Deals Ot The Week Searches For Meaning In Deal Breakups

 It’s been a ghoulish week for deal-making – only half a handful of deals made it onto our list of noteworthy new transactions.

We could not spot one, large or small, involving big pharma or specialty companies. Nor could we see any particularly compelling reason for the interlude. A number of the largest and most active deal makers are adjusting to new leadership and reorganizations, among them Shire PLC, AstraZeneca PLC, Bayer AG, Merck & Co. Inc., and Teva Pharmaceutical Industries Ltd. Certainly, the abrupt resignation of scientist-executive Jeremy Levin as CEO of Teva was a management deal gone bad, leaving the world’s largest generics company adrift and its board of directors on the defensive against a bewildered and angry Wall Street.

That led us to reflect on business deals gone bad and – a trip to the virtual deal cemetery – Deals of the Week’s ‘No Deal’ designation. For the year to date, DOTW has tracked 10 noteworthy terminations, a figure that is in line with stats for the past three years. It’s impossible, or rather meaningless, to speculate much about commonalities among these deals. It’s likewise impossible to extract trends based on, say, the ratio of deals that don’t pan out to those that do. Discarded deals covered a range of therapeutic areas and most involved a big pharma abandoning a biotech collaboration. But breakups occurred at all kinds of points in time and at different phases of development.

A romp among the headstones: GlaxoSmithKline PLC pulled out of a licensing agreement with ChemoCentryx Inc. in September, over Crohn’s disease candidate vercimon following a Phase III miss; ChemoCentryx is trying to figure out why the GSK-led study failed while the Phase II succeeded. Teva itself was the source of several ‘No Deals’ in the course of the year, as its new CEO – now gone – and his management team undertook a pipeline review that resulted in handing back solid tumor therapy Rx 3117 to Rexahn Pharmaceuticals Inc. Also canned was the Israeli generics maker’s much larger, high-profile four-year-old biosimilars pact with biologics manufacturer Lonza Group, which is doing its share of soul-searching and dealing with its own management upheaval.

Amgen Inc. ended a 2009 collaboration around a Type-2 diabetes program with Array BioPharma Inc. Perhaps the fissure with the biggest ramifications was AstraZeneca’s termination of a collaboration with partner Rigel Pharmaceuticals Inc. around the Phase III rheumatoid arthritis drug fostamatinib. Although that deal involved only one asset, it was expensive – AZ paid $100 million upfront – and emblematic of AZ’s ongoing pipeline problems.

But we couldn’t bear to end the week on such a downbeat note, with an energetic meeting like Partnering For Cures about to begin on Monday in New York. This meeting, funded by The Milken Institute, now in its fourth year, is a showcase for venture philanthropy and aims to bring together non-profit disease foundations, patient advocacy groups, investors and biopharma companies in order to look for ways to fund gaps in financial support of innovative medicines for deadly diseases.--Wendy Diller (Thanks to Hollywood Gothique for photo)

Leukemia & Lymphoma Society/ Stemline Therapeutics: One of the few deals announced this week involved one such venture philanthropy initiative. On Oct. 29, the non-profit Leukemia & Lymphoma Society and two-year-old biotech Stemline Therapeutics Inc. announced a partnership to speed up development of a cancer stem cell therapy, SL-401, for the treatment of acute myeloid leukemia and blastic plasmacytoid dendritic cell neoplasm. The latter is a rare hematological disorder with characteristics of both leukemia and lymphoma. LLS is committing more than $3 million to help develop the drug and support an educational program around BPDCN.

The drug has demonstrated efficacy in patients with advanced AML and BPDCN, including multiple durable complete responses in both indications, a greater than 80% overall response rate in BPDCN, and an improvement in overall survival of third-line AML patients relative to historic data, the companies said in a press release.

LLS wouldn’t provide much information about the compound or the deal, but it has a long track record in funding early stage research in blood cancers and getting some of those projects into the clinic.  It awards about $60 million in grants to academic investigators each year, and at any one time has about 300 grant-sponsored projects underway. Because of its close, long-standing ties to academia, it has deep expertise in science and a network of contacts that can facilitate progress of successful development programs, said Louis DeGennaro, the society’s chief mission officer and a scientist by training.

