Financings of the Fortnight Follows The IPO Froth

We're big fans of Fortune columnist Dan Primack (not pictured here). But we couldn't help notice this line in his Thursday morning "Term Sheet" newsletter: "Small company IPOs are just fine."

It's an elision we often see from our brothers and sisters in the press. "IPOs" is a kind of shorthand for "high-tech IPOs that make young nerds rich." Generally Primack is right; there are many small companies with excellent chances of ringing that bell. Very few of them, though, are in the biotech sector, where IPOs are not just fine. Investor appetite for the next Web thingamadoodle is far more whetted than it is for the next cancer-drug developer that's, say, five years and a massive regulatory review away from the ability to sell its product.

It's a big reason we're seeing schisms in hybrid venture firms, with the health-care side shutting down or leaving to join other like-minded investors. For the former, see the Scale Venture Partners story that broke this week (scoop to Primack!); for the latter see our blurb below on the Morgenthaler/Advanced Technology Ventures news or our "Pink Sheet" story here.



We're not surprised the high-tech froth of recent months hasn't bubbled over into the biotech sector, but might we be on the verge of a froth-sharing moment thanks to Groupon? For those of you who've been glued to a lab bench the past couple years, Groupon is the online daily coupon service that, despite getting caught with its hand in the creative-accounting cookie jar, raised $700 million in its Nov. 3 IPO. Other hot tech firms like Zynga (games for Facebook) and Yelp (unfiltered reviews from the unwashed masses) are grabbing hold of its coat tails, but might a few biotechs follow?
 

They should try. As we report in the upcoming issue of START-UP, it behooves biotechs to grab for the IPO brass ring rather than stay private. We analyzed the fundraising of 35 companies that have gone public either in the US or abroad since the start of 2008. Those companies have raised more money (average and median) than comparable companies who remained private, even if total dollars for the pool of public firms is dwarfed by the total amount raised by their private brethren. And this is while most of the IPO class are still trading below their IPO price. We won't give away all the data, but we will note this: 31 of the 35 had at least one asset in Phase II development or later, and several firms had marketed products at the time of the IPO. 

Because of that, it won't be a shock if Clovis Oncology, which threw its hat into the IPO ring June 23, emerges with the roughly $130 million it's seeking to raise next week. It's got a late-stage, reconjugated version of well-validated cancer drug gemcitabine aimed at metastatic pancreatic cancer, with a companion diagnostic that it hopes will help pinpoint the patients whose tumors have a mutation (low hENT1 expression) that confers resistance to standard gemcitabine therapy. Clovis also has seasoned management with an impressive deal-making record, and massive venture backing. (And incidentally Newlink Genetics with a $43 million debut today managed to sneak out ahead of them to raise money to fund late stage clinical development of their pancreatic cancer treatment. More on NewLink below.)

But when a biotech with cutting-edge technology that's at least a year away from putting a drug into the clinic files its paperwork, we take notice. Verastem? Really? Remember just a few months ago when VCs told us as part of our life-science venture survey the only thing they were less eager to fund than stem-cell related companies was RNAi-related companies? 

Granted, Verastem is going after cancer, but to do so it's using technology from the Whitehead Institute to create cancer stem cells, against which they screen small-molecule compounds. Now, Verastem was able to attract venture money -- in fact it raised a Series C just as it filed its S-1 (with a $50m target, current backers have poured in $68 million and include Longwood Founders Fund, MPM Bioventures, CHP, and Bessemer Venture Partners). But it'll require extremely biotech-savvy public investors, who are already more freaked out than the caterer at a Berlusconi Bunga-Bunga party, not to hear "stem cells" and "preclinical" and not say, "Take $100 million more in venture cash and call me in seven years." Perhaps we're overstating the potential for cold feet. It's often too easy to find warning signs in the risk-factor section of a company's S-1, which includes everything but the possibility of flaming asteroids crashing to Earth, but this sentence caught our eye: "Research on CSCs [cancer stem cells] is an emerging field and, consequently, there is ongoing debate regarding the existence of CSCs."


Perhaps the recent deal struck by Celgene -- $45 million for exclusive use of Quanticel Pharmaceuticals' cancer genome analysis technology and options to buy Quanticel outright -- is a validating moment. One of Quanticel's cofounders at Stanford specializes in the isolation and characterization of individual cells, including those that are tumorigenic, or stem-cell-like, within a tumor. Is Celgene's cash commitment a sign that the study of cancer stem cells is about to yield clinical results, and thus, more interest from drug makers willing to pay premiums for the technology?

That's a big question that Verastem's backers hope potential investors might ask, too. Because if the public market buyers don't see the real connection between cutting-edge science and tangible benefits, they'll just move on to the next Groupon.   


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Morgenthaler Ventures/Advanced Technology Ventures: One result of the painful venture shakeout has been consolidation. Limited partners frustrated by weak returns are choosing to allocate funds among specialized firms rather than diversified ones. That’s bad news for hybrid firms that invest in both tech and life sciences, who are increasingly finding the model untenable. Case in point: the venerable Morgenthaler Ventures, whose biotech team split from the firm to join forces with two partners from Advanced Technology Ventures and form a new life sciences-only fund, as yet unnamed. A Morgenthaler spokesperson declined to discuss the situation, but a source close to the firm told "The Pink Sheet" DAILY that the seven-person team had originally aimed to raise a life science-only fund of about $200 million within Morgenthaler, but instead separated from the organization. The group had already allocated its half of the $400 million fund Morgenthaler closed in 2008, while the firm’s tech team continues to invest its share. ATV, meanwhile, had downsized over the past year, retaining only its general partners. ATV and Morgenthaler have invested side-by-side in several companies, including UCSF spinout Calithera Biosciences, catheter technology developer Ardian (acquired by Medtronic for $800 million), and microbial diagnostics startup Second Genome. Of course, not every hybrid firm is in trouble; Avalon Ventures, for one (profiled here), closed an oversubscribed $200 million fund in January. Avalon founder Kevin Kinsella may not appreciate Big Pharma’s negotiating tactics, but he and his LPs will surely enjoy the mammoth return from its previous fund: It holds a 6.1% stake in online game maker Zynga, slated to go public this month at a valuation that could exceed $15 billion. -- Paul Bonanos

