Health Care IPOs: Is that A Breeze?

Just one day after Cumberland Pharmaceuticals priced its shares, Emdeon followed suit, setting industry watchers abuzz. Could it be it's time to resurrect the acronym IPO? (Just in case you need a reminder, it's pronounced 'eye-pee-oh' and stands for initial public offering and yes, we'll use it in a sentence.)

There was clearly more investor enthusiasm for Emdeon's New York Stock exchange offering than Cumberland's NASDAQ listing. Cumberland priced it's shares $2 below the estimated range, and opened flat in its first day of trading, resulting in an $85 million raise. In contrast, the health care IT company, which processes half of all electronic medical bills in the U.S., debuted at the top of the estimated $13.50 -$15.50 range, and increased by 10% the number of shares sold to meet investor demand. The upshot? The company (founded only in 2006) and its PE backers sold 23.7 million shares--just under 11 million and 13 million respectively--and raised a total of nearly $370 million in the process.

Did someone just open a window? Was that an IPO breeze we felt?

Michael Brinkman, managing director of healthcare investing at Piper Jaffray & Co. thinks so. In an article in BioWorld Today, he proclaimed "the market is open." Based on interviews with roughtly a dozen buy-side investors, Brinkman thinks there are buyers for good biotech IPOs right now, but cautioned said financiers might not say the same thing 90 days from now given the fragility of the market.

How 'bout that for confidence? As we said in this post we're hard-pressed to proclaim a renaissance of biotech IPOs based on Cumberland offering. And Emdeon's IPO doesn't change our opinion one bit. Neither company, after all, shares many traits with the majority of cash-hungry discovery and development firms in venture capitalists' stables.

Take Cumberland, not so much a biotech as a specialty pharmaceutical play, founded back in 1999 with little internal research capability. The outfit currently markets three approved but largely undifferentiated products, including an antidote to acetaminophen poisoning. Acetadote, and an intravenous version of ibuprofen called Caldolor. Sound like a biotech to you? (If you said yes, we have another factoid worth consideration: Cumberland is profitable.)

Then there is Emdeon, another company with products and revenues--$444.4 million in the six months ending June 30, up 5% from the same period one year earlier. With its focus on linking health care providers like hospitals, pharmacies, and docs to private and public insurers, the start-up appears to provide a much needed solution to the overabundance of paperwork contributing to skyrocketing healthcare costs. And whatever health care plan is ultimately adopted by Congress, technical solutions like Emdeon's are a no-brainer and can count on bipartisan support from legislators. But Emdeon ain't biotech; it's information technology applied to health care.

It's not too surprising that the first US IPOs we've seen since ARYx raised money in 2007 are fully baked companies with products and revenues. Their less risky business plans fit the appetite of investors who are keen to avoid the gambles associated with drug discovery, especially after the financial jitters of the past year. Moreover, the offerings continue a trend started in February, when Bristol-Myers Squibb spun off its nutritional and infant formula maker, Mead Johnson, in an oversubscribed IPO worth $720 million.

For VCs, who've been saying for the past year (at least!) that they are building companies for acquisition not IPO, neither the Cumberland or Emdeon IPO is likely to spark a wholesale change in strategy. Let's be honest: neither company fits the profile. It took ten years to bake Cumberland, hardly a time frame that would capture VC interest. Emdeon may have only incorporated three years ago, but the technology has been around for far longer since it was cooked up by Healtheon, one of the grand-daddies of e-medicine.

And neither outfit listed venture backers as principal shareholders in their SEC filings (yes, we do read them). Aside from individuals, Cumberland's largest shareholder was S.C.O.U.T. Healthcare Fund, which is managed by Lawrence Greer, a Cumberland executive director. Emdeon's principal shareholders include private equity plays General Atlantic Partners and Hellman & Friedman.

Still, VCs are likely to welcome the news as a sign that the public markets, which have been frozen since well before the financial collapse of 2008, are finally thawing. Both offerings are a necessary first step if investors are ever going to return to funding more traditional biotech start-ups and are in-line with the increase in secondary offerings and traditional venture commitments we've been seeing recently (see our regularly Financings of the Fortnight edition for more on those deals).

