Friday, May 29, 2009

DotW: The Jury Is Out

Is the biotech financing climate warming? As the WSJ pointed out yesterday, big deals such as Sanofi's licensing of Exelixis' PI3 Kinase Inhibitors (see below) and JNJ's acquisition of Cougar Biotech might suggest it's time for more optimism in our industry, as does the good news we report below for Cytokinetics.

Still, for a large portion of the sector--notably small cap biotechs whose products or clinical trial data are far from perfect--we suspect the struggles to find financing at a reasonable price continue.

Metabasis, a San Diego-based biotech focused on liver and metabolic disease, is a prime example. Unable to get additional funding , the biotech announced on May 27 that it would be reducing headcount by 85% to just 7 employees. Execs at Curagen likely know what remaining staffers at Metabasis are going through. In February the Connecticut company announced it was looking at strategic options; this week comes news of its sale to Celldex Therapeutics (see below).

And it's likely there will be more examples in the weeks to come. According to Simos Simeonidis, a senior biotechnology analyst with Rodman & Renshaw, "there are still a number of small-cap companies that will fall victim to the crisis and will either go out of business, merge or be taken over at low valuations.” (You can read more about Simeonidis' views of the industry in an upcoming Pink Sheet story, scheduled to appear Monday June 1.)

The jury is out on a number of other big issues as well, including CSL's planned take-over of Talecris. Do recent moves by the FTC signal a more judicious view of mergers under the Obama Administration? Shaking our magic eight ball, we say...the jury is still out, but the consequences could be huge--$3.1 billion big to be exact--for Talecris' PE-backers, Cerberus Partners and Ampersand Ventures.

And then there's the niggling question of rights to Remicade and Simponi. J&J finally made a move this week, asking for arbitration regarding ownership of the anti-TNF bluckbuster and its next-generation follow-on. In a press release, the diversifed pharma noted: "As its public statements have made clear, Merck is acquiring Schering-Plough. The acquisition constitutes a change of control that triggers the right of our Centocor Ortho Biotech subsidiary to terminate the agreements." Seems like the pharma wasn't fooled by all that reverse merger mumbo jumbo and Merck CEO Dick Clark may have to pay for his sandwich--and the loss of Remicade and Simponi--after all.

As you ponder these weighty issues and make your own rulings, take time to peruse...

DxS/Boehringer Ingelheim: There's been no official ruling in the industry about the business model for companion diagnostics, but that hasn't stopped DxS from inking deals. The company's latest pact: an agreement with Boehringer Ingelheim to develop a companion test for the pharma's BIBW 2992 (also known as Tovok), a novel tyrosine kinase inhibitor being tested in non-small cell lung cancer that acts by irreversibly blocking two promoters of tumor growth, the epidermal growth factor receptor (EGFR) and HER2 receptor. Because BIBW 2992 is more effective in patients carrying mutations in the EGFR gene, DxS will aim to develop a test to detect those genetic differences, allowing for the potential segmentation of lung cancer patients and a more personalized approach to therapy. Financial details of the deal were not disclosed. DxS is one of a number of companies to embrace the possiblity that there are real revenues to be had from companion tests, especially in oncology, where the drumbeat for individualized therapies grows ever louder. Last December, DxS signed a US-centered deal with Amgen to provide a companion diagnostic for the Big Biotech's colorectal therapeutic Vectibix. The test maker's so-called TheraScreen K-RAS test is already on the market in the EU and is used to help doctors determine which patients are unlikely to respond well to anti-EGFR therapies such as Bristol-Myers Squibb/ImClone's Erbitux (cetuximab) and Amgen's Vectibix. Moreover, DxS and Amgen have collaborated since last year on selling TheraScreen K-RAS alongside Vectibix in Europe, where the drug is cleared for patients with refractory metastatic colorectal cancer in which there is no K-RAS mutation.

