Friday, August 27, 2010

DotW Talks Pickles

With all due respect to our FOTF brethren, DOTW may take the occasional vacation from writing intros to our columns, but we somehow manage to put out a weekly edition with astonishing regularity. (In other words, none of that every-other-week stuff, you slackers.)

We do find ourselves in a bit of a pickle this week, with deadlines looming for IN VIVO, START-UP, and our annual Pharmaceutical Strategic Alliances meeting. (You’re coming, right?)

Mmm, pickles. In an ideal world we would simply be referring to a piquant condiment perfect for enlivening pedestrian burgers and dogs in what may be one of the last opportunities of the summer grilling season. But a whole lot of folks found themselves in a barrelful of briny situations this week. Let us dive in.

For starters, how about Jazz, Immunogen/Roche, and EpiCept, which all woke up on the wrong side of the FDA regulatory bed? Throw in Novartis, which still has to woo those pesky independent Alcon shareholders to its cause without shelling out an additional bolus of cash. And squirt on a little Sanofi-Aventis, which not only lost the first round in its fight to stop a Lovenox biosimilar but also can’t seem to seal a deal with Genzyme.

Better add Inspire Pharmaceuticals to that mix as well. This week Inspire amended its partnership deal with Allergan for late-stage dry eye therapy Prolacria. No surprise, really; back in January the company reported Prolacria failed to show efficacy in a Phase III clinical trial, and it's no secret revised deal terms typically follow in a partnership that suffers a clinical setback.

But the revision is a little more complicated since the Prolacria failure also triggered an amendment in the two companies' ongoing relationship for Allergan’s Restasis. To summarize some ancient history, Allergan and Inspire first teamed up in 2001 to develop dry-eye treatments in a deal that gave Inspire the right to co-promote Restasis. In 2008, Inspire withdrew from the co-promote, but still received royalties on the Allergan medicine at the same rate as before. But there was a very big hook.

The royalty rate was good only as long as Allergan and Inspire continued to work on Prolacria. Now ith no new plans for a study, Inspire will get less of the revenue pie from sales of Restasis and “any other human ophthalmic formulations of cyclosporine owned or controlled by Allergan." The upshot? Look for Inspire to focus instead on its denufosol and Azasite programs.

To avoid your own deal-making pickle (or even a jam), we bring you another edition of...

Roche/BioImagene: In a bid to keep locking up capabilities in personalized medicine, Roche, via its Arizona-based Ventana Medical Systems, this week took out the privately-held digital pathology start-up BioImagene in a deal worth $100 million. The take-out comes just two years after BioImagene investors put $26 million to work in a Series D financing, the small company’s only disclosed fund raising since its inception in 2003. Backers of the company include Burrill and Co., Ascension Health Ventures, Artiman Ventures, and Siemens Venture Capital, the corporate venture arm of industrial giant and competitor to General Electric. Indeed, that Roche won the small firm, known as a leader in pushing pathology into the digital realm, was somewhat of a surprise. Given Siemens’ involvement in the 2008 financing, its presence in imaging markets and its ambition to become a one-stop-shop for medical testing, the odds in Vegas probably didn't favor Roche as the buyer. Still, the deal is a strategic fit for the pharma, since it complements the pathology offerings already in-house as part of Ventana. Moreover, it enhances the Swiss company’s cancer workflow offerings, providing a service element that’s become increasingly of interest to imaging companies, diagnostic players, and even life science tools providers.—Ellen Licking

Procter & Gamble/Somaxon Pharmaceuticals: Somaxon is finally ready to launch the insomnia drug Silenor (doxepin) now that it has a co-promotion partner, Procter & Gamble. The San Diego specialty pharma announced the commercial arrangement Aug. 25, five months after Silenor received FDA approval. Under the agreement, the two companies will launch Silenor in September with a combined U.S. sales force of about 215 reps. P&G will provide about 105 reps who will promote Silenor to targeted primary care physicians and pharmacies, while Somaxon’s team will market to specialists and "top-decile physicians who treat insomnia," the firm said. For its efforts, P&G will receive a combination of fixed fees and royalties on U.S. net sales of the drug. In a same-day conference call, Somaxon CEO Richard Pascoe estimated P&G's take would amount to no more than 15% of the drug's annual net sales. The deal seems like a win for P&G, which made no upfront payment, and also gained an interesting downstream perk -- the right of first refusal to develop and commercialize Silenor as an over-the-counter product.—Joseph Haas

Roche/Aileron: On August 23, Roche announced it would collaborate with privately-held Aileron to use the biotech’s proprietary stapled peptide Pepducin technology to develop drugs against five unnamed targets, some of which have yet to be chosen. At north of $1 billion, the bio-bucks are eye-popping, but the specific deal terms don’t exactly break new ground the way Alnylam’s non-exclusive licensing deals with various pharmas or Celgene’s partnership with Agios have done. The five-target arrangement, centered around oncology and other therapeutic areas, is heavily back-end loaded, worth just $25 million upfront. It does, however, provide Aileron with additional validation and could be the prelude to a larger deal. As such, the deal provides Aileron with always welcome additional undiluted capital, and preserves its exit options. Aileron, which has raised around $60 million, wasn’t exactly hurting for cash. The company has commanded attention not only for its high concept science and platform capabilities, but also for its roster of four corporate backers, once again illustrating the importance of strategic investors in funding early-stage science.—Paul Bonanos and EL

Cypress Bioscience/Alexza; Cypress/Marina Biotech: Even as it continues to fight a public battle with hedge fund operator and minority shareholder Ramius, Cypress Bioscience inked a pair of small deals this week. The specialty player announced it would acquire rights to Marina Biotech’s autism drug for $750,000 upfront, plus milestone payments. It also licensed a preclinical smoking-cessation product from aerosolized CNS drug maker Alexza Pharmaceuticals. The agreement is worth $5 million upfront plus a $1 million milestone-based tech-transfer fee and includes a carried-interest fee in the event of a future acquisition of rights to Alexza’s Staccato technology for nicotine, an inhalable delivery system with electronic dosing controls intended to help smokers kick the habit. In the case of the Alexza alliance, Cypress will also pay for Phase I trials of the medicine, anticipated to commence next year. Back in June, Cypress, which markets fibromyalgia drug Savella (milnacipran), paid $30 million upfront to license an anti-psychotic drug candidate from Israel-based BioLineRx in a deal that also includes milestones. That partnership prompted a hostile takeover attempt last month by Ramius, which harshly criticized Cypress’ management and its acquisition strategy while offering $4 per share to acquire the company.--PB

Isotechnika/3SBio: Isotechnika announced an agreement Aug. 24 with 3SBio covering sales of Isotechnika's lead candidate voclosporin, a Phase III compound that helps suppress the immune system's rejection of transplanted organs. 3SBio will pay $1.5 million upfront to license voclosporin for transplant and autoimmune indications in mainland China, Taiwan and Hong Kong. The Chinese firm also will invest $4.5 million in Isotechnika via a three-year convertible debenture and will be responsible for clinical development, registration and commercialization in China. Interestingly, 3SBio also got the right to develop voclosporin products in other indications (including presumably ophthalmology where troubled Lux had worldwide rights via a 2006 deal.) 3SBio CEO Lou Jing said his company would work with Isotechnika to apply for approval from the Chinese State FDA for a Phase III trial inside China. 3SBio has become one company biotechs can look to for China-only licensing deals. Previously, 3SBio licensed Chinese development and marketing rights to AMAG’s chronic kidney disease drug ferumoxytol.--JH
Image courtesty of flickrer gadgetgirl used with permission through a creative commons license.

UPDATED TUESDAY 08.31.2010. Due to an editing error, IVB inappropriately referred to Aileron's peptide technology via the proprietary trademarked name of Anchor Therapeutics.--EL

Jail Time for Pharma Execs? IN VIVO Blog Readers can Relax

There's lots of buzz right now about the potential for FDA to seek jail time for executives involved in quality control problems. This piece on, for example.

Readers of the IN VIVO Blog, however, have nothing to worry about. For the past two years we've been noting the calls for executive accountability, and comments by FDA officials and others about their sweeping ability to hold top executives responsible for failures they may not even have been aware of under the so-called Park doctrine. (Start here or here).

