Vernalis Buys Back Migraine Drug's EU Royalties

For a small drug, Frova (frovatriptan) sure has had a busy couple of years. After it failed the entrance exam for a menstrual migraine label in the US late in 2007, Frova pushed its parent, UK biotech Vernalis, close to the edge of bankruptcy. (Frova's original parent, until 1994: SmithKline Beecham).

Fortunately, the likes of financiers Paul Capital Healthcare were to hand, willing to pony up emergency cash in exchange for future royalties on Frova in the regular migraine indication. Vernalis' April 2008 deal with Paul Capital brought the biotech a €18.4 million life-line, in the form of a loan, to be re-paid along with hefty interest with 90% of the Frova royalties that Vernalis was receiving from European commercialization partner Menarini.

After a good deal more asset-selling and cost-slashing, Vernalis staggered back to life. Ex-Acambis CEO Ian Garland took the reins in late 2008, creating a new management team around him.

So today, a more confident, nearly-back-on-its-feet Vernalis has agreed to pay Paul $32.57 million (£21 million) to regain 100% of those Frova royalties and wipe the debt off its books. Vernalis is seeking the funds to pay Paul off via a placing and open offer, designed to raise about £28.5 million after expenses. (The royalties would have gradually come back to Vernalis, according to a sales-linked formula, but not for another 3-4 years, and only if sales reached a certain level.)

Paul Capital, of course, has done well out of Vernalis' troubles. For starters, it charged a cheeky 42% or so interest on its initial loan--over which troubled Vernalis, with no option at the time of raising money from the disgruntled capital markets, would have had little negotiating power. Second, the financing group has nearly doubled its money in under two years--an ultra-fast return which likely helped the deal meet Paul's required internal return hurdle. "Paul Capital was under no obligation to do the [second] deal," explains Vernalis' CFO David Mackney, "and initially they didn't want to," he adds.

But Vernalis' new management didn't want, either, to miss out on the growth of one of its assets--Frova's sales were up 15% in 2009, to €32.4 million. And the last thing it needed, as a cash-burning biotech, was heavy debt on its books (although as Mackney admits, Vernalis wouldn't likely exist today if it wasn't for that initial Paul transaction). This deal, with the placing, eliminates Vernalis' debt, reduces its cash burn (since it doesn't have to hand money over to Paul anymore) and extends its cash runway beyond 2012, potentially for as long as four years.

As for dilution: who cares? This is a company starting from scratch, whose original investors have already lost out, but whose newer backers may have something to gain, if all goes to plan. Besides, UK pre-emption laws mean existing shareholders can avoid dilution if they want by putting up more money; Vernalis' existing major shareholder, Invesco, has agreed to increase its holding to up to 46% of issued share capital by subscribing to two thirds of the offer.

Vernalis plans to use most of the remainder of the placing proceeds (about £7, by our calculation) to invest in its own pipeline and/or to seize in-licensing or acquisition opportunities. Such a move would reduce the firm's cash runway, sure. But although having an enormous runway is a nice story, particularly amid the rest of the UK's rather shaky biotech sector, it's not really the point of the business, is it?

image by flickrer Artysmokes used under a creative commons license

Crucell: Revving the R&D Engine

You have to feel sorry for biopharma R&D chiefs these days. As cash flow and profit-and-loss sparing efforts become de rigueur, it sure seems like the CFOs are in the drivers' seats with the R&D heads strapped into the passenger seat along for a very bumpy ride.

There's no question folks like Pfizer's wonder twin powers, Martin McKay and Mikael Dolsten, and GSK's Moncef Slaoui are being asked to do more with a shrinking R&D pool. AstraZeneca, too, is rethinking its R&D approach, putting greater emphasis on externalization thanks to a restructuring to create 8 innovative medicine units (or I-Meds, a very Apple-like parlance).

To be fair, when a company like Pfizer announces its winnowing its R&D budget from $11 billion to $8 billion, there's still some serious cash going to internal programs. But it's an interesting example of cognitive dissonance when R&D heads admit "yep, we're all about innovation AND we're shrinking R&D."

Thus, it was practically shocking to hear a public mid-sized company--European no less--vocally declaim its intention to plow signficant cash resources back into its R&D efforts on the same day that GSK offered more clarity on coming pink slips.

The company revving it's R&D engine? Dutch vaccine maker Crucell, who reported on its Feb. 9 year-end earnings call cash and short-term liquidities of about €428 million. Given the company's laden coffers (continued strong operating cash flow in CFO-speak), Crucell's CFO Leo Kruimer told investors: "We've made a conscious decision to increase R&D spending and development spending especially by as much as one-third vis-à-vis this year, while we maintain a very healthy operating profit."

