Financings of the Fortnight Checks The Corporate Venture Numbers

How important is corporate venture capital right now to the life sciences? That’s one of the key questions in this year’s START-UP Life Science VC survey, the results of which will be published in a few weeks.

When asked about themselves, corporate VCs mainly said they were important (77%), and the rest (23%) minority said they were crucial. Not exactly unexpected.

But traditional life science VCs were right there behind their corporate counterparts. 22% said CVC was crucial and 69% said important. Of the rest, 7% agreed with the statement “It’s of growing importance but will be relegated to the sidelines once traditional VC returns,” and 2% said CVC was insignificant.

That’s even more glowing than what institutional VCs said in the 2012 survey. Here are the institutional VCs' answers in 2012 and 2013:

Click to embiggen.

 Corporate investors’ Q ratings are going up at the same time their wallets are opening. According to the National Venture Capital Association and PricewaterhouseCoopers, 18.3% of biotech deals in 2010 and 2011 combined had CVC participation, accounting for 8.0% of biotech venture dollars. The average investment per round was $4.0 million.

In 2012, the average investment per round jumped 20%, to $5.0 million, and 19.5% of all biotech deals had CVC participation. The share of CVC dollars was 10.9%. Tack on the first half of 2013, and the last 18 months continue along those lines: corporate venture was involved in 19.2% of all biotech venture deals from the start of 2012 through June 2013, and their dollars accounted for 10.1% of all biotech venture. The average amount of participation per round was $4.9 million.

We’re not just tracking the corporate venture story for biopharma. Here’s a story that looks at the growing influence of hospitals and insurers in health care venture; and here’s one that examines the flow of corporate venture to medical device start-ups. Those sectors have also seen an increase in corporate venture dollars, according to the NVCA. (You can download all their corporate venture reports here.)

With all the IPO activity this year, we’ll also be able to update another corporate venture story we track closely: the financial returns of start-ups with corporate investors on board. Look for an update of those numbers this fall or early winter. Last time we checked was October 2012, and we found that biotechs with corporate venture backing averaged a 1.6x step-up at IPO, slightly lower than the 1.8x for those without corporate investors. That’s the opposite of what we uncovered for acquisitions: corporate-backed biotechs fare better when selling, with an average 4.3x step-up, compared with those without (3.5x).

Is this the reality from now on? As one VC said in the survey comments, “It wasn't all that long ago that corporates were the last folks you'd call to raise money, and you'd only do so if you were desperate or if they were willing to pay up."

It's hard to imagine traditional VC roaring back to fill the early stage coffers of platform and early technology companies, a niche the corporates have begun to claim (more on that in the upcoming survey). But overall, let's not forget that even with this apex, CVC participates in one of five biotech venture rounds. There's a long way to go before corporate venture dominates the landscape the way, say, the freely available bi-weekly biotech financing roundup is dominated by...

Retrophin: Martin Shkreli’s fledgling biotech got another injection of capital on August 16 when the company tapped new and existing institutional investors for a $25 million PIPE (private investment in public equity) financing. Retrophin sold approximately 5.6 million shares of common stock and warrants. The company conducted a similar financing in February, issuing 3,333,332 shares of common stock and warrants to purchase an additional 1,530,559 shares of common stock, which resulted in $10 million in proceeds. The new PIPE proceeds will help advance the company’s early-stage pipeline. Proceeds will also help license an autism treatment from an undisclosed major pharmaceutical company. None of the programs in Retrophin’s pipeline have made the advancements the 30-year-old Shkreli has been promising since the company’s inception a few years ago.
A Phase II pivotal study of RE-021, its lead compound, was intended to begin in early 2013 for the treatment of focal segmental glomerulosclerosis but has yet to enroll patients, and timelines continue to be pushed back. The company has yet to conduct any clinical trials in humans for any of its compounds, but has released what it believes to be promising data from studies in mice. Shkreli started the company after leaving his hedge fund MSMB Capital, which he started in 2000. He wasn’t shy about making waves as a hedge-fund manager, such as when he led an activist shareholder battle against AMAG Pharmaceuticals in 2011. Shkreli and his fund pushed for the ousting of the company’s management should the merger with Allos Therapeutics take place; the issue was dropped when the merger failed. – Lisa LaMotta

Sophiris Bio: It wasn't pretty, but the Canadian-American biotech raised $65 million in an initial NASDAQ listing after nine years of being public on the Toronto Stock Exchange (TSE). The funding is expected to take it through 2015, including top-line data by the end of 2014 for a Phase III trial of lead candidate PRX302 (topsalysin) that's slated to start this half. PRX302 is a genetically modified protein to treat benign prostatic hyperplasia (BPH), also known as an enlarged prostate. Activated by prostate specific antigen (PSA), PRX302 binds to the GPI-anchored receptors on the cell surface of prostate cells. It induces cell death once activated. This, in turn, can relieve BPH-associated lower urinary tract symptoms such frequent and urgent urination, as well as a higher risk of urinary tract infections, urinary stones and bladder damage. Existing shareholders, including Tavistock with its 30.5% pre-IPO stake, committed to buy about $22.4 million worth in the offering. Other existing investors include Warburg Pincus (27.8%) and BC Advantage (6.6%). To lift its share price ahead of the offering, Sophiris executed a 52-1 reverse stock split on August 9. By August 14, that put its share price on the TSE at US $8.32. The offering priced at US $5 per share and sold 13 million shares on August 15; that's well below the last price on TSE. It had planned to sell only 5 million shares, when its TSE shares were each about US $13. In 2011, Sophiris moved its headquarters to San Diego from Vancouver, BC. – Stacy Lawrence

Regado Biosciences: The IPO window may be wide open for life sciences companies, but that doesn’t mean going public is always easy. Anticoagulant developer Regado scaled down expectations for its August 21 listing, finally pricing at just $4, far below its anticipated $14 to $16 range. The company sold 10.75 million shares in the offering, more than twice its original goal of 5 million, but still raised $43 million rather than the $75 million it hoped to take in. Regado will use the funds for a Phase III study of lead program REG1, a two-component anticoagulant used during heart surgeries. The therapy includes a therapeutic aptamer, pegnivacogin, and a control agent called anivamersin that reverses the aptamer’s effects. Physicians use the combination to balance the risks of ischemic events and excessive bleeding that can occur during percutaneous cardiac interventions. Shareholders in the Basking Ridge, N.J. company include Russian investment firm Rusnano, Fastenal Co. founder Robert Kierlin, Domain Associates, Edmond de Rothschild Investment Partners, Aurora Ventures, Quaker BioVentures and Baxter International Inc. Insiders purchased nearly $31.7 million worth of the shares sold in the offering, well more than 50%. – Paul Bonanos

Tigercat Pharma: The third project in the hands of Velocity Pharmaceutical Development Corp., the CMEA Capital-funded operator of virtual companies, now has a name. Tigercat Pharma was founded last year to study VPD-737, also known as serlopitant, as a treatment for chronic itching, or pruritis. Velocity and partner investor Remeditex Ventures of Dallas have since invested an undisclosed amount in it. A January regulatory filing suggests that Tigercat plans to raise up to $15 million, but at that time it had taken in $500,000 from a single investor. Tigercat licensed serlopitant from Merck & Co. Inc., which previously studied the neurokinin-1 receptor antagonist for overactive bladder. A clinical trial showed that it was no more effective than Pfizer Inc.’s Detrol (tolterodine) in treating the disorder, although it was well-tolerated by patients. Tigercat joins Spitfire Pharma Inc., Corsair Pharma Inc. and an as-yet-unnamed program among Velocity’s projects, funded by Velocity Pharmaceutical Holdings and operated by Velocity Pharmaceutical Development employees. Spitfire has VPD-107 for type 2 diabetes, and Corsair has VPD-380 for a pulmonary indication; neither has been tested in humans. (We’re guessing that the fourth project will also be named for a fighter aircraft, and we’re guessing it won’t be Fokker.) Velocity and Remeditex separately pledged to explore investment opportunities jointly. Regionally-focused Remeditex has confined its investments to Texas and Colorado previously, but expects to broaden its reach with the deal. – P.B.

What If Deals Of The Week Had A Party And Nobody Showed Up?