AffiRis: The Strungmann brothers, who have invested in a string of German biotech companies since they sold their generics company Hexal to Novartis six years ago, have targeted Austria's AffiRis as their first biotech investment outside Germany. Through their investment vehicle, Santo VC, the Strungmanns have taken a €20 million equity stake in the Vienna vaccines company. At the same time AffiRis' existing investor the MIG Fund, a Munich venture firm, put in €5 million. Santo and MIG have also acquired an option to increase their stake in AffiRis by a further €30 million. The move underlines the support of entrepreneurial families in Europe for the biotech sector, not just during this tough funding period but historically. Firms such as Merck KGaA and Roche were family-run for decades and descendants of the founders still hold substantial stakes. Another German biotech benefactor is software mogul Dietmar Hopp, who has invested more than €300 million in at least 15 firms -- mainly around his home town of Hoffenheim -- in the past decade through his firm dievini Hopp Biotech Holding. AffiRis is collaborating with GlaxoSmithKline on a potential Alzheimer's disease vaccine, one version of which is in Phase II clinical trials. It also received $1.5 million in October from the Michael J. Fox Foundation to support development of a Parkinson's disease vaccine scheduled to enter Phase I clinical trials early in 2012. The new funding plus the option represent a huge step-up for the firm, which previously had raised €11.5 million in a Series A and extension, all from MIG. -- John Davis

Rempex Pharmaceuticals: Rempex gets high marks for fundraising, but low marks for creative naming. A spin-out of assets from the former Mpex Pharmaceuticals -- which makes us sad they didn't try, say, "Mpex 2: Electric Boogaloo" or "Mpexer Than Ever" -- the firm announced November 9 it completed the first closing of a Series B financing that could reach $67.5 million, the seventh-highest Series B figure for a biotech in the last five years according to Elsevier’s Strategic Transactions database. Just ahead of it: a pair of $70 million fundraisings from Amyris Biotechnologies in 2007 and Relypsa last year. (Yes, Relypsa was a follow-on to Ilypsa, so perhaps boring sequel names are the way to go.) New backers Frazier Healthcare Ventures and Vivo Ventures joined existing shareholders SV Life Sciences, OrbiMed Advisors, and Adams Street Partners in Rempex’s round, which brings the total equity in the June 2011 start-up to $76 million. Rempex was established with the infectious disease assets from Mpex, which was acquired this past April by Axcan Pharma (now Aptalis Holdings). Axcan bought Mpex primarily for Aeroquin, an aerosolized form of levofloxacin in Phase III for pulmonary infections in cystic fibrosis. That left several preclinical candidates to be spun off, and now Rempex, led by former Mpex management, is aiming for FDA approval for a gram-negative therapeutic sometime early next year. The spun-out assets also include efflux pump inhibitors partnered with GSK in a 2008 deal that gave the Big Pharma’s infectious disease CEDD an exclusive option to EPIs combined with GSK antibiotics. -- Amanda Micklus

NewLink Genetics: NewLink debuted on the Nasdaq Friday, Nov. 11 and raised $43 million by selling 6.2 million shares at $7 each. The share price was well below the $10-$12 range it hoped to hit, and shares traded flat in the first half of the day of the firm's debut. Ames, Iowa-based NewLink has a lead immunotherapy drug for pancreatic cancer, and the IPO proceeds will help pay for Phase III trials, with 161 patients already enrolled as of Sept. 1 toward an enrollment goal of 700. The firm has received fast-track and orphan designation for the drug in adjuvant treatment of surgically-resected pancreatic cancer. The immunotherapy, dubbed HyperAcute Pancreas, is allogeneic; it does not depend on the patient's own cells. The most high-profile cancer immunotherapy on the market is Dendreon's Provenge (sipuleucel-T), which modifies a patient's own cells before re-infusing them back into the patient. NewLink is not venture-backed. The only listed institutional 5% stockholder is Stine Seed Farm, also of Iowa. CEO Charles Link owns 17% of the company. -- A.L.
 

Photo courtesy of flickr user jessicafm via the Creative Commons license.

Sanofi's Lyxumia: The Crestor to Victoza's Lipitor?

As Sanofi quietly filed its GLP-1 agonist Lyxumia (lixisenatide) in Europe on Nov. 3, there came a chance to consider how this fourth-to-market drug may fare. David Solomon, CEO of Danish biotech Zealand Pharma, which discovered the drug (and stands to make a low double-digit royalty from its sales) applied a statin analogy that partner Sanofi might not appreciate as it gears up to take on Novo Nordisk's incumbent Victoza, which has been flying off the shelves.

"Crestor didn't kill or hurt Lipitor much, but it built a nice $6bn business," Solomon told The IN VIVO blog. "You could argue that Crestor's not as good as Lipitor, but it found it's own spot," he continued. (Responses in writing, please, Sanofi.) In other words, Lyxumia isn't going to displace the mighty Victoza, it will just provide another treatment option for those patients that need a rather longer post-prandial boost (Lyxumia apparently hangs on a bit longer to the GLP-1 receptor than does Victoza). "It's a nuanced effect," he continued, asserting that doctors will choose this profile for some patients depending on indivdual needs.

Naturally enough, one Novo exec we spoke wiht dismisses the new once-daily diabetes contender as a "fourth-in-class, me-worse drug." The exec also dismisses and potential advantage Lyxumia may claim as a result of a label approving the drug's use in combination with basal insulin (a label Victoza tried but failed to get in Europe).

The story doesn't end there, however (though we must point out that Sanofi tucked the EU filing news into its third quarter results). The GLP-1 market overall is growing, and so is the incidence of diabetes worldwide. Meanwhile it's still Sanofi, not Novo, that boasts leading insulin Lantus. And it's on Lantus' mighty back that Lyxumia will ride in order to reach Crestor-like sales (to borrow Solomon's analogy). Indeed, as Solomon puts it, "It [Lyxumia] is not so much going to be a launch, but more of a step-function of Lantus." He estimates that roughly 1 million Lantus patients (of the 7 million total) may take Lyxumia as add-on to control weight issues.

