Deals of the Week Mulls The Wild Frontier

Sometimes, it's said, the pioneers are the ones that end up with arrows in their backs. It's a tech-industry cliché, one designed as a reminder that first-mover advantage isn't everything. There are those whose innovations turn into category winners, and then there are those whose inspired inventions become part of someone else's best-selling product.

While it's rarely quite that way in the pharma business, drug-developing pioneers can still face challenges that benefit their competitors but backfire on their own ambitions. Among the Davy Crocketts struggling to translate a novel product into a sales juggernaut is Seattle's Dendreon, which was thought to be sitting on a goldmine when its Provenge (sipuleucel-T) became the first cancer immunotherapy to be approved by FDA in April 2010. Now, however, the company has more muted expectations for Provenge -- and accordingly, will go through a painful restructuring that will cost a quarter of its employees their jobs.

Many estimates pegged Dendreon to bring in well over $1 billion annually at its peak, given its survival benefit for prostate cancer patients, and Dendreon staffed up accordingly to meet anticipated demand. During a Sept. 8 conference call, CFO Greg Schiffman acknowledged that it had overreached in projecting $350 to $400 million in annual sales, including $175 to $200 million in the fourth quarter alone.

Many doctors are loath to prescribe the expensive buy-and-bill drug, reportedly due to concerns about reimbursement; thus, it's been difficult for Dendreon to reach Provenge's target patient population. While the company ultimately made the decision not to close its three manufacturing plants, it has scaled back production -- and one commercial relationship didn't survive the cut: Dendreon canceled its antigen supplier contract with GlaxoSmithKline, which company officials described as a "second-source" contract rendered unnecessary by the slow sales.

With 500 staff set to be laid off, Dendreon says it can save $120 million annually, and now expects to break even on Provenge if it can generate $500 million in annual sales. A fraction of what they'd hoped for, sure, but sometimes that's the price of being first-to-market with a category-defining product. "We are scientific pioneers," said Gold during the conference call, "and also commercial pioneers."

With that in mind, it's Friday afternoon. Sure, it was a short work week for most of us, but we all deserve a break. So please ride off into the sunset with...

GlaxoSmithKline/BARDA: GlaxoSmithKline has received a two-year $38.5 million grant from HHS’ Biomedical Advanced Research and Development Authority to support the pharma’s development of an experimental antibiotic against biothreat pathogens such as Yersinia pestis, which causes bubonic plague, and Bacillus anthracis, which causes anthrax. GSK could receive additional financing from BARDA if the research agreement is extended, bringing the potential total funding to $94.5 million. The work centers around development of GSK2251052, an antibiotic targeted at the bacterial enzyme leucyl tRNA synthetase (LeuRS), which is moving into Phase II in ventilator-associated pneumonia and Phase III for complicated intra-abdominal infections. GSK ‘052, previously known as AN3665, is a boron-based Gram-negative systemic antibiotic that GSK licensed from Anacor Pharmaceuticals under their 2007 platform technology collaboration around four targets. On Sept. 6, GSK and Anacor agreed to extend that research partnership around LeuRS candidates, with the pharma returning all intellectual property related to the other three targets included in the original deal. — Joseph Haas

Evotec/Roche: German drug discovery company Evotec appeared at first blush to have pulled off a coup on Sept. 5, when it announced it was licensing back to Roche a potential Alzheimer's therapy, EVT-302, first inlicensed from the Swiss multinational more than five years ago. A great piece of business for Evotec, apparently, with Roche paying it an upfront of $10 million and potentially over $800 million in future development and commercial milestones. But on closer inspection the ownership of the asset had as many switchbacks as an alpine pass: a predecessor company, Evotec Neurosciences, owned EVT-302 when it was first spun out of Roche, and these rights came with the company when it was later acquired by Evotec. Under the all-new deal, Roche benefits from a package of preclinical and clinical data, collected by Evotec when it tried, and failed, to develop EVT-302, a highly selective MAO-B inhibitor, as an aid to smoking cessation. EVT-302 complements the other approaches Roche is pursuing for the treatment of Alzheimer's, including MAbs against beta-amyloid. With Roche now shouldering all costs of development, the deal works well for Evotec: over the past two years, it has restructured its business and is focused on developing drug discovery partnerships with partners, rather than developing its own R&D pipeline. MAO-B is up-regulated in the brains of Alzheimer's disease patients, and as well as breaking down monoamines like the neurotransmitter dopamine, it also produces oxygen free radicals, which contribute to oxidative stress and could possibly accelerate the disease process. An inhibitor might slow down disease progression, and Roche is to conduct a Phase II trial in 2012 to prove this concept. - John Davis

F-Star/Merck Serono: F-Star, an antibody engineering company based in Vienna, Austria, saw its relationship with one of its pharmaceutical corporate investors blossom this week when it announced a discovery and development agreement with Merck Serono, the pharmaceuticals arm of Merck KGaA. The German company's VC arm, Merck Serono Ventures, has only been an investor in F-Star since January 2010, when it co-led an €8 million extended Series A financing, but its parent company obviously liked what it saw. Merck Serono and F-Star will now build on their relationship by collaborating on the discovery and development of antibody-derived therapeutics against inflammatory disease targets in a deal valued at €492 million ($683 million). Merck Serono will nominate three therapeutic targets and the companies will collaborate on developing targeted and bispecific biologics against these molecules. Merck Serono will have exclusive commercialization and development rights, with F-Star receiving an initial technology access fee, research-based funding, and development and commercialization milestones, as well as tiered royalties on sales. Accessing bispecific antibody capabilities has been a hot topic lately, with this week's F-Star/Merck Serono tie up reminiscent of last week's Zymeworks/Merck collaboration, although the technology access fee and committed R&D dollars make F-star's tie-up richer. - J. D.