What if they had a week and no biopharma deals happened? We’re not quite at that point but it has been slow-going, to put it mildly, on the deal-watching front.

Did everybody go on vacation all at once? Well, your trusty correspondent got back from his time off about two weeks ago and Deals of the Week has a schedule to keep. Let’s see what activity we can find.

There have been a few deals the week of Aug. 19, although none of the blockbuster sort or even all that close (see below). In fact, deal rumors may have outnumbered actual signed deals this week – they certainly set more tongues wagging. The biggest news in business development and M&A likely was renewed speculation that rare disease specialist Shire might be a buyout target for big pharma. The rumor gained in plausibility coming on the heels of Perrigo’s $8.6 billion acquisition of Elan on July 29 for the primary purpose of benefiting from Irish tax laws.

Focused on over-the-counter products, nutritionals and generic drugs, Perrigo bought out Elan largely for its appealing tax structure, as well as the royalties it earns from multiple sclerosis blockbuster Tysabri (natalizumab). Because Perrigo is merging with Dublin-based Elan, rather than just moving to Ireland, the new combined company will be able to take advantage of that country’s tax rates, which are considerably lower than those in the U.S.

On Aug. 15, Perrigo held its first earnings call since the transaction, saying that its expectations for increased global business are expected to offset slowing U.S. revenues in its OTC business. The company reported overall record net income of $967 million for its fourth quarter, a 16% increase from the year-ago period, and income of $3.5 billion for its fiscal 2013, which ended on June 30, a 12% increase from 2012.

While sales for its consumer health care business, which includes OTC drugs and pet-care products, grew 16% to $562.4 million for the quarter, Perrigo executives said during the call that sales in some OTC categories are slowing, a trend that likely will continue. Perrigo’s nutritionals sales, comprising supplements and infant formula, reached $150 million, an 11% increase year-over-year, with all categories within the segment growing and new product sales reaching $7 million.

It’s unclear whether Bristol-Myers Squibb, said to be reprising its interest in acquiring Shire, would be looking for tax advantages – Shire is headquartered in Ireland, as well, but also maintains corporate offices in Philadelphia and Cambridge, Mass.

Industry analysts on Wall Street and in London have said the pharma’s main interest might be Shire’s business model of producing and selling high-priced drugs for small specialist populations that discourage generic competition because they are hard to make and extremely targeted. However, if Bristol bought Shire, Irish tax rates would apply to any existing Shire products sold by Bristol and it likely could use the Irish rate on future products of its own, resulting in a reduced, blended tax rate for its overall business.

Shire has pursued an interesting business development strategy, using small to mid-sized acquisitions, particularly of companies with late-stage or commercial assets, to transform itself. The centerpiece of this strategy was the 2005 buyout of Transkaryotic Therapies that led to the establishment of its growing Human Genetic Therapies division and became a primary competitor to Sanofi’s rare-disease subsidiary Genzyme.

In an effort to build a franchise around bio-engineered skin-substitute product Dermagraft, Shire bought out Advanced BioHealing for $750 million in 2011, but to date that deal has not succeeded greatly in growing the Regenerative Medicines unit. On July 25, Shire announced that sales of Dermagraft, the primary motive for the acquisition, declined 57% to just $22 million during the second quarter.

Overall, however, the company reported sales growth of 7% during the quarter and said it was on track for double-digit full-year sales growth as it had projected.

Recently, it was reported that Shire has hired Lazard as a financial investor to assist it if a hostile takeover bid emerges. Bristol reportedly was going to offer nearly $17 billion to purchase Shire this past May. Shire’s share price has been trending up lately, nosing over the $100 mark on July 11 and continuing to incline. The stock closed trading Aug. 21 at $114.02, undoubtedly helped by the new rumors of possible takeout interest.

While DOTW waits for that potential story to percolate, we point you to these actual transactions that occurred over the past week:

Shire/Santaris: Meanwhile, Shire transacted some actual business, announcing an extension Aug. 23 of its strategic alliance with Santaris Pharma to discover and develop RNA-targeted therapies for rare diseases. Specific financial terms were not disclosed. Under the original deal, signed in 2009, Santaris has been using its proprietary Locked Nucleic Acid (LNA) platform to discover and begin development of preclinical oligonucleotides against rare genetic disorder targets selected by Shire. Shire paid $6.5 million upfront for access to the technology along with research funding and $13.5 million for completion of early studies in the original deal, which specified five targets. Santaris also was eligible for up to $72 million in milestones for each program, plus sales royalties on any product reaching the market. The revised deal adds an undisclosed number of additional targets to the collaboration. Santaris gets upfront cash and research funding, and again can earn milestones and royalties if a product derived from the target research gets to market. As with the initial agreement, Shire holds worldwide development and commercialization rights to any resulting compounds.

Adimab/Celgene/Innovent: Less than a month after antibody-engineering firm Adimab signed a pair of non-exclusive R&D partnerships with GlaxoSmithKline and Biogen Idec, the New Hampshire biotech struck again, announcing a pair of deals Aug. 20. This time, Adimab has signed discovery partnerships with Celgene and Innovent, again to generate therapeutic antibody candidates against multiple targets. The July deals brought Adimab’s total to 19 partners, including a “who’s who” of big pharma and big biotech, and the company said it expects to sign at least three tech-transfer deals a year through 2015. However, the deals with GSK and Biogen transferred non-exclusive rights to Adimab’s antibody discovery and protein-engineering platform, giving them expanded use of the technology beyond prior tie-ups with the biotech. In the Celgene agreement, Adimab will use the platform to generate antibodies against multiple, undisclosed therapeutic targets. Adimab receives an undisclosed upfront payment, while Celgene will have the option to develop and commercialize all antibody candidates resulting from the collaboration. For any candidate that Celgene options, Adimab will receive a licensing fee and be eligible for clinical milestones and royalties on product sales. Meanwhile, Adimab and China-based Innovent will partner on a single program to discover, develop and commercialize an antibody-based therapeutic against an undisclosed target. Innovent will coordinate all initial product development, including manufacturing and clinical trials. Each company will retain the right to develop and commercialize any resulting drug candidate in its respective geographic territories. Innovent will hold those rights in China, while Adimab retains U.S., European and Japanese rights to the program. Innovent will compensate Adimab for discovery and optimization of therapeutic leads, while Adimab will reimburse Innovent for specific development costs.

Evotec/Jain Foundation: Germany’s Evotec AG, a drug-discovery alliance and development partnership company, and the Jain Foundation announced Aug. 21 that they have extended and expanded their research collaboration in skeletal muscular dystrophy diseases. No financial details were disclosed. Based in Bellevue, Wash., Jain is a privately funded foundation whose goal is to cure muscular dystrophies caused by deficiency of dysferlin protein. In a release, foundation CEO Plavi Mittal said the collaboration is moving toward the screening of compound libraries with Evotec. “This is an important step toward accomplishing our mission of finding a therapy for Limb-girdle muscular dystrophy type 2b/Miyoshi Myopathy,” he said. Earlier this year, Evotec partnered with Harvard University to identify and develop a new class of small-molecule inhibitors of bacterial cell wall synthesis. Evotec is applying its drug-discovery technologies and expertise toward developing anti-bacterial agents that target peptidoglycan biosynthesis, while the university brings assays, anti-bacterial chemical starting points and x-ray crystallography tools to the collaboration.

Mount Sinai Medical Center/Exosome Diagnostics: Mount Sinai Medical Center (NY)’s Icahn School of Medicine is collaborating with Exosome Diagnostics Inc. on research and development of real-time nucleic acid-based body-fluid diagnostics to advance personalized medicine in areas such as oncology and inflammation. From the work, Exosome anticipates pursuing commercial development of potential in vitro diagnostics. Under the five-year collaboration, Mount Sinai researchers will get early access to Exosome technology for use in targeted molecular research, the two New York-based organizations said Aug. 21. The Exosome technology enables real-time capture of genetic biomarkers that are responsible for disease directly from blood, urine and cerebrospinal fluid without need for a tissue biopsy. The medical center will retain rights to molecular biomarkers associated with disease progression and drug response under the agreement, while Exosome will get commercial development rights to any molecular in vitro diagnostic products that may result from the collaboration.