The effort to bring industry closer into the LLS fold began after DeGennaro joined the organization eight years ago, when it had the broad grant program for academics but little else in place to facilitate getting promising research projects through what is referred to as ‘the valley of death’. About 10% to 15% of the projects it funded moved into development, but it was tough to do FDA-compliant studies in an academic environment, he recalled in an interview. In 2008, DeGennaro started the society’s Therapeutic Acceleration Program to assist investigators and companies in filling in that gap, harvesting programs from its research portfolio as well as early-stage programs underway at biotech companies that could be effective in treating blood cancers, but were not being developed because of economic or other concerns.

LLS provides these companies with non-dilutive capital, expertise and access to networks of key opinion leaders and contract research organizations; in exchange, the recipient company has to agree to continue work on the project for a period of time after LLS funding has ended. The largest subsidy to date is $12 million, and the development timeline of interest is from late preclinical through Phase III.

LLS does not ask for equity or take a typical private-sector return; it seeks comparatively small milestone payments tied to approval of the drugs it funds in major markets, as well as a small royalty. The aim is to provide enough capital for companies to advance a compound to the point where they can attract private-sector funding. Nor does LLS retain intellectual property on the products it funds; it wants the asset to be unencumbered when its owners look for outside financing, he added.

One LLS relationship in particular, with Celgene Corp., continues to expand. About a year and a half ago, the organizations entered into a partnership, which Celgene is supporting, and which LLS and Celgene are administering. In its simplest terms, the partners use a grant program to vet and fund early-stage research, and Celgene gets first right of negotiation for intellectual property coming out of the programs over a protected period of time. If it is interested, the big biotech then has the right to negotiate with the academic investigator and his or her institution. LLS does not participate in any deal Celgene works out.--WD

Cancer Research Technology/ Chroma Therapeutics: Cancer Research Technology (CRT), the commercial arm of the charity Cancer Research UK, is accelerating its support of early biotech research through a deal with the U.K.'s Chroma Therapeutics Ltd.

With funding from the CRT Pioneer Fund (CPF), Chroma will move a lead molecule, a mitogen-activated protein kinase (p38) inhibitor, towards clinical trials, with the CPF receiving rights to further develop and commercialize any resulting products, CRT announced Oct. 31. Chroma attaches chemical motifs onto drugs that are freely transported into cells but then cannot exit. The therapeutic molecule then accumulates within tumor-associated macrophages, reprogramming them to attack tumors, the company explained. The deal is the third made by the $80 million asset-centric CPF, which was set up in 2012 by CRT, the charity, and the European Investment Fund.--Sten Stovall, John Davis
 

Adimab/ Alector: The formation and financing of Alzheimer’s disease-focused Alector LLC ties what its founders call “unique biological insight” with the prolific antibody discovery platform of Adimab LLC – and demonstrates private investors’ appetites for making distinct bets on discovery and development opportunities.  

Alector, which announced an undisclosed amount of Series A financing Oct. 31, is the second R&D-focused biotech to spring in part from Adimab’s antibody discovery engine. The company is not a spin-off of Adimab; instead it holds a license to Adimab’s technology and aims to exploit novel biology elucidated by co-founders Asa Abeliovich and president and CEO Arnon Rosenthal.

The terms of the deal between Adimab and Alector are extremely flexible. In the near term, Alector will cover fee-for-service costs associated with Adimab’s discovery process. But it essentially accesses Adimab’s antibody discovery technology for free. Downstream there are different flavors of project-specific licensing options depending on Alector’s financial and strategic priorities. These range from heavy upfront and milestone deals that are royalty free through to all-royalty deals that are back-end loaded.

