Deals Of The Week: A Top Analyst Sees R&D Productivity Improving, Now Where’s The Value

Recently there’s been a more positive outlook on the industry from some sectors of Wall Street built on conviction that pharma has really improved its pipelines and, by implication, its R&D decision making capabilities, helped in part by its persistence in evolving new and more flexible business models. Opinions are still mixed on this score, but the sea-change in sentiment was underscored in a talk earlier this week by Citibank’s managing director of global healthcare, Andrew Baum.

Speaking at Elsevier’s Pharmaceutical Strategic Alliances conference on Sept. 19, Baum, who is not shy about criticizing the industry, said he is encouraged that it has successfully evolved to deliver value through each period of change and “this time will not be an exception.” Efforts in the past two to three years to down size and revamp its R&D organizations -- led by AstraZeneca and including rate-changing shut-downs such as Pfizer's Sandwich labs -- have in reality resulted in less spent on fixed-cost research and fewer research sites, in absolute terms. And that shrinkage is continuing. "Three-quarters of the global pharma industry is existing research and re-allocating capital to externalization," he added.

More than that, Baum argues that “the presence of research labs is a material driver of bad decision making and shareholder value destruction, as research labs kept drugs alive that should have been killed."

But improving R&D is straightforward compared to what Baum sees as the biggest challenge facing pharma in the next 10 years: the demonstration of value to payers. “That is where there are enumerable problems and that should be the major preoccupation of any CEO in pharma for next 10 years or so,” he said. Delivering affordable value will require a very different paradigm. “The impact of taking a 20% price reduction or anything that reduces profit by 20% kills the economic value of a molecule."

Ongoing changes in the U.S. and European healthcare landscape forcing value to the forefront include provider consolidation in the increasingly complex U.S. healthcare infrastructure, European pricing pressures, and the advent of more sophisticated IT systems, including electronic health records, that allow better methodologies for tracking value. In the U.S., where these changes coincide with the introduction of accountable care organizations -- admittedly still a small part of the overall infrastructure -- accurate identification of areas of under treatment or over treatment is possible and that has broad implications for pharma. That said, “it’s not entirely clear that this will be net positive or negative for the [pharma] industry,” he observed. “There is mixed evidence whether ACOs and capitated care will result in reduced costs, but there is the beginnings of evidence.” The opportunity to leverage data and capture patient information "has to be weighed against more rational implementation of existing care through use of pathways."

While R&D improvement is underway, other key factors influencing his optimism are improving regulatory climate, government incentives to support the industry -- notably around tax breaks -- and a modest improvement in relations between the industry and health technology assessment agencies, albeit from a very low base.

FDA’s appetite for risk is increasing, highlighted by its recent willingness to accept neoadjuvant data for the approval of a breast cancer drug that previously would have required a progression free survival endpoint. In taxes, a number of governments are compensating for rigid HTA views and very heavy price reductions by implementing ‘patent boxes’ which reduce the rate of corporation tax levied on profits derived from patents. European countries that have such programs include the U.K., Belgium, The Netherlands, and Spain, according to a report Baum’s group published in late 2011.

The industry's embrace of externalization is certainly evident in the plethora of deals announced this week, so without much ado, let's jump to ...

United Therapeutics/Ascendis Pharma: United Therapeutics has licensed exclusive rights to apply Ascendis Pharma’s TransCon technology platform to treprostinil, the active ingredient in its flagship product Remodulin. Treprostinil is a synthetic analog of prostacyclin. These rights will additionally extend to the development of prostacyclin, prostacyclin analog, and prostacyclin-related products for pulmonary arterial hypertension, and UT will hold worldwide commercial rights to products resulting from the collaboration. Financial terms were not disclosed. Ascendis’ TransCon technology is designed to release a drug in a precise, time-controlled way, enabling a longer-lasting therapeutic effect. A subcutaneous infusion formulation of Remodulin has been approved in the U.S. and EU. UT’s COO Roger Jeffs said  that a formulation of treprostinil using the TransCon technology may also eliminate injection site pain and reactions that frequently occur with continuously infused subcutaneous Remodulin.” This collaboration is Ascendis’ first since its 2010 deal struck with Sanofi. --Michael Goodman 

