Deals of the Week: With Option Deal, Forest Keeps An Eye On The Prize-Winner

It’s an optimistic time for pharma dealmakers, with the Dow and the Nasdaq Biotechnology Index climbing, buyers sitting on big piles of cash, and the IPO window as wide-open as it’s been in years. But for smaller companies that have long lamented that pharmas hold all the cards in licensing and M&A deals, it can still be tough to wring the best value out of a deal. When even a Nobel Prize-winning technology leads to a wait-and-see option deal – as we’ll explain shortly -- structured dealmaking is clearly here to stay.

Pharmas seeking to defray or share risk as they license clinical-stage compounds have come to favor option deals over the past few years. Once a relative rarity, options came into vogue around 2007, according to statistics presented April 30 at Deloitte Recap’s Allicense conference in San Francisco. Senior biotech analyst Chris Dokomajilar reported that a few dozen option deals, including both licensing and buyout arrangements, have occurred annually since 2007. That figure has ballooned from fewer than 10 during each of the previous few years.

Typically, an option-to-license arrangement gives the buyer a close, exclusive look at an asset’s development path – most often through mid-stage trials – before it jumps in with both feet and licenses the drug completely. The asset’s original owner generally gets an option fee, which features non-dilutive funding, often more than it takes to develop the drug, up until the option period ends. Dokomajilar said that among 73 licensing deals with options since 2007, buyers paid an average up-front of $24 million for pre-clinical or Phase I assets, with an opportunity to license them at the end of Phase II.

But the choice to take an option rather than license right away is often telling. Dokomajilar said that 62% of buyout and licensing options are never exercised, and 90% of option deals are renegotiated in one way or another, based on a survey of 581 deals. (UCB Group’s recently adjusted arrangement with Biotie Therapies Corp. concerning Parkinson’s treatment tozadenant is an example.) Moreover, he noted, options “leave licensors with industry-perceived ‘damaged goods,’” making future deals less likely. (There are exceptions, of course; Singapore’s SBIO Pte. Ltd. licensed its JAK2 inhibitor pacritinib to Cell Therapeutics Inc. last year after Onyx Pharmaceuticals Inc. declined its option.)

Over the past year or two, when private companies in need of cash are involved, option arrangements have spilled over into venture fundraising deals. Thus far, most of those alliances include options to acquire start-ups, establishing a path to exit for founding investors. Some have been struck as early as a company’s Series A round: Sanofi, for example, took an option to acquire Warp Drive Bio as the company closed its initial round of funding in early 2012.

The latest twist arrived this week, when Forest Laboratories Inc. forged a deal with five-year-old Trevena Inc., a Duke University spin-out. Trevena co-founder Robert Lefkowitz earned a share of the 2012 Nobel Prize in Chemistry for his work studying G protein-coupled receptors. In the new deal, Forest took an option to license the start-up’s lead program, the Phase II compound TRV027 for acute heart failure. Rather than make an up-front payment, however, Forest invested $30 million as part of King of Prussia, Pa.-based Trevena’s new $60 million Series C round. Milestone payments could add $430 million to the deal’s value, which also includes eventual royalties if the drug is approved and marketed.

TRV027 would augment Forest’s cardiovascular program, if it licenses the drug. It will have the chance once results come back from a Phase IIb trial slated to begin later this year. But the companies may eventually share closer ties in the central nervous system space: Most of Trevena’s remaining pipeline programs address pain, and Forest will eventually have to replace revenues lost when top seller Namenda (memantine) loses patent protection in 2015.

Trevena CEO Maxine Gowen, a GlaxoSmithKline PLC veteran who worked on both its external drug discovery projects and its corporate venture team at SR One, said the deal structure was unique as far as she knew. Forest strategy chief David Solomon declined to comment on how closely the companies considered an outright buyout, saying only that both sides were comfortable with the type of transaction they worked out. - Paul Bonanos

More big companies opted for option deals of different stripes in recent days. Find out who as we pick and choose our way through...

Celgene/Concert: Some companies arrange option deals around platform technologies. Lexington, Mass-based Concert Pharmaceuticals Inc. has nailed down its fourth partnership for its deuterium chemical entity platform. On May 6, it announced a tie-up with Celgene Corp. in a deal that will use the platform to develop and commercialize drugs for cancer and inflammatory conditions. Celgene paid an undisclosed amount upfront and is on hook for $300 million in development, regulatory, and commercialization milestones on each compound, should it opt into the program. The companies would not reveal how many compounds on which they intend to collaborate, or what targets they willpursue. Work has already begun on the project. If it chooses to opt in, Celgene will take over the compounds at an unspecified point in development. Concert’s technology platform replaces a hydrogen atom with deuterium, also known as heavy hydrogen, at a specific point on a drug molecule, forming a more stable bond, but keeping the compound’s biochemical selectivity. The deuterium-conjugated drugs tend to have a better safety profile and a longer half-life, allowing for better dosing. Concert is using the funds it gains through its platform partnerships to bring its lead compound forward, CTP-499, an analog of HDX, which is an active metabolite of pentoxifylline (Sanofi’s Trental). The drug may offer favorable biologic activity as an anti-inflammatory, anti-oxidant and anti-fibrotic agent in chronic kidney disease. Concert also has deals with Jazz Pharmaceuticals PLC, Avanir Pharmaceuticals Inc. and GlaxoSmithKline. - Lisa LaMotta

Astellas/Drais: On May 7, Astellas Pharma Inc. and Drais Pharmaceuticals Inc. announced a development partnership in which Drais, through a special-purpose, virtual vehicle it created called Tacurion Pharma Inc. will take ASP7035, a Phase IIa-ready, vasopressin V2 receptor agonist for nocturia, to proof of concept. (Nocturia is characterized by the need to get up at night to urinate.) Per the May 7 deal announcement, Drais will pay Astellas an undisclosed milestone and royalties on potential sales of the drug. Astellas also retains a one-time option to acquire Tacurion on success of a proof-of-concept study planned to begin in the third quarter of 2013. As in two prior development deals with Drais, Astellas Venture Management – the venture arm of Astellas Pharma – joined as a minority investor along with Sutter Hill Ventures and InterWest Partners in a $15 million Series A round to fund Tacurion. Sutter Hill and InterWest also seeded Drais, and have seats on its board. According to Drais founder and CEO Donna Tempel, this deal differs slightly from the two predecessor deals with respect to the option. In those earlier deals Astellas’ option carried various territorial rights including the right of first refusal for the Japanese market and the right of first exclusive negotiation for any future partnering for the compound. In the deal for ASP7035, Astellas has an option to acquire Tacurion for a specified price. Tempel and co-founder Robert Desjardins, former R&D executives at Yamanouchi, helped found AkaRx in 2005 as a spin out of the merger of Yamanouchi and Fujisawa to form Astellas. Both Sutter Hill and InterWest seed funded AkaRx, along with Astellas Venture Management. Eisai bought it for $300 million in 2009. -- Michael Goodman

Shire/Nimbus: Seventeen months after Shire PLC said it would work with Atlas Venture to incubate and finance new start-ups that address rare diseases, the collaboration has resulted in its first deal. But rather than create a new company, Shire has inked a partnership with an existing one. Atlas portfolio company Nimbus Discovery LLC, a computational chemistry specialist will team up with Shire to discover and develop new therapies for lysosomal storage disorders, according to a May 8 announcement. The two companies have already chosen their first target, though it remains undisclosed; the companies will aim to develop an oral therapy that reaches previously inaccessible tissues. Financial terms weren’t released, but Shire has an option to acquire the program after Nimbus identifies a suitable candidate in the late preclinical stage; Nimbus will receive milestone payments of undisclosed size if and when the program advances through the clinic. Nimbus’s backers also include Bill Gates (investing his own money), Lilly Ventures and SR One. The start-up raised $24 million in Series A funding during the summer of 2011. Shire and Atlas announced their alliance in December of the same year. - P.B.

Takeda/Inviragen: Aiming to deliver on its promise to establish a world-class vaccines business, Takeda Pharmaceutical Co. Ltd. announced plans to buy privately-held Inviragen Inc. May 9. It’s the second acquisition for Takeda in vaccines in just over six months, following its takeout of LigoCyte Pharmaceuticals Inc. for $60 million upfront in October. In the latest deal, Takeda paid $35 million upfront and agreed to $215 million in development and commercial milestones. In exchange, Takeda gains DENVax, a vaccine in mid-stage development for the prevention of dengue infection. The vaccine is believed to be active against four strains of the virus, with a two-dose administration schedule currently being evaluated in Phase II clinical trials. LigoCyte and now Inviragen will form the basis of Takeda’s burgeoning vaccines portfolio. The company announced plans to create a vaccines business division in January 2012 and hired the former director of vaccine delivery in the Global Health Program at the Bill & Melinda Gates Foundation Rajeev Venkayya, to head it. The initiative is aimed at building a portfolio that rivals established leaders such as GlaxoSmithKline PLC, Sanofi and Merck & Co. Inc. - Jessica Merrill