Photo credit: Wikimedia Commons

Deals of the Week Sells During Slow Season

Capitalism knows no holiday, but people need a break sometimes. The dog days of summer often slow the pace of pharma deals, and 2013 is no exception. If you traded boardroom time for surfboard time last week, or just hung out at home with a glass of lemonade and the sprinkler, Deals of the Week is here to help you catch up with what you’ve missed.

Speaking of front lawn scenes, word is that TPG Capital put a “For Sale” sign in Aptalis Pharma’s yard earlier this year, according to published accounts. Reuters reports that the private equity firm wants $3 billion but hasn’t yet found a suitor for Aptalis, a global specialty pharma whose diversified holdings include several products for gastrointestinal and digestive disorders. The firm engaged JP Morgan Chase and Evercore Partners to pursue the sale.

TPG acquired predecessor company Axcan Pharma US for $1.2 billion in late 2007, taking it private. Then in December 2010, the firm funded Axcan’s buyout of public Dutch company and former partner Eurand NV for $590 million. The merged entity was renamed Aptalis two years ago.

Aptalis’s top sellers include Carafate (sucralfate) for duodenal ulcer disease and Canasa (mesalamine) for ulcerative proctitis, and it owns three of the five approved drugs for pancreatic enzyme insufficiency: Zenpep, Ultrase, and Viokase (pancrelipase, in three formulations). The company also expanded its cystic fibrosis holdings with the acquisition of another former partner, Mpex Pharmaceuticals in 2011 for $62.5 million in up-front and subsequent non-contingent payments, giving it Phase III candidate Aeroquin (aerosol levofloxacin). A late-stage trial revealed some encouraging data about the drug in January, but Aptalis hasn’t made its next step clear.

Parties interested in buying Aptalis have included Elan Corp. prior to its own acquisition by Perrigo Co.; Forest Laboratories, which is currently dealing with a CEO transition; Sun Pharmaceutical Industries; and Salix Pharmaceuticals, but all have reportedly walked away. Buyers would get a company that posted a loss of $66.4 million on $470 million in revenues during fiscal 2011, the last time it reported full-year earnings.

If no buyer materializes, TPG could pursue an initial public offering for Aptalis. The private equity firm was a top stakeholder in contract research organization Quintiles Transnational’s May offering, which raised $1.1 billion at a valuation of $6 billion. TPG holds stakes in numerous biotech and pharma companies, and bought Par Pharmaceutical for $1.9 billion last year.

It’s also possible that Aptalis could be broken apart, either before or after a sale. It’s a diversified company, but one addressing several disparate niches. The value of its cystic fibrosis program is unclear, and might not fit squarely with a buyer’s goals as well, so TPG might not find anyone willing to pay full value for all of Aptalis’s parts. - Paul Bonanos

September's coming soon, and I'm pining for the moon. But for now, summer's here and the time is right for...

Quintiles/Novella Clinical: Quintiles put some of its IPO war chest to work this week, when it revealed an Aug. 14 deal to acquire Morrisville, N.C.-based CRO Novella Clinical, a specialist in oncology, medical devices and biopharmaceuticals. Fifteen-year-old Novella has about 800 employees in North America and Europe, including locations in Ohio, Colorado, Ontario and the UK. Financial terms of the deal weren’t released, although Quintiles said the deal won’t have a material impact on its 2013 earnings. It expects to operate Novella as a standalone division named “Novella Clinical, a Quintiles company.” Analyst Eric Coldwell of Baird Equity Research estimated that Novella will produce $150 million in revenue this year. Before the IPO, Quintiles said it would use the proceeds in part to pursue acquisitions that would broaden its service lines or deepen its expertise. Since 2011, it purchased Outcome Sciences, VCG&A, Advion Bioservices, and Expression Analysis for a total of about $280 million. The CRO had $585.7 million in cash and cash equivalents on its balance sheet June 30, along with more than $867 million in accounts receivable and unbilled services. - P.B.

Pfizer/Sanford-Burnham: The NYC-based Big Pharma has inked a collaboration with Sanford-Burnham Medical Research Institute in Orlando, where scientists will work to screen and discover new targets that could lead to treatments for diabetes and obesity. The pharma-institute tie-up, announced Aug. 13, will focus on identifying targets and compounds that interfere with the accumulation of fat in muscle cells in hopes of finding new treatments for diabetes and obesity. Research has shown that abnormalities in lipid metabolism in muscle are associated with insulin resistance. As fat accumulates in muscle tissue, it becomes insulin-resistant and glucose is not cleared effectively from the blood. Neither party would disclose the financial arrangements surrounding the deal, but Pfizer will be funding all the research efforts. Work will be conducted in both Pfizer's and Sanford-Burnham’s labs. Decision-making within the collaboration largely will be decentralized, and research decisions will be made separately in each lab with the two organizations meeting regularly for updates and to decide on next steps. All intellectual property will remain with the organization making the discovery, with any jointly-invented IP being shared. The collaboration is set to last three years, but may be extended.- Lisa LaMotta

Boehringer Ingelheim/Brigham & Women’s Hospital: Boehringer Ingelheim Pharmaceuticals Inc. and Brigham & Women’s Hospital are partnering on a long-term comparative effectiveness study to assess the use of oral anticoagulants for reduction of stroke risk in U.S. patients with non-valvular atrial fibrillation. B&W researchers will lead the study, which Boehringer is sponsoring. The objective is to better understand the real-world safety and effectiveness of warfarin and newer oral anticoagulants such as Pradaxa (dabigatran), introduced by Boehringer in the U.S. in late 2010. The analysis will be based on claims data from UnitedHealth Group, which covers more than 80 million individuals. The announcement reflects increasing industry interest in sponsoring long-term real-world evidence studies. It also reflects intense interest in the clinical role and safety of new oral anticoagulants, which, in addition to Pradaxa, include Bayer/Janssen’s Xarelto (rivaroxaban) and Pfizer/Bristol-Myers Squibb’s Eliquis (apixaban). The partners did not specify a timeframe for the study, but Sebastian Schneeweiss, vice chief, division of pharmacoepidemiology and pharmacoeconomics at B&W noted in a press release it would take place over several years.  Some 5 million people with non-valvular atrial fibrillation in the U.S. are at increased risk of stroke, Boehringer says. All of the new agents are being scrutinized by the medical community for safety, notably for increased risk of bleeding. This has been a particular concern regarding Pradaxa due to some early reports of severe bleeding by doctors, but a late 2012 FDA review of Mini-Sentinel real world data found Pradaxa did not cause increased bleeding compared to warfarin. So far, there are no head-to-head comparative prospective clinical trials of the new agents, but B&W’s work should provide some RWE insights. - Wendy Diller

Biomotiv/Torrey Pines: Cleveland-based drug developer/accelerator BioMotiv’s asset-based financing model found another backer Aug. 12, when it signed a $40 million deal with Torrey Pines Investment. Each company will contribute $20 million to a collaborative program that will fund early-stage companies over the next seven years. BioMotiv intends to in-license preclinical assets from academic and private-sector researchers, then advance them to Phase Ib or IIa for out-licensing. Assets will be housed in separate corporate structures designed to be sold individually, with returns passed back to investors. CEO Baiju Shah told START-UP in June that BioMotiv will accept smaller up-front payments than VCs typically do, allowing for earlier exits than many start-ups can expect. Further terms, including what San Diego-based Torrey Pines will receive or contribute beyond cash, weren’t released. BioMotiv raised $25 million earlier this month from investors including first-time backer Nationwide Mutual Insurance and founding investors University Hospitals of Cleveland and the Harrington family, as well as individuals. That built upon $21 million in initial funding from the founding backers. The start-up aims to raise a total of $100 million for its projects, not counting the money in the Torrey Pines deal. BioMotiv currently has seven preclinical candidates, but hopes to have 20 in development at once. - Joseph Haas

Thanks to Flickr user the-tim for the overgrown photo, reproduced via Creative Commons license.

Aisling, Clarus Crown Old Funds With Huge Royalty Deal

When was the last time a life sciences venture firm spent $50 million all in one go? It doesn't happen often. But in the past week, two firms did exactly that. Aisling Capital and Clarus Ventures announced Monday that they've each put up $48.5 million for a tiny slice of sales royalties from ibrutinib, a promising cancer drug that could receive FDA approval this calendar year or early next.

