Financings of the Fortnight Enjoys An Early Noel

For many of us, Christmas (or Hanukkah) arrived early this year. Fans of the Philadelphia Phillies, for example, found a stocking full of Cliff Lee, giving the team a formidable rotation that apparently only the San Francisco Giants can beat consistently. Twitter pulled the ribbon off a $200 million gift box from VCs including blue-chip Valley firm Kleiner Perkins Caufield & Byers.

And across the pond in the UK, where the name Cliff Lee prompts about as much recognition as Ashley Cole’s does in the States, the British biotech sector got its early gift: a £140 million ($220 million) equity raise for Imperial Innovations Group plc, the tech transfer-focused firm closely tied to Imperial College London, foretelling dozens of new investments in academic spinouts.

Wrapped into Imperial Innovations' new funding is the news that it will focus increasingly on commercializing other institutions' research, while continuing to fund ICL spinouts. The firm will collaborate with Cambridge Enterprise, Oxford Spin-Out Equity Management, and UCL Business, the tech transfer groups associated with University College London and the Universities of Oxford and Cambridge. ICL-related investments will still account for the biggest share, with about 40% of the new funds slated for those spinouts; the firm and the university have an ongoing 15-year pipeline agreement that runs through 2020.

The deal will accelerate the firm's pace of investment to as much as £60 million annually from a current pace of £14-£15 million each year, according to CEO Susan Searle. Founded in 2006, Imperial Innovations has invested £47.9 million since its 2006 IPO. It plays a hands-on role in 31 of its 79 portfolio companies, often investing alongside traditional VCs. It reaped a £9.5 million cash exit from the £73 million sale in June of small-molecule drug discovery startup Respivert to J&J's Centocor Ortho Biotech division this year, and could gain as much as £16.1 million from a back-loaded payout from Wyeth's acquisition of obesity drug maker Thiakis.

Imperial Innovations' public placement, relatively rare in 2010, included a rights issue and three installments of convertible shares. J.P. Morgan Cazenove underwrote the issue.

Though VCs have shied from academic deals of late, even deriding them as "science projects" as they've shifted focus, it's been a strong season for investment in university research. On the Big Pharma side, Pfizer's headlong charge into academic dealmaking produced an $85 million commitment to UCSF this fall, one of several on-campus deals the company plans to make.

Whether you're the type to open presents on Christmas Eve or Christmas morning, Imperial Innovations isn't the only one who's already enjoying a gift this season. Since it stands to reason that Santa's sleigh travels from east to west, we'll first linger in Europe as we present...

ThromboGenics: The one-horse open sleigh has already made pitstops in several European countries, rewarding Belgium's ThromboGenics with the most loot. Planning to go it alone with the anticipated launch of microplasmin for retinal disorders, ThromboGenics raised €56 million (about $75 million) in a private investment in public equity financing announced Dec. 2. The deal was one of three PIPEs completed by European biopharmaceutical companies during recent weeks – in addition, Medivir AB raised SEK 280 million (about $41 million) Dec. 3 by selling 2.25 million class B shares of stock at a price of SEK 125 to more than 30 international institutional investors and certified investors in Sweden, while Bavarian Nordic A/S brought in DKK 205 million (about $36.8 million) Nov. 30 by selling 1.05 million shares at DKK 195 apiece. ThromboGenics’ private placement nearly doubled its cash on hand, reported as €59.1 million at the end of the third quarter. The company, which placed 2,944,523 new shares (about 9.9% of outstanding shares) to domestic and international buyers, including qualified U.S. institutional investors, set its price at €19, a 3% discount from the previous day’s closing price. Microplasmin has completed a pair of Phase III trials in varying retinal disorders, including focal vitreomacular adhesion, with a single injection resolving such adhesions in about 30% of patients. Regulatory filings in the U.S. and EU are anticipated in mid-2011. -- Joseph Haas

Sequenta: Geneva's Index Ventures is feeling jolly about diagnostics, and the allure of Sequenta's adaptive immune system response monitoring technology was like milk and cookies waiting for Santa. The California-based company raised $13 million on Dec. 8 in a Series B that also included prior investor Mohr Davidow Ventures, which supported Sequenta in its $2 million Series A. For Index, it's the second time it has backed Sequenta's management team; the same entrepreneurs founded SNP-discovery focused ParAllele Bioscience, which was acquired by Affymatrix in 2005. The firm also has a stake in microfuidics-based assay company SpinX, based in Switzerland. "We're getting into the diagnostics space more and more," enthused UK-based partner Francesco de Rubertis. "It's because of what's happening in pharma: the one-size-fits-all model very clearly is becoming problematic." While diagnostics has long provided the answer to this in theory, in practice, it's been a slower ride, and de Rubertis acknowledged that the best model hasn't yet been found. He added that Index is planning more European diagnostics investments, which will likely be earlier-stage deals. -- Melanie Senior

