that old chestnut "Are you the mek guy?"

"Of course through competitive intelligence they had some information about what each company was up to ... and they said to one another, there’s a compelling rationale for getting these molecules together," lets get the business development groups on the case, says Turner.

That airport rendezvous was in Dublin in November 2007. That it took more than 18 months to ink a deal to conduct a combination Phase I program says as much about the complexities of oncology drug development as it does the difficulties of intra-Big Pharma dealmaking.

Merck's MK-2206 is, according to Merck and AZ, the most advanced AKT inhibitor in development. AKT acts just downstream of PI3k in that important cancer cell survival pathway (the one generating all those deals lately); Phase I data on the drug were presented at this weekend's ASCO meeting. AZ's '6244 hits mitogen-activated protein kinase 1 (mek), an actor in an important parallel signaling pathway. Like the Merck compound, '6244 is further along than its competitors; the candidate has completed several Phase II monotherapy studies and its Phase II program continues apace.

A greater understanding of cancer biology, says Turner, should drive more deals like this one, where "the potential to short circuit what could otherwise be a long and combinatorial approach to finding the right pairs" of oncology therapies "becomes quite compelling."

There are over 800 molecules in development for various cancers. "We're learning more and more about the nature of tumorogenicity and the pathways involved and therefore how to select targets and populations expressing those targets ... and as we go forward into the new mechanism-driven approaches to tumor biology the rationale for combining agents which target complementary pathways becomes more clear," explains Turner.

Of course Merck is developing its own mek inhibitor and AZ its own AKT inhibitor, there are multiple targets in each pathway, and such compounds could be useful in a variety of cancers where the companies have individual ongoing programs, all which could complicate a more extensive deal.

"When we set out on this, to try to think through all the possibilities, we soon realized that the number of branches that arise if you try to construct a decision tree of all the things that might happen in development, it just becomes overwhelming," says Turner. So the companies are starting slowly, taking a step-wise approach to collaboration that need not go beyond this Phase I program.

We decided, "let's start with the easy part, work out how we'll do these experiments together in patients in Phase I, and if that succeeds, we'll go on to the next part," he says.

If the eventual goal is some sort of fixed-dose combination the companies will eventually have to jump in with two feet, perhaps partnering on multiple compounds or even entire pathways. But that need not happen at all. "The first goal could be to have each party arrive at the marketplace [independently], with a label statement that supports use of the other agent in combination," says Turner.

A small step, but a step forward, and the kind of thing that if repeated often enough could have some meaningful impact on drug development costs and speed to market, eventually advancing the standard of care in difficult diseases.

We presume this means taking another step, beyond chance encounters in airports or the DMV or even Starbucks. "If this works as advertised," sums up Turner, "we can think of it as a template for future similar deals."