Financings of the Fortnight Isn’t Convinced You Have Nice Assets

Skeptical kitten wants to see what comes out the other side.

Single-asset companies. Asset-centric funds. Project-based financing. Call it what you will, but with the biopharma news flow these days, you’d think the entire industry was restructuring itself to find, develop and sell single products. You’d think FIPCO dreams were exhibiting some serious unmet medical need.

Building the next Genentech, Amgen or Biogen Idec might not be a popular goal among biotech investors, but as START-UP's third annual life science VC survey is about to reveal, a sizable and growing minority of those investors aren’t interested in the asset-centric model. As the graphic below shows, the skeptics’ numbers (presented as a percentage of total biopharma-investor survey takers) keep inching up year by year.

Well then. Respondents left a lot of comments, too. Here are a few:

“Selectively appealing. Need[s] more human capital.”

“A fad.”

“This strategy requires additional caution.”

And this stem-winder:

“Not a sustainable model for more than a few specialized outfits; the asset scope is limited to anything between optimized leads up to Phase II POC - this is where, in most indications, Pharma can play as well. Again, it requires a specialized group that can identify ideas earlier [and] better than pharma groups and can execute better [and] faster. VC partnerships are in many cases not the right resource for this. [I] still believe this movement is primarily driven by a need to show LPs a new model now that returns on the old model have shown to be 'not so good.’”

Now that’s something to chew on. Because it’s becoming apparent that it’s exactly that combination – VC partnerships with Pharma – driving the model. Avalon Ventures will share the risk for some of its latest fund with GlaxoSmithKline, which is tapping Avalon to scout for assets in the San Diego area and holding options to buy those assets when they reach the cusp of IND-enabling studies. Index Ventures has raised its first life-science-only fund, with an asset-centric bent, with GSK and Johnson & Johnson as limited partners. (Neither will hold options, they say.)

And we’re now seeing the first products emerging from a new fund raised by TVM Capital, which hadn’t raised a fund since 2005. The new $150 million fund is also life sciences only – after 30 years, TVM will no longer actively invest in information technology – and could top out at $200 million by year’s end. Two thirds of it is dedicated not to building companies but to developing pharmaceutical compounds through proof of concept. And some of those assets will be tied to a buyer with an option at Phase II proof of concept. That buyer is Eli Lilly, which is seeing progress three years after announcing its intent to fund three VCs to run a “mirror” portfolio of single-asset companies, but not before some ups and downs.

TVM’s new fund is part of what Lilly used to call the mirror portfolio, now renamed the rather stodgy Capital Funds Portfolio. It’s one of two VCs involved – the other is HealthCare Ventures, which has formed five single asset companies (or, in Lilly-speak, project focused companies, or PFCs).

So there are various riffs on the basic asset-centric tune, but the only constant is the outcome: there isn’t any. That is to say, none of the larger-scale efforts we’ve seen so far have produced exits. Perhaps one or two now and again – such as Index Ventures’ sale of PanGenetics BV to Abbott Laboratories in 2009 -- but we're still waiting to see it pay off as a broader strategy.

We asked our survey takers a few other questions about asset financing: Are there plenty of good assets available to license? Is there enough development expertise to hire? Are LPs and Big Pharma interested in funding the model? Those answers should prove interesting – and they’ll be available in the upcoming issue of START-UP, as will a lot more detail about the TVM-Lilly tie-up. But until then, perhaps this investor comment is the best way to sum up asset financing, in all its various flavors: “They all need to show they work. Call me in a few years.”

That’s no skeptic talking. That’s Hubert Birner, the general partner at TVM leading the life science team, when START-UP asked him which model so far is working. With several efforts well under way, it shouldn’t take more than a few years to judge the early returns.

Speaking of early, your columnist needs to get up before the sun, and the night is growing late. So we’ll get our assets in gear and leave you with the rest of the current edition of…

iPierian/True North Therapeutics: Alzheimer’s hopeful iPierian said September 4 it has pulled in a $30 million Series C round, with part of that cash earmarked for a new company to house one of iPierian’s preclinical compounds. Both iPierian and the newco, True North, will move forward as developers of single assets, which puts iPierian’s discovery platform on the backburner. Formed from the 2009 merger of two companies that benefited from California’s public stem-cell initiative, iPierian aimed to use induced pluripotent stem (iPS) cells as the basis for drug discovery. Its current lead candidate, IPN007, has been tested in in vitro combinations of brain cells derived from iPS cells. It targets extracellular tau, a fragmented form of a protein closely associated with Alzheimer’s disease. It’s not yet clear whether iPierian will pursue approval in Alzheimer’s or a related tauopathy such as progressive supranuclear palsy or frontotemporal dementia, but CEO Nancy Stagliano told “The Pink Sheet” the company plans to file an IND in 2014. True North, bankrolled with an undisclosed amount of iPierian’s new venture round, will follow iPierian into the clinic with a compound that targets disorders of the classical complement system, a cascade that functions as part of the innate immune system. SR One, the investment arm of GSK, co-led the round with Kleiner Perkins Caufield & Byers, MPM Capital and all of iPierian’s other existing investors. iPierian’s original investors -- Kleiner Perkins, Highland Capital, MPM and FinTech -- helped establish the company with a $31.5 million Series A round announced in July 2009. Google Ventures led a Series B installment in July 2010, then SROne and Biogen Idec New Ventures topped off the round at $28 million in September 2010. – Paul Bonanos

Evotec: The German drug discovery services company has raised €30 million ($40 million) from the Biotechnology Value Fund and other affiliates of San Francisco investment firm BVF Partners, diversifying its investor base and bringing in extra funds to expand its program of collaborations with academia and biotech companies. BVF bought 11.8 million new shares in Evotec at €2.55 per share, a 3% discount to the closing price August 27, the companies announced August 31. At the same time, BVF bought an option to acquire 11.8 million Evotec shares from TVM Capital at €4 per share over the next 30 months. If exercised, BVF would be the largest single shareholder, with more than an 18% stake in Evotec. The Hamburg-based firm has turned its business around since it restructured in 2009, dropping costly work on its own product pipeline in favour of securing drug discovery alliances and helping pharma and biotech companies to find and optimize new compounds. It has long-term alliances with Bayer, Boehringer Ingelheim, Genentech, Janssen, MedImmune and Ono Pharmaceutical. This year, the company has entered into a collaboration with Harvard University to identify new antibacterials, and with Dana Farber's Belfer Institute for Applied Cancer Science, to explore epigenetic oncology targets. – John Davis

ObsEva: Announced August 29 and detailed in "The Pink Sheet" DAILY, the Swiss start-up has raised a CHF 32 million ($34.9 million) Series A round of funding to develop women’s health drug candidates obtained from Merck Serono. It’s the latest in a series of asset spinouts from Merck Serono, which has cut research staff since Merck KGAA bought Serono in 2006, but its venture group MS Ventures has dedicated funds to help launch those spinouts. (Our IN VIVO colleagues have a detailed look at Merck Serono’s post-merger blues here.) Paris-based Sofinnova Partners led the round, while Sofinnova Ventures of Menlo Park, Calif., and Novo A/S of Denmark participated. MS Ventures took an equity stake as part of the licensing deal that gave ObsEva its first drug candidates. ObsEva CEO, serial entrepreneur and women’s health specialist Ernest Loumaye co-founded the firm roughly two years after selling reproductive medicine company PregLem to Gedeon Richter for CHF 150 million up-front plus milestones. Some clinical work already has been performed on at least one candidate, a Phase II program for pre-term labor that can either reduce or prevent uterine contractions. Both Sofinnova Partners and Sofinnova Ventures, independent firms with an intertwining history, were PregLem stakeholders. PregLem provided an exceptional 5 times return for Sofinnova Ventures, the firm's General Partner Jim Healy said in an interview with our Pink Sheet colleagues. The firm led PregLem's CHF 36 million Series B round in 2007. – P.B.

Acacia Pharma: The repurposing biotech said September 2 it has raised £15 million ($23.5 million) in a Series B round to fund completion of the Phase III development of APD421, its lead product for post-operative nausea and vomiting. Other companies already market the active ingredient in APD421 in a CNS indication. The fundraising, which comes two years after the Cambridge, UK-based virtual company raised $10 million in a Series A in March 2011, adds two new VCs to its investor group, Fidelity Biosciences and Novo A/S, who join Series A contributors Lundbeckfond Ventures and Gilde Healthcare. The funds extend Acacia's cash runway to mid-2015 and are enough to complete Phase II studies of the company's second pipeline product, APD403, for the prevention of chemotherapy induced nausea and vomiting, the company said. Although the company plans to find marketing partners for its products at the end of Phase III, the strength of its financial backing means Acacia could consider commercializing its own products, he said. Acacia CEO Julian Gilbert is no stranger to repurposing medicines, having co-founded Arakis, a UK company with a similar strategy that was sold to Sosei in 2005 for £107 million.  Arakis worked to repurpose the muscarinic antagonist glycopyrronium bromide for chronic obstructive pulmonary disease (COPD), now marketed by licensee Novartis AG as Seebri Breezhaler. - J.D.