The firms joined Royalty Pharma to buy the ibrutinib royalty rights from Quest Diagnostics for $485 million, a deal first announced in mid-July without details of the VCs' involvement. (Quest obtained the rights when it bought Celera in 2011 for its diagnostics business.)

Royalty deals are happening more often, as we noted on this blog earlier this year, but this was an unusual deal for Royalty Pharma – and would be for any royalty fund – because the drug is not yet approved. Royalty investors, firms which pay up-front cash to scientists, institutions, biotechs and pharmas for royalty rights that they collect over time, don’t typically risk regulatory failure on top of commercial uncertainty. But Royalty Pharma has been more creative of late, even making an acquisition play for Elan Corp that was ultimately unsuccessful.

Royalty Pharma brought in the VCs to share the risk and to help assess regulatory and commercial uncertainties in the hematology-oncology space. (Clarus has people, including managing directors Nick Simon and Dennis Henner, PhD, who were executives at Genentech in the Rituxan era.)

For the VCs, investing from the end of their current funds with an eye toward new fundraising, it’s a less risky investment than they and their brethren are accustomed to. Sponsored by Pharmacyclics and Johnson & Johnson, ibrutinib has received “breakthrough” status from the U.S. Food and Drug Administration in three patient settings: chronic lymphocytic leukemia with a deletion of the chromosome 17, relapsed/refractory mantle cell lymphoma and Waldenstrom’s macroglobulinemia.

Even if ibrutinib garners multi-billion dollar sales at its peak, will it bring venture-like returns to Clarus and Aisling? Royalty Pharma officials recently told "The Pink Sheet" DAILY that the royalty stream they bought from Quest is in the mid-single digits as a percentage of total ibrutinib sales. We don’t know the exact number, so let’s call it 5%. Clarus and Aisling have each bought 10% of that stream; let’s call it 0.5% of total sales apiece.

Under that scenario, it will require nearly $10 billion in ibrutinib sales for each firm to recapture its investment; more than $19 billion to double it, and $29 billion to capture a “venture-like” 3x return.
Even by optimistic projections – last month, Barclays Capital estimated peak annual sales for ibrutinib between $2 billion and $3.6 billion, others have gone higher -- it will take years to reach those totals.

But the ibrutinib scenario could play out – and pay out – in two different ways. First, if ibrutinib is approved, the VCs will at least have a steady stream of returns to pass through to their LPs as soon as sales begin. Such near-term returns, however incremental, would be far less likely if each VC spread its $50 million among a few earlier-stage biotech companies or other investments.

Second, if ibrutinib is approved, the value of the royalty stream could jump. There are other investors, including other royalty funds, that don’t take pre-commercial risks. Eliminate those risks, and perhaps Clarus and Aisling could flip their royalty rights to new buyers. Aisling senior managing partner Dennis Purcell and Clarus’s Simon acknowledge both scenarios. “It certainly factored into our thinking,” says Simon. “We can hold for the entire the royalty period, and we also have the option to sell at some point once adoption of the drug establishes real commercial value.”

Seeing how Clarus and Aisling both are investing from the tail end of funds closed in 2008 and 2009, respectively, we'll speculate that there's a good chance this deal becomes, well, royalty speculation. We don't know the internal goals for the funds, but if ibrutinib is approved and buyers emerge, we wouldn't be surprised to see a flip of the rights for something less than a "venture-like" 3x return. As  Purcell notes, a big part of the venture equation these days is shortening the time from investment to liquidity.

Even with their big ibrutinib outlays, Clarus and Aisling say there's a little gas left in the tank for their current funds. Purcell says his group hasn't yet begun talking to LPs about raising a fourth fund, while Simon says Clarus is "actively contemplating" a third fund.

- Paul Bonanos contributed to this report. For more analysis of this deal and other avenues VCs are taking to find lower-risk returns, see our upcoming issue of START-UP.

Photo courtesy of flickr user Jodimu.

Deals Of The Week: Isis Rethinks Its Partnering Strategy

 

In its last few earnings calls Isis Pharmaceuticals Inc. has touched on a significant change in its partnering strategy. We spoke with CEO Stan Crooke recently to better understand the implications of these changes for Isis’s top line and operating expenses, and also how they might allow the antisense specialist to enter into more strategic relationships with a few well-chosen partners. 

Isis has been on a deal tear. It out-licensed 5 candidates in 2012, striking three of those deals with Biogen Idec Inc., according to Elsevier’s Strategic Transactions Database. Since 2008, it has collected over half a billion dollars in upfront cash, and hundreds of millions more in milestone payments, not to mention $175 million on the sale of its satellite subsidiary Ibis Biosciences Inc. to Abbott Laboratories Inc.

The new approach was enabled by the size and renewability of Isis’s pipeline – some 28 antisense compounds in clinical development, and about seven in preclinical – and also by recent improvements in antisense technology that have raised the value and attractiveness of Isis’s assets and allowed it to pursue targets in a broad array of diseases including larger population diseases.

Isis puts its candidates into three buckets. The first bucket includes drugs in indications where there’s high target risk and costly and inconclusive Phase II studies.  Its goal is to partner these assets early, sometimes during preclinical development, in option deals where Isis controls development through Phase I or II. Recent agreements in neurology with Biogen (spinal muscular atrophy) and Roche (Huntington’s disease), and in cancer with AstraZeneca PLC (various tumors), conform to this model.

The second bucket is for drugs in indications where Phase II studies are dispositive and predictive of Phase III success, but where Phase III programs are very expensive and complex – for instance, due to a requirement for cardio outcome studies. These indications, typically metabolic disorders or certain cardiovascular diseases, have large patient populations and require a significant commercial effort. Isis’s unpartnered candidates against targets involved in insulin resistance, lipid control, fat metabolism, clotting disorders and coronary artery disease fall in this bucket. “Because we’ve kept them longer, through Phase II proof-of-concept, the terms are more lucrative,” said Crooke.

The third bucket signals the greatest change in Isis’s partnering strategy. From the firm’s founding in 1989, it has focused primarily on partnerships in which it had limited financial flexibility and where its partner controlled development. Beginning around 2010, Isis began to strike deals where it retained developmental control through early and mid stages, and generally took a bigger payment, both upfront and in milestones and royalties.

This third group comprises drugs in indications with clear Phase II and Phase III clinical paths, low-to-moderate total development costs, and the potential for initial rare disease opportunities, with larger-population indications downstream. Crooke said Isis is looking for “a Phase III program that we think we can manage without growing the organization enormously.” In fact, Crooke said Isis may hold onto candidates in the third bucket partway or all the way through Phase III.

The company might even control some drugs through filing, though he conceded that the timing would get tricky. The art is to partner early enough so that the licensee can prepare for launch, but late enough to maximize the value of the asset. Deals over Phase III assets might include a one-year option, though Crooke said he and his team are still evaluating different deal structures.

The first experiment in Phase III out-licensing will be ISIS-APOCIIIRx for patients with high triglycerides; its Phase III trial is slated to begin next year. The Kynamro (mipomersen) deal with Genzyme Corp., in which Isis took $325 million in upfront cash and equity for an asset it had funded through Phase II, may have woken it to the commercial opportunity of holding drugs longer, particularly ones that play out in multiple indications. But where mipomersen’s Phase II trial had to be funded via a private placement and an innovative financing with Symphony Capital, Isis is no longer cash-constrained and will have no trouble managing the late-stage development program for APOCIIIRx and other appropriate candidates. Similar deal terms and a big pharma partner are likely if Isis is successful in licensing APOCIIIRx.

The new deal strategy calls for Isis to crank out three to five drugs per year. At that rate, said Crooke, it will need to grow the organization a bit. And R&D spending, which has until now been relatively stable, will begin to rise as it moves drugs forward faster and retains some into Phase III.

But the river of cash that will be generated by Isis’s numerous existing deals – upfronts, milestones, licensing fees, royalties – should easily cover the costs. Its cash hoard, announced at its August 6 second quarter earnings call, is $590 million. The money will also make possible the next iteration of Isis’s partnering strategy. “What we look forward to in the future,” said Crooke, “is a few strategic partners where we’ll have a partner in a specific space who really knows us and the technology. And we know the partner and what we’re getting.”