Say WHAAAT? You mean there's no dividend? (Maybe that's the reason the stock was off even after the company reported better than expected numbers.)

Crucell, unlike many other biopharmas, has had a very good year. For starters, vaccines are a hot commodity as nearly every big pharma sees the importance of diversifying into this arena. Crucell has leveraged the interest into a number of lucrative partnerships, including a $70 million contract with NIAID/NIH to develop infectious disease vaccines, and the big kahuna, an alliance with Johnson & Johnson in September 2009 that included an 18% equity stake worth $443.5 million for Crucell.

Indeed, it's the partnership with J&J--now undeniably Crucell's big brother--that has removed the quarterly earnings pressure (at least for a little bit), allowing more resources to flow to R&D. Calling the balance sheet "magnificent" Crucell CEO Ronald Brus said, "With the right investments and the right people we should be able to do things quicker...and why we did invest a lot in new leadership in that R&D arena." (For those keeping count, Crucell increased R&D personnel by 120 in '09.)

But it likely won't be just internal R&D that benefits from the cash. Most analysts predict Crucell will bolster capabilities via acquisitions (sound familiar?) as it tries to out-gun competitors such as Panacea Biotech and Shantha Biotechnics.

Brus dodged a direct question on the matter from Needham analyst Alan Carr, averring,"We're not looking for acquisitions to fill our pipeline because I think our pipeline has never been as full as it is today." Instead the focus will be on deals that "could significantly improve revenues and profit of the longer run."

In a follow-up interview with Reuters, Brus clarified Crucell's current thinking. "If we would make an acquisition, it would be of a profitable product or products that are very close to being launched on the market rather than a pipeline product," he said.

Ah.

It will be interesting to keep tabs on Crucell in the coming months, especially if future deals vault the biotech into Big Pharma's realm of must-have acquisition targets. The great irony, of course, being that much of Crucell's new found vigor is a direct result from being left at the M&A altar in early 2009.

Till then, you science types looking for new digs? Try Crucell, who's apparently not afraid to burn some R&D rubber.


(Image courtesy of flickrer shyha used with permission through a creative commons license.)

Health Care Reform: Digging Out From “Paralyzing Snow”

The blizzard of 2010 tamped down the attendance during the annual Academy Health meeting in Washington DC February 8.

Attendance was about half of what it would have been after the paralyzing snowstorm (official weather term!) that dumped 20-30 inches in the DC metro area. Still, that’s a pretty good crowd all things considered. Health policy is clearly still a hot topic in Washington despite the blanket of snow.

The blizzard also gave HHS Secretary Kathleen Sebelius a perfect analogy to kick off a discussion of the status of health care reform during her opening keynote.

She complimented the organizers for staying the course, saying she had sympathy for those who work hard for months on end to put together a large and important endeavor—only to have 30 inches of snow fall the day before the meeting is scheduled: “Kind of the like the Massachusetts Senate election and health care reform.”

Sebelius noted the value of taking a moment to regroup, reconsider—and then made the case for pushing ahead. “I am confident there will be a comprehensive health care reform bill” signed into law this year, she predicted.

Sebelius did not extend the analogy any further, but we will. Blame the cabin fever if you must, but here is our list of nine ways that reviving health care reform is like digging out after a blizzard.

(1) Digging out is hard work: Our aching backs can testify to that, as can everyone on Capitol Hill, in the White House, and in the assorted lobbying operations on K Street as they try to figure out how to muster enough votes somewhere, somehow to get a health care bill through.

Sebelius noted that fact by repeating Obama’s comments from the State of the Union address that the Administration didn’t take on health care reform because it was easy. Republican Hill staff the second day read the most recent polling data, suggesting that the portion of the population who likes the pending bill is 15%-20% less than the portion who disapprove.

It is not going to be easy to get this done.

(2) Piecemeal Approaches Don’t Work: Plowing half a street does no one any good. (Are you listening, DC government?) Similarly, Sebelius made clear that ideas for piecemeal reform aren't going to fly. The President remains “as committed to
comprehensive reform as ever,” she said. As a practical matter, you can’t cherry-pick reform: “the pieces are too intertwined.”

For example, Sebelius said, it is disingenuous at best to support health insurance reform without also supporting some form of mandate to prevent adverse selection.

Hill staff said the same thing (at least on the Democratic side): the pieces of reform are too interdependant to tease apart.

Republicans remain game to try—but they probably won’t get their chance this year.

(3) Getting around takes fancy footwork: Lot’s of twisted ankles and bumps and bruises in DC; avoiding a spill takes the grace of a ballerina and the balance of gymnast. Same with passing a comprehensive health bill at this point.

Here is the pathway people are currently talking about:

Step 1: The House passes a bill intended to fix the Senate bill. (Under the Constitution the House must originate all spending bills.)