So all of you can relax, because you made sure that your compliance with FDA standards is beyond question.

Didn't you?

Thursday, August 26, 2010

Financings of the Fortnight is... the Most Interesting Biopharma Column in the World

FOTF never really goes on summer vacation, unlike those namby-pambies over at DOTW. But as befits the Most Interesting Biopharma Column in the World, we constantly travel far and wide. And when we travel we cannot help but meet other Most Interesting People who want to discuss all manner of things, from protein folding to peregrine falcon migration patterns to the amyloid hypothesis to American trade policy.

Despite having vocal cords that have addressed the United Nations General Assembly and performed Tristan und Isolde -- all in one day -- even we sometimes overdo it. This morning, after a night spent deep in conversation with three well-funded post-doctoral frauleins under the glow of poolside tiki torches and a gibbous subtropical moon, we felt slightly hoarse and downed an emergency anti-logorrheic. (That means this week's installment is short and sweet.)

Still, we can't help but note that all four editor's picks this fortnight underscore the changing nature of biotech venture capital. Heavily tranched rounds are now a mainstay, and perhaps here to stay. We've got two of 'em for you. We also profile an unusual PIPE with four participating VCs who are usually as private as private can be, and word from the feds that the Department of Health and Human Services wants to start a pandemic/emergency/countermeasure venture fund. They'd be wise to check in with Kleiner Perkins, which launched its own $200 million "flu fund" in 2006.

Stay informed, my friends, and when you read about biopharma financing, make sure it's...

Anchor Therapeutics: The peptide drug developer closed on $10 million of its Series B round from inside investors, with a new goal of $15 million – half its original target of $30 million. The company hopes new backers will join TVM Capital, HealthCare Ventures and the Novartis Option Fund, who supplied the first tranche of the new round as well as $19 million in Series A funding in 2008. “A little bit of setting goals is testing the market and seeing what the reality is,” CEO Rick Jones told our Pink Sheet colleagues. Anchor is developing candidates called "pepducins" to selectively bind to G protein coupled receptors. Anchor hopes its pepducins can trigger specific responses inside the cells and avoid side effects often associated with small molecule drugs targeting the receptors. Anchor's most advanced program is a CXCR4 agonist designed to attract stem cells to accelerate healing in fractures and myocardial infarctions. Novartis maintains an option agreement with Anchor that includes over $200 million in potential milestones as well as royalties. -- Shirley Haley and Paul Bonanos

Taligen Therapeutics: Taligen collected a $10 million tranche of its massive $65 million Series B round, bringing to $36 million the contributions of Sanderling Ventures, Clarus Ventures, Alta Partners and High Country Venture since 2008. That’s on top of a $4 million Series A and a small seed round, all in support of Taligen’s development of therapies that target the alternative pathway of the complement system, a surveillance system employed by the body to attack and clear pathogens that may go awry in certain inflammatory diseases. Taligen also revealed a broad patent on its compound TT-30, a replacement of the Factor H protein that regulates reactions in the complement pathway. CEO Abbie Celniker told The Pink Sheet that Taligen is likely to bring TT-30 into Phase I for an unspecified orphan disease in the fourth quarter of 2010. The compound is said to be applicable to a range of indications including age-related macular degeneration, atypical hemolytic uremic syndrome, and paroxysmal nocturnal hemoglobinuria,. Taligen is actively seeking a partner for its ophthalmic program, but expects the rest of its promised Series B money will help it take an in-house candidate into Phase III on its own. -- PB

Achillion Pharmaceuticals: Months after bringing in $22.9 million in a follow-on public offering, Achillion turned to venture capital investors to raise $50 million in a warrant-heavy PIPE financing. At least one, Clarus Ventures, has backed the anti-infectives developer before. Under the deal, announced Aug. 18, Achillion sold 19.755 million shares of common stock at $2.49 per share, its closing price as of Aug. 17. But for an additional $0.125 per unit, buyers also received seven-year warrants to buy 0.35 shares in the New Haven, Conn., firm for an exercise price of $3.1125 a share. Structuring the financing this way put Achillion on the hook to issue another 6.921 million shares, resulting in stock dilution that analyst Brian Skorney of ThinkEquity LLC said would add 69 percent to company’s share count as of second-quarter 2010. “The return to a more venture capital-based investor structure somewhat mitigates the benefit of the raise and will effectively decrease share liquidity,” he wrote in an Aug. 20 note. Joining Clarus, which participated in a 2008 PIPE that netted Achillion $29.5 million, were Domain Associates, Quaker BioVentures and Pappas Ventures. Achillion said it will use the proceeds to move lead candidate ACH-1625, a protease inhibitor for hepatitis C, into Phase II in September, while bringing two other HCV compounds, pan-genotypic protease inhibitor ACH-2684 and NS5A inhibitor ACH-2928, into the clinic in early 2011. -- Joseph Haas

Medical Countermeasure Strategic Investor: As part of a broad review of US medical countermeasure strategy released Aug. 19, an HHS committee is recommending the creation of a government-backed $200 million venture fund to boost startups working on products critical to medical emergencies, terrorist attacks or pandemic outbreaks. Different than BARDA, the agency charged with dispensing so-called "Bioshield" funds to build the national emergency stockpile, the countermeasure fund would invest in companies, explained National Institute of Allergy and Infectious Diseases director Anthony Fauci at a press conference. Known for now as MCMSI, the fund needs Congressional authorization. It would focus on companies developing new drugs to fight multi-drug resistant organisms, novel mechanisms for disrupting pathogenesis through host pathway targeting, and multi-use platform technologies for diagnostics, vaccines/prophylaxis and therapeutics, according to the review report. (The full HHS review is available here, with the MCMSI section on page 15.) As proposed, the fund would operate independently of the government and try to leverage private capital. The HHS committee cited as a relevant model In-Q-Tel, a CIA-funded firm that invests in intelligence high-tech. -- Cathy Dombrowski and Alex Lash

Photo courtesy of flickr user TreyDanger.

Tuesday, August 24, 2010

Wolfe vs. Rappaport: A Standoff Between FDA and One of Its Advisory Committee Members

There was some disharmony at Jazz Pharmaceuticals’ FDA panel review of its drug Rekinla for fibromyalgia.

FDA’s Arthritis Drugs Advisory Committee and Drug Safety & Risk Management Advisory Committee voted 20-2 against recommending Rekinla (sodium oxybate) for a supplemental indication for treatment of fibromyalgia on August 20; sodium oxybate is currently approved for the reduction of daytime sleepiness and cataplexy in patients with narcolepsy under the trade name Xyrem. (See our coverage in "The Pink Sheet" DAILY, here.)

Anyone that has been to an FDA panel meeting knows there are ebbs and flows that contribute to the final outcome.

One of those critical points came in the late morning during the FDA question and answer session, following the agency’s formal presentations.

Enter Drugs Safety & Risk Management committee member and outspoken drug industry critic Sidney Wolfe (director of Public Citizen’s Health Research Group). Wolfe explained that he had obtained publicly available documents that cast negative light on the trustworthiness of the sponsor to responsibly market Rekinla if the panel delivered a positive recommendation and FDA approved the drug.

To resolve parallel criminal and civil allegations of off-label marketing for Xyrem by their Orphan Medical division, Jazz entered a guilty plea and paid $20 million in monetary penalties as part of a settlement with the US Attorney’s Office for the Eastern District of New York. (To view the press release, click here).

Committee Chair Kathleen O’Neill (University of Oklahoma College of Medicine) tried to cut Wolfe off, saying the session was only for questions to FDA and could only address the material in front of the panel on that day.

Wolfe continued to read a summary of the off-label marketing settlement and said he eventually would have a question.

With Wolfe unwilling to stop reading, FDA took the seemingly unprecedented action of cutting off Wolfe’s microphone. That step has become routine during the open public hearing where there is a time limit but this was one of their own advisory committee members.

Wolfe turned the microphone back on and finally got to his question: Why, he asked, did FDA not mention the Xyrem off-label settlement in its presentations to the committee? After all, he argued, it was relevant to the decision at hand: could the sponsor be trusted to market Xyrem—also known as gamma-hydroxybutyrate (GHB)—to a much broader indication than it was already approved for?

