Alliance Deal of the Year Nominee: Versant/Roche/Inception 3

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

We’re nominating Inception 3 not because it will star someone other than Leo DiCaprio, who never signed on to do sequels, but because it’s a biotech deal that opens a window into an intriguing new hybrid model of company creation.

Don't vote for Leo...

Let’s back up a bit. When Bristol-Myers Squibb bought Amira Pharmaceuticals in 2011 for $325 million upfront, the core scientific team at Amira decided to stay in the drug-hunting business – a lucrative business for them, indeed.

...vote for Peppi.

 Amira chief scientist Peppi Prasit’s team not only shepherded its idiopathic pulmonary fibrosis drug into Phase II, but while previously at Merck, the group discovered two commercial hits: arthritis drug Vioxx (rofecoxib), now withdrawn, and asthma treatment Singulair (montelukast). With the help of Versant Ventures, they created Inception Sciences, a mothership that would poke around conferences and tap into academic connections to find intriguing projects or targets. The idea is to bring those projects in-house, into Inception’s labs, create individual daughter companies around each project, and work them into pre-clinical shape with enough original R&D to hold composition of matter patents. “Everything up to GLP toxicology, we do in-house,” says chief business officer Clare Ozawa.

Those daughter companies are a well-known asset-financing concept: with each product housed within its own company, the ultimate goal of a clean trade sale to a biopharma is more easily attained.  The discovery engine remains independent. But Inception has also created a feedback mechanism that it hopes will keep the mothership’s engine running. It has no products, nor does it hold equity in the daughter companies. Instead, it is the contractual service provider for the daughters, with about 30 full-time staffers doing chemistry, biology, business development and more.

Inception 3 is the first publicly disclosed test of the system. Instead of drug hunting first and finding a partner or buyer later, Inception found a hunting partner in Roche, which wanted to go after hearing loss but didn’t have the internal capabilities or resources to devote to this very new therapeutic area -- new, at least, for drugs. In turn they formed Inception 3 based on technology from Stanford University. Versant provided equity funding, and Roche has added funding that gives it an option to acquire Inception 3 upon filing of its first IND. Ozawa declined to give a development timeline. The partners will be looking for small molecule therapies to address sensorineural hearing loss, which is all too common, permanent, and afflicting more and more people in the age of the iPod.

None of the dollar amounts were disclosed, but in July Inception 3 filed notice of raising a little more than $1 million of an anticipated $10 million offering. Ten million was also the target offering of Inception 1 and Inception 2, which are built around neurology and oncology programs. Each has raised $5 million, according to SEC filings. Versant to date has been the only shareholder, and it funds them from its general fund, not from cash set aside for Inception projects, says Ozawa, who was a Versant associate before joining Inception: “Each daughter has to stand alone and make sense to Versant, just like any other start-up.”

If the concept takes off and Roche proves a reliable fiancé, Inception could find more gentlemen callers on its doorstep.

Alliance Deal of the Year Nominee: Novartis/University of Pennsylvania

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

Novartis’ alliance with the University of Pennsylvania around cancer immunotherapies based on chimeric antigen receptor technologies is a creative relationship that is as state-of-the-art as the technology it embraces. The Big Pharma needs to reinvigorate its oncology franchise as its key drug, Gleevec, matures. And the university, like all universities these days, needs additional sources of funding as its key benefactor, the National Institutes of Health, pulls tighter than ever on its purse strings.

Novartis-Penn might deserve a nomination simply because it’s the year’s flashiest deal in the hot and maturing area of pharma-academic collaboration. But it’s nominated also for the potential importance of the technology, which more typically would find a home in a venture-backed biotech environment.

The five-year alliance, centered around the work of professor Carl June and announced in August, achieves those goals and more. June is director for translational research at the Abramson Family Cancer Research Institute at Penn and an expert in using genetically modified T-cells to treat cancer and infectious diseases. He has recently devoted considerable time to creating T-cells that express the receptor CART 19, a synthetic fusion protein consisting of antibodies that attach to the CD-19 protein, commonly expressed in B-cell mediated leukemias, notably chronic lymphocytic leukemia. Others are working on similar technologies, but June has been able to demonstrate for the first time both the longevity sufficient for clinical benefit and a lack of life-threatening side effects.

In exchange for undisclosed funding, Novartis gets exclusive worldwide rights to all assets developed through the collaboration and to CART 19, which June’s group has already taken through Phase I trials. Novartis is gearing up to start Phase II trials in 2013. Penn’s tech transfer office notes that it has one of the biggest up fronts between pharma and universities for a specific program and based on its size, Penn researchers will be devoting a “significant” amount of their time to it.

As part of the deal, Novartis is committing $20 million to build a Center for Advanced Cellular Therapies on site at the Penn campus in Philadelphia. Novartis executives singled out the technology as having the potential to be “transformative” at an Investor R&D event in November.