All the Rest: CNS-focused Intra-Cellular Therapies took in $60mm (18.9mm common shares and $15.3mm in bridge notes) from institutional investors, then reverse merged with a public shell to gain its listing on the OTC…developing late-stage OTO201 and OTO104 for disorders of the inner and middle ear, Otonomy brought in $45.9 million in Series C financing…Argos Therapeutics raised $42.5mm in a Series E round led by Pharmstandard OJSC, which with other first-time backer Green Cross, will take territorial rights to Argos’ AGS003 late-stage metastatic renal cell carcinoma candidate…Syndax Pharmaceuticals’ $26.6mm Series B round will help advance Phase III Entinostat, an HDAC inhibitor for metastatic breast cancer…Also in Series B rounds, antibiotics developer MicuRx took in $25mm; Arsanis, an anti-infectives developer built around Adimab’s antibody platform, with many of the same backers as Adimab, brought in $20mm; Icon Bioscience, a company with a late-stage cataract surgery candidate, raised $14.9mm; Swiss-based Mind-NRG, focused on neurodegenerative diseases, brought in $8mm; and Rani Therapeutics, developing oral drug delivery formulations for existing large-molecule pharmaceuticals, raised an undisclosed amount…Triton Algae Innovations completed a $5mm Series A to support expansion of its PhycoLogix synthetic biology platform for producing proteins in algae and commercialization of its PhycoShield line of proteins…OTC-traded immunotherapeutics developer Stellar Biotechnologies completed a $12mm placement of 11.4mm units at $1.05…Catalyst Pharmaceutical Partners, which targets rare neuromuscular and neurological diseases, completed a $15.1mm registered direct offering of 8.8mm shares at $1.72…Two biotechs filed for initial public offerings:  lipid-based nutritional ingredients and medical foods maker Enzymotec, the third Israeli company to list on Nasdaq this year; and MacroGenics, a developer of MAb therapeutics for cancer and autoimmune diseases…Three pharmacos set IPO terms: Fate Therapeutics (stem cell-modulating treatments for orphan diseases) is offering 4mm shares at a $14-16 range; Evoke Pharma (GI-focused spec pharma) plans to sell 2.1mm shares between $12-14; and protein and antibody drug developer Five Prime Therapeutics is offering 4mm shares at a range of $12-14…infectious diseases player ContraFect raised $11.8mm in an oversubscribed convertible debt offering – which initially targeted $5 million – to support CF301, its bacteriophage lysin for staphylococcus aureus bacteremia infection…concurrent with its spin-off from Elcelyx Therapeutics, NaZura BioHealth raised $5mm in debt…Oxygen Biotherapeutics completed a $4.9mm debt offering to advance its Phase IIb Oxycyte PFC emulsion for traumatic brain injury…In fund news, former Dendreon CEO Mitch Gold has partnered with investment analyst David Miller to open a new multimillion-dollar hedge fund, Alpine BioVentures, to invest in newer biotech start-ups, particularly those focused on cancer and rare diseases. -- Maureen Riordan

Skeptical kitten photo courtesy of flickrer Jeff Eaton, who also shoots sandwiches.

Deals of the Week Wants Cash on the Barrelhead

 

For pharmas making all but the largest acquisitions, cash is king. From speculative buyouts of preclinical start-ups all the way through bolt-on deals worth a few billion dollars, pharmas typically spend cash rather than swap stock to make their acquisitions. Except in the cases of mega-mergers, a pharma’s purchasing power lies on its balance sheet, not in its share price.

So when Moody’s Investor Service issued a March 18 study of the U.S. companies whose cash coffers were the richest, Deals of the Week couldn’t help but turn an eye to the seven health care companies named in the report. None of them has disclosed a pharma acquisition yet in 2013, but rumors are swirling that one will strike soon.

Pfizer was the wealthiest in the bunch, with $46.9 billion in the till at the end of 2012. That’s enough to place it fourth across all industries, behind only Apple, Microsoft and Google. And although Pfizer had the world’s best-selling drug for several years running until Lipitor (atorvastatin) lost patent protection in 2011, not all of its bounty came from product sales. It did, after all, pare off its nutrition business in an $11.85 billion sale to Nestle SA last year, not to mention its Capsugel unit to private equity firm Kohlberg Kravis Roberts in 2011. Pfizer hasn’t done a pharma acquisition since its (all-cash) takeout of NextWave Pharmaceuticals Inc. in November.

Ninth-place Amgen made four large cash buys in 2012, including deals for Micromet Inc., deCODE genetics EHF, KAI Pharmaceuticals Inc., and Mustafa Nevzat Pharmaceuticals that totaled more than $2.5 billion. But those made a small dent on Amgen’s balance sheet; Moody’s said the big biotech had $24.1 billion at year’s end. The report also noted that 78% of Amgen’s liquidity is located overseas; two of its four large 2012 deals were for non-U.S. companies.

Beyond Amgen, Johnson & Johnson wasn’t far behind at 13th place with $21.1 billion, while Merck was 15th with $16.1 billion. (J&J-owned Cordis made one device acquisition this month, buying Flexible Stenting Solutions Inc. for an undisclosed sum.)

Moody’s reported that Abbott had $15.2 billion in cash on Dec. 31, enough for 17th on the overall list, but a day later, the company split in two. Its pharma descendant, AbbVie, had $7.98 billion upon launch, according to a March 15 regulatory filing. Rounding out the top pharmas were Lilly at 23rd with $12 billion and Bristol-Myers Squibb at 40th with $6.4 billion.

More broadly, the pharma industry holds about 14% of the $1.45 trillion corporate cash pile, a share which has remained roughly the same for several years. It’s the second largest sector behind technology, which gained share to 38%, while energy is among the industries losing share.

If Big Pharma isn't yet striking, some companies are still buying, licensing, and partnering. You won't get thirty days in the jailhouse, but you won't be abreast of this week's dealmaking news without...

Valeant/Obagi: Canada’s Valeant Pharmaceuticals is again strengthening its dermatology business through acquisition, this time by buying Obagi Medical Products, the maker of several proprietary aesthetic and prescription skin-care lines sold through physician offices. The companies announced Valeant’s plans to acquire the Long Beach, Calif., company March 20 for $19.75 per share in cash, or about $360 million. Valeant’s offer represents a 42% premium to Obagi’s closing share price March 14, the last trading day prior to the disclosure of its fourth quarter and full-year 2012 earnings. The company generated sales of $120.7 million in 2012. Obagi’s portfolio includes a range of skin-care lines, including Obagi Nu-Derm, Obagi-C Rx, Obagi Condition & Enhance and ObagiCLENZIderm M.D. acne therapeutic system. Valeant has built itself into one of the world’s leading dermatology players through acquisitions. Last year, Valeant announced plans to buy Medicis Pharmaceutical for $2.6 billion, positioning it as the largest dermatology player in the U.S. and second in the world behind only Galderma. - Jessica Merrill

AstraZeneca/Moderna: Along with its new R&D strategy and organizational restructuring, AstraZeneca unveiled a massive bet on an early-stage biotech platform March 21 that suggests the big pharma has taken to heart its new CEO’s directive to be more willing to embrace risk. The deal, an option agreement for up to 40 programs across several therapeutic areas with privately held Moderna Therapeutics, carries an eye-catching price tag: $240 million up front, plus potential earn-outs. All told, Moderna, which aims to use messenger RNA (mRNA) as therapeutics, could earn more than $1 billion under the deal with AstraZeneca, announced March 21. That same day, AstraZeneca also unveiled a research partnership in cardiovascular, metabolic and regenerative disease with Sweden’s Karolinska Institute, one of several collaborations between those two groups in recent years. Beyond the $240 million upfront payment – the largest this year in a biotech/pharma collaboration and one of the biggest ever for a deal built around preclinical assets – Moderna also can earn up to $180 million in “technical milestones,” an arrangement Moderna CEO Stephane Bancel described as almost a secondary, contingent upfront payment. Moderna also could bring home development, regulatory and commercial milestones for each drug candidate licensed by AstraZeneca, as well as sales royalties ranging from the high single digits to low double digits. - Joseph Haas