Astellas/Evec: Japan’s Astellas Pharma has in-licensed the worldwide development and commercialization rights to a fully-human antibody targeting infectious disease from Japan’s Evec. Specific details regarding the program weren’t provided. While Astellas’ upfront payment for the pre-clinical program is modest at ¥600 million ($7.75 million), development and sales milestone payments could add as much as ¥13 billion ($168 million) to the deal, which also includes royalties. Founded to commercialize research conducted at the University of Hokkaido and based in Sapporo, eight-year-old Evec is developing antibodies for cancer and inflammatory disease as well as infectious disease. Evec previously licensed an antibody to Boehringer Ingelheim in a 2008 deal that could be worth up to €55 million ($75 million). In August, Astellas appointed a new CEO, promoting Yoshihiko Hatanaka, the head of the U.S. Astellas unit, to the top post. – Lisa LaMotta

Eisai/SFJ Pharma: It's a deal -- and a financing! This week's DOTW two-fer illustrates the heightened risk-hedging protocols at work as big pharmas try and limit their cash R&D burn, while still retaining access to a product a la project finance. And based on the press release, there ain't a whole lot for Eisai -- or its shareholders -- NOT to like about the SFJ arrangement. Essentially Eisai has partnered late-stage clinical development of its Phase III tyrosine kinase inhibitor, lenvatinib, in thyroid cancer. Under the agreement, the studies will be conducted by Eisai (so it keeps control!), BUT they will be completely funded by SFJ. That's right --SFJ is picking up the tab, and in return stands to earn milestone payments, but only if the compound wins regulatory approval. In addition, if and when the compound is approved, all commercial rights remain with Eisai. With so many of the financial details of the relationship undisclosed, one has to assume that the future milestone payments owed to SFJ, which is backed by VCs including Clarus and Abingworth, are lucrative. This isn't the first time Eisai has sought a partner to hedge its development risk: back in 2009 Eisai teamed up with the CRO Quintiles to develop multiple oncologics. That particular alliance called for Eisai and Quintiles to share development costs, with Quintiles' cancer specialists conducting the proof-of-concept trials and Eisai paying milestones for compounds that meet predefined POC criteria.--Ellen Licking

Image of Davy Crockett, painted by Chester Harding, reproduced courtesy of Wikimedia Commons.

FivePrime CEO Done After Two Years

FivePrime Therapeutics has a new CEO. As of Wednesday, August 17, the next-generation antibody company is listing its founder Lewis Williams, better known as Rusty, as chief executive. He replaces Julia Gregory, who was hired in 2009.

Through a company spokeswoman, Williams said Gregory resigned effective August 16. The company declined further comment.

The timing is somewhat of a surprise, as Gregory described the job as a "biotech CEO's dream" in an Xconomy interview a year ago. On her watch, the firm signed its largest deal to date, out-licensing its lead program, an FGF inhibitor that hadn't yet dosed in Phase II trials, to Human Genome Sciences in March 2011 for a $50 million upfront payment. FivePrime also signed discovery deals with Pfizer and GlaxoSmithKline in 2008 and 2010, respectively. The Pfizer agreement recently ended without renewal.

Gregory moved to FivePrime from Lexicon Pharmaceuticals, where she ran finance and business development. Before Lexicon, she was an investment banker, a significant addition to a private biotech with a strong scientific bent. A renowned biotech veteran, Williams founded FivePrime in 2002 after leaving Chiron, where he was chief scientific officer and a board member. The firm attracted top venture backers in Versant Ventures and Kleiner, Perkins Caufield & Byers, with Brian Atwood of Versant and Brook Byers on the board. (Byers referred inquiries back to the company.) Privately held, FivePrime's most recent publicized round of venture capital came in 2005, when it raised a $45 million C round led by Domain Associates. With the round, Domain took a board seat but no longer has representation.

DOTW Examines Paraskevidekatriaphobia And Other Aspects of Numerology

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

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

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

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

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

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

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

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



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

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

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

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

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

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

2009 M&A/Alliance DOTY Nominee: Sanofi-Aventis/Regeneron

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a 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™.

How good was the Sanofi-Aventis/Regeneron alliance announced Nov. 10? We're nominating it for deal of the year even though it was actually an extension of a deal signed in late 2007. Before we dive into the details, consider this scenario.

You own a cement factory. You make very nice cement, some of the best cement in the land, but it's hard to make fat profits selling cement, no matter how many skyscrapers go up in Shanghai. (For the sake of our analogy, please pretend there is no global real-estate bloodbath.) Then one day, one of the biggest skyscraper builders says to you, Psst, hey buddy, how about we pay you to make cement for us, you get to split the profits our skyscrapers make, and you pay us back for some of the building costs, but only if our skyscrapers fill up with tenants and make lots of money! Oh, and we'll help you expand your cement factory.

You'd squint and purse your lips and wonder, "What's the catch?"

The world could lose its zest for skyscrapers, perhaps, but unlikely. The company could be full of dolts whose skyscrapers all fall down, but... enough, already. You get the picture. Biotechs often link their destinies to a Big Pharma big sibling, but few have gotten such sweet deals as Regeneron has with Sanofi-Aventis.

If our bricks-and-mortar analogy didn't refresh your memory, here are the details: Sanofi pays Regeneron $160 million a year in research funding through 2017 and can take over development of any antibody candidate at IND. Sanofi then funds clinical development, and if the candidates come to market, Regeneron splits profits (50/50 in the U.S., and a sliding scale from 65/35 to 55/45 in Sanofi's favor outside the U.S.). Regeneron reimburses Sanofi half the development costs from its share of the profits, which means no profits, no reimbursement.

What's the catch? You tell us when you find one, at least from Regeneron's point of view. Oh, we guess Sanofi could totally flub development, and Regeneron could find itself hitched to a broke-down wagon. Or a different pardner, if there's more mega-merging in store. But with the ambitious goal of putting 30 to 40 compounds into the clinic over the eight-year deal extension, they'd truly have to be all thumbs. (They've already promoted five projects.) The companies have been partners since 2003 -- Sanofi has development rights to Regeneron's aflibercept (VEGF-Trap) -- and Regeneron is willing to take the risk.

It cuts both ways: Sanofi's only escape clause isn't an escape at all. It can reduce the annual R&D payments from $160 million to $120 million after 2013. However you slice it, Regeneron gets paid. It said it expects to add about 400 employees, or 40%, in 2010, mainly in its two locations in upstate New York. How's that for a jobs program?

And unlike Genentech-Roche, another famous biotech-pharma couple that were joined at the hip, Sanofi can't hold out the threat of total ownership to squeeze better terms from Regeneron. Sanofi owns 19% of Regeneron, most of which it paid for when they struck their original agreement in 2007, but it can't go higher than 30% ownership without permission. And no board seats, either. "This deal tries to take the best of Genentech and Roche, but there won't be threats of calls [to buy up stock] every few years," said Regeneron CFO Murray Goldberg.

Image by Flickr user Onion used under a creative commons license.

For Adimab, Deals and Deal Milestone Payments Come in Twos

Adimab, the yeast-based antibody discovery play, will announce this morning that it added two new collaborations to the Merck and Roche deals it announced over the summer. And Tillman Gerngross, Adimab's co-founder and CEO, tells us the company plans to do "two deals per quarter with top fifteen pharma companies for the foreseeable future."