Indeed, that's the reaction of many VCs we canvassed in a highly informal email blast after Cumberland announced its offering Monday night. One source replied:

"The venture industry is back to producing some high quality companies and public investors will realize they can buy these at relatively low prices, hold, and sell later at a higher price. The market is moving that direction again. IPOs will return, starting with the later-stage, lower-risk, lower-return companies, and moving towards earlier-stage, higher-risk, higher-return companies."

Who else is likely to test the IPO waters near-term? NycoMed, which earlier this week inked a deal with Forest Labs for its Phase III COPD drug Daxas, and also counts private-equity among its backers, is one possibility. Talecris, the blood plasma products developer that filed to go public last year and then shelved its offering because of a proposed merger with the Australian hemostasis player CSL, is another obvious candidate. Recall that planned tie-up fell through earlier this summer after the Federal Trade Commission opposed the deal. It's no secret the company's backers, Cerberus Capital Management and Ampersand Ventures, are eager for an exit. Need more prooof? In late July, Talecris filed updated registration statements with the SEC.

Notice some themes here? PE is looking for exits. Neither company is exactly a start-up biotech.

We'll likely know in a few months if the gentle breeze strengthens to a mighty IPO wind. Here's hoping.

(Image by flickrer rachelcreative used with permission via a creative commons license.)

Gray Sheet: CDRH Director Resigning Amidst Controversy

Courtesy of our friends at 'The Gray Sheet' we've heard that CDRH Director Daniel Schultz is leaving FDA.

Gray says that Schultz is "resigning from the agency after discussions with new FDA Commissioner Margaret Hamburg, the longtime FDA employee told staff in an Aug. 11 memo."

Schultz and the new FDA chief came to a "mutual agreement" that his resignation "would be in the best interest of the center and the agency." The decision isn't a shocker: the center--formally FDA's Center for Devices and Radiological Health--has been at the center of corruption allegations. Schultz and other FDAers have been accused of "coercing and intimidating staff into modifying device evaluations," Jessica Bylander writes for Gray. Schulz has been with FDA since 1994 and has been director at CDRH since 2004.

Read more at Gray Sheet's blog Medical Devices Today.

image from flickr user splorp used under a creative commons license.

Genzyme: Time to Sell?

"We have to earn our independence, every day, by doing good things for all our constituents." The words of Genzyme's CEO Henri Termeer, from late 2007, speaking to IN VIVO.

The constituents include shareholders, of course. But the good things certainly don't include major manufacturing snafus, the latest of which those constituents were first made aware of in mid-June when Genzyme declared it was voluntarily closing down its Allston Landing, Mass., production facility, if temporarily, for sanitization following viral contamination.

So does Genzyme no longer deserve its independence? Is it time to sell up? Certainly one or two observers think so. Especially since there's suspicion that the current problems are a lot more severe than Genzyme is letting on.

Genzyme's track record meeting FDA plant inspection requirements hasn't exactly helped preserve shareholders' trust in management. Genzyme apparently received a warning letter in February 2009 as to its plant standards, and a further inspection in May revealed that the company had failed to carry out all of the necessary corrective actions. FDA then informed Genzyme on July 31 that it will re-inspect the Allston plant yet again.

As far as drug supply is concerned, back in June the company said that production of the key rare disease drugs Cerezyme (the only treatment for Gaucher's disease) and Fabrazyme (for Fabry's disease) was scheduled to re-start in late-July. Half the bioreactors at the Allston plant are indeed up and running again, but the company yesterday announced it would have to discard far more--80%--of in-process Cerezyme drug material than initially expected, pushing annual sales estimates down to the lower end of already low guidance--about $750 million. (That may slip even further if the regulators fail to allow two lots of finished drugs, made before the plant was shut down, to be released. Given the company's track record, it's a real possibility.)

As we report in this Pink Sheet DAILY piece, analysts are split on how damaging this whole process has been to Genzyme. Goldman Sachs have the group on their conviction sell list, whereas Leerink Swann reckons concerns are overblown.

No one can argue that Shire is grinning broadly, however, at the golden opportunity it has had to get its own Gaucher's treatment, velaglucerase (Vela), in via the back door. Even though the drug's NDA isn't quite ready yet, FDA has approved a treatment protocol for patients with type 1 of the disease. That means doctors can prescribe the drug, which Shire has agreed to provide free of charge so long as there's no Cerezyme available. Meanwhile the drug has passed its first Phase III trial, the company reports, and is on a fast-tracked NDA submission process.