Baxter/Onconova: Privately held Onconova sold European rights to its promising Phase III cancer drug Estybon (rigosertib) to Baxter in a Sept. 19 deal. The drug is in late-stage trials for myelodysplastic syndromes, a group of disorders that often lead to acute myelogenous leukemia, as well as Phase II/III studies in pancreatic cancer. The alliance nets Onconova $50 million in upfront funding, plus $515 million in milestones that could pay out before the drug is even commercialized. Subsequent sales milestones and royalties could add more value to the deal. Baxter receives full rights to all indications of rigosertib in 32 countries, including the full European and adjoining territories such as Norway, Switzerland and Turkey. Deerfield, Ill.-based Baxter took a $50 million equity position in Onconova in a separate deal last month. Rigosertib targets both the PI3-K and PLK pathways, each of which is implicated in solid tumor and blood cancers. Baxter already has a hematological sales force, as well as modest holdings in cancer that include both marketed products and pipeline drugs. Onconova previously partnered rigosertib with Japan’s SymBio Pharmaceuticals in Japan and Korea. The Newtown, Penn.-based company expects to use some of the proceeds to support ongoing trials for lymphoma drug ON-013105 and Ex-RAD, a radioprotectant. –Paul Bonanos

Bionomics/Eclipse: Australian biotech firm Bionomics has acquired San Diego-based private biotechnology company Eclipse Therapeutics in a $10 million deal, from which Eclipse shareholders – including Biogen Idec – will emerge holding about 6.5% of Bionomics' issued capital. A spin-off of the Biogen Idec oncology franchise, Eclipse is developing drug candidates that target cancer stem cells (CSCs), thought by some to be the “seeds” at the root of cancer. Eclipse’s lead compound, ET101 – aimed at an undisclosed CSC target that is over-expressed on most solid tumors – is expected to move into human trials in 2014. "This acquisition elevates and expands Bionomics’ oncology pipeline beyond BNC105, our primary cancer drug candidate, which is now at advanced clinical stages,” said Bionomics CEO Deborah Rathjen. “It also establishes Bionomics as a global leader at the forefront of cancer stem cell therapeutics … and provides Bionomics with an important strategic base in the U.S.” Eclipse co-founders Jonathan Lim, Peter Chu and Chris Reyes all will take up roles with Bionomics, with Lim becoming a non-executive director, Chu the company’s VP of U.S. operations and cancer biology, and Reyes, VP, R&D biologics.—James Dunn

Dyax/Kadmon: Dyax and Kadmon signed a strategic licensing agreement Sept. 20 under which Kadmon has been granted an exclusive worldwide license for the development and commercialization of DX-2400, a fully human monoclonal antibody that inhibits matrix metalloproteinase 14. Specific deal terms were not disclosed, but Dyax will receive an upfront payment and can earn development and commercial milestones, as well as up to double-digit, tiered royalties on commercial sales. The deal follows a July 2011 agreement in which Kadmon obtained a non-exclusive license to Dyax’s antibody phage display libraries for drug-discovery work. Now, Kadmon is responsible for further development and commercialization of ‘2400, currently in IND-enabling studies. “This agreement expands on our longstanding relationship with Dyax and [its] antibody technology platform," Kadmon Chairman and CEO Samuel Waksal said. “We believe MMP-14 is an important piece of the puzzle for overcoming cancer’s growth, proliferation and resistance mechanisms. In particular, its role in tumors and ocular disease neovascularization represents a unique target opportunity that may be complementary to other anti-angiogenic therapies on the market and in development.” —Joseph Haas

MacroGenics/Servier: Expanding upon their December 2011 licensing deal around Phase I anti-cancer antibody MGA 271, MacroGenics and Servier have signed a territorial option agreement for the development and commercialization of three DART (Dual-Affinity Re-Targeting) antibody therapeutics aimed at undisclosed targets. MacroGenics will receive a $20 million upfront payment, and could earn option fees and preclinical milestones reaching up to $80 million under the deal. The deal also calls for clinical, regulatory and commercial milestones that could reach $1 billion, as well as tiered, double-digit royalties on product sales. The Rockville, Md.-based biotech retains full development and commercialization rights to the three programs in North America, Japan, Korea and India, while Servier, of Suresnes, France, acquires an option for an exclusive license covering the rest of the world for each program. The two firms will co-fund and conduct R&D activities leading up to Servier’s go/no-go decision points. Servier can exercise one of the options prior to IND submission, and the other two after initial Phase I trials are conducted for each. For each program Servier elects to option, the two companies will split clinical development costs.—J.A.H

