Deals of the Week: GSK's Stealth Move To The Coasts

GlaxoSmithKline is following some of its big pharma peers to key innovation hubs in the U.S. by opening satellite R&D centers in San Diego and Cambridge, MA.

When Johnson & Johnson opened its innovation center in Boston earlier this year, the company made a big to-do about the move and announced plans to fund two startups there. Pfizer, meanwhile, announced a significant $100 million investment through a collaboration with local hospitals and academic institutions when it anointed the Boston area the headquarters for its academic deal engine, the Centers for Therapeutic Innovation.

GSK, on the other hand, went in a different direction with its announcement, unveiling the move … via blog post. We couldn’t help but notice the difference in tactics and wonder if GSK’s decision to downplay the announcement reflects its ambitions for the satellite offices.  Whatever the reason, GSK clearly views the expansion as an evolution of its business development strategy, not a seismic shift in the way it approaches R&D.

GSK’s Damien McDevitt, VP Business Development, R&D Therapy Areas, will run the California center. He confirmed details in an interview Dec. 10. "These are both small virtual offices,” he said. “They are not large R&D centers by any stretch of the imagination.” The San Diego office will host about five to 10 scientists and the Boston office will have about 10 to 12, with a heavy emphasis on business development, he said.

"We have always had collaboration activities in these two locations, but what we haven’t had, at least on the West Coast, is a satellite office to be able to work more closely with all the groups we work with, including academia, venture and biotech,” he said. The company’s main U.S. R&D offices are located in Research Triangle Park, NC, and Philadelphia. GSK’s venture group, SR One, has offices in San Francisco and Boston. And its most recent venture effort, Action Potential Venture Capital, is headed by Imran Eba, who recently relocated to Cambridge to open up that shop.

GSK views its California and Boston R&D outposts as bridges to strengthen its existing relationships and forge new ones. A big focus, at least for the West Coast, will be on its partnership with VC firm Avalon Ventures. Earlier this year, the partners announced plans to fund 10 new single-molecule drug companies. Their first biotech, celiac disease drug developer Sitari Pharmaceuticals, was hatched with a $10 million Series A in November.

McDevitt said GSK and Avalon are aiming to establish at least three or four new companies by the end of 2014. But the new R&D centers won’t be solely focused on venture funding opportunities. They will be scouting new partnerships with academia and biotech, while also strengthening ties to existing partners. GSK has collaborations with some 22 West Coast partners, McDevitt pointed out.

GSK will be agnostic about therapy areas when it comes to new projects, and will consider both platform technologies and new products, with an emphasis on preclinical programs. Mostly, he said, the point is “keeping an open mind” and looking for breakthrough science. - Jessica Merrill

Our minds are always open, but we’re here to tell you when the deals are closed. With that in mind, here’s this week’s edition of...

Roche/Prothena: Prothena's new deal with Roche, worth $45 million in upfront payments and near-term clinical milestones and potentially up to $600 million to the biotech in the long run, gives it a major pharma partner that recently cited central nervous system diseases as a core R&D priority. In turn, Roche gets access to a synuclein antibody program that is ready for the clinic and has been guided by scientists who are world-class drug developers. The Dec. 10 deal revolves around PRX002, a Phase I-ready antibody that targets alpha-synuclein, believed to play a role in Parkinson’s and other neurodegenerative diseases. But it also gives the partners opportunities to collaborate on related conditions. Prothena is receiving most of the first tranche of $45 million from Roche up front, but a small portion of that amount will be a milestone payment when Prothena moves the drug into Phase I, an event that it expects will happen in the first half of 2014, said CEO Dale Schenk.  Prothena also has a no-cost option, which it can exercise prior to approval, to co-promote PRX002 in the U.S. Costs, revenues and profits will be divided 70-30 between the partners, with Roche assuming the larger burden and reaping the larger bounty. Prothena has been looking to out-license PRX002 in order to concentrate on some of the compounds it is targeting for diseases in smaller populations. Roche traditionally has been strong in central nervous system diseases, but, as with other parts of its business, it has moved away from large-population conditions treated largely by primary care doctors, such as depression, to more complex CNS disorders, treated by specialists.- Wendy Diller