FDA Division of Anesthesia & Analgesia Products Bob Rappaport stepped in and first instructed Wolfe to stop talking when the panel chair requests that he stop talking, explaining that it was her prerogative.

Rappaport continued that Wolfe’s reading of the documents were the first time he had ever heard of the off-label case and that it was not relevant to the Rekinla review despite the fact that both Xyrem and Rekinla are the same drug (sodium oxybate). Rappaport then admonished Wolfe for not providing the documents to FDA earlier, noting that he had called FDA's advisory committee management staff earlier in the week to raise an issue, but not provided the information he was reading at the meeting.

[UPDATE: Wolfe tells us "I had never previously told FDA officials that I had obtained these documents since I assumed, as it turned out incorrectly, that they were aware of them because FDA's Office of Criminal Investigation had been involved in the criminal prosecution. Why they were unaware, as Rappaport said, is another issue."]

The drama appeared to have come to a close with Rappaport’s comments; however, the FDA official returned after the lunch break and the open public hearing with a prepared statement:

“The issue that Dr. Wolfe raised this morning is a matter related to compliance and is not related to the topic under discussion today, unless there has been an accusation of data integrity problems with this application – and I’m not aware of any data integrity concerns. The only other way that the case referred to by Dr. Wolfe could be pertinent to this application would be if it was brought up to impugn the sponsor in the hopes that the committee would be punitive towards them in your deliberations and recommendations regarding this application. However it is important for you to recognize that that would not really be punitive to the sponsor but would really be punitive to the patients.”
At that point, Jazz Pharmaceuticals' Chief Compliance Officer Janne Wissel added a few remarks.

"We do have a corporate integrity agreement because we assumed responsibility for the acts of Orphan Medical at the time we purchased the company. The Department of Justice, as well as the OIG concluded at the end of their investigation that the behaviors of Jazz Pharmaceutical were not the same as those of Orphan Medical. However, we assumed responsibility for those actions.

"We have completed three years under our corporate integrity agreement where we have reports that are based on information and an audit conducted by an independent review organization with respect to our compliance for promoting our product within our labeling. All of those reports have concluded that we are promoting our product within labeling and that we are compliant with respect to the aspects of our corporate integrity agreement."

Wolfe was not given an opportunity to respond at the meeting, so we asked him if he would care to after the fact. He emailed us the following statement:

The previous RiskMap program and the Xyrem Success Program, that were agreed upon in 2002 by Orphan as a condition of approval of Xyrem for narcolepsy, included extremely restricted distribution through one pharmacy, education of doctors and patients and a registry of patients getting the drug.

One of the questions our advisory committee was being asked to respond to was the adequacy of the new REMS program for the expanded use of oxybate for treating fibromyalgia .

Xyrem’s manufacturer, Orphan, violated the above mentioned restrictions on distribution by illegal, criminal off-label marketing and was successfully prosecuted for this. When I discovered this, a week before the hearing, I assumed that the reason why it was not included in the Advisory Committee’s briefing materials was that for some reason the FDA did not want us to know about it. This seemed peculiar, since the prosecution of the company seemed quite relevant to our evaluation of whether the new REMS program could be expected to be effective.

As I asked in my question to FDA, following the material I read from the US Attorney’s prosecution of Orphan, Why didn’t the agency provide the material to us?

Dr. Rappaport’s surprising answer was that they were not aware of the criminal prosecution. He later added that this was really a matter involving FDA compliance and that it was not “related” to the issues being discussed by the committee because it did not involve data integrity.

Although it is the compliance part of FDA that was involved in investigating this (the FDA Office of Criminal investigation was also involved), the idea that the details of this criminal prosecution involving violations of the agreed-upon restricted marketing of this dangerous drug were not relevant to our deliberations seems irrational.

Dr. Rappaport went on to say that since it was not relevant to our discussion, the only reason I brought it up was to “impugn the sponsor” and thereby turn the vote against them. This would, he said, “not really be punitive to the sponsor but would
really be punitive to the patients.”

Following Dr. Rappaport’s after-lunch statement, Jazz Pharmaceutical, the owner of Orphan since June, 2005—including, according to the US Attorney, for at least seven months while the illegal activities were occurring--stated to the Advisory committee that the company had been essentially exonerated by the US Attorney’s office and was under a corporate integrity agreement with the HHS Inspector General. This statement, like Dr. Rappaport’s, is also incorrect since, in its non-prosecution agreement with Jazz, the US attorney stated on July 13, 2007:

“Based on the evidence gathered during this investigation, the government maintains that it would be able to prove that JPI [Jazz Pharmaceutical Incorporated], as a consequence of the criminal conduct committed by its subsidiary Orphan ("the Unlawful Conduct"), is likewise guilty of introducing and causing the introduction of a misbranded drug into interstate commerce, in violation of 21 U.S.C. 331(a) and 333(a)(2).”
It’s unclear how much of an impact the Wolfe-Rappaport discussion had on the final 20-2 negative vote for Jazz. But it’s clear the public disagreement was a notable turning point in the panel deliberations.

The agency later said “the issue raised this morning by Dr. Sidney Wolfe related to Jazz Pharmaceuticals marketing practices and compliance activities for sodium oxybate is not related to the topic (that was) under discussion. The FDA weighs all of the comments made by committee members equally but will only be considering the safety and efficacy information discussed today as it evaluates sodium oxybate to treat patients with fibromyalgia.”

--Ramsey Baghdadi

Monday, August 23, 2010

Synagis' Special Status Under Health Care Reform

It is every marketer's dream to have a product that is in a class by itself.

AstraZeneca/MedImmune's respiratory syncytial therapy Synagis (pavilizumab) can claim that distinction in an entirely new way as the Centers for Medicare & Medicaid Services implements new rebate provisions for the Medicaid prescription drug program under the Affordable Care Act: Synagis is the only drug that will benefit from a new, lower mandatory rebate on drugs that are "approved by the Food & Drug Administration exclusively for pediatric indications."

Recall that the health care reform law raised the minimum Medicaid rebate percentage from 15.1% to 23.1% for most brand name drugs. But the law sets a lower rebate amount (17.1%) for two classes of drugs : clotting factors and pediatric-only drugs. (For a complete analysis of the Medicaid rebate changes, see here.)

If that isn't complicated enough, the new rebate amounts were effective retroactively to Jan. 1 (the law was signed at the end of March), but CMS didn't provide any guidance on which products were covered until now.

For clotting factors, the list of covered products was pretty simple, since the new rebate provision specifically cites products that already receive a separate furnishing payment from Medicaid. So that list of affected drugs is no surprise. (Manufacturers who benefit include Bayer, Aventis Behring, CSL Behring, Novo Nordisk, Baxter, Talecris, Grifols and Pfizer/Wyeth).

But it was by no means clear what products were covered by the "pediatric-only" exemption. Now we know: Synagis. (The official "list" is here.)

It turns out that Synagis is the only product approved by FDA all of whose indications are explicitly limited to pediatric use (from birth to age 16). That, at least, is what CMS determined. (The agency does invite anyone who is "aware of other drugs that meet the pediatric definition specified" by CMS to email .)

We note with amusement that CMS' explanation of how it came up with the "list" runs a full page. For that matter, the section of the law that CMS is interpreting [Sec. 1927(c)(1)(B)(iii)(II)(bb) for all you Medicaid rebate wonks] is longer than the list of covered drugs. Wouldn't it have been easier just to say "the minimum rebate on Synagis is 17.1%?"

Okay, that's not how legislation works. And we suspect AstraZeneca is just as happy that the provision flew beneath the radar screen a bit; there is enough controversy about the pharmaceutical industry's "deal" on health care reform--a deal, we might add, negotiated by the Pharmaceutical Research & Manufacturers of America when it was chaired by David Brennan, CEO of AstraZeneca.

But a bit of perspective here. We assume AZ is pleased that the minimum rebate on Synagis is lower than for most brands, but it is not like AZ will reap some kind of windfall as a result.

First, the new minimum rebate is still two percentage points higher than the old 15.1% minimum rebate. According to MedImmune's 2006 10K filing (the last filed by the firm before it was acquired by AZ), every percentage point increase in Medicaid rebate liability translates into roughly an $11 million hit to sales for the brand.

