Wednesday, February 18, 2009

Saving German Biotech

Thank heavens for billionnaires. That’s got to be what’s going through the mind of Bernd Seizinger, the long-time CEO of Germany’s GPC Biotech. Today, this troubled company—on its knees since prostate cancer candidate satraplatin got knocked down at FDA in late 2007-- announced plans to merge with a cash-strapped US counterpart, Agennix. GPC brings money, some people and some clinical development experience, Agennix brings a Phase III cancer compound, talactoferrin.

Does holding hands make two sinking ships more likely to float? Well, yes, if a billionnaire’s on stand-by to hand out the buoyancy aids. The life-saver in question: a €15 million cash investment from dievini Hopp BioTech holding, the investment company of German billionnaire Dietmar Hopp (co-founder of the multinational business software company SAP AG). He’s already one of GPC’s largest shareholders--the protagonist of GPC’s February 2006 fundraising, among others. And the Hopp investment company still isn't giving up, according to Seizinger. They're providing cash and will be involved personally, he told The IN VIVO Blog. "They have their skin in the game now, and we’re glad, because we’re facing one of the most difficult situations in the history of biotech and of the financial markets,” he continued.

You bet. It’s bad enough if you do have a pipeline, let alone without. And that has been GPC’s problem since the satraplatin snafu. It had gathered all the troops around this drug, following promising Phase II trials. When Phase III failed (ostensibly due to FDA's reluctance to accept a composite end-point, progression-free survival, and to poor trial design), GPC, hammered by a class-action lawsuit from shareholders claiming it had lied about the drug's prospects, put itself, and its cash ($90 million at the time) up for sale in late 2007.

It has been a long wait. And we doubt this deal—which dievini Hopp proposed--is the kind of sale that Seizinger had in mind. It’s more like a reverse merger: GPC Biotech will be tipped into a new—as yet unnamed—company, which will also hold all of Agennix’s shares, plus the €15 million cash contribution. GPC’s shareholders will own 39.3% of the new group, Agennix’s 48%, with the Hopp cash representing 12.7%. Since dievini Hopp is already a majority shareholder in GPC, they call the shots in the newco—which is why it will be a German company, listed on the Frankfurt Stock Exchange. GPC will de-list from Nasdaq (surely it was clear before now that a dual–listing was a waste of money and effort?) and Agennix gets the dubious honor of becoming part of a public entity.

Far more importantly, it gets a $20 million loan from GPC to tide it over until the deal closes later this year—repayable at 12% per annum. That’s how close to the wall it had gotten—despite the fact that, according to CEO Rick Barsky, there was “significant interest” in talactoferrin from potential partners.

Not heard of it? Nor had we. But that doesn't mean it's no good, of course. We just wanted to lie low prior to the Phase II data, explains Barsky--data which showed compelling results in NSCLC, according to the company. But this oral compound, a recombinant form of human lactoferrin, a protein involved in immune system modulation, also has promise in other diseases, including renal and kidney cancer, severe sepsis, and as a topical agent in diabetic foot ulcers.

The companies hope that their combined assets will add up to a pipeline (talactoferrin, plus GPC's Phase I kinase inhibitor, and satraplatin, which still hasn't quite drawn its last breath, although it will later this year unless Japanese partner Yakult steps up to the plate), global business development skills (GPC bought a few other companies in its lifetime, including Mitotix in 2000 and bankrupt Axxima in 2005) and enough cash, thanks to the Hopps, to last until mid-2010. By then, partnering talactoferrin in ex-US markets and non-oncology indications may have brought in some more non-dilutive cash. If not, there’s always the Hopps.

They’re not doing this in a grand philanthropic gesture to save German biotech. But one could be forgiven for thinking so, given that 60% of their €350 million or so that's invested in biotech has gone into Germany, making them one of the country’s largest investors in the sector, and given that, in the words of Prof. Christof Hettich, co-managing director of dievini Hopp Biotech, “these companies would not be there without us.” Still, the company expects a good payback. As Hettich points out that it’s a great time to invest, if you have the money. “Three years ago we would have paid three times as much for Agennix,” he told IN VIVO Blog.

Maybe. But GPC has hardly created value for its shareholders. Based on figures provided in the press release, the newco will be worth just over €100 million ($125 million). Agennix has raised at least $42 million (from what we can find in our records). GPC raised almost $100 million in its heady 2000 IPO, plus another €140 million ($175 million) or so since. And that doesn’t include whatever Axxima and Mitotix had raised before that.

So: $42m + $275m + acquired GPC companies’ money = $125m. That’s what markets do to maths. That may also be why Seizinger is walking away as CEO (he’ll stay on the newco supervisory board). dievini Hopp co-MD Friedrich von Bohlen will take the helm temporarily—von Bohlen founded LION bioscience, which later became Sygnis Pharma, another of Hopp's current investments--until a replacement is found. As Seizinger concluded today: "We hope that the ship is now on a new course, in better, calmer waters.”

Still, if the storm does brew up again, the new captain can always turn to the Hopps.

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

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