DOTW: Early Stage Investing Pays Off

Preclinical protein platform play Envoy Therapeutics got taken out by Takeda this week for up to $140 million. That magical “up to” typically hides a multitude of sins, but here that may not be the case.

The milestones are all preclinical and achievable within a year and a half, Envoy investor John Diekman of 5AM Ventures tells In Vivo Blog. VCs invested a mere $8 million in Envoy, which was founded in 2009. That puts an exit at 17.5x, if all the milestones are hit. That means 5AM's investment of about $4 million could be parlayed into around $70 million.

Although that’s an amazing multiple, with such a small investment it doesn’t quite provide the home run that VCs often rely on to create venture returns. It will return almost half of the $150 million fund the firm raised in 2006. 5AM subsequently raised a $200 million fund in 2009.

Diekman said the board originally bargained hard to get paid entirely upfront but, once they realized Takeda had solely preclinical milestones in mind, they were happy to relent. Comps for the deal are hard to find; there haven’t been any disclosed acquisitions of preclinical companies this year that paid cash and had the potential to be worth over $100 million, according to our deals database.

He noted 5AM Ventures planned to put $20 million total into Envoy and said, “If there’s anything we don’t like, it’s that we didn’t get enough money into the company."

But Diekman said the next inflection point likely would have been Phase II data, when the company could again be a promising acquisition candidate. So when the investors started evaluating options, they took into account the amount of money and the time that would be necessary to take the company to that next stage.

Envoy has bacTRAP technology, which combines genetic engineering with molecular biology techniques to label and extract protein-making components of specific types of cells. “This is one of the nicest platform companies I’ve seen in my life. They have the ability to bind new targets in such as way that you can start screening them in CNS and other areas,” said Diekman.

The central nervous system application is the attraction for Takeda, which has moved aggressively into the field in recent years. 

Takeda and Envoy have history. Takeda Ventures participated in the 2009 Series A round for Envoy, so it already held 12.5% of shares ahead of the acquisition. Another strategic investor, Roche Venture Fund, also participated in that financing. In 2010, Takeda and Envoy did a deal to discover schizophrenia drugs that offer greater efficacy and safety than approved treatments. Envoy received $3 million upfront and an additional $2.25 million per year for three years. 

“Takeda was an investor from the beginning and saw the technology. They did a deal with us, discovering a number of compounds. They watched the technology and saw how good it was and where it was going. And they wanted more,” said Diekman.

While Envoy secured a Takeda partnership and then an acquisition, this week a couple other biotechs went in the opposite direction and lost partners. We’ll give you all the details in this week’s edition of. . .

Sun Pharmaceutical/Dusa Pharmaceuticals: India’s largest drug maker by market cap, Sun Pharmaceutical, acquired U.S.-based specialty dermatology company Dusa Pharmaceuticals, a step it said will help build a global specialty dermatology business. The deal valued Dusa at $230 million, which translates to about 4x sales and 36x annualized after-tax profits based on 1H12 figures. Sun marked the deal as a departure from the company’s usual strategy, which is to acquire distressed assets. Also, Sun struck a conservative agreement that gives it market depth compared to a jump in its top-line. In an earlier interview, Sun Pharma Managing Director Dilip Shanghvi tempered expectations of any large deals. Dusa drew most of its $45 million revenues last year from Levulan, a single drug-device combination therapy for treatment of non-hyperkeratotic actinic keratosis, or AKs, of the face or scalp. Actinic keratosis is a common precancerous skin condition caused by excessive exposure to ultraviolet light and made up of rough, dry, tan- or pink-colored blemishes that often appear on facial skin or other skin exposed to sunlight. Founded in 1991, Dusa had a long gestation and only turned profitable in 2010. In addition to Levulan, it sells Blu-U, a blue light device used to treat moderate inflammatory acne vulgaris and general dermatological conditions. With the acquisition, Sun said it expects to provide about five million treatments per year in the U.S. Shanghvi pegged the market at well over $1 billion, adding that the cost of treatment is a factor for the number of treatments received.-- Vikas Dandekar

Merck/ Regenstrief Institute: Merck & Co. signed a five-year agreement with The Regenstrief Institute to collaborate on a range of projects that will use clinical data “to inform personalized delivery of health care,” Merck said in a statement. Regenstrief, a non-profit medical research organization affiliated with the Indiana University School of Medicine, has access to a large data repository that includes de-identified clinical data on over 13 million individuals, according to Sanchin Jain, Merck’s chief medical information and innovation officer.  The foundation for the database is the Indiana Network For Patient Care, a healthcare information exchange that goes back to 1994 and captures a range of clinical and claims data from providers and payers across the state. The companies will use the data to explore novel methods for studying diseases and treatments for chronic conditions. The collaboration began in April, but Merck announced it on Nov. 8, so scientists from both organizations are in the midst of completing nine projects in 2012 and plan another 10 for 2013, focusing in total on osteoporosis, diabetes, hypertension, hyperlipidemia and insomnia. Financial details were not disclosed, but the collaboration aims to advance the science of bioinformatics and to “have a practical effect on Merck’s approach to bringing new products to patients,” Jain said. Study results could provide insights into medication adherence and patient outcomes, as well as improved methodologies for conducting observational research, he added. Results of collaboration studies will be published in peer-reviewed journals. Jain said that Merck selected Regenstrief, which is more than 40 years old, because of its expertise in biomedical informatics, health services research, and its world-class health information system. For Regenstrief, an alliance with Merck offers an opportunity to globalize some of its ongoing research and work with a leading pharmaceutical company.-- Wendy Diller

