Financings of the Fortnight Wonders About The Wolf

Huffing and puffing and blowing the NIH down?

The biggest financial news of the fortnight had to be the U.S. government’s failure to avoid the sequester budget cuts, and the odd collective yawn it produced. Even with the sword of Damocles poised above various agencies, markets kept climbing – including the Nasdaq and AMEX biotech indices (respectively up 3% and 2.5% this week, as of this writing). The stock shrug led some to accuse President Obama and his supporters of crying wolf.

Pre-sequester, one of the federal agency heads making dire predictions was NIH director Francis Collins, who said on a February 25 conference call that “somewhere in the neighborhood of 20,000 jobs will be lost.” Collins also pointed out the sequester will lead to delays and lost time in important drug development projects focused on cancer treatment, a universal influenza vaccine and Alzheimer’s disease.

(For "The Pink Sheet" DAILY's full sequester coverage, click here.) 

Now that the cuts are coming, we asked around to see if, in our little corner of the world, the wolf was still howling. In other words, how might the cuts trickle up into the biotech startup realm, with potentially fewer innovations to hone into new companies? Part of that trickle flows through the technology transfer offices of major non-profit research centers, so we started there. What do they think?

Scott Forrest, the tech transfer chief at the prolific Scripps Research Institute  of Technology in La Jolla, Calif. – which has helped spawn biotechs such as FoldRx Pharmaceuticals, now part of Pfizer, aTyr Pharma, CovX Research (also bought by Pfizer), Receptos and Ambrx -- told The In Vivo Blog he didn’t expect any near-term pain in the next, say, six months. "Beyond that, we’re practicing watchful waiting," said Forrest. "We just don’t know what to expect."

We wondered if there's a correlation between NIH budgets and biotech company formation. Bob Coughlin, the head of the biotech trade group in Massachusetts, the state that receives the most NIH funding, told us "the long-term effect will be seen four, five, ten years from now when we don’t have new therapies and ideas in our pipeline of future companies." 

But the National Venture Capital Association has never done a study on such correlation -- and its life science policy VP Kelly Slone told FOTF she isn't aware of one. So until we crunch those numbers ourselves, there’s no precedent to gauge potential fallout by that measure.

Todd Sherer, the president of the Association of University Technology Managers wouldn’t go as far as to predict the impact on company formation. But Sherer, who also runs tech transfer at Emory University in Atlanta, said funding does correlate to invention disclosures: "So if funding dollars go down, there will be some latency, perhaps two or three years, but expect to see a drop in the number of new invention disclosures that turn into licensable technology."

Sherer also said that the tech transfer bottleneck, already an impediment, will only get worse. "Through the global financial crisis, universities haven’t increased patent budgets or [added staff], despite the federal funding increases and the number of new inventions arriving. So we’ve had more inventions coming our way, but no increase in staff or budget to handle them, and with fewer outlets [among VCs or pharmas to license them]. We’re just now coming out of a perfect storm. I’m afraid we left important innovation along the roadside during the financial crisis, and we’re about to head that way again," said Sherer.

VCs like to say that the best technologies and product candidates will always rise to the top and attract money. But with the life-science venture population shrinking, and those remaining often in pursuit of later-stage investments that won’t take so long to mature, fewer VCs are even looking toward academia. As part of its annual A-List feature in January, START-UP asked dozens of life-science VCs to name the best sources of innovation. Only 15% said academia. Unscientific, true – but Sherer wasn't surprised by the sentiment. With universities dabbling more in translational science, and big drug companies forging ties left and right with academics, he said the odds of getting something licensed might be better when going "directly to Big Pharma and big biotechs and avoiding the start-up route. I haven’t seen data that that’s the case, but conceptually it seems possible." 

This all may be moot when the new federal budget is negotiated. But with wolves at the door and fiscal hawks flapping their wings -- and gums -- we aren't predicting anything. Howl as much as you want, but you'll never filibuster long enough to avoid...

Tesaro: Basking in the afterglow of its successful 2012 IPO, the publicly traded oncology developer sold 5.4 million common shares in a secondary offering at $18 per share that raised net proceeds of $91 million for the Boston-area company. Tesaro says the cash will go toward its development programs, rolapitant, niraparib and TSR-011, which were all in-licensed. The $18 price was $1.09 below the firm’s closing price February 22, the last business day before the offer was announced. Since the announcement Tesaro shares have risen to $24.36 a piece as of mid-day trading March 7. The firm, which debuted in late June at $14 a share, was one of several in the IPO class of 2012 to finish the year above its offer price. It’s a prime example of a recent biotech phenomenon that constrains the number of companies able to go public, but rewards those that manage to squeeze through the window. Tesaro executives and directors stand to benefit, as they owned nearly 70% of the company before the secondary offering. Their holding now stand at nearly 60%. Tesaro was formed by the former executive team of MGI Pharma, which was bought by Eisai in late 2007 for $3.3 billion. New Enterprise Associates, InterWest Partners and Kleiner Perkins Caufield & Byers were Tesaro’s three main venture backers, and all three still have Tesaro board seats. There were 13 biopharma and diagnostic IPOs on U.S. exchanges in 2012, and three venture-backed firms have debuted so far this year. (We’re not counting Pfizer’s animal-health spinoff Zoetis.) Citigroup and Morgan Stanley led Tesaro’s underwriters, who sold their full overallotment of 708,000 shares. -- Alex Lash

Ablynx: Belgium's publicly-traded Ablynx has raised €31.5 million ($41.2 million) in a private placement announced February 28, two weeks after announcing positive Phase II results for ALX-0061, a second rheumatoid arthritis-targeted product from the company’s Nanobody platform. The placement is the second largest financing in Europe’s therapeutic biotech sector this year, trailing only the $60.9 million raised by e-Therapeutics in February. Nanobodies are small-sized, single-domain antibody fragments that penetrate deep into target tissues. They also bind strongly to human serum albumin, which prolongs their circulation time in the body. The funds will support further development of ALX-0061, an IL6R inhibitor, and other Nanobodies. The funds give Ablynx greater flexibility over future development plans, allowing it to consider co-development or co-promotion – it has 25 programs in its pipeline, including five at the clinical development stage, and a roster of Big Pharma partners, including Boehringer Ingelheim, Merck Serono, Novartis and Merck & Co. It is also evaluating the attachment of therapeutic payloads to Nanobodies through recent agreements with Spirogen and Algeta. Euronext Brussels-listed Ablynx sold 4.4 million new shares at €7.20 per share, a 6.7% discount to the February 27 closing price. Pre-IPO shareholders and warrant holders also sold 1.9 million shares at the same price, bringing the total amount placed to €45 million. -- John Davis

Spring Bank Pharmaceuticals: Looking to create a new class of drug that potentially could be included in next-generation, all-oral antiviral regimens for chronic hepatitis C, Spring Bank announced a $10.5 million Series A financing on February 28. The funding, from Brock Securities and Gilford Securities, will help advance lead candidate SB 9200 into a Phase I safety and antiviral efficacy trial this quarter and further the Massachusetts biotech’s preclinical pipeline. SB 9200, derived from Spring Bank’s proprietary Small Molecule Nucleic Acid Hybrid technology platform, produces an antiviral effect by activating the host-immune response in HCV-infected cells, the company says. It targets two host cytosolic proteins, RIG-I and NOD2, to set off selective activation of immune response in the presence of viral infection. In preclinical study, the compound has shown synergistic activity with other HCV antivirals and demonstrated a clean safety profile. Spring Bank thinks ‘9200 will prove to pair well with other new direct-acting antivirals for HCV thanks to the potential for pan-genotypic activity and a high barrier to resistance. Previously, Spring Bank raised $600,000 in angel financing in 2009, got a $244,000 grant under the U.S. Qualifying Therapeutic Discovery Project in 2010 and received a $3.9 million grant in 2011 from NIH. The company’s preclinical pipeline includes programs for hepatitis B, respiratory syncytial virus, chronic obstructive pulmonary disease and broad-spectrum antibiotics. -- Joseph Haas