Step 2: The Senate passes the fix-it bill via the reconciliation process. (Only 50 votes needed, but provisions must have budgetary impact—no policy fixes allowed!)

Step 3: The House then passes the Senate comprehensive reform bill already passed by the Senate on Christmas Eve.

Step 4: The President signs the comprehensive bill first, then the fix-it bill. The order is key: that way the fix-its replace the Senate’s language, even though the fix it passes first.

Simple, right?

(4) Snow Days Can Bring People Together: There is nothing like walking down the center of Connecticut Avenue with dozens of neighbors desperately seeking an open Starbucks to build a sense of community. While we haven’t seen a similar spirit of comity follow the Massachusetts election result, it isn’t for lack of trying (or at least trying to look like you are trying). Obama’s latest initiative is to invite the Republicans to a White House summit to exchange ideas on February 25. Hey, maybe we can all get along.

(5) Sunshine Helps: That has always been DC’s default snow emergency plan. In health care reform, it means the Feb. 25 meeting will be televised. That may help, at least as Sebelius sees it. While Americans may be “sometimes disgusted” by the legislative process, most, Sebelius says, support the “common elements” of the House and Senate bills (though she didn’t elaborate on exactly what those elements are). Perhaps a televised event focused on the substance of the bills will help re-engergize reform.

Oh, and by the way, the summit is supposed to be Feb. 25, coincidentally the same day we will be discussing the impact of health care reform on business development during BIO/Windhover’s Pharmaceutical Strategic Outlook conference in New York City. We are far too humble to suggest which will be a more valuable way for you to spend your time—but its not too late to register for PSO…

(6) Goodwill Only Goes So Far: Based on DC’s experience, we now believe the Hatfield/McCoy feud was triggered when a Hatfield parked in a spot previously shoveled out by a McCoy. It gets ugly fast. Same with this summit idea. Sebelius stressed that the goal of White House meeting is not to start over on reform.

Which kind of begs the question of what is the goal. We offer one theory in The RPM Report: It is an attempt to apply a trick Obama learned on the campaign trail.

Sebelius certainly did little to undercut Republican suspicions that the goal is just to make them look bad. Obama wants to discuss ideas with the Republicans, she said, adding in almost the same breath: “It is not acceptable that half of the legislative body pushed away from the table” rather than negotiate a bipartisan bill.

Republicans, of course, see it differently, with their leadership suggesting that it is exclusion by the White House that led to an all-Democratic bill.

Sebelius did make one point that could resonate in the months ahead. “For a long time,” she observed, “the so-called public option was the issue,” with many in Congress saying they couldn’t support a bill with that included. “As far as I can tell, the public option is no longer part of the legislation,” she added, “but no one came back to the table.”

Which leads to our next point:

(7) Snow(e) Isn’t All Bad: As the path to reviving health care reform continues, it is worth remembering that there is one Republican who voted for one of the bills: Maine’s Senator Olympia Snowe voted in favor of the Finance Committee bill, though she joined all her GOP colleagues in opposing the version of the bill that came to the Senate floor. If the bipartisan revival works, it will almost have to involve Snowe.

(8) There is More Snow in the Forecast: Literally true for DC, a fact that Sebelius joked about at the end of her talk—using it to invite the assembled crowd to stay engaged on health policy in the weeks, months and years ahead. Metaphorically, we know that there are bound to be yet more wrinkles in this process before it finally ends, one way or the other.

But it will end. After all…

(9) Spring Will Come...Eventually: Right now we understand the hope is to revive the process and get a bill to the President before Easter recess.

Maybe I will be able to see my driveway by then...

"No!" says NICE, to Sprycel, Tasigna

The UK cost-effectiveness watchdog NICE today delivered a resounding "no" to the use on the National Health Service of Bristol's dasatinib (Sprycel) and Novartis' nilotinib (Tasigna) in chronic myeloid leukemia patients intolerant to imatinib (Glivec).

"The evidence available to support [the clinical effectiveness] of dasatinib and nilotinib was very poor," declared Professor Peter Littlejohns, clinical and public health director at NICE. "The drugs' cost is also very high," he added, in a press release announcing the latest draft guidance.

Sprycel costs about £30,477 per year, and nilotinib about £31,711, according to appraisal documents on NICE's website. And the drugs are taken for several years, with no evidence-based 'cut-off' point currently in use.

It doesn't even look as if the drugs came close, in other words. And Bristol and Novartis can't even consider one of the loopholes now available to companies, the end-of-life guidance issued in late-2008, which permits a somewhat higher cost-per-QALY (quality-adjusted life year) than usual for drugs that extend life in niche yet terminal diseases. (This, you will recall, is what allowed Celgene's multiple myeloma drug Revlimid to slip past the agency.)