Pfizer/Alliance For Lupus Research: Pfizer’s Centers for Therapeutic Innovation (CTI) announced a partnership on November 7^th with the Alliance for Lupus Research (ALR) to co-fund the translation of promising lupus treatments into Phase I trials. In a reminder of how the R&D ecosystem is rapidly evolving away from the only-within-our-walls mindset, the collaboration is the first in which a Big Pharma joins with academic investigators and a non-profit research foundation to accelerate emerging science. Tony Coyle, VP and CSO of Pfizer’s CTI, says the program’s presence in each of the major U.S. life science hubs enables it to assemble highly customized teams with specific perspectives and skillsets. Pfizer and ALR will split the funding of academic investigators in Pfizer’s CTI network during the three-year collaboration. The partners have agreed to start off with four projects, but Coyle expects that, driven by success, the collaboration may run additional ones. He envisions funding in the $1 million-$2 million range depending on the particular needs of the project and how rapidly it can progress from bench to clinic. Coyle believes the team model – pharma, disease research foundation, and academia – can be replicated to other diseases and locales. Lupus, which is poorly served by drug therapy, is a natural test case since it’s a multi-organ disease that has recently seen dramatic advances in the understanding of its underlying mechanisms. It’s also genetically heterogeneous, and will require multiple drugs to treat all symptoms and subtypes. Pfizer, with two early-stage lupus candidates in its clinical pipeline, already has a head start.-- Michael Goodman

Arena/Ildong Pharmaceutical: San Diego biotech Arena Pharmaceuticals secured a second marketing partner for obesity drug Belviq (lorcaserin), as Ildong agreed to market the compound in South Korea. In a deal announced Nov. 6, Arena receives an upfront of $5 million and an additional payment of $3 million upon the drug’s approval by the Korea Food and Drug Administration (KFDA). Arena will manufacture Belviq and sell it to Ildong for 35% of annual net sales. That price will increase on a tiered basis up to 45%, not to exceed $15 million. Eisai has rights to Belviq in the U.S., Canada, Mexico and Brazil. That deal has a similar structure in which Eisai purchases Belviq from Arena in exchange for a percentage of annual net sales. In its Q3 earnings call on the same day as the Ildong announcement, Arena said Eisai would start to market Belviq in the U.S. in early 2013, subject to the U.S. Drug Enforcement Administration's final scheduling designation. Arena expects a decision by EMA on Belviq in 1H13. Investors don’t seem particularly convinced of the strength of a Belviq launch: shares are off almost 10% since approval on June 27. Still, competitor Vivus is off by much more – almost 60% since its Qsymia approval on July 18 – on a rejection by EMA for European brand name Qsiva (phentermine/topiramate) and a weak early Qsymia launch.-- S.L.

Chiromics/GlaxoSmithKline/Bristol-Myers Squibb: New Jersey-based Chiromics announced a pair of tie-ups on Nov. 9 under which Bristol and GSK will get non-exclusive licenses to the biotech’s chemical compound library. Bristol also will receive an exclusive license to a collection of proprietary chemical compounds discovered by Chiromics. Central to each deal is a screening collaboration to discover and optimize novel small-molecule candidates against multiple undisclosed therapeutic targets using Chiromics’ “cascade catalysis” technology. No financial terms were disclosed for either transaction. Based on technology discovered at Princeton University, this platform enables “accessible complexity,” the discovery of diverse molecules, including novel classes of drugs, that are differentiated from existing small-molecule therapeutics while offering drug-like properties, the ability to develop structure-activity relationships and ease of re-synthesis, Chiromics said. The biotech’s proprietary hit recognition algorithm, Chalis, also will be used in the discovery process with both pharmas.-- Joseph Haas

Pfizer/Auxilium Pharmaceuticals: The parties mutually agreed to end a 2009 partnership for the development, commercialization and supply of Auxilium's Xiapex (clostridial collagenase for injection) for Dupuytren's contracture and Peyronie's disease in the EU and 19 other European and Eurasian countries. The deal ends as of April 24, 2013. Xiapex (the EU trade name) is approved to treat Dupuytren's contracture in the U.S. and E.U. and an sBLA has been submitted for Peyronie's disease. Asahi Kasei has development and commercialization rights for Xiaflex in Japan, while Actelion has them in Canada, Australia and Mexico. The treatment is in Phase IIa testing for Frozen Shoulder syndrome (adhesive capsulitis) and in Phase Ib testing to treat cellulite. Auxilium recognized $15.7 million in Xiaflex/Xiapex revenues in Q3, including $13.2 million in U.S. revenues. As a result of the Pfizer deal ending, Auxilium will recognize $94 million of deferred revenue and $9 million of deferred costs in Q4. Auxilium president and CEO Adrian Adams said on the Nov. 7 Q3 earnings call that both parties were “disappointed” in the deal and that he’s in the midst of weighing options for these regions. -- Stacy Lawrence