Daiichi Sankyo: The Japanese drug giant with a long history has jumped on a recent bandwagon by forming its own venture group, as our friends at PharmAsia News reported March 4. To date, Daiichi Sankyo has invested as a limited partner in other venture funds as a window into deal flow and to gain preferential co-investment rights. But it has now created its own direct-investment vehicle to be overseen by global R&D chief Glenn Gormley, who is based in New Jersey. It joins Merck Serono, Merck & Co., Shire and other pharma companies with relatively new venture groups. Daiichi Sankyo didn’t disclose how much cash the group will have to invest, but corporations are using even relatively small amounts to invest aggressively, as corporate venture becomes a larger part of the biotech funding landscape. Corporate groups are now frequent investors in early-stage companies, once a no-go zone. In 2012, for example, Novartis’s venture group was just as active in Series A investments as Third Rock Ventures, which is one of the few traditional VCs still gung-ho for company formation. -- Daniel Poppy and Alex Lash

All of the Rest: A Series E financing led by Invesco Perpetual brought Glide Pharma £14M… In a combination Series A/loan, Dezima Pharma raised €14.2M to fund development of a dyslipidemia candidate acquired from Mitsubishi Tanabe… Attempting to overcome mucosal barriers in treating disease, Kala Pharma closed on $11.5M in Series A financing… The Dundee Corp. provided $10.5M in additional funding to TauRx for its Alzheimer’s compound… Blaze Biosciences completed a $8.5M Series A to support work on high-res technology for tumor visualization… The venture arm of leading Korean aesthetic firm AmorePacific led a $7M Series B for Brickell Biotech… With proceeds going towards Alzheimer’s agent ladostigil, Avraham added $5.7M to its Series B, now totaling $8.7M… DecImmune raised $3.2M to help develop an antibody that reduces tissue damage due to heart attack… Botanical products company KannaLife raised $1.5M in Series A funds...using social media and nonprofit advocacy to solicit biomedical research materials, Sanguine Biosciences completed a seed round… Public Swedish autoimmune/cancer company Active Biotech raised SEK270M from Investor AB… Celsion’s zero coupon preferred stock offering grossed $15M… Opko Health led a $16.4M financing for RNA-targeting RXi Pharma...oncology-focused EntreMed privately raised $11M… To fund a clinical de-risking bioequivalence study of its lead Parkinson's candidate, Canadian biotech Cynapsus closed on $Cdn6M from a syndicate including an undisclosed strategic investor… In a follow-on offering, Immunomedics raised $14M… Diabetes-focused DiaMedica announced a public offering of units… Orphan drug company Hyperion is planning to sell 2.6M shares publicly…Merck Serono spun off (and seeded with €2.5M) its latest start-up Calypso Biotech to pursue inflammatory bowel diseases… OrbiMed Advisors is reportedly raising a second pain-Asia health care fund worth $500M. -- Amanda Micklus

Wolf yawn photo courtesy of Flickr user ArranET.  

Deals Of The Week: Elan Takes It All Off, Attracts Suitors

Elan Corp. PLC has been engaged in a slow motion strip-tease over the past five years; it has now shed so many assets that it may soon disappear entirely. On Feb. 25, Royalty Pharma fielded an $11/share, $6.5 billion bid for the company. That was a 12.7% premium over the volume weighted average closing share price for Elan between Feb. 6 and Feb. 15. Elan’s directors, predictably, said the offer was too low. But the offer may be fitting in that it reflects the notion that Elan, once a CNS R&D focused biopharma, is now a royalty-generating cash shell.

In 2009 Elan peeled off its Alzheimer’s immunotherapy pipeline in a deal with Janssen Pharmaceuticals Inc. in 2009; followed by the removal of its drug delivery business to Alkermes PLC in 2011; capped by the spinning off of its Neotope Biosciences PLC drug discovery business in 2012. The drug discovery spin-out, renamed Prothena Biosciences Ltd., was announced days after Elan’s AD development partners Janssen and Pfizer Inc. discontinued further IV clinical development of bapineuzumab.

The purpose of the asset sales was to reduce Elan’s runaway debt so it could foray into new approaches to treating AD and other CNS disorders. On the eve of the Janssen deal, it was carrying $1.7 billion in debt. By the time of the Neotope spinout, the goal was to position the company as a takeout target for a buyer interested in Tysabri’s revenue stream.

Tysabri partner Biogen Idec Inc. struck on Feb. 6. Elan secured a $3.2 billion upfront payment and a graduated royalty on Tysabri sales beginning at 12% in the first year, rising to 18% on sales below $2 billion and 25% on sales over $2 billion. Moreover, Elan’s royalties include all future indications, both MS and non-MS. Tysabri is being studied in secondary-progressive MS, and Biogen has indicated it may look into the drug as a treatment for stroke.

Elan told analysts in its same-day year-end 2012 earnings call, that it would spend its windfall on acquiring “income-producing assets,” despite not having a sales and marketing organization.

Elan’s recent history is reminiscent of PDL BioPharma Inc. Both companies have shed operating assets over the past five years, essentially reducing themselves to financial plays that relied on significant product royalties. Both companies also told shareholders that they would morph into commercial product companies.
But PDL made the transition because the clock on its patent estate – which gave it a slice of revenue from some of the most lucrative antibody franchises of the past decade – was running out. It hired a couple of dealmaking veterans and told its shareholders that if it didn’t find any revenue-bearing assets by some point in 2014 it would wind up shop. A January 2013 corporate presentation on PDL’s web site indicates that in the second half of 2012 the company invested $115.8 million dollars in three life science companies.

It’s unclear why Elan wants to go back to being a product company, much less a non-neurology focused company. Unfortunately, the Street hasn’t bought into its latest plan for reinvention, giving Royalty Pharma its current opportunity. UPDATE: In an effort to fend off Royalty’s unwanted offer, on Monday March 4th Elan’s board approved a twice-yearly dividend to shareholders linked directly to Tysabri’s performance. Beginning in Q4 2013, shareholders would receive an initial 20% share of Elan’s Tysabri royalty.

As of this writing, no other buyers have come forward to bid up the price. Marko Kozul, biotech analyst at Leerink Swann, advised shareholders to accept the offer. Royalty Pharma is certainly a motivated buyer; in May 2012, it paid $761 million for part of the earn-out for the oral MS drug BG-12 payable to the former shareholders of Fumapharm AG, which Biogen acquired in 2006. Kozul calculates that BG-12 revenues will peak at around $4 billion in 2018 and the NPV for the total royalty stream, an undisclosed piece of which goes to Royalty Pharma each year, sums to $3.1 billion.

There isn’t a compelling reason for Elan shareholders to prefer management’s risky plan to simply cashing in at the modest premium that Royalty is offering. They are perfectly capable of investing the money themselves, and needn’t trust Elan to pick winning investments. Or to execute on its vision.

And talk about investment ideas, here’s a sampling of  . . .

Jazz/Concert: Jazz Pharmaceuticals PLC is singing a happy tune now that it has secured a follow-on for its lead revenue driver, the narcolepsy drug Xyrem (sodium oxybate). The company announced Feb. 26 that it has inked a deal with Concert Pharmaceuticals Inc. to develop and commercialize a portfolio of deuterium-modified sodium oxybate compounds, including C-10323 ([A#14130227004]). The deal included an undisclosed upfront, as well as the potential for $120 million in milestone payments to Concert, which will handle Phase I development of C-10323. Should a product reach the market, Concert will be eligible for tiered double-digit royalties on worldwide sales.

Xyrem, a treatment for sudden muscle weakness and daytime sleepiness in patients with narcolepsy, accounted for 65% of Jazz’s total 2012 revenues. The drug, which has to be tightly controlled due to its potential for abuse, is covered by 10 patents that expire from 2019 to 2024, with other patent applications pending. But Jazz is already facing patent challenges for the drug, and its deal with Concert is one way to shore up the franchise. C-10323 is expected to have a better dosing schedule, longer half-life, greater efficacy in cataplexy patients, and fewer side effects than its predecessor. Oh and by modifying the drug with deuterium, Jazz gets to reset the patent clock. - Lisa LaMotta

Mylan/Agila Specialities: Quelling months of speculation, Strides Arcolab Ltd. finally sold its highly profitable injectibles arm Agila Specialties Pvt. Ltd. to U.S. generics giant Mylan Inc. for $1.6 billion cash and $250 million in potential milestone payments. Mylan toppled several global contenders, reportedly Pfizer, Otsuka Holdings Co. Ltd., and Novartis AG, among others, to clinch the unit that multiplied in size in less than five years by seizing opportunities from a raft of injectable oncology drugs in the U.S. Mylan valued Agila at 18.7x EBITDA of $86 million. Agila had revenues of $255 million through the end of December 2012. Carved out of Strides Arcolab in November 2010, Bangalore-headquartered Agila has been consistently rolling out copies of hard-to-make cancer drugs. Its prospects brightened further by a series of manufacturing and compliance lapses that dogged its competitors, adding fuel to speculation last year of an impending sale by Strides.