Catabasis: A lump of coal if you’re naughty, a stocking stuffer if you’re nice, and a second tranche of funding if you meet your milestone. Four VC firms dressed as Santa swooped down the chimney a couple of weeks early with $14.5 million in fresh cash for Catabasis, a diabetes and inflammation startup on the rise whose name nonetheless refers to a descent or sinking. The new money builds on a $7.7 million installment of Series A capital revealed in April, but the round is a gift that’s supposed to keep on giving: The $22.2 million received so far could grow to $39.7 million if additional milestones are met, with SV Life Sciences, Clarus Ventures, MedImmune Ventures and Advanced Technology Ventures standing in for Kris Kringle. Catabasis, which is exploring the connection between inflammation and metabolic disease, expects next year to begin Phase I trials on a drug that combines Omega-3 compound DHA with a salicylate derivative that improves glucose homeostasis in type 2 diabetes patients. After all the cookies and milk, perhaps it's the perfect present for man, dressed all in fur. Nor was Catabasis the only one topping up--and we're not talking eggnog either. Since the last edition of Financings of the Fortnight, Santa's elves have visited Histogen, a San Diego regenerative medicine startup that added $5.35 million to complete its $10 million Series A round, and PhaseBio Pharmaceuticals, which took in the last $15 million of its $25 million Series B to support Phase I trials on the diabetes drug Glymera. -- PB

Geron: Finally, it won't be a blue Christmas for Geron, which netted $93.5 million in a follow-on public offering intended to shore up its balance sheet for multiple projects, including a new licensing deal with AngioChem. The cancer and degenerative disease specialist wasn't necessarily strapped -- it had $125.6 million in cash and short-term investments as of September 30. But Geron owed a $7.5 million upfront payment to AngioChem, and it's on the hook for all further development of the Phase II compound on which the deal centered, a taxane derivative that uses a peptide mechanism to cross the blood-brain barrier and treat brain metastases and glioblastoma. Geron will also conduct Phase II trials on a telomerase inhibitor, which blocks an enzyme thought to be crucial for cell stability and replication in breast and lung tumors, and early-stage clinical trials on a human embryonic stem cell treatment for spinal cord injuries. Geron priced about 17.4 million shares at $5 apiece to raise the first $87 million, while lead underwriters J.P. Morgan Securities and Lazard Capital Markets pursued a greenshoe option that accounted for the remainder. -- PB

image from Flickr user mchristianphotos used under a creative commons license

2010 M&A DOTY Nominee: Abbott/ Piramal

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


Tennyson? Maybe he's an OK mascot for academic-industry deal-maker types. Rudyard Kipling, however, best characterizes Abbott's recent full-blown attack on the Indian pharma market, with his quote: "Gardens are not made by saying 'Oh, how beautiful' and sitting in the shade." Clearly, a message Abbott executives took to heart when inking the whopping $3.72 billlion deal ($2.1 billion in cash) they made in May 2010 to buy the branded generics business of Piramal Healthcare - a valuation that is an unheard of nine-times sales and 31 times earnings.

The deal, which put India's fourth largest pharma company under Abbott's wing, has kept global biopharma tongues wagging for months about over-heated valuations in emerging markets, and in particular, of course, India, as well as Big Pharma's true long-term intentions in Asia versus their short-term opportunistic motivations. It catapulted Abbott, which until last year could be diagnosed as emerging-markets deficient, into the number one spot in India. That's a steep climb from 2009, when it barely cracked the high teens, and puts it ahead of MNC India virtuosos like GSK and Sanofi. Abbott's move changed not only Abbott, however, but the entire Indian pharmaceutical landscape forever - surely the kind of transformative event that should be at the top of any dealmaker's DOTY award list.

So, what did Abbott get for its generosity? A portfolio of 350 branded generics which its newly formed Established Products Business Unit (haven't we seen similar renditions at Pfizer and AstraZeneca, among others?) will sell in India and some other emerging markets; a large, somewhat bloated sales force, with a strong presence in rural districts, and a 4% share of a very fragmented market - bringing Abbott's new total share to 7%.

Analysts say that with this deal, Abbott can move into the center of the Indian drug market and play a bigger role in its rapidly unfolding growth story. Piramal has a large number of mass-consumption products, which Abbott could not easily create from scratch in a fast-moving market, and Abbott will also be able to sell its own brands, as well as the Piramal products, which are largely in CNS, cardiovascular, and respiratory diseases. Oh, and the new Abbott's pro forma growth is projected at 13.2%, which is stunning for Western eyes, although actually below the overall growth rate of 17.5%.

India is in the midst of an M&A frenzy, which started with Daiichi Sankyo's $4.6 billion purchase of Ranbaxy generics in 2008. Even that huge effort pales in comparison to what Abbott has wrought. Before Abbott, three of the top four pharma companies in India were Indian-owned, but now that number is whittled down to one: Cipla.

If the aim of DOTY is to reward a deal-maker's brashness and recognize a company that puts its money where its mouth is, vote for Abbott-Piramal.

2010 Alliance DOTY Nominee: Pfizer/UCSF

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

O the wild charge they made! Pfizer's five-year, $85 million commitment to fund academic research at UCSF is the company's latest and largest push into the so-called Valley of Death that lies between the university laboratory and the commercial sector. We at the IN VIVO Blog hope this endeavor is more productive than Lord Cardigan's brave but ill-fated press forward in the Crimea, although we also admit that we may fall short of Tennyson's eloquence in chronicling the occasion. We'll do our best.