GlaxoSmithKline/Xenoport: When is a parting of the ways not really a goodbye? In another “No Deal” this week, GSK and Xenoport ended a sales partnership, but the multinational pharma still agreed to buy an equity stake in the smaller firm at a premium price. GSK terminated a five-year marketing partnership for Xenoport’s Horizant (gabapentin), under which the it commercialized the restless leg syndrome drug worldwide except for six Asian countries, including Japan, for which Astellas held marketing rights. GSK said it is exiting the partnership due to an increased focus on core products. It paid $75 million upfront in 2007 for commercial rights to gabapentin, with up to $565 million in milestones potentially going to its California-based partner. To date, Xenoport has collected at least $130 million in milestone payments under the deal. While departing, GSK also is buying a 4.3% share in Xenoport, spending $20 million to buy 1.8 million shares at $10.86 per unit, a 30% premium over the stock’s 10-day average prior to the deal’s disclosure. Xenoport, which gets back all rights to gabapentin that were held by GSK, also is able under the deal terms to require the pharma to buy up to another $20 million in equity over the next six months.-- J.A.H.

Photo courtesy of flickr user 401(K) 2012 via Creative Commons license. 

DOTW Ponders Quality In The Wake Of Compounding Pharmacies, Hurricane Sandy,And A Deal

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Lots of news this week either directly or indirectly highlighted concerns about the quality of everything related to infrastructure, products, and services. Starting front and center with Hurricane Sandy, right down to our own neck of the woods, biopharma deal making, quality has become a high-profile and challenging priority for the industry.

It is hard to avoid discussion of Sandy when reflecting on the week’s events, especially as this columnist resides in Manhattan, where after the storm, a stark contrast emerged between electricity haves and have nots. The haves, while inconvenienced, were largely able to access the normal comforts of the modern world and every day stresses that go with it, while the most fortunate have-nots struggled through the mess, and the less fortunate continue to suffer greatly.

Hurricane Sandy tested the emergency response planning in the Northeastern U.S., where, like, elsewhere, dense populations inhabit a complex world combining state-of-the-art technology and decades, even centuries-old infrastructure. New Jersey, which has been a manufacturing, R&D, and management headquarters for the biopharma industry over many decades, was hit particularly hard by the storm. While the industry has diversified geographically over the years, the state remains an important center of biopharma activity. No one is even broaching the cost of overall business damages, and the storm may not have significantly disrupted the biopharma industry’s supply chain.

But the quality of that supply chain is under strain regardless, as witnessed in a high-profile article which appeared in The New York Times detailing the agency’s decision that a 300-milligram dose of bupropion manufactured by Impax Laboratories was not bioequivalent to the anti-depressant Wellbutrin XL. As a result, the agency said it would be more careful about monitoring the way generic drug makers make extended release drugs. “The Pink Sheet” has been tracking the issue for industry, but The Times article brought it to the mainstream public's attention. According to the Times, which obtained its information from IMS Health, 120 extended-release drugs were sold in the U.S. in 2011.

And that article came on top of rising concern about compounding pharmacies in the wake of a nationwide outbreak of meningitis due to fungal contamination of preservative-free methylprednisolone acetate produced and distributed by The New England Compounding Center. Compounding pharmacies play an important role in distribution of many medicines.

Of course, for investors, problems and shifts in trends are business opportunities. And Patheon Inc.’s announcement on Oct. 29 that it planned to acquire the N.C.-based contract manufacturer Banner Pharmacaps for $255 million is one indication that pursuit of high quality manufacturing is a business opportunity.  Patheon provides contract manufacturing and development expertise to the biopharma and generics industries.

A private equity firm, JLL Partners, owns 55% of the company, which is listed on the Toronto Stock Exchange. Patheon’s stock is trading near its 52-week high of $3.90 a share, but clearly, its owners have it on an ambitious track. More than a year ago, its board brought in James Mullen, who led Biogen-Idec Inc. for seven years, to undertake a strategic revamp, and he, in turn, has hired a group of high-level senior pharma executives to become part of his management team. As Patheon sees it, there’s an opportunity to do roll ups in what is currently a highly fragmented industry with about $12 billion in sales and a vulnerability to manufacturing gafus as the global supply chain gets more complex and buckles under to cost pressures.

In addition to manufacturing capacity for solid oral dosage formulations, Banner brings to Patheon a pipeline of technologies for developing higher-margin, value-added proprietary products and a strong presence in Latin America, particularly Mexico, where it sells OTC and prescription drugs under its own brand. This will enable Patheon to pursue more and larger customers, fitting with an industry trend towards forming strategy partnerships with CMOs to outsource capital-intensive manufacturing.

Patheon may not be focused on the industry’s bread and butter, innovative R&D, but it has ambitions to bring more modest technological innovation to the industry, namely in formulations and manufacturing.  In January, it partnered with a Columbian maker of soft-gel capsules, ProCaps SA, giving it rights to ProCaps’ proprietary soft-gel technology and manufacturing capabilities in Europe, the U.S. and Asia.