From Zealand's point of view, that would be just fine; after all, "we'll be durably profitable when Sanofi sells just $250 million of Lyxumia," he says, mentioning 2014.

So Lyxumia on its own probably isn't going to make much of a splash, other than perhaps in some emerging markets like Brazil, Argentina and Indonesia, where Lantus is strong and Novo less so. In Europe, the recent approval of Amylin (now ex-Lilly)'s once-weekly Bydureon may provide another headwind.

Yet Lyxumia may prove a useful tool for Sanofi to expand Lantus' reach. And it sets the scene for the far bigger prize, the Lantus-lixisenatide-nice-device combination. Unfortunately this project has already been delayed: Phase III trials aren't now due to start before 2013, putting it behind Novo's effort to combine Victoza with its ultra-long-acting insulin Degludec (recently filed as a standalone and in combination with insulin aspart). But if it gets as far as the regulators, eventually, we bet Sanofi won't tuck it up within its quarterly results, nor accept anything less than Lipitor-like status.

Deals of the Week's Stamp Of Approval

FDA made a pre-emptive strike this week – perhaps a move to forestall an Occupy FDA protest?

Making the most of the (political) capital it has, the agency put out a glossy report on its FY 2011 approval performance, noting that between Oct. 1, 2010 and Sept. 30, 2011, the agency cleared 35 innovative drugs. IN VIVO Blog can’t help but point out that when the numbers haven’t been as good, the fanfare has been, um, lacking.

It’s been clear for some time that 2011 was stacking up to be a stellar year for positive nods from the agency: as of October, FDA had already tied the 27 novel drugs and biologics cleared for marketing in all of calendar year 2010. Though the second-half has fewer review deadlines than the first, 2011 still stands to be a record year, helping defray criticism about an overly safety conscious regulatory body.

You can’t fault FDA’s timing. In what’s surely a happy accident, the news coincides with ongoing negotiations over the reauthorization of the Prescription Drug User Fee Act. Certainly the official report and positive press could deter Congress from tinkering with the legislation, something that might have been easier given the negative coverage bandied about.

But the presser wasn’t only about placating Congressional types. An underlying message also seemed to be that industry should stop its incessant FDA bashing. And just to show that it’s above holding a petty grudge, FDA even went so far as to share a little credit for its success with biopharma companies.

“None of FDA’s accomplishments would be possible without the innovation and hard work of large and small biopharmaceutical companies alike. Not only did the drug applications that the industry submitted to FDA represent important medical advances, but their generally high quality permitted FDA to reach an approval decision, in many cases, after a single cycle of review.”

Well, isn’t that special?

No doubt, biopharmas will find other reasons to point fingers – and this won’t stop the hand-wringing of the med-tech crew. Launching in Europe first via a CE mark is now a preferred strategy for many device companies as they juggle how to satisfy safety measures mandated by FDA.

Maybe the PR was designed to curry favor, or remind folks that FDA is the government’s Rodney Dangerfield. Still there’s no denying the agency is under continued budgetary pressure. And really, does anyone in the industry want to see PDUFA held hostage to partisan politics?

In the interim as you muse over the specifics of FDA’s approval memo, we hope Deals Of the Week garners a stamp of approval. It’s that time again.

Bristol-Myers Squibb/Aslan: Out-licensing alert! Bristol-Myers Squibb has formed a partnership with Singapore-based Aslan Pharmaceuticals to hasten the development of an early-stage compound, BMS-777607, an oral MET receptor tyrosine kinase inhibitor that it considers promising, but not core to the big pharma’s focus on more advanced oncology compounds. The Bristol compound is the second acquired by privately held Aslan, established last year by former AstraZeneca executive Carl Firth to in-license and develop early-stage compounds in oncology, respiratory and inflammatory indications and to take advantage of efficiencies in conducting trials in Asia. The companies didn’t release financial terms for the Nov. 3 deal, but Bristol said Aslan will run and fund development of ‘607 in gastric and lung cancer. Aslan obtains exclusive rights to develop and commercialize the compound in China, Australia, Korea and Taiwan, while Bristol retains Japanese rights to the drug. As opposed to its “String of Pearls” acquisition strategy, Bristol referred to the Aslan arrangement as part of its “Oyster” strategy. (Nope, we ain't gonna go there.) The goal of "OS"is to seek partners to run and fund early development of assets BMS presumably does not want to take forward itself. This is Aslan’s second acquisition – in July, it in-licensed HER2/EFGR inhibitor ARRY543 from Array BioPharma Inc.—Joseph Haas

AgonOx/MedImmune: Tiny Portland, Ore.-based startup AgonOx has been studying the OX40 receptor, a tumor necrosis factor superfamily member whose activation appears to trigger immune responses useful in fighting cancer. The company’s work has caught the attention of MedImmune, which will pay an undisclosed amount to develop oncology drugs using AgonOx’s platform. Although the companies aren’t releasing many details, MedImmune will apparently lead continuing preclinical and clinical studies on one OX40 agonist program, while supporting ongoing research on OX40 at Portland’s Providence Cancer Center. AgonOx has also studied one drug, an anti-OX40 monoclonal antibody, in 30 human patients over the past year, and further trials are in progress. In September, AgonOx said it received a patent covering OX40-related ligand fusion proteins for use in cancer. The company is seeking partners for combination therapies, potentially involving cytotoxic compounds, tumor ablation methods, and other immunologic therapies. Privately-held AgonOx hasn’t named any outside investors, but has acknowledged support from the Prostate Cancer Foundation. – Paul Bonanos