The available evidence on the drugs' extension of life--typically required to be of at least three months--"is too weak", declares the NICE PR in yet another blow to the products' manufacturers. That the drugs, both second-generation tyrosine kinase inhibitors, offer such an extension, documents declare, "is plausible, but definitely not proven."

But at the end of this rather damning announcement came an olive branch. "It would be heartening to hear that pharmaceutical company manufacturers are prepared to share some of the very high cost of these drugs with the NHS," suggested Littlejohns.

Now if that isn't a call for a cost-share (or should we say 'patient-access') scheme, then I don't know what is. Recall that such schemes have allowed NICE to green-light a good handful of expensive drugs that likely would not have otherwise made the cut--including most recently UCB's RA drug certolizumab (Cimzia). (Interestingly, although Celgene also put forward such a plan for Revlimid, this wasn't what tipped the decision in its favor.)

So we understand NICE's call for companies to make an effort on the cost-share front--indeed, the agency's CEO Andrew Dillon has told us clearly that he'd prefer if manufacturers simply submitted such schemes up front rather than waiting for a rejection in order to fish one out.

But is Littlejohns implying that a cost-share proposal would simply eliminate all the problems that the appraisal committee identified in the submission, around trial data and design? These seemed considerable: no studies submitted assessed either drug against relevant comparator; trials were 'heterogenous in terms of design, population, implementation and analysis'.

We put this question to NICE. Their reply:

Although there is some evidence to suggest that dasatinib and nilotinib could be considered clinically effective in cases of chronic myeloid leukaemia (CML), the quality of that evidence was extremely poor. This, coupled with the very high cost of the drugs, meant that the independent appraisal committee could not recommend them as an appropriate use of NHS resources.

During the public consultation on the draft recommendations manufacturers will have the opportunity to propose a patient access scheme, to make it easier for the NHS to afford expensive new treatments. We would be happy to look at such a scheme.

The answer is still not entirely clear (to me anyway; and I'm pushing for further clarification). But it sure looks as if patient access schemes will trump poor data.

If that's true, we're not sure that will do anyone any good--the NHS (paying, if a reduced price, for drugs that aren't effective), companies (forced to submit access schemes above all else), or patients (potentially receiving an ineffective drug and, as a group, perhaps not getting something else as a result).

We hope, then, that we're wrong.

image by flikrer greenchartreuse used under a creative commons license

What's in Your Pipeline? The Feds Want to Know

The Agency for Health Care Research & Quality (the US government's de facto comparative effectiveness research center) is slowly but surely funneling out its portion of the $1.1 billion in stimulus money set aside for comparative effectiveness research last year.

Remember the stimulus money? It is supposed to be a down payment on health care reform--though lately it looks more and more like it may BE health care reform, for now at least.

Among the recent announcements, this one caught our eye: a request for bids to create a "horizon scanning system" for the agency.

No, this isn't some fancy pair of binoculars. AHRQ defines horizon scanning as "(1) the identification and monitoring of new and evolving healthcare interventions that are purported to or may hold potential to diagnose, treat or otherwise manage a particular condition; and (2) an analysis of the relevant healthcare context and landscape in which these new and evolving interventions exist in order to understand their potential impact on clinical care, the healthcare system, patient outcomes and costs."

The goal of the project is to "provide AHRQ with a systematic process to identify and monitor healthcare technologies that are likely to have a high clinical, system and cost impact in the US."

In other words, what is in the pipeline that we need to know about today to make sure that our comparative effectiveness research anticipates innovative technology.

This is a pretty big deal, if AHRQ can pull it off. The agency's director, Carolyn Clancy, explained the idea during The RPM Report's FDA/CMS Summit in December. "What I find amazing is that no developed country has figured out how to do this well so we are going to try to build a science in this area."

The goal of horizon scanning is not "academic navel gazing," she stressed. Rather, the agency wants "to anticipate what is on the horizon in the next three to five years and what kinds of questions might we be working to understand, even before the product is on the market, which patients are likely to benefit."

That may sound scary to some: Will the federal government be working to restrain uptake of new technology? It may also sound like an opportunity: if you have a breakthrough that truly transforms a treatment paradigm, maybe the feds will become champions for early adoption. For Clancy, it is the latter: This is "not intended in any way to discourage innovation," she told the FDA/CMS Summit. "Quite the reverse."

Whether horizon scanning is a threat, an opportunity, neither or both, we can't say for sure yet. But this we do know: if you aren't building comparative effectiveness research into your drug development plan, the federal government will try to do it for you.

image from flickr user Matti Mattila used under a creative commons license.