But let's get back to independence and whether this is the end of Genzyme's. It's hard not to draw a bit of pattern from the fate of a handful of other major biotechs that suffered similarly serious manufacturing problems--think MedImmune, Immunex and Chiron. All of them ended up being sold.

MedImmune went to AstraZeneca in 2007, following FDA warnings that it had failed to address multiple manufacturing problems at a European plant of its nasal influenza vaccine FluMist. Chiron was dogged with similar issues before it eventually became part of Novartis in 2005; its UK production facility for 'flu vaccine Fluvirin was contaminated. For Immunex, which Amgen bought in 2001, the problem was a lack of manufacturing capacity--it couldn't produce enough of RA treatment Enbrel.

If Genzyme is due the same treatment, who will do the honors? Plenty of Big Pharma are now totally converted to the idea of specialist drugs--even the very specialist drugs that Genzyme's into, so there's no philosophical block there. Financially, Novartis might have a problem given its commitment to buy the remainder of Nestle's stake in eye-care firm Alcon (an IN VIVO Blog deal-of-the-year nominee that now looks somewhat less worthy). But what about GlaxoSmithKline or Sanofi Aventis? Both those have admitted that the future isn't about blockbuster oral drugs ; Sanofi knows that growth for the next few years can come only from bolt-on acquisitions and partnerships.

Termeer in his 2007 interview also gave his view of activist shareholders (this was shortly before news emerged of Carl Icahn's stake in Genzyme). "They're a good thing in one sense," he says, "since they force management to understand where their vulnerabilities are, and to unlock maximum value from the business."

Termeer undoubtedly knows where the company's vulnerabilities are right now. (If it's not manufacturing, then he could take a look at how the firm adjusts its earnings, oftentimes rather too heavily in its favor; the sort of tweaking that doesn't do much for confidence at times like this.)

The question is whether or not he can continue to prove that current management is best-placed to unlock maximum value from the business. It was all looking pretty good up until this latest snafu. Genzyme was, after all, diversified and specialist before it was fashionable to be so. But now that it is, and that Genzyme has very definitely tripped up (and seen its share price do the same; it's at a 12-month low), the time for a change may have come.

image by flikrer burienundressedblog used under a creative commons license

Cumberland's IPO: Is It the Day After the Day After Tomorrow?

Well, well, Mr. IPO. It has certainly been a while. You don't call, you don't write ...

Cumberland Pharmaceuticals said late last night that it priced 5 million shares at $17 apiece for a gross haul of $85 million (the company will net closer to $75 million after expenses and "discounts" and could bring in more money with a 750,000 share greenshoe--ah, the IPO lingo returneth too). The IPO is the first "biotech" new issue in a couple years.

Cumberland isn't exactly a biotech, of course, it's a specialty pharma. It markets a laxative and an antidote to acetaminophen overdose, and recently gained approval for an IV formulation of ibuprofen. It licenses in drugs that are either already marketed or near-market, and isn't burning through wads of cash on drug discovery. In short, Cumberland is exactly the kind of small pharma that you'd think would be able to IPO after such a long break in the action.

We have been noticing the uptick in follow-on offerings (something we'll talk more about in our financings of the fortnight column later this week) and had wondered whether we'd see an uptick in IPO filings. Cumberland's success has been a long time coming--more than two years ago it estimated it would price the offering at $14-16/share, and a lot has happened since then, not least the approval of Caldolor (that's the injectable ibuprofen) in June 2009. Still, today's price is $2 less than the low end of the range the company was hoping for. But just maybe it will also contribute to this emerging thaw. (Emdeon, an IT services play--they do roughly half the electronic medical billing in the U.S.---which also plans to price it IPO this week, can only hope.)

Just don't expect a Spring flood.

image by flickr user slack12 used under a creative commons license.

While You Were Going Hollywood

Have you seen 'Duplicity', the Clive Owen/Julia Roberts vehicle about rival pharmaceutical companies and the ex-CIA, ex-MI6 spies who work for them in counterintelligence? We saw it this weekend at the only cinema we seem to frequent: on a plane. Let's just say it has an interesting view of the drug discovery process (a view that has none of the verisimilitude of this). We could probably excuse that if the rest of the movie were more watchable. But at 40,000 feet above the Atlantic (admittedly with several interruptions from our three-year old and one-year old traveling companions) we could only come up with one solid takeaway: Paul Giamatti and Tom Wilkinson would make spectacularly fun Big Pharma CEOs.