Merck/Cerecor: Well-funded Baltimore start-up Cerecor has licensed a portfolio of neurology drugs from Merck that have shown potential in treating Parkinson’s disease. The program includes more than 2,000 molecules that inhibit catechol-O-methyltransferase, or COMT, a compound that breaks down dopamine in the brain and is linked to improving brain functions such as cognition, motivation and emotion. In a March 20 statement announcing the deal, Cerecor said Merck’s research has improved toxicity issues related to other COMT inhibitors. Marketed drugs in the class include Novartis’s Comtan (entacapone) and Valeant’s Tasmar (tolcapone), which typically are prescribed with levodopa, a synthetic form of the natural dopamine-producing chemical L-dopa. Terms of the Merck-Cerecor arrangement weren’t released, although Cerecor said it will pay milestones and royalties “consistent with other preclinical licenses in neuroscience.” The start-up has a Phase I anti-tussive drug, as well as a group of preclinical D-amino acid oxidase inhibitors obtained from Johns Hopkins University’s Brain Science Institute, in its pipeline. Last April, Cerecor raised $22 million in a Series A round using placement agent Maxim Group; the specific investors weren’t named. Former Celgene CEO Sol Barer is Cerecor’s chairman. - Paul Bonanos

Celgene/bluebird bio: Speaking of Celgene, the Summit, N.J., gene- and protein-regulation specialist has teamed up with 2012 Deals of the Year nominee bluebird bio in a gene-therapy deal (pdf) that will target oncology. Specifically, the two companies will collaborate to develop therapies that modify a patient’s own chimeric antigen receptor T-cells, then re-introduce them to target cancer cells. Although bluebird bio will foot the bill for Phase I trials on clinical products, Celgene will have the option to obtain a global license for each for an unspecified fee; bluebird bio retains the right to share U.S. rights in exchange for reduced milestone payments. Celgene’s upfront payment wasn’t revealed, but total fees including milestones for each product could total $225 million plus royalties. Celgene also agreed to collaborate on CAR T-cell research with scientists at the Center for Cell and Gene Therapy at Baylor College of Medicine, Texas Children’s Hospital and The Methodist Hospital, Houston. The team at bluebird bio also will have access to the scientists, led by Baylor professor Malcolm Brenner. - P.B.

NPS/Takeda: Two assets came full-circle March 19 as NPS Pharmaceuticals re-acquired ex-U.S. rights to a pair of rare disease drugs in a deal that will increase the equity position of Japanese pharma Takeda Pharmaceutical. NPS previously out-licensed the rights to teduglutide and PTH 1-84 in separate deals with Nycomed Pharma, which then was acquired by Takeda. In an unusual deal structure, NPS, which is marketing teduglutide in the U.S. as Gattex and hopes to file PTH 1-84 under the brand name Natpara later this year as a biologic therapy for hypoparathyroidism, brought the ex-U.S. rights to those two compounds in-house in exchange for $50 million in common stock. Down the road, Takeda can earn an additional $30 million, which will be either cash or additional equity at NPS’ discretion, when the two drugs achieve combined worldwide, single-year net sales of $750 million. Takeda holds an equity position of about 7% following this deal, NPS President and CEO Francois Nader said. Both the licensing fee and the sales-based milestone were structured as equity (although the milestone can be paid out as cash if NPS opts) partly to preserve cash, Nader said. An ex-U.S. license to both drugs is just the start of what NPS gains under the deal. The transaction also transfers an inventory of active pharmaceutical ingredients for both drugs to NPS, a less-expensive method for making teduglutide, a glucagon-like peptide 2 (GLP-2) analog, and a pen delivery system that could be used with PTH 1-84. - J.A.H.

CRT/Janssen: Cancer Research Technology, the technology transfer arm of world’s largest charity Cancer Research UK, and Janssen Biotech have joined in the search to find potential new multiple myeloma drugs. The duo hope they can identify molecules and develop potential medicines that block a key protein on a cell-signaling route called the unfolded protein response (UPR) pathway. Teams at The Institute of Cancer Research (ICR), led by Ian Collins in the Cancer Research UK Cancer Therapeutics Unit and Faith Davies in the Division of Molecular Pathology, will work alongside a team at Janssen. Together, Cancer Research UK and Janssen will fund up to 25 scientists, with Janssen providing some of the funding to support the research at the ICR in London. Janssen also will pay future milestones and royalties and take the lead on the clinical development of any potential drugs. The two sides announced their deal on March 21 but gave no financial details. CRT long ago moved beyond simply commercializing and managing the intellectual property generated by the £500 million in research funding provided by Cancer Research UK to five core research institutes across the U.K., as well as to researchers at dozens of other universities and organizations. The breadth of CRT’s academic network – it has sourced and managed IP from more than a dozen global charities and institutes, as well as that of Cancer Research UK-funded research and drug discovery – positions it as an important gateway to cancer-focused research in the U.K. It has a strong in-house drug-discovery capability and access to clinical development capabilities in conjunction with Cancer Research UK’s drug development office. Janssen Biotech is part of the Janssen Pharmaceutical Companies of Johnson & Johnson. J&J earlier this month opened an innovation center in London but a spokesperson for the U.S. drug company said Janssen’s alliance with CRT was not the result of that center’s establishment. - Sten Stovall

Merck Serono/Nordic Bioscience and Merck KGaA/BMS: Merck Serono, a unit of Merck KGaA, said on March 18 it formed a strategic alliance with Denmark-based Nordic Bioscience AS around the German drug maker’s investigational therapy sprifermin, or recombinant human FGF-18, in osteoarthritis of the knee. Under the terms of the agreement, Nordic Bioscience will provide Merck with clinical development services on a shared-risk basis in exchange for a payment structure that includes service fees and potential milestone and royalty payments on the program. Financial terms of the collaboration were not disclosed; however. Merck retains full responsibility for the development and commercialization of the investigational drug. According to the World Health Organization, more than 5% of adults over 40 in developed countries, or more than 30 million people, suffer from osteoarthritis of the knee. A multi-national Phase IIb trial, dubbed the FORWARD study, is expected to begin enrolment in the second half of 2013 to evaluate further sprifermin for inhibition of the progression of structural damage, reduction in pain and improvement of physical function in patients with osteoarthritis of the knee. Sprifermin is a protein thought to induce chondrocyte stimulation leading to matrix synthesis and chondrocyte renewal. It is delivered by intra-articular injection. Two phase I trials in moderate/severe osteoarthritis of the knee previously were completed; a Phase II trial to evaluate the efficacy and safety in patients with cartilage injury of the knee is ongoing. The program was originally was in-licensed in 2004 from ZymoGenetics, a Bristol-Myers subsidiary. The next day, on March 19, Merck KGaA said it inked a deal with Bristol to promote type 2 diabetes drug Glucophage (metformin hydrochloride) under different formulations in China. Under terms of the agreement, Merck Serono and Bristol will co-promote Glucophage in China through a profit-sharing arrangement. Glucophage has been marketed by Bristol-Myers Squibb-SASS in China since 1999. The two companies will tap existing resources and complementary strengths, with Bristol-Myers Squibb-SASS continuing to manufacture Glucophage’s IR (immediate release) formulation. The collaboration will seek to expand the geographic distribution of Glucophage and provide diabetes-related health and medical information including education for health professionals. In addition, the co-promotion will significantly increase outreach to hospitals. Other terms of the agreement were not disclosed. -- S.S.

Thanks to YouTube user cweiandnd for uploading the Louvin Brothers clip. Keep clicking, there's more where that came from.

Deals Of The Week: Whose Mind Is On Deals Anyway?

To rehash The Event of this week: the Supreme Court ruled 5-to-4 to uphold the constitutionality of the Patient Protection and Affordable Care Act June 28, including the mandate requiring individuals to have health insurance.

The decision seems favorable to the pharmaceutical industry, and may have surprised a few who already were scheming of ways to get back the billions spent on that excise tax to the federal government in 2011. We look forward to sorting out the implications for the pharmaceutical and biotech industries in the weeks and months ahead. Our sister publication, “The Pink Sheet,” DAILY did an initial review here, making the point that many changes already were set in motion by the passage of the act itself. And we'll have much more to say in the days and weeks ahead.