Alexza/Teva: Alexza Pharmaceuticals Inc. put another piece of the puzzle in place for the launch of the inhalable antipsychotic Adasuve (loxapine) with an announcement May 8 that it has partnered with Teva Pharmaceutical Industries Ltd.’s U.S. affiliate to market the drug domestically. Teva will pay $40 million upfront and up to $195 million in post-approval and sales milestones under a deal that brings it rights to develop the product in other indications. Alexza also can earn tiered royalties based on Teva’s net commercial sales of Adasuve. In addition, the Israeli pharma is lending Alexza $25 million in the form of a five-year convertible note. Alexza can pay back up to 50% of the principal at any time prior to maturity, while Teva will have the option of converting at maturity all or part of any outstanding balance into equity in Alexza. This mirrors a facet of Alexza’s ex-U.S. partnership for Adasuve with Grupo Ferrer Internacional SA, which initially paid $10 million upfront along with potential regulatory milestones, including $3 million for EU approval of Adasuve. In March 2012, Alexza cashed out that milestone, with Grupo Ferrer buying 2.42 million shares in its partner at a 120% premium price. Alexza can convert other potential milestones under that deal to equity arrangements worth up to $8 million. Teva is stepping in where Biovail Pharmaceuticals Inc. exited in 2011, after being acquired by Valeant Pharmaceuticals. Alexza agreed with Grupo Ferrer in 2011 to market the product in Europe, Latin America, Russia and the Commonwealth of Independent States. Slated for launch in both the U.S. and Europe during the third quarter, Adasuve is an inhalable formulation of Watson Laboratories Inc.’s Loxitane, administered via Alexza’s proprietary Staccato inhaler technology. It is approved by FDA and the European Medicines Agency to treat episodes of agitation in adult patients with schizophrenia or bipolar disorder. - Joseph Haas

Amgen/Beta Pharma: Amgen Inc. and Chinese oncology specialist Beta Pharma Inc. have created a joint venture to commercialize colorectal cancer drug Vectibix (panitumumab) in China. Financial terms weren’t disclosed, but Beta will own 51% of the JV, to be named Amgen-Beta Pharmaceuticals Co. Ltd., while Amgen will hold the balance. The endeavor appears to be the first of its kind, mating Amgen’s expertise in developing large-molecule drugs with Beta’s local oncology development and marketing expertise in China. With Beta taking the majority stake, the JV could benefit Vectibix due to regulatory incentives in place for local firms, including an accelerated approval pathway. Vectibix is already approved in the West. Incidence of colorectal cancer in China is on the rise, with more than 250,000 new patients diagnosed in 2008, according to China Cancer Registration Center. Other oncology drugs such as Eli Lilly & Co. and Merck KGAA’s Erbitux (cetuximab) and Roche’s Avastin (bevacizumab) have already received approval in China. - P.B.

Thanks to Flickr user Mediocre2010 for a better-than-average photo of a better-than-average award, reproduced under Creative Commons license.

Deals of the Week Looks at Ultra-Orphan Drug Pricing

In the first half of 2013, two drugs will have launched in the US priced at $250,000 per patient annually: Both address serious, ultra-rare diseases and are backed by KOLs and patients. But the similarities stop there. Three months into its launch, one is encountering minimal resistance among payers. Although it’s too early to know how payers will cover the other drug, the expectation is that it will face a hard road.

The received wisdom about ultra-high priced drugs for ultra-rare conditions is that they’re a blip on payers’ radar screens. The idea that payers are attuned to blips on radar screens is laughable. Many don’t have the basic IT capability to track drug utilization, physician prescription patterns, or therapeutic outcomes.

But payers are waking up to high-price drugs. What’s getting their attention is not so much the impact of a particular drug and its price tag, but rather the aggregate of rare diseases, and the drugs that treat them, represented in their plans. Over the past decade FDA has approved 27 drugs for rare diseases.

Some big pharmas, like Pfizer Inc. and GlaxoSmithKline PLC, have recently started rare disease initiatives, while others, like Roche, believe rare disease R&D is a specialist’s game. Pfizer has had its share of disappointments, most notably with Vyndaqel (tafamidis meglumine) for transthyretin amyloid polyneuropathy, which it acquired along with FoldRx in 2010. The drug received a complete response letter in June 2012 after a mixed advisory committee review.

And GSK has recently retreated somewhat from its focus on rare diseases, preferring to invest its R&D dollars in “sound opportunities in major markets,” according to CEO Andrew Witty. Its head of rare diseases, Marc Dunoyer, bailed a few weeks ago to sign on with AstraZeneca PLC as EVP global portfolio and product strategy. (AstraZeneca isn’t a rare-diseases powerhouse and the company tells Deals of the Week that Dunoyer’s appointment shouldn’t be taken as a sign that its rare disease ambitions have changed.)

But with some 7,000 rare diseases still to be investigated, and with new orphan disease start-ups being minted every week, the rate of rare disease drug approvals is set to accelerate.

How payers respond to the stratospheric prices for rare disease drugs has to do with many factors whose weights are constantly changing, including the gravity of the condition, presence of existing drugs in the category, Phase III data, the age of the population, and the tenacity and resources of the disease foundation.

Aegerion Pharmaceuticals Inc.’s Juxtapid (lomitapide) launched in January 2013. The drug controls LDL cholesterol in patients with homozygous familial hypercholesterolemia (HoFH), a disease that causes premature and progressive atherosclerosis in approximately 3,000 patients in the U.S. It is priced at what amounts to $235,000 per patient per year for initiation, rising to $295,000 per patient per year for maintenance. The existing treatment for HoFH, diet and LDL apheresis, is inadequate to control LDL levels.

On an April 30th first quarter earnings call, Aegerion CEO Marc Beer said the drug was seeing an accelerating uptake among cardiologists and lipidologists. His national accounts team was calling on over 100 payers. “The prior auth process is on or slightly better than plan from a timing standpoint. We do see appeals – you see this in the ultra orphan space – it’s just the way insurance companies manage their business. We’re working through them effectively. I don’t see an access problem right now.”

Raptor Pharmaceutical Corp.’s Procysbi (cysteamine delayed release) was approved on the day of Aegerion’s earnings call. Raptor expects to launch it in six to eight weeks to a US population of about 500 people. The drug acts against nephropathic cystinosis, a lysosomal storage disease that leads to progressive irreversible tissue damage and organ failure, particularly of the kidneys.  Its price will be based on each patient’s weight and dose; Raptor expects the average annual cost per patient to be around $250,000.

Now here’s the thing. Procysbi is a delayed release formulation of an existing drug, Cystagon (cysteamine bitartrate), sold by Mylan Inc. for $9,000/patient/year. Its chief benefit over Cystagon is its 12 hour dosing schedule, a significant convenience over Cystagon’s six hour dosing schedule, which is particularly burdensome for children and leads to poor compliance.

The FDA label for Procysbi states that it is non-inferior to immediate release cysteamine, but does not indicate that it improves compliance or kidney function over the standard of care.

So, the drug is no more effective than the standard of care in controlling the disease, it brings a dosing convenience, and it costs a whopping $250K/patient.

Gary Owens, chair of Tower & Watson Rx Collaborative P&T Committee, said that Procysbi will surely be excluded from closed formulary plans, or only covered under exception. About 20%-25% of plans are closed formulary. He does not envision that new patients will be started on Procysbi, unless they have trouble tolerating Cystagon. And he expects use of the drug to be hemmed in by clinical edits to verify that it isn’t being wrongly prescribed or a patient being controlled on Cystagon isn’t requesting Procysbi for what the plan considers a trivial reason.

The U.S. has prided itself on its relative freedom to price drugs. But pride, goes the proverb, hath a fall. Richard Pops, CEO of Alkermes PLC, recently said at BIO 2013 that treatment of orphan and ultra-orphan diseases won’t significantly impact health care costs. “The country isn’t going to go bankrupt because of diseases like cystic fibrosis.” But it’s not about a few diseases and a few drugs. It’s about 7,000 diseases like cystic fibrosis. (Vertex Pharmaceuticals Inc.’s Kalydeco launched last year to a population of 1,200 CF patients in the U.S. who harbor a specific gene mutation, at an annual per patient price of $294,000.)

Forces new and old are at work that will push down the pricing of orphan drugs. They include the glacial move from fee-for-service to bundled services and outcomes-driven payment. The increasing competition in rare disease categories driven by the gathering stream of approvals. New stakeholder pressures, like the hundred-plus oncologists from around the world who charged the industry with “profiteering” through high drug pricing in a recent issue of the journal Blood. The head of the National Organization for Rare Disorders, Peter Saltonstall, said that he expects Congress to start engaging with NORD about the cost of drugs. “It’s going to be an issue that we’re going to have to start to deal with in one fashion or another.” NORD advocates for millions of rare disease patients.

Ben Bonifant, of consultancy Bonifant Insights Group, comes at the pricing issue from another angle. “You look five years out, and [analysts] are still putting annual price increases into their U.S. models, but flat pricing in Europe and declining pricing in Japan”. He projects that we’re heading for an unsupportable separation in revenue per patient between the U.S. and Europe.

Things will really start getting interesting when researchers, harnessing massively parallel sequencing, start parsing large-population diseases into tiny, high-value sub-populations based on somatic mutations, methylation patterns, DNA copy number, etc.--Mike Goodman

Maybe the brave new world we’re hurtling toward will be one where precision medicine and rational drug prices co-exist? Until that happy day, kick back and enjoy this week's cavalcade of deals in . . .