Although the industry has far too much manufacturing capacity in general, for both small molecules and biologics, it also faces a shortage of certain kinds of facilities, for things like state-of-the art sterile fill finish, points out Michael Lytton, Patheon’s EVP, corporate development and strategy, who previously was EVP, corporate and business development at Biogen. Patheon, by dint of its focus, has greater operational efficiencies, and can better manage complexity than larger companies focusing on new drug development, particularly for problem areas like sterile injectables, said Lytton. Because its processes are state of the art and highly automated, Patheon can provide high quality without great additional cost, Geoffrey Glass, EVP, global sales and marketing said.

Whether it’s easier for investors to win on the services side of the pharma industry than on the bread-and-butter of betting on R&D innovation remains to be seen. Meanwhile the search for innovation goes on.

GlaxoSmithKline/Vertex and Janssen Pharmaceuticals/Vertex: Vertex announced on Nov. 1 separate agreements pairing its nucleoside VX-135 with GKS's NS5A inhibitor and Medivir AB/ Janssen Pharmaceuticals’s protease inhibitor for Phase II trials. The deals end speculation about when the Cambridge, Mass., biotech would enter the intra-industry mix-and-match in search of an interferon-free combination regimen to treat hepatitis C. Both collaborations are non-exclusive, with an even split of expenses to support Phase II proof-of-concept trials to begin early in 2013. The deals did not provide for up-fronts or milestones, and the agreements cover only the trials.

Glaxo has not had a high-profile in the hepatitis C space, and Bristol Myers Squibb was thought the more likely candidate along with Janssen parent Johnson & Johnson for a Vertex clinical partnership. In fact, the clinical deal may be the first significant step into hepatitis C for Glaxo, an otherwise established player in the antiviral space.

The announcement solves the mystery of when and with which big pharma candidate(s) Vertex would test one of the few clinically viable nucleoside polymerase inhibitor candidates remaining in the industry. Attrition has been high for that antiviral class, exemplified by Bristol’s announcement in August that it would cease development its nuc BMS-986-094 following a Phase II cardiac toxicity incident.

The latest casualty is BioCryst Pharmaceuticals Inc.’s BCX5191, developed in house by the Research Triangle Park, N.C., biotech.

AstraZeneca/U.K. Academia: AstraZeneca  said Oct. 31 that it is expanding its dealings with academia in its latest experiment with new R&D models involving increased interaction with external partners. In late 2011, Britain’s second-largest drug maker made 22 compounds available to U.K-based scientists at no charge to see if they can develop new medicines from them. Academics submitted more than 100 proposals, from which the Medical Research Council on behalf of AstraZeneca selected 15 to further investigate for a range of potential new drugs covering Alzheimer's, cancer, and lung disease. Winners include a University of Bristol project investigating whether a compound originally evaluated for the treatment of prostate cancer could delay, or even reverse, the progression of Alzheimer’s disease; a team at the University of Manchester conducting a small clinical trial of a new treatment for chronic cough using a compound developed to treat heartburn; and scientists at the Royal Veterinary College, University of London hoping to re-purpose a lung disease drug to treat muscular dystrophies.

The 15 projects will be financed using £7 million ($11 million) provided by the MRC. Under the arrangement, AstraZeneca will retain its existing rights relating to the compounds and any new research findings by the academic institution will be owned by the academic institution.

The open innovation project is unique to Britain. It has already created a number of partnerships between researchers from academia and industry and should lead to future collaborations across the sector.--Sten Stovall

Astex/Cancer Research Technology/Newcastle University: Open innovation and knowledge sharing were major themes in Britain this week, during which U.S.-based Astex Pharmaceuticals TK inked a strategic cancer drug discovery alliance with Cancer Research Technology Ltd. and Newcastle University in northern England. Astex said that over the course of the partners’ five-year alliance it will provide £1 million ($1.6 million) annually to Newcastle University for research across biology, chemistry, pharmacology and imaging to identify new cancer drugs and associated biomarkers for diagnostic tests. The three-way pact builds on a previous collaboration between Astex, Newcastle and the CRT on fibroblast growth factor receptor, a key cancer target, which led to the development of a clinical candidate that Astex partner Janssen Pharmaceuticals recently took into Phase I clinical trialing.

Astex will retain options to exclusive worldwide licenses to develop and commercialize pharmaceutical products from each alliance project.  CRT is a non-profit organization that links discoverers of new cancer compounds to potential partners which can develop and potentially commercialize the compounds. The three-way partnership makes CRT and Newcastle University eligible to receive development and regulatory milestone payments on exercise of the options, and on products that Astex takes into development, and royalties on sales.  Financial terms of the milestone payments and royalties were not disclosed.--SS

Menarini Group/Oxord BioTherapeutics: Oxford BioTherapeutics Ltd. has entered a pact with Italy’s biggest drug maker, the family-owned Menarini Group, to jointly develop a portfolio of antibody-based oncology drugs, the firms announced Oct. 29. The deal covers five of OBT’s antibody and antibody drug conjugate (ADC) programs, each of which is in pre-clinical stages and focused on a different cancer indication using a different novel oncology target. Menarini, which has around €4 billion in annual revenues, says it is pumping €800 million into the collaboration, though would not divulge details on how that cash breaks down into R&D funding, access payments, and milestones. Its British president Andrew Slade says the deal resulted after Menarini’s main ADC hope turned out to be a dud, which sent him scurrying to find alternative assets and interviewing more than 100 companies. OBT won the contest on the strength of its discovery expertise using a platform for the development of antibody-dependent cellular cytotoxicity (ADCC) enhanced antibodies. Slade says the long view investment approach that family-owned drug makers can offer biotechs is very attractive in the current financing environment. Family-owned drug makers – most usually found in continental Europe – can offer stable management, access to long-term funding for long-term projects, and traditionally have low turnover of staff.--SS