"Can we Learn to Love Diagnostics?" asks Roche's New Dx Chief

Well, not exactly love, but care more about them, at least? This is what Daniel O’Day, the newly installed head of Roche’s diagnostics division, asked an audience of analysts attending Roche's annual results meeting in London last week.

Appointed in September 2009, O'Day, of course, wants the answer to be 'yes'. But the analysts may have appeared less than enthusiastic.

O'Day has a point, though: with personalized medicine heralded as the holy grail of health care, someone has to inject enthusiasm and commitment into converting ideas into solid products.

Unlike most of his pre-decessors (including, most recently, Juergen Schwiezer), O’Day has apparently spent more years in pharma than in diagnostics. He has held various positions within Roche Pharma since 1987, before becoming head of Roche Molecular Diagnostics in the US in 2006. This dual background in both sides of the business means O'Day could be the man to raise the profile of Dx.

Critically, he also has the backing of other Roche execs, who believe the “pull” from clinicians demanding personalized-medicine tests will make it an attractive, i.e. lucrative, business to be in.

Okay, so many companies, including Roche, have said, or at least believed, that for years. But it probably helps that Roche's CEO Severin Schwan worked for a decade in the diagnostics side of the business (and before that in finance), before taking the top-spot in June 2008.

At the moment, the problem with diagnostics and instruments in general is their rapid commoditization, as laboratories continually demand higher-throughput screens at ever-lower costs.

Within Roche, having pharma working closely with diagnostics on personalized medicine can apparently pay dividends for the instrument guys--in the sense that pharma can help them get their way from the corporate powers-that-be. For instance, the company recently invested in a new technology platform because the pharma side wanted it. Diagnostics, meanwhile, was having difficulty justifying the expense.

That example says a lot about the current pecking order, however, even though it's admittedly a good sign for the future of Rx-Dx collaboration. Meanwhile, though, Roche is putting its money where its mouth is: it has up to 40 companion diagnostics in development with specific pharmaceutical products.

And indeed, starting parallel development of a drug and a companion diagnostic early on (rather than having drug firms clamor for a diagnostic once their product is close to, or on, the market) makes sense. It's something stand-along diagnostics firms like the UK's DxS (part of Qiagen since last year) have been calling for, unsurprisingly enough.

Rx-Dx tie-ups are happening, though. In July 2009, GlaxoSmithKline and Abbott announced that they would develop a companion diagnostic for GSK's investigational MAGE-A3 immunotherapy. In 2008, DxS partnered with Amgen to develop a K-RAS companion diagnostic to predict whether a patient with metastatic colorectal cancer will respond to Vectibix.

That said, no one--likely not even O'Day--expects a sudden flood of companion diagnostics to hit the market next week, though. But the signs are that we may soon have more than Dako's Hercep-Test (launched in 1998 to help predict who would repond to breast cancer drug Herceptin) and DxS's K-RAS mutation detection kit to talk about.

--By John Davis (j.davis@elsevier.com)

image by flikrer mozzercork used under a creative commons license

While You Were: Snowpocalypse Now

Snow snow snow. It appears that the whitewash in Philly, Washington and other parts of the mid-Atlantic isn't quite over, with more winter weather forecast for later in the week and schools and government offices remaining closed today. Shovel and drive carefully, folks!

Oh yeah, the Super Bowl. N'awlins and Indy, Brees and Manning, Daltrey and Townshend, Dave and Jay (and Oprah). Here at IVB's UK HQ we didn't stay up all night to watch, but wish we had: we hear it was a good show. Congrats to the Saints.

Now, while you were digging your car out of the snow ...

• Biotech Blowup: wish we thought of this ourselves.
• Will Pharma rue cutting R&D? Meh, we're not convinced.
• WSJ's Peter Loftus breaks down Sanofi-Aventis' options regarding its animal health JV with newly-enlarged Merck & Co.
• Pfizer's new eCard goes live in Russia this month, reports the FT, and should come on line in other emerging markets later this year. The discount drug card will allow Pfizer to collect data on patients' drug use.
• AZ is teaming up with Cancer Research UK to discover and develop drugs that target cancer metabolism, the non-profit said on Sunday.
• President Obama has announced a televised, bipartisan, half-day health care reform summit to take place at the White House this month (snow permitting?). Move over Super Bowl ...

image courtesy flickr user RRRPhotos used under a creative commons license.

DotW: IPO Medicine

The big news this week for early stage biotechs and their VC backers: The IPO Window is Officially Open!

Or maybe not.

As my colleague Alex Lash describes in this week's issue of "The Pink Sheet", Ironwood Pharmaceuticals' $188 million IPO is the proverbial elephant among the blind men. How you perceived it, depended upon where you touched it.