GlaxoSmithKline/DOJ: GSK's toughest negotiations this year have been with the federal government. On Nov. 3, the drug maker announced it had reached an agreement worth $3 billion (in principle) to resolve three separate government investigations tied to the following: its development and marketing of Avandia; sales and promotional practices relating to Wellbutrin SR, Advair and 7 other top selling products from January 1997 to 2004; and its nominal price exception to the best price reporting requirements of the Medicaid drug rebate program. Just to put the dollar amount in perspective, that $3 billion is more than a quarter of GSK’s Q3 2011 revenue of £7.1 billion, and in terms of potential deal value is the pharma's biggest transaction of the year thus far. Moreover, the sum is on top of the $750 million settlement GSK and DOJ reached last year tied to good manufacturing praction violations at a Puerto Rico facility. In case you are wondering, the new agreement breaks Pfizer’s 2009 record $2.3 billion settlement, which resolved allegations of off-label marketing of four drugs and kickbacks to health care providers involving nine other drugs. Still to be determined: whether any of GSK's officers will face criminal charges. The government has said for the past two years that it intends to hold individual executives responsible for health care fraud. Pfizer escaped such a fate even though the government slammed it for repeatedly violating the law. GSK attorney Lauren Stevens had previously been indicted for obstructing an FDA investigation of off-label marketing of Wellbutrin SR and making false statements. A judge acquitted her in May.--Brenda Sandburg

Celgene/Quanticel: Forget the most interesting man in the world, methinks Celgene is gunning for most interesting deal maker of 2011 award. This week comes news that Celgene is teaming up with privately-held Quanticel Pharmaceuticals in a deal that is part option-to-acquire, part financing, and all around interesting. Versant Ventures has launched Quanticel, a start-up with genomic analysis technology aimed at discovering and developing cancer drugs that target the unique genetic makeup of patients' tumor cells, after incubating the idea for more than a year. The tie up with Celgene is unusual, underscoring how VCs are desperately seeking new biotech investment models that tie early stage companies closer to potential pharma acquirers. Although details regarding the deal were light, what's know is that Celgene is committing $45 million to Quanticel in return for an undisclosed equity stake in the biotech as well as an exclusive three-and-a-half-year technology license. Celgene has sway over Quanticel in another way: more than one exclusive time-based option to buy Quanticel outright. "We hope it ends in an acquisition by Celgene," said Quanticel CEO Stephen Kaldor. "That's the design." All parties involved declined to discuss the size of Celgene's ownership stake or the details of its acquisition options. But the arrangement effectively limits Quanticel's potential buyers to one and thus caps the potential return for Versant. "This is a different risk-reward ratio than traditional venture," says Versant managing director Brad Bolzon. The trade-off, he says, is a higher ownership stake for Versant than it would have in a syndicated deal. (The amount of Versant's investment was also left undisclosed.) For more see coverage in Elsevier's Pink Sheet Daily and November's START-UP. --Alex Lash

Pfizer/Ablynx: Ablynx said today that Pfizer had returned all rights to the companies’ anti-TNF-alpha nanobodies program, which emerged over the last five years from a 2006 deal between Ablynx and Wyeth; that deal was extended in 2010 and has thus far generated two clinical candidates. Ablynx recovers full rights to ATN-103 (aka ozoralizumab), which this past May achieved positive Phase II proof-of-concept data, and PF-05230905, a pegylated backup compound in Phase I, along with clinical supplies of ‘103, IP and knowhow around the programs and manufacturing. In return Ablynx will owe Pfizer a share of milestones received from a future partnership around these assets, capped at $50 million, plus royalties. The ‘103 program was among Ablynx’s furthest along nanobodies (the camelidae-inspired, single-domain, antibody-derived proteins are so named because of their small size, and, presumably, because “Camelbodies” just didn’t sound right), and possibly its biggest commercial prospect. As such the market reacted poorly to the news today, sending Ablynx shares down 18% on the day to levels not seen since the company began public trading in 2007. During a call with analysts today CEO Edwin Moses said the assets were still “very valuable” before quoting a “former Pfizer SVP”’s morning email to the company that suggested the development would be positive for Ablynx. In fact, he suggested, were Ablynx still working with an un-Pfizerized Wyeth, the asset might "be in Phase III by now," and that plenty of companies will show interest in the newly-partnerable program. Pfizer, he noted, has other options, including its late-stage JAK3 inhibitor, and a different senior commercial team committed to that program. That may be true, but unless the company opts to find a partner straight away, it could also be expensive transition for Ablynx and have an impact on the progress of the company’s existing pipeline. Moses noted that the company would almost certainly conduct a strategic review “in the coming weeks” to reprioritize, but would probably not cut its Eur60-70 million R&D budget.--Chris Morrison

Image by flickrer Avius Quovis, courtesy of creative commons. FDA commentary written by Mary Jo Laffler and Derrick Gingery. Editing this week by Ellen Licking. 

With New Center, New York Aims for Genomics Leadership

Today, 11 of the city’s academic medical centers, along with New York City and two industry partners, Roche and Illumina, announced the formation of the New York Genome Center. Backed by a sturdy $100 million in committed financing from sponsors, with goals of raising another $25 million and employing 550 people within five years, it has ambitious plans. Beginning in February 2012, it will be offering revenue-generating sequencing and CLIA-based laboratory services, as well as opportunities for inter-institution collaboration, and training programs in bioinformatics and other cutting-edge biotech disciplines. Down the road, it seems intent on getting involved in other kinds of activities that pave the way for faster public acceptance of genomics technologies.

Those involved read like a who’s who list of New York’s scientific and biotech worlds: Welsh, Carson, Anderson & Stowe, Columbia University, and top officials of Cold Spring Harbor Laboratory, Cornell Medical College, The Jackson Laboratory, Memorial-Sloan Kettering Cancer Center, Mount Sinai, NYU School of Medicine, The Rockefeller University, North Shore – LIJ Health System, Venrock, Stony Brook University, and The Simons Foundation. And then of course, there’s the pharma partner, Roche, with more pharma companies hopefully to follow, says Nancy Kelley, the attorney who co-founded the center and is its executive director.

The idea for a collaboration germinated from talks beginning in August 2010 between Kelley and Tom Maniatis, one of the world's top molecular biologists and entrepreneurs. The process came together relatively quickly, says Kelley, who, perhaps not coincidentally, is a Bostonian like Maniatis. Kelley is moving to New York and Maniatis recently became chairman of the department of biochemistry and molecular biophysics at Columbia University. In part, the timing was right, as local scientific and health care leaders realized that they were falling behind other regions as centers of innovation. “We are poised on a revolution in genomic medicine and New York has the strongest science in the world, but it is almost weakest in grant and sequencing activities,” she says. “These institutions are at risk of ceding leadership in a huge industry.”