If not quite all the world has wonder'd how to turn academics' novel research into viable, life-saving medicines, it's a question that's captured the imagination of many in Big Pharma. In a trend that started in 2009 and gained traction in 2010, drug makers are increasingly looking to partner with academia in hopes of injecting Innovation (yes, with a capital "I") into their pipelines. Think Sanofi/Harvard, AstraZeneca/University College of London, or Genentech/UCSF. But those tie-ups pale in comparison with Pfizer's alliance with UCSF, a potential game-changer that surely merits your vote for Deal of the Year. Will you honor the charge Kindler's (er, Read's) team has made?

Like other Big Pharmas, Pfizer has inked deals with universities before, and even established a presence on UCSF's campus when it launched its Biotherapeutics & Bioinnovation Center in 2008. Still, the UCSF deal is a more expensive, closer-knit arrangement. For Pfizer, the agreement offers access to research at the point of creation, joint ownership of drug candidates (thought to be split 50-50 with UCSF), and options to develop compounds internally after Phase I trials are completed. The university will receive royalties or other payments as the drugs march bravely toward commercialization, while also receiving a view into Pfizer's library of antibodies, reagents and other compounds.

In conjunction with the deal, announced November 16, Pfizer appointed former AstraZeneca exec Anthony Coyle to lead its newly created Global Centers for Therapeutic Innovation, which will marshal troops into various academic centers around the world. Coyle promised more on-campus deals, including collaborations in Europe and Asia over the next couple of years.

Into the Valley of Death will ride about twenty Pfizer employees, who will set up shop in a private office on the UCSF campus. The school, in turn, will hire additional management to oversee the collaboration and bring in postdocs and other researchers as needed. A steering committee comprising four members each from Pfizer and UCSF will distribute funds and resources, to make reply and to reason why.

While it may focus primarily on large molecules, the collaboration isn't limited to any therapeutic area, nor is UCSF obligated to steer clear of additional agreements that could create competition among pharma partners for projects within its halls, like foreign armies trying to capture the port of Sevastopol. (Cannon to the right of them, cannon to the left of them....) Researchers can still opt out of Pfizer's grasp, and if the company declines its option on a drug, UCSF is free to negotiate with others.

But Pfizer's influence will be high on campus, and if the partnership succeeds -- which it will if it produces a single marketable compound -- other pharmas will surely follow. Half a league, half a league, half a league onward!

2010 M&A Deal of the Year Nominee: Pfizer/King

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

One of the virtues of Pfizer's gigantism is that the company possesses a size and scale that will allow it to play virtually anywhere it likes in the pharmaceutical space. (Of course its size is one of its problems as well, but let's put that to the side for a moment.)

Pfizer's October acquisition of pain play King Pharmaceuticals for $3.3 billion (a deal not yet final, but one we are confident will close) demonstrates those advantages nicely and clearly has to be on anyone's Deal of the Year shortlist. It illustrates one possible future for Pfizer's business development strategy (the era of the bolt-on deal) while at the same time highlighting abuse-resistant opioids, a class of drugs at the center of commercial and regulatory brouhaha.

Why is pain, or at least the tricky, abuse-resistant space, a good fit for Pfizer? Not only are specialty areas the places where this and other Big Pharma are getting forced to dabble thanks in part to the genericization of some of their favorite primary care categories, but they may also be places where industry's largest companies can use their scale to their advantage. And for that you can thank the FDA.

More precisely FDA's Anesthetic & Life Support Drugs and Drug Safety & Risk Management advisory committees, which not long after the Pfizer/King deal completed a two-day discussion of endpoints for post-marketing studies to demonstrate abuse resistance in the opioid pain management class. The committee recommended that FDA set a very high bar for explicit claims of abuse resistance—advice that, if FDA took it on its face, would make it exceptionally difficult for new entrants (like King) to break into the market dominated by Purdue Pharma LP's OxyContin.

However, as our colleagues wrote in the November issue of The RPM Report, with Pfizer-like resources those post marketing burdens begin to look like insurance against competition. Large and expensive studies? For Pfizer, for now, not necessarily a problem. It's hard to see a stand-alone King having the same nonchalance.

Of course Pfizer also gets King's auto-injectors and animal health businesses, further helping it diversify. But in addition to the resources necessary to drive forward those abuse-resistant opioids like Remoxy, it's King's specialty marketing sales force that can now go off and market some of Pfizer's pain franchise and the added heft Pfizer's primary care reps can give to some of King's portfolio that really drives this deal.

So in this year's DOTY competition, vote for the big guy, who makes you an offer you can't resist.
image from flickr user chrisblakely used under a creative commons license

2010 Alliance DOTY Nominee: Pfizer/Biocon

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


OK, it may not be the biggest DOTY or even the most creative in terms of structure. The terms are pretty plain vanilla - Pfizer pays $200M upfront to Indian biotech Biocon and an additional $150M in development and regulatory milestones, plus payments tied to commercialization. In exchange, it gets rights to sell Biocon's portfolio of biosimilar insulins throughout most of the world. Thus, this ain't the kind of deal that inspires heady talk in the biz dev community, which is more likely to eye the latest fancy risk-sharing schemes.