Let's start with the good news. Ironwood raised more money with this offering than any U.S. biotech in the past 10 years, nabbing a $1 billion post money valuation. (Only Eyetech Pharmaceuticals' 2004 $150 million raise comes close.) The company's stock price has even increased, albeit only modestly since the debut.

But for investors and would be IPO candidates, the offering was a lesson in caution. Several weeks prior to Wednesday's debut, Ironwood made the gutsy move of actually increasing its offer price 28%, confident that investor appetite for its shares would be robust based on the pre-come-out road show.

Let's just say things didn't exactly go as forecast. On Feb. 3, the company sold 16.7million shares at $11.25, significantly below its revised target range of $14 to $16 a share, and modestly below the $11.75 target predicted in SEC filings in November 2009. Moreover, nearly half the offer went to Morgan Stanley, one of Ironwood's top private investors and a banker on the deal. "There were unorthodox methods used to place shares," Cabot Brown, of San Francisco boutique bank Seven Hills, which had no connection to the deal, told our sister pub "The Pink Sheet" DAILY. "This was half a public offering."

Indeed, taken together, Ironwood's close shave and the apparent lack of widespread interest in the offering suggest investors pushed back hard or Ironwood's attempts to hit a grand slam instead of a home run.

And that could be a problem for IPO wannabees in the queue. After all few venture-backed, pre-commercial biotechs can match Ironwood's profile. The 10-year-old company's Phase III compound, linaclotide, is backed by strong clinical data and partnered on three different continents. It faces only two competitors, one in the U.S. (Amitiza from Sucampo and Takeda) and one in Europe (Resolor from Belgian firm Movetis, which incidentally managed a lucrative IPO last December).

So if investors aren't lapping up Ironwood's offering, will they have greater interest in a company like Tengion or Trius Therapeutics or Anthera, or any of the other 7 biotechs that have declared their intent to go public? (On the same day as Ironwood's debut, Anthera priced its offering at $13 to $15 a share, for a total expected raise of slightly less than its original $70 million target. It's slated to debut the week of Feb. 22.)

And should these subsequent offerings fall flat--or worse--how will that, in turn, impact the IPO climate? According to Elsevier's Strategic Transactions database, there are at least 10 privately-held biopharmas with compounds in Phase II development or later who are--how can we put this delicately?--long in the tooth when it comes to fund raising. Indeed it wouldn't surprise IN VIVO blog at all to learn companies like Portola Therapeutics, Helicon Therapeutics, and Biolex were mulling potential IPOs.

Still, venture's inability to finance itself adequately means there could be a movement to push some of these fledgling biotechs out of the financing nest before they are ready to fly solo. And rest assured, a few lackluster offerings won't just close the IPO window for brave biotechs. It will slam shut faster than Washington D.C. in a snowstorm.

Big questions to ponder as the snow falls--#snOMG!--and you rate the ads from Careerbuilder.com, Budweiser, and Frito-Lay. (Wait, there's a game?) For now, it's on to Deals of the Week.


GlaxoSmithKline/Apeiron: GSK continues to access early stage innovative programs through small, back-end weighted licensing agreements. This week the big pharma inked a deal with privately-owned Apeiron worth $17.5 million in upfront cash and equity for full rights to the biotech’s Phase I biologic for acute respiratory distress syndrome (ARDS), an adverse event associated with sepsis, trauma, and post-operative complications that affects approximately 1 million people annually in emerged markets. Glaxo could be on the hook for another £207 milllion in development milestones as well as sales royalties should Aperion’s asset, APN01, a recombinant human Angiotensin Converting Enzyme-2, succeed in three indications. Although this is far from big money for GSK, the upfront payment exceeds the £10 million Apeiron has raised from Austrian and European grants and angel backers. (Apeiron is one of a growing number of companies eschewing VC.) GSK’s respiratory CEDD, one of the half-dozen semi-autonomous therapeutic areas focused units comprising GSK’s R&D operations, gets credit for the deal. But it may have its hands full when it comes to APN01’s development. As “The Pink Sheet” DAILY notes, the track records for drugs for similarly complex—and associated—conditions such as sepsis show why the unmet medical need remains high. (Xigris anyone?)—Melanie Senior