While you were sadly getting swept by the Marlins ...

• We know you're all up to speed from reading 'The Pink Sheet' and The RPM Report, but have a look at the New York Times primer on the issues in the health (care/insurance) reform debate.


• Reuters previews the FDA ad-com for Amgen's denosumab, surely one of the big events of the coming week.


• Alkermes reported only $4.2 million in Vivitrol sales for the second quarter of this year. 'The Pink Sheet' DAILY takes a look at what Alkermes has to do to get the alcoholism drug on track.


• A UK study on swine flu suggests changing the country's vaccination strategy, reports Bloomberg.


• Last night we caught this pretty incredible segment on 60 minutes about using brainpower--and only brainpower--to communicate, move robotic arms, and in the future, to do much more.

DotW: Cash for Clunkers

We're baaack. Did you miss us--or was the respite from DOTW welcome? (On second thought, don't answer that.)

Things in D.C. are beginning to quiet down, as members of Congress head for their home districts and vacations. With healthcare reform stalled, the Obama administration's one piece of good news: cash for clunkers has been an undeniable success--at least for certain auto makers--especially now that the popular programs has been recapitalized.

In our own industry, the deal-making was of a small scale--and certainly involved a few clunkers. But this week the small players have nothing on big biotechs Biogen and Genzyme, which increasingly look like they could join the ranks of industry wrecks.

As part of J&J's recent deal with Elan, the big drug maker received an option to help Elan finance the purchase of Biogen's stake in Tysabri in the event Biogen is bought out and Elan decides it wants full control of the medicine. Biogen cried foul after learning of the arrangement via media reports and an Elan earnings call, saying the arrangement with J&J violates the two biotech's existing Tysabri contract. (Certainly, Biogen has a right to be worried. If the maker of Avonex and Rituxan goes on the block, the financing option on Tysabri could give J&J an advantage over competing bidders and enable the pharma--if it wants--to get the Cambridge-based biotech for a lower price.)

So on July 28 Biogen sent Elan a letter calling for an end to the relationship, triggering a 60-day window in which to effect a break-up. It didn't take long for Elan to respond with a lawsuit, filed in U.S. Federal District Court in New York. Elan is asking the court to stop the 60-day clock that is triggered by Biogen's letter and to expedite a review of the matter. (Read our discussion in "The Pink Sheet" DAILY for more.)

If the Biogen/Elan catfight isn't dramatic enough for you, there's additional entertainment provided by Genzyme, which continues to struggle because of manufacturing problems associated with its Allston plant. As competitors like Shire encroach on Genyzme's money-maker Cerezyme, analysts are beginning to doubt Genzyme's ability to survive the fall-out caused by the manufacturing snafu. On Friday, Aug. 7, Goldman Sachs added the biotech to its Americas conviction sell list. Off-the-record discussions with other industry experts suggest other analysts may follow suit in short order.

Could the events at Genzyme result in the company's sale? It's a good question and one we're pondering. Until such an event transpires, take a look at this week's edition of...


Anesiva/Arcion Therapeutics: Clunker Anesiva got a new engine thanks to this week’s reverse merger with privately–held Arcion Therapeutics. The deal calls for each company to contribute one clinical program to the surviving entity, which will be named Arcion. Anesiva’s existing CEO, Michael Kranda, gets to keep the top spot, and Arcion CEO James Campbell (who is also an Anesiva board member), will become CMO, with Arcion shareholders owning 64% of the newco. Industry watchers have been long predicted consolidation as troubled companies team up with up-and-comers in opportunistic deals; the Anesiva/Arcion tie-up certainly holds a certain logic given Campbell’s dual role at both companies, shared investors (CMEA Ventures and Interwest Partners have staked both players) and the firms' similar focus on novel treatments for pain. Anesiva’s primary contribution to the newco is Adlea, an intravenous formulation of capsaicin that has succeeded in two Phase III trials for post-operative pain in total knee replacement patients; Arcion, which was profiled in Start-Up in January, is developing a topical clonidine gel for diabetic neuropathic pain. For Anesiva, the news means at least a vestige of the company will continue to live on. Once a growing biotech with a marketed product and a stock price nearing $7, Anesiva was down to $315,000 in cash and equivalents at the end of the first quarter as manufacturing challenges forced the biotech to recall its transdermal pain patch Zingo. Baltimore-based Arcion, meanwhile, hasn’t been around long enough to raise a ton of money: InterWest Partners and CMEA staked the company with $8.8 million in a Series A raised in December 2007. The two VCs certainly didn't get an exit out of the deal, but since they already own a chunk of Anesiva, the merger allows them to consolidate their outlays into one, stronger company. We also assume the merger’s allure stems from the promise of Adlea and the management expertise of Kranda (okay, maybe a Nasdaq listing is also a plus). How the new company will be capitalized is still an open question. According to “The Pink Sheet” DAILY, the newco plans to pursue a $20 million private investment in public equity (PIPE) financing in conjunction with the merger--Joseph Haas and Ellen Foster Licking.