Clear sailing, then, as long as the deals keep coming in. However, 2013 has seen a pause in the torrid pace of Isis’s deals. So far into the year, it has struck only the Roche agreement in April.

Still, all that cash set to pour in, and all those changes in the way it does business development, could nudge Isis to rethink its platform business model.  We’ll be examining that possibility in an upcoming issue of IN VIVO. - Mike Goodman

Until then, here’s what the rest of the biopharma world has been up to, deal wise . . . 

Novartis/Ensemble Therapeutics: Building on its research into the inflammatory cytokine interleukin-17, Novartis AG has partnered with Ensemble Therapeutics Corp. to develop an oral small molecule targeting the pathway. The big pharma is one of the leaders in this field of research and has a biologic drug that blocks IL-17, secukinumab, poised for a near-term regulatory filing for the treatment of psoriasis. Several competitors are also looking to bring similar drugs to market, and an oral alternative would represent a compelling commercial opportunity. The terms of the discovery-stage deal, announced Aug. 5, were not disclosed, though it will include an upfront payment, milestones and research funding payable to Ensemble.  For the private drug discovery company, the deal involves its latest-stage asset.  Much of the value of its macrocycle discovery platform, from which it has built a library of more than five million synthetic macrocylic compounds called Ensemblins, is at an early stage. The orally available compounds permeate cells like small molecules do, but like biologics, also bind to protein targets. The company has partnered with several other pharmas including Pfizer Inc., Bristol-Myers Squibb Co., Genentech Inc., Boehringer Ingelheim GMBH and, most recently, Alexion Pharmaceuticals Inc.- Jess Merrill

Bayer/Compugen: Israeli drug developer Compugen Ltd.  landed a drug development deal with Germany’s Bayer AG for two potential cancer treatments whereby the Tel Aviv-based biotech will get an upfront payment of $10 million and could get more than $500 million in milestone payments, not including milestone payments of up to $30 million for preclinical activities, plus royalties on resulting drug sales. Compugen, which has a pipeline of preclinical protein therapeutics and monoclonal antibodies, uses predictive discovery technologies to discover antibody therapies that use the body's natural immune defenses to fight tumors. The NASDAQ-listed biotech’s computational platform uses algorithms to predict which surface membrane proteins could be used as antibody drug targets; these are later validated in the laboratory. The collaboration, announced Aug 7, will focus on two novel immune checkpoint regulators that may play a role in immunosuppression.  Its scientists are developing specific therapeutic antibodies geared to block the immunosuppressive function of these targets and to reactivate the patient's anti-tumor immune response. It’s an area that is drawing increasing attention from drug makers. Compugen depends to a large degree on partnerships to progress its R&D program. Under its latest arrangement, Bayer will get control over further development and global commercialization rights to any new antibody-based cancer immunotherapies the collaboration generates. - Sten Stovall

Oncobiologics/InVentiv Health: N.J.-based Oncobiologics Inc. has entered into a risk-sharing agreement with contract research organization inVentiv Health Inc. in an effort to move its biosimilars pipeline forward. Oncobiologics is a small privately-held company, founded in 2011, that has relied on government grants, partnering opportunities, and angel investors for funds. It currently has no drugs in the clinic, but has several preclinical biosimilars and three innovative molecules still in discovery. The two companies will collaborate to develop five biosimilars, beginning with a generic version of AbbVie Inc.’s blockbuster rheumatoid arthritis drug Humira (adalimumab). The collaboration will involve biosimilar versions of four oncology drugs, including Roche/Genentech Inc.’s Rituxan (rituximab), Bristol-Myers Squibb Co./Eli Lilly & Co.’s Erbitux (cetuximab), Roche/Genentech’s Herceptin (trastuzumab), and Roche/Genentech’s Avastin (bevacizumab). inVentiv will share the cost of Phase III development. Oncobiologics was founded by individuals with business, R&D, and process engineering experience in the biologics divisions of major pharma companies. The firm intends to find commercialization partners in the U.S., Europe, and emerging markets, and has struck several deals to that end, but will work with inVentiv to commercialize the products in any territories without partnership agreements. inVentiv’s share of the profits will be dependent on its involvement in those unpartnered territories. Financial details of the transaction were not disclosed.- Lisa Lamotta

Amgen/Array: In this week’s “No Deal,” Amgen Inc. will return glucokinase activator AMG 151 to original owner Array BioPharma Inc., ending a December 2009 collaboration in which the companies jointly studied type 2 diabetes drugs. The tie-up officially unravels October 5, when rights to AMG 151 will revert to Array. Boulder, Colo.-based Array revealed the deal’s termination along with second-quarter earnings on August 7. The Phase II candidate, originally and henceforth known as ARRY-403, was the centerpiece of a deal that netted Array $60 million up-front. Array also received an $8.5 million milestone payment during the life of the deal, which included an additional $658 million in unrealized payments. The collaboration included a two-year research agreement that ended in 2011. The deal was forged when ARRY-403 was still in Phase I. Since then, some doubts have arisen that glucokinase activators can produce sustained glycemic improvement, while further risks of hypoglycemia and increased blood pressure have cast doubt on the drug class’s future in diabetes. Moreover, both companies have replaced their CEOs in the intervening years, and Amgen research and development head Roger Perlmutter has moved on to Merck & Co. Inc. The companies recently completed a Phase IIa study of the drug, and plan to share its results with the scientific community, according to an Array statement. - Paul Bonanos

Financings of the Fortnight Gets Comfortable In Genes

Twenty-three years after the first gene therapy clinical trial began, investors are finally showing confidence in the sector. The field still isn’t without risks, but some of its most daunting challenges are being resolved as clinical data broadens, regulators show support, and manufacturing improves.

The promise of gene therapy, which entails replacing a malfunctioning gene with a properly functioning copy delivered by a viral vector, is that its treatments are administered once with long-lasting, potentially curative results. That has tantalized scientists since the first gene therapy trials began in 1990, even as clinical research endured a standstill in the early 2000s after the deaths of several trial subjects. Their first big payoff came late last year, when European regulators approved uniQure’s Glybera (alipogene tiparvovec) to treat the rare disease lipoprotein lipase deficiency.

Since April, VC syndicates have backed two new companies studying new gene therapy treatments. First, Novartis Venture Fund, Abingworth, Versant Ventures and Index Ventures committed €32 million ($41.4 million) in GenSight Biologics’ springtime Series A round. Then Versant doubled down last month, contributing to Audentes Therapeutics’ $30 million Series A alongside OrbiMed Advisors and 5AM Ventures. Ophthalmological treatment developer GenSight and muscle-wasting specialist Audentes join a field of private companies that includes Celladon, Finland’s FKD Therapies, and uniQure.

More notably, gene therapy developer bluebird bio took advantage of the appetite for biotech listings in June, blowing past expectations with a $116 million IPO. In the aftermarket, bluebird shares touched $35, more than double their opening value; they currently trade above $27, giving the company a market capitalization of about $620 million.

Why has interest been renewed? “In terms of the investment community, the barriers to gene therapy as a therapeutic modality are being erased,” Celladon CEO Krisztina Zsebo told “The Pink Sheet” last month.

The body of evidence has grown significantly since 2006, with proof-of-concept shown across a variety of diseases. The manufacturing process has been industrialized and, while still expensive, occurs at a scale that appears sustainable. And in the wake of Glybera’s approval overseas, U.S. regulators have revised their guidance for clinical trials on therapies, suggesting cautious procedures but implying a willingness to approve a product when the time is right. It may be soon, as uniQure pursues Stateside approval.

It’s not just investors getting into the act. Several pharmas have their own programs, and others are striking high-profile deals. Celgene paid bluebird $75 million up-front in May, as the two inked a cancer research partnership, while uniQure teamed with Chiesi Farmaceutici for a territorial rights deal. Novartis and Boehringer Ingelheim have also licensed vector-related technology that could lead to new products as well.

Some risks are still very present. Many therapies pose a danger of “insertional oncogenesis,” the accidental triggering of a nearby gene that leads to cancer, although the vectors most commonly used today (adeno-associated virus and Lentivirus) are believed to be safer than the ones that led to patient deaths more than a decade ago. For now, the trailblazing companies are mostly operating in rare-disease fields where alternatives are scarce; as data sets grow, the treatment modality could soon be used in broader areas.