As for industry, in addition to the fees Illumina and Roche have paid to play, Illumina is supplying the sequencing equipment—giving it a high profile position in a region with lots of multi-ethnic subjects to draw from. And Roche, with one of its two major U.S. R&D sites based across the river in Nutley, NJ, is eager to replicate in New York some of broader regional biopharma initiatives ongoing elsewhere. The effort to sign on Roche also may have been helped by connections (speculative but quite possible); Marc Tessier-Lavigne, president of The Rockefeller University and a board member of the new consortia, was CSO of Genentech until early 2011.

Unlike some of its Big Pharma brethren, Roche hasn’t made any splashy new-model alliances with academia, but has tended to stay with low-key, smaller deals. And though it has made overtures to cut R&D spend, it hasn’t undertaken the same kind of big reorgs as Sanofi, AstraZeneca, and Pfizer. “As a lot of big pharma companies move their R&D operations to Boston, we have chosen to remain in Nutley,” Jacques Banchereau, SVP, DTA, head of inflammation and virology, and CSO at Roche Nutley, told an audience of several hundred at a ceremony announcing the consortia; Banchereau too has recently changed positions, joining Roche last year from the Texas-based Baylor Institute for Immunology Research, which he founded.

As a die-hard New Yorker, it’s good and timely to see NY academic institutions, local government, and industry finally get their act together -- or at least make a start. They’ve had a history of infighting and competing, with efforts to come together collapsing. Nor has the city government been terribly supportive, focused as it is on financial services, fashion and media. (Given New York’s reputation as a place where start ups get born, funded, and then flee, it’s no surprise that the local biotech Vivaldi Biosciences, co-founded more than three years go by Mount Sinai Medical Center scientists, has made a splash because of its decision to keep its headquarters in New York, although its key venture backer Bay City Capital is based in San Francisco.)

Not that New York hasn’t already taken some steps to stake out a regional claim on biotech: the new East River Science Park, with laboratories and corporate space designed specifically for life sciences companies is fully leased, including at least two big pharma tenants, Pfizer and Lilly (Kelley previously was an SVP at Alexandria, which developed the ERSP). And Pfizer has pulled together a consortium of seven New York academic medical centers as part of its expansive Centers for Therapeutic Innovation R&D network – although word has it that proposals initially selected in New York came from a few of the participating institutions, not all, as originally hoped.

Plenty remains unsettled – not least the location and capacity of the new laboratories. Trickier may be figuring out how data will be shared and intellectual property protected—issues that are under discussion but not yet resolved and are key challenges for other kinds of life sciences consortia. And trickiest of all may be keeping many big and ambitious egos happy; the institutions involved are building their own programs in the same space as NYGC. The deal is in its early days and may work out dandy, but likely faces similar challenges as do other broad industry collaborations.

image from flickr user hjjanisch used under a creative commons license

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

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

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

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

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

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

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

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

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

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

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

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

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

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

image from flickr user pilar torres used under creative commons license

Financings of the Fortnight Tells A Tale of Two Conferences

Investors gauging the market mood look for signs. We also spent two days this week at the BioInvestor Forum in San Francisco looking for signs that the current biotech climate is anything but a bummer.

No dice. Everyone we spoke with thought attendance felt light; the show runners at BIO countered that registration was up 5% over last year then blamed the first day's obvious loneliness on traffic snarls caused by President Obama's visit to San Francisco. Most of the company presentations we attended had fewer than 10 people in the room, and that included the company's PR rep and the guy or gal running the A/V gear. On the second day, organizers cut the main room in half to make the panel discussions feel more intimate.

The biggest sign of malaise was the title of the final panel: "Opportunities or Apocalypse? Prophecies for 2012." To even contemplate the A-word in what's supposed to be an industry-boosting event was a sign of how sour the mood is right now. Still, Matthew Perry of Biotechnology Value Fund, Bryan Roberts of Venrock, Kurt Von Emster of VenBio, and Ron Laufer of MedImmune Ventures did their level best to buck everyone up. Perry prophesied con mucho gusto that old-school biotech companies, built on groundbreaking science, will start going public in the next 12 to 18 months before even having late-stage clinical data.

While the word "apocalypse" literally hung over everyone's head the entire time on the projection screen, an exit sign glowed over Roberts' right shoulder. No one on stage seemed to notice. How's that for symbolism?

Another sign of the "new normal" of the decreased influence of traditional venture capital: big drug makers aren't just being more aggressive with their own in-house venture arms, they're also thinking hard about deploying capital as limited partners to back venture groups struggling to raise money during the Great Shakeout. Both Merck & Co. and Eli Lilly have taken steps to invest in early stage science via the LP route: Merck through its Merck Research Venture Fund, which our industrious colleagues were first to report here, and Lilly via its Mirror fund initiative, which has encountered some speed bumps.

On another panel, the topic was not building companies but asset financing -- moving drugs forward in the most efficient manner possible and into the hands of the strategic buyers who need to refill pipelines. While David Collier of CMEA Capital was on stage discussing his firm's asset-financing plans through a CMEA-funded vehicle called Velocity Development Corp., another venture firm across the country made good on a similar plan. Atlas Venture unveiled its first asset-based limited-liability corporation, Arteaus Therapeutics, which we detail below.

An antidote to the subdued investment scene was a short walk away (or a cable car ride, if you prefer). In a Nob Hill hotel conference room, the World ADC Summit brought a packed house of mainly scientists together for talks on antibody-drug conjugates, a field that needed three decades to produce an exciting commercial product: Seattle Genetics' Adcetris (brentuximab vedotin), which received FDA approval in August. We're not counting Mylotarg (gemtuzumab ozogamicin), which Wyeth had approved in 2000 but never caught on and was removed from the market in 2010 for safety concerns.