Boehringer Ingelheim/Ensemble Therapeutics: The German pharma Boehringer Ingelheim became the latest drugmaker to strike a deal with privately held, Cambridge, Mass.-based Ensemble Therapeutics, which uses a proprietary chemistry platform to discover orally available macrocyle drugs that affect protein-protein interactions. The parties said the deal includes an up-front payment and research funding, as well as milestone payments that could bring its total value to $186 million plus royalties, if multiple drugs are developed, approved and commercialized. Specific details, including the number of drug targets covered, therapeutic areas involved, and size of the initial payments, weren’t released. BI will choose the targets, making the deal similar to Ensemble’s existing arrangements with Genentech, Bristol-Myers Squibb, and Pfizer. Ensemble chief executive Michael Taylor said that although the company’s 2009 Bristol deal covered eight targets, Ensemble has since pursued smaller partnerships. Eight-year-old Ensemble is also developing a pipeline of its own, including an interleukin-17 antagonist it expects to partner sometime in 2013. The company now subsists largely on non-dilutive capital, and is unlikely to raise more beyond the $38.5 million it took in two rounds from Flagship Ventures, CMEA, ARCH Venture Partners, Harris & Harris, Kisco Ltd., and Boston University.--Paul Bonanos

Financings of the Fortnight Checks The Forecast

We’ve got forecasts on the brain this fortnight. No laughing matter: What happened on the East Coast with Hurricane Sandy was grim, and as of this writing remains so. If you haven’t yet, please take a minute to donate to the relief effort.

A continent away, we here at FOTF HQ have many colleagues, friends and loved ones directly affected by the storm; before, during and after we have watched intently. The forecast called for disaster, and the storm brought fresh appreciation for what that overused term really means. We’re always amazed how people shrug away warnings of impending danger by saying previous warnings didn’t live up to their billing. Hurricane Irene barely ruffled New York City’s feathers, so how was Sandy going to be any different? Psychologists say this all-too-human trait is a reliance on cognitive schemas – forming assumptions or predictions upon an organization of previous experience.

We here in earthquake country are taking some time this weekend to make sure our emergency supplies are refreshed and at hand. Just because there hasn’t been a Big One in our lifetimes doesn’t mean there won’t be one tomorrow.

One example of humans – indeed, Californians – trying to imagine beyond their previous experience was the creation of the California Institute for Regenerative Medicine, or CIRM, a $3 billion bond measure the state voted for in 2004 to create an untouchable reservoir of funding for stem-cell and regenerative-medicine research. Whether such a measure would pass today, with the state fighting its way through a mountain of debt, is another matter. But Californians agreed eight years ago with the forecast that warned this brave new scientific world needed a protectorate. Eight years later, those monies are slowly making their way up the R&D food chain. In our next issue of Start-Up, we’ll check in on CIRM and the effect of its public largesse, including the new stem-cell-related companies that have sprung from CIRM-funded academic projects. CIRM has also funded a handful of for-profit companies through its various grant programs, and one thing our story will explain is a new initiative that awards grants to companies with solid venture backing or corporate partnerships. One of those awards just went to bluebird bio, which we detail in our roundup below.

Bluebird also happens to be part of another story in the next issue of Start-Up. The firm's $60 million Series D round, announced earlier this year, has significant participation from crossover investors; it's one of many big venture rounds in recent months to include hedge or mutual funds. The recession drove them away from investing in pre-IPO companies for the most part, but like a slow-moving weather system, the cycle has spun back around. The crossovers are back, investing the past 12 months in a sizable number of the venture rounds of $50 million or more, and we’ll explain why – and what’s different this time.

Another company in the news this fortnight is one of the biggest crossover successes to date, Puma Biotechnology, which became public in 2011 via reverse merger but only recently gained a listing on a major stock exchange – and raised $138 million to boot, as we explain below in our roundup.
 
Meanwhile, the real fundraising begins this week in thousands of towns, from the nation's largest on down, to put lives and communities back together. We're forecasting a lot of hard work ahead, and we're keeping everyone who was in Sandy's path in our thoughts as we head into another edition of...


  
bluebird bio: The gene therapy company said October 26 it received a $9.3 million grant from the California Institute of Regenerative Medicine to push forward a Phase I/II trial of its treatment for beta-thalassemia, a genetic blood disorder. Bluebird’s lentivirus technology inserts a gene into a patient’s hematopoetic stem cells ex vivo to correct a mutation, the cells are reintroduced to the patient and prompt the bone marrow to start producing healthy red blood cells. The stem-cell angle qualifies bluebird for a grant from CIRM, which was approved by California voters as a $3 million bond in 2004 to create a steady source of stem-cell and regenerative medicine support. The bluebird grant is part of CIRM's new $60 million fund earmarked for companies that have either rounded up significant venture backing or secured a partnership. Bluebird is in the former category, having announced in July a $60 million Series D round, and puts the Cambridge, Mass. firm in the spotlight of a small renaissance for gene therapy, as we detailed in a recent Start-Up article. The field fell into disfavor for much of the previous decade, but a gene-therapy product was approved today in Europe, and bluebird has made clinical progress, with safety concerns giving way to clinical, manufacturing and commercial problems to solve. -- Alex Lash