And although bluebird’s investors have reached liquidity, it’s tough to assess the value of gene therapy companies because of unresolved questions around product pricing. uniQure appears to be targeting a price of €1.2 million ($1.6 million) per injection, payable over a period of five years. That could induce sticker shock, but Versant venture partner Tom Woiwode argues that it’s quite reasonable, since a single, potentially curative treatment could ultimately cost less than a lifetime of chronic pharmaceutical use.

In the longer term, it’s also unclear whether gene therapies will really be permanently curative, or will need to be re-administered periodically. Moreover, a handful of early successes in rare diseases won’t necessarily carry over to more widespread disorders. Payer relationships haven’t yet been established, nor is there a precedent for a high-priced, one-time treatment before uniQure’s market entry. But each additional step offers a little more clarity for investors willing to risk their money on a treatment modality that holds so much promise.

We can't promise you, dear reader, a curative therapy, but if you don't mind a biweekly dosing schedule, we're always happy to bring you...

Edimer Pharmaceuticals: The tiny Cambridge, Mass. firm said July 30 it has raised an $18 million Series B round to test its protein replacement therapy EDI200 in newborns with X-linked hypohidrotic ectodermal dysplasia (XLHED), a rare genetic disease that can lead to fatal hyperthermia, as well as loss of hair and teeth in older patients. The Phase II trial, scheduled for six to ten newborns, comes on the heels of a Phase I trial in adult patients. The final data are still under analysis, Edimer CEO Neil Kirby told our Pink Sheet colleagues. Kirby is unsure what Edimer’s strategy will be for Phase III if EDI200 is successful in Phase II study, but said a partnership would likely be necessary to commercialize the drug if approved. New Enterprise Associates led the round, with Sanofi-Genzyme BioVentures also a first-time investor. NEA gets a seat on the board, while Sanofi-Genzyme, which can offer considerable expertise in rare disease drug development, will provide a board observer. Third Rock Ventures and VI Partners, which funded Edimer’s $22 million Series A in 2009, also are participating. -- Joseph Haas

aTyr Pharma: The San Diego biotech pulled in a $49 million Series D round as well as $10 million in venture debt to fund clinical trials of treatments for rare immune disorders. aTyr is developing protein therapeutics based on physiocrines, which are extracellular fragments of the tRNA synthetase family of enzymes. (You can find a deeper discussion of aTyr here in a recent START-UP feature on companies pursuing more phenotypic inquiry in the drug discovery process.) The firm's work on physiocrines -- which were first called "resectins" -- spun out of Scripps Research Institute and was backed by Alta Partners, Cardinal Partners, and Polaris Ventures, all of which participated in the new Series D. Domain Associates, which led aTyr's Series C, also participated, as did an unnamed global investment fund. The $10 million loan comes from Silicon Valley Bank and puts aTyr's total cash raised through equity and debt past the $100 million mark. tRNA synthetases have been well known for decades as humble helpers with protein synthesis within cells. No one gave them much thought as disease-modifying agents. Scripps reseachers realized the synthetases were also getting outside cells and being cleaved; part of the outcome of that cleavage were physiocrines, and that these fragments have extracellular signaling function that might also have disease implications. aTyr's focus on rare immune disease is fairly recent; in 2011, it quietly shelved its previous lead candidate, a thrombocytopenia treatment. -- Alex Lash

Dicerna Pharmaceuticals: This alumnus of the 2011 A-List said August 1 it has raised a $60 million Series C round, its first venture round in three years. The Boston-area biotech was part of the wave of companies to launch last decade, led by Alnylam Pharmaceuticals, to pursue therapies based on the breakthrough of RNA interference. Alnylam has had early clinical success, but generally the field's high expectations have been tempered because of drug-delivery limitations and other problems. Dicerna, however, has attracted a roster of new backers generally regarded as "crossovers," or public investors looking to buy into private companies to gain a foothold in a pre-IPO round. Dicerna's Series C was led by RA Capital and included Brookside Capital, Deerfield, and Omega Funds, which often buys shares from venture investors looking to cash out. The round also included all five of Dicerna’s existing institutional investors: Abingworth Management, Domain Associates, Oxford Bioscience Partners, Skyline Ventures and SR One. -- A.L.

BioMotiv: The drug-development accelerator based in Cleveland said August 5 it has raised $25 million from Nationwide Mutual Insurance and other investors, bringing its total cash raised to $46 million. That's about half of the firm's goal of $100 million to bring to fruition an asset-centric development model that looks to in-license preclinical compounds, work them into the clinic, and sell them to pipeline-hungry buyers with Phase Ib or IIa data. The only previously disclosed investors, which provided BioMotiv’s first $21 million, are University Hospitals of Cleveland and the Harrington family. BioMotiv is one piece of a $250 million initiative – The Harrington Project for Discovery and Development – spurred by the family to accelerate biomedical research into new therapies. Like many asset-based schemes, the BioMotiv structure allows returns from individual projects to pass through to investors. But as CEO Baiju Shah told our sister publication START-UP, which featured BioMotiv in its June Capital Matters column, the for-profit's investors are not limited partners; they function as direct investors with a certain amount of operational control, just as would the shareholders in a corporation. So when a return from a project comes in, investors will decide whether to distribute those earnings to themselves and management in an 80/20 split, or to plow them back into company operations. BioMotiv has already brought in eight compounds: two in oncology, three autoimmune-related, and one each in inflammation, ophthalmology, and infectious disease. The goal is 20 projects in hand at any one time. To maintain that steady state, the firm will have to reach another goal: an "evergreen" flow of capital to pour back into projects from successful exits. Shah hopes to have the first in the clinic in 2014.  -- A.L.

All The Rest: To support a clinical study of icaritin in advanced hepatocellular carcinoma, Shenogen raised $30M in Series C funds…Imperial Innovations led a £13.5M investment in the newly merged PolyTherics/Antitope…antibody company Apexigen completed a $20M Series A…vaccine player Vaxart raised $20M in a Series C financing...Karyopharm added $19M on to its Series B round, bringing the total to $67.2M…developing a Pfizer-discovered compound for premature ejaculation, Ixchelsis raised $14M from TVM Life Science Ventures VII…Merck Lumira Biosciences Fund led a $13.2mm investment in enGene…Rhythm Pharmaceuticals completed a second $11M tranche on its Series B, which now totals $44M…to advance monoclonal antibody linker technology, Meditope Biosciences closed a $3.6M Series A…Sialix, which is researching the role glycans play in cancer and inflammatory diseases, raised $1M in Series B funds from angel investors…AuraSense Therapeutics added on an undisclosed amount of money to its $5.4M Series B…days after completing reverse merger with Marathon Bar Corp., Lipocine privately raised $37.8M…to pay for clinical trials of cancer candidates Validive and Livatage, BioAlliance Pharma completed a €8.7M PIPE…Transition Therapeutics grossed $11M, enough funding to finish three major Phase II studies…cell therapeutics company TiGenix closed a €6.5M capital increase….Aeterna Zentaris raised $7.8M in a private placement to advance its zoptarelin doxorubicin (AEZS108) program in prostate cancer…CNS disorder-focused Vanda Pharmaceuticals closed on a $52.3M FOPO…Organovo, developer of 3D human biological disease models, publicly raised $40.5M…Opexa Therapeutics grossed $18M in a FOPO and plans to spend the money on Phase IIb studies of immunotherapeutic Tcelna...to pay for Phase I trials of BCX4161 for hereditary angioedema, BioCryst completed a $17.6M secondary offering…synthetic biology company Intrexon priced its IPO at $16, the top end of its range, to gross $160M...small-molecule cancer drug developer Onconova grossed $89M in its IPO…Conatus, focused on hepatic diseases, raised $66M in its IPO…stem cell manufacturer Cellular Dynamics completed its $45.6M IPO…Sophiris Bio set IPO terms at 5M shares…Acceleron Pharma, Five Prime Therapeutics, and Foundation Medicine filed for their initial public offerings…Emmaus Life Sciences, Paratek Pharmaceuticals, and Iroko Pharmaceuticals withdrew their IPO filings…through the offering of three series of senior unsecured notes, Celgene grossed $1.5B…and Telegraph Hill Partners closed on a $310M fund dedicated to life sciences and health care. -- Amanda Micklus

Many thanks to Paul Bonanos, who authored this fortnight's introduction on gene therapy. 