The mood at the ADC Summit was palpably different: an acknowledgment that the door is wide open to a vast array of technological advancements, some of which could be quite disruptive and are being driven by small venture-backed firms. One of those firms was Syntarga, with drug-and-linker technology, that agreed to be acquired in June by its Dutch neighbors Synthon; former Syntarga CEO Vincent de Groot, now a vice president at Synthon, told IN VIVO Blog that ADC innovation will come "from all angles," and what's now known is only the visible part of a technological iceberg. Seattle Genetics, Immunogen and Genentech will need to continue to innovate to ensure their tenure as ADC leaders isn't short-lived -- not that those companies are standing pat. (For more background on the rising ADC tide, have a look at our story from December.)

To be fair, BioInvestor also had a lively panel discussion dedicated to ADCs peopled with executives from some of those small firms. But the ADC Summit in particular was a reminder that there is plenty of enthusiasm to create biomedical innovation (yes, among the Big Pharma, too). The enthusiasm to open one's wallet to fund such innovation, however, is quite a different story.

A quick note: If there's a topic you'd like to see in this column, or you have specific feedback that you'd rather not put in Web comments for all to see, drop us a line at capitalmatters@elsevier.com or a.lash@elsevier.com. Make sure to include FOTF in the subject line. Your support helps nourish clinical development of subject-verb conjugation that addresses unmet syntactical need every two weeks in...



Arteaus Therapeutics: Earlier this year, Atlas Venture said it would explore a new asset-based funding model, yet another experiment by a venture firm in an effort to improve returns from early-stage products. Its first such investment appeared Oct. 19 with the launch of Arteaus Therapeutics, a company without employees created solely to house a Phase I migraine drug spun out of Eli Lilly & Co. Atlas and OrbiMed Advisors provided $18 million in Series A funding to Arteaus, a start-up designed to be even more virtual than most virtual companies. It will be structured as a limited liability corporation (LLC) and will be controlled primarily by Atlas Venture Development Corp., a stand-alone offshoot of Atlas intended to direct operations at several companies like Arteaus simultaneously. Atlas partner and acting Arteaus CEO Dave Grayzel said the cash will fund clinical trials to show proof of concept rapidly; if that’s achieved, Lilly holds an option to reacquire the asset at undisclosed pre-negotiated terms, and therefore deliver an exit for Atlas and OrbiMed. A bit of irony: Lilly has been working to build exactly this type of relationship with three venture funds in what it calls the"Mirror" portfolio. Those plans have not gone quite as expected, with at least one fund, CMEA Capital, not participating. (Lilly said in early 2011 that one of its venture partners had accepted two molecules, one from Lilly and one from a third party.) Atlas is not one of the Lilly "Mirror" funds. The molecule, an antibody being studied as a prophylaxis for migraines, binds with calcitonin gene-related peptide (CGRP); both Merck and Boehringer Ingelheim have halted development of CGRP antagonists designed to treat acute migraines. -- Paul Bonanos

Regeneron Pharmaceuticals: It's every little biotech's dream: sign several platform-validating licensing deals, save a few choice molecules (or regions, or indications) for itself, bring a drug to market that could put a lickin' to one of the big boys, then borrow a barrelful of non-dilutive cash for the commercial war chest. Regeneron hasn't yet shown that its wet age-related macular degeneration treatment Eylea (aflibercept) can beat Genentech/Roche's Lucentis; in fact, thanks to a three-month PDUFA delay, it must wait until Nov. 18 for approval. But it's got the cash for the battle. Regeneron announced October 18 it raised $400 million in convertible debt, payable over five years at 1.875%. As commercial chief Bob Terifay told IN VIVO this summer as part of an analysis of biotechs that manage to bring a first drug to market, the firm is shifting significant resources to the commercial side for the first time. Eylea would actually be Regeneron's second approved drug; its first, Arcalyst(rilonacept), treats a family of ultra-rare diseases and requires scant commercial outlay. Eylea sailed through its FDA advisory committee meeting and is still expected to win approval. If Regeneron can convince doctors and payors of Eylea's benefits (fewer injections, for example) it could take market share from Lucentis, the proper use and price of which has been thrown into question by the CATT study. Bayer HealthCare has rights to Eylea ex-U.S. -- Alex Lash

SAGE Therapeutics: Third RockVentures is one of the few VCs willing to make big bets on early stage science these days. With the announcement on October 18 of its solo staking of SAGE, a Boston start-up developing novel medicines for schizophrenia, depression, and other CNS conditions, the investment group makes its first major bet in neuroscience. It’s a move that’s been expected since October 2010 when Steven Paul, former EVP of Lilly Research Laboratories and a neuroscientist by training, joined Third Rock Ventures as a venture partner. Underpinning SAGE is a proprietary chemistry platform called PANAM, referring to the start-up's intent to develop positive and negative allosteric modulators of GABA and NMDA receptors. Both proteins are critical actors that respectively play a role in the transmission of the inhibitory and excitatory neurotransmitters, gamma-aminobutyric acid and glutamate. Third Rock has been incubating the company for more than a year, building its IP position and an advisory board of top-notch academics. "It will be hard for anyone else to mimic this approach given what we've consolidated over the last year," interim CEO Kevin Starr(and a Third Rock partner) told “ThePink Sheet” DAILY. Both Starr and Paul said the $35 million Series A, which may or may not be tranched, is enough to take four or five programs forward simultaneously. One of those seems likely to be a positive allosteric modulator for schizophrenia that has “encouraging” data, according to Paul. Interestingly,one family of targets SAGE won't be pursuing is the metabotropic glutamatereceptor (mGluR) family, among the hottest targets of interest inside many big pharmas and biotechs, including Lilly, Johnson&Johnson, and Addex Pharmaceuticals. –- Ellen Foster Licking

BIND Biosciences/Selecta Biosciences: These two Boston-area nano-medicine companies already have much in common: both were co-founded by Massachusetts Institute of Technology professor Robert Langer and Harvard Medical School professor Omid Farokhzad, and both feature Flagship Ventures as an original investor. But they're now connected in another way: simultaneous investments by Rusnano, the Russian state fund for nanotechnology run by former Russian politician Anatoly Chubais, who ran the privatization process under Boris Yeltsin. Announced Oct. 27, Rusnano is investing $25 million in each company, making it the largest investor in rounds totaling $47.5 million for each company, with new and existing investors filling out the slate. Both BIND and Selecta will open subsidiaries in Russia to tap into scientific talent as well as clinical trial populations. Both firms have advanced a lead candidate from their platforms. Selecta, with its Synthetic Vaccine Particle platform, is just now entering the clinic with its program for smoking cessation. BIND, whose Accurin platform aims to accumulate systemic cytotoxins in higher, more targeted concentrations, is in Phase I with its lead progam BIND-014, a reformulated version of the chemotherapy docetaxel, aimed at advanced or metastatic solid tumors. -- A.L.