The pharma industry stands to benefit from the expected increase in insured patients. The Centers for Medicare & Medicaid Services project about 22 million newly insured patients, and that spending on prescription drugs by public and private payers will increase 8.8% in 2014 over 2013 – the year major coverage expansions under the ACA are scheduled to begin – compared to 4.1% growth if it had not passed.

Still, there’s no guarantee of the volume trends newly insured patients will deliver when it comes to pharmaceuticals. “The actual volume upside may be lower and more modest then some expect,” noted Barclays Capital analyst Anthony Butler in a same-day note. A significant portion of the uninsured are believed to be young people who may not use health care services or pharmaceuticals. “The addition of these segments into the coverage pool through the individual mandate may be a smaller net positive from the volume perspective for the pharma sector than some have expected,” Butler said.

There will be plenty of uncertainties as we navigate through health care reform, but for now isn’t it about time to celebrate the federal government’s executive, legislative and judicial branches in action, by heading to the beach for July 4? – Jessica Merrill

Merck Serono/Compugen – The corporate venture arm of Germany’s Merck Serono is collaborating with Compugen to establish a new company, Neviah Genomics, to discover, develop and market novel biomarkers for drug toxicity, with the aim of bringing a product to market within a few years. The Neviah collaboration, announced June 25, is the first investment under Merck Serono Ventures’ Israel Bioincubator program, established by Merck Serono in 2011 with initial funding of €10 million over seven years. Compugen, a Tel Aviv-based biotech with a pipeline of preclinical protein therapeutics and monoclonal antibodies, will bring its predictive discovery technologies to the partnership. The deal is structured so both Merck Serono Ventures and Compugen will be shareholders in Neviah, which will have its own board that will determine how any product profits will be distributed. Compugen also will earn royalties from product sales. Further financial details were not disclosed, including the amount of Merck Serono’s initial investment. The companies have worked together as part of a 2008 partnership to co-develop CGEN855, a GCPR peptide investigated in inflammatory disease. – Joseph Haas

Lilly/PrimeraDx – Massachusetts-based PrimeraDx has entered into a multi-year collaboration with Eli Lilly to develop companion diagnostics for several unspecified clinical candidates, initially focusing on oncology. Neither terms nor timelines were disclosed. PrimeraDx, will develop multiplexed assays using its proprietary ICEPlex system, which is capable of simultaneous detection and quantification of numerous target types such as mRNA, miRNA, SNPs and DNA. Founded in 2004 and formerly known as Primera Biosystems, Inc., the company sells instrumentation, software, assays and consumables. Primary customers are clinical labs at large academic research centers and reference laboratories and biopharmaceutical companies. PrimeraDx is backed by venture investors including Abingworth, InterWest, CHL Medical, MPM Capital, Burrill & Co., and the Malaysian Technology Development Corporation. It last raised a $20 million series C in September 2009. – Mike Goodman

Celgene/Inhibrx – Drug-discovery firm Inhibrx has signed a notable partner, announcing June 27 that Celgene has licensed a preclinical antibody program. The target of the program was not disclosed. The potential value of the deal is $500 million, including upfront, clinical and regulatory milestones. Inhibrx, based in La Jolla, Calif., is focused on the discovery and development of novel drugs for cancer and inflammatory disease. – J.M.

Merck/AstraZeneca – Merck and AstraZeneca announced an agreement to extend their longstanding partnership June 27 after coming to terms that could benefit both parties. The original partnership dates back to 1982 when Sweden’s Astra AB tapped Merck to market its proton pump inhibitor drugs in the US. Nexium (esomeprazole), which is expected to post dwindling sales once losing patent protection in 2014, and Prilosec (omeprazole), which is now sold as an over-the-counter medication, remain the only drugs still under the agreement. AstraZeneca now will have the option to buy the remainder of Merck’s stake in the drugs in the first quarter of 2014 for $347 million plus an amount equal to 10 times Merck's average 1% annual profit allocation in the partnership, which AstraZeneca estimates to be about $80 million. The price paid by AstraZeneca also could include the net present value of up to 5% of future U.S. sales of the painkiller Vimovo (naproxen/esomeprazole). While the extension of the deal will have no immediate effect on AstraZeneca’s earnings, it will help Merck deal with the patent expiration of the blockbuster allergy drug Singulair (monteklast) by adding $200 million in revenues to the 2012 top line. – Lisa LaMotta

Biogen Idec/Isis – Antisense drug-discovery platform operator Isis Pharmaceuticals has partnered prolifically over the years. Its latest deal with Biogen Idec is the second collaboration between the two companies, an arrangement to develop and commercialize a treatment for myotonic dystrophy type 1. The disorder, also known as Steinert disease, is a form of muscular dystrophy that afflicts adults. Biogen Idec will pay $12 million up front to enter the collaboration, but could pay much more over time if it licenses the drug at the end of Phase II. The deal includes $59 million in milestone payments prior to licensing, as well as up to $200 million for a licensing fee and and further clinical milestones. The companies will attempt to develop a drug that repairs a repeating defect in the coding of the dystrophia myotonia-protein kinase gene that results in abnormally long strands of RNA, leading to buildup in cells. Isis and Biogen already have an alliance in spinal muscular atrophy, revealed in January. – Paul Bonanos

Sanofi/Oxford – The UK's Oxford BioMedica announced June 29 that it has earned a $3 million option exercise payment from Sanofi, which has decided to acquire worldwide license to a pair of Phase I/II gene-based treatments discovered by Oxford. Under terms of an agreement signed in 2009, Sanofi has acquired rights to develop, manufacture and commercialize StarGen for Stargardt disease and UshStat for Usher syndrome type 1B. Oxford discovered and developed both candidates using its proprietary LentiVector platform technology. – Joseph Haas

Photo credit: Wikimedia Commons

2011 Exit/Financing of the Year Nominee: Arteaus

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

 

Blink and you might have missed it, although our Pink Sheet colleagues didn't.

In October, Atlas Ventures made its first asset-financing play under the umbrella of its Atlas Venture Development Corp. (AVDC), teaming with OrbiMed Advisors to share the funding of Arteaus Therapeutics with an $18 million A round. Arteaus is one thing and one thing only: an in-licensed migraine drug; no office, no outside management, and no backup R&D programs.

As we've been discussing for a couple years now, funding single assets instead of entire biotechs is an intriguing model for VCs who don't want -- or can't afford -- to see a company through to a sale or an IPO. In fact, in this story we compared AVDC and CMEA Capital's Velocity fund before either had an asset under their roofs. (Velocity still hasn't announced a first project.)

We nominate Arteaus not only because it's the first out of the gate, but also because of its odd circumstances. The migraine drug comes from Eli Lilly, which has made plenty of noise in the past year or so about building a network of three "mirror" funds to do what Atlas is doing: take compounds that Lilly doesn't want to develop on its own, bring in outside funding help, and give Lilly a "clawback" option once the drug reaches an agreed-upon milestone. But wait a minute: Atlas isn't one of Lilly's mirror funds. Which either means Atlas and OrbiMed gave Lilly a deal it couldn't refuse, or the mirror fund thing is a bigger headache than first expected. Well, we knew the latter already, to some extent: Before launch, CMEA's Velocity was supposed to be one of the mirror funds; Lilly was even named as a strategic backer in the Velocity fundraising material. But those plans disintegrated in late 2010 or early 2011, and when Velocity formally launched in June, it was no longer a Mirror fund. (Velocity is being funded from the current CMEA VII, and the San Francisco firm has no plans to raise an eighth fund.)

Another twist is that AVDC will contract with Lilly's Chorus division, a semi-autonomous R&D group meant to drive proof of concept development faster than Lilly's traditional process, to run the migraine compound's Phase I and II trials. Lilly has an option to re-acquire the drug after proof of concept. If it does, Atlas and OrbiMed would be owed undisclosed payments and royalties, as well as an upfront payment that would allow them to exit (thanks to Arteaus being structured as a limited liability corporation).

The compound in question, by the way, is a monoclonal antibody that binds with calcitonin gene-related peptide, or CGRP, a potent vasodilator linked to migraines and implicated in transmission of pain. The larger point is that Lilly wanted to share the risk of developing it, and Atlas has provided a vehicle for doing just that, all while separating the value of the asset from the distraction of building a standalone company to house that asset. Or, you might say, the distraction of fighting for resources inside Lilly.

Photo courtesy of flickrer Quinn.Anya via a Creative Commons license. 

2011 Alliance Of The Year Nominee: Lilly/Boehringer

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

It's one of the biggest risk-sharing deals ever. It has oral drugs. It has insulins. It has biosimilars. And it's still making waves (including deal-breakers) in the already-choppy ocean that is diabetes.