Celldex Therapeutics/Curagen: The jury ruled this week on the case of Curagen and an independent future and decided overwhelmingly against said biotech. On Friday May 29, Celldex Therapeutics, which last year reverse-merged with Avant Therapeutics, announced it was acquiring the Connecticut-based biotech in a tax-free stock-for-stock transaction that values Curagen at approximately $94.5 million. The acquisition adds a portfolio of 11 oncology-focused antibodies to Celldex's immunotherapy medicines, including CR011, a fully human mAB-drug conjugate in Phase II trials to treat metastatic breast cancer and late stage melanoma. Perhaps evem more valuable is Curagen's on-hand cash: the $54.5 million Celldex stands to gain will go a long way to helping fund its pipeline, which includes CDX-110, a potentially break-out cancer vaccine for glioblastoma in Phase II trials and the subject of a partnership with Pfizer in 2008. The news announcement Friday brings to an end the questions about Curagen's specific future, the basic outlines of which had been mapped out in February, when the company disclosed it had hired an investment bank to explore "a broad range of strategic alternatives." The company's stock had been in freefall since a Phase II mucositis drug, velafermin, blew up in clinical trials. The failure of velafermin, and the subsequent decision to exit a partnership with Denmark's TopoTarget for the HDAC inhibitor belinostat, left Curagen a one-trick pony, dependent on the success of CR011. And CR011 is far from a slam dunk. Antibody-drug conjugates have had mixed success in the clinic, with only Wyeth's Mylotarg for acute myeloid leukemia garnering FDA approval.

Amgen/Cytokinetics: With so many option-alliances and option-acquisitions getting signed these days it’s nice to have a reminder that yes, options do in fact get exercised. On Tuesday Cytokinetics said that Amgen was picking up its option on the smaller biotech’s cardiac contractility program, triggering an option payment of $50 million. The program’s lead candidate, the heart failure drug CK-1827452, is a small molecule cardiac myosin activator in Phase II. Back in 2006, when Amgen originally inked its option deal with Cytokinetics, the biotech received a $75 million up-front payment. This latest deal means the small company is now eligible for pre-commercial milestone payments totaling $600 million. What’s more, Amgen now foots the bill for ‘452’s development, cooling the burn on Cytokinetics’ newly boosted $145 million cash balance. It’s all about the runway, people, and Cytokinetics can now see as far as 2012. For a full discussion of Cytokinetics development strategy for ‘452 and a look at how investors in a recent registered direct offering of Cytokinetics shares could make out like bandits, check out the coverage over at The Pink Sheet DAILY--Chris Morrison.

Sanofi-Aventis/Exelixis: One target area the Big Pharma Jury has ruled on: PI3 kinases. And the verdict? KA-CHING! At least that's the case for Exelixis, which cashed in May 28 in a big way in a deal with Sanofi-Aventis. In exchange for $140 million up-front, Sanofi gains world-wide rights to Exelixis's two earlyish-stage clinical compounds, XL147 and XL765 (both are in Phase Ib/II). In addition the two companies will collaborate on the discovery of new, isoform-selective PI3 kinase inhibitors for oncology indications. They will each contribute preclinical compounds for development work, but Sanofi shoulders the cost of the work to the tune of $21 million for the next three years. Importantly Exelixis will reap downstream benefits no matter which companies' molecules are chosen for clinical studies. This latest deal has the requisite biobucks--north of $ 1 billion plus double-digit royalties for XL147 and XL765--that we've come to associate with traditional pharma-biotech deals (it will be quite another matter if said money actually materializes). As Chris Morrison wrote yesterday, IN VIVO Blog is more impressed with the size of the upfront, which is on-par with the biggest clinical-stage deals so far this year: Novartis' global license to Portola's Phase II cardiovascular candidate elinogrel and BMS's deal for Zymogenetics interferon lambda. The out-sized deal price suggests that assets deemed "too good to pass up" still command high value, despite the economic climate. For Sanofi the Exelixis deal is just the latest sign that partnering is in the ascendance at the French pharma, a message repeated recently at BIO, and it allows the company to catch up in an important emerging target area where it lacked in-house programs.

(Image courtesy of flickr user wallyg through a creative commons license.)

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