Celgene/Forma: Drug discovery play Forma Therapeutics Inc. has intentionally, with each Big Biotech or Big Pharma deal it signs, moved further down the road toward becoming an integrated R&D company. With this week’s Celgene Corp. deal it may for the first time find itself playing the role of development partner. And importantly for its long-term ambitions to remain an independent and fully integrated company, Forma has hung onto U.S. rights to programs that emerge from the alliance.

The small, Watertown, MA-based biotech now has seven strategic alliances that it expects to generate $350 million in partnership revenue through 2017. This latest effort, focused on the intriguing but nascent field of protein homeostasis, “is the largest deal we’ve done, in terms of scale, but also in terms of capabilities and responsibilities for Forma,” CEO Steven Tregay said in an interview with “The Pink Sheet” DAILY.

The alliance will tap Forma’s translational development capabilities secured through a strategic relationship with Translational Drug Development (TD2), the oncology development group run by Daniel Von Hoff out of the Translational Genomics Research Institute. Forma, with TD2, will be responsible for the first time for early clinical development of the compounds it discovers for a partner, handing off potential drugs to Celgene after Phase I. Forma receives an undisclosed upfront payment and is eligible to gain up to $200 million in research and early development payments from Celgene, which will be responsible for full global development for each candidate it options at Phase I. Milestone payments – including payments for hitting certain sales targets – range from $315 million (for the first selected asset) to a maximum of $430 million per program.

Forma also will get undisclosed royalties on ex-U.S. sales and further milestone payments based on pre-defined cumulative development and sales objectives for projects in the partnership.--Chris Morrison

Bayer/Conceptus: Bayer AG is adding to its women’s health unit with the $1.1 billion acquisition of contraceptive device maker Conceptus Inc. Bayer is paying $31 per share for the California-based company and its nonsurgical, permanent contraceptive solution for women, Essure. The deal is expected to close by mid-year. Essure was approved by FDA in 2002. It is the only surgery-free, hormone-free permanent birth control option available to women in the U.S. Conceptus had net sales of $141 million in 2012 – Essure is its only marketed product. The company is currently developing a follow-on product that works to block the fallopian tubes immediately. Essure is not effective until three months after it has been implanted.

“Both Bayer and Conceptus are focusing on innovative solutions to advance women's healthcare. Essure completes Bayer’s portfolio of long-acting intrauterine systems and short-acting oral contraceptives. Our experience in the field of gynecology combined with our sales and distribution expertise will help to further develop Conceptus’ business,” said Andreas Fibig, President of Bayer HealthCare Pharmaceuticals, in a statement.

The deal comes on the heels of Bayer facing scrutiny for its own birth control products. The German company has faced a slew of lawsuits related to its failure to inadequately inform patients about the risks of thrombosis related to its Yaz franchise. Yaz and Yasmin have both lost patent protection and face generic competition.--Lisa LaMotta

Soligenix/Intrexon: Princeton, N.J.-based Soligenix Inc. has partnered with synthetic biology specialist Intrexon Corp. to develop treatments for melioidosis, a bacterial infection prevalent in Southeast Asia. In lieu of an up-front cash payment, Intrexon received 1.03 million shares of Soligenix stock, representing 8.5% of its total shares outstanding after the deal. Soligenix also owes Intrexon milestone payments and royalties, while Intrexon received the right to take more Soligenix shares in future public offerings or other transactions. The biopharma, traded over-the-counter, receives access to Intrexon’s antibody discovery and manufacturing technologies; Soligenix will also pay for pre-clinical and development of products discovered as part of their collaboration.

Backed by billionaire chairman Randal Kirk, Intrexon has raised at least $509 million as of mid-2011, and has taken equity in similar partnerships with Oragenics Inc., Ziopharm Oncology Inc., and AmpliPhi BioSciences Corp.  Melioidosis is caused by aerosol forms of Burkholderia pseudomallei, which the U.S. Department of Health & Human Services considers a potential bioterror agent; Soligenix has previously developed vaccines against ricin and anthrax.--Paul Bonanos

Auxilium/Actient: Auxilium Pharmaceuticals Inc. is buying – not selling. In a move intended to diversify beyond its leading Testim testosterone gel product, the company announced April 29 it has acquired Actient Holdings LLC for $585 million upfront plus contingency payments. The company said the deal will create a leading urology company and add nine commercial products to Auxilium’s portfolio, which also includes Xiaflex (collagenase clostridium histolyticum) for Dupuytren’s contracture. Actient generated $125 million in revenues in 2012 and EBITDA of $61 million, sales and earnings that will help pad Auxilium’s top- and bottom-line as it looks for ways to grow amid increasing headwinds. Testim, which accounted for 78% of Auxilium’s 2012 sales, will face generic competition in 2015.

But some Auxilium investors may have been hoping for a sale of the company rather than an expensive acquisition, as sales of the company’s own products are slowing. CEO Adrian Adams, who joined the company in December 2011, has the closing of several sales on his resume: the acquisition of Inspire Pharmaceuticals Inc. by Merck & Co. Inc., the sale of Sepracor Inc. to Dainippon Sumitomo Pharma Co. Ltd., and Abbott Laboratories Inc.’s buyout of Kos Pharmaceuticals in 2006. Actient was founded in 2009 by the private equity firm GTCR, which put up $200 million to build the company through acquisitions. The bulk of the company’s products were acquired from UCB Pharma SA in July 2010.--Jess Merrill

Selexis/Ligand Pharmaceuticals: San Diego-based Ligand Pharmaceuticals Inc., which focuses on the acquisition of royalty-generating products, bought out on April 30 the potential milestone and royalty payments for more than 15 biologic products in development at Selexis. Deal terms were not disclosed.

Based in Geneva, Selexis SA is a clinical-stage biotech that uses its proprietary SUREtechnology platform, which uses novel DNA-based elements that control the organization of chromatin in all mammalian cells, for drug discovery and cell-line development in the creation of new therapeutic protein drugs. Programs and indications also were not disclosed but the related product candidates are in various stages of preclinical and clinical development, Selexis said.

The biotech, which retains earn-out rights to another 14 biologics in development, said it will use the funds from Ligand to cover R&D expenses around the next generation of candidates to emerge from the SUREtechnology platform. During a 14-month span beginning in late 2009, Ligand built its portfolio through acquisitions of Neurogen, Metabasis and CyDex. Each of those transactions were structured to include contingent-value rights going back to investors in the acquired firms.--Joe Haas

Merck/Abide Therapeutics: Just a week after announcing its tie-up in the diabetes space with Pfizer Inc., Merck & Co. Inc. has signed another diabetes collaboration with San Diego-based biotech Abide Therapeutics.

Merck will potentially pay $430 million in upfront, milestone and research funding. Abide is also eligible to receive royalty payments. Further financial details were not disclosed. The collaboration is around three novel targets involved in metabolic diseases. Abide develops drugs using serine hydrolases, an enzyme class that plays a key role in regulatory processes like metabolism, signaling, and digestion.

The deal comes just days after Merck announced it had signed a collaboration with Pfizer to develop and commercialize ertugliflozin, a Phase III sodium glucose co-transporter 2 (SGLT-2) inhibitor. Merck has already paid $60 million in upfront and milestone payments to Pfizer, but would not reveal the total deal value.

Merck currently only has one diabetes franchise, the dipeptidyl peptidase-4 (DPP-4) inhibitor Januvia (sitagliptin) and products that use Januvia in combination. Januvia sales came in shy during the first quarter at $884 million, prompting worry from investors and analysts.--LL

Regeneron/Sanofi: Regeneron Pharmaceuticals Inc. has acquired full exclusive rights to two antibody programs invented at Regeneron and included in the biotech’s fruitful, longstanding antibody alliance with Sanofi. The assets are both in preclinical development for ophthalmology and have potential in other indications. In exchange for $10 million upfront and up to $40 million in development milestones, as well as royalties on sales, the biotech announced on May 3 that it is taking control of the entire platelet-derived growth factor (PDGF) program. It is making another $10 million upfront payment to Sanofi, and offering a $5 million development milestone, as well as sales royalties for rights to ophthalmology indications for antibodies targeting the angiopoietin2 (ANG2) receptor and ligand. The partners continue to work jointly on development of ANG2 antibodies in other indications, and have an ANG2 antibody in Phase 1 in combination with their jointly developed oncology drug Zaltrap (ziv-aflibercept), which is already on the market.

On a quarterly earnings call, also on May 3, president of Regeneron Research Labs George Yancopoulos explained that both pathways appear to play an important role in angiogenesis and therefore the antibodies could be used in combination with the company’s lead drug Eylea (aflibercept), an anti-VEGF therapy. Sanofi has an ophthalmology business, Fovea. But the partners believe it makes sense for Regeneron to take over the programs, given Eylea’s success and the potential for combining the antibodies with Eylea to create best-in-class anti-VEGF, ANG2 and PDGF therapies, Yancopoulos said.

Regeneron plans to submit an IND to develop the ANG2 antibody target in an ophthalmic study later this year, and to submit another IND for a combination trial of the PDGF receptor antibody with Eylea in second half of year.--Wendy Diller

Bristol-Myers Squibb/Ambrx: In its third collaboration with Bristol-Myers Squibb Co., Ambrx Inc. will team again with the pharma to discover and develop next-generation antibody-drug conjugate (ADC) products for oncology indications. Under the deal announced May 3, Ambrx will receive $15 million upfront, as well as R&D funding and potential development, regulatory and sales-based milestones that could reach $97 million. Bristol obtains worldwide rights to develop and commercialize candidates, to be generated using Ambrx’s protein medicinal chemistry platform, from the collaboration, with the biotech holding rights to potential sales royalties.