Who would have expected Indianapolis-based Lilly to marry its struggling diabetes franchise with what's still only a pipeline at private German group Boehringer Ingelheim? The culture clash in itself deserves a DOTY nomination, but then there's so much more besides.

The January 2011 deal saw Lilly and BI agree to develop and market two of BI's oral diabetes compounds, a DPP-4 inhibitor Tradjenta (linagliptin) and a SGLT-2 inhibitor, and two of Lilly's basal insulin analogs, including a potential biosimilar version of Sanofi's Lantus (basal insulin glargine). So far, so fair. Except that BI gets an initial $388 million up front from Lilly, plus an option to co-develop and co-promote Lilly's chronic kidney disease antibody once it reaches Phase III.

Deal of the year for BI, then, perhaps, which gets paid to enhance its emerging diabetes portfolio and to tap into the services of an experienced diabetes marketing partner. This perceived imbalance is in part explained by Lilly's desperation, as it faces one of industry's steepest patent-cliffs, with the recent US expiry of $5 billion schizophrenia drug Zyprexa compounded by that of Gemzar in 2010, and by Cymbalta and Evista in 2013 and 2014. It's also in part about Lilly's defiant anti-M&A stance.

So to those ocean waves that, along with the chunky upfront, sheer number/size of big drugs involved (combined peak sales of $10 billion, predicts BI...), and not-to-be-sniffed at regulatory-milestones (over $800 million for BI for its hopefuls, and $650 million for Lilly for the insulins) make this a mightily strong DOTY candidate.

The effects of the Lilly/BI deal have rippled well beyond these two unlikely spouses. The deal provided a window onto the fascinating dynamics of the diabetes market, and -- importantly to those dynamics -- triggered Amylin's walk-out from its own Lilly partnership on the first-to-market GLP-1 agonist Byetta (exenatide) and once-weekly follow-on Bydureon. (No-deal-of-the-year nominee, perhaps?)

After almost ten years in bed with Lilly, Amylin felt let down by Lilly's agreement to co-commercialize BI's Tradjenta, which it felt would compete with its GLP-1s, even though the latter are injectable. After a lawsuit, Amylin paid (up to $400m in up-fronts and milestones) and left. Now the question is which of the diabetes leaders (Sanofi, Novo?), or indeed, which diabetes hopeful (GSK, Pfizer?) will buy Amylin? (Let's make that deal a 2012 nominee ... see, we're just so ahead of ourselves).

If the big-picture twisting-and-turning plot of this deal haven't convinced you yet, consider some of the commercial back-stories in the fast-moving diabetes space: can third-to-market Tradjenta carve out any niche in what has become a comfortable playing field for Merck & Co. Inc.'s first-to-arrive Januvia (sitagliptin)? And do safety concerns raised by an FDA panel over BMS/AZ's dapagliflozin, the first SGLT-2, spell the end for BI's second asset in the deal? As such, is Diabetic Investor's David Kliff right in saying that "Lilly has made a huge mistake" with this deal?

Meanwhile, can Lilly, whose strength has lain in insulins, rather than oral diabetes drugs, successfully apply the aggressive pricing tactics that have recently bought it some time (and market share) in existing insulin markets, to its insulin glargine candidate?

The story of Lilly-BI and the sub-plots it has generated is un-putdownable. There will be further series to follow. It's not a single DOTY, its a whole DOTY (and non-DOTY) franchise. Never mind those 'biggest ever', or 'most-creative ever'. Vote for the most interesting -- and get more bang for your vote.

image by flickrer watch4u, used under creative commons

DOTW: This Is Spinal Tap Edition

In the immortal words of one Bobbi Flekman, "money talks and bull**** walks."

And on 11.11.11, a day some are lauding corduroy and many are honoring our veterans and active service men and women, we look across the pond for the big money deal.

That's right. In a week when "most blokes, you know, will be playing at ten," Lundbeck and Otsuka took it to eleven with a multi-faceted alliance centered around two late-stage products from the Japanese pharma and up to three earlier stage programs from the Danes. (No word yet on whether Lundbeck's CEO Ulf Wiinberg or Otsuka's President Tatsuo Higuchi will play the role of Nigel Tufnel, alas.) The pipeline- and profit-sharing, co-development, co-commercialization deal requires Lundbeck to pay Otsuka 1.1 billion Danish Kroners, or 200 million George Washingtons, up front and potentially another $1.6 billion in development, regulatory, and sales milestones.

In spirit, Lundbeck/Otsuka recalls the major alliance Lilly and Boehringer Ingelheim struck in diabetes earlier this year --the consequences of that deal, as you will read about below, are still causing ripples. Interestingly today's eleven alliance sees two companies -- both heavily dependent for the bulk of their revenue on a single product that will soon go generic -- try to diversify not only their pipelines but also geographic reach. That Lundbeck is the one on the economic hook stems from the fact that its patent cliff is not only steeper but also arrives in a few months time.

The $200 million upfront Lundbeck is undoubtedly hefty, but analysts and investors in Denmark didn't smell anything rotten, sending the company's stock price, which trades on the Copenhagen exchange, up nearly 10% on the news. "We see this deal as clearly positive for Lundbeck and it bodes well for long-term revenue, top-line diversification and company perception" Nordea analysts wrote in a note to clients.

The reason for the optimism? Recall that Lundbeck is overly dependent on Cipralex (which is partnered with Forest in the US where it is sold as Lexapro) for sales revenue. In 2010, close to 40% of the company's DKK 14.8 billion in revenue came from the antidepressant, whose key patents begin to expire in 2012. And for this upfront payment, Lundbeck gets co-dev/co-commercialization rights in certain regions (North and Latin America, Europe, Australia, and "some other countries") to two late stage Otsuka products that can help smooth its revenue line starting in 2013.

The first is the Japan pharma's depot formulation of aripiprazole, which is the same active ingredient in Otsuka's anti-sychotic juggernaut, Abilify, a drug that is partnered with BMS and goes off patent in 2015. The second is OPC-37415, a partial D2 dopamine receptor agonist in Phase III trials for schizophrenia and major depressive disorder. According to the press release announcing the deal, Otsuka plans to submit an NDA for aripiprazole depot to US regulators "soon" -- and to EMA authorities in 2013.

Lundbeck has done other big deals in the past in a bid to deemphasize its reliance on Cipralex, including its 2009 acquisitions of Ovation and Life Health to gain access to the chorea treatment Xenazine. Those deals certainly helped bolster Lundbeck's US CNS presence (especially after the failed 2008 $100 million alliance with Myriad Genetics around Alzheimer's therapy Flurizan), but are nothing compared to the potential it might reap with this Otsuka alliance, should aripiprazole depot and '37415 both make it to market and enjoy strong payer traction.

And reimbursement remains an open and intriguing question, especially for aripiprazole depot. Note that $1.4 billion of the milestone payments are tied to development and regulatory advances not actual reimbursement, meaning Lundbeck is still on the hook, even if payers ding the next-generation anti-psychotic. And that could well happen. The anti-psychotic market is not only competitive, but ripe with cheaper alternatives, including since October 2011 a generic version of Lilly's Zyprexa. Over a year ago Medco and genetic test developer SureGene, meantime, launched a research project to validate biomarkers that could improve the cost effectiveness of atypical antipsychotic treatments.

For its part, Lundbeck and Otsuka seemed to play up in the press release the known safety and efficacy of the depot formulation, noting there may be an outcomes-based reason to prescribe the more patient-friendly version of Abilify. After all it has been designed to "reduce the chance of reoccurence of symptoms for the patients who sometimes forget to take their medication". Patient adherence to anti-psychotic regimens is admittedly a big problem; whether Otsuka has data convincing payers of this benefit is another question. It's also one that the Japanese pharma, and now Lundbeck, will need to answer effectively to make the economics of the new alliance work for both parties.

As David St. Hubbins would no doubt tell you it's such a fine line between stupid and clever. In the meantime, turn the amperage all the way to the right 'cuz you'll feel much worse if you aren't under such heavy sedation. With none more black than IVB, it's time for...