But we're getting ahead of ourselves. For now, the biotech will identify fully human antibodies against an undisclosed CNS target selected by Pfizer and against an undisclosed oncology target selected by a separate, unnamed partner. As with Adimab's previous deals, neither partner gets exclusive rights to that target--the biotech can do another deal with another company around whatever target it chooses.

The new collaborations appear identically structured if a little slim on financial detail: Adimab's partners get all rights to the antibodies the biotech delivers, in exchange for an upfront payment, preclinical and clinical milestones, commercial milestones, licensing fees and royalties on any therapeutic and diagnostic product sales.

Also today, Adimab reports that it has received milestone payments from Merck and Roche based on delivery--within eight weeks--of the antibodies specified in their original respective deals. It's this kind of disclosure that Adimab thinks will raise eyebrows at other companies looking to augment their biologics engines.

It's no coincidence that most of Adimab's deals are around single targets. The company does have customers and potential partners saying 'we want broad access', says Gerngross, "but they need to see exactly what they're buying before we can have a meaningful discussion," he says. "These deals are geared toward informing and educating our customers" about what Adimab's technology can do: better yields, broader epitope coverage, faster delivery, etc., he says. Sooner or later the companies that came in early "are probably going to start expanding their deals," he says, without saying what that broader access might look like. In any case, "currently we're resisting it. We don't want [any one company] occupying too much bandwidth."

This always-leave-'em-wanting-more approach sets the stage nicely for future M&A (a la GlycoFi), though Gerngross won't be drawn into that discussion. Instead he says that he's trying to build a cash flow positive, revenue generating biotech company. And as we've pointed out before, Adimab wants to do this while remaining focused on discovery and avoiding development projects of its own.

Apparently, it's nearly there. Gerngross says there's a "good chance" the company will be profitable in the first quarter of 2010, and perhaps for the whole year. It has no plans to raise money, having recently tapped new investor Google Ventures and its existing backers Polaris, SV, Orbimed and Borealis in a Series D. Furthermore it "discourages" partners from taking an equity stake in the company as part of any discovery deal.

Surely any biotech could use a little extra cash cushion, though. "Looking at our net burn and cash in hand we have ten years of runway," says Gerngross. Ten years? "Yes. It's an unusual situation."

buy one of those fuzzy yeast toys here.

Survey Says More FOB Negotiation Needed

Brands aren't going to get exactly what they want on follow-on biologics, not if the predictive powers of In Vivo Blog readers have anything to say about it. An FOB pathway with the brand-favored 12 years of data exclusivity cleared the Senate Health Committee, and seems poised to be added to the House bill, if the Energy and Commerce Committee mark-up ever resumes (it actually might on Wednesday). Still, you – at least those of you who took our poll – thought that the exclusivity number would eventually come down. We'll spare you just how unscientific this survey was, but while 12 years got the most votes of any of the specific categories (30%), more people overall though that exclusivity would be less than 10 years (36%).

Clearly, then, there's a lot more negotiating that needs to be done.

DOTW: Fireworks

Perhaps in honor of our nation’s birthday, the biopharma industry’s dealmakers got an early start on the festivities, announcing a steady stream of alliances that culminated in a show-stopping finale: Johnson & Johnson’s extremely interesting but complicated pact with Elan Pharmaceuticals.

That deal certainly provides Elan with some much needed capital and may quiet dissenting shareholders who have been advocating for change at the top of the Irish drug maker. In one fell swoop, it also makes Johnson & Johnson a player in a hot therapeutic area given its $1 billion u/f for ¼ of a potential blockbuster/potential bust. (See our previous blog post and coverage in this week's "The Pink Sheet" for more.)

The dollar value of the J&J/Elan tie-up certainly dwarfs other deals announced this week, but that doesn’t make the individual agreements any less interesting. Read on for more analysis.



Wyeth/Catalyst: It’s dealmaking as usual for Wyeth, certainly as far as biotherapeutics are concerned. This week’s tie-up with Catalyst for Factor VIIa hemophilia hopeful CB813—the partners’ second collaboration—pits the Big (soon to become Very Big) Pharma up against Novo Nordisk’s market leader in the space, NovoSeven. The Catalyst compound could be more potent and longer-acting than NovoSeven, which sold $341 million in the first quarter of this year. Compelled by the promise of this still-preclinical asset, Wyeth paid $21 million up front and may fork out more than $500 million in research funding and milestones—plus double-digit royalties. It will also fund 12 Catalyst FTEs. Three things to note: 1) Not all deals, even pre-clinical deals, are option-deals. Even GlaxoSmithKline, optioners-de-rigueur, admitted as much on a panel at this week’s Euro Biotech Forum in Barcelona. For all we know, Wyeth may have wanted an option structure, but with four interested parties (according to Catalyst) it probably didn’t have much choice. In this case, Wyeth takes over the program once it reaches the clinic. 2) The new Pfizer-Wyeth, committed as it is to biologics will present serious competition, both at the dealmaking table and commercially, in this large molecule space. Sure, NovoSeven is a minor part of Novo’s otherwise insulin-focused business. And Wyeth’s existing three-drug hemophilia franchise sells less, combined, than NovoSeven. But Wyeth/Pfizer will have serious commercial muscle—and international reach. 3) Let’s hope the change-of-control clauses are solid: Novartis Venture Fund has backed the biotech since 2004, and Johnson & Johnson’s VC arm, JJDC, invested in 2008 via Centocor. As for Wyeth’s own pending change of control: no issues, says Catalyst, because Wyeth’s R&D head Mikael Dolsten is taking the biologics reins at Pfizer.--Melanie Senior and Joseph Haas

Astellas/Maxygen: After pursuing strategic discussions with various parties since October 2008, Redwood City-based Maxygen has finally inked a deal. And it’s likely the outcome—a joint venture with Astellas focused on discovery, research, and development of multiple protein-based drug programs—isn’t exactly what the biotech’s senior management had in mind. Ever since September 2008, when Astellas signed a small deal with Maxygen for its CTLA4-Ig program—called MAXY-4—the Japanese drugmaker has been on a short-list of the biotech’s potential acquirers. But even though Astellas clearly likes Maxygen’s proprietary protein shuffling technology enough to want to deepen the relationship, it wasn’t so enamored with the platform that it felt compelled to buy the company outright. As part of the latest arrangement, Maxygen will contribute $10 million in cash and substantially all of its programs and technology assets to the JV in exchange for an 83% ownership stake in the newco. Astellas will also invest $10 million in the venture in exchange for the remaining 17% ownership stake. In addition, the big drug maker has a three-year option to buy out Maxygen's share of the venture at a predefined price that starts at $53 million and could go as high as $123 million, and will contribute up to $30 million of funding during that time period. The arrangement leaves Maxygen as essentially a holding company of financial assets including: 1) roughly $200 million in cash; 2) a 22% stake in privately-held biofuel specialist Codexis rumoured to mulling an IPO; 3) MAXY-G34, being developed for chemotherapy-induced neutropenia and Maxygen's most advanced clinical compound outside MAXY-4. —Ellen Foster Licking