The collaboration is noteworthy as far as university-academic alliances go not only for its potential scientific and medical benefits but because it surely is emblematic of what appears to be a new phase in industry-academia relations. Long fraught with mistrust and tension, the groups have struggled to work together, deterred by disappointments and abrupt endings.

In recent years, as they apply serious efforts to find new sources of innovation, pharma companies have taken more of a win-win approach to dealing with academia – sharing intellectual property, returning compounds to academia if the corporate partner loses interest in them, and being more flexible on publication rights – all stipulations that never used to be on the table.

At the same time, the ivory towers, short of cash, are slowly shifting their culture to incorporate corporate support for translational research that could lead to new drugs. The hope is that industry will be able to tap a new source of innovation and ideas, and that academics will find the support they need to do their work and also carve out a route to put their best findings into clinical practice and ultimately help patients.

The Penn arrangement stands out for the extent of commitment both sides are making – bidding for the technology was highly competitive and June likely could have turned to venture capital for support in building his own company, traditionally a key route to fame and fortune for academic superstars. But reportedly he wanted to get the CART 19 compound on the market quickly and Novartis was the best ticket to that goal.

-- Wendy Diller

Alliance Deal of the Year Nominee: Transcelerate

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

When a new research and development initiative works both the words “transform” and “accelerate” into its name, that provides a pretty good clue what it is all about. TransCelerate BioPharma, a joint effort to alleviate bottlenecks in the pharmaceutical R&D process unveiled in September, brings together the common interests of 10 otherwise ultra-competitive big pharma companies. And hell if you can get ten pharma companies to agree on the terms of an alliance, even one under the vague umbrella of 'open innovation,' well that deserves a nod from us.

The non-profit, which will share the results of its work with all of its members, has set an initial goal of reaching “definitive milestones” for five action items by the middle of 2013.

Those priorities are:

• A shared user interface for investigator site portals, to make it easier for trial investigators to access the information they need to participate in a study;
• A mutually recognized trial site qualification and training;
• A risk-based site-monitoring approach and standards;
• Uniform clinical data standards; and
• A model for supplying trials with comparator drugs.

“We’re hoping that we can catalyze the creation of centralized site qualification and training,” chairman and (then-)acting CEO Garry Neil told us in September (Neil handed over the CEO reins to Dalvir Gill on Dec. 10). “In other words, can we get to a point where an independent third party can specify what would be the requirements for site qualification for an individual investigator or a whole site? Then, can we come up with some way of certifying those sites so that one wouldn’t have to go in as an individual sponsor and certify each site over and over again, which often happens because many investigators will do trials for multiple sponsors.”

Going by the characterization of many industry observers, there are 12 big pharma companies at present (give or take another mega-merger, which for all we know could in the works as you read). One suspects that anything Abbott Laboratories, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Pfizer, Sanofi and Roche/Genentech all can agree upon must comprise some fairly universal issues.

Merck and Novartis are not charter members of TransCelerate, although Neil, a former corporate VP at J&J, told “The Pink Sheet” DAILY that “This isn’t just for big companies. This is for medium-sized and small companies. We know how much work and innovation is coming out of these small companies, so we’re very interested in having them join.” So Merck, Novartis and biopharma firms of all sizes joining on later has not been ruled out. Neil also expects academia, regulatory agencies, contract research organizations and patient advocacy groups to play a significant role in TransCelerate’s work.

Intended to be a virtual initiative, the non-profit will be headquartered in Philadelphia but have no staff at the start other than Neil. Instead, full-time equivalents from the 10 charter companies will work together on the goals. Each participating company is contributing an undisclosed amount of money to the effort, along with the FTEs, Neil said.

Once the deliverables are ready for implementation, he said, the expectation is that each member company will adapt those to its practices, but not necessarily all at the same rate.

“It wouldn’t make sense for a company to come into this and do this work unless they were planning to implement it,” he explained. “Individual companies may do that on a different time table.… At the end, I think all of the member companies will come up with an implementation plan for at least one of the initiatives. Some will be doing all five, and some will be somewhere in between.”

--Joseph Haas

M&A Deal of the Year Nominee: Biogen/Stromedix

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

When Biogen Idec paid $75 million up-front in February 2012 to acquire Stromedix, that biotech became the third start-up in the niche idiopathic pulmonary fibrosis space to get snapped up in just over a year. Stromedix and the others (Arresto, acquired by Gilead for $225 million u/f at the end of 2010 and Amira, bought by BMS in 2011 for $325 million u/f) were no doubt at the vanguard of a scientifically and commercially compelling, if developmentally daunting, space. That a trio of the biopharma world’s savvy dealmakers was jumping into the fray is no doubt exciting.

But Stromedix’s focus on fibrosis and the exciting opportunity IPF and other fibrotic diseases represent isn’t why we’ve selected this deal for a DOTY nomination.