Mylan expects to double its injectibles business in the first year after the acquisition, and believes its specialty segment will grow 30% in 2013, execs said during the company’s Feb. 27 earnings call. The deal strengthens Mylan’s global presence and gains it entry into high-growth emerging markets such as Brazil. Roughly 40% of Agila's revenue comes from the U.S., and one-fourth comes from Brazil, with the balance coming from Europe, Australia, and other established and developing markets.- Vikas Dandekar

UCB Group/Biotie Therapies: Finland's Biotie Therapies Corp. is having a good week, brightening up a traditionally gloomy time of the year for Europe's most northerly residents. Not only did the EU clear its lead product, Selincro (nalmefene) for marketing by partner Lundbeck Inc. on March 1, but another collaborator, Belgium's UCB SA, appears so pleased with a Phase II Parkinson's therapy that it has asked Biotie to conduct Phase III studies on the compound. UCB took out an option on Biotie's investigational Parkinson's therapy, tozadenant, in 2010. The company has now exercised the option after the completion of a Phase IIb clinical trial, earning Biotie a fee of $20 million, the companies announced Feb. 26. Biotie also remains eligible to receive a further $340 million in milestone payments. But with Biotie now conducting Phase III trials on tozadenant instead of UCB, as laid out in the original agreement, Biotie will also receive further payments, in the low triple digit millions, to fund that work.

In return, UCB has worldwide exclusive rights to tozadenant, and will be responsible for manufacturing and commercialization. Tozadenant is a selective inhibitor of the adenosine A2a receptor, expressed in high levels in parts of the CNS, particularly the striatum, involved in controlling movement. The binding of tozadenant blocks the effects of adenosine at its receptor, thereby increasing the effects of dopamine, and also inhibiting the effects of glutamine at the mGluR5 receptor. Dopaminergic processes are already targeted by numerous marketed Parkinson's disease therapies. - John Davis

Janssen Biotech/Araxes Pharma: The Johnson & Johnson division Janssen Inc. has paid an undisclosed amount for an option to license exclusively an oncology program being developed by Araxes Pharma LLC. The decision point to exercise the option for the program, which is focused on an undisclosed target, will come after Phase I, says Araxes CEO and president Troy Wilson. Araxes is the first announced spin-out from Wilson’s Wellspring Biosciences, a self-described “drug-discovery incubator” in San Diego that Wilson and his former colleagues at Intellikine Inc. have created as an umbrella organization for what they hope will be multiple drug programs. It’s the latest asset-centric biotech development plan, in which individual programs are housed separately from their discovery platform to simplify deal-making and create cleaner tax structures for investors. Others include Inception Sciences Inc., Forma Therapeutics LLC, and Nimbus Discovery LLC.

“There’s no one-size-fits-all structure,” says Wilson. Intellikine, which sold to Takeda Pharmaceutical Co. Ltd.’s Millennium Pharmaceuticals Inc. division for up to $310 million in late 2011, specialized in PI3 kinase inhibitors. Wellspring is, in effect, the employee agency for Araxes and affiliates that might follow; Wellspring employees will do the R&D but the affiliates will own the patents, the cash from partnerships, and the regulatory responsibility. In addition to an upfront fee, Janssen will also pay Araxes R&D funding and potential milestones and royalties. - Alex Lash

Takeda/Resolve: The Japanese pharma has inked an option agreement with three-year old Seattle biotech Resolve Therapeutics LLC that will give the larger company a new addition to its immunology pipeline. Takeda agreed to pay $8 million upfront to Resolve to develop RSLV-132 for the treatment of lupus. Resolve is expected to take the drug through Phase Ib with a readout of data at the end of 2014. Once data is available on the drug Takeda will have the right to option it for further development. Resolve will then be eligible for an undisclosed option fee and for $274 million in milestone payments, as well as royalties on the marketed product.

Takeda has been trying to bulk up its immunology business since acquiring several COPD drugs through its acquisition of Nycomed Pharma AS. The company expects immunology to account for 12% of its R&D budget during the 2012 -2014 timeframe. It spent about $3.5 billion on R&D in 2011. For Resolve, the option would serve as an exit for investors. The company is not developing any other drugs and never had any intention of pursing an exit through IPO or sale of the company The biotech has only used about $3 million (of a $7.8 million raised over two rounds) in cash since its founding in 2010.- Lisa LaMotta

Cubist/Adynxx: For an up front payment of $20 million, Cubist Pharmaceuticals Inc. has acquired an exclusive option to buy Adynxx Inc. following the data readout of Adynxx’s Phase II trial for its lead drug, AYX1, an oligonucleotide treatment for post-surgical pain. Should Cubist exercise its option, it will pay Adynxx $40 million, plus development, regulatory, and sales earn-outs. The deal, announced Feb. 25, would expand Cubist’s acute care pipeline beyond its portfolio of antibiotics, including key revenue driver Cubicin. (Cubist also has rights to Hydra Biosciences TRPA1 inhibitor CB625, in Phase I for acute pain.)  Administered once at the time of surgery, the Adynxx compound inhibits the early growth response protein 1 (EGR1), a transcription factor that triggers pain signals in the brain. This approach could reduce the need for pain medications and prevent acute pain from transitioning into chronic pain, said the company. The candidate is currently being tested in unilateral total knee arthroplasty to reduce movement evoked pain and to improve the rate and extent of functional recovery. Adynxx’ CEO Rick Orr was a co-founder of Cerexa Inc., which Forest Laboratories Inc. acquired in 2007 and more recently was COO of Corthera, which Novartis AG bought in 2010. - Wendy Diller

LEO Pharma/4SC Discovery: The psoriasis market has many drug makers just itching to get into it. The latest to move are Denmark-based Leo Pharma AS and German biotech company 4SC Discovery GmbH. The duo has entered a pact to jointly research, develop and commercialize a pill for treating inflammatory skin diseases like psoriasis. Leo Pharma will pay €1 million ($1.3 million) up-front to 4SC Discovery and additional funding for research and development. Leo Pharma will receive an exclusive option to license the worldwide marketing and commercialization rights of the compound. 4SC Discovery, a subsidiary of oncology and autoimmune specialist 4SC Group, will be eligible for a milestone payment of up to €3 million and further payments based on specific development milestones of up to €92 million along with double-digit royalties. - Sten Stovall


Russian dolls by London based artist Yana Elkassova

Deals Of The Week Wonders What Merck's Latest Biosimilars Move Really Means

Ever since Merck jumped into the biosimilar field in 2008 with a ferocious go get ’em attitude more fitting of an NFL tackle than a big pharma, we’ve been following their progress – and then lack of progress – closely. Back when most pharmaceutical manufacturers were still griping about defending their biologic brands, Merck’s early aggressive ambitions made an interesting case study in how a big pharma might strike offensively by positioning itself as a contender in the biosimilar space.

So the company’s announcement Feb. 20 that it has partnered with Korea’s Samsung Bioepsis to develop multiple undisclosed biosimilar candidates, while delivered quietly in a concise statement, struck us as a noteworthy change in strategy.

You didn’t have to read tea leaves to see that Merck’s original strategy wasn’t working out. In 2008, Merck established a business unit devoted to the field and pledged to invest $1.5 billion and launch six or more biosimilars between 2012 and 2017. But last year, as we reported here, the company closed Merck BioVentures, the unit it created devoted to biosimilars, and folded the research into biologics and vaccines at Merck Research Labs. And Mike Kamarck, the charismatic proponent of biosimilars who led Merck’s charge into the field, left the company.

Now, we can’t help but wonder what the latest announcement means for Merck’s biosimilar strategy.
Is it a reaffirmation of the company’s commitment to biosimilars, albeit through a more modest path, or is Merck effectively washing its hands of biosimilars while still holding out for some hope of an eventual commercial reward? Samsung will be responsible for preclinical and clinical development, manufacturing, clinical trials and registration of any candidates, while Merck will commercialize the products. It’s not clear how much Merck is putting behind the effort either, as the financials of the deal were not disclosed; Merck is paying Samsung an upfront and has agreed to milestones.