Mylan/Biocon: Strong growth prospects for the global generic biologics space over the next decade are bringing together the world's third-largest generic drug maker Mylan and India's Biocon. The two signed a comprehensive deal June 29 that gives Mylan exclusive commercialization rights in the world’s major markets—including US and Europe—with Biocon sharing in the upside via a profit-sharing arrangement. Further financial details of the deal were scarce, as was color on the actual therapeutic targets. But Mylan confirmed the collaboration's primary focus would be in "monoclonal antibodies and complex biologics." This deal marks Mylan’s efforts to play catch-up in the ongoing biogenerics fray. Both Teva and Novartis, via its Sandoz division, are significantly further ahead when it comes to the creation of biogeneric drugs. Early this year, Teva significantly increased its biologics manufacturing capacity through a collaboration with Switzerland's Lonza group; meanwhile Sandoz continues to hold the lead in biogenerics launches, selling generic versions of epoetin alfa and human growth hormone. In a June 29 note on the transaction, Goldman Sachs analyst Randall Stanicky, said the collaboration positions Mylan ahead of an anticipated U.S. regulatory pathway, but predicted that bio-generics would not "contribute meaningfully until 2013" to the firm's bottom line. The deal also illustrates the growing profile of Biocon, which previously inked a collaboration with Abraxis for development and commercialization of a generic version of GCSF in addition to building a pipeline of novel therapeutic targets via in-house R&D and inlicensing.—Joseph Haas and Vikas Dandekar

Biogen/Acorda: On July 1, Biogen Idec agreed to develop and market Acorda Therapeutics’ multiple sclerosis candidate Fampridine-SR outside the U.S. in a licensing deal worth $110 million upfront and additional milestones totalling up to $400 million. In addition, Biogen will pay Acorda tiered double-digit royalties on ex-US sales of the product. If approved, Fampridine-SR could be the first oral drug that improves ambulation in MS patients; its likely to receive 10 years of exclusivity in Europe based on early conversations between Acorda and the EMEA. Biogen already has a strong franchise in MS courtesy of its flagship products, Avonex and Tysabri,which together generated $2.8 billion in sales for the company in 2008. Because Fampridine can be used alongside current treatments, the oral medicine “fits nicely” with its current portfolio of MS treatments, Biogen’s head of neurology Al Sandrock told “The Pink Sheet” DAILY. The deal also takes some of the sting out of recent events at Biogen, where in June dissent shareholder Carl Icahn, who is eager to break up the company, gained two seats on the board of directors after a year-long struggle. Prompted in part by the uncertainty surrounding Biogen's future, Acorda crafted a careful 'change of control' clause in the deal to protect its rights to Fampridine. Sources close to the negotiations note two specific events will have to occur to trigger the change-of-control: first, Biogen has to be acquired; and second, there must be a clear signal that its sales efforts on Fampridine are decreasing as a result of its acquisition. For instance, if Biogen’s new owner cuts the sales force support for Fampridine, Acorda has the right to negotiate a buy back of the product at a fair value.—Carlene Olsen

CombinatoRx/Neuromed: Nasdaq-traded CombinatoRx is merging with privately held Neuromed in an all-stock deal that, for now, gives each company’s investors a 50% piece of the action. But as Neuromed’s Exalgo hydromorphone candidate winds its way through the regulatory process, that balance may change. Exalgo was licensed to Covidien’s Malinckrodt subsidiary only a couple weeks ago and has a November 2009 PDUFA date. Neuromed is therefore hoping to see an approval milestone later this year and is eligible for royalties on the drug’s sales. This isn’t just an earn-out (or CVR, whatever you’d like to call it) for Neuromed; perversely CombinatoRx shareholders may benefit from a delay in the approval process. Neuromed’s backers will get 70% of the combined entity should Exalgo receive FDA approval by the end of this year. If the drug gets approved between January and September 2010, Neuromed’s backers will hold 60%. Approval between October and December 2010 means CombinatoRx shareholders remain in the majority with 60% of the shares, and no approval or approval after December 2010 means CombinatoRx’s backers get 70%. The combination will sport management from both companies and Neuromed’s current president and CEO Chris Gallen, MD, PhD, will hold those titles at the new incarnation of CombinatoRx. CombinatoRx shed the majority of its value last October after the failure of its lead osteoarthritis candidate, and then restructured in November. Since then it has essentially traded below the value of its cash on hand, making it a prime candidate for a reverse merger.—Chris Morrison

General Electric/Geron: There's no financial information associated with this deal, but we admit to being intrigued by the notion that GE and Geron are teaming up in the area of stem cells-based diagnostics. It's a triumph for Geron, which has struggled to turn this promising source of biological material into something monetarily more concrete, partly because of the politically charged atmosphere associated with stem cells, but also because the science is just so damned difficult. In addition to this most recent tie-up, 2009 has been a good year for Geron: it recently received FDA approval to begin the first human studies of an embryonic stem cell-based therapy for the treatment of spinal cord injuries. Phase I studies are scheduled to begin this summer. The GE deal also shows the continued interest by big industry players in these most changeable of cells. Drug makers with collaborations include Pfizer(Wisconsin Alumni Research Foundation (WARF), University College London), GlaxoSmithKline (Harvard Stem Cell Institute), Novartis (Epistem), and Novo Nordisk (Cellartis). Just as one of the first uses for genomic information was the use of biomarkers to enable drug discovery, its not too surprising to see tools players looking at the cells as a potential source for developing tests that help predict a particular drug's toxicity. Indeed, GE may be playing catch up with Invitrogen, which formed a stem cells business unit last year, and has a deal with WARF to use hES to develop new research tools.-EFL

(Image courtesy of flickr user Mr Magoo ICU used with permission via a creative commons license.)

