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Friday, October 21, 2011

Deals of the Week Ponders: Is IND the New Biotech Dealmaking Sweet Spot?

Today in the hot-off-the-presses October issue of IN VIVO we argue that early-stage biotechs ought to stop pushing their drug candidates through to clinical proof of concept.

Now before you start to laugh, hear us out. And take a look at the data.

Though clinical proof-of-concept has long been the goal for biotechs hoping to land a sweet licensing deal or acquisition, getting there takes plenty of cash -- cash that's increasingly scarce as venture funding dries up or moves on to later-stage, in-licensing based opportunities. What's more, it seems that neither the public markets nor licensing partners ascribe much value any more to early clinical success. Finally pharma companies seem eager to deal earlier on in the value-chain as pre-clinical stage deals are up in volume this year while the number of deals for assets in Phase I, II or III remains stagnant. They're also increasingly skeptical, executives and analysts note, of biotech's development work.

In short, for many biotechs in 2011, clinical development might not be worth the risk. Up-front deal values for pre-clinical stage assets have held steady over the past five years, while up-fronts for assets in Phase I, II and III have suffered. The chart below shows average data for about 300 deals since 2007 with disclosed up-front payments (from a larger set of 770 deals between biotechs and revenue-generating pharmaceutical marketing partners, Jan 2007 through 14 September 2011); we first presented this data at this year's Pharmaceutical Strategic Alliances meeting on September 22.



Sure biotech companies can expect lower up-fronts from preclinical deals, and still stronger up-fronts from Phase I or Phase II transactions. But is it worth the cost, and thus the risk, of getting there? We argue this month in IN VIVO that in fact for most discovery-based biotech companies it probably isn't. Better to land an early-stage deal that's structured to provide investors with at least some liquidity -- Forma's deal with Genentech is an interesting and perhaps imitable model -- than to curb discovery to allocate the lion's share of resources to a lead program.

In Vivo subscribers can check out the whole piece here. And meanwhile here's something that never loses value, it's time for the next edition of ...



Abbott/Costello (deemed so by IVB's reader poll) : In a move intended to unlock the value of its proprietary pharmaceuticals business, which may be undervalued due to investor concerns about the possibility of declining sales for multi-blockbuster Humira (adalimumab), Abbott announced a plan Oct. 19 to split into two companies over the next year. The pharma will consolidate four business segments – medical devices, diagnostics, nutritionals and brandedgeneric drugs – into a diversified medical products company that will retain the Abbott name and be led by current Chairman and CEO Miles White. Meanwhile, the company will spin out its portfolio of prescription pharmaceuticals, including Humira, which has garnered sales of $5.7 billion through the first nine months of 2011, along with its R&D pipeline into a still-unnamed research-based pharmaceutical company. The spinout will be led by Richard Gonzalez, currently executive VP, Global Pharmaceuticals, for Abbott and a decades-long veteran at the company. The diversified company brings in about $22 billion a year, execs said on an investor call, while the pharmaceuticals unit earns about $18 billion annually, with Humira’s share of that total growing. Investors are wary of Humira’s growth potential because of competition it may face from new drugs in development, like Pfizer’s tofacitinib, and biosimilars. Gonzalez said Humira can continue to grow, however, by increasing penetration in non-mature indications as well as through label-expansion plans. All in all the move (and investors' reaction) suggests confidence in pharmaceutical growth continues to ebb. —Joseph Haas

Servier/Miragen: In the largest deal yet for the fledgling microRNA sector, four-year-old startup Miragen Therapeutics agreed to license some geographic rights to three preclinical targets to Les Laboratoires Servier. The mid-sized French pharma will pay $45 million up-front, plus potential milestone and royalty payments worth $352 million as well as development and support payments, for rights to the three targets outside the U.S. and Japan. The deal covers Miragen’s two lead programs, miR-208 and miR-15/195, and a third target not yet identified by the companies; all are in the cardiovascular disease space. Although Servier will fund all clinical trials through Phase II, Miragen retains the right to co-sponsor the Phase III development and commercialization of any of the three, and will collaborate with Servier throughout the research and development phase. MicroRNA drugs are thought to overcome a difficult problem of delivery of RNAi drugs, allowing for traditional infusions and injections; Boulder, Colo.-based Miragen has named eight compounds in its pipeline. Although the fresh capital will keep it afloat far longer than its initial $18 million in private capital raised since 2007, Miragen CEO William Marshall says the company is still planning a large Series B round. – Wendy Diller & Paul Bonanos