Merck declined to offer further insight on the move, but said the deal with Samsung will complement its internal effort. The only biosimilar Merck has in its internal pipeline that has been publicly disclosed, however, is a copy of Roche/Biogen Idec’s Rituxan, the one drug Samsung Bioepsis won’t be developing because the company – formed in 2011 out of joint venture between Samsung Biologics and Biogen – won’t make any biosimilar versions of Biogen products.

Given Merck’s inability to get new drugs to market of late, the decision to take a contract research approach to biosimilars may be the best way for Merck to hold onto the potential commercial upside of biosimilars without the investment internal development requires. Merck ran into the field at high speed, and we admired their optimism, but given the evolving regulatory and commercial dynamics, a cautious path may be the wiser one.

And let’s not forget why the decision to jump into biosimilars was easier for Merck to make than for some other big pharmas: Merck never had a history in biologics and hasn’t traditionally had treasured blockbuster biologic brands to protect. It gained some knowledge of the field and rights to Remicade in certain territories outside the U.S. through its mega-merger with Schering-Plough. But it’s hard to envision Merck’s inexperience as a competitive advantage in a notoriously difficult field like biologics. Development and manufacturing is just as hard for biosimilars, even when manufacturers have a reference molecule to use as a road map.

Three years after the U.S. government laid a regulatory framework for biosimilars, no applications have yet been filed through the new pathway with FDA. Today, while Merck has adopted a more subtle tone when it comes to biosimilars, Amgen – a biologics expert – is crowing about its grand ambitions for the field.

Roche/Chiasma: Roche and privately held Chiasma Inc inked a deal Feb. 18 to develop and commercialize the Israel-based biotech’s proprietary pill Octreolin, initially for acromegaly and, afterwards, for neuroendocrine tumors (NET). Their pact brings a new Phase III drug to Roche’s pipeline, targeting both an oncology (NET) and non-oncology indication (acromegaly). It gives Roche worldwide exclusive license to Octreolin, and Chiasma receives upfront payments of $65 million and future milestone payouts of up to $530 million, along with tiered, double-digit royalties on Octreolin net sales. Roche said it decided to partner with Chiasma and commercialize Octreolin in part because of the convenience and improved quality of life an oral therapy might offer patients. The pill may consequently command a higher price to injectables and there appears to be little oral competition on the horizon near-term. Delivering octreotide orally twice daily would be a major advantage for patients with acromegaly as they would avoid the painful monthly injections involved in current treatment options such as Novartis' Sandostatin LAR. - Sten Stovall

Chiesi/Cornerstone: Cornerstone Therapeutics’ majority shareholder is looking to buy out the company. North Carolina-based Cornerstone announced Feb. 20 that it received a letter from its majority shareholder – Italy’s Chiesi Farmaceutici – offering to buy the remaining outstanding shares of the company. Chiesi offered $6.40 to $6.70 per share for the 40% of the company it doesn’t already own – valuing the specialty pharma at $177 million. In a letter from Chiesi to the board of directors of Cornerstone, Chiesi’s CEO Ugo Di Francesco said the company “has adequate liquidity available and excellent relationships with our banks to effect an all cash bid.” Di Francesco added that Chiesi has “conducted an extensive review of Cornerstone based on publicly available information, our own deep experience in the pharmaceutical industry and consultations with our outside advisors.” The Italian drug maker plans “to move promptly” in regard to the bid “and is committed to working vigorously and expeditiously with [Cornerstone] to complete a transaction.” Cornerstone said in a statement that “no decisions have been made by the board of directors with respect to Chiesi’s proposal.” The two companies paired up in May 2009 when Chiesi granted Cornerstone an exclusive U.S. license to sell its porcine-derived lung surfactant Curosurf (poractant alfa) for a 10-year period. In return, Chiesi took an equity stake in the company that now accounts for a 60% share. - Lisa LaMotta

Janssen/Pharmacyclics/Abbott: Partners Janssen Biotech and Pharmacyclics will work with Abbott to develop a molecular diagnostic test to identify patients with a genetic sub-type of chronic lymphocytic leukemia (CLL). Abbott will develop the test using its proprietary FISH (fluorescence in situ hybridization) technology; the test will identify hard-to-treat CLL patients who have a deletion within chromosome 17p (del17p). These patients are likely to respond to ibrutinib, a small molecule inhibitor of Bruton tyrosine kinase (BTK). At the American Society of Hematology conference in December, the partners presented positive Phase Ib/II data in a subset of relapsed/refractory CLL patients with the 17p deletion. The partners have an ongoing Phase II trial for ibrutinib in CLL patients with the 17p deletion. The company expects enrollment in this trial will take about 12 months to complete. On Feb. 12, FDA granted breakthrough designation to ibrutinib to treat two B-cell malignancies: relapsed or refractory mantle cell lymphoma (MCL) and Waldenstrom’s macroglobulinemia (WM). This could mean an approval for ibrutinib as soon as early next year. Pharmacyclics’ share price has been on a white-hot streak since last May, climbing more than 200%. News of the breakthrough designation bumped shares up about 20%. Details of the Abbott partnership remain undisclosed. - Stacy Lawrence

Eisai/Valeant: Valeant Pharmaceuticals announced Feb. 21 that it has acquired U.S. rights from Eisai Inc., the U.S. subsidiary of Japan's Eisai Co. Ltd., for cutaneous T-cell lymphoma treatment Targretin (bexarotene). Eisai received $65 million up front and is eligible for additional payments tied to undisclosed milestones. In March 2011, Eisai granted exclusive rights to Minophagen Pharmaceutical to develop and commercialize Targretin in Japan, expanding that agreement in April 2012 to cover Asia, Oceania, the Middle East, Eastern Europe and other regions. And in a deal similar to the Valeant agreement, in December 2012, Eisai sold U.S. commercial rights to Gliadel Wafer (carmustine) for glioblastoma to Arbor Pharmaceuticals. Gliadel and Targretin are aging products. However, the company’s cancer pipeline – oncology is 70% of Eisai’s revenues – has shown recent signs of stumbling. Farletuzumab, which entered Eisai’s pipeline with its 2007 acquisition of Morphotek, demonstrated disappointing results last January in platinum-sensitive ovarian cancer, not meeting the primary PFS endpoint in its first Phase III attempt. And Halaven (eribulin), approved in the U.S. in 2010 for metastatic breast cancer, missed its primary endpoints last year in a head-to-head Phase III superiority study against Xeloda (capecitabine). Much of the excitement around eribulin at the time of its approval was the likelihood of extending its label, which is now drawn into question. Eisai said the deal with Valeant would maximize the product’s value in the U.S. It went on to add that the agreement would enable Eisai to “strategically reallocate resources to other mid-to-long-term business growth areas” but it didn’t elaborate. As for Valeant, this deal continues its strategy of acquiring what it considers to be undermanaged commercial assets. - Mike Goodman

UCB/ConfometRx: Belgium’s mid-sized pharma company, UCB, is to link up with the Santa Clara, Calif.-based G-protein coupled receptor (GPCR) structural biology firm, ConfometRx, to discover new drugs in UCB’s sweet spot, the neurosciences. As often stated, GPCRs are the target for 25%-30% of marketed products, but GPCR research is hampered by the difficulty in extracting active receptors from cell membranes for use in research and drug screens. ConfometRx is developing crystallization techniques for GPCRs to make the screening process easier for GPCR-targeted drugs and antibodies. The two-year, multi-target research collaboration between UCB and ConfometRx is intended to gain insights into modulating GPCR targets in order to design differentiated drugs, the companies said Feb. 21. ConfometRx will receive an upfront payment, research funding and milestones, but further details of the agreement were not disclosed. UCB is building “super-networks” of innovation, which include tie-ups with Harvard University and the University of Oxford’s medical sciences division over the past three years. ConfometRx already is collaborating on various GPCR-related research projects with Bristol-Myers Squibb, Novo Nordisk and Lundbeck, while other companies active in providing research insights in the GPCR space include Heptares Therapeutics of the U.K., France’s Domain Therapeutics and San Diego-based Receptos. - John Davis

Photo credit: Wikimedia Commons

Financings of the Fortnight Navigates Sequester Seas, Mega Moguls and Mini VCs

With several IPO hopefuls now in registration and a very odd venture round raised by a San Diego biotech, there was plenty of financing news to chew on the past couple weeks. But we’re sailing in a different direction for this fortnight’s most interesting financing.