Adimab Banks on the Value of Discovery

Adimab, the yeast-based antibody discovery play we wrote about here, and here, will announce its first two alliances today: a multi-target therapeutic deal with Merck & Co. and a single-target therapeutic/diagnostic deal with Roche.

There aren't many details in today's press release, but that's OK: these are very early stage deals anyway. What's more interesting to us is Adimab's overall partnership strategy, and its co-founder and CEO Tillman Gerngross' staunch belief that a focus on discovery--and not taking a single step down the development pathway--will allow the company to capture significant value.

(For our readers familiar with the revolting flavor of spreadable yeast extracts, apparently drug development is a lot like Marmite: either you love it or you hate it. )

First the new deals. For Merck, Adimab will use its discovery platform to identify fully human antibodies against a number of targets selected by Merck. We know that number is greater than one, but that's about it. Merck has rights to develop and commercialize those antibodies as therapeutics. Roche has tasked Adimab with discovering antibodies against a single target, and has the right to develop and commercialize those antibodies as therapeutic or diagnostic products.

Importantly there is absolutely no exclusivity around any of the targets, Gerngross tells us; Adimab can do deals with other companies on the same targets if it chooses. For its labor Adimab gets undisclosed up-front payments, pre-clinical and clinical milestone payments, and eventually commercial milestones and royalties. Though we should note that the two deals aren't necessarily structured in the same way: as Gerngross told us in May at BIO, Adimab is flexible with regards to upfronts versus royalties and terms in between. "Just pay us," he said. The biotech is also open, in some cases, to its partners taking an equity stake (though again, there is no clarity as to whether Merck or Roche has done so).

See here for an overview of Adimab's technology; essentially the company says it has created a faster and more fully human antibody discovery technology unencumbered by the various IP cross-licenses prevalent in existing platforms like phage display. Once Adimab has been given an antigen it typically takes eight weeks to deliver about a hundred antibodies that bind that target.

So Adimab will rake in cash from its discovery deals, which it plans to announce more of in the coming months (Gerngross tells us the biotech is essentially cash-flow positive, with minimal burn and no plans to raise additional capital), and build its business: keep expanding the library, do more deals. But here's where the company parts ways with about 99% of discovery-focused biotechs. It has no plans to build a pipeline of its own. At least not directly.

Adimab will not do development work. "I think that's where many other companies have made mistakes," says Gerngross. Often they're forced down the development route to validate their own technology for partners, he says. If a biotech is promoting a technology platform that isn't well-validated, "what ends up happening is that people will say 'the science sounds great, but show me that this really works,'" he says. "And before you know it you're in the business of conducting preclinical development with a company that was originally put together to solve a scientific problem. And it creates tension and requires resources that are very significant."

Gerngross contends this isn't a problem for Adimab. "Who will argue that fully human antibodies aren't a validated modality? Having strategic access to antibody discovery is a must, it's not an option" for pharmaceutical companies that are near-uniformly saying that 20 or 25% of their pipelines will come from biologics, he says.

So the challenge is to monetize the discovery capabilities within Adimab. If you're going to eschew the development pathway the problem becomes getting sufficient value for the company's investors with a series of discovery alliances. Adimab has raised cash in three venture rounds from SV Life Sciences, Polaris Venture Partners, Orbimed Advisors, and Borealis Ventures.

The simplest way would be to whet the appetites of a few pharmas and wait for one of them to pounce. Cue bidding war and a GlycoFi-esque takeout valuation. VCs invested a total of about $35 million since 2000 in that company, Gerngross' previous effort, which Merck bought in 2006 for $400 million.

But "we're not building Adimab to be acquired," insists Gerngross. "We think we can build a cash-flow positive company that can generate an enormous amount of value," he says (though there's always an offer that's too good to refuse).

And to be sure there are other ways of monetizing discovery. Gerngross points to some of the deals signed by Regeneron (like this one) as an example. "Very big upfronts, five-year commitments, royalties ... if you can do a number of those it's more attractive than a single acquisition," he points out. To which we'd add: particularly if you aren't ploughing the cash into pipeline development and can find a way to return it to your shareholders in a tax-efficient manner.

So Adimab will continue to sign the kind of funded research programs it has just announced with Roche and Merck, with an eye toward more strategic discovery deals that give large companies direct access to Adimab's platform, says Gerngross. "We can transfer the capabilities to them," he says, for them to use the discovery platform non-exclusively across a pre-determined swathe of targets or programs, unlimited targets, unlimited programs, whatever. It'll depend on the price. These sorts of non-exclusive arrangements sound like the kinds of deals Alnylam has managed to sign with the likes of Roche.

And then there's another wrinkle, a third kind of deal in the works at Adimab outside its Big Pharma discovery services ambitions. "We see opportunities for smaller, more agile players that really understand the valuable targets in, say, oncology," says Gerngross. Put that expertise together with Adimab's antibody platform, he says, "and we're looking at a story that's very compelling."

Adimab has identified oncology, inflammation, and infectious disease as three areas to embark on these sorts of ventures, and is already in active discussions in two of those therapeutic spaces. How such a deal would be structured remains to be seen but Gerngross envisions an autonomous entity in which Adimab and the other party would have equity stakes and which would be able to raise its own development capital.

These ventures will keep Adimab a step removed from drug development, where it won't have to compromise its platform business. The only question is what potential partners and investors would be willing to pay for that discovery platform: do they value discovery as much as Adimab?

image from flickr user jonben used under a creative commons license.

In Follow On Biologics We Trust

Typically, Big Pharma business briefing days aren't known for being newsy events. Another year, another ho-hum pipeline update--complete with the requisite hyperbolic biodollar citations for clinical candidates to appease investors. But in the case of yesterday's annual Merck confab, that certainly wasn't the case.

At its day long event, the Big Pharma revealed the creation of Merck BioVentures, an ambitious new business unit with a heavy emphasis on follow-on biologics that aims to launch at least six such products in the 2012 - 2017 time period. The group will rely heavily on proprietary technology obtained when Merck bought the glyco-engineering biotech GlycoFi back in 2006 for $400 million.

In an interview with "The Pink Sheet" DAILY, Frank Clyburn, the newly appointed senior VP and general manager of MBV, noted that Merck plans to spend $1.5 billion over the next seven years in the hopes of putting at least five follow-on biologic candidates in the clinic by the end of 2012. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio," Clyburn said.

The company is already 20% there. The only FOB Merck was willing to discuss specifically was its pegylated erythropoietin for anemia, a molecule called MK2578 designed to compete with Amgen's Aranesp currently in clinical trials that could launch as soon as 2012.