Cephalon/Mepha: Generics, that low margin, but inherently stable business, remains a sexy proposition. Any doubts look no further than Cephalon’s purchase this week of the private Swiss generics firm Mepha for $590 million. One year after it launched the option-to-acquire party with its $100 million bid for Ception, a privately held biotech developing the Phase IIb/Phase III reslizumab for the rare autoimmune condition eosinophilic esophagitis, Cephalon is now talking up diversification and internationalization. (Or is the internationalisation?) “This is about growing top-line and bottom line, and generating cash,” Cephalon CEO Frank Baldino said on a conference call announcing the deal. Like other drug makers (including Pfizer), Cephalon’s late stage pipeline is thin and the specialty pharma faces revenue pressure given the 2012 genericization of its juggernaut, Provigil. In addition to providing much needed near-term revenue, this deal is also about building a European commercial infrastructure. Thanks partly to Mepha, 30% of Cephalon’s global sales will now be ex-US. Bidding for Mepha, owned by Germany’s Merckle family and sister to ratiopharm, another generics firm on the auction block, was apparently competitive. Still the ultimate price tag for the deal was just 1.5 times Mepha’s 2009 sales.—Jessica Merrill and Ellen Licking

Medco/DNA Direct: On Feb. 2, the pharmacy benefits manager Medco announced the acquisition of privately-held DNA Direct, a decision support services outfit for payors, providers, and patients to help ensure the appropriate use of more than 2,000 available genetic and molecular diagnostic tests. Financial terms of the deal were not disclosed. Five-year-old DNA Direct, which had backing from Firefly Investment and Lehmi Ventures, will become a wholly-owned Medco subsidiary and its current prez, Ryan Phelan, will remain at the helm. The deal was apparently driven by Medco’s need to bolster its commercial side rather than its R&D capabilities, according to “The Pink Sheet” DAILY. DNA Direct charges fees only for its consulting services; it does not make money on the tests it recommends and supplies to individuals. The company started out focused on the consumer, but has shifted to a B2B model in which it helps health plans choose appropriate genetic tests for their physicians and members. Thus, it’s a good fit with Medco's personalized medicine program. The deal comes approximately three years after Medco reorganized the front end of its pharmacy operations into Therapeutic Resource Centers, a network of six sites each focused on one disease. Medco is not the only PBM to tap into the burgeoning genetic counseling market. In November, CVS Caremark announced a partnership with genetic benefits manager Generation Health.—Mark Ratner

Abbott/Pierre Fabre: Abbott continues to look for alliances or acquisitions in high growth therapeutics areas, this week inking a deal for Pierre Fabre’s preclinical antibody targeting the cMet receptor, h224G11. cMet’s definitely a target that’s caught Big Pharma’s attention. Late last year, Novartis ponied up $150 million (plus $60 million in near term milestones) to acquire Incyte’s Phase III JAK 1/JAK2 inhibitor and its Phase I oral cMet inhibitor. In that transaction, acquiring rights to the late stage JAK1/JAK2 inhibitor clearly drove the deal economics, so it’s a bit surprising to discover Abbott is paying $25 million upfront, plus two years of research expenses and undisclosed milestones to get its hands on Pierre Fabre’s not yet studied in humans mAB. (Who says you have to get to POC to make money on a deal?) Under the terms of the collaboration, Abbott will be responsible for all further development of h224G11, which has shown promising results in treating a range of solid tumors (including prostate, lung and gastric cancers), as well as the mediation of chemotherapy resistance. The addition of h224G11 bolsters the Big Pharma’s oncology pipeline, which also includes a PARP inhibitor and a monoclonal antibody targeting a unique epitope of the epidermal growth factor receptor. Beyond oncology, other priority therapeutic areas include cardiovascular disease, immunology, and pain. In November 2009 Abbott paid $170 million to acquire PanGenetics’ treatment for chronic pain, an antibody targeting nerve growth factor.--EFL

Qiagen/Pfizer: Pfizer has enlisted Qiagen to develop a companion diagnostic for its experimental glioblastoma immunotherapy PF-04948568, which Pfizer licensed from Celldex Therapeutics in 2008. The diagnostic, a real-time PCR assay to detect the EGF receptor variant vIII RNA, was one of the programs underway at DxS, which Qiagen acquired in September and has now established as its Manchester, UK, Center of Excellence for Companion Diagnostics. Terms were not disclosed, but it’s always good news for the field of personalized medicine when a pharma company reaches out for development of a companion diagnostic – especially when it’s done early in clinical trials, in this case at Phase II. Qiagen is among the more interesting emerging players in molecular diagnostics. Historically a supplier of kits and reagents, not a developer of tests (at least that was the case prior to its acquisition of Digene), Qiagen’s emphasis has always been on simplicity of processes and procedures. It appears to be adopting the same philosophy with molecular diagnostics development: in the press release announcing the deal, it specifically noted that the new test was designed for a simple workflow.--MR

Image courtesy of flickrer higlu via a creative commons license.

Europe Matters, says Cephalon, with $590m Mepha Deal

"Europe hasn't been high-profile for a lot of you" [mostly US analysts], declared Cephalon's Chairman & CEO Frank Baldino, "but it should be." As a European-based (and minded) blogger, that was my favorite--whoops, should I say favourite--quote from the conference call today annoucing Cephalon's CHF 622 million ($590 million) cash acquisition of private Swiss generics firm Mepha.