Then there is the separate provision of the health care reform law extending Medicaid rebates to managed care plans. While that affects a relatively small segment of the overall Medicaid prescription drug market, the impact per unit sold is large (in this case, no rebate to 17.1% minimum).

Last but not least, there is a provision in the new rebate rules that attempts to recoup rebates on new formulations of products. The idea is that, if a sponsor changes a formulation and sets a new price point, it should still pay the same amount in rebates (or more) as it did under the old formulation.

We think that provision affects Synagis as well, since (as MedImmune disclosed in the 2006 10K filing), "during the fourth quarter of 2005, we successfully transitioned to the liquid formulation of Synagis in the US from the lyophilized formulation, which has resulted in a reduction in allowances for government rebates and an increase in net realized price during 2006."

That provision, however, is even less clearly defined in statute than the pediatric-only rebate--and CMS hasn't issued guidance on interpreting it yet. (We've written about the line-extension rebate in The RPM Report, here.)

So, net-net, AZ is paying much higher rebates on Synagis than it would have without health care reform. But, thanks to its special treatment under the law, they aren't quite as high as they might have been.

Friday, August 20, 2010

DOTW: Biogen Deal Means Sunshine and Rainbows For Knopp Investors

It's tough times for biotech investors, not much disagreement there. But in covering one of the deals of the week, we found a bright spot. The deal was Biogen Idec's purchase of rights to Knopp Neurosciences' Phase II ALS treatment for $80 million upfront, a sum comprised of a $20 million license fee and $60 million for equity in the privately-held Pittsburgh firm.

Knopp told our Pink Sheet colleagues that the $80 million was in essence more than it needed for its ongoing operations. Its lead drug, KNS-760704 for ALS (also known as Lou Gehrig's disease -- although a new study questions whether Gehrig had his eponymous disease or something else) is now in Biogen's hands, and the smaller firm is back to discovery work.

Instead of squirreling away the extra cash for a rainy day, however, Knopp gave it back to its investors, which are a mix of low-profile institutional investors, angels and family foundations. "Ah!" we thought, our little reptilian deal-brains churning, "An exit via license! How exotic!"

But no. The investors who got the distribution kept all their equity. Every last dime, according to Tom Petzinger, a former Wall Street Journal-ist who runs the firm's business development and public affairs. It wasn't an exit, and it wasn't a share buyback (or a private version thereof). Nor did shareholders sell to Biogen, whose $60 million equity purchase was from the company itself. It was, basically, a one-off dividend, or as Petzinger put it, "taking care of our investors."

Indeed, it was a case of Knopp saying this is your money, not ours. Petzinger said there was no quid pro quo, either. If and when Knopp finds itself in need of cash, the investors are under no obligation to re-up.

But he and the rest of management like to think that their gesture today will create investor goodwill in the future. "It might be a highly unusual move, but it doesn't mean it's not highly appropriate or strategic," Petzinger said.

Imagine that: a biopharmceutical startup in 2010 happily giving up cash that, for now, it doesn't need.

by Alex Lash

Medco/United BioSource: Any doubts about the importance of outcomes-based research in the post-health care reform era, look no further than Medco’s August 16 announcement that it plans to acquire the Bethesda, Md-based information services company United BioSource Corp. (UBC) for $730 million. The tie-up gives the pharmacy benefit manager a new business capability--drug outcomes based research for biopharma companies--that's likely to be a valuable service in the comparative effectiveness era in which we now reside. Among other things, UBC is the market leader in designing and conducting risk evaluation and mitigation strategies (REMS) for new medicines. UBC says it has been involved in the design, implementation and/or assessment of more than 60 REMS and predecessor programs, known as risk minimization action plans. In addition to safety and risk management, UBC focuses on health economics and outcomes research, including drug cost-benefit and cost-effectiveness analyses. UBC also brings Medco the capacity to conduct post-approval research in Europe and Japan. Medco's deal with UBC is more strategic in nature than recent moves by CVS Caremark and Express Scripts, PBMs which have aimed to add volume by acquiring large chunks of business from insurers. In July, CVS Caremark announced a 12-year contract with Aetna to manage duties previously handled by the insurer's internal PBM covering 9.7 million plan members. That followed Express Scripts' outright purchase of WellPoint's internal PBM, NextRx, which handles pharmacy benefits for about 25 million.—Cathy Kelly

Aspen/Sigma: The beleaguered Australian-based health care firm Sigma finally bought its way out of a jam, inking a deal this week with South Africa-based Aspen Pharmacare. Under the terms of the deal, Sigma, which is the largest pharmaceutical manufacturer by volume in Australia, will sell its its pharmaceutical group to Africa’s largest drugmaker for 900 million Australian dollars ($811 million). In hiving off the branded and generics drug unit and its most profitable division, Sigma will once again become a wholesale distributor; it will also be able to retire its total debt burden of A$785 million ($654 million). Sigma ran into trouble after spending $2.2 billion to acquire generics maker Arrow in 2005, with write-downs associated with that transaction resulting in a A$389 million loss for the 12 months to January 31, 2010. Interestingly, even though Aspen already has operations in Australia, the company has also commited to a long-term supply, distribution and logistics agreement with Sigma. According to sister publication PharmAsia News, opinions about the deal’s value vary, in part because the continued relationship between the two companies carries execution risks for Aspen. There are risks for Sigma as well, including whether the Aussie company’s new CEO Mark Hooper can find growth in a generics-free company. —Daniel Poppy

BioMarin/ZyStor Therapeutics: In a move to bolster its orphan drug pipeline, BioMarin Pharmaceutical has acquired enzyme replacement specialist ZyStor Therapeutics of Milwaukee for up to $115 million in upfront and milestone payments. As with many recent buyouts of private startups, the deal is back-end loaded, with a modest upfront payment of $22 million plus a $93 million earn-out. As part of the deal, announced August 17, BioMarin gets ZyStor's ZC-701, a novel therapy to treat the inherited enzyme deficiency Pompe disease, as well as a platform to create additional future enzyme replacement therapies. BioMarin says ZC-701 features a faster development timeline and lower projected development costs than its in-house candidate for Pompe disease, BMN-103. (Both compounds are in pre-clinical development.) The deal illustrates the new math currently in operation at many venture-backed companies. In order to advance ZC-701 through proof-of-concept, ZyStor would have had to raise a much larger round of capital; instead ZyStor’s backers, chiefly a syndicate of Midwestern venture firms, chose to sell. Given the $22 million upfront, ZyStor investors got their money back, but only just. The step-up multiple was a meager 1.5x, meaning the deal value was only 50% more than the amount of cash raised privately. Add in the earn-out, and the multiple could rise to 7.9x, higher than the average return for private biotechs acquired in 2009. Alas, BioMarin wouldn't discuss the duration of the earn-out or the timing of specific milestones, except to say that one $13 million payment will be made when the first patient is enrolled in ZC-701's Phase III trials.—Paul Bonanos

Novartis/Quark: Novartis has agreed to pay Quark Pharmaceuticals $10 million for the option to later in-license QPI-1002, a systemically delivered synthetic siRNA currently in Phase II for prevention of acute kidney injury in patients undergoing major cardiovascular surgery and for prophylaxis of delayed graft function in patients receiving kidney transplants. The companies revealed few details of the Aug. 18 agreement. The exercise fee and milestones for '1002 could reach $670 million but Quark CEO Daniel Zurr was not able to break down those biobucks more specifically or say when Novartis' option kicks in. Of course there are royalties on net sales too--if a drug ever reaches the market. In an interview with The Pink Sheet DAILY Zurr could only say he was "quite happy" with the royalty rate. (Gives you the warm fuzzies doesn't it?) Also left unanswered is what this week's tie-up means for Novartis' ongoing collaboration with Alnylam, under which the two companies are developing RNAi candidates in a variety of therapeutic areas. Originally a three-year agreement, Novartis has extended the Alnylam partnership twice for one year, with a termination date coming in October. At that time, Novartis will have to decide whether to non-exclusively license the Alnylam platform and further increase its ownership stake in the RNAi pioneer.--Joseph Haas