Nor are the deals terms what locked it down. At roughly 2.5 times the total capital invested paid out on the up-front (and $487.5 million in earn-outs possible), the deal was a winner for Stromedix’s backers Atlas, Bessemer Venture Partners, Red Abbey Venture Partners, New Leaf Venture Partners and Frazier Healthcare Ventures.

But it wasn’t the biggest deal of the year and doesn’t boast a fancy new structure.

What makes Biogen’s acquisition of Stromedix stand out in the crowd of up-front-plus-earnout private biotech deals is the fact that to land Stromedix’s lead asset, Biogen first had to set it free.

In 2005, former Biogen head of research Michael Gilman left the company and joined Atlas Venture. Hunting around for a drug in the fibrosis space he eventually, in 2007, alit on what became STX-100, Stromedix’s lead asset. STX-100 is a monoclonal antibody targeting integrin alpha-v-beta-6, a cell-surface adhesion molecule and activator of transforming growth factor beta, itself a popular target in a variety of indications including fibrosis and oncology.

The drug candidate had been in active development for IPF when Gilman left Biogen. By 2007 Biogen had filed an IND with FDA but the asset was mothballed during a round of portfolio prioritization. Biogen out-licensed STX-100 to Stromedix – and retained no future rights to the asset (though it did retain an equity stake in the biotech). Stromedix planned to develop the molecule to prevent kidney fibrosis following a transplant. It hit the clinic in early 2008.

In the end, the renal transplant idea didn’t play out the way Gilman hoped it would. Eventually Stromedix made its way back around to IPF, and years after waving goodbye, the researcher and drug candidate have returned to the fold.

But it’s interesting to think about the things that needed to go right for STX-100 to make its way back to Biogen. Gilman had to know about the compound; it wasn’t part of an active out-licensing effort at Biogen. Biogen had to be willing to let it go – and on terms that would allow Stromedix and its initial backers Atlas and Frazier to build enthusiasm to support the drug’s development. And both Stromedix and Biogen (the latter under all-new management since the time Stromedix signed its initial deal) had to change course, and believe the drug had a bright future in the IPF space.

If you love something, set it free. If it comes back to you, just maybe it was meant to win IN VIVO Blog’s Deal of the Year.

image by flickr user ajari, creative commons license

Alliance Deal of the Year Nominee: Tolero/Mannkind

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

When is a licensing deal, well, not exactly a licensing deal? How about a deal in which the out-licensor can opt back in to the program being sold off, with the related “bio-bucks” then flowing in the opposite direction – that is, to the company that in-licensed the assets in the first place?

In a deal structure that perhaps could best be described as “double-jointed,” in April new company Tolero Pharmaceuticals licensed exclusive worldwide rights to MannKind Corp.’s preclinical Bruton’s tyrosine kinase (BTK) inhibitor program, which Tolero believes could yield novel therapies for hematological cancers and inflammatory diseases. We think the deal could yield the companies this year's Roger in the alliance category.

MannKind, of course, is focused almost exclusively on its perennially troubled effort to develop a recombinant inhaled insulin product, Afrezza. The deal with Tolero puts development of the BTK compounds in the hands of the privately held, Utah-based biotech, but allows MannKind the ability to opt back in after Phase I if it likes what Tolero has uncovered. If MannKind opts back in to develop the compounds, the potential milestones and royalties would flow instead to Tolero.

“It’s a different model that we proposed and one that I think MannKind really liked,” Tolero Chairman and CEO Dallin Anderson told “The Pink Sheet” DAILY at the time. “It aligned incentives and made our negotiation progress very smooth. I think us proposing a structure that de-risked the opportunity for MannKind and gave them a chance to still be involved down the road helped us with not only terms but also to get to an agreement that makes sense for both parties.”

Tolero paid an undisclosed upfront amount with the potential for development, approval and commercialization milestones going to MannKind, along with tiered royalties on any product sales. The upfront and milestones could total $130 million, Anderson said. However, MannKind also retains the right to re-acquire the BTK assets at pre-specified terms up to 60 days after the conclusion of Tolero’s first Phase I study. If MannKind elects this option, it would assume all development and commercialization responsibilities and costs.

“BTK currently represents one of the most exciting therapeutic targets in oncology, and we feel that our collaborative approach to targeting BTK may uncover some novel utilities not yet fully realized,” Anderson said. He did not elaborate, however, on what those additional “utilities” might be.

Much about Tolero remains unknown – founded in 2011 and based in Salt Lake City, the firm is not backed by venture capital or institutional investors. Anderson, who noted his background as having co-founded Montigen Pharmaceuticals Inc. in 2003 and then selling to SuperGen in 2006 at a significant multiple, would say only that his company is funded by a number of private investors. Its own programs, including two compounds – TP-0413 for cancer-related anemia and TP-0829 for B-cell malignancies – are slated to enter clinical development in the next year and derive from a discovery approach based upon single genetic alterations that drive cellular signaling pathway abnormalities.