In comments to analysts and the press, CEO Richard Clark also played up the importance of FOBs to Merck's future growth strategy. Admitting that "2009 will be an important year of transformation and execution for us," Clark noted that "follow-on biologics represents a significant market opportunity due to the extensive patent expiries of leading biologics in 2017."

It is so nice to be right.

One of our favorite themes here at IN VIVO Blog--in addition to the potential benefits to biopharma of risk mitigation strategies--is that Big Pharma has a huge opportunity to become a leader in FOBs.

Think about it: as Congress continues to mull over FOB legislation, its increasingly unlikely that they will consider an abbreviated pathway to approval for these products. Indeed, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated by legislators for follow-on approvals. And, since the products are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceuticals, it ain't the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," said Ken Cacciatorre, an analyst with Cowen and Co. in this April RPM feature by Kate Rawson.

A majority of Big Pharma even have the technology platforms to make it happen. Late to the biologics party, a number of Big Pharmas were extremely busy in 2006 and 2007 gobbling up so-called next generation antibody companies in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. In addition to Merck's purchase of GlycoFi, other biopharmas inking deals around next-generation players include GSK (Domantis), BMS (Adnexus), Pfizer (Biorexis), and Wyeth (Haptogen).

But until 2008, when Teva announced it was buying albumin-fusion play CoGenesys, the corporate spin has been about the opportunities to develop novel biologics. Teva's willingness to commit $400 million to its own FOB program seemed to jolt the thought-processes of other biopharma execs. In a matter of months, former GSK CEO JP Garnier was publicly signaling the strategic importance of Domantis' technology because it allowed the pharma to"re-do a monoclonal for everything that is on the market, from Avastin to Rituxan...without infringing IP. With a product that might even have a twist."

At Pfizer's analyst day in March, meanwhile, CEO Jeff Kindler indicated that the New York giant was also considering how to position itself in terms of FOBs. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, Merck's news should be taken as a full-scale immersion. And it's really not that surprising. Anyone listening to Merck's financial guidance call last week knows the dire shape the pharma company is in thanks to slumping Zetia and Vytorin sales.

The company needs to do something to jump start its R&D. And using GlycoFi's technology to gain a chunk of the follow-on biologics market, poised to take off under the auspices of a new Democratic administration, is a logical place to start.

Thanks to heavily engineered yeast, Merck can develop specific protein versions that are "best-in-class" with "a better circulatory half-life, targeted tissue distribution and/or increased potency," according to Peter Kim, President of Merck Research Laboratories.

And that is the biological equivalent of the fast follower strategy Big Pharma has perfected so successfully for small molecules. At a time of increasing regulatory risk, what better way to gain a grasp on a new therapeutic modality than to create me-better versions of already well studied and hugely successful molecules such as Rituxan or Enbrel and then market the hell out of them?

It will be interesting to see if Merck's news spurs other Big Pharma down the FOB path. Certainly biotechs, such as Amgen and Genentech need to think carefully about life-cycle management strategies for their own products. Hours after the news broke, Lazard analyst Joel Sendek issued a report urging caution when it comes to Amgen:

"We view Merck’s biosimilar program as a serious long-term threat to Amgen’s anemia franchise. Neupogen follow-on biologics currently marketed in the EU have failed to acquire a very significant share of the market or dent usage of Amgen’s dominant products; however, in our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise."

hang-glider dollar bill by flickr user J0nB0n used under a creative commons license.

ZymoGenetics' Atacicept and the Risks of Biologics

ZymoGenetics just lost any hope for a fast filing for atacicept.

As reported last week, Merck Serono, ZymoGenetics’ partner on the autoimmune disease candidate, is discontinuing development in lupus nephritis due to an increased risk of infection.

ZymoGenetics had hoped an accelerated filing for atacicept could be based on Phase II/III data in lupus nephritis and systemic lupus erythematosus, but the safety signal throws a wrench into those carefully laid plans.

As Oppenheimer analysts Kevin DeGeeter and Christopher Holterhoff predict in an October 27 research note, it’s more likely that FDA will ask for full Phase III studies for atacicept, throwing up an unexpected roadblock to approval—and pushing back the timing for a US launch until 2014 at the earliest.

Even if approved, the news has significant commercial implications for ZymoGenetics. An important rationale for atacicept is the expected safety benefit compared to anti-CD20 drugs such as Rituxan. As DeGeeter and Christopher Holterhoff point out, an increased risk for infections may limit the commercial appeal of atacicept in rheumatoid arthritis and multiple sclerosis (both of which are in Phase II studies).

Given the way things are heading these days, it’s a pretty safe bet that FDA won’t look too kindly on a fast track filing for a large molecule with a serious risk of infection. And FDA has all the more reason to be extra cautious, based on a study on biologics safety published in the Journal of the American Medical Association.

The findings aren’t pretty: the probability of a biologic having a safety-related regulatory action is 14% within three years of approval, and 29% within 10 years of approval, Thijs J. Giezen et al. found. Those “safety-related actions” can range from a letter to health care providers about a new safety signal to a black box warning in labeling to a market withdrawal.

When that study is compared to similar studies with small molecules, it’s even more dismal for biologics manufacturers: a study published in JAMA in 2002 found that new chemical entities approved until 1999 had a probability of a black box warning of 10% after 10 years of marketing, compared with the 17% found in the Giezen study.

Whether those kind of studies put pressure on FDA to be more cautious when it comes to large molecule development is anyone’s guess. As we've argued before, FDA's Risk Evaluation & Minimization Strategies should give the agency the confidence to approve products it otherwise might not. But those data certainly don't instill confidence in the regulatory system for biologics.

For individual products like ZymoGenetics’ atacicept, the fall-out is the potential loss of an accelerated BLA filing. But given that many large pharma companies are in the midst of giving themselves an Extreme Biotech Makeover, the JAMA study may give some companies pause. There's no doubt biotech is a risky investment; but Giezen et al. put the safety risk in black and white.

Bayer/Direvo: Platforms Trump When It Comes to Exits

Yesterday, Bayer HealthCare announced its intent to spend €210 million to acquire Direvo Biotech, a privately held start-up with a promising next-generation protein-engineering platform.

Bayer is the latest in a string of pharmas to bolster its large molecule capabilities via the acquisition route. Other privately held companies with novel technology platforms snapped up by Big Pharma in recent years include GlycArt (Roche), GlycoFi (Merck), Domantis (GlaxoSmithKline), Adnexus (Bristol-Myers Squibb), Agensys (Astellas), Morphotek (Eisai), and CovX (Pfizer). (Are you beginning to see a trend here?)