GlaxoSmithKline/Vernalis: Vernalis wins DOTW's Monty Python award for "not dead yet" biotech. News Thursday Aug. 6 that the firm was teaming up with GlaxoSmithKline in an option-based oncology research agreement will keep the company alive that much longer. The deal provides Vernalis with $3 million up front cash, and the same amount again as an equity purchase. Vernalis also stands to realize potential payments "in excess of $200 million" (yeah, you know they get carried away with the 'if-all-goes-according-to-plan scenarios') and, maybe, double-digit royalties. For this, Vernalis will do drug discovery against an undisclosed target using its structure-based-drug design technologies. (The target is one that both Vernalis and GSK had been working on previously, according to CEO Ian Garland.) If and when an IND emerges, GSK will have 90 days to decide whether or not to exercise its option to license the compound (s) and take on development and commercialization. Amid today's flurry of option-based deals, where risk is often heavily skewed toward the biotech partner, our first reaction to the press release's "risk sharing" language was "you bet": Vernalis takes all the early risk, with some pocket money, and GSK may--or may not--choose to take on later risk. But this deal is in fact a little more biotech-friendly than that. According to Garland, GSK will pay further pre-IND milestones of "more than $6 million", and the Big Pharma is also committed to doing the IND-enabling studies too (whatever they think of it at that point).--Melanie Senior

Transcept/Purdue Pharma: If Purdue execs were waking up in the middle of the night wondering if their deal with Infinity was going to pay off, then they’ve now got just the thing for a good night’s sleep. Early this week the private pain-focused Pharma licensed US rights (and an option to the rest of North America) to Transcept Pharmaceuticals’ sublingual zolpidem tablet (Intermezzo) back-to-sleep treatment. Transcept gets $25 million up-front and a $30 million milestone at approval (based on that approval’s timing vis à vis its October 30 PDUFA date, i.e. probably adjustable downward if the drug isn’t approved the first time around) plus potential sales milestones. The biotech also gets double-digit royalties on US sales, ranging up to the mid-20-percent range. A year post-launch Transcept can opt to co-promote Intermezzo to psychiatrists. With Intermezzo Purdue continues its expansion into non-pain marketing, a transformation begun with the Infinity alliance. Tiny Transcept—which recently went public via reverse merger with Novacea--gets a partner that it hopes can creatively compete against generic zolpidem (the once-mighty Ambien’s active ingredient) and other marketed and near-market compounds in a crowded sleep market that has seemingly peaked: the market for insomnia meds was just over $2 billion in 2008, down from nearly $2.9 billion in 2007. If approved, Intermezzo’s status as the first drug designed for those middle-of-the-night episodes—essentially sleep-on-demand instead of put-you-to-sleep-every-night—will be an advantage. Whether it’s enough of an advantage to compete in the rough-and-tumble insomnia market remains to be seen--Chris Morrison.