Previously, in 2010, Ambrx signed a pair of agreements with Bristol to develop biologic therapies for type 2 diabetes and for heart failure. Those two candidates now are in development at Bristol. With a proprietary long-acting growth hormone in Phase IIb, Ambrx also partnered last month with Astellas Pharma Inc. on the development of ADCs and in 2012 with Merck on biologic drugs against undisclosed targets.--JH

Financing of the Fortnight Wonders If It's Time To Join The Parade

Biotech workers of the world unite, you have nothing to exercise but your stock options. At least a few more do these days. We’re far from the cries of “Mayday!” that echoed from the bottom of the financial canyon four years ago, and as we write this, the sector is abuzz with IPO pipeline activity.

GW Pharmaceuticals, a British purveyor of pain-relieving cannabinoid drugs already listed on the AIM, just raised $31 million and made its Nasdaq debut; and Insys Therapeutics, also in the prescription pain-relief business, raised $32 million in its IPO.

Both were modest, as are most dollars raised in biotech IPOs. But they’re the eighth and ninth of the year already. To relieve investors with grumpy LPs and give workers hope that stock options will one day put a little extra scratch in their pockets, it’s volume that’s needed. More liquidity across the board, please.

It seems the waters are about to flow. Ambit Biosciences, Regado Biosciences, Receptos, Epizyme, Portola Pharmaceuticals, and others are now in the queue, along with the mega-CRO Quintiles Transnational Holdings (with private equity, not venture capital, backers). We won’t make individual assessments of the worthiness of each company at this point, but on the whole it’s a well represented group.

Those are just the ones in the public eye. There could be plenty a few steps behind, thanks to the US JOBS Act of 2012. It made IPO registration easier and stealthier at first, giving companies the chance to lay the groundwork of a possible debut without having to open up to public scrutiny. Not so fun for journalists, of course, but it gives executives and their advisors more data to consider and more time to schmooze public investors before declaring themselves in pursuit of the brass ring. And that breathing room, people say, is helping. “The ability to make initial registration statement filings confidential, plus the ‘testing the waters’ rules have made a meaningful difference in helping companies pursue an IPO,” says Fenwick & West partner Matt Rossiter, whose clients include life science companies and venture investors.
  
Kleanthis Xanthopoulos took his microRNA company Regulus Therapeutics public last year and is a big believer in a long, slow IPO process. “The roadshow should be where people make their minds up, finally, rather than where they learn about you,” he said during a discussion about the IPO landscape at the recent Allicense conference in San Francisco.

The biotech analysts at Cowen & Co. agree that the JOBS Act, by allowing more investor exposure to pre-IPO companies, has increased investor comfort. Other factors besides the new rules are helping, too. Since 2004 there have been 332 biopharma acquisitions and 119 IPOs, they say, which leaves public investors hungry for new investments and new ideas. And the past couple years, IPO investments have on average outperformed the S&P 500. (A couple months ago, our friends at “The Pink Sheet” took a detailed look at the strong Class of 2012 here.)

“It seems quite reasonable that these factors have come together to produce a market more receptive to IPOs than at any point in the previous 5 to 10 years," write the Cowen team in a recent sector report.

Yes, but… (You knew that was coming.) If public investors are showing more interest, why is insider participation in IPOs so high? It’s a phenomenon we’ve tracked for a while now. A year ago it was startling. At his Allicense talk, Xanthopoulos cited data from Lazard Equity Capital Markets and FactSet that show why: For this current IPO window that began in late 2009, 71% of offerings have included insiders, and the median amount of proceeds they’ve bought at IPO is 43%. In the previous window, from 2003-2007, insiders participated in 29% of offerings and snapped up 20% of the proceeds.

Quite a bump. What gives? A small part of the bloated totals could be due to the crossover phenomenon, with hedge funds and other public buyers getting in before the IPO and bolstering their positions at the debut. And on any particular deal you might find an insider or two who are simply thrilled with the company, hungry for more, and in no rush to exit. But with so many firms out fundraising, or winding down operations, most of those insiders are wading in deeper simply to get deals done.

So keep an eye on those insider numbers. If IPO volume continues apace, and the insiders start to do what they really want to do -- own less stock, not more, after their companies go public -- we'll know the window is wide open.

In fact, May is the perfect time to throw windows open, let in the breeze, and do some housecleaning. We'll start right now by polishing up the latest edition of...

Symphogen: The privately held Danish antibody company said May 3 it has reeled in another €41 million ($53.9 million) to push forward its antibody mixture pipeline. The firm is developing products that contain more than one full-length monoclonal antibody, an approach that few companies have tried. As described in a START-UP feature earlier this year, Symphogen has pioneered the way for antibody mixtures (or combinations, or cocktails, as some might call them) into the clinic, and in 2012, it outlicensed its lead oncology program, a two-antibody mixture to treat head and neck and colon cancers, to Merck Serono following Phase II trials. The cash from that deal, plus its massive €100 million financing round announced in 2011, and the new funds, an extension of that round, has given the firm a long runway to develop its preclinical pipeline. Its lead program is now Sym013, a six-antibody mixture designed to inhibit HER1 (aka EGFR), HER2 and HER3 to prevent tumors from switching signaling pathways and building drug resistance. Ultimately the company wants to design combinations of antibodies that hit targets not just on the tumor cell surface but in the surrounding microenvironment.  The extension was led by existing investors Novo A/S and PKA, a Danish pension fund administrator, and included Danica Pension, making its first active investment in Symphogen. Symphogen has now raised €249 million in private capital. -- Alex Lash

ScioDerm: Dermatology start-up ScioDerm has raised the first $9 million of a planned $16 million Series A round, intended primarily to support clinical trials on lead program SD-101. The Raleigh, N.C., start-up’s backers were Morgenthaler Ventures and Technology Partners, which made us do a slight double take. Turns out Morgenthaler’s life sciences team is still investing the firm’s 2008-vintage ninth fund, even though the group has already joined forces with Advanced Technology Ventures’ biotech team to create a new firm, Lightstone Ventures. Morgenthaler is not expected to make new life sciences investments from future funds. In February, ScioDerm filed an IND to study SD-101 in epidermolysis bullosa, a rare genetic disorder that results in sensitive and fragile skin, disfigurement due to wounds from blistering and tearing, and early death. It had previously conducted a Phase II study of SD-101 in some subtypes, including the simplex, recessive dystrophic, and junctional forms of the disease. Also this fortnight, ScioDerm received Breakthrough Therapy designation from FDA, potentially speeding the drug’s clinical development. A Phase I study is expected soon, with a Phase IIb/III study expected as soon as late 2013. – Paul Bonanos

Esperion Therapeutics: Longitude Capital joined a roster of investors in cholesterol-fighting drug developer Esperion, leading a $33 million Series A extension that builds on $22.75 million the company raised in 2008. Returning backers included Aisling Capital, Alta Partners, Domain Associates, Arboretum Ventures and Asset Management. Esperion is attempting to grab a piece of the market for cholesterol-lowering prescription drugs that appeal to patients who cannot or prefer not to take statins such as former Pfizer blockbuster Lipitor (atorvastatin), generic since November 2011. The company recently presented encouraging data suggesting that Phase II candidate ESP-1002 reduced low-density lipoprotein cholesterol by more than 40% in type 2 diabetes patients; it’s studying the drug in additional patient populations as well. By some estimates, a fifth of high-cholesterol patients are statin-intolerant, suffering pain or muscle weakness. Other novel drug classes, such as PCSK9 inhibitors, are being studied for statin-intolerant patients, but Esperion co-founder Roger Newton – a co-discoverer of Lipitor – said ESP-1002’s oral availability and once-daily dosage may give it an advantage over injectable alternatives. Ann Arbor, Mich.-based Esperion expects to partner the drug “in a couple of years,” according to CEO Tim Mayleben. Pfizer acquired the original Esperion for $1.3 billion in 2004 and retained several key assets, even though it shifted many to the back-burner. A management team including Newton, an original Esperion founder, engineered a 2008 spinout, establishing the new company with an external investment. – P.B. 

Intrexon: The synthetic biology company said May 1 it has reeled in a $150 million Series F round of funding to continue building operations in its four areas, health care, food, energy, and environment. Health care is where Intrexon CEO and chairman Randal Kirk amassed the fortune that he’s been plowing into Intrexon since his first investment eight years ago. Kirk was majority owner of New River Pharmaceuticals, which he sold to Shire in 2007, and Clinical Data, bought by Forest Laboratories in 2011. He became CEO of Intrexon in 2009 and much of the $509 million the firm has raised has come from him or his affiliated venture funds. A majority of the Series F round came from undisclosed new investors, according to the company. The news of the financing came on the heels of the firm’s latest biopharmaceutical deal, an agreement with Soligenix to co-produce monoclonal antibodies for the treatment of melioidosis, an infection caused by Burkholderia pseudomallei endemic to Southeast Asia and Northern Australia. Other recent health care deals include an agreement with AmpliPhi BioSciences to develop a range of anti-infectives and a license of its technology to Fibrocell Science for use in development of fibroblasts and dermal cells for aesthetic and therapeutic applications. Oragenics, Adeona Pharmaceuticals and Halozyme Therapeutics have also partnered with Intrexon. – A.L.
 