Photo courtesy of Flickr user certified su, who also has cool pictures of Australia. 

Deals Of The Week: A Feeding Frenzy Over ROR Gamma T Modulators?

A little-heralded deal between Amgen and Japan’s Teijin Pharma  July 31 marked the sixth since 2009 around compounds that modulate the ROR (retinoic acid-related orphan receptor) gamma t pathway, offering potentially a new small-molecule approach to addressing multiple autoimmune indications.

Drugs that hit RORγt might be able to modulate differentiation and regulation of Th17 cells, which play a role in inflammation related to many autoimmune disorders. It’s not just that the RORγt space has been fairly busy – a look at the names of the companies working in this arena indicates significant investment and potential. Bristol-Myers Squibb, Merck & Co., Pfizer and Johnson & Johnson all have made deals with smaller companies around RORγt assets in recent years.

A seventh deal could be looming as well, as Vitae Pharmaceuticals currently is considering partnering its lead-op stage RORγt inhibitor program. CEO Jeffrey Hatfield recently told “The Pink Sheet” that Vitae’s early data are being reviewed by roughly one-dozen potential partners and the company is looking to announce a deal, if it decides to make one, in September or October.

“Those [prior RORγt deals] seem to us to have been done in very early stages of discovery,” he said. “They were not particularly big deals, and there wasn’t a lot of buzz around the work done by the biotechs before the deals were announced. The sense I get from other companies is that the state of the art is not very advanced.”

Hatfield said the interest he has seen in his program, including one term sheet that came in before Vitae reached preclinical proof-of-concept, suggests RORγt is becoming one of those “hot spaces” that almost every player wants a part of.

“Everybody wants a program,” the exec asserted. “There just aren’t enough programs to possibly go around to meet demand.” Beyond MS and RA, Hatfield suspects RORγt modulation might have potential in psoriasis, ankylosing spondylitis and irritable bowel disease. Ultimately, he thinks targeting RORγt might enable modulation of a broader range of pro-inflammatory cytokines than currently is possible with anti-TNF drugs such as fusion protein Enbrel (etanercept), monoclonal antibody Humira (adalimumab) or MS treatment Tysabri (natalizumab).

Amgen and Teijin announced their collaboration on July 31, a discovery, development and commercialization agreement that would give Amgen worldwide rights except for Japan to compounds discovered in the joint R&D collaboration. Teijin, which gets an undisclosed upfront payment along with potential milestones and royalties, would retain marketing rights in its home market and also hold the right to co-promote any resulting products in select Asian markets.

Deal-making around this target kicked off in Japan when Japan Tobacco and San Diego’s Orphagen Pharmaceuticals announced a partnership in January 2009 aimed at inhibition of Th-17 cells to treat psoriasis. Then, in October 2010, Bristol in-licensed preclinical TGR5 agonist XL475 and discovery-stage RORγt inhibitors from Exelixis. The South San Francisco, Calif., biotech received $35 million upfront for XL475 and another $5 million upfront for the RORγt program.

Two more deals followed in 2011: First, Merck signed a collaboration with Lycera in March to co-discover autoimmune disease candidates based on the Michigan biotech’s RORγt research. Lycera, which received $12 million upfront, triggered the first milestone under the agreement in December of 2011 – total deal-related milestones could reach $295 million. As a possible indication of Merck’s assessment of Lycera’s technology, the two companies signed a second autoimmune R&D deal in February of 2013.

In December 2011, Pfizer signed an R&D pact with Karo Bio to discover and develop RORγt modulating compounds. This deal brought the Swedish biotech an undisclosed upfront payment – the companies revealed publicly that Karo Bio could earn up to $217 million in combined upfront cash and milestones, along with potential royalties, while Pfizer would fund all of the R&D work.

Prior to the Amgen/Teijin transaction, the most recent RORγt deal involved J&J’s Janssen Biotech licensing exclusive rights to a set of molecules discovered by Phenex Pharmaceuticals. The German company can earn up to $135 million in upfront cash and development and regulatory milestones under the December 2012 pact, along with sales milestones and royalties.

It was an extremely active week for deal-making outside the RORγt space as well, as July melted into August. Most noteworthy were Perrigo’s acquisition of Elan Corp. along with Cubist Pharmaceuticals’ two buyouts, of Optimer Pharmaceuticals and Trius Therapeutics. For the other highlights, read on as we unveil ...

Perrigo/Elan: By buying Dublin-based Elan, Perrigo of Allegan, MI, will re-domicile itself in Ireland where the corporate income-tax rate is a low 12.5%, offering fertile soil for international growth. The purchase also will give Perrigo access to royalties for the multiple sclerosis drug Tysabri (etanercept), which Elan discovered and then sold to Biogen Idec on Feb. 6. 2013. Elan began looking a buyer this year after Royalty Pharma tried to acquire it. The deal, announced July 29, ends a bitter takeover saga in which Elan rejected three hostile bids by Royalty Pharma and management clashed with shareholders about strategy. Perrigo, which manufactures over-the-counter pharmaceutical products for the store-brand market and has a market value of about $12 billion, will pay $6.25 per share in cash plus $10.25 per share in stock, a premium of about 10.5 percent over Elan's closing price on July 26. “We believe this transaction is compelling for Elan shareholders and fully takes into account the value of Elan’s assets, including a large cash balance and a double-digit royalty claim on Tysabri, a blockbuster product that generated revenues of $1.6 billion last year and has been growing at a compound annual growth rate of 19%,” Perrigo CEO Joe Papa said. - Sten Stovall




Cubist/Optimer/Trius: Antibiotics marketer Cubist Pharmaceuticals made a pair of moves July 30 that complement its hospital-based antibiotic franchise, acquiring current partner Optimer Pharmaceuticals and clinical-stage anti-infectives developer Trius Therapeutics.The simultaneous, all-cash deals will cost Cubist at least $1.24 billion by the end of 2013, when they’re expected to close. Cubist will pay $10.75 per share, or $535 million, upfront for Optimer, and $13.50 per share, or $707 million, upfront for Trius. The upfront payments represent a 15% premium over San Diego-based Trius’ July 30 closing price, but a 19% discount to Optimer’s July 30 closing price. Yet the upfront prices may not be the acquisitions’ final values. Both deals include contingent value rights which could deliver substantial additional returns to the acquired companies’ shareholders, and are based on the net sales performances of their key drugs. Peak sales for both therapies in territories that belong to Cubist could run between $600 million and $1 billion, Cubist management estimated. They expect the deal to be accretive starting in 2015. Optimer currently sells Dificid (fidaxomicin) in the U.S. and Canada to treat diarrhea associated with Clostridium difficile infections. If the drug generates $250 million in net sales by the end of 2015, Optimer’s shareholders would receive an additional $3 per share. If sales reach $275 million or $300 million, they would receive $4 or $5 per share, respectively. That could drive the deal’s overall value as high as $801 million. Trius has the Phase III drug tedizolid, also known as TR-701, for Gram-positive and other bacterial infections. Its shareholders would receive an additional $1 per share if tedizolid produces $125 million in net sales during 2016, and up to another $1 if it sells between $125 million and $150 million that year, delivered on a pro rata basis. The buyout could be worth $818 million in total if the CVR is realized fully. - Paul Bonanos

AstraZeneca/Fibrogen: Privately held FibroGen already had a territorial partner in Astellas Pharma for its late-stage anemia drug FG-4592. Now, the San Francisco-based company has teamed with AstraZeneca to share rights to the drug in other major markets. The new deal covers the U.S., China and other unspecified territories, not including those in which Astellas already holds rights: Europe, the Commonwealth of Independent States, the Middle East and South Africa. AstraZeneca and FibroGen say they’ll collaborate to promote the drug. AstraZeneca will commercialize the drug in the U.S., although FibroGen will promote it in end-stage renal disease patients. In China, FibroGen will handle the regulatory process, manufacturing and medical affairs, while AstraZeneca will take the lead on promotion and distribution. The British pharma paid $350 million upfront, including non-contingent short-term payments, for rights to the candidate. Developmental milestones could add $465 million to the deal, while unspecified sales milestones could further add value. If the drug is approved, AstraZeneca will also owe FibroGen royalties in the “low 20% range,” according to a joint statement. FG-4592 induces red blood cell production, or erythropoiesis, by inhibiting a protein called hypoxia-inducible factor, thereby mimicking the body’s natural response to high altitude. Well-funded start-up Akebia Therapeutics has a Phase III-ready HIF inhibitor, while GlaxoSmithKline has a Phase II candidate. FibroGen also has FG-3019, a Phase II connective tissue growth factor inhibitor that has shown promise in idiopathic pulmonary fibrosis, liver fibrosis due to hepatitis B and pancreatic cancer. - P.B.