Puma Biotechnology: The single-asset company quietly went public through a reverse merger in late 2011, but only recently did it tap the public markets for the first time, all while upgrading its listing to the New York Stock Exchange. On October 24 Puma closed out a $138 million offer, selling 8.625 million shares at $16 apiece that included more than a million additional shares purchased by the underwriters. The company was formed to develop neratinib, a small-molecule PAN-HER inhibitor licensed from Pfizer in October 20011. The compound is currently in Phase II trials to treat HER2-positive breast cancer. In November 2011, Puma reverse-merged into a shell company and raised $60 million by selling 16 million shares at $3.75 each to a group led by Adage Capital Partners, even though its stock was not listed on an exchange. It began trading publicly in April on the over-the-counter bulletin boards. Its shares closed Wednesday Oct 31 at $20.60. Part of the company’s appeal is its founder's track record. Puma is led by Alan Auerbach, who built Cougar Biotechnology around the prostate cancer drug abiraterone, brought it into Phase III, and sold it to Johnson & Johnson in 2009 for $1 billion. J&J ushered abiraterone to an FDA approval in 2011 with the trade name Zytiga. Like Puma, Cougar in 2006 reverse-merged its way to public standing and raised cash to push forward its lead candidate. The J&J deal helped peel away some of the stigma reverse mergers carry (as in, “if you couldn’t go public the normal way, how good can your company really be?”). One high-profile VC actually said last year the acquisition provided inspiration to reverse-merge the osteoporosis company Radius Health into a shell. Radius recently filed for its first public offering, aiming to bring in $56 million, and a Nasdaq listing. -- A.L.

Atara Biotherapeutics: Amgen and venture firm Kleiner Perkins Caufield & Byers jointly announced the spinout and funding of Atara Biotherapeutics on Oct. 26, creating the company to house and develop six Amgen assets. The start-up will have programs in nephrology and oncology, with assets ranging from pre-clinical to Phase I. Amgen will retain an unspecified amount of equity in the new company, while Kleiner will provide funding in its early days. A former Kleiner partner, Isaac Ciechanover, will be its chairman and CEO. Neither Amgen nor Kleiner would comment specifically on the assets or why Amgen chose not to develop them itself, and it’s not yet clear whether Kleiner will eventually close a formal Series A round or attempt to form a funding syndicate with other VCs. The biotech and venture firm have a prior relationship: Boston-based cancer drug maker Tesaro, a Kleiner portfolio company, acquired a key asset from Amgen in 2011, a year before it went public. Amgen has spun out other companies as well; it created Relypsa to house assets that formerly belonged to Ilypsa, a company it acquired in 2007. – Paul Bonanos

Aclaris Therapeutics: Newly formed dermatology start-up Aclaris announced Oct. 24 a $21 million Series A funding with the founder and former CEO of Vicept Therapeutics and  support from the same three venture capital firms that backed Vicept. Vivo Ventures and Fidelity Biosciences led Aclaris’ initial funding, and Sofinnova Ventures provided a supplementary component of the round. A $16 million Series A round from those three firms supported Vicept from its inception in 2009 through its July 2011 buyout, in which Allergan paid $75 million upfront. Aclaris CEO Neal Walker wouldn’t disclose the nature of its primary asset except to say the compound is a preclinical, topical treatment for a highly prevalent condition. The drug will have both medical and aesthetic uses. Aclaris is the second entity to emerge from NeXeption, which establishes, funds and supplies management to independent operating companies tied to individual assets it believes are potential targets for pharma partnerships. The model echoes creative asset-based financing structures that venture firms have formed, such as the Velocity group carved out of venture firm CMEA Capital, the Atlas Venture Development Corp., or Inception Sciences, which was formed by Versant Ventures to discover drugs and spin them out into single-asset virtual operating companies. But the start-ups under NeXeption’s umbrella will license rather than discover new assets, and they will be standalone entities staffed by a combination of NeXeption executives and additional employees brought in to suit their specific needs. NeXeption also shares risk with outside venture investors, while taking equity itself. NeXeption’s first company was Ceptaris Therapeutics, which is developing a topical treatment for cutaneous T-cell lymphoma. Vivo also has invested in that company, formerly known as Yaupon Therapeutics. – P.B.

 Photo courtesy of flickr user Brian Birke via Creative Commons license.

Deals Of The Week: Partnering Innovative Drugs In China

This week brought a pair of deals in which two western big pharmas, Sanofi/Genzyme Corp. and AstraZeneca PLC, partnered with two US-based biopharmas to launch their drugs in Asia. The deals signal the willingness of biopharmas to partner with major western companies with deep presence and experience in Asia as a viable route into China and other emerging markets. But they will need to partner with a local company down the road, if only for commercial, because they won't get far without one.