Pfizer/NicOx: Is it fair to call NicOx's glaucoma drug a clunker? We've known for a year that Phase II data associated with the molecule--the awkwardly named PF-03187207--is, at best, a marginal improvement when it comes to lowering diurnal interocular pressure compared to Pfizer's Xalatan. In May, Pfizer indicated the data did not warrant advancing the compound into Phase III trials but remained "committed" to a joint program with NicOx "where the follow-up compounds ...have produced encouraging results." Looks like Pfizer had a change of heart (or maybe an eye-opener?). On August 6, NicOx took back '207 and the preclinical molecules, agreeing to pay the Big Pharma undisclosed milestone payments plus royalties tied to '207's approval and ability to meet predefined sales figures. We give NicOx credit for its masterful spin of the news: the press release focused on the big drugmaker’s decision to outlicense a non-core product rather than the marginal data associated with '207. (Really, what else was the company going to do?) Investors seemed to buy the idea that this was the best possible outcome for a product that has been mired in uncertainty, sending the company's share price up approximately 3% on the news. Certainly, the milestones NicOx has to pay out for the eye programs are likely small change compared to what the biotech might gain if it can partner the programs to another player. But partnering for a reasonable amount is a big if. Pfizer's Xalatan, which racked up $1.7 billion in worldwide sales in 2008, goes generic in 2011, so future glaucoma products like '207 will have to do significantly better clinically to justify reimbursement. Meantime, it's not as if NicOx is radically changing its focus. It's still naproxcinod all the time over at the French biotech. Just to refresh your memory, NicOx plans to submit that molecule, which is a nitric oxide donating version of Naproxen, for approval to European and U.S. regulatory agencies later this year.--EFL

(Image by flickr user dno1967 used with permission courtesy of a creative commons license.)

Vernalis: Rising From the Dead?

Maybe that's over-egging things a bit. But shares in the down-trodden UK biotech, which hit the rocks when marketed frovatriptan (Frova) failed to get a specific US approval for menstrual-related migraine, are creeping back up. And today's oncology research agreement with GlaxoSmithKline will probably help.

The deal provides Vernalis with $3 million up front cash, the same again as an equity purchase, and further potential payments of "in excess of $200 million" (yeah, you know they get carried away with the 'if-all-goes-according-to-plan scenarios') and, maybe, double-digit royalties one day. For this, Vernalis will do drug discovery against an undisclosed target using its structure-based-drug design technologies. (The target is one that both Vernalis and GSK had been working on previously, according to CEO Ian Garland.) If and when an IND emerges, GSK will have 90 days to decide whether or not to exercise its option to license the compound (s) and take on development and commercialization.

Yes, you spotted it--another option-based deal from GSK, option-dealmakers extraordinaire.

"The deal is structured as a risk-sharing agreement," says the release. Amid today's flurry of option-based deals, where risk is often heavily skewed toward the biotech partner, our first reaction was "you bet": Vernalis takes all the early risk, with some pocket money, and GSK may--or may not--choose to take on later risk.

But this deal is in fact a little more biotech-friendly than that. According to Garland, GSK will pay further pre-IND milestones of "more than $6 million", and the Big Pharma is also committed to doing the IND-enabling studies too (whatever they think of it at that point).

All of which helps Vernalis in its aim to fund most, if not all of its research activities. "Research either gets cut, or it pays for itself," Garland summed up to the IN VIVO Blog earlier this year. He says that this deal, plus two earlier alliances with Servier (the latest from May 2009), provide Vernalis with a two-year runway, to about mid-2011. That's assuming, rather conservatively perhaps, that the biotech receives no further GSK milestones.

Garland's hardly going to take undue risks with shareholders money, though--not after what many of them have been through already. Vernalis had become one of the UK's flagships, having acquired (among several) that other fallen hero of the sector, British Biotech, back in 2003. Our back-of-the-envelope calculation suggests and Vernalis and its predecessors had raised at least half a billion dollars prior to the Frova-related crash.

"It's unfortunate that shareholders lost a lot of money," Garland said in an interview in the Spring. "But this isn't British Biotech anymore; I'm not trying to make marimastat work." (Marimastat was the over-hyped BB cancer drug that ultimately failed, bringing the company down with it.)

What Garland is trying to do is as much as possible with Vernalis' residual assets (US commercial operations and marketed drug Apokyn were sold to Ipsen in a 2008 fire-sale; US Frova sales were also given away as part of a restructuring to settle debts and dues), taking advantage of the fact that basically, the only way is up.

When Garland took over as CEO of the downtrodden group back in December 2008 (having previously run vaccines group Acambis, sold in 2008 to Sanofi Aventis for £276 million) "we had a zero value starting point," he said. But he also believed "the negative has been overdone," and that starting again from scratch, with a very low valuation (Vernalis' market cap fell to £10m at one point; it's now just below £48m), provided "an entry point for [investors] to get on the elevator on the ground floor," he said.