Merck Serono/Ablynx: In a move that might reduce the sting of last week’s announcement that Pfizer was handing back a pair of anti-TNF-alpha programs, Ablynx said this week that partner Merck-Serono would expand its alliance with the Nanobody specialist. The new deal will see the partners co-discovering and co-developing Ablynx’s brand of single-domain antibodies against two targets in osteoarthritis. Ablynx gets €20 million up-front (paid as two tranches over the next three months) and will conduct and fund all pre-clinical work on the programs. Merck-Serono can then opt in at IND stage at a price of €15 million per program, after which Ablynx gets the choice to move forward as a 50/50 partner or choose a more traditional milestone/royalty-based licensing structure. This is the two companies' third deal since 2008; they’re currently also working on programs in oncology, immunology and inflammation. The deal has done little to reverse the slide in Ablynx’s market value since the Pfizer news, however. That drop worsened this week when Ablynx said its lead proprietary asset, the IV-formulated anti-vWF ALX-0081, did not meet its primary endpoint in Phase II studies. – Chris Morrison

Salix/Oceana: Gastroenterology-focused Salix Pharmaceuticals will expand its product portfolio and increase its revenues almost immediately with the planned $300 million acquisition of privately held Oceana Therapeutics. Announced during Salix’s third-quarter earnings call Nov. 8, the acquisition brings the specialty pharma two marketed products – Solesta for fecal incontinence and Deflux for vesicoureteral reflux. The company’s optimism about Oceana seems largely based on the upside potential of Solesta, an injectable gel approved by FDA as a Class III medical device in June, to win a large share of the fecal incontinence market. Oceana launched Solesta in September at a price of $3,690 per treatment. It can be administered on an out-patient basis without anesthesia. By contrast, surgical methods for treating fecal incontinence are thought to cost about $30,000 per patient. Salix did not say how much Solesta has earned to date but CEO Carolyn Logan predicted the product could produce peak-year sales greater than $500 million. Also an injectable gel, Deflux was approved by FDA in 2001. It is indicated for children affected by Grade II to Grade IV vesicoureteral reflux, a bladder malformation that can result in severe kidney infections and irreversible renal damage. It also is approved and marketed in 40 countries outside the US and posted net sales of about $26 million through the first nine months of 2011. –Joseph Haas

Amylin/Lilly: Once a fruitful partnership, the nine-year tie-up between diabetes specialist Amylin Pharmaceuticals and Eli Lilly around the GLP-1 agonist exenatide is being unwound. Although the agreement produced an $800 million drug in Byetta, a twice-daily injectable compound that stimulates insulin production in the pancreas, and a potential blockbuster follow-on in the once-weekly Bydureon, the writing’s been on the wall for some time, as their relationship became frostier over time. Lilly co-developed a different drug, DPP-4 antagonist Tradjenta (linagliptin) alongside Boehringer-Ingelheim; that led to a lawsuit, as Amylin believed Lilly breached their confidentiality agreement by using a shared sales force for both Byetta and Tradjenta. To remedy the situation, Lilly will return worldwide exenatide rights to Amylin in exchange for $250 million up-front plus 15% of sales, the latter of which could be worth up to $1.2 billion. All related litigation will be dropped. The separation occurs as Amylin awaits approval of Bydureon in the US; the drug has a PDUFA date of January 28, 2012. In the meantime, as this "Pink Sheet" Daily story discusses, Amylin plans to build its domestic sales force while seeking an international partner to sell Bydureon, which is already approved in Europe. Some observers, however, think Amylin could be acquired by another pharma instead. – Paul Bonanos

DOTW: School's (Still) In For Pharma

School's out for summer here in California, but not forever. As this week's tie-up between Pfizer and prominent hospitals and unis in Boston reminds us, big pharma seems keen on continuing education.

The goal, as we told you in this February IN VIVO feature, is to increase access to innovative R&D, via externally-sourced partnerships with leading academics, generally around risky areas, where the unmet need is high and the biological understanding is nascent (think Alzheimer's, treatment-resistant depression, obesity).

Pfizer isn't the only big pharma doing these types of deals (J&J, AstraZeneca, GSK, Bayer, and Sanofi are all touting their prowess in linking with top minds) but it has been among the most aggressive in the industry, both in terms of the pace of its deal-making and the money it's willing to spend.

On June 8, the big pharma revealed the latest in its Centers for Therapeutic Innovation program, a $100 million, 5-year collaboration with 8 Boston-area unis and hospitals that follows just months after similar tie-ups in San Francisco and New York. In announcing the deal, Pfizer made it clear Boston will become its official CTI hub (with offices on the Longwood Medical Campus, within spitting distance of academic researchers), even as the group anticipates setting up 5 additional spokes in cities in the US and elsewhere around the globe.

According to "The Pink Sheet" Daily, with an estimated 40 staffers on the Longwood Campus, the new CTI will employ twice as many Pfizer professionals as the exploratory UCSF arrangement when it got started last fall, and more than the 25 now working diligently in NYC. These industry execs are supposed to establish direct relationships with specific scientists, in the same way that VCs often reach out to academics or docs -- to identify research that could lead to viable commercial products. A joint pharma/academia steering committee will ultimately choose the projects eligible for Pfizer's $20 million annually.

The question of course, is will these CTI deals provide Pfizer with the necessary innovation to revitalize its "innovative core", even as senior industry execs continue to define what that exactly means. At around $100 million a pop, these deals are real money, even if the company is hedging by limiting the amount it doles out in one go. Certainly the amount of people power devoted to managing the alliances --85 and rising-- ain't nothing.

Pfizer, of course, loses its Lipitor juggernaut later this year, and has been increasingly looking for ways to cut costs. Two weeks ago, it revealed it was streamlining its outsourcing, looking to Parexel and Icon, to become its preferred CRO providers. This week, WSJ broke the news that the big pharma was looking to cull another $1 billion, mostly via reducing administrative costs.

Some have argued these CTI deals are a relatively low-cost way for Pfizer to get access to exciting R&D. And we certainly get the fact that individually these alliances are small money for a company with Pfizer's current cash flow. Thing is, with Lipitor going off patent that cash flow will dry up (at least a little). That means Pfizer's Jose-Carlos Gutierrez-Ramos and Anthony Coyle, who spearhead the CTI initiative, will have to justify why spending roughly $160 million of R&D money annually (assuming all 8 CTIs are up and running by year's end w/o making an attempt to incorporate management costs) is better than inking multiple development deals with biotechs --or even VCs. After all, why not take a page from Lilly's FIPNET playbook and try something like that group's mirror fund?

In other words, for the money Pfizer is ponying up, it's got to ensure it's getting more than a GED (aka generally excellent discovery) -- in the form of actual pipeline. And there's where the potential problem arises. As is true for the other CTI arrangements, the Boston deal is structured as an opt-in: there is no quid pro quo that mandates the unis participating will steer a certain number of researchers to accepting the Pfizer dollars.

As such, there is the risk that investigators with top-notch ideas may seek alternatives -- either venture capital or additional grants or heaven, forbid, competing big pharma -- to finance their early stage science. That of course would leave Pfizer with access to second-tier projects -- and really, what good does that do the big drug maker? Indeed, when reporting the IN VIVO feature, one industry source opined (off the record, of course) that in certain cases academic centers are placing an unrealistic premium on their IP, without putting enough of their own skin in the game.

Pfizer execs know the risks, telling IN VIVO "it's up to us" to create the conditions under which the CTIs can be successful; and with a majority of VCs pulling back from funding early new ideas to baby existing portfolio cos and a very limited supply of federal grant money, this may be as good a time as any to head back to school.

Whether the results ultimately create the next wave of Pfizer innovation...well that's an experiment that doesn't fit nicely into an academic calendar year. And one crucial element may be whether Pfizer execs --especially Coyle, Pfizer's CTI architect and head of R&D Mikael Dolsten have the stamina to see the program through the inevitable ups and downs.

As we wait for the next CTI deal and news of projects financed from the ongoing NY, SF, and Boston efforts, we've sharpened our pencils and cracked open our notebooks to bring you another installment of ...