The deal is all about diversification and internationalisation; "we want to embellish all three of our businesses--in brands, branded generics and generics--for more stability and less risk," declared Baldino on the call. "This is about growing top-line and bottom line, and generating cash." Sound familiar? Yes, well that's because you've heard it from most (well, many) Big Pharma CEOs recently, too. Don't put all your eggs in one basket. Especially when you're pipeline's looking a bit shaky; Cephalon's reslizumab (Cinquil) disappointed late last year in EE (we can't spell it out), and the rest, writes Baird analyst Thomas Russo is "lacking in visibility".

Talking of Big Pharma though: Should we then expect a big emerging markets push from Cephalon soon too? Well, this deal already expands their presence in Eastern Europe in particular, and some Eastern African markets. It's not China and India, but it's emerging.

Still, this deal is about Europe, and Europe's generics market which--given the big cost-cutting splurge among most governments and insurers--has been growing steadily. "Unlike businesses in the US, these European businesses are lower margin, but stable," explained Baldino, mentioning Mepha's five-year CAGR of about 13%.

Low margin, stable businesses weren't very sexy five years ago, but are right now, especially as uncertainty over the future of the US prescription drug market continues to build. "We will now have 30% of our global sales outside of the US," piped Baldino. "There's still a way to go" to achieve real geographic balance, "but this is a real step towards that," he said.

Add to this the tax benefits of buying a Swiss company ("we'll certainly take advantage of those [tax-related] opportunities for our shareholders...") and the price, which, at just over 1.5 times 2009 sales looks reasonable (compare Ebewe, which Sandoz bought for 4.4x sales, though that was specialist), and you can see why Baldino's on a roll.

But bidding was nevertheless highly competitive. Mepha, owned by Germany's Merckle family, was on the block for a while along with sister company ratiopharm as a result of patriarch Adolf Merckle's suicide a year ago during the financial crisis. Ratiopharm is likely to be snapped up very soon, most likely by Teva. Reuters reported half-a-dozen Mepha suitors in November 2009, and that the price target was about CHF700m.

"There were a number of bidders involved to the very end," revealed Baldino. "Our advantage," he continued, "was that the two businesses fit like a hand in a glove." That doesn't quite explain why the price didn't reach Merckle's alleged target--but who knows what, if any, non-financial concessions were granted (like commitments to retain staff, for instance, given the wonderful complementarity; we didn't get any comment back on that from Cephalon in time for this blog).

Baldino still hopes to realize plenty of synergies through supply-chain and distribution functions, though, as well as cutting various central functions.

Cephalon made its first significant step into Europe in 2001 buying France's Groupe Lafon, followed four years later by the $360 million acquisition of Zeneus Pharma. (If you're really into European spec pharma history and strategy, read this.) The US-based group has continued acquiring ever since in what Baldino describes as the group's "multiple strategies that we execute simultaneously", across high-margin biologicals, small molecules and generics (and biosimilars, where Mepha also apparently provides a foothold). Recent deals include options to buy allergy and inflammation company Ception and BioAssets Development (focused on biologicals for pain) and the acquisition of Australia's Arana Therapeutics in February 2009.

Mepha is the leading generics firm in Switzerland with a 38% share, and markets more than 120 products in 50 countries and has about 50 pipeline candidates. Baldino says this cash deal won't change Cephalon's debt position.

image by flikrer rockcohen used under a creative commons license

While You Were Taking a Homeopathic Overdose

In Britain, hundreds of protesters gathered outside branches of the drug store Boots to endulge in a little comedy 'overdose' of homeopathic pills. The sugar rush must've been amazing.

Meanwhile, in Washington, here comes the budget. And it ain't pretty ...

While you were watching a pretend football game ...

• GSK plans to cut about 4,000 more jobs in the US and Europe, reports the Sunday Times. The official word is expected on Thursday when the Big Pharma reports its 2009 financials.


• Harvard and Imperial College scientists have elucidated the structure of a key HIV enzyme, integrase, reports Reuters. The findings should aid drug discovery and resistance-prevention efforts.


• Merck Serono: no timeline yet on FDA resubmission of MS drug oral cladribine.


• FDA isn't happy about one oft-quoted dermatologist's premature enthusiasm for Dysport in 2007, which hadn't yet been approved. The forum? The women's magazine Allure.
• UPDATE: Cephalon is buying the Merkle-owned Swiss generics company Mepha for $590 million. The deal doubles the size of Cephalon's overseas business, which until now mainly comprised the assets of former European specialty play Medeus.

image from flickr user shellac used under a creative commons license