With the sequester on the horizon, a big question mark looms over National Institutes of Health and other basic science funding. The scientific research lobbying group Research!America (that’s their exclamation point, not ours) says the NIH budget will drop by $2.4 billion, part of $3.6 billion in science research cuts across several agencies, or 7.8% of their fiscal 2011 budgets.

The $2.4 billion in NIH cuts alone is $300 million shy of the 2011 external grant totals of the National Institute of Allergy and Infectious Disease, or nearly half the total budget of the National Cancer Institute. NIH director Francis Collins has quoted studies that equate the cuts to 2,300 grants that NIH would not be able to award.

In Boston, which year after year receives the most NIH funding of any American city, health care officials and politicians are warning about 1,700 jobs lost.

As we slouch toward another 11th hour (and 59th minute) Beltway showdown, let’s focus instead for a moment on a small – OK, tiny – counterexample. In San Francisco this week, former Genentech CEO Art Levinson and friends unveiled a new science award, the Life Sciences Breakthrough Prize, which will distribute $3 million to its winners. The inaugural group holds 11, but future years the winners’ pool will be limited to five.

Like we said, tiny. And the prizes are achievement awards, not grants for future projects, so it’s by no means a replacement for NIH’s role. But as fret about the future sources of scientific funding, what caught our eye was the presence of two non-life-science people on the new foundation’s board: Facebook chief Mark Zuckerberg and super-investor Yuri Milner. In 2011, this column made an open plea for Milner to throw some of his vast sums into the life science arena.

Since then, his investment firm Digital Sky Technologies has dipped a toe, joining syndicates for cancer diagnostics firm Foundation Medicine and consumer genome analysts 23andMe. No pure biopharma or device investments yet for Yuri, as far as we can tell, and so far he's following the same late-stage pattern as his highest profile tech investments (both Foundation and 23andMe have marketed products). Still, we’re encouraged by his involvement with a group that is rewarding research-stage biomedical breakthroughs.

High-tech giants are increasingly turning their profits into venture funds, and some of those funds are trickling into health care and the life sciences. Last year, we profiled the nascent health-care ambitions of San Francisco’s Founders Fund -- which came to life in part from Facebook and PayPal investor Peter Thiel’s fortune -- and now we’re starting to see Google Ventures make a health-care splash, too. (In fact, it’s a co-investor with Milner in Foundation Medicine.) Its latest investment is cancer-data analytics firm Flatiron Health, and the new issue of START-UP has a report.

Whether they're high-tech moguls or faces in the crowd at the other end of the spectrum, new sources of life-sciences capital will always be a front-and-center topic for us and our readers. This column has followed a couple crowdfunding efforts, and now our colleagues at IN VIVO have just published a long look not just at crowdfunding but also other ways the biopharma business is tapping into more open or distributed resources. It’s a highly recommended read, as of course are all the latest articles in START-UP and IN VIVO.

Which brings us to that odd round of venture we mentioned up top: San Diego biotech Elcelyx Therapeutics just raised a $20 million Series C round, but the management formed its own fund to lead the syndicate. The entity, GSM Fund LLC, is a “friends and family” group of Elcelyx executives and others from the San Diego biotech community, CFO Martin Brown told FOTF. In planning the round, Brown also spoke with conventional VCs but had this idea in the back of his mind, particularly because Rick Barry, the founder and managing director of now-defunct Eastbourne Capital Management, had wanted to invest in Elcelyx for some time. Under the C round, Barry will join the Elcelyx board of directors. The GSM Fund members have all committed to reserves that, if called, could end up doubling their investment.

What started as a backup plan became the reality, said Brown. “I was keeping a book and pretty soon we had more than enough,” he said. “It just happened that the LLC got a first-mover advantage. The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies. If the financing had taken a lot longer, we would have had to put some of our plans on hold.”

There were really no secondary benefits to the LLC model for Elcelyx itself, Brown added, although it was a different story for the individual investors. “There are advantages for the investors in the way we structured this,” he said. “It’s not a typical VC fund where there are management fees and carry. Every dollar that was invested by the members of the LLC purchased shares in Elcelyx.”

Jeffrey Sohl, director of the University of New Hampshire Center for Venture Research, told FOTF that it’s rare but not unprecedented for angels to create a one-time limited partnership structure to invest in a company as sort of a mini VC.

We have more details on the Elcelyx deal in the roundup below. All you have to do is scroll down. From friends and family to Facebook fortunes, from mega-moguls to mini-VCs, we cover it all here in… 

Elcelyx Therapeutics: For its new $20 million Series C round, privately held Elcelyx led a syndicate by forming its own venture fund, GSM Fund LLC, which takes its name from Elcelyx’s proprietary Gut Sensory Modulation technology. The round includes previous backers Morgenthaler Ventures, Kleiner Perkins Caufield & Byers and Technology Partners. Those three VCs had financed a two-tranche, $21 million Series B during 2011 and 2012. The LLC is structured so that its members can be called upon to double their investment if necessary. The roster includes four area biotech CEOs, four or five local MDs, about a dozen PhDs and a host of biotech executives and lawyers. New board member Rick Barry, one of the GSM Fund contributors, owned 19.9% of Amylin Pharmaceuticals and was a major investor in Telik and Sarepta Therapeutics when he ran the now-defunct Eastbourne Capital Management. Elcelyx is working to bring both a delayed-release version of metformin (NewMet), currently in Phase II, and an over-the-counter weight-loss supplement (Lovidia) to market. “The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies” CFO Martin Brown told FOTF. “If the financing had taken a lot longer, we would have had to put some of our plans on hold.” – Joseph Haas

Jounce Therapeutics: Jounce is the latest project incubated by Third Rock Ventures to see the light of day. The firm emerged from stealth mode Feb. 14 to reveal a $47 million Series A round, in which Third Rock was the sole investor. Jounce will attempt to develop cancer immunotherapies using a proprietary development platform, which company executives say will be a broader approach than that taken by some others in the field. Although it hasn’t yet named any specific targets, Cambridge, Mass.-based Jounce has already identified antibodies it plans to develop. A group of three Third Rock partners will serve as Jounce’s interim management team, including Cary Pfeffer as CEO, Robert Tepper as chief scientific officer and Robert Kamen as chief business officer. In an interview with our “Pink Sheet” colleagues, Pfeffer said the 2011 approval of Bristol-Myers Squibb’s cancer immunotherapeutic Yervoy (ipilimumab) for metastatic melanoma spurred Third Rock’s increased interest in the field. After establishing the company quietly later that year, Jounce’s management has built an advisory board that includes key research specialists from the University of Texas MD Anderson Cancer Center, Johns Hopkins University, the University of Chicago and the Georgetown Lombardi Comprehensive Cancer Center. – Lisa LaMotta and Paul Bonanos

Retrophin: The pediatric orphan disease firm, whose shares trade over the counter, raised $10 million in a private placement to help complete what could be a pivotal Phase II trial for its lead candidate. RE-021 is being tested to treat focal segmental glomerulosclerosis (FSGS). With an eye toward the favored status insurers and regulators are granting orphan drugs these days, Retrophin in-licensed the small molecule a year ago from Ligand Pharmaceuticals for $1 million upfront. Ligand had tested the compound to treat hypertension, but in its new indication Retrophin hopes to gain accelerated approval from FDA. The biotech  was founded in 2011 by then-hedge fund manager Martin Shkreli, who has since shuttered his MSMB Capital Management to devote himself to running the company. In December 2012, Retrophin completed a reverse merger with an OTC-traded shell company. Shkreli told FOTF that Retrophin will likely do either another reverse merger with a company on a major exchange or de-list and conduct an IPO.  In the placement, Retrophin sold 3.3 million shares at $3 each, a 6% discount to its close on Feb. 12, the day before the financing was announced. The deal included 1.5 million warrants, each with an exercise price of $3.60. On Feb. 20, Retrophin shares closed at $4.20, giving it a market cap of $35 million. MSMB led a $4 million Series A round in May 2012. – Stacy Lawrence

e-Therapeutics: The UK network pharmacology company said February 11 it would seek to raise £40 million in a follow-on offering, upon approval of its shareholders. The cash would help finish Phase I studies of its lead cancer therapy ETS2101 then move it through Phase II testing in brain cancer and Phase Ib/II testing for several other cancers. The company hopes the clinical activity will lead to licensing in 2017. Part of the new fundraising will come from existing investor Invesco Asset Management, which will boost its stake in e-Therapeutics from 45.9% to 49.9%, the company said. New shares will be priced at 32 pence each, a 4% premium to the closing price February 10. E-Therapeutics is one of a handful of companies to use modeling of disease pathways (sometimes called network biology or systems biology) to identify the critical points to attack and match them with drug candidates. Another publicly traded network-based company with products in the clinic is Merrimack Pharmaceuticals, which debuted on the Nasdaq one year ago. Merrimack has used its network biology platform to build an antibody combination product, which we describe in a feature in the new START-UP magazine. – Alex Lash