The drugs – Ironwood Pharmaceuticals Inc.’s linaclotide, approved by FDA for constipation-predominant irritable bowel syndrome; and Alnylam Pharmaceuticals Inc.’s ALN-TTR2, in Phase II for transthyretin-mediated amyloidosis – are as different as an Irish Wolfhound and a Miniature Pinscher (your blogger spent last Saturday at the American Kennel Club’s “Meet The Breeds” event in NYC).

Ironwood’s drug will soon enter a Phase III trial in China, while Alnylam’s is still in Phase II. The regulatory review process in China is notoriously long, and Ironwood is predicting a potential launch in 2016 or 2017. Moreover while linaclotide addresses a population of 1.5%-5%, Alnylam’s drug targets an ultra-orphan indication whose patient population is a fraction of 1%. Linaclotide will be detailed primarily to general practitioners; ALN-TTR2 will most likely target hematologists and specialists including geneticists and cardiologists.

 The deals beg two questions:

·         Why did both biopharmas partner with a Western company rather than a local Asian company?

·         What are the prospects for orphan drugs in China?

For instance, why did Ironwood, which partnered linaclotide with local partners in Europe (Almirall SA) and in Japan (Astellas Pharma Inc.), both well developed markets, choose to go with a Western partner in China, a tantalizing commercial opportunity, to be sure, but  also the least developed, most challenging market of  all? Probably because there's currently a scarcity of Chinese pharma companies with the capability to sell these drugs.

Our colleagues at “Pharm Asia News” expect both companies will pull in a local partner down the road. Indeed, Ironwood told “The Pink Sheet” DAILY in August that it feels comfortable proceeding with the regulatory process on its own, but that it still needs the “right partner to help advance creation of the markets in those territories.”

It appears that partner is AstraZeneca. Apart from its long history in gastrointestinal disorders, AZ has been leading its peers in emerging markets growth – nearly half its sales and marketing teams are based there – and ranks second in prescription drug sales in China according to IMS. But can AZ sell linaclotide on its own, or will it have to partner with a local Chinese company?

Alnylam’s drug – the mini-pin – is the more interesting gambit. (For details, see description below)

Again, all eyes are on China, where the orphan market is at best embryonic. The infrastructure to identify patients that can be treated with ALN-TTR2 is lacking, the specialists aren’t available to treat them across China’s vast geographies, and insurers won’t pay the prices for ultra-rare diseases that we’ve seen in the U.S. and Europe. 

Except in Shanghai. Shanghai has become the first Chinese market to provide limited reimbursement to treat some rare diseases.  In late 2011, Shanghai began covering treatment for four pediatric diseases – all of them addressed by Genzyme’s lysosomal storage disease franchise.  The city also designated three hospitals to specialize in rare disease medicine. The cap for reimbursement for the four disorders is RMB 100,000 per child per school year, or approximately $16,000 USD.

Experts are uncertain about the prospects for wider orphan drug reimbursement in China, but most agree that the orphan market has big, long-term potential, and in anticipation western pharma companies have been building orphan drug R&D infrastructure. Genzyme unveiled a $100 million R&D center in Beijing in 2009 with a focus on rare diseases.

Near term, the facts are sobering: Chinese medical students generally receive no systematic training in rare medical conditions. The rate of misdiagnosis of rare diseases in China is roughly 50%. 75% of treatments are not standardized. In some cases, patients have to wait 30 years to get treatment. If Shanghai is currently the only near-term opportunity, then the question Sanofi/Genzyme must be asking is: How long will it take to develop a more widespread medical and reimbursement infrastructure in China for orphan diseases?

And the question you must be asking, Dear Reader, is: What are the Deals of the Week? 

Pfizer/NextWave: Pfizer Inc. said Oct. 22 it is exercising its option to buy privately held NextWave Pharmaceuticals Inc. The acquisition, expected to close in the fourth quarter, will give Pfizer the recently approved ADHD drug Quillivant XR (methylphenidate hydrochloride). Pfizer entered into the merger option in the second quarter with a $20 million payment and chose to follow through after NextWave’s liquid ADHD drug received FDA approval. Pfizer will pay $255 million upon deal close and NextWave shareholders could receive another $425 million based on undisclosed sales milestones. Pfizer called the transaction “consistent with its current bolt-on strategy.” Quillivant XR, approved in the U.S. on Sept. 27, is a liquid formulation of generically available oral tablets like Concerta and Ritalin and is meant to make it easier for children to take the drug. The technology used in the drug was licensed from Tris Pharma Inc. in August 2010. The drug uses Tris’ OralXR+ technology to allow for the extended release of the liquid formulation; the companies are also working on an extended-release chewable tablet for which they expect to submit an NDA in 2013.--Lisa LaMotta