All The Rest: New investor Oracle joined in for a second closing of Proteus Digital Health's Series F round, now totalling $62.5M… Celator closed a $39.3M financing to fund a Phase III study of CPX351 in acute myeloid leukemia… HPV vaccine developer Genticel raised €18.2M in Series C funds… Synthetic biology company Gen9 received a $21M investment from Agilent… Acumen Pharma, developing the ACU193 antibody for Alzheimer’s, completed the first close in a $20M Series A… Becker Ventures led a $15M round for AltheRx, developer of overactive bladder candidate solabegron... To support technology to distill real-time patient insights from social media, Treato raised $14.5M… ActoBiotics developer ActoGeniX completed a €10.7M Series B… Anterios collected $8.5M in venture funding for its aesthetic and dermatological drug candidates… viDA Therapeutics’ $3.6M seed round will fund a granzyme B inhibitor for fibrotic, autoimmune, degenerative, and age-related chronic inflammatory diseases… US and European institutional investors put €54M into Belgian biotech Galapagos… Radius Health, which is working on the transdermal and IV candidate BA058 for osteoporosis, raised $43M… Arrowhead Research completed a $36M private offering of common and Series B convertible preferred shares…concurrent with closing its reverse merger with publicly traded Tranzyme, Ocera plans to raise $20M… Health care-dedicated institutional buyers invested $10M in Northwest Biotherapeutics… Lincoln Park Capital Fund provided Elite Pharma with $10M… As it prepares to launch its radiopharmaceutical agent Lymphoseek, Navidea privately raised $5.1M… To pay for the NDA for male hypogonadism treatment CompleoTRT, Trimel publicly sold $Cdn40M in stock… Boron chemistry platform company Anacor completed a $20M FOPO… Cell therapeutics developer NeoStem raised $10M through a public stock sale... Immunomodulating company Idera raised $8.75M in a secondary offering... Less than a year after closing a $51M Series E round, cardiovascular firm Regado Biosciences filed for its IPO… Receptos, Quintiles, and Ambit all set terms for their IPOs… Theravance is spinning off into two independent publicly traded companies, one focused on the Breo deal with GSK, and the other on small-molecule R&D… Supernus netted $72M in a convertible senior secured notes offering… Immunotherapy-focused TNI Biotech filed a Form 10 to become public reporting entity… GSK and Avalon are partnering to start up multiple drug discovery companies over the next three years with a total of $495M in potential funding… Harvard University received a $50M donation to support translational research… Atlas Venture closed its $265M ninth fund... Capital Royalty announced an $805M fund for nondilutive financing. -- Amanda Micklus

Thanks to Paul Bonanos for help with this fortnight's column.  

Photo of ILGWU members in a 1937 May Day parade courtesy of the Kheel Center, Cornell University. 

Deals Of The Week Ponders Project Financing

GlaxoSmithKline has been out ahead of other big pharmas when it comes to investing in venture funds. Its deal with Avalon Ventures represents another flavor of the relationship – investing as a partner rather than as an LP and creating companies around a single drug. But in the rush to mint single-asset companies, are the stakeholders giving short shrift to innovation?

On April 22, GSK joined with Avalon Ventures to form up to 10 start-ups in one San Diego-area facility. Avalon will contribute up to $30 million from its Fund X, and GSK will provide up to $465 million in seed funding, based on development milestones, while retaining an option to swoop in and acquire a company if and when it produces a clinical candidate. Avalon will pick the early-stage prospects, and both companies jointly will approve the formation of new companies.

We’ve seen these deals before, motivated by the neediness of the two parties: big pharma needs low-risk access to external innovation as its own internal labs sputter; VCs need access to funding as their traditional sources dry up. GSK has been particularly active in teaming up with VCs, and seems to be trying out different flavors of collaboration. It invested last January in Sanderling Venture’s Fund VII; and in March 2012, it joined with Johnson & Johnson to invest in Index Ventures’ Index Life VI fund.

The Avalon deal is a new twist, however. GSK is not an LP in the venerable San Diego firm’s Fund X, which closed last year with $200 million in commitments. Rather, it is an investment partner, with the two sides forming syndicates of two for each company they create. They will not look to bring in more investors, officials from GSK and Avalon said this week.  And although GSK’s relationship to Index is as a limited partner, not a roll-up-the-sleeves, company-creation partner, it’s similar to the Avalon deal in one respect: the focus is on single-asset companies.

That’s also DOTW’s focus this week: project financing. Not from the perspective of the VCs who popularized the model and are investing in it like lemmings, but rather from the perspective of the scientists who do the daily work of inventing drugs. From the scientists’ point of view, the asset-centric model isn’t about lower risk and better returns. (After all, it’s an ongoing experiment whose benefits we won’t know for some time yet.) Scientists are asking a different question: is it the best route to innovation?

A single-asset company refers to a virtual start-up formed around a single drug. All staff, funding, planning and operations are geared to advancing that drug to an exit, whether it be the sale of the asset or the company that houses it. The leanness of the operation, and the need to outsource R&D, is thought to lead to capital efficiency. The exclusive focus on a single project is thought to offer operational efficiency and speed to proof-of-concept. The single-asset vehicle can make a clean, attractive package for a buyer, unencumbered with staff, infrastructure and overhead.

Here’s where the contrarian view comes in. Everything is outsourced these days, including synthesis and chemistry, in vitro and in vivo tox, ADME, pharmacokinetics, etc. But not so much target selection or lead optimization. Also, the outsourcing of R&D requires staff to oversee the tasks and manage the relationship – initiating the work, measuring performance and assuring quality, reviewing interpreted data, etc. Depending on the amount and complexity of the work, this can add bloat and cost.

Opinions about the capabilities and quality of CROs vary among scientists. Hermann Mucke PhD, founder of HM Pharma Consultancy, says he “would not trust a CRO's claims of its ability to identify any target, or optimize any lead structure.” He allows that a platform company with a sideline business could do specific target-related tasks quite well, likely better than most companies. But he adds that it’s sometimes difficult to achieve that narrow match. And it also requires more teamwork between internal staff and service provider than classical outsourcing.

Mucke’s last point about teamwork raises another potential problem with the virtual model. In his 1974 book “Lives of a Cell,” Lewis Thomas described the phenomenon of groups of ants, bees, fish, termites or people behaving like a thinking organism. It happens, like magic, when the group reaches critical mass. But does it happen in a virtual company with a handful of employees working from home, sometimes at a considerable remove from the operations? Thomas, who died in 1993, was the former Dean of Yale School of Medicine and New York University School of Medicine, and President of Memorial Sloan-Kettering Cancer Center. He knew something about scientists working in teams.

The short horizon to an exit  also could make it hard to attract top scientific talent. Scientists tend to like to dig deep into a project and are open to following leads thrown up by serendipity. Pfizer’s Xalkori (crizotinib) is a good example. The molecule was discovered at Sugen and came into Pfizer’s portfolio when it acquired Pharmacia, Sugen’s parent. Pfizer scientists at La Jolla, Calif., several of whom started at Sugen, spent seven years hitting crizotinib’s c-MET target before a chance publication in Nature magazine clued them into ALK and set them set them on the right path. Xalkori launched four years later.

Now, getting back to GSK – in siding with VCs, is the pharma seeking speed and cost-cutting advantages or is it hoping to get an innovative drug out of the investment? Are GSK’s interests aligned with its partners?

Beats us. We just thought the question needed to be aired. - Mike Goodman

We also think the following deals merit your patient attention:

Merck/Cerecor: In its second deal with Merck in the past month, on April 19 neuroscience specialist Cerecor acquired exclusive worldwide rights to develop and commercialize MK-0657, Merck’s NMDA (N-methyl-D-aspartate) receptor subunit 2B antagonist for all indications including depression.  The molecule was originally developed by Merck for Parkinson’s disease, but failed to show efficacy in an early study. However it did show a promising signal of antidepressant activity.  Dr. James Vornov, Cerecor’s SVP of clinical development, said his team was particularly interested in the oral drug’s “potential to rapidly reduce depressive symptoms, including suicidal ideation” in patients refractory to available therapies. Terms of the deal were not disclosed. Cerecor will immediately assume full development and commercialization responsibilities. The agreement includes milestone payments and royalties “consistent with clinical stage licenses in neuroscience.” Deals in the psychiatric space tend to feature low upfronts and moderate-large downstream payments, in keeping with the high-risk nature of neuropsychiatric drug development. In March, Cerecor received exclusive worldwide rights to develop and sell Merck’s catechol-O-methyltransferase (COMT) inhibitors, with potential applications in Parkinson’s disease, schizophrenia, and addictive behaviors. Financial terms were not disclosed. Founded in 2011, the start-up specializes in translating early stage neuroscience therapies into early human trials, and developing them for market. Merck’s mid and late-stage neuroscience pipeline shows no candidates for disorders of mood or behavior; but there are two for insomnia, two for neurodegenerative diseases, and one for neuromuscular blockade. - M.G.