--Joseph Haas

image from flickrer flightofdestiny2008, creative commons license

Deals Of The Week: Has BioCryst Struck Out?

As baseball executives gathered at the Opryland Hotel in Nashville during the week of Dec. 3 for the trade and free agency frenzy known as the winter meetings, the deal-making also continued in the biopharma corner. But just as executives from many major league teams were waiting for the strategies of big spenders like the Texas Rangers and Los Angeles Dodgers to materialize so they could make their corresponding moves, it was a week of frustration at BioCryst and Presidio as a planned merger that might have created a new significant player in the hepatitis C space crumbled under the weight of three rapid clinical setbacks.

In the aftermath of a third setback, FDA placing a clinical hold on oral hereditary angioedema compound BCX4161 the week of Nov. 26, the two companies announced Nov. 30 that they mutually had decided against a planned all-stock merger announced on Oct. 18 that would have created a new company with a wholly owned portfolio of three oral antiviral candidates for hepatitis C.

During an investor call Dec. 7, BioCryst announced that it will cut its staff by 50% while reducing planned cash-burn for 2013 by as much as 45% while it narrows its focus on the HAE and HCV programs, as well as preclinical broad-spectrum antiviral BCX4430. CEO Jon Stonehouse explained that the three clinical setbacks - the delay of a clinical trial for NS5B inhibitor BCX5191 in HCV because of toxicity concerns and the likely clinical failure of flu candidate peramivir - had eroded the North Carolina biotech's stock price.

"Despite these setbacks, we have a path forward for BioCryst to rebuild shareholder value because of our promising compounds," the exec said. "Following the review of BioCryst's assets, resources and cost structure, we concluded that restructuring and a highly focused approach to our development programs was required. This will preserve cash and enable BioCryst to reach near-term milestones that will give us greater insight regarding the opportunity and risk associated with our three core programs."

The planned merger with privately held Presidio not only would have combined HCV assets, but also would have brought BioCryst a needed injection of cash. The deal valued Presidio at $101 million and would have involved 24.5 million new shares in BioCryst being issued to Presidio's investors. At the same time, Presidio shareholders would commit to providing $25 million of a planned $60 capital raise for the new company.

Now, the retrenched BioCryst will cut down from 75 positions to a headcount of 37, which Stonehouse said reflected reductions evenly spread throughout the organization. Instead of spending $40 million in R&D and associated costs in 2013, the company now anticipates a cash-burn of $22 million to $25 million, excluding deal-related and restructuring costs. BioCryst will record a restructuring charge of between $2 million and $4 million during fourth quarter 2012.

The revised R&D plan is to study low doses of '5191 in HCV-infected chimpanzees in an attempt to demonstrate meaningful antiviral activity at lower doses than previously used in clinical trials. In November, BioCryst withdrew an IND for '5191 due to safety concerns regarding renal toxicity at the dosage thought needed to benefit human patients. BioCryst expects go-or-no-go data from the chimpanzee studies in early 2013, Stonehouse told the investor call.

The company also hopes to begin a Phase I study of '4161 in January 2013 to demonstrate the safety, level of drug exposure with oral administration and pharmacodynamic effects of the kallikrein inhibitor. BioCryst, which hopes to position '4161 as an oral prophylactic against HAE attacks, thinks such a product would be a game-changer in the rare disorder space. For now, however, the drug is stalled as FDA implemented a clinical hold on '4161 due to concerns about compounding of the drug at trial sites.

BioCryst also plans to seek medical journal publication of a manuscript describing the activity of '4430 in certain filoviruses. That candidate's prospects loom crucially because peramivir is considered virtually dead after a Phase III trial was ended due to poor efficacy findings.

While BioCryst and Presidio were mired in a "No-Deal," however, other biopharma companies were proactive just like the executives in the baseball world during the past week. Now, it is time to "play ball" with ...

Baxter/Gambro: In an effort to extend its global footprint to areas like Latin America, Europe and the Asia Pacific, Baxter International has agreed to pay $4 billion including the assumption of debt to acquire Swedish dialysis company Gambro, which reported revenues of $1.6 billion annually. Baxter is using its cash held overseas to pay for the transaction and the deal is expected to close in the first half of 2013. “With Baxter generating more than two-thirds of its cash overseas, we view the Gambro acquisition as a smart way to put that money to work,” wrote Leerink Swann analyst Danielle Antalffy in a note to investors. The acquisition rounds out Baxter’s kidney dialysis business, adding Gambro’s suite of hemodialysis products to its own peritoneal dialysis offerings. Gambro’s products typically are used in the hospital setting, while Baxter’s products usually are used in the home. Baxter expects to see $300 million in cost synergies by 2017 and add approximately 7% to sales over the next five years. The company currently brings in revenues of $13.8 billion. “Over the last three years, Gambro’s growth has been roughly flat, and Baxter's renal business has grown about 4%,” wrote Morgan Stanley analyst David Lewis. “Pro forma for the deal, Baxter believes it can accelerate growth to [about] 6% by investing to relieve Gambro capacity constraints, leveraging Baxter’s global selling infrastructure, using Gambro to accelerate the home HD launch, and using the new breadth of the business to pursue public/private partnerships.” - Lisa LaMotta