All of the Rest: Bind Biosciences, which is selectively targeting disease sites with its Accurin platform, raised an $8.7 million tranche out of a potential $20.25 million from foreign investors… To support its human plasma gelsolin for inflammation, BioAegis Therapeutics closed on a $3 million round… Reports here and here state that Aerial Biopharma has completed the second tranche of its $12 million Series A financing… Ophthalmic implant maker PolyActiva completed a $A9.2 million Series B… Longbow Capital led a £1.5 million financing for UK drug discovery company Domainex… Helmedix, which is developing autoimmune peptides derived from helminthic worms, raised $A1.25mm in funding… Burrill & Co. was the sole investor in Strand Life Sciences’ Series B… To back its work on injectable drug delivery devices, Unilife completed a $12 million registered direct offering… Regenerative medicine company Cytomedix could realize up to $27.5 million in a combination loan and equity financing…  Developer of oncolytic viruses Oncolytics Biotech publicly raised $32 million… In a FOPO, Medgenics, which is delivering therapeutic proteins using the patient’s own tissue, grossed $29.4 million… Imprimis Pharma completed a $9.7 million public sale in support of its drug reformulations using the Accudel system… Cancer therapeutics and diagnostics company Novelos closed on a $5.5 million FOPO… Stem Cell Therapeutics announced a units offering… TetraPhase Pharma filed for an IPO to advance work on antibiotics against multi-drug resistant infections… Ambit Biosciences re-filed for its IPO after withdrawing its offering in June 2011… Deerfield Management loaned Discovery Labs $30 million to support development of its candidates for RDS in premature infants… With commitments of $245 million, Lux Capital closed its third fund focused on energy, technology, and health care. -- Amanda Micklus

Photo courtesy of flickr member potat0man.

Deals Of The Week Notes Bayer's Partnerships Are Paying Off

Bayer Healthcare’s pharmaceuticals division has certainly had its ups and downs, and some ultra-tense relationships with partners—notably the very public lawsuit Onyx Pharmaceuticals filed against it, which the partners settled in October 2011.

 

News announced in recent days however, puts Bayer in a very different position. The company's pharma business is flourishing, based on its partnerships--as well as the fortunate position it is in because it lacks any big drugs going off patent. Bayer's alliance with the Norwegian biotech Algeta ASA, now more than three years old, is at a turning point. On Feb. 13, FDA granted priority review for the investigational oncology drug radium-223 dichloride (formerly Alpharadin), for which Bayer and Algeta submitted an NDA (and an MAA in Europe) in December.

That drug would be indicated, initially, for chemotherapy-naïve castration-resistant prostate cancer patients with bone metastases. CRPC is one of the more crowded areas of oncology, but radium-223 demonstrates a survival benefit that other bone-targeted agents haven’t shown. 

Also kicking in are sales of Eylea, the drug for wet age-related macular degeneration that Bayer licensed from Regeneron in 2006, after Regeneron’s partner Sanofi decided not to pursue ophthalmology indications for the compound. (The oncology version of the drug is Zaltrap, which received approval in the US in August.)  Bayer has exclusive ex-US rights for all eye indications to the drug, which it launched late in 2012 in Australia and Japan, and which it is slowly rolling out across Europe as payers make reimbursement decisions. The partners have a 50-50 arrangement, both on sales and profits. 

For a variety of reasons, Eylea has been an immediate hit in the US, where Regeneron launched it in November 2011, and where it is the third most successful drug launch ever, according to Robert Terifay, SVP commercial, who briefed analysts on Eylea’s status on an earnings call on Feb. 14. Bayer believes the ex-US market presents a similar opportunity and is in the process of rolling out the drug globally. 

The German health care company reports full year 2012 financials on Feb. 28, but  Regeneron executives, without giving away much detail, said they’re pleased with Eylea’s ex-US performance so far. Eylea’s sales ex-US for the fourth quarter, its first on the market outside of the US, were $19 million. EU decisions on two additional indications, diabetes macular edema and central retinal venous ocolusion are also expected in 2013, Deutsch Bank analysts estimate these are smaller opportunities, each worth less than $500 million in Bayer's territories.

In addition, Bayer is in the midst of a global launch of the Factor Xa inhibitor Xarelto, which it developed internally, and which it licensed in 2005 to Johnson & Johnson to develop and sell in the US. The drug is currently approved in Europe for a range of indications, including venous thromboembolism prevention in orthopedic surgery and for stroke prevention following atrial fibrillation. It is pending approval in Europe for acute coronary syndrome, which analysts see as a long shot.  And FDA granted Bayer approval of Stivarga, an oral multi-kinase inhibitor, in September, for metastatic colorectal cancer. The drug is pending review in the EU.  

Many of the deals now bearing fruit were signed before the company’s current head of global business development and licensing, Nigel Sheail, joined it from Roche in November 2011 and certainly before he undertook a reorganization that consolidated business development functions across the healthcare subsidiary into one unit, with the aim of fostering a focus on integrated care across Bayer’s diverse health care subsidiaries. In an interview published in IN VIVO in September 2012, Sheail outlined where he sees health care heading and provided some insights into his business development priorities. His efforts have yet to prove themselves, but meanwhile Bayer has some solid launches to buttress the cash flow- and importantly, no patent cliff before it.  

Bayer’s overall stock is trading in the 90s, close to a 52-week high, partly because of the performance of its pharma division. Even though its chairman, Joerg Reinhardt, has left to become chairman of rival Novartis, and its former chief marketing officer, and global head of strategic planning, Flemming Ornskov, is settling in at Shire PLC, where he assumes the top spot in May, its near-to-mid-term future looks more secure than many of its peers.

Even as Bayer rushes to maximize the value of its deals, others are forging their own way. It's time for this week's edition of ....

Mylan/Biocon: Close to a year after Pfizer walked out of a deal with India’s Biocon for development and commercialization of a range of insulins, the Indian company has sprung back forming what it called an “exclusive strategic collaboration” with the world’s fourth-largest generic drug maker Mylan. Under the deal, the two companies will develop biosimilars of Sanofi’s Lantus (glargine), Eli Lilly’s Humalog (lispro) and Novo Nordisk’s Novolog (aspart), the three major insulin analogs. The combined global sales of the three brands reached $11.5 billion in 2012, making it a compelling business plan as regulatory pathways for biosimilars across nations gain further clarity. Lantus alone crossed sales of $6.6 billion last year. But the terms of the deal with Mylan differ substantially from the deal Biocon signed with Pfizer in 2010. Biocon didn't disclose financials, except to note that the deal includes an upfront and cost sharing, backed by a profit sharing arrangement, and no milestones; the Pfizer deal consisted of a $200 million upfront and $150 million in milestones. Unlike the Pfizer deal, the Mylan deal does not include recombinant human insulin, which Biocon is developing on its own. --Vikas Dandekar

Merck/Lycera: The two companies, which have been partnered since May 2011 on an oral interleukin-17 discovery deal, announced Feb. 12 that they have agreed to a second collaboration to discover and develop other treatments for autoimmune disorders. The new deal will focus on multiple targets that are known to play a role in autoimmune diseases, including psoriasis, rheumatoid arthritis, and multiple sclerosis. The companies would not identify the exact targets it will be focusing on under the collaboration. Merck will pay the Ann Arbor-based biotech an undisclosed upfront, as well as $300 million in milestones.  Merck and Lycera first began working together in the field of autoimmune disease in March 2011, when Merck paid $12 million upfront and agreed to $295 million in milestones in a similar discovery and development collaboration. Work under the original partnership is still in preclinical development; that initiative is focused on a specific target -- the retinoic acid related orphan receptor (RORyt), a transcription factor responsible for the differentiation of T-helper 17 (Th17) cells. Th17 cells produce interleukin-17 (IL-17), a pro-inflammatory cytokine that is understood to play a role in autoimmune diseases. Lycera received its first milestone payment from Merck under this collaboration, an undisclosed sum, in December 2011. – Lisa LaMotta