For new investors, (or those willing to buy in some more) the elevator's on its way up. Vernalis is a leaner business, with a narrower focus on a few mid-stage projects. These include a Phase IIb neuropathic pain candidate, a Phase I candidate in inflammation, and late-research/pre-clinical compounds in pain and cancer. Meanwhile Biogen Idec will pay Vernalis a milestone if its licensed Phase II Parkinson's compound progresses to Phase III, and Novartis might owe small milestones linked to two Phase I cancer projects.

There are signs of life at Vernalis, then, but this is the company that can least afford to over-promise. Among Garland's 2011 goals are "to get back on our feet and re-establish credibility."

image from flickr user thebigdurian used under a creative commons license.

Radius Bone Drug Delivers--Will Novartis Bite?

Radius Health yesterday released top-line Phase II data from its osteoporosis hopeful BA058, demonstrating statistically significant increases in bone mineral density (BMD) versus placebo in the lumbar spine and hip.

Big deal, you say. Well, it kind of is, since Novartis has an option on the compound, exercisable following Phase II evaluation, which is happening now. These days, option deals might be ten-a-penny, but back in 2007, when the deal was signed, they were less common. And Novartis took the option at the same time as the MPM/Novartis 'Strategic Fund', a joint program between the VC firm MPM Capital and Novartis' pharmaceutical business unit, made a $10 million equity investment in Radius. (Read this for background.)

Novartis has since signed option deals on a bunch of other assets, and created a separate venture fund, the Novartis Option Fund, which also inks option-based deals. (For more on their recent activity and the pursuits of corporate venture groups generally, check out this START-UP piece.)

The souring economy and the travails of traditional venture capitalists have made the MPM/Novartis experiment one worth watching. As the first product officially up for grabs, its hard not to see Novartis' decision to exercise--or not--its option to BA058 as a test case for the viability of this particular mix of business development and corporate VC. If Novartis says no, won't traditional VCs and biotechs think harder about the potential taint of an option spurned? Won't an early 'no' also make it harder for the side-by-side fund to ink future deals, especially if the capital markets come roaring back and traditional VCs put money to work again?

Radius' CFO Nick Harvey confirmed to The IN VIVO Blog that "Novartis do now have the Phase II data," but isn't revealing the time period granted to the Swiss group to decide whether to bite. Earlier this year, Joe Jimenez, Novartis Pharma's CEO, included BA058 in an email description of Novartis' osteoporosis development portfolio, suggesting Radius (and its investors) were onto a winner.

But at a recent Elsevier Business Intelligence conference, Novartis' head of BD and Licensing ,Tony Rosenberg, was more circumspect. Moreover, he downplayed the significance of the BA058 decision on the viability of the option model. According to Rosenberg, it would be naive to expect the drugmaker to exercise all the options it has currently taken. "Phase II compounds have a 20 to 30% success rate. If we do five deals, we should expect one or two of them to pay off," he argues.

Do investors buy Rosenberg's logic? Maybe. According to Biogen Idec's Michael Lytton, who invested in Radius while still at Oxford Biosciences and who has become a convert when it comes to these kinds of deals, there's still a bias against such transactions because of their potential to curb a biotech's future deal-making activity. In the case of Radius, Lytton says "co-investors partially accepted the answer that with a primary care product such as Radius' osteoporosis drug, Novartis was one of the few logical acquirers anyway." And after a thorough analysis, they grew more comfortable that the deal's economics were a reasonable approximation of what the biotech might hope to gain from a future partnership.

If it works, BA058--which is parathyroid hormone-related protein--will compete with Lilly's teriparatide (Forteo), a form of parathyroid hormone, and the only bone-building, or anabolic, drug on the market currently. (Check out this START-UP feature for some background on the space.) Appropriately, then, the Phase II trial included a Forteo arm, and, according to Harvey, the highest dose of BA058 boosted BMD at the hip (femoral neck) significantly more than Forteo. (Hip fractures are rarer than spinal ones, but more debilitating and thus costlier.)

Still, since "the trial was designed and powered to show a primary endpoint vs placebo," the Forteo-related statistics are therefore being regarded as "exploratory, rather than pre-planned," Harvey clarified. But he and CEO Richard Lyttle declare themselves pleased with the data, which they say looks "as we expected". Of particular interest: findings show only half the occurrence of hypercalcemia in the group taking the highest dose of BA058 versus those taking Forteo.