Optimer Pharmaceuticals/AstraZeneca: Building on its regional partnering strategy for Dificid (fidaxomicin), Optimer Pharmaceuticals has signed AstraZeneca to market the antibiotic in South America, including in Brazil, Central America, Mexico and the Caribbean in a deal announced Dec. 3. AstraZeneca has a “major market position in three key Latin American markets, Brazil, Mexico and Columbia, according to Optimer CEO Pedro Litchtinger. AstraZeneca will pay Optimer $1 million upfront, up to $3 million in milestones upon first commercial sale in certain countries, and up to $19 million in other milestones contingent on the achievement of sales-related targets in the region. In a related supply agreement, Optimer also stands to receive payments from AstraZeneca that amount to a double-digit percentage of net sales in the territory. One of a few big pharmas still investing in antibiotic drug development, AstraZeneca is Optimer’s fourth commercial partner. The company already has signed a co-commercialization deal with Cubist Pharmaceuticals in the U.S., and deals with Astellas Pharma in Japan and Europe and Specialised Therapeutics in Australia. It’s all part of a strategy Optimer says is focused on finding commercial leaders in key regions of the world while focusing its own attention and resources on North America, where it is building a commercial organization. The company still expects to sign at least one more partner to bring its Clostridium difficile infection treatment to China. - Jessica Merrill

Ironwood/Protagonist: Constipation drug seller Ironwood Pharmaceuticals and peptide discovery platform company Protagonist Therapeutics said Dec. 6 that they have expanded an existing partnership. The parties did not disclose terms or specifically differentiate the expanded partnership from its two-year-old predecessor, but expressed that both sides are pleased with the progress of the existing deal to discover new therapeutics addressing unmet needs, based on Protagonist’s Disulfide Rich Peptide (DRP) platform. Like the January 2011 deal, the new arrangement includes an upfront payment by Ironwood, along with milestones and royalties if a product advances through the clinic and is approved and marketed; Ironwood will continue to fund full-time staff within Ironwood’s walls in order to evaluate and develop potential products. The companies did not identify which therapeutic areas are covered under the existing or new partnership, and they have not announced any product candidates from the original collaboration yet. Ironwood says it has discovered most of its pipeline on its own thus far; it currently markets Linzess (linaclotide) for irritable bowel syndrome with constipation and chronic idiopathic constipation. Protagonist established a separate discovery collaboration with Zealand Pharma in June 2012. - Paul Bonanos

MD Anderson Cancer Center/GlaxoSmithKline – University of Texas’ MD Anderson Cancer Center has tapped GlaxoSmithKline to help it develop and commercialize an antibody discovered by scientists at the center. Anderson will handle preclinical activities, while GSK will be responsible for clinical development and commercialization. Under the deal announced Dec. 7, the cancer center will receive an undisclosed upfront payment as well as research funding and development milestones. Anderson indicated that the deal could result in $335 million in payments for the center, as well as royalties on any commercial products that are developed. The antibodies activate OX40, a protein that stimulates the immune response in T-cells against cancer. "This agreement is not only a testament to the vision shared by GSK and MD Anderson that successful clinical development of oncology drugs requires seamless integration of drug development expertise and deep biological knowledge," said Giulio Draetta, director of the Institute of Applied Cancer Science at Anderson, in a statement. - L.L.

Mediolanum/Genovax: Eporgen Venture, one of Italy’s first suppliers of seed capital to life science companies from a network of private, non-institutional Italian investors, reported on Dec. 4 the first major transaction by one of its portfolio companies, Genovax, which has sold its Phase II-ready potential therapeutic cancer vaccine, GX-301, to the Italian pharma company Mediolanum Farmaceutici. Eporgen President Konstantinos Efthymiopoulos expects several other transactions involving Eporgen-supported companies to complete in the next few months, and is aiming to raise up to €10 million ($13 million) in additional financing to develop other assets to proof-of-concept in its portfolio companies, which ideally but not necessarily would be clinical proof-of-concept. Italian research and science is as good as in other European countries, Efthymiopoulos said, although he acknowledged that life science entrepreneurship and the network of academic technology transfer offices is not as highly developed. It is only a question of time before the country catches up with its neighbors, he asserted. GX301 will boost its research interests in oncology, Mediolanum said; it will take over all future development and commercialization activities for GX301. A Phase II study in patients with prostate cancer is expected to start in the first half of 2013. - John Davis