Selecta/Juvenile Diabetes Research Foundation: Selecta Biosciences and the Juvenile Diabetes Research Foundation will collaborate to bring an experimental tolerogenic vaccine for type 1 diabetes through preclinical proof-of-concept. In an arrangement announced June 9, JDRF will provide undisclosed milestone-based financial support to Selecta’s efforts to produce a vaccine that specifically targets the antigen which causes type 1 diabetes. JDRF’s Industry and Development Partnership Program has provided roughly $75 million in funding for diabetes research at 32 companies since 2004. The Selecta collaboration involves staged objectives beginning with creation of a work plan for the identification of a clinical candidate, the biotech says. JDRF will also provide "insights and expertise", which could be extremely helpful given the high-risk nature of the endeavor. (Recall just last week J&J parted ways with the biotech Diamyd, which has a Phase III vaccine for Type 1 diabetes called GAD65.) Selecta's therapy aims to stop a patient’s autoimmune response to Type1 diabetes-causing antigens, thereby blocking disease progression. The vaccine actively eliminates or inactivates T cells that cause beta-cell destruction while at the same time increases the number and function of beneficial T cells. In addition to diabetes,the biotech also is working on vaccines for preventing and treating diseases in half a dozen other therapeutic areas, including infectious diseases (universal flu, pneumococcus bacterial infection, malaria), oncology (universal human papilloma virus and prostate cancer), and smoking cessation. —Joseph Haas

Lilly/Synthes: In an unusual venture, Eli Lilly and the orthopedics manufacturer Synthes have formed a long-term world-wide collaboration for the development and commercialization of bone-healing therapies. The companies will jointly develop new treatments for fractures and use in orthopedic trauma, spine, craniomaxillofacial and reconstructive procedures. The deal covers compounds ranging in stage from pre-clinical to clinical, which Lilly can license to Synthes as part of the arrangement. Lilly would not specify the compounds and financial details of the collaboration weren't disclosed. Drug-device development collaborations are common, but the extent and expected duration of this one appears to be unusual. While the companies wouldn’t specify a termination date, Lilly executives said it is designed to last at least 10 years, long enough for compounds in early-stage development to reach commercialization. More unusual is the worldwide co-promotion, in which Synthes, which is the world’s leading orthopedic trauma company, will promote to orthopedic surgeons Lilly’s Forteo, an $830 million in sales osteoporosis drug. Such drug-device commercial partnerships have a rocky history and are difficult to execute. The timing of the deal is also noteworthy, as Synthes is in the process of being acquired by Johnson & Johnson for $21.3 billion. Both Synthes and Lilly have pressing strategic reasons for pursuing the deal, though. Synthes has not been at the forefront of an orthopedic industry trend to incorporate biologics into the product mix; Lilly, for its part, has played a leadership role in its industry in exploring innovative partnerships to help fund its drug development, although it has not worked at this level before with a device company. --Wendy Diller

Merck/Roche: ASCO wasn't a huge focus for Merck this year beyond a presentation with long-time partner Ariad tied to Phase III data for the mTOR inhibitor ridaforolimus. However, as the meeting was winding down, the big pharma announced it had formed a collaboration with Roche focused on the development of companion diagnostics to accompany Merck's pipeline of investigational cancer therapies. It's the second non-traditional alliance Merck has struck with Roche in the past month: recall in May, just after winning approval for Victrelis, the big pharma signed on Roche as a marketing partner in an attempt to cut Vertex and it's Incivek out of the Hep C protease inhibitor horse race. The alliance announced this week is aimed at the other end of the spectrum: according to the June 7 press release, Roche Diagnostics will provide Merck access to validated standardized assays, as well as expanded use of the AmpliChip p53 test, to better identify patients suitable for inclusion in ongoing/planned clinical trials. Financial details of the collaboration weren't disclosed, nor did Merck give any indication of which products now under development would be candidates for companion test development. Including vaccines, Merck has a stable of roughly two dozen oncology products in its pipeline, according to Elsevier's Inteleos database. Beyond ridaforolimus, late stage assets include an insulin-like growth factor 1 inhibitor called dalotuzumab and a cyclin-dependent kinase inhibitor, dinaciclib. Earlier stage, the big pharma also has a PARP inhibitor, a MEK inhibitor, and an aurora kinase blocker, all of which are are targets of avid interest for biopharmas. (Last week, Pfizer outlicensed its PARP inhibitor, which like Merck's lags significantly behind Sanofi's Phase III iniparib.) Pharma companies are increasingly talking about the need to use companion tests in oncology --and in some cases they are walking the talk (think Pfizer's crizotinib or Plexxikon/Roche's BRAF inhibitor in melanoma). But even as they see greater need for accompanying diagnostics, with the exception of Roche, Abbott, and Novartis, biopharmas haven't seen a need to develop the testing capabilities in-house, with partnering the preferred way to access the myriad technologies now being developed. --EL

Merck/Intercell: Two long-time partners announced that they have terminated studies of a Staphylococcus aureus vaccine, as Merck elected to discontinue trials on Intercell’s late-stage prophylaxis V710. Merck’s decision followed a unanimous recommendation from an independent Data Monitoring Committee, which determined that the vaccine is unlikely to show statistically significant clinical benefits, based on interim results of a Phase II/III trial. Enrollment in the trial was suspended following the DMC’s initial recommendation in April. The DMC also flagged a safety concern, citing increased likelihood of mortality and organ failure compared to patients receiving placebo, although follow-up assessments indicated the safety risk was not statistically significant. Merck, which had committed to clinical development as well as manufacturing and marketing of V710, expects to present more detailed results of the study soon. Intercell would have been due milestone payments and royalties of unspecified size had the trial continued and the drug been approved. Merck and Intercell first announced in 2001 that they would collaborate to develop bacterial vaccines; the partnership was extended in 2004, and expanded to include a Group A Streptococcus vaccine in 2006. S. aureus is the most common hospital-acquired bacterial infection, and about 50 percent of cases are antibiotic-resistant. – Paul Bonanos

Image courtesy of flickrer MrPhilDog via a creative commons license.

Deals Of The Week: Outsourcing

Stop the presses! Pfizer has done the unthinkable! The Big Pharma has upended its huge R&D operation!

Reading the headlines and tweets May 26, this blogger anticipated a dramatic pronouncement from Pfizer's head of R&D Mikael Dolsten explaining exactly how the behemoth intended to strengthen its "innovative core." But we were pretty sure Pilates wasn't part of the prescription.

It was just three months ago, after all, that newly installed CEO Ian Read announced sweeping budget cuts to the R&D organization and hinted that certain business units might be ripe for spinning out. But the R&D changes announced Thursday was more ho-hum than a humdinger.

In fact, it wasn't even an R&D shake-up at all. What Pfizer has instead done is winnow its myriad clinical service providers from 17 (!) to 2, moving to a system that is less about buying clinical trials capacity than it is about buying expertise. "We think that expertise can actually help us execute trials more effectively, faster, and with better quality, which will ultimately lower costs," Pfizer's SVP of development operations John Hubbard told "The Pink Sheet" DAILY.

With the looming patent expiration of Lipitor coming in November, there's no doubt Pfizer must cut costs. But it's hardly clear how much Pfizer will actually save via its newly announced preferred provider relationships with Icon and Parexel. It's not as if the drug maker is outsourcing significantly more of its total research and development work to outside organizations after all, a move that would allow for additional job eliminations -- and cost reductions -- in the R&D organization.

According to PSD, Pfizer will increase the percentage of clinical trials work it outsources by only about 10%, with the move really designed to streamline the management of vendors, something Hubbard admits is "complex." Thus, consider this not a revamping of how R&D is done but a consolidation of already outsourced development work into the hands of just a few players. As such, the move sounds a lot like Sanofi's broad 10-year collaboration with Covance. Announced last year, that alliance also met with sweeping headlines but was in reality a more prosaic realignment designed to reduce the complexity of managing development work.

We aren't saying Pfizer's newly announced arrangement isn't noteworthy-- or smart. We're just saying its iterative rather than innovative. (And, maybe, just plain old common sense.)

What's really smart about the set-up is that Pfizer didn't pick just one preferred provider. By signing on two different CROs (can we now call them clinical repair orgs?), the drug maker has created a situation that fosters competition. Financial details of the two new partnerships, which start in June and last until 2016, haven't been disclosed, but Pfizer is apparently keeping a scorecard that benchmarks how well Icon and Parexel each execute on their assigned trials. And as Pfizer gathers data on quality, timeliness -- and perhaps most importantly cost -- that means it can pit the two service providers against each other, potentially further increasing efficiencies. Five years from now, you can imagine CROs jockeying for position to be the next preferred vendor. To merit an alliance, such outfits will be forced to guarantee they can deliver "x" by time "y", and it will only cost "z".

It's a new kind of pay-for-performance arrangement -- and it's definitely a step in the right direction.

But it's far from the sexy R&D shake-up proclaimed in the blogosphere -- and still far from what Pfizer (or any other big pharma, quite frankly) needs to do to solve its moribund R&D productivity problem.

As for the larger changes afoot in Pfizer R&D, it's anybody's guess what model (or what acronym), the drug maker will pursue. We hear CEDDs are out and TAUs and TSUs are the new fashion. (Don't forget OI -- for open innovation -- either. JNJ's promising its externally driven model will yield fruit -- and plenty of products for regulatory approval by 2015.)