While the structure of Pfizer/Biocon is quite traditional, the concept is anything but. Indeed, the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demostrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets. Because of its conceptual radicalism, it is by far the best choice to win the DOTY award.

The alliance brings together two diametrically opposed companies that have surprisingly complementary interests: big, unwieldy Pfizer, which lacks a presence in diabetes, and Biocon, an aggressive, comparatively small Indian biotech, which, while far from naive, has limited global operations and ambitions to develop an oral insulin.

Pfizer now will sell all of Biocon's biosimilar insulins and insulin analogs, including recombinant human insulin, Glargine, Aspart and Lispro; in Germany, Malaysia, and India only, the partners will share commercial responsibilities. Biocon is in charge of global manufacturing, development and regulatory approvals. The partners assert -- and there's really no other word to describe their pitch - their broad portfolio will enble them to challenge the industry's diabetes mainstays. Take that, Novo Nordisk, Sanofi, and Lilly.

The deal was spearheaded by two aggressive business leaders who think outside the box: David Simmons, who has headed Pfizer's $10B Established Products Business Unit and recently took over Emerging Markets as well, and Kiran Mazumdar Shaw, chairman of Biocon . Simmons has spent the past two years scouring Asia and elsewhere for inexpensive outsouring opportunities to buttress his units' generics business, but the Biocon alliance is different and more strategic than his unit's previous deals with Indian generics manufacturers Aurobindo and Claris.

With insulin, Pfizer is plunging into the biosimilars fray. Simmons has said previously that Pfizer wants to play in this space, but until now, he hasn't articulated just how it will do so. By teaming up with Biocon, he's indicating Pfizer's willingness to essentially outsource its approach to this new business opportunity with an up-and-coming EM player.

For Biocon, too, the deal represents new territory. India's budding biotech industry is just that --budding -- and often seems to be stalled. Biocon, however, has stood out as an exception, with its long-time efforts to become a global innovator, backed by self-generated revenues from more traditional, lower margin businesses, such as contract research and drug development services, as well as sales of generic biologics to domestic markets. Like Simmons, Shaw seems intent on pushing beyond her company's comfort zone.

Timing is a key virtue of this deal - the partners have some -- not much - breathing room because they will roll out the insulins gradually. They won't discuss their regulatory strategy in the US, where they hope to launch in 2015, but FDA officials say the agency is "open for business" when it comes to biosimilars, despite lack of formal guidance in this area.

Emerging markets is the wild West of pharma these days, but Pfizer and Biocon have demonstrated admirable patience and a cautious, yet forward-thinking approach to a new business opportunity. Simmon's recent appointment as head of emerging markets, even as he retains his current position at EPBU, puts him in charge of one of Pfizer's major growth initiatives. How's that for validation of a strategy?

2010 M&A DOTY Nominee: Teva/ratiopharm

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

There's suicide. There's red-hot competition. There's rumors of personal CEO visits. There's even some Kindler (remember him? That industry veteran who headed up the world's biggest drug company and then retired one Sunday to recharge his batteries?). With that line-up, how could anyone not vote for Teva's acquisition of ratiopharm for M&A Deal of the Year?

We (the Teva/ratiopharm supporters, I know you're out there in your hundreds) don't need snazzy deal structures, CVNs, CVRs or anything else. Nothing clever. Just a good old story of a good old fight, with money of course, for an apparently attractive -- yet vulnerable -- target. And a relevant one, at that: generics has been the the decade's new hot target for pharma. (Pharma beyond Novartis, that is).

Germany's number-two generics firm had been up for sale since January 2009, following Adolf Merckle's suicide. (He and his family controlled VEM Holding, ratiopharm's owner, but was hit by the financial crisis.) The company had to go; that was the deal VEM struck with its angry creditor banks. Towards the end of the process, there were believed to be three suitors, Pfizer, Actavis and Teva.

It looked, at one point, as if Pfizer would win it; Kindler, after all, was reported to have been spotted visiting the company's Ulm headquarters in March 2010, just before the winner was announced. (Last-ditch effort on Kindler's part? Was this disappointment one of the reasons he, errm, left?)

Pfizer wanted ratiopharm since Pfizer needed -- needs -- all the revenue it can get (including in those surer-fire sectors like generics, where it and several of its Big Pharma peers have laid significant stakes), in order to offset the impact of generic Lipitor. ratiopharm offered a strong European presence, and some emerging market holdings too.

But Teva was hungry too, and Teva does this -- generics -- for a living. It's renowned in its aggression determination. The company had been on an acquisition binge for the previous decade, building up to almost $14 billion in annual sales in 2009 (that, by the way, is about Lipitor-sized), and the plan, announced January, was to double that again in 2015.

Given that, and Teva's very weak position in Germany, the largest European market, and it's easy to see why the Israeli group did stump up $4.9 billion for the booty, including $820 million in debt--exceeding analysts' expectations, and apparently also exceeding what even Pfizer was willing to pay. Teva needed to solidify its position in the European generics sector, where it promised sales would increase to $9 billion from just over $5 billion in 2009.