StemBANCC: One of the largest European “open innovation” projects to date will see Switzerland’s Roche and the U.K.’s Oxford University coordinate the work of nine other pharmaceutical companies and 22 other academic institutions in Europe on creating more than 1,500 human-induced pluripotent stem cell lines to use as disease models to discover new therapies. This and other new EU projects announced Dec. 5 echo themes for TransCelerate BioPharma, an initiative announced Sept. 18 involving 10 international drug companies which also seeks to identify and solve common drug-development challenges, although focused more on regulatory than research issues. The EU’s StemBANCC project, a public-private partnership formed as part of the EU’s Innovative Medicines Initiative (IMI) will have a budget of €55.6 million ($73 million). The funding will include €26 million from IMI’s EU funds and “in-kind” funding of €21 million from the participating drug companies. The in-kind funding includes company employees and their costs, access to research equipment, facilities and database access. The cell lines, of which 500 will be derived from patients, will be used to set up models of disease, like diabetes or dementia, in order to accelerate the drug-development process. - J.D.

Photo credit: Wikimedia Commons

Deals of the Year Exit/Financing Nominee: Warp Drive Bio

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

 

No life science venture firm makes more blockbuster early-stage investments than Third Rock Ventures, often without syndicate partners. But the bicoastal firm opened 2012 with a twist on its typical modus operandi when it unveiled Warp Drive Bio in early January.

Warp Drive itself is a new approach to an old concept. The firm is using new computational technology to find the basis of new drugs in natural products -- or if you prefer, pharmacognosy -- once the main hunting ground for the pharmaceutical industry but left behind in the era of high-throughput screening of vast libraries of synthetic compounds. Warp Drive is building what it calls a genomic search engine to comb through all accessible bacterial genomes and look for conserved chemical structures that signal underlying gene expression with “novel and profound biological effects” and higher potential of drug-like properties. The firm calls these structures “chemomemes” – a term coined in an early Warp Drive meeting by scientific advisor Rick Klausner, a former National Cancer Institute chief and current VC at The Column Group (which is not a Warp Drive investor).

CEO Alexis Borisy reckons his team has sequenced “more microbial genomes than the rest of the planet a couple times over just this year alone,” and has moved on to step two: searching through the digitized genomes, more than 40,000 so far, for chemomemes that point the way to potential drugs. “We don’t tell anyone what we’re looking for,” says Borisy. “It’s a closely guarded secret. We think it’ll cause a lot of people to go ‘Wow.’”

Hello? Any drugs here?

Borisy thinks Warp Drive will be ready to unveil the secret in scientific papers a year or so from now. For now, he says the proof of concept is working; the team has already put searches to the test and gotten “hits,” to use search-engine parlance. The firm will stick to bacteria, which dominate every corner of the planet, and will later investigate fungi. Plants are much more difficult, says Borisy.

The total for the round was tabbed at $125 million, 60 percent of which was equity. As the lead investor, Third Rock wanted not only to build a syndicate to spread the investment risk but also find a potential buyer who could guarantee a healthy return. With that in mind, Third Rock recruited two others for the Series A: Sanofi and Greylock Partners. Sanofi’s involvement is where the deal twist comes in. The multinational pharma company, with an undisclosed equity stake, also has an option to buy Warp Drive. It’s a two-way street, in fact: The investors can force a sale to Sanofi if Warp Drive hits certain goals. The strike prices for each side are pre-determined but undisclosed, as are the milestones that would trigger the put and call sales.

Sanofi receives the chance to collaborate on early-stage research and feed its pipeline, while Warp Drive gets cash to develop its platform and form a drug pipeline of its own. Under the Sanofi collaboration, the sides would like to get at least two drugs into the clinic within the next five years.

Third Rock had already incubated Warp Drive Bio for “a couple of years,” according to Borisy, when conversations with Sanofi began in mid-2011. Warp Drive Bio was built around the ideas of Harvard University professor (and Third Rock partner) Greg Verdine. Harvard University genetics professor George Church, and the University of California, San Francisco pharmaceutical sciences professor James Wells are co-founders. 

The plan upon unveiling was to spend 2012 building the platform, then spend the next couple of years building a pipeline, going after previously undruggable targets. Borisy says the firm is ahead of schedule and has already triggered some of the equity and non-equity milestones with its build-out and its early chemomeme search activities. Warp Drive should grow from its current dozen staffers to about 40 next year.

The Warp Drive deal kicked off another year of Series A activity for Third Rock. It has since funded, either solo or with syndicate partners, the companies Alcresta (nutritional supplements), Global Blood Therapeutics (blood disorders), Myokardia (allosteric modulators for cardiovascular defects) and Cibiem (carotid body modulation device).-- Alex Lash

Photo of Yellowstone extremeophiles courtesy of flickr user Tim Pearce.