Biogen Idec/Proteostasis: Already no stranger to Alzheimer’s disease treatments, Biogen Idec has licensed another program showing promise in neurodegenerative diseases including Alzheimer’s and Parkinson’s. In a Dec. 9 deal, the biopharma disclosed a new partnership with Proteostasis Therapeutics to study and develop therapeutics inhibiting the enzyme ubiquitin specific peptidase 14, or Usp14. It’s believed that blocking Usp14 modulates proteasome activity and thereby speeds up degradation of toxic proteins such as alpha-synuclein in Parkinson’s and tau in Alzheimer’s, potentially spelling a disease-modifying approach. The deal includes research funding and potential development and commercial milestones totaling $200 million, as well as tiered royalties. The partners will jointly pay for and conduct preclinical research to identify lead compounds for clinical development. At undisclosed, pre-specified development points, Proteostasis will have the option to receive milestones or exercise an option for global co-development and co-commercialization rights. In addition, Biogen Idec is making an equity investment in Protestasis of undisclosed size. Biogen Idec already has Phase Ib anti-beta amyloid antibody candidate BIIB037, which could be moved directly to Phase III as soon as 2015 if trial data are strong enough, SVP of Neurology Al Sandrock said at Deutsche Bank’s BioFEST Conference in early December.  Cambridge, MA-based, privately held Proteostasis is backed by HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund and Genzyme Ventures. - Stacy Lawrence

Retrophin/Kyalin/Novartis: Retrophin is making good on its plan to expand beyond its initial focus on ultra-rare diseases. On Dec. 12, it announced an agreement to acquire San Diego-based Kyalin Biosciences for an undisclosed sum. Kyalin’s lead asset carbetocin, a synthetic, nasally administered formulation of the hormone oxytocin, is in Phase I for symptoms of autism. On the same day, Retrophin made good on an August announcement that it would license in a drug to treat autism and schizophrenia from an unnamed major pharmaceutical company. The mystery licensor is Novartis, and the asset is Syntocinon (oxytocin), another synthetic, nasally delivered form of the same drug. Retrophin paid $5 million upfront plus undisclosed milestones and royalties for an exclusive U.S. license. Novartis had marketed the drug in the U.S. to assist with initial postpartum milk ejection, but discontinued it in 1997 for commercial reasons. The proceeds from a $25 million PIPE financing in August helped pay for the transactions. The licensing of Syntocinon also gives Retrophin a market-ready prescription treatment addressing a lactation deficiency for which there are no current therapies. Retrophin plans to re-launch it for that indication in the second quarter of 2014, providing an immediate, if likely small, revenue stream. As for the decision to double down on oxytocin, CEO Martin Shkreli said while Syntocinon is FDA approved, carbetocin is far behind in the clinic. “It might never be approved,” he said, “but it has superior qualities [to Syntocinon]. For instance, it’s longer-acting. So, there is a rationale to replace one with the other over time.” He added that there is a considerable amount of applied research and clinical experience behind the use of oxytocin in autism and schizophrenia. - Michael Goodman

GlaxoSmithKline/Inserm Transfert: Continuing a busy year of collaborations, the French National Institute for Health (INSERM) signed a worldwide licensing agreement Dec. 11 with GlaxoSmithKline to investigate the use of immune-checkpoint molecules in cancer treatment. GSK will pay Inserm Transfert, the tech-transfer subsidiary of INSERM, an undisclosed upfront fee with the possibility of development milestones and sales royalties. The pharma gets rights to develop and commercialize monoclonal antibodies that modulate the inducible T-cell costimulator (ICOS) protein, which offers the potential to enhance anti-tumor immune response. The agreement is part of a larger, long-term strategic alliance between INSERM and GSK. The collaboration “is making progress and illustrates a shared vision by GSK and Inserm Transfert that successful development of new drugs requires proactive action and alignment from both sides,” Inserm Transfert Executive VP, Head of Business Unit Open Innovation Augustin Godard said in a release. - Joseph Haas

Crealta/Savient: Start-up Crealta Pharmaceuticals will buy the gout drug Krystexxa (pegloticase) and other assets of troubled Savient Pharmaceuticals following an auction in bankruptcy court, the firms announced Dec. 11. Crealta will pay $120.4 million for the assets, marking its first significant investment toward becoming a specialty pharmaceutical company. Private-equity firm GTCR formed Crealta in August in partnership with Crealta’s CEO, Ed Fiorentino, and said it would invest up to $200 million to support the company. It’s the second company launched by Fiorentino and the PE firm. The two established Actient Holdings LLC in March 2009 and developed it into a diversified specialty pharmaceutical company through a series of five acquisitions, with GTCR providing a similar initial $200 million investment. Urology specialist Auxilium Pharmaceuticals acquired Actient earlier this year for $585 million upfront plus contingency payments. Now GTCR appears to be following a similar playbook in hopes of another successful exit, though turning around Krystexxa will take some effort. The drug was approved in 2009, but never achieved its perceived potential, challenged by Savient’s poor commercial planning and a market dominated by low-cost generic allopurinol. Savient never regained its footing after failing to sign a marketing partner for Krystexxa, and despite several leadership changes and a cost-reduction program, sales of the drug never led Savient into the black.- J.M.