Never mind that Germany is one of the toughest markets when it comes to generics pricing: for the last 3-4 years, companies have been competing on price via a tendering process for two-year sole-supply contracts to the country's sick funds, saving said funds hundreds of millions of Euros. Indeed, this 'all or nothing' set-up makes it even more important that Teva has a place at the table with major customers, as Teva's European CEO put it to our Pink Sheet DAILY reporter. ratiopharm had done very well at winning tenders.

So as well as providing a good, meaty fight with a strong cast, this deal is a finger-on-the-pulse of the decade's industry trends: generics' new sexiness, payer-driven pricing pressure (will Germany become a template in that regard?), and oh, yes, we forgot to mention, emerging markets (ratiopharm had a bit of that) and follow-on biologics (ratiopharm had a bit of that, too, via its BioGenerics division).

In fact, are there any reasons not to vote for it?

Ulm cathedral image by flickr user donvanone used under a creative commons license

Clozel: We're Fine on Our Own, Thanks

Actelion CEO Jean-Paul Clozel used the opening ceremony of a new office building on Friday to remind reporters that the company is not for sale, according to Bloomberg. Amgen is said to be considering an offer for the company that last year declared its ambition to become "a Genentech in Europe."

No, Clozel wasn't saying he wanted to be acquired by Roche, either -- the company that Clozel and Actelion's other co-founders came from. He was saying that Actelion should remain independent and continue to create value for its shareholders, and that message is the same today.

"We have created so much value that of course somebody would like to catch this value," Clozel was reported as saying last week. But "we will have a 20-year future," he said, and might have added that we're certainly not going to be bought while our shares our down (nearly 5% this year).

Another part of Clozel's message has changed, though. Back in 2009, Actelion was poised to move into the GP domain, on the back of Phase III pipeline candidate almorexant, partnered with GSK for sleep disorders. It wasn't just talk: Actelion had re-organized its commercial organization and hired a bunch of GP-experienced folk. It was all about diversifying away from PAH treatment Tracleer (which accounts for the bulk of Actelion's SFr 1.7 billion in revenues), and about "following innovation wherever it leads."

That particular innovation doesn't appear right now to be leading anywhere: the Phase III trials of almorexant threw up some safety concerns and further investigations are underway with a decision on whether to continue expected early next year.

Meanwhile it's back to rare diseases, then--the precise reason Amgen's interested (as are a few others, no doubt). Actelion's signficant success to date (it became profitable in just six years and is one of the few European biotechs to have created its own commercial infrastructure) is built around Tracleer in particular, and around PAH more generally, an indication that it more or less built itself, albeit initially more as a result of chance than design.

Today, then, Clozel's message isn't about "being as good as Pfizer" when it comes to primary care marketing. Both are so passe. So, apparently, are prospects for Tracleer beyond PAH (the drug failed Phase III trials in idiopathic pulmonary fibrosis in March).

Today's story is back to PAH again, but it's about macitentan: you guessed it, a Tracleer-follow-on. Due to report Phase III trials in 2011, macitentan could be even more potent than Tracleer, say some, since it's a highly tissue-specific endothelin antagonist.

"At the end of next year we will be a completely different company because we will have macitentan," Clozel told journalists at the site opening. Not so different as if it had almorexant, though. But, as Clozel implied, different enough to be worth a lot more than what today's share-price says -- assuming things work out, of course.

Back in 2009, Clozel said that Actelion had specifically not tried to turn itself into 'the endothelin company'; the message being that it would not limit itself to a specialist indication or approach.

Forced now, by pipeline upsets, to lean back on that original focus, it's this specialization that nevertheless makes Actelion an attractive take-over target. And if macitentan goes the same way as almorexant and as clazosentan, which failed in a late-stage study in vasospasm earlier this year, Amgen's offer, if it exists, may yet prove the most valuable option for those shareholders after all.

image by flickr user secretlondon123 used under a creative commons license

2010 Exit/Financing DOTY Nominee: Incline Therapeutics

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

The story of Incline Therapeutics’ $43.5 million Series A funding is, to use a word, one of various inclinations. Johnson & Johnson, for example, was inclined to shutter Alza and sell for a pittance the rights to an electronic fentanyl patch it had spent hundreds of millions of dollars to bring to market, but pulled due to a safety concern. Cadence Pharmaceuticals was inclined to buy the patch from J&J, but was short on cash and otherwise inclined to focus on getting its intravenous acetaminophen, Ofirmev, approved. And a group of VCs was especially inclined to set up a new startup company with an exit strategy built into the company’s launch, charging Cadence $3.5 million for each of two consecutive options to buy the startup – if it should be so inclined.

The fascinating tale of Incline’s birth, emblematic of recent trends and extraordinary in its complexity, therefore merits your vote for DOTY in the Exit/Financing category.

Like several other large first-round fundings, the financing is tranched, with a detailed product roadmap that correlates with future capital infusions. Furthermore, it represents a bet on a mature product, a slightly modified version of a drug/device combination that has already been marketed outside the U.S., rather than murky, exploratory research VCs sometimes deride as “science projects.”