AstraZeneca/Alchemia: In its ambition to transform the company through deal-making, AstraZeneca has signed yet another early-stage collaboration, this time a multi-target drug discovery deal with Australian oncology drug developer Alchemia. The agreement, announced April 23, gives AstraZeneca access to Alchemia’s Diversity Scanning Array (DSA) and associated Versatile Assembly on Stable Templates (VAST) chemistry platform to discover novel small-molecule drugs in a multitude of therapeutic areas, including oncology, respiratory and cardiovascular disease. Alchemia will receive an undisclosed upfront payment and is eligible for preclinical, clinical and commercial milestone payments of up to $240 million. The Alchemia’s DSA is a suite of 14,000 novel compounds that scan three dimensional molecular shapes and peptidomimetic functionality. It forms the basis of the VAST discovery platform which can identify the shape and binding elements required for target modulation. The deal is the fifth AstraZeneca has signed since unveiling its turnaround strategy to investors in March; the most recent was with Bind Therapeutics. - Jessica Merrill

Opko Health/Prolor Biotech: Opko Health announced April 24 that it will acquire Israel’s Prolor Biotech in an all-stock transaction valued at roughly $480 million. The stock-swap deal, expected to close during the second half of this year, is structured so that Prolor’s management and personnel will remain in place, serving as the biologics subsidiary of Opko, which already produces small-molecule drugs, vaccines and diagnostics. Prolor’s business focus is on developing longer-acting formulations of approved protein products, with a lead product for growth hormone deficiency, the Phase III human growth hormone hGH-CTP. Prolor intends to begin a Phase III trial in adults later this year, with a plan to position hGH-CTP as a weekly injectable more convenient for both adult and pediatric patients than the current daily-injection therapies. Opko Executive VP Steve Rubin said his firm placed a lot of value on acquiring the GHD product, which has orphan drug designation in both the U.S. and Europe in both adult and pediatric populations. The EU designation would protect the product, if approved, from direct competition for 10 years, he added. “This is the way we’re building Opko,” he said. “This gives us four products that will be in Phase III, which is very important to us. They’ll come on to the market at different times.” During an investor call, Prolor President Shai Novik spoke of how the deal structure – in which Prolor shareholders will receive 0.9951 shares of Opko stock for every full share in Prolor – will give his company’s investors the opportunity for lasting value by participating in Opko as long-term investors. The deal values shares in Opko at $7.03 a piece and Prolor shares at $7.00, a 20% premium over the Israeli firm’s closing price on April 23. - Joseph Haas

Bristol-Myers Squibb/Merck: Confident that its daclatasvir will prove the best-in-class NS5A replication complex inhibitor for hepatitis C, Bristol-Myers Squibb on April 22 signed its second non-exclusive partnership this month to test the compound in tandem with another company’s HCV candidate. The agreement to test Phase III daclatasvir in a Phase II combination trial with Merck’s MK-5172 follows on a similar arrangement signed with Vertex April 5 to test the NS5A inhibitor with nucleotide analog VX-135. The deal includes no financial considerations; Merck will fund the trial, with Bristol only contributing the volume of study drug needed, Doug Manion, Bristol’s senior VP of development, neuroscience, virology and Japan, said. The arrangement is open-ended, like other combo trial collaborations Bristol has entered – if the two companies want to move on to Phase III work with the combination being studied, they need to work out a new agreement. Manion said NS5A inhibition is a compelling pathway for treating HCV, in part because the exact function of the NS5A gene product in HCV is not fully understood. “It’s very complicated,” he said. “It does a large number of things and the virus can’t survive without it, we know that for sure. We were the first company to actually ‘crack the nut’ in terms of how to drug it.” Bristol plans to file the combination of daclatasvir and its proprietary Phase III protease inhibitor asunaprevir for Japanese approval later this year, specifically to treat genotype 1b of the virus, the version most prevalent in Japan. - J.A.H.

Achaogen/BARDA: The private anti-infectives company Achaogen secured $60 million from the Biomedical Advanced Research and Development Authority, a division of the U.S. Department of Health and Human Services, to advance its lead program. Disclosed on April 24, the funding is an extension of a 2010 contract with BARDA that brings the total to $103 million. The latest funding will go to conduct a global Phase III superiority study of plazomicin (ACHN-490) to treat patients with serious gram-negative bacterial infections due to carbapenem-resistant Enterobacteriaceae (CRE) infections. The trial is slated to start in the fourth quarter. Plazomicin is a next-generation aminoglycoside antibiotic; it’s also being developed against biothreat agents such as Yersinia pestis, which causes plague, and Francisella tularensis, which causes tularemia. Plazomicin is engineered to overcome known aminoglycoside resistance mechanisms. - Stacy Lawrence

Deal Of The Week: Nyet!

The Russian government’s announcement on April 19 that its ministry of foreign investment has rejected Abbott Laboratories Inc.’s plans to buy a domestic vaccine manufacturer, NGO Petrovax Pharm, highlights the nuances and complexities of deal making in emerging markets.

As required by Russian law, Abbott filed for permission to buy Petrovax in the fall of 2012. Published reports put the reported bid at $280 million, plus a $25 million future payment. The government’s motives for the kibosh remain unclear as of this writing, but Russia, as is the case in many countries, considers vaccines to be a strategic priority and might not want any foreign company, let alone Abbott, to own the company.

Abbott’s motives are more transparent. Many pharma companies see Russia as an attractive growth opportunity, especially since the government has embarked on a major initiative to build its life sciences ecosystem. And while the country’s operating environment is complicated, so are those of other emerging markets. Abbott is no longer a pharmaceutical company, since it spun out that portion of its business on Jan. 1 to create AbbVie Inc. But it did hang on to the company’s established products business unit focused on mature and off-patent branded drugs, which includes a seasonal flu vaccine, Influvac, and which would have been responsible for Petrovax. 

Petrovax, founded in 1996 by a team of Russian flu-vaccine researchers, is one of a handful of domestic makers of innovative medicines and one of the few owners of GMP-approved production facilities in Russia. As such, it is an intriguing example of the kind of domestic company the Russian government hopes will flourish as the country modernizes its biopharmaceutical industry. A patented influenza vaccine Grippol, discovered by Petrovax, is a best seller in Russia, and the company also makes the immunomodulator polyoxidonium.

But Russia has woefully few companies focused on developing their own innovative drugs and relies heavily on imports from foreign drug manufacturers for the most modern medicines. In 2009, it implemented Pharma2020, a blueprint for reinvigorating the domestic biopharma industry and building a scientific ecosystem that will lead to discovery on its own soils of new drugs. The near-term goal of the program is to encourage tech-transfer among foreign and domestic companies, in order to strengthen the local industry.

While these, along with broader government initiatives to improve Russia’s healthcare system and standard of living, are spurring Western interest, they lead to questions about how Russia can best balance the goals of foreign biopharma companies with its desire to be self-sufficient and foster a thriving domestic industry. Now that Russia has entered the World Trade Organization, the questions gain in relevance.

All of this will be the topic of discussion at the “Spotlight On The BRICs: Russia Track,” one of several clusters of panels that open the biotech industry’s big annual convention on April 22 in Chicago.  The author of this week’s DOTW column is slated to moderate one of the panels associated with this track, specifically on Russia’s Pharma2020/ modernization program.

“The Pink Sheet”/ EBI’s Chris Morrison will be moderating two panels: Battle of Biotech Wits, which he describes as “BIO’s only game show, where the audience gets to vote in real time on which panelists are giving the best answers to today’s most difficult and pressing questions.” A second he’s spearheading on “Adventures in Academic Partnering,” explores “what pharma wants from its increasingly large suite of academic partners, and how are industry’s leading companies structuring deals that gain them access to academia’s top technologies.”  Other EBI correspondents will be in attendance, notably Start-Up biopharma editor Alex Lash and PharmAsia News India editor Vikas Dandekar.

PharmAsiaNews executive editor Josh Berlin’s panel “Finding Innovation In Emerging Markets” ties directly to a driver we’re seeing more of—tapping innovation in and bringing innovation specifically developed for emerging markets to those regions. It’s a phenomenon known as ‘reverse innovation,’ and you can expect to see more of it as big Western companies hungry for growth, and looking over their shoulders at rising savvy competitors in the East, are aware of, if not quite ready to adapt.

Specifically, reverse innovation is “the global uptake by a multinational company (MNC) of a novel technology or strategy originally designed to address a specific need in an emerging market. One of the deal-makers active this week, Ascletis Inc., as a hybrid U.S. –Chinese company, with aims to tap new drug discoveries in both the East and West to bring to China, epitomizes this trend. And although we can’t say that Abbott’s strategy for Petrovax amounted to reverse innovation – we have no way to know if it planned to export Grippol, for example—Russians themselves clearly want to build up their pharma exports.  However early they are in the evolution, it’s something the industry is watching,  even as it musters on through the daily grind of more traditional deals…Wendy Diller

Roche/Ascletis: Roche and Ascletis are collaborating to develop and commercialize Roche’s investigational hepatitis C drug danoprevir in China, under a deal announced on April 15. The deal calls for Ascletis to fund and oversee the regulatory process, development and manufacturing of the drug in greater China, including Taiwan, Hong Kong, and Macau and receive payments upon reaching certain development and commercial milestones. The partners will collaborate on clinical development and commercialization. No direct antiviral agents are available currently for HCV in China, where more than 10 million people are infected with the disease. The majority of these are genotype 1b, which is highly responsive to danoprevir. Roche has no plans to develop danoprevir, a protease inhibitor, which also is effective against genotype 4, for the West, where the drug would face intense competition.