Thanks to Flickr user ah zut for the lovely shot of one of our favorite coastlines, reproduced under Creative Commons license.

2013 M&A Of The Year Nominee: Biogen Idec/Elan's Tysabri Royalties

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

Elan’s move to sell its share of the Tysabri (natalizumab) royalty to long-time partner Biogen Idec was the ball that set the Rube Goldberg device in motion, precipitating its endgame and landing it on the 2013 shortlist for M&A deal of the year. Ultimately, this sale gave Elan the thing it needed to become appealing to virtually any acquirer – lots of cash.

The sanity of Elan management has come into question on a number of occasions over the last year; industry, analysts, shareholders and media all wondered at some point what Elan CEO Kelly Martin could possibly be thinking when he began selling off the company’s most valuable assets and starting inking deals for royalty streams. What didn’t become entirely apparent until the former spec pharma darling was bought out by Perrigo for $8.6 billion in late-July was that Martin was (on purpose, probably) turning Elan into a shell company with lots of cash and an incredibly desirable tax rate.

Elan’s transformation into the pile of cash in Ireland that Perrigo eventually bought was driven by the previous year's clinical failure. In 2012, its highly-anticipated Alzheimer’s drug bapineuzumab failed spectacularly in Phase III – showing no signs of efficacy over placebo. After the bombshell, Elan had little in any of its other programs that would make it worthwhile to an acquirer; reimagining the company would be the only way to return value to shareholders. (Had that drug succeeded, perhaps we'd be writing about another deal -- the acquisition of the company by one of its Big Pharma partners, Pfizer or -- 2009 DOTY nominee --  Johnson & Johnson?)

So Martin set out to make Elan worth something to anyone by selling off its tangible assets for lots of cash. The company quickly divested its 25% stake in Alkermes for $550 million and spun-out its drug discovery unit into an independent biotech, dubbed Prothena. But it was the Tysabri deal with Biogen that really gave Elan its flexibility.

In early-February, Elan announced that it was selling the majority piece of its 50% stake in the blockbuster multiple sclerosis drug, which brought in $1.6 billion in 2012 and is expected by the companies to grow by 15% in 2013. Biogen agreed to pay Elan $3.25 billion upfront, as well as royalties on all future sales of Tysabri – effectively ending the decade-long partnership.

The Irish company (now Perrigo) will receive 12% of sales for the first year; then, its royalty rate jumps to 18% on all sales under $2 billion and 25% on sales over $2 billion. Royalties will continue for the life of the product and will include all indications – the drug is currently approved in relapsing/remitting MS, but it is also being studied in secondary-progressive MS, and Biogen has indicated it may look into the drug as a treatment for stroke. The SPMS trial is expected to report out in 2015.

Some people questioned the wisdom of selling off the bulk of the Tysabri royalty, but for Elan to reach its goal of getting acquired it made the most sense. While the Tysabri royalty is lucrative, the 50% ownership of the drug meant that Elan played a major part in how the lifecycle of the drug was managed; this could be particularly unappealing to any company that doesn’t have a stake in the MS space, therefore limiting the number of companies that would be interested in acquiring Elan. Once Tysabri became simply a big chunk of cash and potential for more cash in the future with no strings attached, it became appealing to any company, whether they were a player in the MS market or not.

For Biogen, this deal was a no-brainer – the company has long been hoping to be the majority owner of one of its best-selling products. Tysabri fits right into the biotech’s sweet spot; it also owns the MS drugs Avonex (interferon beta-1a) and Tecfidera (dimethyl fumerate), which all together represent about 40% of the total MS market.

2013 Alliance of the Year Nominee: Roche/Polyphor

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

If catching an early big wave together justifies an alliance nomination then Roche and Polyphor look like contenders. They’re hoping to get a long, lucrative ride using novel science and new US and European regulations aimed at speeding up antibiotic development and approval.

And by choosing Switzerland-based Polyphor’s investigational macrocycle antibiotic POL7080 for development and commercialization, Roche has given notice that it’s back in the antimicrobials space again. For the first time in 30 years. In other words Roche hasn't been interested in developing antibiotics since most of you were old enough to vote -- a development worth honoring with a DOTY nod.

last time Roche developed an antibiotic,
BTTF was in theatres

The pact gives micro-sized Polyphor a big pharma partner to help it punch above its weight. Its three drug candidates, developed using its protein epitope mimetics (PEM) drug discovery technology, are POL7080; POL6326, a CXCR4 antagonist currently in Phase II and ear-marked for several indications; and POL6014, an elastase inhibitor that’s in pre-clinical studies.