START-UP recently undertook a comprehensive review of private biotech M&A, analyzing 184 deals that took place from January 1, 2005 to August 31, 2008 to identify possible trends, including age at acquisition, as well as the clinical status and therapeutic focus of a start-up's most advanced program. (You can read the whole article here.) Interestingly, fewer than half of the acquisitions reviewed resulted in a reliable exit for investors, and those numbers appear to be trending downward.

But if M&A has become not so much an exit opportunity as a chance to revamp one's business card, there's one group that has continued to hold value in the eyes of acquirers: the platform biotechs, especially those capable of generating multiple therapeutic products of the large molecule variety. In all, 56% of the private companies acquired during the 2005-2008 time period were platform-based. And of those companies that made healthy exits, nearly 60% were platforms. (See chart above--click to enlarge.)

And that's been very good news for the private investors who've ponied up the cash for these start-ups. For instance, HBM Bioventures, Atlas Venture, Polaris Ventures, Flagship Ventures, and Venrock poured $54.5 million into Adnexus from 2002 until its acquisition by BMS in 2007. But they netted an almost 8-fold return in the process. (And if the company realizes certain developmental milestones, earn-outs could drive the return up nearly 10-fold.) Meanwhile, CoGenesys's backers, which include New Enterprise Associates and OrbiMed Advisors, invested $55 million into the Human Genome Science's spin-out and earned a 7.3x return on their investment when Teva purchased the company earlier this year.

Direvo, too, netted quite a nice return for its backers, which include TVM Ventures, Danisco Ventures AS, S-Equity Partner, and Mulligan BioCapital. (A full list is here.) The company, which spun off from Evotec, has raised more than €30 million over three private rounds since its 2000 founding; by our calculations that's an ROI of 7x.

One reason the return for TVM and others was so high: the sale of Direvo was apparently a competitive process. "There were several parties in the race," Direvo President and CEO Dr. Thomas von Rüden told the IN VIVO Blog.

Late in 2007 and early in 2008, Direvo also inked research agreements with both Pfizer and MedImmune. Financial terms of those deals weren't disclosed--and probably didn't generate a tremendous amount of money for Direvo. But it's clear those deals served their purpose, helping validate the technology in the marketplace. "It put us on the landscape," admits von Rüden.

Certainly Bayer, which has been somewhat late to the biologics party, didn't have the capabilities Direvo was offering. "We can optimize antibodies, proteases, other proteins, and do glyco-engineering. Nobody else offers all this together," notes von Rüden, who will be staying on until year's end to aid the start-up's integration into Bayer Schering.

It's true the pace of acquisitions of these monoclonal- or protein-centric outfits has slowed somewhat. Direvo is only the second such company to be acquired in 2008; back in May, Daiichi-Sankyo purchased another German stand-out, U3 Pharma AG, for €150 million. Still, Big Pharma's desperation to quickly add biologics expertise means we're likely to see out-sized returns for platform start-ups of this type.

And despite a worsening M&A climate, that's definitely good news for the VC community.

image from flickr user bk-robat used under a creative commons license

Teva Buys Cogenesys

Teva said this morning it was buying the albumin-fusion technology company Cogenesys for $400 million. Cogenesys spun out of Human Genome Sciences with $55 million in funding in 2006. (Our 2006 profile of the spinout can be found here.)

We remember when the phrase albumin fusion could only have referred to a Spanish egg-white omelet. Oh, Science, how far you've come!

Teva joins a host of pharmaceutical firms bulking up in large molecule capabilities and drug candidates, a phenomenon we've described in detail several times, perhaps most comprehensibly here. Nothing new there, then.

But for generics giant Teva, this deal is as much about deepening its stake in the ill-defined, yet surely valuable, follow-on biologics arena as is it about biologics capabilities per se. The Israeli group already joined the biogenerics (er, we mean biosimilars) bandwagon in 2003, via its $3.3 billion acquisition of Sicor. This isn't quite the same, though. Cogenesys technology isn't aimed at producing copies of marketed biologics, but at improving them.

The technology, which Human Genome Sciences developed after it acquired Principia Pharmaceutical Corp. (a spin-out of Aventis Behring) in 2000 for $135 million, fuses albumin with a therapeutic protein at the genetic level; translation of the fused genetic code results in a protein with the properties of the therapeutic protein and the long-half-life of albumin. (See diagram below.) The technology's main competition is the more-familiar PEGylation, which also creates longer-lasting protein therapies, though Cogenesys has consistently claimed its technology works better than PEGylation.

Albumin fusion proteins' partnership potential has been validated, first by Human Genome Sciences. That company's Albuferon long-acting interferon is being co-developed with Novartis in hepatitis C. Cogenesys has done some deals of its own since spinning out of HGSI--in 2006 the company struck alliances with PDL BioPharma and Vegenics.

Teva has long worked in both generics and, to a far smaller degree, in innovative R&D (remember MS drug Copaxone?) But competition's hotting up on the small molecule side, and there's continuing uncertainty around the US regulatory aspects, and hence commercial potential, of straight biosimilars. So this deal--for improved, IP-protected versions of existing large molecules--illustrates where Teva, along with plenty of others, including innovators, feel the future may lie: somewhere in between copying and innovating, combining the low-risk of the former with the patent-defense (and, one assumes, the regulatory pathway) of the latter.


Photo 'Egg whites omelet from Prana' by Flickr user Table For Three, Please used under a Creative Commons license. Albumin fusion diagram from Cogenesys.

Who Do You Buy?

(Apologies to Bo Diddley and George Thorogood and The Destroyers)

Who Do You Buy?

I walked 850,000-square feet in Cambridge, I got Tysabri for a drug.

A pipeline full of products, and it's a-made out of biologics.

Got Carl Icahn as a suitor, and it's a-made my stock price soar.

Come on take a little walk with me Kindler, and tell me who do you buy?

Who do you buy?

Who do you buy?

It's official. The biotech most likely to be bought as determined by our completely non-random, totally unscientific poll is...drumroll, please...Biogen Idec.

Fifty of the 106 people who completed the poll--a whopping 47%--believe that Biogen Idec is the most likely biotech candidate to be taken out in the coming weeks. We at IN VIVO Blog are certain the result has absolutely nothing to do with the fact that Carl Icahn owns at least 1%--and as much as 4.9%--of the company or that it posted a for sale sign a couple of weeks ago and announced disappointing earnings yesterday.