Deals of the Year M&A Nominee: Pfizer/Nestle

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

After digesting the 2009 acquisition of Wyeth, Pfizer has been reprioritizing. Since taking the helm in 2011 CEO Ian Read has vowed focus the company exclusively on biopharmaceuticals. In 2012, Pfizer followed up on last year's $2.4 billion sale of Capsugel by selling its nutritionals business to Nestle for $11.85 billion and announcing plans to spin out its animal health unit.

We’re nominating the Pfizer spin-outs in the M&A category because when industry’s biggest pharma player gets the deconsolidation religion, we’re intrigued to see how far it will go. To paraphrase those old Tootsie Roll Pop commercials, how many spin-off deals does it take to get to the innovative core of a large pharmaceutical company?

Pfizer’s deal with Nestle reflected the fierce competition in the global infant health market. The high price tag of the April 23 sale – well above most analysts’ expectations for the unit -- kept Nestle’s competitors at bay. Pfizer Nutrition reported 2011 sales of $2.14 billion, with 85% of the business coming from emerging markets such as China, Indonesia, Mexico, the Middle East and Thailand. The addition of the business to Nestle brings its portfolio to about $7 billion; well above revenues generated by its closest competitor, Mead Johnson Nutrition (about $3.7bb in 2011).

The Big Pharma announced in early-June that an IPO for its animal health business will likely to take place in 2013. The stand-alone company will operate under the name Zoetis. By spinning out the minority stake, much like Bristol-Myers Squibb did with Mead Johnson in 2009, Pfizer keeps its competitors from expanding their lofty animal health businesses. This move also allows Pfizer to avoid the tax consequences of an outright sale of the $4.2 billion business, but still hold on to about 80% of Zoetis – at least for the foreseeable future. Analysts expect the company to further reduce its stake in Zoetis, perhaps through a swap for Pfizer stock mimicking BMS’s DOTY-nomination garnering move in 2009.

Read’s efforts to reprioritize Pfizer were not immediately well-received when announced in mid-2011. Investors had hoped for even more drastic moves as the company anticipated the loss of patent exclusivity for the blockbuster cholesterol drug Lipitor (atorvastatin), which lost patent protection in early 2012. Yet, Pfizer has so far maintained that it will hang on to its Established Products unit, a $10 billion business that handles most of the mature drugs the company owns that have already lost patent protection. Pfizer has been keeping the unit to capitalize on the rapid growth within emerging markets, though intriguingly it has not ruled out a sale.

It has also planned to keep its Consumer Health business close to its vest as a means of converting some legacy pharmaceutical products to over-the-counter drugs. Pfizer execs have commented in recent months that unwinding the Established Products unit or even the Consumer Health business could be more effort than its worth – the products are not manufactured by unit, but scattered across many different manufacturing facilities, and consolidating those businesses would require some major reorganization on the part of the company.

So how many deals would it take to get to that innovative core? The world may never know.

--Lisa LaMotta

Deals of the Year Exit/Financing Nominee: Intarcia Therapeutics

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

If the sheer size of Intarcia Therapeutics’ $210 million Series C round of equity and debt funding weren’t enough to make it a top candidate for this year’s Roger for exit/financing, the company’s commitment to control of a novel type 2 diabetes treatment surely marks the deal as a late-stage outlier that’s worthy of your consideration for the award.

This is a story about control. My control.
Control of what I say, control of what I do.
And this time I’m gonna do it my way.
I hope you enjoy this as much as I do.
Are we ready? I am. Because this is all about control.
And I’ve got lots of it.

Janet Jackson agrees. Unlike the performer of the 1986 Top Ten hit “Control,” though, Intarcia is no ingenue stepping into adulthood. The company had already raised $135 million in equity and debt since recapitalizing in 2007. That cash allowed it to complete Phase II trials on ITCA-650, a formulation of the approved GLP-1 analog exenatide that can be delivered via a matchstick-sized device implanted under the skin once a year. The company’s prior funding includes a 2011 deal with contract researcher Quintiles that yielded both equity and product funding, along with a clinical services commitment from the CRO

Intarcia chief executive Kurt Graves told “The Pink Sheet” DAILY in November that the company decided against the traditional path of partnering ITCA-650 after proof-of-concept was achieved in Phase II, and instead chose to keep full rights to the drug. “We thought the best thing for us was to get our fair share of value by maintaining control,” he said.

The bet on ITCA-650’s upside represented a strategic shift for Intarcia. Graves said in 2011 that it was unlikely to raise more funding since it had two “finalists” for a partnership in the works. Although he wouldn’t name them, he said Intarcia wanted to keep more than half of the potential value of ITCA-650 if it’s approved and sold, and suggested that both finalists wanted more than that.