So We're Courting Biosimilars After All -- For Market Access

How times change. Once the evil Queen in branded biotechs' hugely profitable fairy-story, biosimilars has turned into, if not the attractive prince, then at least a character worth courting.

"We believe that biosimilars have a role to play, provided they are safe and effective, so we are investigating new ways to serve patients in this rapidly evolving field," declared Amgen's SVP, R&D, Joe Miletich in an emailed statement last week. He wouldn't say much more, and no-one wanted to be interviewed about this new relationship. But Amgen is far from alone in wooing copy-cat biologics.

Biogen Idec's trying to do it as well, albeit with the help of a partner, since it's got too much to do with the Phase III pipeline in-house. Thus although "a bit effort of our own isn't on the cards," according to CEO George Scangos, "I do think there will be a market. So we're in discussions now, with folk who can take it on with us," he told the audience at Elsevier's recent Pharmaceuticals Strategic Alliances conference.

Meanwhile private Boehringer Ingelheim, too, is trying to join this party -- and do so rather earlier than it did in the case of original therapeutic biologics (where it mostly failed to leverage its significant production and manufacturing expertise, missing out on pharma's biologics land-grab of the decade gone by). "It is our objective to be one of the major players in this field," the company told us, by building its own internal pipeline to commercialize in the US and Europe. "We feel confident that we are able to leverage our capabilities in product development, supply and clinical expertise at Boehringer Ingelheim to offer high quality products understanding the patients’ needs."

So there's the secret: patients' needs. Or let's call it payers' needs. Innovators – not just the traditional large molecule players, but Big Pharma such as Merck and Wyeth-ed Pfizer, too – are falling over themselves for a piece of this multi-billion dollar pie, in part as a nice way to solve the in part since it represents spot-on where payers' -- the customers'-- demands are going right now across the sector as a whole: toward cheaper, safe medicines that are good enough, rather than the absolute best.

And as the new biosimilar players jockey for market share (look out for our November issue of IN VIVO for more on how), they'll be forced – at least as long as automatic substitution remains off the cards -- to emphasize precisely those un-sexy peripherals such as route of administration, formulation and compliance support services that are so valuable to payers and patients, in order to compete.

Biosimilars is a useful friend to get to know, in other words – if you aren't already quietly connected. Alongside the grand declarers are players like Lilly, with its biosimilar version of Sanofi's basal insulin Lantus approaching Phase III, and Inspiration, which just filed a biosimilar Factor IX in Europe for hemophilia B. Everyone's hoping that biosimilars will soon generate rather more of that commercial magic that their fairy-tale promised, but has thus far struggled to deliver.

image by flickrer princessashley used under creative commons

Deals of the Week Ponders: Is IND the New Biotech Dealmaking Sweet Spot?

Today in the hot-off-the-presses October issue of IN VIVO we argue that early-stage biotechs ought to stop pushing their drug candidates through to clinical proof of concept.

Now before you start to laugh, hear us out. And take a look at the data.

Though clinical proof-of-concept has long been the goal for biotechs hoping to land a sweet licensing deal or acquisition, getting there takes plenty of cash -- cash that's increasingly scarce as venture funding dries up or moves on to later-stage, in-licensing based opportunities. What's more, it seems that neither the public markets nor licensing partners ascribe much value any more to early clinical success. Finally pharma companies seem eager to deal earlier on in the value-chain as pre-clinical stage deals are up in volume this year while the number of deals for assets in Phase I, II or III remains stagnant. They're also increasingly skeptical, executives and analysts note, of biotech's development work.

In short, for many biotechs in 2011, clinical development might not be worth the risk. Up-front deal values for pre-clinical stage assets have held steady over the past five years, while up-fronts for assets in Phase I, II and III have suffered. The chart below shows average data for about 300 deals since 2007 with disclosed up-front payments (from a larger set of 770 deals between biotechs and revenue-generating pharmaceutical marketing partners, Jan 2007 through 14 September 2011); we first presented this data at this year's Pharmaceutical Strategic Alliances meeting on September 22.

Sure biotech companies can expect lower up-fronts from preclinical deals, and still stronger up-fronts from Phase I or Phase II transactions. But is it worth the cost, and thus the risk, of getting there? We argue this month in IN VIVO that in fact for most discovery-based biotech companies it probably isn't. Better to land an early-stage deal that's structured to provide investors with at least some liquidity -- Forma's deal with Genentech is an interesting and perhaps imitable model -- than to curb discovery to allocate the lion's share of resources to a lead program.

In Vivo subscribers can check out the whole piece here. And meanwhile here's something that never loses value, it's time for the next edition of ...