Bristol-Myers Squibb/Vanderbilt University: Already partnered with Johnson & Johnson, Seaside Therapeutics and Karuna Pharmaceuticals on the development of allosteric modulators for neurological indications, the tech-transfer folks at Vanderbilt University are at it again. The school’s Center for Neuroscience Drug Discovery (VCNDD), headed by former Merck researcher Jeffrey Conn, signed an agreement Sept. 21 with Bristol-Myers Squibb to collaborate on the discovery, development and commercialization of positive allosteric modulators (PAMs) to treat Parkinson’s disease. VCNDD will receive an undisclosed upfront payment along with multi-year research funding for continuing discovery efforts. The collaboration will focus mainly on VCNDD identifying potential drug candidates that act on the metabotropic glutamate receptor 4 (mGluR4), and then turning them over to Bristol for development and potential commercialization. VCNDD will be eligible to earn development milestones and royalties on product sales under the collaboration. Previously VCNDD’s discovery efforts in Parkinson’s received funding support from the Michael J. Fox Foundation. The partnerships with J&J and Karuna focus on schizophrenia, while the Seaside tie-up works toward therapies for Fragile X syndrome, autism and other brain development disorders.—J.A.H

Novartis/Selexys: Selexys Pharmaceuticals of Oklahoma City announced a $23 million Series A round led by MPM Capital on Sept. 19 but also signed a side deal granting Novartis an option to acquire the biotech if Selexys’ lead compound, an anti P-selectin antibody called SelG1, succeeds in a Phase II trial against sickle-cell disease. With the cash infusion, the trial is slated to start next year and finish possibly in 2015. Several Selexys top managers, including President and CEO Scott Rollins, are veterans of the rare-disease firm Alexion. Novartis’ purchase option calls for up to $665 million in upfront payments and potential earn-outs. Founded in 2002 with technology exclusively licensed from the University of Oklahoma, Selexys is developing antibodies for acute and chronic inflammatory and thrombotic diseases. Specifically, the company is focusing on the adhesion of white blood cells – the first step in the inflammatory process – which involves the interaction of the P-selectin and PSGL-1 proteins. SelG1, a P-selectin antagonist, is a humanized monoclonal antibody which completed Phase I late last year for vaso-occlusive crisis, a painful complication in sickle-cell disease. The antibody was granted orphan drug status by the FDA in 2008. Selexys believes SelG1 will fill the void left by the one and only approved medication for sickle-cell disease, hydroxyurea, which only benefits half of the patients, and even they don’t respond completely to the drug.—Alex Lash and J.A.H

Covance/GNS: Cambridge, Ma.-based data analytics company GNS Healthcare has teamed up with contract research organization Covance to help pharmaceutical companies create more efficient drug development methods using GNS’s super computer-driven Reverse Engineering And Forward Simulation (REFS) data analytics platform. The collaboration will use data provided by Covance to create models that can better predict the success of a drug given certain patient characteristics. “Our collaboration with Covance combines our unique collective resources and capabilities to tackle what has previously been an intractable challenge—improving dismal clinical drug development success rates,” said Colin Hill, president and CEO of GNS. The companies are going to start with models for type II diabetes. Covance is hoping that the technology will help it offer its clients a forecasting option. Financial terms of the deal were not disclosed. The work is similar to that done by GNS for other clients including Huntington’s disease models for the CHDI Foundation and modeling work on inflammatory work for Bristol-Myers Squibb.--Lisa Lamotta

TransCelerate BioPharma: Unveiled Sept. 18, TransCelerate BioPharma Inc. will strive to identify and solve common drug-development challenges, improve clinical trial quality and ultimately bring new products to market more quickly. The non-profit organization is being staffed and funded by ten pharmaceutical companies (the charter members of TransCelerate are Abbott Laboratories Inc., AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, J&J, Pfizer, Sanofi, and Roche/Genentech Inc.). During the PSA conference on Sept 19, J&J CSO and pharma chairman Paul Stoffels said he expected the effort could cut development time – and development costs – by up to 5% for an average program. The outfit is led by acting CEO Garry Neil, former corporate VP, science & technology, at J&J, who said the primary issues TransCelerate can solve come down to a lack of standardization in drug development that results in needless repetition of effort, and with it, the draining of resources. Intended to be a virtual initiative, the firm will be headquartered in Philadelphia but have no staff at the start other than Neil. Instead, full-time equivalents from the 10 charter companies will work together on the goals. Each participating company is contributing an undisclosed amount of money to the effort, along with the FTEs, Neil said. Though not every big pharma is involved the door remains open, said Neil, for large, medium or small firms to join in. Also expected to play a role, Neil added, are academia, regulatory agencies, contract research organizations and patient advocacy groups. – J.A.H.