But the June deal is also uniquely structured with a built-in exit opportunity, a pair of options for minority stakeholder Cadence to acquire Incline outright by the end of 2013. Thus, Incline's financing is a sign of the times, demonstrating that when VCs commit large amounts of capital, they’re willing to negotiate upfront for a speedy, healthy return.

Incline's Series A arose as J&J put its Ionsys technology on the block. Briefly marketed in Europe to treat acute post-operative pain, Ionsys is an electronic pain relief patch that delivers the approved drug fentanyl through the skin via a small electronic charge. (“Acute,” by the way, also refers to a type of angle which describes an incline.) J&J halted sales in 2008 due to a potential electronic failure that could lead to accidental overdoses. As J&J wound down Alza’s operations, Cadence seemed a likely buyer, but faced a cash crunch while preparing Ofirmev for approval. (After multiple delays, that drug won the official regulatory nod in November.)

Enter a syndicate of VCs organized by Frazier Healthcare Ventures, which hatched a unique strategy: create and fund a new company led in part by Cadence insiders to buy Ionsys, address its safety issues, refurbish the device, and bring it back to market, while offering Cadence the opportunity to acquire Incline for an incrementally increasing amount as the product attains regulatory milestones and has been further derisked. The first option allows it to buy Incline for $135 million within a year or before the second tranche of VC money kicks in. If Cadence exercises the second option, it can pay $228 million plus a $57 million earn-out by the end of 2013, or before Incline files for an NDA.

In this way, the VCs , which besides Frazier include 5AM Ventures, Technology Partners, Adams Street Partners, Saints Capital Partners, and Emergent Medical Partners, have forged a deal that includes up to $7 million in non-dilutive cash, and could bring back two to four times the capital they invested within a relatively short time. Cadence, meanwhile, offloads some risk while maintaining an exclusive opportunity to acquire a potential $300 million product.

It’s one of the most detailed VC deal agreements we’ve seen yet: as long as investors are committing capital in tranched deals with detailed milestones, why not race to include a flexible exit opportunity as well?

by Paul Bonanos

Image courtesy of flickrer gogoninja courtesy of a creative commons license.

DOTW Senses Change In The Air

Fast away the old year passes. Hail the new ye lads and lasses.

As the last days of 2010 fast approach, already there is a sense that change is in the air (except perhaps in Washington D.C. but that's another matter.) In biopharma land, Dick Clark is packing up his office, making way for Ken Frazier, described by some Merckies as "visionary." Meantime the abrupt departure of Pfizer's Jeff Kindler has industry wags' tongues...well, wagging.

Kindler's hefty severance package suggests he may well have been pushed from the Pfizer nest. Regardless, it would appear that Ian Read, who takes over as the CEO of the world's biggest pharma (and no, that ain't necessarily an appellation to be proud of), may well find himself the agent of change--whether he wants to or not.

Less than a week after being installed in the top spot, Read already faces the task of sorting out the firm's emerging markets strategy in an increasingly competitive environment. On Dec. 9, Pfizer revealed that David Simmons, the president and general manager of the established products division, will assume duties vacated by retiring emerging markets chief Jean-Michel Halfon, who had led that unit since its formation in late 2008. In what can only be described as additional--and certainly unwelcome--news, media outlets reported that same day the pending departure of Steve Yang, who moves to AstraZeneca after leading efforts to develop Pfizer's Asia-based R&D strategy and playing a critical role in helping integrate Wyeth post-merger.

Pfizer clearly faces a potentially difficult 2011 as it seeks to replace revenue when the juggernaut Lipitor’s patent exclusivity ends. (Contrary to popular opinion that won’t mark the end of the world; 2012 is the year to watch for those of an apocalyptic bent.) To compensate, the drug maker appeared to be devising a strategy that would allow it to breathe extra life into its cholesterol-lowering drug via a bolstered presence in emerging markets such as Latin America and the all-important Asia-Pacific.

With Simmons now leading two of the five biopharmaceutical units, some speculate those divisions will be merged, possibly as part of a broader restructuring. Tim Anderson, the knowledgeable pharmaceuticals analyst with Sanford Bernstein, wrote in a research note Thursday Dec. 9 that his firm believes the emerging markets and established product divisions will be combined, potentially resulting in cost savings through the elimination of redundancies in separate units. (Anderson also speculates that Pfizer’s oncology business unit could be folded into the specialty biz; despite efforts to build strength in this particular arena, things haven’t exactly gone as planned.)

Certainly the union of the established products group and the emerging markets division makes a lot of sense for Pfizer. While innovative products account for the majority of the company's overall revenue, its off-patent products can essentially acquire a second life around the globe. Branded generics, baby!

The changes taking place at Pfizer are worth noting not because they provide an important, er, read on Read’s management style. No, as Pfizer continues to react to its own patent woes, the choices it makes could influence decisions at competitors (we aren’t saying in what direction). As such, it becomes if not an important bellwether, at least a means of benchmarking how industry continues to respond in the post health-care reform era.