Actelion/Ceptaris: Actelion Pharmaceuticals' options deal to acquire Ceptaris Therapeutics is a small, but important and relatively risk-free step in the biotech’s efforts to diversify away from its heavy reliance on its highly successful treatment for pulmonary arterial hypertension, Tracleer (bosentan). On July 31, Europe’s largest biotech announced that it is paying $25 million upfront for an option to buy Ceptaris, contingent upon the latter’s receiving FDA approval for its only asset, Valchlor (mchlorethamine gel). Valchlor’s PDUFA date is Aug. 27. If Valchlor gets a regulatory green light, Actelion will pay Ceptaris investors an additional $225 million, plus undisclosed commercial and sales-based milestones. Actelion’s internal R&D track record is mixed, leaving its near-term diversification strategy highly dependent on efforts to launch a next-generation PAH treatment, macitentan. Macitentan’s NDA is pending before FDA, with a PDUFA date of Oct. 19, and it also awaits EU authorization. In the meantime, the Swiss firm sees Ceptaris as a way to obtain an asset that is “meaningfully differentiated,” rapidly accretive and focused enough so that it will not distract from the effort around macitentan, said Actelion SVP Roland Haefeli. Valchlor, if successful, will be the only FDA-approved topical formulation of mechlorethamine for treatment of early-stage mycosis fungoides-type cutaneous T-cell lymphoma, a rare form of non-Hodgkin’s lymphoma. - Wendy Diller

Kolltan/MedImmune: Cancer-focused Kolltan Pharmaceuticals in-licensed a monoclonal antibody targeting the HER3 receptor tyrosine kinase from MedImmune, the global biologics arm of AstraZeneca, on July 29. Financial terms were not disclosed but privately held Kolltan said in a release that both companies have the potential for future cost-, risk- and profit-sharing arrangements related to the antibody after the New Haven, CT-based biotech completes early clinical testing. Based on the candidate’s current status, Kolltan expects to initiate a Phase I study of the antibody during the first quarter of 2014. - Joseph Haas

Celgene/Array: In its second licensing arrangement of the month, Array BioPharma signed a strategic collaboration with Celgene July 29 focused on a preclinical development program targeting an undisclosed novel inflammation pathway. Boulder, CO-based Array gets $11 million upfront, while Celgene obtains an exclusive option for multiple potential clinical development candidates under the deal. In addition to the upfront, Array can earn total development, regulatory and sales milestones of up to $376 million as well as royalties. It will retain all rights to programs that Celgene does not select. Previously, on July 10, Array licensed an undisclosed preclinical oncology compound and related intellectual property to Aisling Capital-backed start-up Loxo Oncology. Array got an ownership stake in the new company under that deal, as well as potential for up to $434 million in milestones and royalties. - J.A.H.

Bristol/Samsung: Bristol and South Korea-headquartered Samsung BioLogics inked a 10-year agreement July 29 under which Samsung will manufacture a commercial antibody cancer drug at its new plant in Songdo Incheon, South Korea. Financial terms were not disclosed. In a release, Bristol said technology transfer and trial production began in July, while commercial production will start once regulatory approval is obtained. In a statement, Louis Schmuckler, Bristol president, global manufacturing and supply, said the arrangement is part of the pharma’s focus on establishing long-term relationships with quality manufacturing partners worldwide. “This agreement increases our biologic manufacturing capacity to help ensure sufficient long-term supply of our commercial products,” he said. - J.A.H.


Photo credit: Wikimedia Commons

How Vitae Tries To Provide An Optimal Environment For Innovation

One of the best things about having time to sit down with a company's executive team and discuss matters such as pipeline and business strategy at leisure is the chance to intersperse more philosophical questions that address how a company views itself and the work environment it tries to provide.

In meeting a few weeks ago with the executive team at Vitae Pharmaceuticals near Philadelphia for a profile in "The Pink Sheet," I got more information than I could process on the firm's structure-based drug design process, the genesis of its proprietary Contour technology platform and its plans for pipeline assets in indications such as chronic kidney disease and acute coronary syndrome.

Vitae Pharmaceuticals CEO Jeff Hatfield

But as I spoke with CEO Jeff Hatfield, CFO Tina Fiumenero and Chief Scientific Officer Richard Gregg, all of whom came to the clinical-stage company from Bristol-Myers Squibb, I wanted to ask about the best environment for innovation in drug discovery and what precisely the term "biotech" even means in 2013, if such a definition can be nailed down.

As Hatfield explained that he brought in Gregg after initial CSO and company co-founder John Baldwin retired, he noted both the depth of Gregg's Rolodex and the fact that he had led discovery in all areas at Bristol. Therapeutic agnosticism is important for a company that wants to go where its technology takes it. Hearing Gregg talk about Vitae's quicker, streamlined decision-making and its speed in drug discovery against challenging targets, I posed the question: "Coming from big pharma, would you say it's necessary to leave big pharma if you want to innovate in drug discovery?"

Vitae CSO Richard Gregg

Gregg's response to the somewhat loaded question is a bit on the cautious side, but still interesting.

"I think that one does not have to leave big pharma but it is easier [to innovate] in a biotech environment. It’s not that big pharma can’t [do it] but with a lot of the bureaucracy and decision-making processes, they make it difficult to be truly innovative there. I’m not going to say it’s impossible, but it’s easier in biotech," he said.

Hatfield then elaborated on the innovation topic: "I think there’s an awful lot to the culture and environment that people work in ... I don’t think the scientific talent is different in either direction - I don’t think it’s better in big pharma, I don’t think it’s worse in big pharma. What is really different is the culture that exists between a large organization, whether it’s in pharmaceuticals or manufacturing Twinkies, it doesn’t matter, big organizations have an organizational behavior, a culture, that by necessity is more structured, more controlled, and in a small organization, that’s much less the issue."

Culture is a big part of what defines biotech, in 2013 as in 1999, the CEO added. But does Vitae, with its focus on small-molecule drugs for primary-care indications, really fit the definition of biotech?

"Everybody has a slightly different definition of biotech," Hatfield said. "Yes, we do view ourselves as biotech, because we are innovative and I think that's a better essence of what biotech is supposed to represent, not whether it is small molecule or large molecule. It's pursuit of innovation to make a difference in the world."

But, besides its technology, what makes a company like Vitae innovative? Hatfield thinks getting buy-in from the ground-floor level R&D team is a good place to start. In other words, innovation comes from motivation, which may stem partly from comfort level.

"When we were getting this company going [it was founded in 2002, and Hatfield signed on as chief in 2004], I asked a group of bench scientists to define the culture. I said ‘tell me the environment you want to work in.’ And so they did, and it was not management-driven in the slightest bit. They came up with five principles of what they wanted the focus to be," he explained.

Those five tenets selected by the bench scientists themselves in 2006 as the company's modus operandi? Not surprisingly, the first was innovation - to create rather than copy. Next, they wanted to be evaluated on the basis of success, not the amount of activity, on helping to produce the right compound, rather than just a lot of compounds.

As Gregg alluded to, a third important value for the R&D team was quick decision-making, which the group called "sense of urgency." The scientists made clear they didn't want to hear about committees being organized to ponder the latest idea. They also wanted a teamwork-driven environment in which the chemists and biologists communicate directly and trouble-shoot together.

Finally, easier said than done, they wanted a fun place to work. Which is about as easily defined as what biotech means in 2013. But on the other four measures, the results to date suggest that Vitae may be living up to its own chosen values. Whether that proves to be a lucrative formula remains to be determined.