Life Technologies/Ion Torrent: This week’s acquisition of Ion Torrent by Life Technologies, for $375 million in cash and stock, continues the flurry of recent activity among gene sequencing instrument providers, who are continuing their march into the next generation of technological innovation. Seven weeks ago, Roche’s 454 Life Sciences bought up rights to IBM’s nanopore-based single molecule sequencing program, and just before that, Pacific Biosciences aligned itself with Gen-Probe. PacBio subsequently completed a $109 million Series F, including $50 million from Gen-Probe, and this week it also announced an IPO filing. Another player, Complete Genomics, filed for an IPO at the end of July and also just raised $39 million in a Series E. Did someone say “Building a war chest?” Unlike its more visible competitors, Ion Torrent’s Personal Genome Machine (PGM), which should hit the market in 2010 and sell for less than $100,000, is still kind of a black box: its capabilities are largely unknown. The heart of the PGM is a novel chemical detection system that directly measures the change in pH after a nucleotide incorporates into target DNA, using what is basically a semiconductor chip layered with an ion sensor. The company, founded by 454’s founder Jonathan Rothberg, gave a splashy demonstration of its machine at the February 2010 Advances in Genome Biology and Technology meeting on Marco Island. But it has not provided specs for the PGM, nor has there been any public third-party validation of the system from early access users. Nonetheless, because of the PGM’s novel detection system and semiconductor-based manufacturing, Ion Torrent has created quite a buzz, fueled in part by its LeBronian unveiling at Marco Island. Unlike PacBio and Complete Genomics, for example, which use optical detection, Ion Torrent could create a different set of users for gene sequencing. “For reasons of cost and footprint, I think that chemical detection-based sequencers can extend toward the clinical setting,” says Leerink Swann director of research, John Sullivan. That said, according to Life Technologies, the initial application for the PGM will be the life sciences [research] market.—Mark Ratner

Abbott/SkyePharma: Back in January FDA declined to approve Skye’s Flutiform fixed-dose combination asthma product, instead issuing a complete response letter. After a June meeting with the agency it became clear the companies would need to conduct additional clinical trials. On August 20 the other shoe dropped, with Abbott backing out of the Flutiform deal (one originally signed by Kos back in 2006 for $25 million up-front and renegotiated slightly by Abbott in 2008), penalty free. Skye hasn’t given up on the project, according to a statement, but won’t be taking home a break-up fee to keep it warm during those cold English summer nights, either. The therapy remains under review in Europe, where--perhaps luckily for Skye--“the regulatory approach is different from the United States,” the release notes. If Skye sees a path forward in the US it’ll try to sign up another marketing partner. For now, nobody seems surprised by Abbott’s decision – yet SkyePharma’s shares still slid 5% on the news.--Chris Morrison

Image courtesy of flickrer pinksherbet used with permission through a creative commons license.

Friday, August 13, 2010

DOTW Examines Paraskevidekatriaphobia And Other Aspects of Numerology

DOTW isn't superstitious. Nah, it takes more than yet another freak Washington DC-area thunderstorm and a power outage on deadline day to instill paraskevidekatriaphobia in this hardy crew. Then again, we did go out of our way not to walk under any ladders or cross paths with black cats. And thank G-d the main office only has 6 floors.

More sensitive souls should take heart. After a paranoia-inducing 2009 in which there were nine Friday the 13ths, today's combination of Friday and 13 is the only one of the year. (Turns out the number depends on the vagaries of the Gregorian calendar.)

Numbers figured more prominently in the biopharma news than in the actual deals that went down. Perhaps triskaidekaphobia is the reason financials went undisclosed in roughly half of deals outlined in this week's edition.

Back to the news. For Genzyme, 4 could be the crucial number, or the years it will take to right its troubled Allston Landing plant. News that Genzyme was taking a $6.5 million charge and a loss for the second quarter surfaced as industry wags and Vegas are still trying to figure out the odds of a Sanofi-Genzyme tie-up. Unnamed sources revealed to major news outlets that the French pharma had made an offer in the $67 to $70 dollar-a-share range.

Genzyme execs reportedly believe the company is worth around $80-a-share, which would drive up the deal's price tag by more than $2 billion to around $20.4 billion. According to Bloomberg, there's a high-stakes game of chicken being played, leading IN VIVO Blog to wonder if the lure of $23 million -- CEO Henri Termeer's golden parachute if a merger transpires -- might lead to some rapid eye movements.

Don't blink. You might miss hedge fund Ramius' sweetened offer for Cypress. Last month Ramius offered to buy 90% of Cypress it doesn't already own for $4-a-share, but the company rejected the offer as too low. Blasting Cypress' strategy, Ramius apparently might raise its offer if fruitful takeover talks occur and the division of Cowen Group has the ability to do diligence.

Another number to keep in mind: 100, or if you prefer, $100 million. That's the amount of sales Leerink Swann analyst Seamus Fernandez reckons Lilly will lose this year thanks to an August 12 court ruling invalidating a patent on its ADHD best-seller Strattera. With generic competition imminent, the drum beat for a deal grows ever louder. So much for the company's smaller efforts to buy time with investors.

IVB's favorite number? Try 20, as in this year is the 20th anniversary of our Pharmaceuticals Strategic Alliances conference. (You're going to be there, right?) As the countdown to PSA's uber-networking begins, rest assured IVB's got the available numbers and the analysis all wrapped up in another edition of...

Merck/Alectos: As we note in the July/August issue of START-UP, developing Alzheimer’s drugs ain’t for the faint of heart. Big Pharma is far from opting out the space, but given the difficulties and the very high profile failures we reckon pricey deals a la Pfizer’s tie-up with Medivation for Dimebon will be the exception going forward. Case in point: Merck’s deal this week with Alectos of Vancouver, BC. The two groups will identify new drugs that modulate O-linked N-acetylglucsaminidase (O-GlcNAcase), an enzyme implicated in the development of Alzheimer’s. Alectos, which spun out of David Vocadlo’s lab at Simon Fraser University, could receive up to $289 million, including an undisclosed upfront payment. The majority of the money is biobucks based on downstream research, development, and regulatory milestones. (There are also tiered royalty payments on sales of any products that result from the collaboration—when or if that happens.) Compare those deal terms, especially the undisclosed upfront, with what Medivation garnered in 2008 for Dimebon: $225 million just to seal the deal and another $500 million in milestone payments in a co-development, co-promotion arrangement that had Pfizer and Medivation sharing costs 60/40. Medivation’s drug was much further along at the time of partnering: Phase II versus Alectos’ preclinical molecules. But with the high failure rate of late-stage Alzheimer’s assets, it seems pharma has realized it’s no less risky and much cheaper to partner early and retain 100% of the development rights. Moreover, it’s easier to shrug off an undisclosed upfront than an eye-popping $250 million down payment if development doesn’t exactly go as planned. -- EL

Emergent BioSolutions/Trubion: Emergent said late Thursday, Aug. 12 it would buy the struggling Seattle biotech for nearly $97 million in cash and stock immediately with up to $39 million in possible milestones. The move gives the biodefense specialist, best known for its BioThrax anthrax vaccine, access to Trubion's clinical autoimmune and oncology programs, as well as its alternative protein platforms. The deal comes after a couple years of turbulence for Trubion, whose lead program TRU-015 stumbled in Phase II rheumatoid arthritis trials in 2007. The compound was left deeper in limbo by Pfizer's acquisition of Trubion's development partner Wyeth in early 2009. Pfizer dropped the program this June, but Trubion had since identified another promising candidate, TRU-016, for chronic lymphocytic leukemia. Trubion partnered it with Facet Biotech, which was later acquired by Abbott Laboratories, in August 2009 for $20 million upfront. Adding the the upheaval, Trubion's chairman, president and CEO Peter Thompson resigned in November with one of its investors, Steven Gillis of ARCH Venture Partners, taking the helm. For each Trubion share, Emergent will pay $1.365 in cash and 0.1641 shares of Emergent common stock, which comes to $4.55 a share or $96.8 million. Emergent will pay up to $39 million in cash if TRU-016 or other programs reach various milestones, such as the start of the first Phase II trial for TRU-016. The milestones expire after 36 months. -- Alex Lash