Where else is change afoot? At expert network cos. where doing biz has gotten a lot harder. Not, however, at Genzyme. At this point in the year, only those who have been hanging out on exotic islands with absolutely no mobile, "sat" phone, or internet access could possibly be unaware that Sanofi’s hostile take-over for Genzyme expires today. In the absence of a white knight, the French pharma has no compelling reason to raise its bid (investors certainly haven’t been impressed with the biotech’s PR efforts to boost share price.) Analysts like Mark Schoenebaum at ISI Group, believe Sanofi will let Genzyme execs sweat it out for the rest of the year. Unfortunately for the biotech, last we checked deodorant wasn’t considered a legitimate reimburseable health care expense. (Botox on the other hand…)

Finally, a remonstrance to vote early and often for this year’s DOTY nominees and support the change you believe in. Meantime, while reviewing your favorite transactions, don’t forget to take a gander at this week’s round-up of the industry’s deal making. Change may be in the air, but it’s also true some things never change. Thus, we bring you another edition of…

Cephalon/Mesoblast: This week’s tie-up between Cephalon and Mesoblast shows stem cell technologies can garner hefty upfront dollars. Cephalon is spending $130 million upfront to develop and commercialize the Australian biotech Mesoblast's adult mesenchymal precursor stem cell therapies for multiple indications, the companies announced late Dec.7. In addition, Cephalon has agreed to pay regulatory milestones of up to $1.7 billion, with a hefty percentage of that amount deliverable upon U.S. regulatory approval of selected products. In exchange, Cephalon is getting exclusive worldwide rights to co-develop and commercialize products in several indications: congestive heart failure, acute myocardial infarction, Parkinson's disease, Alzheimer's disease, and, furthest along, products for augmenting hematopoetic stem cell transplantation in cancer patients. The large upfront is striking given the early stage of Mesoblast’s technology; also striking is the equity component — Cephalon is buying a 19.9% stake in the Aussie firm for $220 million. It certainly demonstrates Cephalon’s commitment to the technology. A spot check of Elsevier's Strategic Transactions database indicates big stem cell deals are still the rarity: the 2008 Genzyme/Osiris alliance, which gave the smaller biotech $75 million in upfront money, is the only one that comes close. For Cephalon, the Mesoblast alliance is part of its ongoing strategy to amass biologics capabilities via the deal table. Other examples: Ception, Bioassets, and Arana Therapeutics.--Wendy Diller

GlaxoSmithKline/MeiRui: Rumors that GlaxoSmithKline was pursuing MeiRui have become a reality. On December 8, the Big Pharma announced it was acquiring the Chinese urology firm from stakeholders Pagoda Pharmaceuticals and Allergon for approximately $70 million, as it further deepens its commitment to this important emerging market. Among MeiRui's leading products: Prostat for benign prostatic hyperplasia and Sheniting for overactive bladder syndrome. As part of the transactionGSK, the maker of Avodart, gets not just products but also MeiRui's established sales and marketing platform and a manufacturing facility in Nanjing City, Jiangsu Province, China. Completion of the transaction is expected by the end of 2010, subject to regulatory approval. Ahead of the deal's announcement, consultants told sister publication PharmAsia News just why a GSK/MeiRui marriage made sense. GSK already has four urology products registered in China: Fortum, Augmentin, Zinacef and Timentin. But deeper relationships with Chinese KOLS would undoubtedly help its commercial efforts in the Middle Kingdom, especially as it looks to launch its most important urology product, Avodart. MeiRui certainly helps with that ambition, given its ties to the China Urology Association. MeiRui stands to benefit as well. It has been trying to take Prostat over-the-counter, so Glaxo's considerable OTC expertise should be attractive. Building an emerging markets presence is an important piece of GSK's evolving strategy--and most every other big pharma, for that matter. The MeiRui take-out shows the firm's preference for bite-size acquisitions that can be bolted on to existing businesses isn't waning any time soon.--EFL

Geron/Angiochem: Geron will pay $35 million upfront to license Angiochem’s novel peptide technology that helps transfer oncology drugs across the blood brain barrier. The deal, which consists of a $7.5 million cash payment and a $27.5 million stock issue due to occur on January 5, 2011, gives Geron worldwide rights to Angiochem’s technology linking peptides. These molecules target the LRP-1 receptor with tubulin disassembly inhibitors, disrupting mitosis in tumors. More specifically, Geron gets rights to a drug now known as GRN1005, a derivative of the common chemotherapy paclitaxel, which is slated to enter Phase II trials to treat brain metastases by the second half of 2012. Furthermore, Geron and Angiochem will collaborate on projects that conjugate the same peptide technology with telomerase inhibitors, which inhibit an enzyme crucial to cell division, in an effort to transport those compounds into the central nervous system. Geron already has several telomerase inhibitors under investigation. Unspecified milestone payments, royalties, and a share of any sublicensing revenues will also be due to Angiochem as the projects advance toward commercialization. Angiochem may be due additional cash up front if fluctuations in the price of Geron’s stock drive the equity component’s value below $27.5 million.--Paul Bonanos