Whatever. To be honest, the acronym that most excites us is B-B-Q. Before you quaff your first summer pale ale of the holiday weekend, remember to read...

Elan/Proteostasis: Elan's tie-up this week with Proteostasis replicates last year's mega Celgene/Agios tie-up on a smaller scale. The new deal, potentially worth $50 million to the privately-held Proteostasis, requires Elan to pay $20 million upfront as well as $30 million for R&D expenses over the next five years. In return, the developer of the blockbuster multiple sclerosis drug Tysabri (natalizumab) gets a 24% stake in the U.S. biotech, seats on its board of directors and scientific advisory boards, and the first right to license any neurodegenerative compounds that come out of the collaboration. Yeah, that's right. The privately-held co. has agreed to an option-style deal that gives Elan first dibs on its potentially novel disease-modifying drugs in return for the security of funding. The deal is the first industry collaboration Proteostasis has signed since its splashy debut in 2008: a $45 million Series A financing from high-profile investors, including HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund, and Genzyme Ventures. (Hmm, wonder what happens to any Novartis options as a result?) The company has stayed under the radar in the interim, using the time and considerable financial backing to build its platform, which is designed to target the biological pathways that regulate the correct folding or placement of proteins within a cell. (For more on protein folding and disease, check out this still-relevant Start-Up feature.) Proteostasis' molecules are still preclinical but the new alliance with Elan could accelerate the biotech's clinical development plans; that's because it marries the biotech's discovery technology with Elan's proprietary animal models, biology, med-chem and clinical development capabilities. --EL

Eli Lilly/BioCritica: Attention biopharma insiders! We interrupt your regularly scheduled programming to bring you news of that rare species observed in the Rx wilderness: the spin-out. On Monday May 23 came news that Eli Lilly was spinning out US development and commercial rights to its commercially underwhelming sepsis drug Xigris to private investors Care Capital and NovaQuest Capital. The new private company, which has been christened BioCritica, will focus initially on the continued development of Xigris but the ultimate goal is to create a portfolio of critical care medicines. To bolster its pipeline, BioCritica has the option to in-license other critical care compounds in preclinical development at Lilly as well as the right to acquire ex-US rights to Xigris. In exchange, Lilly will receive royalties on US sales of the drug and an equity stake in BioCritica. The financial terms of the agreement were not disclosed.The decision to shed Xigris reflects Lilly's effort to focus development resources, according to the company. Though Xigris has been available commercially since 2001, its sales have not met Lilly's or Wall Street's expectations and Lilly has had a spate of expensive late-stage development snafus. BioCritica will continue Lilly's work on identification of the best uses of the controversial treatment, which has serious bleeding side effects and questionable efficacy in the broad sepsis patient population.--Jessica Merrill

Medco/Exagen: Can Medco do for methotrexate in rheumatoid arthritis what it's done for warfarin in the blood thinner market? An interesting alliance announced Monday May 23 between Medco's research institute and the privately-held Exagen Diagnostics shows that it is going to try. Exagen, which has raised a minimal amount of venture money since its 2002 founding, has developed proprietary software to discover and create predictive molecular tests that can aid in disease diagnosis, prognosis, or predict a likely treatment response. One of its tests, Avise PG, helps doctors and patients monitor the effectiveness of low-dose methotrexate therapy in rheumatoid arthritis patients. The oral anti-folate is, of course, decades old --it was first introduced as an oncologic in 1947 and became an important part of the RA armamentarium in the 1980s. And compared to newer TNF-alfa injectables like Humira or Remicade or Simponi the drug is definitely a cost-effective choice for treating the auto-immune disease. The problem is that establishing the right dosing regimen for patients isn't trivial, since individuals metabolize the medicine so differently. (Hmm, methotrexate's profile is starting to sound a lot like another cheap, effective, but difficult to use medicine: warfarin.) And if docs can't get the dosing right in a defined period of time, the default is to move to the costlier biologics. For payers who are increasingly concerned about the cost of specialty products -- and RA is an area of intense interest these days -- new tests that can promote the use of older, cheaper drugs are an obvious solution. But there's got to be data showing the utility. Enter Medco, whose research arm will recruit around 400 patients to participate in a pilot study (called Nimble) gauging the usefulness of Avise in RA patients beginning methotrexate therapy. Docs will send patient blood samples to Exagen's lab, which will conduct the Avise test, and report back on appropriate dosing; outcomes data will be compared to a similar cohort of patients who don't receive the Avise PG test. Why should the drug industry care? Medco's been resurrecting warfarin, conducting a series of observational studies gauging the utility of the medicine plus the genetic test versus newer, pricier drugs like Pradaxa. If the Medco/Exagen team can demonstrate the same utility for methotrexate, it's bad news for newer RA meds, creating a higher bar for adoption with payers.-- EL

Valeant/Sanitas & Watson/Specifar: Need growth? Try a branded generics firm in Central or Eastern Europe. That's the message from a duo of deals this week, both acquisitions by hitherto US-focused firms – and the first of more to come as US growth shrivels up, according to those familiar. Barely a week after Takeda finally confirmed it was forking out €9.6 billion to buy Nycomed, whose attractions also included its strength in CEE and Russia, Canadian specialty pharma Valeant announced it was paying €314 million cash for Lithuania's listed Sanitas, and Watson snapped up Greece's privately-held Specifar for €400 million, plus earn-outs linked to a tablet form of Nexium due to launch in some markets later this year. Europe's ultra-tough pricing and reimbursement environment may make it a graveyard for growth in innovative drugs, but there's plenty of upside in generics, particularly of the branded, specialist kind. The battle for Germany's ratiopharm, ultimately won in March 2010 by Teva, was one of the more high-profile asset-grabs in this field. Valeant had to pay almost four times' sales for Sanitas, a healthy multiple that reflects what was a "dynamic" auction process, according to someone close to the deal. The attraction: for starters, development prowess in dermatology, ophthalmology and hospital injectables (niche, high-margin drugs), formulation expertise, some pipeline, and a portfolio that's 80% non-reimbursed (thus circumventing the government pricing pressures). The deal furthers Valeant's stated goal of doing at least five ex-US deals this year, and follows the February 2011 acquisition of PharmaSwiss, which provided a commercial infrastructure in Eastern Europe. If Sanitas shareholders think they did well, how about Specifar's: Watson appears to have paid over five times 2010 revenues for this group, based in a country whose economy is falling apart and where generic penetration is one of the lowest in Europe. Most of Specifar's revenues come from developing and out-licensing products worldwide, and it’s highly profitable, according to a source involved in the deal. So Watson has paid for a European R&D engine to bolster the sales infrastructure and starter revenue-base it started to establish via its $1.8 billion cash and stock deal in 2009 for Western-European based Arrow. --Melanie Senior

Nestlé/Prometheus Labs: Via its newly formed Nestlé Health Science subsidiary, global food products conglomerate Nestlé SA is buying specialty pharma and diagnostics provider Prometheus Labs as part of its goal of developing personalized nutrition strategies that will help in the management and prevention of chronic health conditions, according to the company’s announcement of the deal. Prometheus, which had been looking to go public, generated revenues of $519 million in 2010 including $316.5 million from the sales of the glucosteroid Entocort EC for Crohn’s disease, which Prometheus licensed from AstraZeneca for the US market in 2004. Prometheus also began distributing Novartis’ cancer drug Proleukin in the US in February 2010, which brought in $64 million. The diagnostic services business, comprising GI tests to differentiate irritable bowel disease (IBD) and Crohn’s from other disorders and oncology services to guide the use of targeted therapies, accounted for $81.3 million for the year, according to an S-1 amendment filed in February 2011. The companies are silent on the deal price, which an analyst cited in a Bloomberg report put at somewhere north of $587 million. Nestlé has also recently added Vitaflo, a maker of nutritional products aimed at individuals with genetic disorders that affect how the body processes food, and CM&D Pharma, which produces IBD, kidney disease, and cancer-related nutritional foods. But unlike those others, the Prometheus acquisition is aimed at the physician market. Nestlé is one of several food and consumer products companies thinking about ways it can leverage its marketing and distribution capabilities to deliver medical diagnostics and personalized medicine. Unilever has engaged the VC firm Physic Ventures to explore opportunities in the area, and for years, Procter & Gamble has maintained a notable presence at personalized medicine meetings. – Mark Ratner

(Image courtesy of flickrer Scott Ingram used with permission through a creative commons license.)