Two-year-old Ascletis, with headquarters in Research Triangle Park, N.C., and Hangzhou, in the Zhejiang Province of China, in-licenses and develops clinical-stage assets developed elsewhere with a goal of commercializing them in China. It also works to discover new drugs in China and bring them through mid-stage trials before striking revenue-generating global partnerships. For now, the company is focused on oncology and infectious diseases. It has raised one of biotechnology’s largest Series A rounds, a two-tranche $100 million financing led by Chinese real estate billionaire Jinxing Qi, along with other unnamed private investors in China, the U.S. and elsewhere.--WD

GNS Healthcare/CMS: GNS Healthcare, a data analytics firm, is partnering with the Centers for Medicare & Medicaid Services to assess the Department of Health and Human Services’s quality measures. In an agreement announced April 18, GNS will apply its Reverse Engineering and Forward Simulation analytics and machine learning platform to determine the impact that CMS quality measures have on the quality of patient care.
Collected and reported in an effort to produce patient which is effective, safe, patient-centered, equitable and timely, the CMS quality measures now are being linked to valued-based incentive payments to health care providers. The GNS effort will help analyze causal relationships between measures and outcomes for a triennial report CMS produces on quality measures.-- Joseph Haas

Eli Lilly/Siemens: Eli Lilly & Co. continues to plunge ahead with its Alzheimer’s disease programs despite some high-profile setbacks. It announced on April 17 that it has bought two tau imaging tracers and related technologies from Siemens Medical Solutions U.S.. The tracers are used with positron emission tomography to create images of tau tangles in the brain, and could be useful in monitoring treatment response and progression of Alzheimer’s disease, said Daniel Skovronsky, who founded Avid Radiopharmaecuticals Inc., sold it to Lilly in 2011, and became the pharma’s vice president, Tailored Therapeutics. He also remains CEO of Avid, which operates as a stand-alone division.

The tracers’ precise utility is undetermined given that they have only undergone Phase I testing. Most likely, they will complement Lilly’s beta amyloid PET agent Amyvid (florbetapir), which FDA approved in April 2012. Avid developed that agent, a key driver of Lilly’s decision to buy the company for $300 million upfront and up to $500 million in earn outs. Terms of the Siemens deal were not disclosed, and regardless of the monetary value, it indicates that Alzheimer’s remains “a significant commitment” for the company, which now “leads” the industry with its “robust Alzheimer’s program targeting both beta amyloid and tau, through therapeutic and diagnostic programs,” Skovronsky said. Lilly has two Alzheimer’s drugs in development, one in Phase III and one in Phase II, and a third compound slated to enter the clinic by mid-year. Each represents a different approach to treatment, but all target amyloid-beta in some way. Lilly also has a tau program in preclinical trials, with the first compound expected to enter the clinic within the next two years.--WD

Pfenex/Agila Biotech: Strides Arcolab Ltd.'s U.S. unit, Agila Biotech, has agreed to a joint venture with U.S.-based Pfenex Inc. aimed at developing six biosimilar drugs to be marketed globally. Agila will be responsible for preclinical and Phase I testing as well manufacturing, while Pfenex will develop an optimized production strain, process and analytical package for each product. In the fourth quarter, the JV will start clinical testing of a biosimilar of Bayer's Betaseron (interferon beta-1B) to treat multiple sclerosis. Agila holds a 51% stake in the JV. The manufacturing of the biosimilars will be at a new Malaysian facility that Agila and Bio-XCell agreed last month to build. Pfenex is a 2009 spin-out from Dow Chemical Co.--Stacy Lawrence

Santaris/Bristol-Myers Squibb: In the third RNA partnership in the last month, Bristol-Myers Squibb Co. and Santaris Pharma AS have entered into a broad discovery and development deal. For the biotech, it brings a new partner into the string of deals that continue to be its main source of capital.

The deal disclosed on April 16 is to discover and develop candidates using the biotech’s Locked Nucleic Acid (LNA) platform. Santaris develops oligonucleotide therapeutics that target disease-related messenger RNAs (mRNAs) and microRNAs. Santaris will receive $10 million upfront and up to $90 million in potential milestones and research funding, in addition to undisclosed royalties on worldwide sales of any resulting products.
Santaris already has a partnership with Pfizer Inc., which expanded an existing deal in 2011. The original deal was made with Wyeth in 2009, prior to the latter’s acquisition by Pfizer. The biotech also secured deals with Shire PLC in 2009 and GlaxoSmithKline PLC in 2007. The biotech said last year it had raised more than $125 million in non-dilutive capital through its collaborations. Santaris isn’t planning any financing and that it expects to rely upon existing and new deals for cash. Isis Pharmaceuticals Inc. and Moderna Therapeutics Inc. each secured big pharma partnerships for RNA within the last month.--SL

Xencor/CSL: Australian drugmaker CSL Ltd. has licensed Xencor Inc.’s technology platform for use with its monoclonal antibodies. Financial details of the license were not disclosed, but the companies said that Xencor will receive an upfront payment plus preclinical, clinical, regulatory and sales milestone payments, as well as royalties on product sales. Xencor’s Xtend platform increases the half-life of proteins, allowing for a better pharmacokinetic drug profile by introducing subtle changes to the protein sequence.
CSL is best known for its work in blood plasma and vaccines. The company has products for hemophilia, immunodeficiency, and blood loss during surgery in their pipeline. The companies did not reveal what therapeutic areas would be pursued under the collaboration, but CSL will provide the targets.

CSL and Xencor first teamed up in 2009 when the Australian company paid an undisclosed upfront, development milestones and royalties for access to Xencor’s XmAb platform, a suite of engineered antibody Fc domains and tools that optimize antibody candidates. The first candidate from the collaboration was moved into clinical testing in early 2012.--Lisa Lamotta

Epizyme/Abbott: Epizyme, focused on personalized medicine approaches to cancer, announced a partnership with Abbott on April 18 to develop a molecular companion diagnostic test for one of its candidates. The test is to be paired with EPZ-5676, an inhibitor which targets the DOT1L histone methyltransferase for mixed-lineage (MLL-r) leukemia, an aggressive genetically defined subtype of acute myeloid and acute lymphoblastic leukemia. Deal terms were not disclosed.

Abbott will use its proprietary FISH (fluorescence in situ hybridization) technology to develop a test that can detect cancer-causing MLL genetic alterations that affect the function of DOT1L. Epizyme plans to use the test to find ideal leukemia patients for ‘5676, its most advanced clinical candidate. Currently in Phase I, the small-molecule compound is licensed ex-U.S. to Celgene.--JAH

Financings of the Fortnight Keeps Its Dauber Up

Baseball fanatics out there might remember Roger Craig, a pitcher for the hapless expansion 1962 New York Metropolitans, then much later the manager of several memorable San Francisco Giants teams in the 1980s. As the San Fran skipper, Craig was a spinner of many homespun threads. The one that sticks with most Giants fans of a certain age was Craig’s catch-all pick-me-up: Don’t get your dauber down.

No one has yet to spot a dauber, much less one that’s down, but we all got the message. Baseball’s a long play, as you financial types might say. Don’t let the small sample sizes harsh your mellow. Case in point: DowJones VentureSource just released its first-quarter venture data, and everything, at first glance, is down: Money in (fundraising), money out (investment), and money recouped (IPOs and M&A activity). It was the lowest amount of venture investment in three years, and the fewest acquisitions since 2009.

That’s for all venture sectors; but there were bright spots in our little corner of the world. For example, a life-science specific VC survey from law firm Fenwick & West says in 2012 up rounds outnumbered down rounds 52% to 17%, an uptick from a 47%-25% ratio in 2011.

And despite increasing reluctance of life-science VCs to invest in new companies, the quarter’s second-largest fund raised was Third Rock Ventures’ new $516 million vehicle, its third (might we suggest T-shirts that say “III ROCK III”?). The folks at Fenwick have crunched fundraising data from DowJones and other sources and estimate that those earmarked for life-science investment are in decline, from $3 billion in 2011 to $2.5 billion in 2012. With Third Rock III – a pure life sciences play -- by Fenwick’s measure we’re already 20% of the way to last year’s total.

According to DowJones, biopharmaceuticals accounted for $938 million, about half the health care total, and right in the middle of the 13 quarterly totals rung up since the start of 2010. So take the overall venture drop with a spoonful of sugar: there have been far worse quarters in the past few years, such as the $583 million invested in Q1 2012. In fact, have a little more sugar: Broken down by industry subsector, “biotechnology therapeutics” beat out “online communities” as the biggest breadwinner with $476 million invested. (The gap between that and the $938 million attributed to “biopharmaceuticals” goes to show how much extra stuff, like diagnostics and specialty pharma, VentureSource lumps into the biopharmaceuticals category.)

With all the bustle in the IPO hedgerow the past two weeks, we think the VentureSource first-quarter overview seems prematurely grim. VentureSource tallied nine IPOs total, but that seems low. By our own count, there were seven through March 31 in health care alone, four of which were biopharmaceuticals. (Enanta, TetraPhase, KaloBios, and Stemline Therapeutics). Add to that this fortnight’s issues, Omthera Pharmaceuticals and Chimerix (see below), plus a burgeoning backlog of companies (Portola Pharmaceuticals, Epizyme, Receptos, and more) looking to break through to the public markets, and the outlook has begun to brighten. It’s not just the queue; it’s the fact that Chimerix broke the $100 million mark, a rare feat for a biotech IPO. Granted, it had help from existing investors, as did Omthera, but that’s been par for the course since the Great Recession receded. Nine digits is nine digits.