Still there was clearly some disagreement among the poll takers. Sixteen cowards--15% percent of participants--refused to commit, hedging their bets by checking the "someone else" box. There was a two-way tie for third place, with Amgen and Genzyme each garnering 15 votes. And ImClone, poor ImClone, earned our wall-flower prize. Just 10 iconoclasts--a lowly 9%--think its ripe for the picking.

Now that we have finished mashing our metaphors, we'd like to thank the intrepid souls who devoted the two--maybe three--seconds it took to answer our questionnaire. (The rest of you are immeasurably lazy.) Like you, we are eager to know which biotech name we can eliminate from our Outlook folders. We remain steadfast in our belief that $23 billion--or more--for a company with encumbered products such as Rituxan and Tysabri is crazy money.

But we also understand that these are the times that try pharma execs souls. Your weekly bad news round-up (courtesy of Pharmalot and WSJ Health Blog, and of course IN VIVO Blog): Pfizer torches its costly inhaled insulin, Exubera (10/18); Schering Plough's stock price slumps(10/22); Roche stumbles on Amgen patents (10/23); Lilly anti-clotting drug stumbles on dosing(10/24); and GSK cutting costs as Avandia slumps (10/24).

As the bad news mounts, it's no wonder that pharma has been forced to reconsider its shunning of the large-molecule movement. As DataMonitor reported last week, these molecules really do have lower clinical failure rates, improved safety profiles, and the potential for billion-dollar revenue streams. (Newsflash: specialty drugs can be blockbusters!)

It's no accident that the companies most often rumored to be in the chase for Biogen Idec--Pfizer, Sanofi-Aventis, and GSK--are, as we describe in this October IN VIVO piece, biologics "wannabes". These pharmas have been active on the deal-making front, trying to make up for their past indifference by spending their share-holders dividends. (In the past five years, for instance, Pfizer has inked at least 20 biologics deals and spent $2 billion to acquire 5 companies, while GSK has signed over a dozen partnerships and acquired 2 companies for nearly $2 billion.)
This chart, also from our latest IN VIVO, shows how the "wannabes" stack up to biologics "haves" such as Roche and Lilly. We even have a score-card where we rate the pharmas, but you have to be a subscriber--or buy the article--to see that one.

It's not clear whether Pfizer and it's "have-not" brethren have decided on the optimal strategy for acquiring biologics capabilities. Perhaps they'll continue to opt for serial acquisition, piecemealing capabilities in $500 million chunks. Or maybe, the execs in pharma-land will decide that AstraZeneca was on to something when it paid $15.6 billion for MedImmune and got soup-to-nuts biologics capabilities with one deal.

Who knows? Only time--and the acquisition of Biogen Idec--will tell.

The Biogen Idec Sale: It’s About Revenues – Not Biologics

Last week, IN VIVO Blog broke the news that Biogen Idec had hired bankers to explore a sale.

Now, we know that companies, like people, don’t always act in their economic best interests. And there are plenty of revenue-desperate Big Pharmas (much speculation surrounds Pfizer, as the Wall Street Journal notes here and here) who might let desperation get the better of common sense. One banker peripherally involved in the transaction noted that there was “so much panic [among Big Pharma] about generating revenues they’ll rationalize as much as they need to about cost-cutting to justify the price. If I was at Biogen, I’d be out looking for a job right now.”

But let’s be clear: buying Biogen at this price doesn’t make sense. First, by contract Genentech/Roche will soon be upping their share of Rituxan revenues (from 60% US and greater ex-US to 70% US). And then there’s Elan’s change-in-control option on jointly marketed Tysabri – which could soon be providing a quarter of Biogen’s revenues (or more: it’s likely that Tysabri sales are already beginning to cannibalize sales from Biogen’s other MS drug, Avonex).

It’s possible, perhaps, that Elan and Biogen have reached some sort of understanding over Tysabri. But unless that understanding is worth a ton of money to Elan (which an acquirer would end up paying for), we think it would be hugely stupid for Elan to leave Tysabri in any Biogen-acquiror’s hands without extracting a huge fee (the huge fee they didn’t get when, in 2000, they signed the original deal with Biogen) and probably a far better ex-US royalty rate (we think they now get about 13%).

And Elan would have no trouble – zero – raising the money to buy out Tysabri: investors (who could smell high-profit re-sale to any number of large companies) would jam Elan’s offices with their checkbooks. Imagine what product-poor Novartis would pay for a drug to spearhead its efforts in developing an MS portfolio? “For Elan, this is the best thing since sliced bread,” says a banker. In any event, Elan’s hired Lehman Brothers to advise on the issue – and we’re pretty sure Lehman agrees with us.

So are there non-crazy reasons to buy Biogen at something north of $90/share? If you were intent on stretching a point, you could argue that senior management could use the necessity of making such a big bet pay off to bomb a primary-care mindset into the new world of specialty-care product development and marketing. And a small-molecule Big Pharma could suddenly acquire the rare soup-to-nuts biologics capabilities required to make a go of large molecules. For an in-depth discussion, see this October IN VIVO story.

But there are certainly more sensible compromises an acquirer should make if indeed biologics is the primary goal. For a lot less money, an acquirer could buy PDL, Genmab, MicroMet, Seattle Genetics, Human Genome Sciences or Xoma, each of which would bring some of the requisite capabilities. Certainly there’s plenty of hair on each of these companies—none of them have ever marketed a biological, so they lack proven development and regulatory expertise. None of them are free from management challenges. And they don’t all have the manufacturing capacity some buyers might want. But each of them has far more freedom than virtually any Big Pharma to operate within the IP constraints of the antibody world; they all have at least some of the expertise needed…and the rest can probably be acquired piecemeal.

But we don’t think a biologics business is the goal. The goal is revenues. And what Icahn hopes is that growth-starved, cash-rich Pharmas will be willing to pay an exorbitant exchange rate to trade balance sheet dollars for sales.

Incidentally, while Genzyme stock is up about 20% thanks to the Icahn put-them-in-play treatment, we’re also leery of a sale. To our eyes, Biogen CEO Jim Mullen looks pretty eager to cash out. Our bet is that Henri Termeer, Genzyme’s boss, probably wants to stay right where he is – the grand old man of biotech – and that he’d put up a significant fight to stay independent.

UPDATE: Be sure to vote in our highly unscientific poll on the top-left of the IN VIVO Blog. Who do you think Pfizer and its ilk will take out next?

UPDATE II: Poll is closed. Big winner? Biogen Idec, with more than 50% of the vote!