Lilly/Qiagen: Eli Lilly has broadened its relationship with diagnostic developer Qiagen NV by signing a “master collaboration” under which Qiagen will develop companion diagnostics for Lilly medicines across all of the pharma’s therapeutic areas. In what has become a hallmark of deal-making between pharmaceutical manufacturers and diagnostic firms, terms of the arrangement were not disclosed. Lilly and Qiagen are comfortable bed fellows. The two have been partnered on the development of single tests, including a September 2011 partnership to develop a test for Lilly’s clinical-stage Janus kinase 2 inhibitor. Last year, Lilly/Bristol-Myers Squibb Co.’s Erbitux secured approval in newly diagnosed KRAS wild-type metastatic colorectal cancer patients with Qiagen’s companion diagnostic kit for the drug. Work on those tests led to the expanded deal, Qiagen said, announcing the deal Feb. 13. The new partnership will all allow for efficiencies in future development programs by standardizing interfaces and processes between the organizations, the firm said.--Jessica Merrill

MorphoSys/Heptares: In a bid to develop more G-protein coupled receptor (GPCR)-targeted monoclonal antibodies, German drug discovery company MorphoSys is to use Heptares' stabilized GPCRs as targets to screen its Ylanthia monoclonal antibody library, in a deal announced Feb. 13. AstraZeneca, Takeda, and Cubist Pharmaceuticals have already licensed Heptares' technology to use in their drug discovery programs. GPCRs are the site of action of more than 25-30% of marketed small-molecule drugs, but they've never been a popular target for monoclonal antibodies. That's because the receptors are unstable when taken out of membranes and difficult to use as antigens to produce antibodies when injected into animals. The only marketed monoclonal antibody that interacts with a GPCR is Kyowa Hakko Kirin's Poteligeo, which is indicated for adult T-cell leukemia-lymphoma and which was launched in Japan in  May 2012. It binds to chemokine receptor 4 (CCR4). MorphoSys will propose GPCR targets, which will then be generated by U.K.-based Heptares and used to screen MorphoSys' Ylanthia monoclonal antibody library. MorphoSys will have the right to sublicense to pharmaceutical companies the identified targets and therapeutic antibody candidates, with Heptares receiving upfront and research funding payments, plus a share of those sublicense revenues. Heptares, which is building up its own pipeline, will also select a GPCR target of its own against which to screen MorphoSys's Ylanthia library. MorphoSys will receive license fees, milestones and sales royalties on any Ylanthia antibody developed by Heptares as a result of that work.--John Davis

RQx Pharmaceuticals/Genentech: Just weeks after buying the entire kinase-inhibitor discovery program at Afraxis, Genentech announced Feb. 12 it is collaborating with RQx Pharmaceuticals on a discovery and development tie-up to create novel antibiotics that kill Gram-negative bacteria while avoiding the multi-drug resistance plaguing many of today’s antibiotics. Including an undisclosed upfront payment and earn outs, the deal could total $111 million along with the potential for sales royalties on any product reaching market. The transaction eventually will create an exit for RQx’s primary backer, the hybrid venture capital firm Avalon Ventures, which provided seed funding and a majority of its Series A financing. This makes the third exit already this year for an Avalon portfolio company, following January deals in which BioMarin purchased Zacharon for $10 million plus potential earn-outs, as well as the Genentech/Afraxis agreement. RQx’s work derives from research conducted at the Scripps Research Institute in La Jolla, Calif., to unlock the secret of why an exploratory antibiotic, arylomycin, no longer was effective against bacteria, said RQx CEO Court Turner. Arylomycin, discovered by Eli Lilly in the early 1980s, was used as a chemical scaffold for RQx antibiotic candidates against a novel, undisclosed target, he said. “This is kind of a standard Avalon investment, where we see an old target that gets new completely new insights from a very reputable lab,” explained Turner, also a venture partner at Avalon. Arylomycin addresses signal peptidase, a target that big pharma had wanted to direct antibiotics against for years, but never developed any successful candidates. Turner would neither confirm nor deny that RQx’s work with Genentech will focus on the signal peptidase pathway.—Joseph Haas

Bristol-Myers Squibb/ Reckitt Benckiser: After announcing a change in strategy last year to intensity investment in higher-growth consumer and emerging markets, Reckitt Benckiser entered into a $438 million three-year agreement with Bristol-Myers Squibb to expand its consumer health foothold in Latin America. The deal, announced on Feb. 12, gives Reckitt marketing rights to seven BMS OTC brands for a period of three years. Reckitt will pay BMS a $438 million fee for the right to license the products, and an additional $44 million for an option to acquire them outright after the three-year period at a price to be determined by net sales during the preceding three years. The products included in the deal include Dermodex (nystatin) for diaper rash, Luftal (simeticone) anti-gas treatment and Naldecon (phenylephrine) cough/cold remedy, all sold primarily in Brazil. The products sold mainly in Mexico are Graneodin-B (benzocaine) sore throat remedy, Micostatin (nystatin) antifungal, Picot (sodium bicarbonate) antacid and Tempra (acetaminophen) analgesic. Combined, they brought in an estimated $102 million in 2012 sales, Reckitt said. Slough, U.K.-based Reckitt hopes the BMS brands create a foundation forhealth care product distribution and growth in Brazil and Mexico, where the firm’s business currently is weighted toward household cleaners and other home care products. For BMS, the deal represents its latest move away from non-core consumer businesses to refocus energy and resources on biopharmaceuticals. In 2009, it spun off pediatric nutritionals maker Mead Johnson in an initial public offering and sold its Asian OTC assets to Taisho. --Michael Goodman

GSK/ Vanderbilt University – GlaxoSmithKline is expanding its Discovery Partnerships with Academia program, which itlaunched in 2011, in a new deal with Tennessee-based Vanderbilt University. The collaboration will focus on the discovery and development of treatments for severe obesity. The team will target the melanocortin-4 (MC4) receptor, which plays a role in energy homeostasis. Vanderbilt will be responsible for pre-clinical activities, while the pharma will handle development. The collaboration is expected to bring a compound into the clinic by 2016. Vanderbilt scientists have developed positive allosteric modulators that increase activity to the MC4 receptor. It’s believed that activity at this receptor plays a role in early-onset obesity. GSK and Vanderbilt are hoping to develop a compound that will not raise a patient’s blood pressure like some of the other recently developed therapies for obesity. GSK will provide research funding under the three-year collaboration, as well as undisclosed milestones and royalties on any products that are commercialized. - LL

AstraZeneca/ N.N. Petrov Institute of Oncology: AstraZeneca has signed a research collaboration with one of Russia's leading cancer research institutions, the Petrov Institute, to identify genetic mutations in cancer patients. The deal, announced Feb. 12, will pave the way for scientists from both organizations to identify specific types of cancer tumors that have potential drug-sensitizing gene mutations; specifics were not disclosed. AZ will be able to analyze data generated by the Institute's archive of tumor samples, which is one of the largest in Europe, with more than one million samples from over 270,000 patients.  The Institute scientist who will direct the collaboration with AZ helped establish EGFR testing of AZ's Iressa patients in Russia and Eastern Europe. The deal also bolsters AZ's efforts to help the Russian government build a local world-class innovative biopharma industry. --WD 

image by flickr user sam_goody500 // creative commons

DOTW: Biogen Puts Offshore Cash to Work

When it comes to corporate tax planning, biopharmas as a group aren’t spectacularly sophisticated. (A few exceptions come to mind, most notably specialty pharma Valeant and Bristol Myers-Squibb, the latter of which upped its game and expects to drop its tax rate to 16% in 2013. That's down from 26% in 2011.)

It’s particularly hard for U.S. biopharmas to do much with offshore cash. That’s unless they buy something outside the U.S. or pay a high tax rate to bring cash into the U.S. Or they can opt to keep stockpiling cash ex-U.S. in hopes a cash- repatriation tax holiday is on the horizon, an unlikely scenario anytime soon given the ongoing fiscal standoff.