Genzyme/Alnylam: The Sanofi rare disease group, Genzyme, is teaming up with RNA-interference pioneer Alnylam in an agreement announced Oct. 22 to co-develop and commercialize RNAi therapeutics for transthyretin-mediated amyloidosis (ATTR) disorders in Japan and Asia-Pacific. Alnylam gets $22.5 million upfront, up to $50 million in milestones, and mid-teen to mid-twenty percent royalties on product sales. The tie-up centers on ALN-TTR02, a Phase II RNAi therapeutic discovered and developed by Alnylam, along with ALN-TTRsc, a preclinical subcutaneous formulation of the same candidate. Genzyme will oversee and fund further development of the two products in Japan and other Asian markets, with Alnylam retaining rest-of-world responsibilities and rights. The Cambridge, Mass.-based firm hopes to benefit from Genzyme’s regulatory and commercial experience with rare-disease therapies in Asia while launching the product on its own in the U.S. and Europe as its commercial beachhead. Japan is projected to be one of the major market opportunities for TTR02. Genzyme, which gains rights to the TTR program in all of Asia-Pacific, including Korea, Taiwan, China, India, Australia and New Zealand, has been consulting with key opinion leaders in other Asian countries besides Japan to develop a sense of where ATTR disorders are most prevalent to determine where to seek regulatory approval, said Andre Turenne, VP and head of strategy and business development at Genzyme. Limiting this partnership to Asian rights was Alnylam’s decision, he added, but it makes business sense for Genzyme as well. “We think it’s a good opportunity to leverage the expertise and the infrastructure we already have established and in place in this region,” he said.--Joseph Haas

Domain Therapeutics/Ono Pharmaceutical Co. Ltd:G-protein coupled receptor (GPCR) research from the 1960s and 1980s won the day with the 2012 Nobel Prize for Chemistry committee, but more up-to-date GPCR research is the target of a new collaboration. French firm Domain Therapeutics, a GPCR specialist, said Oct. 23 it would collaborate with Japan's Ono Pharmaceutical on GPCR research in an undisclosed therapeutic area. Domain will receive an upfront payment, research funding and success-based milestones, as well as royalties on product sales arising from the collaboration. The GPCRs to be studied will be selected by Ono, and further scientific and financial details were not disclosed. Ono is keen on drug discovery alliances. Recently it has partnered with Galapagos NV subsidiary BioFocus DPI in Sept. 2012, Scil Proteins GMBH in May 2012 and Receptos Inc. in Dec. 2011.

GPCRs are targeted by more than 40% of the drugs currently on the market, but the therapeutic potential of this receptor family is still believed to be under-exploited. Domain has a proprietary drug discovery platform and screening assays that target high-potential GPCRs, with its internal research programs focused on Alzheimer's disease, depression, Parkinson's disease and schizophrenia. In Jan. 2011, Domain attracted Merck Serono SA as a research partner; and in July 2012 it raised €2 million from new and existing investors in a Series B round to accelerate its transition from contract research organization to a research discovery company that collaborates and enters into strategic alliances with pharmaceutical companies.--John Davis

Abbott/Seattle Genetics: Less than a week after safety concerns killed development of a key pipeline asset, Abbott Laboratories said Oct. 23 it would expand an oncology collaboration with Seattle Genetics Inc. Abbott will pay Seattle Genetics $25 million upfront plus $220 million in milestones for each of the compounds developed with the biotech’s antibody-drug conjugate technology. Seattle Genetics also is eligible to receive mid-to-high single digit royalties on any drugs that result from the collaboration. Abbott is responsible for R&D, manufacturing, and commercialization of products under the expanded collaboration. Seattle Genetics will receive annual maintenance fees and research support payments. The original deal was struck in March 2011 when Abbott paid $8 million upfront and agreed to pay $200 million in milestones for antibodies developed using the ADC technology against a single oncology target. The news comes right on the heels of a major blow to Abbott’s pipeline. Abbott partner Reata Pharmaceuticals announced on Oct. 18 it would discontinue Phase III testing of bardoxolone in chronic kidney disease patients and type 2 diabetes due to safety concerns. The first-in-class antioxidant inflammation modulator, which activates the Nrf2 gene, was being tested for its ability to slow progression or reverse the course of CKD. The drug was meant to be a major growth driver for AbbVie, the new pharmaceutical company that will spin out from Abbott on Jan. 1, 2013.--Lisa LaMotta

AstraZeneca/Ironwood: Ironwood Pharmaceuticals Inc. and AstraZeneca announced Oct. 23 they would team up to bring Ironwood’s irritable bowel syndrome drug linaclotide to China. AstraZeneca, the number two pharma in China, agreed to pay Ironwood $25 million upfront, and the companies will share profits and losses from the sale of linaclotide. AstraZeneca will carry 55% of the profits and losses until a certain specified milestone is achieved. The arrangement then shifts to a 50/50 split. Ironwood could also earn $125 million in commercial milestone payments. Linaclotide is Ironwood’s first commercial product and was approved by FDA in August 2012. Though Ironwood has signed a partner for the Chinese market, a potential launch of the drug is still years off, likely not until 2016 or 2017, given that a Phase III trial is yet to start. Ironwood has also partnered with Forest Laboratories in the U.S., with Almirall SA in Europe, and with Astellas Pharma Inc. in Japan and other Pacific Rim markets. The company has said it would look for more partners in other emerging markets. An important element of the AstraZeneca deal is that Ironwood will also market AstraZeneca’s Nexium (esomeprazole) for gastroesophageal reflux disease, providing an entrée into doctor’s offices in the U.S. The two simultaneously announced a co-marketing agreement for Nexium through which Ironwood’s 160 sales reps will sell Nexium in the U.S. Ironwood won’t be reimbursed for sales, however, and thus, the addition of Nexium to its sales reps’ bags won’t pad the company’s revenues.--Jessica Merrill