Roche/Anadys: For several years as competition in the hepatitis C space intensified, some market analysts have expected a big pharma to buy out Anadys Pharmaceuticals and its portfolio of two HCV candidates. Roche did so Oct. 17, announcing a tender offer to acquire the biotech for $3.70 a share, a premium of 256% over the stock’s closing price on the last business day before the transaction. The purchase price willcome to about $230 million, which analysts and Anadys executives alike called solid value for current shareholders. Despite unveiling promising Phase IIb data for its lead program, non-nucleoside polymerase inhibitor setrobuvir (ANA598) on Oct. 13, the San Diego firm’s stock closed at just $1.04 on Oct. 14. Roche proposes a tender offer which Anadys officers and board members, collectively comprising about 7.9% of thebiotech’s outstanding shares, already have committed to accept. The Swiss pharma said it plans to complete the tender offer before the end of the year and two analysts we interviewed predicted Roche would face little difficulty in getting shareholders to accept its offer. While a 256% share price premium is an eye-catching number in the current biotech environment, a long-term review of Anadys’ history suggests the sale’s valuation may not make for a great success story for biotech investors. Overall, Roche is offering about the equivalent of the amount investors have put into the company since its relaunch in 2000.--JAH

Ipsen/Syntaxin: Ipsen and UK biotech Syntaxin on Oct. 20 announced a tie-up to discover new compounds in the field of botulinum toxins, an area where Syntaxin has considerable biology expertise, and where mid-sized Ipsen already sells Dysport for a variety of movement disorders. Ipsen will provide up to $9m in research milestones over the first three years, help fund FTEs and offers additional license fees and the usual slate of pre- and post-approval milestones and royalties. The tie-up doesn’t come out of the blue: Ipsen in November 2010 participated in an €18m Series C for Syntaxin, owns 8.9% of preferred shares on a fully-diluted basis, and, according to CBO Nigel Clark, concurrently signed a first research collaboration with the French group at the time of the investment – a deal that remained largely below-the-radar. Even without the history, Ipsen’s re-invigorated focus on its two key commercial assets, Dysport and acromegaly drug Somatuline, and its related move to restrict R&D efforts to the corresponding neurology and endocrinology franchises make Syntaxin an obvious partner, on paper: besides its knowledge of neurotoxins, its own lead program is an acromegaly candidate due to enter the clinic during the 2H of 2012. “We fall into a strategic focal point for Ipsen,” summarized Syntaxin CEO Melanie Lee. This latest deal does come with a few potential wrinkles, though. The biggest is that Syntaxin has, since several years before its 2005 spin out of the UK’s Health Protection Agency, been in bed with Allergan, Ipsen’s key commercial competition in the botulinum toxin space. The candidate discovered under those partners’ second collaboration in 2006 is due to report Phase II results next year in PHN and overactive bladder. Lee says it’s not a problem, because the Allergan and Ipsen deals represent “different uses of the [Syntaxin] technology.” In the Allergan deal, Synaxin’s effectively re-targeting botulinum toxin, applying its Targeted Secretion Inhibitor technology to “target cells of our choice for inhibition of secretion in that cell....in the PHN and OAD settings,” says Lee. The Ipsen deal involves exploring the potential further uses of natural botulinum toxins (neurotoxins that inhibit neurotransmitter secretion from nerve cells) “as we unravel the biology of botulinum.” – Melanie Senior



Merck-Serono/Newron: Merck Serono, the pharmaceuticals division of Merck KGaA, isn't waiting for the Phase III program on the role of Newron's safinamide in Parkinson's disease to be completed in another six months. The German company surprisingly announced October 21 that it was returning safinamide to Newron because it believed the product had less market potential than it originally anticipated. The announcement immediately put the intended merger of Italy's Newron with Finland's Biotie Therapies, announced only a month ago, in doubt. Executives from Newron and Biotie were participating in a joint investor roadshow on their intended merger when Merck dropped its bombshell, and are now having to consider how best to proceed. Perhaps the writing has always been on the wall: since the original agreement was brokered in 2006, Merck's clinical trial program has only evaluated safinamide as adjunctive therapy in Parkinson's disease, while originally it was thought the molecule could have potential in other therapeutic areas, including Alzheimer's disease. And Merck has been busy of late re-prioritizing its R&D pipeline and making organizational changes following the late-stage failure of its MS therapy, oral cladribine, development of which was finally terminated in July 2011. -- John Davis

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