This week, Biogen Idec made a bold move by using offshore cash to acquire full rights to multiple sclerosis drug Tysabri (natalizumab) from its previously 50/50 partner Elan. The deal manages to turn cash sitting on its balance sheet, much of it offshore, almost immediately into a bump for EPS and cash flow - a neat trick. Deutsche Bank analyst Robyn Karnauskas upped her 2013 EPS estimate to $7.76 from $7.15 and her 2013 revenue estimate to $6.6 billion from $6.1 billion. She expects the new structure to be in place in the second quarter.

The deal includes a $3.25 billion upfront payment from Biogen to Ireland-based Elan. Most of this will come from offshore cash, Biogen CFO and EVP Paul Clancy said on a Feb. 6 call. Biogen Idec had $3.7 billion in cash at Dec. 31. In addition, Elan will receive 12% of Tysabri sales in the first year and then after that 18% on sales under $2 billion and 25% on sales over $2 billion. Tysabri had 2012 sales of $1.6 billion, with some analysts modelling peak annual sales well above $2 billion.

Biogen CEO George Scangos made reviving Tysabri revenue growth a priority when he began his tenure in June 2010. After a 2004 approval, Tysabri was withdrawn from the market in 2006 due to reports of the fatal brain disease, progressive multifocal leukoencephalopathy (PML). It re-entered the market in 2006 with a label for second-line use and a boxed warning. Scangos pushed for the development and approval of a test for JCV antibodies to assess PML risk. In January 2012, FDA updated the Tysabri label on include information quantifying the risks of developing PML according to JCV antibody status. Last month, the partners submitted applications to FDA and EMA for first-line use of Tysabri in patients who test negative for antibodies to the JC virus.

Wall Street initially was wildly enthusiastic about Biogen’s move, spiking shares up 6% in early trading Feb. 6. But since then, the Street has become a bit more cautious, with the gain retreating to about 2% by market close on Feb. 7. Skeptics worry Tysabri won’t live up to revenue expectations or that Biogen’s execution of this deal just ahead of the March 28 PDUFA date for the oral MS drug formerly known as BG-12, now called Tecfidera (dimethyl fumarate), indicates reduced optimism for the new treatment. On the Elan side, buysiders worry about whether President and CEO Kelly Martin will use that mountain of cash to make useful deals. The company doesn’t have the best track record when it comes to strategic transactions. Elan shares were off 6% by the end of Feb. 7 on the deal.

Biogen Idec is hardly alone among biopharmas in having stacks of offshore cash. At the end of 2011, biopharma companies had a  total of $183 billion in cash most of which was offshore, according to a March report from Moody’s. To put that in some context, that is roughly equal to the combined market caps of Amgen, Gilead Sciences and Bristol. Biopharma is second only to the technology industry when it comes to the sheer amount of cash on the books. Last week, the IT sector also offered an instructive example with the privatization of Dell, which itself could be a partial end-run around offshore cash and corporate taxation issues.

The top biopharma cash hoarders in 2011 were Pfizer ($35.3 billion); Johnson & Johnson ($32.3 billion); Amgen ($20.6 billion); Merck ($18 billion) and Bristol ($11.6 billion). Now that the immediate panic of patent cliffs is behind many of them, perhaps biopharmas will take a breather, look around and think of more creative, tax-efficient ways to deploy all that cash.

For a look the rest of the money that was spent in this week's biopharma deal activity, you need go no further than this week's edition of . . .

Alnylam/The Medicines Co. Hospital specialist The Medicines Co. is jumping into the PCSK9 race for the treatment of high cholesterol in a partnership with RNAi therapeutics developer Alnylam Pharmaceuticals, announced Feb. 4. But the program is far behind other PCSK9 drugs in development at Sanofi/Regeneron and Amgen, which are both in Phase III development. The product, which has completed Phase I testing, will have to prove itself to be differentiated from the leaders if it is to become an eventual commercial success. Alnylam and TMC don’t think that’s a problem because as an RNAi therapeutic ALN-PCS works through a different mechanism of action than the leading drugs in development, which are monoclonal antibodies. That could yield a best-in-class drug, the companies predict, although the results will have to bear out in clinical studies. Alnylam will be responsible for developing the programs further for an estimated one to two years to complete preclinical and Phase I clinical studies of the subcutaneous formulation, and TMC will be responsible for leading and funding development from Phase II forward and for commercializing the program if successful. TMC will pay $25 million upfront and Alnylam stands to receive potential development and commercial milestone payments of up to $180 million and could earn scaled double-digit royalties on sales of the resulting products. It’s not an enormous value for an asset that hits such a hot target. Alnylam Chief Business Officer Laurence Reid admitted the upfront portion of the deal reflects the competitive dynamics in the PCSK9 field and the fact that there are several drugs in later stages of development. - Jessica Merrill

Inspiration/Cangene: French company Ipsen is finally free of U.S. partner Inspiration Biopharmaceuticals. Cangene has agreed to buy rights to IB1001, a recombinant factor IX (rFIX) for the treatment of hemophilia B, which FDA put on clinical hold in 2012. The deal, announced Feb. 6, completes the sale process of all Ipsen and Inspiration hemophilia assets and follows the Jan. 24 news that Baxter would buy the troubled biotech’s flagship hemophilia drug OBI-1 and related Boston manufacturing facility. Inspiration entered Chapter 11 protection at the end of October 2012 to restructure and find a buyer for its two main hemophilia products: OBI-1, a recombinant porcine factor VIII (rpFVIII) for treating hemophilia A with inhibitors, and IB1001. In return for global rights to IB1001, Cangene agreed to pay $5.9 million upfront and up to $50 million in potential additional commercial milestones, as well as net sales payments equivalent to a tiered double-digit percentage of IB1001 annual net sales. Meanwhile Baxter, in its transaction pact for OBI-1, will pay $50 million upfront, up to $135 million in potential additional development and commercial milestones as well as tiered net sales payments ranging from 12.5% to 17.5% of OBI-1 annual net sales. As Inspiration's only senior secured creditor and as the owner of non-Inspiration assets that will be included in the sale of both OBI-1 and IB1001, Ipsen will get some 60% of the overall upfront payments. Ipsen is clearly relieved to have found a buyer for IB1001 given the medicine’s shaky regulatory prospects after the FDA-imposed clinical hold on IB1001 impacted two ongoing phase III trials. Since Inspiration filed for bankruptcy protection, Ipsen has backed the biotech with $23.6 million in debtor-in-possession (DIP) financing to keep it going amid efforts to sell its assets. Ipsen expects to cover the DIP amount with its share of upfront payments from the two asset sales with Baxter and Cangene. The French biotech may take a €100 million impairment charge for the hemophilia assets such as convertible bonds used to finance the collaboration and its investment in the Milford, MA plant. A fuller picture should come on Feb. 27 when Ipsen reports 2012 earnings. - Sten Stovall

Pfizer/OxOnc: Drug-development group OxOnc, which is funded by health care hedge fund OrbiMed Advisors, signed a deal with Pfizer to co-develop Xalkori (crizotinib) in a pivotal clinical trial intended to enable the approval of the drug in Asian countries in a new indication. Xalkori is already approved in the U.S., EU, Japan and other countries to treat patients with ALK-positive advanced non-small cell lung cancer (NSCLC). This trial would be in ROS1-positive advanced NSCLC patients. The trial will be at multiple sites in Japan, China, Taiwan and South Korea. OxOnc will be eligible to receive undisclosed milestones if Xalkori is approved in this indication. No further details were disclosed. - Stacy Lawrence

Isotechnika /Aurinia: Isotechnika licensed out exclusive rights a year ago to its lead drug in a couple of indications and now it’s planning a merger to get it back. Last January, the Canadian company licensed rights to voclosporin to treat lupus and proteinuric nephrology indications to Vifor Pharma. Swiss specialty pharma Vifor subsequently spun out Aurinia with the asset. Isotechnika and Aurinia now are planning to merge under undisclosed terms with post-merger ownership of 60/40, respectively. The merged company will trade on the Toronto Stock Exchange and be known as Aurinia. Management will come from both companies. Aurinia’s management is primarily from Aspreva Pharmaceuticals, which was acquired by the Galenica Group for C$915 million in 2008. Vifor is also part of the Galenica Group. The merger is expected to complete by March 15, pending approval from Isotechnika shareholders and the Toronto Stock Exchange as well as the raising of C$3 million by Isotechnika. The new company plans to start a Phase IIb study this year of voclosporin, in addition to standard of care, to treat lupus nephritis. - S.L.

Stacks of Euros photo courtesy of flickr user aranjuez1404.