Endo/Penwest: In a deal that will bring it full control over its second-biggest seller, Opana, Endo Pharmaceuticals will buy drug delivery technology partner Penwest Pharmaceuticals for $5 a share, for a total of about $168 million. Endo also announced the filing of an NDA for a new crush-proof formulation of the extended-release version of Opana on Aug. 9. The specialty pharma’s acquisition apparently was driven largely by the opportunity to maximize the company's interest in Opana and Opana ER, indicated for relief of moderate to severe pain in patients who require continuous, around-the-clock opioid treatment for an extended period. The announcement came weeks after a settlement with generics challenger Impax Laboratories over the key patent protecting Opana ER. As a result, Opana ER won't face generic competition until January 2013, enough of a window for Endo to commit more resources to it. While its purchases in the past two years of Indevus and HealthTronics helped the company expand into the area of pelvic health, the acquisition of Penwest indicates Endo also recognizes the need to support its area of greatest success, pain therapeutics (See this recent IN VIVO feature for more.) -- Joseph Haas

PregLem/Merck Serono: This week’s tie-up between privately-held PregLem and Merck Serono for the mid-sized pharma’s Phase II-ready Jun kinase inhibitor bentamapimod shows companies are still willing to walk the outlicensing talk. PregLem’s priority these days is its Phase-III selective progesterone receptor modulator Esmya, in development to treat systemic uterine fibroids. But it turns out several of PregLem's 23 employees had at one time worked at Serono and been involved in the discovery and early development of bentamapimod. Their knowledge helped catalyze the deal, said PregLem’s CEO Ernest Loumaye in an interview with “The Pink Sheet” DAILY. Bentamapimod will move into proof-of-concept trials next year in prevention of post-surgical adhesions. The companies did not disclose financial terms when they announced the deal on Aug. 11. Founded in 2006 and backed through two venture rounds totaling $64.4 million by Sofinnova Ventures, Sofinnova Partners, MVM Life Science Partners and NeoMed Management, PregLem prefers to in-license clinical compounds that focus on women's reproductive health. -- JH

Topcon/Optimedica: As venture firms struggle to fill their own coffers, execs at private companies have been sharpening their pencils and streamlining their portfolios. The most recent example? OptiMedica, a privately-held biotech developing ophthalmic devices and best known for the development of the PASCAL laser technology for the surgical treatment of cataracts. This week the company announced it had partnered its glaucoma and retina assets to Topcon, a Japanese manufacturer of ophthalmic, optometric, GPS and positioning control devices. Terms of the deal were not disclosed but it is apparently the largest acquisition to date for Topcon’s medical division. OptiMedica, which has pulled in close to $55 million in funding from the likes of Kleiner Perkins Caufield & Byers and Alloy Ventures since its 2005 founding, will use the money to support the global launch of its laser cataract surgery system and sharpen its R&D efforts in the same space. Earlier this year the firm revealed the development of a proprietary femtosecond laser designed to improve cataract surgery by automating the most technically demanding steps. -- EL

Epitomics/Apexigen: With the follow-on biologics pathway still murky, many VCs and private biotech execs are pinning their hopes on developing bio-betters, large molecules that hit well validated targets but offer an improvement in efficacy, dosing, or route of administration than existing therapies and don't infringe on existing IP. (This despite the obvious travails of companies such as Trubion [outlined above] and AstraZeneca's MedImmune, whose Synagis follow-on has suffered a set-back with regulators .) On August 12, privately-held Epitomics, which has a proprietary rabbit monoclonal technology, announced it was spinning out to existing shareholders a new biotech company, Apexigen, which aims to develop and commercialize mABs for treatment of cancer and immuno-disorders. The move seems to leave Epitomics, a Chinese/U.S. biotech hybrid backed by Sycamore Ventures, Amkey Ventures, and Kenson Ventures, largely a discovery/fee-for service play, with Apexigen taking on the riskier, more expensive development work. According to the company, Apexigen inherits bio-better programs already initiated by Epitomics, including mABs against VEGF and TNF. No word whether Epitomics or its investors have pitched in with cash to get Apexigen off the ground. -- EL

Thursday, August 12, 2010

Financings of the Fortnight Struts and Frets but Finds No Exit

Places everybody! Settle down, please. Welcome to the FOTF Playhouse, and thanks for coming to our first-ever audition. I'm your director, and the woman holding the clipboard is my editor. Rule #1: Do not make her angry, or you'll be off this stage faster than you can say "Kelsey Grammer in a kilt."

As you all know from the audition call, we're putting up something no one's ever tried before: An absurd tragicomedic musical drama about biopharma financing in four acts. Good thing we've got some of the best writers around, especially when it comes to the existential dilemma of the modern private biotech. That's our playwright in the fifth row with the notepad and the ashtray. Don't bother waving; he can barely acknowledge his own existence, let alone yours.

So what are we looking for? For the first act, which we're calling IPO or Die Trying, our characters are stubborn, perseverant, and they've got a bit of the huckster in them, a crucial element given the need to convince investors to buy stock in a company that has no revenues, no marketed products, and is subject to massive regulatory power. And they could also use some cash. A lot of cash.

As the curtain rises on Act I, we see our heroes going to their investors in Silicon Valley, asking them to buy shares in their upcoming IPO. A chorus of bankers wails in the background, knowing their commission dwindles the more the insiders buy the IPO. Our heroes' VC friends press their Blackberries to their foreheads, trying to divine wisdom.

It's a universal dilemma, as old as the Greeks and as breathtaking as King Lear out in the storm. If the VCs agree, they're saddled with more stock, and who knows how liquid it'll be in the next two years. But if they don't agree, they might never exit at all, and they'll be forced to sit in this little room, the walls close and sweaty, the muted TV tuned to the 24-hour celebrity-news channel, like the waiting room of a doctor who sneaks out the back to play golf and doesn't bother with decent magazine subscriptions. Think Sean Hannity's vision of Obamacare meets Dante's Inferno enlivened with a little Waiting For Godot.

How did we get here, the investors ask? Who are we? We're talking big questions here, and an excuse to break into a wavering minor key version of Once In a Lifetime.

If you're auditioning for the VC roles, here's some helpful background. There's another kind of exit taking place these days: Of the 153 US venture firms with a biopharma focus that made investments in 2008, 10 didn't invest in 2009, a 6.5% "dropout" rate, according to DowJones Venture Source. Of the 143 that invested in 2009, 39 have yet to make an investment in 2010. That's more than 25%. There's still time for the drop-out rate to decline to last year's rate, but for that to happen about 30 of those 39 laggards will have to pony up in the next four and half months.

Now we come to Act II of our little drama, and we get into a kind of Hair thing: This is the dawning of the age of the post-genome! or something like that. We haven't finalized the libretto. When VCs drop out, what happens? Do they tune in and turn on? Become management consultants? Baristas? Curtain rises, and we meet a former VC who one day hopped the fence to become CEO of a company he helped found as an investor. (He will be playing himself, by the way. That's one of the perks of raising a $25 million B round.)

Acts III and IV are riffs on the old phrase "Neither a borrower nor a lender be," turning that classic nugget of questionable advice on its head.

Got it? Good. Let's start the audition, and remember "all the world's a stage" which is always our motto. But you knew that, because you're a regular reader of...