Alector and Adimab are separate companies, but the newco is part of the Adimab family tree. Alector’s chairman and co-founder is Tillman Gerngross, co-founder and CEO of Adimab, and co-founder of Arsanis  (a similar Adimab-offshoot in the infectious diseases space) and other companies. Adimab co-founder and COO and Arsanis director Errik Anderson is also an Alector co-founder. And Alector’s backers – the company simultaneously announced an undisclosed Series A financing – are Adimab investors Polaris Venture Partners and Orbimed Advisors; Polaris general partner Terry McGuire and Orbimed general partner Carl Gordon, both Adimab directors, also sit on the Alector board.--Chris Morrison

 

And then there's the:

Numab/Sucampo: Yes, there’s another “No Deal” this week. The Zurich, Switzerland-based company Numab AG announced Oct. 29 that it had reacquired rights to an investigational bispecific antibody fragment, ND003, from its collaborator, Sucampo AG, a subsidiary of Sucampo Pharmaceuticals Inc., and intended to develop the compound further as an inhaled therapy for severe asthma. Further financial details of the agreement were not disclosed.

The two companies entered into a multi-target collaboration in 2011, just months after Numab was founded, aimed at discovering high-affinity antibodies with sub-picomolar affinities against difficult-to-reach targets. Sucampo would retain exclusive commercial rights to any potential products identified, in return for research funding and other potential payments.

Numab says it is now raising Series A financing to advance ND003 and another compound, the potential anti-inflammatory ND007, to the next value inflection point.  ND003 is expected to be administered by inhalation, thereby attacking lung-resident eosinophils that play a role in severe asthma but are difficult to reach with systemic-administered antibody-based products, the Swiss company noted. ND003 targets interleukin-5 receptors on eosinophils, rapidly depleting their number. --SS, JD

Deals Of The Week Tracks Obamacare

The pharmaceutical community, like much of the country remains divided about the Affordable Care Act and  its impact on healthcare and the industry, perhaps even more so than when the original law passed in 2010. The industry, of course, supported the initial legislation, and many people continue to believe it made the right decision. 

But as deadlines approach for the all-important next phase of the law, execution realities and uncertainty raise questions, many of which can’t be answered in the near term. Nonetheless, they have implications overall for the healthcare system and patients, and, more narrowly, for pharma commercial and business development strategy. This year, in particular, is important for the market access phase of the legislation, as the country prepares to get new health insurance exchanges running by the Jan. 1, 2014 deadline, and states decide whether and how to expand their Medicaid offerings to broader populations. As of Jan. 1, Americans must have individual insurance coverage or pay a penalty (modest at first); they can buy the coverage through insurance plans listed on health insurance exchanges which begin operations on that date. 

Overall, pharma industry support, officially, at least, seems high, even as executives worry whether their companies will ever make up for the tradeoffs they agreed to three years ago in the form of bigger rebates (for Medicaid and other government programs) and taxes through numbers of newly covered lives. They are concerned about less high-profile provisions of the act, such as its dramatic expansion of the 340b program to new categories of hospitals, and a provision that limits reimbursement companies can get for minor improvements to their product, as well as the federal and state governments’ ability to execute their plans on time. 

Many states are just now announcing which insurance companies are participating in the exchanges and those plans are identifying their basic options, but the industry in general does not yet have a good perception of what drug coverage will look like, how the new exchange plans or Medicaid expansion will be populated, or how the mandatory individual insurance provisions will be enforced. 

Because no one really has the answers, many in the industry expect companies to monitor the ACA’s progress closely but continue to operate status quo. They are not so much keeping their heads in the sand as monitoring cautiously,” says an executive at a firm that advises companies on market access issues. “From a tactical perspective, no one knows what will happen, so they are taking the path of least resistance. Top execs are asking me to come up with projections, and I don’t know them, so they are proceeding as though there is no effect.”

The uncertainty hasn’t stopped Wall Street from predicting winners and losers in the healthcare sector in general, or entrepreneurs form seizing opportunity in the midst of change. At the Jefferies investment bank conference on June 4, a panel of experts opined about investor beneficiaries, and all agreed that whatever else, managed care –perhaps by another name—will be the name of the game going forward. Past efforts to move populations into managed care failed, but what’s different now is the government support for such programs, as well as massive databases that able to monitor how the system is performing.