For all the venture capital that flowed into biotech this quarter, perhaps our favorite slice was the mere $15,000 that helped launch Cortera, the brain-child of students at the University of California, San Francisco. (Team leader Connie Cheung, whose winning presentation can be seen here, tells the IN VIVO Blog the name will soon change to Spiria.) They won a competition tied to the school’s entrepreneurship course, and the seed funding was provided by Burrill & Co., whose chief Steve Burrill is one of the course’s directors. The Spiria team says it has a brain-mapping system for neurosurgeons that’s faster and safer than established methods. If that holds true, they’ve got excellent timing; the National Institutes of Health is coordinating a brain-mapping effort, and GlaxoSmithKline has pledged to seed up to 20 academic labs doing early work that could lead to ‘electroceutical’ therapies, or the alteration of biological function through electrical pulses instead of chemicals or biologics. The latest edition of Start-Up will have a fuller explanation.

While you’re in a Start-Up mood, check out our colleague Stacy Lawrence's coverage of VCs doing rather un-venture-like things: funding late-stage drug trials on behalf of Big Pharma. The drug stays with the Pharma owner while the fees, milestone payments and (if all goes well) sales royalties flow to the VCs and their LPs. If the model grows beyond the handful of venture firms giving it a go, the metrics of venture exits might need re-thinking, because the entities the VCs set up to run the trial aren’t necessarily meant to go public or be acquired.

Finally, we send our thoughts and respect to the folks in Boston and West, Texas, each dealing with tragedy this week. Boston is home to much of our readership, and one effort to fundraise on behalf of the bombing’s victims and their families is getting a big push from the local tech and venture crowd, with an assist from the writers of Fortune’s Term Sheet. Thanks to all who refuse to get their daubers down.

And who knows, perhaps we’ll figure out what a dauber is by the time we get to the end of the latest installment of…

Cleave Biosciences: The early-stage oncology company has reeled in New Enterprise Associates to join its Series A syndicate, bumping the round that started in 2011 to $54 million without a clinical candidate in sight. NEA joins US Venture Partners, 5AM Ventures, Clarus Ventures, OrbiMed and Astellas Venture Management, as well as Osage University Partners, which joined later with a $2 million investment tied to its relationship with UNIV TK. (For more on the unique Osage strategy, click here.) Cleave was formed around three novel targets discovered in the Cal Tech lab of Raymond Deshaies, who co-founded Proteolix with USVP partner and Cleave board member Larry Lasky. Cleave’s initial Series A draw of $44 million and its exploration of protein homeostasis landed it a spot on START-UP’s 2011 A-List. It expects the Series A cash to last two or three more years and push a first drug candidate – not yet identified -- into the clinic. Other compounds addressing protein homeostasis have gained commercial approval for multiple myeloma, Millennium Pharmaceuticals’ Velcade (bortezomib) and Onyx Pharmaceuticals’ Kyprolis (carfilzomib), which came to Onyx when it bought Proteolix in 2009. Cleave will first pursue a proof-of-concept trial in multiple myeloma. Armed with its novel targets, however, the firm believes it can apply its compounds to solid tumors. NEA’s Robert Garland will take a seat on the board.– Lisa LaMotta

Anacor Pharmaceuticals: The Palo Alto, Calif. firm has had enough success discovering drugs with its boron chemistry platform that the Bill & Melinda Gates Foundation will fund new programs to discover treatments for two worm diseases and tuberculosis. The foundation will pay Anacor $17.7 million and take a $5 million equity stake, the latest biotech investment the world’s largest charitable group has made as part of a recent initiative. (Our Start-Up colleagues wrote about it here.) Beyond the programs for river blindness and elephantiasis, both caused by parasitic worms, and tuberculosis, Anacor will also use the Gates money to expand its library of boron compounds to screen for more neglected-disease treatments and open the library to the Gates Foundation and other nonprofit, governmental and academic researchers. Anacor’s lead compound is tavaborole to treat onychomychosis, a type of toenail fungus, and preliminary Phase III data were released earlier this year. The firm plans to file an NDA for tavaborole in mid-2013. The $22.7 million infusion from Gates nearly matches the largest fundraisings Anacor has managed since its 2010 IPO. In 2012 it raised secondary financings of $20 million and $23 million, and it has also brought in smaller amounts via private placement and alliance. – Alex Lash

Chimerix: No wonder the IPO pipeline keeps filling up. Conditions for new issues are improving, which allowed antiviral drug developer Chimerix to boost the number of shares in its offering while maintaining a strong price. Chimerix raised $107.4 million in its April 11 offering, selling 8.4 million shares at $14 apiece. The company had previously said it would aim to sell 6.1 million shares between $13 and $15 each, but it responded to high demand and fulfilled its underwriters’ greenshoe option by selling more shares within the same price range. The company will conduct Phase III trials on lead candidate CMX001, a broad-spectrum oral lipid conjugate of antiviral drug cidofovir (sold by Gilead as Vistide) to treat cytomegalovirus in patients who have undergone hematopoietic stem cell transplants. Chimerix is also investigating the drug to combat other double-stranded DNA viruses such as adenovirus, herpes simplex virus and BK virus, as well as smallpox. The company has a partnership with Merck around CMX157, another lipid conjugate targeting HIV. Chimerix shares rose 34% in their first day of trading to close at $18.79, and spent most of the week between $18 and $19.50. – Paul Bonanos

Auris Medical: The Swiss firm said April 16 it has attracted a chunky $50.4 million in a Series C financing, the most raised by a private biotech in Europe so far this year. With two Phase III-ready candidates for tinnitus and acute hearing loss, Auris has a pioneering position in new drugs for hearing disorders. The cash will be used to move them through to registration, the firm said. AM-101 is being developed for the treatment of acute tinnitus, and AM-111 for the treatment of inner ear hearing loss, and both have completed Phase IIb proof-of-concept studies. The compounds are formulated in a biocompatible gel and given by intratympanic injection, through the eardrum, and they then rely on passive diffusion to reach their site of action in the cochlea. Developing new otologic drugs hasn't attracted the same amount of attention as new ophthalmic drugs, even though hearing loss is more common than declining sight. The cochlea, or inner ear, is tiny and difficult to get at, and there are a plethora of hearing aids and implants already available to address the commonest hearing disorder, the age-related loss of hearing associated with a lifetime of loud noises and other adverse events. When Auris CEO and founder Thomas Meyer started out in 2003, he funded the company himself, and found it difficult to convince others of his seriousness. The new round shows his persistence has paid off, and other efforts have also recently emerged. The funds come from Paris-based Sofinnova Partners and US-based Sofinnova Ventures, two firms with common ancestry but which are otherwise independent of each other. – John Davis

All The Rest: GenSight Biologics closed a $40M Series A to support ophthalmic gene therapies… Syros Pharma raised $30M in a Series A for its work on novel gene control medicines… Allecra Therapeutics, a 2013 start-up collaborating with Orchid on overcoming bacterial resistance to antibiotics, completed a €15M Series A co-led by Edmond de Rothschild and Forbion... Dievini Hopp Bio Tech Holding provided a €13.9M Series E for topical drug delivery company Novaliq… Orphan drug accelerator Cydan raised $16M… InnoBio and Sofinnova Partners were the investors on neuro-metabolic-focused MedDay’s €8M Series A… Merck Serono Ventures led a £2.1M round for Canbex Therapeutics… Beat BioTherapeutics was seeded with $2.5M to fund a gene therapeutic for heart failure…Seraxis, working on cell therapies for Type I diabetes, raised an undisclosed amount in Series A financing… Boehringer Ingelheim Venture Fund reportedly provided Series B financing for Eyevensys… University of Copenhagen spin-off Avilex received seed funding from Novo Seeds… GI therapeutics company Synergy publicly sold $90M worth of common stock… Omthera grossed $64M in its IPO... Chemokine-targeting ChemoCentryx closed a $60M FOPO… Less than a year after completing an IPO, Durata Therapeutics raised $50M in a secondary offering… Oncology tests and services firm Cancer Genetics raised $6.9M in its IPO after postponing and refilling multiple times… ADMA Biologics, which reverse merged and became a public reporting entity via the Form 10 process, amended its IPO terms… Harvard Apparatus Regenerative Technology postponed its IPO… VistaGen raised $36M from a subsidiary of Bergamo Acquisition Corp. … RNAi platform company Silence Therapeutics completed a £19M PIPE… To support Phase IIb trials of diabetes candidate GFT505, Genfit raised €14.3M… Lincoln Park Capital Fund might invest up to $18.5M in Anthera, which also signed a $20M debt financing with MidCap Financial… MEI Pharma will use $15.2M in PIPE proceeds for lead candidate pracinostat for advanced hematologic malignancies… Jennison Associates invested $10.1M in Coronado Biosciences… OxiGene sold $5M in zero coupon convertible preferred stock… Resverlogix is spinning off RVX Therapeutics to focus on an epigenetics platform in autoimmune disease and cancer… StemCells got a $10M loan from Silicon Valley Bank. -- Amanda Micklus