Instead, the huge new round consisting of $160 million in equity capital and $50 million in debt gives Intarcia cash to fund Phase III trials on ITCA-650, while maintaining full rights to a compound for which Graves says the regulatory risk is “as close to zero” as any project he’s encountered. Five institutional investors, including hedge fund operator The Baupost Group, debt specialist Farallon Capital management, multinational fund manager Fidelity Investments, and two other unnamed East Coast-based funds, joined existing backers New Enterprise Associates, New Leaf Venture Partners, and Venrock in the round.

If ITCA-650 succeeds in Phase III, an independent, well-funded Intarcia would have the option to go public or partner its programs just before the commercial stage, Graves said. But the company also represents an attractive, clean takeout target, just as diabetes drug developer Amylin enjoyed unencumbered freedom from partnerships in the months between the dissolution of its deal with Lilly and its acquisition by Bristol-Myers Squibb. (Could that takeout, which also included a partnership with AstraZeneca, also be a Deals of the Year candidate? Watch this space.) The comparison isn’t arbitrary; Amylin built its business on exenatide, first introducing the twice-daily injectable Byetta in 2005, then the once-weekly Bydureon early this year. Graves says Amylin lacks a composition-of-matter patent on exenatide, which allows Intarcia to proceed with trials on its version.

The deal also could point the way to other late-stage fundings involving relatively patient crossover investors or other institutional backers who provide an alternative to the difficult IPO process. In fact, osteoporosis drug developer Radius Health – of which Graves is the chairman – is thought to be seeking such a deal presently, after withdrawing its IPO registration last month. “Clearly, there’s a better market for large private investors than the IPO market,” said managing director Ansbert Gadicke of key Radius stakeholder MPM Capital last month. Now that venture dollars are scarce and IPOs are hard to accomplish, Intarcia’s deal may be a bellwether – and one worthy of this year’s Roger.

--Paul Bonanos

Deals of the Year Alliance Nominee: Epizyme/Celgene

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

Epizyme’s tie-up with Celgene in April 2012 capped a hectic year of deal-making for the Cambridge start-up. It also served notice that for the handful of companies like Epizyme – working in a big, oncogenic target class with a powerful discovery platform, an expansive IP estate, and an A-List of backers that were ready, in the words of NEA’s Dave Mott, “to finance them to the promised land” – the transactional climate clearly favors the seller. Will the DOTY votes favor this latest variation on the Roche-Genentech style tie-up?

Epizyme was so boldened by the tailwind at its back that it could ask, and get, full U.S. rights to any of the 96 targets in its pipeline that Celgene selected. It also got $90 million upfront (including a minority equity investment), $160 million in potential milestones per ex-U.S. program that Celgene picks, and double-digit royalties on ex-U.S. sales. Oh, and Celgene foots half the bill for post-IND development.

... but will DOTY voters?

Epizyme has demonstrated that the class of epigenetic modifiers it specializes in, histone methyltransferases (HMTs), have tight genetic disease associations. That means speed to proof-of-concept and value creation. It means that in a post-Zelboraf, post-Xalkori world, investors could visualize a path to market. It means a relatively low clinical spend and regulatory favor from an agency on record endorsing biomarker-guided therapeutics.

It means all the things that make the eyes of hardened investors and jaded pharma partners light up with joy. It means (Mott again) you play for “the long ball.”

The Celgene deal came on the heels of smaller pacts with GSK (Jan ’11) and Eisai (March ’11). The GSK deal was typical R&D alliance material, carving out a small set of HMT targets and doing the work for a Big Pharma partner. With Eisai, Epizyme held onto a U.S. profit share.

We’re nominating the Celgene alliance as the culmination of a carefully calibrated sequence of deals. It closely ties Epizyme to a world class cancer specialist with deep resources in epigenetics, but it didn’t betroth them. Unlike another exciting epigenetics deal, the January '12 Genentech and Constellation Pharmaceuticals alliance, Celgene doesn't have an option to acquire Epizyme. And so Epizyme’s upside is not capped at a pre-negotiated price.

All along, Epizyme’s plan has been to model itself on Genentech, specifically the biotech’s 1992 deal with Roche wherein Genentech secured U.S. rights and went on to build a legendary business on that foundation. Epizyme’s deals to date, most importantly its deal with Celgene, are steps toward that overarching goal.

That said, it’s all about optionality, even without the formal option-to-acquire. Epizyme’s wish is to become a U.S. cancer FIPCO. But wishes sometimes don’t come to pass. So it’s also positioned to fall into the arms of Celgene. George Golumbeski, Celgene’s SVP bus development, suggested to IN VIVO this year that “if everything works out rosy, we probably have an inside track to do a different kind of deal.”

--Michael Goodman