Radius reckons this is because BA058 has less effect on bone resorption than Forteo, which means it's less likely to lead to high blood calcium, currently a dose-limiting factor for parathyroid hormone--and the key reason NPS' Preos, for instance (a full-length PTH), never made it onto the US market.

Forteo sold about $800 million in 2008 despite a black box warning related to osteosarcomas, inconvenient administration, and a refrigeration requirement. Radius thinks it has a better molecule, one that's room-temperature stable, and which may be more convenient (Radius is working with an undisclosed partner on a transdermal delivery form).

So will all this plus the crucial Phase II data be good enough for Novartis? We may find out soon--although MPM has said it will support the company whatever the Big Pharma's decision. As to whether there might be any half-way house outcome, other than an opt-in or opt-out scenario, "we could never anticipate that there wouldn't be something [possible] in between," says Harvey.

(Image courtesy of flickr user rachel_r used with permission courtesy of a creative commons license,)

While You Were Vacationing

If you've been away for a few days, like some of us have, we hope this regulatory- and deal-news heavy WYW whips you back into shape right quick.

• Nycomed said this morning it was buying central and eastern European rights to 20 generics from Sanofi-Aventis and Zentiva.
  
• Purdue licensed US rights (and a North American option) to Trancept's Intermezzo (zolpidem) back-to-sleep treatment, the companies said on Sunday. Transcept gets $25 million up-front and a potential near-term approval milestone of $30 million, depending on approval timing (PDUFA date is in October 2009). The biotech will also receive up-to-mid-20%s royalties and an option to co-promote the drug to psychiatrists in exchange for a larger slice of royalties from these specialist sales.
• Will Novartis' Prexige lead a personalized-medicine-enabled comeback for Cox-2 inhibitors? Bloomberg reports.
  
• FDA gives a surprising "no" to Savient's gout treatment Krystexxa in a complete response letter; company says it will refile next year. An advisory committee had recommended 14-1 for approval. NYT has the story here.
  
• Avastin has been approved in combination with interferon alfa for metastatic renal cell carcinoma, says Genentech.
  
• Shire said this morning that its first Phase III trial of velaglucerase looked good and that FDA was on board with the drug's treatment protocol in type 1 Gaucher disease. The company has begun its rolling NDA under FDA's fast track system; the regulator has acted recently to speed up review of Gaucher treatments anticipating a Cerezyme shortage thanks to Genzyme's plant troubles.
• The New York Times' 40 Years War series continues with a look at how difficult it is to recruit patients for cancer studies.

The Effient Launch: Cracking the Door to Primary-Care Marketing

So will personalized medicine be the death of primary care? Maybe not. Maybe just the opposite.

In this edition of the IN VIVO Blog Podcast, Mike McCaughan, our editor-in-chief, gives a decidedly positive (albeit counterintuitive) spin to what some of us in the editorial group thought was a pretty obviously bad piece of news: Effient’s black-boxed approval last July 10.

Yes, Effient (prasugrel) had beaten the competitor, Sanofi/Bristol-Myers’ Plavix, in Lilly’s head-to-head pivotal trial (fewer heart attacks and strokes for Effient’s users, though more bleeding) but still, we wondered, would Lilly – which depends on Effient to get it past the Zyprexa cliff – be able to build much competitive momentum against Plavix while dragging along its black-box warning about bleeding? And even if it manages to gain that momentum, won’t it be stopped dead in its commercial tracks when Plavix goes generic in 2011?

Mike’s notion: that the black-box warning and mandated two-year REMS requirement create the basis for primary-care marketing success – thanks to pharmacogenetics. Not because the data suggests the right population to get Effient – but because it argues that a third of the population getting Plavix get no benefit from it (an argument the FDA evidently agreed with because it added it to Plavix’s label). Lilly reps thus get an FDA-mandated foot-in-the-door to talk to docs about Effient’s risks (and Plavix’s deficiencies)…and, within two years, face a generic with no marketing effort behind it that they will argue doesn’t work in a third of a very high-risk population.

So click below to hear Mike’s full explanation (or you can access the podcast via iTunes).








Image from Flickr user twenty questions and used under a Creative Commons license.