Trius Therapeutics: Antibiotic developer Trius launched an initial public offering Aug. 2, selling 10 million shares at $5 each after postponing the issue for several months. Whatever momentum Trius had when it registered to go public in November was blunted by two forces: the weakening general economy, now prompting midsummer whispers of a dreaded double-dip; and the Food and Drug Administration, whose evolving guidance on antibiotic trial design for skin and soft tissue infections led Trius to revamp its crucial Phase III trial protocols in March and postpone its IPO. The firm detailed the redesign in June and the IPO was back on, but with a lot of help from existing investors, who bought more than half of the shares issued. Trius is testing oral and IV versions of its lead candidate, torezolid phosphate, as a better treatment for skin and soft tissue infections often caused by methycillin-resistant Staphylococcus aureus, better known as MRSA. We wrote in November about antibiotic developers pushing into late stage trials despite murky design guidance from FDA; so far Trius is the highest-profile example of a company whose business strategy hit a bump because of the regulatory landscape. Citi ran the offering with help from Piper Jaffray, Canaccord Genuity, and JMP Securities. They had to forgo discounts and commissions on more than half the stock sales. -- AL

Dicerna Pharmaceuticals: In a deal more than eight months in the making, the RNA interference platform startup Dicerna said Aug. 1o it has secured $25 million in Series B funding from a syndicate that includes first-time investor Domain Associates. Repeat investors Oxford Bioscience Partners, Skyline Ventures and Abingworth also joined in the round. Former Oxford partner Doug Fambrough, who led Dicerna’s seed round for the firm, became the startup’s CEO in May. Fambrough also was among the early backers of Sirna Therapeutics, a pioneering RNAi company Merck acquired for $1.1 billion in 2006. Dicerna is developing gene-silencing therapies via a platform that works with slightly longer double-stranded RNA than those used by Sirna or RNAi stalwart Alnylam Pharmaceuticals, typically with more than 25 nucleotides. Dicerna’s strands interact with an enzyme called Dicer that cleaves the strands into small interfering RNA, which can mute the expression of genes selectively. Dicerna has a preclinical oncology drug candidate, a partnership with Kyowa Hakko Kirin to develop more drugs and an agreement with Ipsen to explore uses of its peptide program for intracellular delivery of therapeutics in both oncology and endocrinology. Dicerna’s Series A round arrived in two tranches totaling $21 million during 2007 and 2008. -- Paul Bonanos

Gilead Sciences: Even with $1.8 billion in product sales during the second quarter, Gilead has a significant need for cash. The firm has irons in many fires, including a pair of ongoing Phase III trials for its experimental “quad” pill for HIV and a previously announced $5 billion share buyback initiative. In late July the biotech undertook a complex series of transactions in which it sold $2.2 billion in convertible senior notes, proceeds from which are intended to retire convertible notes expiring in 2011 and 2013 and finance about $1 billion of the share buyback plan. It sold $1.1 billion of 1.00% convertible senior notes due in 2014 and another $1.1 billion of 1.625% convertible senior notes due in 2016, netting approximately $2.166 billion. Both series of notes will pay interest twice annually, on May 1 and Nov. 1, until they mature. The initial conversion rate for the 2014 notes will be 22.1845 shares of Gilead common stock per $1,000 principal amount of notes, the company said. That translates into an initial conversion price of $45.08 per share, a 35% premium over Gilead’s July 26 stock price. The 2016 notes will convert to 22.0214 shares of Gilead stock per $1,000 principal amount of notes, a conversion price of $45.41 per share and a 36% premium over the Gilead’s July 26 stock price of $33.39. -- Joseph Haas

Arena Pharmaceuticals: The publicly traded Arena tapped creditor Deerfield Management for a $60 million stock sale, taking advantage of a massive stock boost as its lead obesity drug lorcaserin approaches a key FDA advisory committee meeting in September. As of the close of trading Aug. 11, Arena shares had jumped more than 80% since July 15, the day obesity rival Vivus' Qnexa got a negative review from the same FDA committee. Arena said Aug. 6 it agreed to sell nearly 9 million shares to Deerfield at $6.70 a share, with $30 million of the $60 million gross proceeds used to prepay a Deerfield loan that was due in July 2012. If FDA approves lorcaserin by July 2011, Arena can defer a $20 million repayment due at that time to Deerfield until June 2013. Previous obesity drugs have run into cardiovascular safety problems, and the FDA committee reviewing lorcaserin on Sept. 16 will spend the day before reviewing cardiovascular risks in obesity drugs in general, which might not bode well for Arena, according to a Pink Sheet analysis of the obesity regulatory landscape. -- Emily Hayes and AL.

Photo of the Prairie Fire Theatre Summer Camp courtesy of flickr user Nic's Events.

Friday, August 06, 2010

Deals of the Week's Summer Vacation

It's hard to be clever and insightful when your brain is slathered with sunscreen, so let's get right to...

Shire/Movetis: Specialty pharmaceutical powerhouse Shire has bid €428 million in cash for Movetis, the fast-moving Belgium biotech that received EU approval for its chronic constipation drug Resolor (prucalopiride) in October 2009. It's an aggressive bid for Movetis, which raised more than $100 million in an initial public offering in December and has since been rolling out its product selectively across Europe. The price of €19 per share is a 74% premium to Movetis' stock as of the close of trading on Aug. 2, the day before the companies announced the deal. The move adds to Shire's relatively small GI business consisting of two drugs, the older Pentasa (mesalamine) and its follow on Mezavant/Lialda, both indicated for ulcerative colitis. For Movetis the deal if consummated would cap a whirlwind history. It was founded four years ago by a group of J&J executives who in-licensed from their former employer several GI compounds including prucalopride, then in Phase III. J&J exited the GI business after the withdrawal from the market in the early 2000s of its drug Prepulsid (cisapride) because of severe cardiovascular adverse side effects. J&J has retained US rights to prucalopride and at last look Movetis was advancing the compound into Phase III trials. -- Wendy Diller

GSK/Vectura: GSK has taken a non-exclusive license on Vectura's dry-powder drug formulation to apply to two late-stage respiratory compounds for asthma and chronic obstructive pulmonary disease (COPD), a market in which big drug firms are racing to get new products to patients as generic competition threatens a previous generation of drugs. (Our Pink colleagues provide a market snapshot here.) Announced Friday, August 6, GSK will pay £10 million upfront in September and £10 million more around the time the drugs are launched, Vectura said. It's not clear if the second payment is contingent specifically upon the drugs coming to market. In addition to the £20 million in fees, Vectura can earn up to £13 million a year in royalties from the products. The news bumped up Vectura stock Friday more than 13% to 55 pence a share on the London Stock Exchange. Vectura's most advanced product is an inhaled formulation of glycopyrronium bromide for COPD in partnership with Novartis and currently in Phase III. The firm has one unpartnered product in advanced clinical testing, an inhaled combination therapy for COPD and asthma. -- Alex Lash

GSK/Amplimmune: InterWest/Wellcome Trust-backed Amplimmune signed its first corporate partner this week as GSK anted up $23 million to access the biotech's PD-1 targeting therapies. First up in the queue is Amplimmune's lead (but still preclinical) candidate AMP-224, a 'next generation fusion protein' being investigated against cancer and infectious diseases. AMP-224 is an Fc-fusion protein of the B7-DC ligand; it targets PD-1 and the companies hope it can stimulate immune response to various tumors and pathogens. Targeting PD-1, says the company, can help to improve T-cell function. It's important to remember that GSK does sign the occasional deal that doesn't involve options, and this appears to be one of them. Beyond the $23 million down payment, GSK could be on the hook for $485 million in development, regulatory and sales milestones, though at least some biobucks could come soon based on IND/Phase I hurdles. GSK would also pay double-digit royalties on global sales. Amplimmune will finish up its preclinical program, file an IND, and conduct a Phase I trial of '224 in cancer patients next year. -- Chris Morrison

Lexicon/Symphony: Lexicon Pharmaceuticals said August 2 it has agreed to buy back the gastro-intestinal drugs it licensed three years ago to private-equity investment firm Symphony Capital, but the renegotiated deal leaves a lot of risk on the table for Symphony. Under the original deal, Lexicon was supposed to pay Symphony $90 million if it repurchased its assets after June 2010 and before June 2011. Instead, Lexicon is only paying $10 million upfront in cash. It will defer $50 million in payments between now and mid-2013 and pay up to $30 million more if Lexicon finds partners for the drugs or takes them to market on its own. Symphony will also help pay for clinical development and recoup the cash later. It's the latest deal that Symphony, formed in 2004 to invest in biotech assets instead of entire companies, has renegotiated with a partner, demonstrating the difficulty of the project-financing model amid tough economic conditions of recent years. For the $60 million Symphony originally invested, it received $24 million in Lexicon stock. Symphony's fund life runs through 2016 and the firm is in no rush to cash out. Of the three drugs originally highlighted in the collaboration, LX-6171 for cognitive impairment is no longer in Lexicon's development plans after it failed to show efficacy in elderly patients. Lexicon CEO and president Arthur Sands said the firm is in the midst of partnership discussions for LX-1031 for irritable bowel syndrome and LX-1032 for carcinoid syndrome. Symphony is due 50% of licensing proceeds from '1031, '1032 and preclinical candidate LX-1033. If Lexicon takes a drug to market on its own before reaching a licensing deal, it would pay fees to Symphony. -- A.L.