Meanwhile, the industry’s relentless search for innovation continues – if for no other reason than because without it, there’s not much of an industry – witness the struggles of specialty pharma companies such as Elan PLC, Endo Health Solutions, and Forest Laboratories, all laboring to move beyond the enormous success of an innovative drug but finding it hard to come up with a repeat act.--Wendy Diller

MorphoSys/GSK: MorphoSys has struck a development and commercialization deal with GlaxoSmithKline for its mid-stage rheumatoid arthritis antibody, MOR103, which targets the GM-CSF pathway that stimulates production of immune cells such as macrophages. The deal, announced June 3, gives MorphoSys near-term cash in the form of a €22.5 million ($29.5 million) upfront, plus development, regulatory and commercialization milestones that could add up to €425 million. GSK also will pay a double-digit royalty on all sales of the product. MOR103 has completed a Phase I study in healthy individuals, as well as a Phase Ib/IIa trial in 96 patients with mild to moderate rheumatoid arthritis. Patients in the drug arm of the study showed a significant effect compared to placebo at just four weeks. GSK will take over all development, but did not specify when it will begin Phase II studies. MOR103 has also been tested in patients with multiple sclerosis.

MorphoSys has been shifting gears for the last few months as it tries to move away from the partnership model that has made it profitable to concentrate more on its wholly-owned pipeline. MorphoSys has two drugs in its proprietary pipeline: MOR208, a Phase I asset which targets CD19 for B-cell malignancies, and MOR202, a HuCAL antibody against CD38 for multiple myeloma. – Lisa LaMotta

Pfizer/CytomX Therapeutics: After obtaining preclinical proof-of-concept last year for its approach to tumor-specific delivery of specially engineered antibodies, CytomX has struck its first alliance with a big pharma. Under an agreement announced June 6, the company will collaborate with Pfizer to discover and develop a variation on antibody-drug conjugates (ADCs) for cancer. Pfizer will pay the South San Francisco, Calif.-based biotech $25 million in combined upfront cash and milestones pegged to research and preclinical achievements. In addition, privately held CytomX could earn up to $610 million in regulatory and sales milestones, as well as tiered royalties into double digits on sales of any product reaching market. Because of the selectivity of candidates generated via its Probody Platform, CytomX says it can target broadly expressed tissues that are difficult to reach with other therapeutic approaches because of worries about off-target toxicity. CytomX uses its technology to generate ADCs that it calls Probody Drug Conjugates (PDCs), specially engineered antibodies or other approaches to drug delivery for cancer, inflammation and other unmet medical needs. PDCs will be safer and differentiated from other ADCs, CEO Sean McCarthy said, because they are engineered to combine cytotoxic payloads with Probodies that are masked to become activated only in the tumor’s micro-environment. Pfizer and CytomX are not disclosing the indications or specific targets on which they will work together, nor any timelines for the work, other than that it is an exclusive, multi-target alliance focused on oncology. – Joseph Haas

Janssen Biotech/Second Genome: Janssen Biotech and Second Genome Inc. announced a landmark research alliance on May 5th in which the latter will apply its microbiome discovery platform to characterize the role of human bacterial populations in ulcerative colitis. The goal is to translate the knowledge into therapeutic programs. The deal marks big pharma’s first commercial collaboration in microbiome R&D and may stimulate further deals and investment in the space. Interest in the therapeutic potential of the microbiome has been building over the past three years with the founding of several venture-backed companies focused on microbiome biology. Second Genome gets an upfront payment and milestones, both undisclosed. The upfront does not include equity. Janssen will fund the collaborative research through its Johnson & Johnson Innovation Center and the immunology therapeutic area within Janssen R&D LLC. Second Genome has preclinical programs in inflammatory bowel disease and type 2 diabetes, each about a year and a half from IND. It also has several discovery programs. On the same day, the start-up announced a $6.5 million third tranche to its series A financing, bringing the total raised to $11.5 million.—Michael Goodman