Abbott/Costello (deemed so by IVB's reader poll) : In a move intended to unlock the value of its proprietary pharmaceuticals business, which may be undervalued due to investor concerns about the possibility of declining sales for multi-blockbuster Humira (adalimumab), Abbott announced a plan Oct. 19 to split into two companies over the next year. The pharma will consolidate four business segments – medical devices, diagnostics, nutritionals and brandedgeneric drugs – into a diversified medical products company that will retain the Abbott name and be led by current Chairman and CEO Miles White. Meanwhile, the company will spin out its portfolio of prescription pharmaceuticals, including Humira, which has garnered sales of $5.7 billion through the first nine months of 2011, along with its R&D pipeline into a still-unnamed research-based pharmaceutical company. The spinout will be led by Richard Gonzalez, currently executive VP, Global Pharmaceuticals, for Abbott and a decades-long veteran at the company. The diversified company brings in about $22 billion a year, execs said on an investor call, while the pharmaceuticals unit earns about $18 billion annually, with Humira’s share of that total growing. Investors are wary of Humira’s growth potential because of competition it may face from new drugs in development, like Pfizer’s tofacitinib, and biosimilars. Gonzalez said Humira can continue to grow, however, by increasing penetration in non-mature indications as well as through label-expansion plans. All in all the move (and investors' reaction) suggests confidence in pharmaceutical growth continues to ebb. —Joseph Haas

Servier/Miragen: In the largest deal yet for the fledgling microRNA sector, four-year-old startup Miragen Therapeutics agreed to license some geographic rights to three preclinical targets to Les Laboratoires Servier. The mid-sized French pharma will pay $45 million up-front, plus potential milestone and royalty payments worth $352 million as well as development and support payments, for rights to the three targets outside the U.S. and Japan. The deal covers Miragen’s two lead programs, miR-208 and miR-15/195, and a third target not yet identified by the companies; all are in the cardiovascular disease space. Although Servier will fund all clinical trials through Phase II, Miragen retains the right to co-sponsor the Phase III development and commercialization of any of the three, and will collaborate with Servier throughout the research and development phase. MicroRNA drugs are thought to overcome a difficult problem of delivery of RNAi drugs, allowing for traditional infusions and injections; Boulder, Colo.-based Miragen has named eight compounds in its pipeline. Although the fresh capital will keep it afloat far longer than its initial $18 million in private capital raised since 2007, Miragen CEO William Marshall says the company is still planning a large Series B round. – Wendy Diller & Paul Bonanos

Roche/Anadys: For several years as competition in the hepatitis C space intensified, some market analysts have expected a big pharma to buy out Anadys Pharmaceuticals and its portfolio of two HCV candidates. Roche did so Oct. 17, announcing a tender offer to acquire the biotech for $3.70 a share, a premium of 256% over the stock’s closing price on the last business day before the transaction. The purchase price willcome to about $230 million, which analysts and Anadys executives alike called solid value for current shareholders. Despite unveiling promising Phase IIb data for its lead program, non-nucleoside polymerase inhibitor setrobuvir (ANA598) on Oct. 13, the San Diego firm’s stock closed at just $1.04 on Oct. 14. Roche proposes a tender offer which Anadys officers and board members, collectively comprising about 7.9% of thebiotech’s outstanding shares, already have committed to accept. The Swiss pharma said it plans to complete the tender offer before the end of the year and two analysts we interviewed predicted Roche would face little difficulty in getting shareholders to accept its offer. While a 256% share price premium is an eye-catching number in the current biotech environment, a long-term review of Anadys’ history suggests the sale’s valuation may not make for a great success story for biotech investors. Overall, Roche is offering about the equivalent of the amount investors have put into the company since its relaunch in 2000.--JAH

Ipsen/Syntaxin: Ipsen and UK biotech Syntaxin on Oct. 20 announced a tie-up to discover new compounds in the field of botulinum toxins, an area where Syntaxin has considerable biology expertise, and where mid-sized Ipsen already sells Dysport for a variety of movement disorders. Ipsen will provide up to $9m in research milestones over the first three years, help fund FTEs and offers additional license fees and the usual slate of pre- and post-approval milestones and royalties. The tie-up doesn’t come out of the blue: Ipsen in November 2010 participated in an €18m Series C for Syntaxin, owns 8.9% of preferred shares on a fully-diluted basis, and, according to CBO Nigel Clark, concurrently signed a first research collaboration with the French group at the time of the investment – a deal that remained largely below-the-radar. Even without the history, Ipsen’s re-invigorated focus on its two key commercial assets, Dysport and acromegaly drug Somatuline, and its related move to restrict R&D efforts to the corresponding neurology and endocrinology franchises make Syntaxin an obvious partner, on paper: besides its knowledge of neurotoxins, its own lead program is an acromegaly candidate due to enter the clinic during the 2H of 2012. “We fall into a strategic focal point for Ipsen,” summarized Syntaxin CEO Melanie Lee. This latest deal does come with a few potential wrinkles, though. The biggest is that Syntaxin has, since several years before its 2005 spin out of the UK’s Health Protection Agency, been in bed with Allergan, Ipsen’s key commercial competition in the botulinum toxin space. The candidate discovered under those partners’ second collaboration in 2006 is due to report Phase II results next year in PHN and overactive bladder. Lee says it’s not a problem, because the Allergan and Ipsen deals represent “different uses of the [Syntaxin] technology.” In the Allergan deal, Synaxin’s effectively re-targeting botulinum toxin, applying its Targeted Secretion Inhibitor technology to “target cells of our choice for inhibition of secretion in that cell....in the PHN and OAD settings,” says Lee. The Ipsen deal involves exploring the potential further uses of natural botulinum toxins (neurotoxins that inhibit neurotransmitter secretion from nerve cells) “as we unravel the biology of botulinum.” – Melanie Senior

Merck-Serono/Newron: Merck Serono, the pharmaceuticals division of Merck KGaA, isn't waiting for the Phase III program on the role of Newron's safinamide in Parkinson's disease to be completed in another six months. The German company surprisingly announced October 21 that it was returning safinamide to Newron because it believed the product had less market potential than it originally anticipated. The announcement immediately put the intended merger of Italy's Newron with Finland's Biotie Therapies, announced only a month ago, in doubt. Executives from Newron and Biotie were participating in a joint investor roadshow on their intended merger when Merck dropped its bombshell, and are now having to consider how best to proceed. Perhaps the writing has always been on the wall: since the original agreement was brokered in 2006, Merck's clinical trial program has only evaluated safinamide as adjunctive therapy in Parkinson's disease, while originally it was thought the molecule could have potential in other therapeutic areas, including Alzheimer's disease. And Merck has been busy of late re-prioritizing its R&D pipeline and making organizational changes following the late-stage failure of its MS therapy, oral cladribine, development of which was finally terminated in July 2011. -- John Davis