Pfizer/Morphosys: Partner-driven bonanza for MorphoSys today! Not only did the German antibody player secure a technology transfer deal with Pfizer via its newly-acquired Sloning BioTechnology unit, but it also announced three other partners have filed to begin Phase I clinical trials with MorphoSys-designed antibodies. That means lots of milestone payments, and triple-validation of the HuCAL technology. It seems those partners believe MorphoSys' rhetoric that HuCAL is "one of the most powerful methods available for generating fully-human antibodies". The German group now boasts 13 partnered HuCAL programs in the clinic, declaring the associated milestone payments as "an important source of revenue." Eat your heart out, Genmab! That humbled Danish antibody group is also upping its partner-generated revenue with a new 'networked' strategy; question is, whether its technology (much of it licensed originally from Medarex) will prove as popular. The Pfizer/Morphosys deal isn't that sexy, certainly not in terms of what was disclosed (nothing, financially, we mean). Sloning's Slonomics (?!) technology platform for making highly-diverse gene and protein libraries will be installed at Pfizer's Rinat subsidiary; MorphoSys gets an up-front payment and annual license fees. Check out MorphoSys' same-day ad hoc announcement for some clues on the size of those payments: it's increasing its 2010 financial guidance ("mainly as a result of the achievement of revenues from additional commercial activities, resulting from the acquisition of Sloning") to anticipate FY revenues of €91-94 million (up by €4-5 million) and operating profit of €13-16 million (rather than €7-9m).--Melanie Senior

Image courtesy of flickrer barney_holmes via a creative commons license.

2010 Alliance DOTY Nominee: Celgene/Agios Pharmaceuticals

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

In terms of licensing dollars, Reata/Abbott may have garnered the numero uno spot in 2010, but just because the tie-up was one of the largest EVAH, doesn't mean it should win a Roger. Come on, peeps, absent the dollar signs (and really, couldn't that just be desperation), this is pharma doing what its always done--in-licensing a product at proof-of-concept to bolster a pipeline that's going to suffer when a juggernaut (in this case the TNF-alpha Humira) goes generic.

For sheer creativity and chutzpah--and proof that big platform deals still occasionally happen--one must vote for the now joined at the hip Celgene/Agios.

Why? Let this IN VIVO Blogger count the ways.

For starters, the $130 million upfront (which include an $8.8 million equity component according to Celgene's 10K filings) is a hefty sum for a biotech that has published a couple of scientific papers but hasn't yet put a drug into a clinic. Second, it's the latest iteration of the big sib/little sib concept, in which smaller companies hitch their wagon to a larger, better funded entity to better weather the ups and down of biopharma drug development. Third, it's a welcome evolution in option-based deal-making, and shows that some companies really are serious about change, with both parties giving up something in the hopes of reaping a larger upside down-stream.

Recall the deal's basic terms: in exchange for the sizeable upfront, Agios, one of the leaders in a happening scientific space called cancer metabolism, gives Celgene an exclusive option to develop any drugs resulting from its research platform at the end of Phase I. Celgene can extend the exclusivity period – if Agios agrees – but it will have to provide additional funding for the privilege. On each program Celgene licenses, Agios could receive up to $120 million in milestones, as well as royalties on sales.

Sounds pretty good. What did Celgene give up? The considerable upfront cash can't be overemphasized. At a time when most big pharma are inking low-cost option-based deals, Celgene is clearly doubling-down, giving Agios sufficient dry powder to push its platform forward, meaning that even if the first one or two targets don't pan out, the biotech has enough capital to try, try again.

But Celgene also gave up control. Note that Agios remains the one running the discovery and early translational work until an option is exercised--and the biotech has a say if Celgene wants to delay bringing a program in house. (At that point Celgene will lead and fund global development and commercialization of any licensed drugs.) The hope, of course, is that an independent but not cash-constrained Agios can harness its entrepreneurial spirit and spin-off multiple products to bolster the specialty pharma's growing oncology pipeline as it expands beyond Revlimid. To cite an overused and oversimplistic truism, it's the "win-win" that comes from admitting you can't own it all.

Joining hands for mutual benefit is a structure Roche and Genentech both benefited from. It's helped Regeneron and Infinity, both past DOTY nominees for their big sib alliances with Sanofi and Purdue/Munidpharma respectively, pursue their individual goals. But there's a twist to the Celgene/Agios hip-joining and it's directly related to Agios' privately-held status. Truly, the deal structure represents a different financing path from that usually traversed by start-up biotechs. Rather than opting to complete Series B or Series C financings and eventually out-license one or two clinical-stage candidates, Agios has decided to lock in a long-term partner early. In return, Agios gains a secure financial runway, building on its not insignificant 2008 $33 million Series A.

But Agios also gives up considerable freedom to operate. Oh, we know the start-up can pursue outside deals for products that aren't in the cancer metabolism bailiwick, but that seems unlikely in the near-term given management has publicly stated its priority will be churning out INDs in this particular therapeutic arena. And, given the moribund IPO market (where firms with late stage or marketed products are having to take haircuts to get out), such close ties to Celgene could seriously limit Agios' exit opportunities. Indeed, would a company like GSK or Pfizer bid hundreds of millions to take out Agios with Celgene owning the biotech's nearest term clinical opportunities?

Two years ago, when GSK took out Sirtris for the unbelievable sum of $720 million, such a notion would have been heresy. But Agios has big dreams--and big dreams require big bucks. Kudos to both it and Celgene for realizing you get what you pay for.

Image courtesy of flickrer wwarby via a creative commons license.