The Medicines Co./ ProFibrix: The hospital marketer The Medicines Co. is expanding into the hemostasis market, and has negotiated an option deal with ProFibrix BV that could improve its position there. The company announced June 4 it has agreed to pay $10 million upfront for an option to acquire ProFibrix later this year after Phase III clinical trial results read out on the company’s lead biologic, Fibrocaps. The dry powder topical formulation of fibrinogen and thrombin is being developed to stop bleeding during surgery. If the results of the single Phase III trial testing Fibrocaps are positive, The Medicines Company would pay $90 million to acquire ProFibrix outright. It also would be on the hook to pay $140 million in regulatory and sales milestones. ProFibrix’s ongoing Phase III trial, FINISH-3, has completed enrollment of 719 surgical patients with mild to moderate surgical bleeding, and the results are expected in the third quarter. The Medicines Company already markets the recombinant thrombin Recothrom, to which it recently gained rights through an earlier option arrangement with Bristol-Myers Squibb Co. The Medicines Company plans to combine the 60-person hemostasis group it gained from Bristol with the ProFibrix team. Both are based in Seattle, although ProFibrix’s leadership and headquarters are in The Netherlands. Plans call for CEO Jan Öhrström to stay on with The Medicines Company and head the company’s efforts in the hemostasis market. – Jessica Merrill

Novavax/Isconova: Eager to add adjuvant technology to its clinical and preclinical recombinant vaccine candidates, Novavax is making a $29.2 million bid to buy Swedish firm Isconova. Spun out of the Swedish University of Agricultural Science, Isconova produces saponin-based, immune-modulating adjuvants. In October 2012, Rockville, Md.-based Novavax, which has vaccines in clinical development for seasonal influenza, pandemic influenza, respiratory syncytial virus and rabies, reported successful Phase I data testing its pandemic flu vaccine boosted with a third-party saponin-based adjuvant. In a release, Novavax said based on those data plus Isconova’s own data, it believes the Swedish biotech’s technology can complement and strengthen its vaccine programs. Novavax announced a public offer June 4 under which it would issue 15.45 million new shares of common stock and swap 1.2388 shares of its stock for each Isconova share. The deal would represent a 26.7% premium over Isconova’s share price at the close of trading June 3 and would result in Novavax shareholders owning 91.1% of the new combined company. Isconova shareholders would control the remaining 8.9%. Novavax said if the deal goes through, it will offer Isconova management “positions subject to their commitment to the combined company,” and it does not plan to seek changes regarding the Swedish firm’s headcount, employment terms or business location.--JAH

Arno/Veridex: Cancer-focused Arno Therapeutics signed an agreement June 3 with Veridex, a subsidiary of Johnson & Johnson, to develop a diagnostic test for seeking optimal patients for its oncology candidates. Based in Flemington, N.J., Arno is developing cancer therapeutics that target the PI3 kinase/Akt pathway, as well as HDAC inhibitors and camptothecins. The two firms will team up to use Veridex’s proprietary CELLSEARCH platform to develop a diagnostic to detect the presence of activated progesterone receptors as a biomarker of anti-progestin activity in circulating tumor cells, those that have detached from a solid tumor and are found in the bloodstream. Arno is developing onapristone, an oral, anti-progestin type 1 progestin receptor antagonist. Now in preclinical development, onapristone is slated to begin clinical study during the second half of 2013.--JAH

AstraZeneca/ Rigel: AstraZeneca pulled out of its three-year partnership with Rigel Pharmaceuticals on June 4 after the companies announced lackluster results of the Phase III program for rheumatoid arthritis drug fostamatinib, an oral spleen tyrosine kinase (SYK) inhibitor. The drug did not show the levels of efficacy that many other drugs in the category have in clinical trials, prompting AZ to pull the plug. Rigel intends to evaluate the data from the Phase III program, which AZ conducted, and make a decision by end of the summer regarding its next steps. Rigel executives believe that fostamatinib could still find a place in the crowded RA market, even if the indication is just for a small subset of patients. Rigel potentially will seek approval of the drug on its own, but said it will not commercialize the drug without a partner. 

The failed program is just the most recent in a string of failures for the British pharma, which has ended programs in cardiovascular and oncology as well. It has also faced a slew of setbacks with its diabetes program, partnered with Bristol.--LL