Pfizer/Conatus Pharmaceuticals: Pfizer spun out more assets this week to familiar faces. For an undisclosed amount, the drug giant sold to Conatus Pharmaceuticals the rights to its Idun caspase inhibitor pipeline -- drugs it bought in the $298 million purchase of Idun Pharmaceuticals in 2005. Conatus CEO Steve Mento is the former Idun chief, and he told Pink Sheet that Pfizer could earn milestones on some but not all of the compounds Conatus is buying, which includes emricasan, a Phase II treatment for liver disease. It's at least the third time since 2008 Pfizer has sold at fire-sale prices an acquired asset to a group with connections to the original owners. In December 2009, a venture team including Vicuron Pharmaceuticals’ senior staff created Durata Therapeutics to reclaim part of Vicuron’s pipeline from Pfizer. Pfizer bought Vicuron in 2005 for $1.9 billion. In 2008, Pfizer spun out a piece of its cardiovascular portfolio to a reincarnated Esperion Therapeutics. Pfizer bought the first version of Esperion for $1.3 billion in 2004 for what it hoped would be the follow-on to the blockbuster Lipitor (atorvastatin). Pfizer had stopped developing the Idun portfolio amidst its massive R&D overhaul and merger with Wyeth. Mento said the company did not have to raise additional money. Conatus is still running off its Series A round, which raised $27.5 million in 2007, so it's fair to assume it used a fraction of that total to buy the Idun assets. -- Paul Bonanos

Genentech/Seattle Genetics: Adding to the considerable pile of biobucks it has realized from licensing deals for its antibody drug conjugate technology platform, Seattle Genetics announced Aug. 4 an extension of its existing deal with Genentech, under which the Roche affiliate will target additional antigens beyond those specified under the two companies’ original 2002 deal. Seattle Genetics, which says it has earned more than $30 million in fees and milestones related to the initial Genentech collaboration, will collect $12 million upfront for the extension. If all targets yield drugs that reach market, Seattle Genetics could realize up to $900 million in milestones and other payments through the deal along with royalties. Overall, the company estimates its biobucks total at $2.7 billion related to outstanding ADC collaborations. So far in deals with the likes of GlaxoSmithKline, Astellas, Takeda and MedImmune, the Bothell, Wash.-based biotech has realized a fraction of that -- about $130 million in platform-derived payments over the course of its deals, helping defray its costs for developing an ambitious internal pipeline, led by ADC candidate SGN-35 in lymphoma. The company, expecting data from a pair of pivotal trials in the next three months, plans to file an NDA for that program in 2011. -- Joseph Haas

Cypress/Forest & Cypress/Ramius:
This week we've got a special on DOTW-NO DEALs, two for one. Call right now and we'll throw in a copy of Freedom Rock! But that's not all! Oh, actually, that is all. But two no-deals involving the same company is pretty special. It's certainly less common than baseball's version of the no-no, the no-hitter, which has become downright pedestrian in comparison. What's that? Get to Cypress? On August 4 Cypress Biosciences said it was discontinuing its co-promotion of the fibromyalgia drug Savella, which is primarily sold by Forest Labs under license from Cypress. As part of the 2004 deal with Forest, Cypress held onto co-promotion rights, which it had exercised since the drug was launched after approval in early 2009. Now, backed into a corner and needing to conserve cash, Cypress is accepting $2 million from Forest to cease the co-promo. The company says it will cut about $10 million in operating costs and retain its royalty on the drug, as well as a maybe-possibly-someday right to get back in the Savella-selling game, pending negotiations with Forest. You know who's not happy about all of this? Ramius. Recall that Ramius, which holds about 10% of Cypress' stock and thinks the company is being mismanaged into the ground, made a $4-per-share offer to buy the biotech a couple weeks ago. And that brings us to our second Cypress No-Deal of the Week. In a letter to Ramius managing director Jeffrey Smith, Cypress concluded that the investor's offer "grossly undervalues our current business and future prospects." Cypress chairman/CEO Jay Kranzler goes on to rebut each of Ramius' points and refuses to open the company's books and records to the shareholder. Kranzler signs off: "On behalf of the Board of Directors, thank you for your continued interest in Cypress." Nice touch. -- C.M.

Monday, August 02, 2010

Pediatric Exclusivity for Viagra?! It's No Joke

You can be forgiven for skipping yesterday's Cardiovascular and Renal Drugs Advisory Committee. After an incredible series of important committee topics (Avandia! Qnexa! Opioid REMS! Avastin! Brilinta!), a day long session focused on pediatric study endpoints for pulmonary arterial hypertension drugs doesn't exactly cry out for attention.

But it was a doozy. Not so much for what the committee decided...or maybe failed to decide. Heck, this was a mess of a meeting, and our colleagues did an amazing job to make sense of the outcome in "The Pink Sheet" DAILY.

No, this was a doozy of a meeting because it is laying the groundwork for what could be a very interesting regulatory decision by FDA: granting a six-month pediatric exclusivity extension for sildenafil, the active ingredient in Pfizer's PAH drug Revatio and another product you might have heard of called Viagra.

Yes, it is true: Pfizer is (we think) going to get a six month pediatric exclusivity extension for an erectile dysfunction product. In fact, we would go so far as to say after the meeting, by any fair interpretation of how the program works, Pfizer should get an extension.

Viagra? Viagra has no role in the pediatric population--except to increase the numbers of children in the US. (Badda Bing!)

Okay, okay: the pediatric extension won't be for Viagra; it will be for Revatio--a truly important therapy for the rare but debilitating condition of PAH. And all indications are that the Pfizer product does have an important role in treating the 500-600 children in the US who suffer from the disease. Pfizer has done extensive research on that population, despite significant challenges finding a viable endpoint given that no one wants to run long-term placebo controlled trials in this setting.

The pediatric exclusivity program was created in 2002 to encourage sponsors to conduct studies in children, by granting them an extra half-year of patent life/exclusivity for completing studies pursuant to a written request by FDA. Pediatric research, everyone agrees, is a very challenging and neglected field, and the law has clearly worked to encourage many more studies than would have occured without it. The Revatio program looks exactly what the law was supposed to deliver.

But the law (as implemented by FDA) is clear: the extension applies to the active ingredient, and so--if Pfizer gets a reward--the basic sildenafil patent will be extended from March 27, 2012 until September, 2012.

That is obviously a big deal for Pfizer. Revatio sales in the US were $300 million last year, so an extra six months is nothing to sneeze at. But Viagra is almost $1 billion, so that's where all the action is. (Badda Bing!, again.)

Now, Pfizer claims Viagra will be protected from generic competition until 2019, thanks to a use patent covering the ED claim. However, use patents tend not to hold up against generic challenges, and Pfizer is already facing a challenge from Teva. On the other hand, given the unusual circumstances of Viagra's development, the use patent on ED may be more robust than most.

Nevertheless, the patent extension will still matter. Obviously it delays the earliest possible date for a generic Viagra in the event Pfizer loses the case. In the more likely event that litigation is still pending, it will delay by six months the earliest possible date that Teva could consider an "at risk" generic launch. That in turn would affect the terms of any possible settlement of the litigation (assuming pending "pay for delay" legislation in Congress doesn't put the kibosh on settlements altogether.)

The extension will also put off the date on which Pfizer will have to wrestle with the possiblity that generic versions of Revatio will start eating into the Viagra market. Revatio is marketed as a 20 mg pill, while Viagra is available as 25, 50 and 100 mg pills. As brands, Revatio retails for slightly less per pill than Viagra ($15.60 vs. $17 on, but it certainly doesn't make economic sense to take two Revatios instead of one Viagra. If Revatio generics are widely available, those economics could change.

So, no matter how you look at it, Viagra will benefit from the pediatric exclusivity award.

Here's the thing: the pediatric exclusivity program has strong support, but it isn't without its critics. When the program came up for reauthorization in 2007, some members of Congress wondered why a sponsor might be given an extra six months of sales for a multi-billion brand in exchange for conducting a relatively small, inexpensive study in children.

It is fair to say those arguments will come up again in 2012--especially if FDA grants an extension to Viagra, every politician's favorite target for criticizing Big Pharma.

Look for more coverage of how the advisory committee wrestled with this issue in an upcoming issue of The RPM Report.