Are antibiotic development incentives working? The FDA Safety and Innovation Act aims to prod companies along through the Generating Antibiotic Incentives Now (GAIN) provisions that are intended to spur development of treatments for resistant pathogens. Products receiving the qualified infectious disease product (QIDP) designations are eligible for fast track and priority review, as well as an additional five years of marketing exclusivity upon approval. And new antibacterial drugs could be eligible for a streamlined development program even if they would not be the first approved in a particular disease, according to FDA draft guidance.

Meanwhile, new guidance from the European Medicines Agency means marketing approvals for antibacterials against multi-drug-resistant bugs could be granted in Europe on expanded Phase II clinical trial data.

It’s a regulatory path that multinational Roche and privately-held Polyphor will explore together as Roche, the world’s largest maker of cancer drugs, tries to diversify into other areas.

Under terms of their alliance, announced in November, Roche will pay Polyphor up to CHF 500 million ($548 million) for the experimental antibiotic, which has only just entered Phase II testing. Roche will make an upfront payment of CHF 35 million and milestone payments of up to CHF 465 million to the Swiss biotech.

Roche’s previous legacy in the field of antibacterials involved development of Bactrim (trimethoprim/sulfamethoxazole) in 1969, in collaboration with Wellcome PLC, and Rocephin (ceftriaxone sodium) in 1982.The success of Polyphor's drug would be the first new drug against gram-negative bacteria since the '60s, Polyphor CEO Jean-Pierre Obrecht says.

The two Swiss firms will be targeting the Gram-negative strain Pseudomonas aeruginosa, a bacterium found in hospitals and resistant to many antibiotic treatments, by a novel mode of action. It’s the first of a number of novel antibiotic candidate drugs being assembled by Roche’s pharmaceutical research and early development group pRED, which is now under the new leadership of John Reed.

“We’ve been rebuilding the infectious diseases area in pRED following the restructuring last year and we are now focusing on three areas of unmet medical need. These are hepatitis B, influenza and antibiotics – and this is our first demonstration that we’re back in antibiotics,” Janet Hammond, head of infectious diseases discovery & translational area in Roche pRED, told us when the alliance with Polyphor was announced.

Roche and Polyphor believe the timing of their alliance is good. Other big pharma companies have cut back in the antimicrobial space, including onetime leader Pfizer, which closed its antibiotic R&D center in Connecticut in 2011, as well as Bristol-Myers Squibb Co. and Eli Lilly & Co., leaving only a few players, such as AstraZeneca, GlaxoSmithKline and Merck & Co.

Meanwhile there is rising alarm globally over the lack of new antimicrobials. Roche says P. aeruginosa accounts for one in every 10 hospital-acquired infections in the U.S. and is listed as one of the six most dangerous drug-resistant microbes.

2013 Alliance Of The Year Nominee: AstraZeneca/Moderna

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

This alliance deal of the year candidate featured an eye-catching price tag - $240 million upfront from AstraZeneca to privately held Moderna Therapeutics - and was unusually broad-based, carrying options for up to 40 programs in different therapeutic areas using the biotech's messenger RNA (mRNA) technology.

Shortly after unveiling a revised R&D strategy and organizational restructuring, AstraZeneca made a massive bet on an early-stage platform that suggested the big pharma has taken to heart new CEO Pascal Soriot’s directive to be more willing to embrace risk.

"Soriot was struck by the technology
within 10 minutes... "

Heading into Soriot’s strategy review on March 21, AstraZeneca announced an organization-wide R&D restructuring that would consolidate the work in both small and large molecules within three strategic regional centers: Cambridge, U.K., Gaithersburg, Md., and Molndal, Sweden. At a time when some of its top sellers have faced patent expirations, the pharma has struggled to develop successful, innovative high-growth new drugs.

Shortly before his departure, outgoing R&D chief Martin Mackay vetted and introduced Soriot to the Moderna mRNA therapeutics technology and the two companies quickly came together around a significant collaboration, Moderna CEO Stephane Bancel said.

“When Mackay came in, he was very impressed with the data we showed him under a confidentiality agreement,” Bancel said. “In turn, he impressed us by coming back very quickly to see us with his entire R&D executive team. We quickly we got into a discussion about potentially partnering one or two drugs in cardiology.”

When Soriot joined the talks, plans for the deal expanded. “Soriot was struck by the technology within 10 minutes, he got it totally,” Bancel noted. Given AZ's ramp up of business development, we wonder what he's going to buy after a 20 minute browse.

AstraZeneca wanted multi-year exclusivity on Moderna’s entire cardiovascular program, which was fine with Bancel if he could structure a deal to hold back some of his firm’s oncology programs. In December, Bancel outlined a corporate strategy in which Moderna would seek to out-license large-scale therapeutic opportunities while keeping some rare disease opportunities in-house for development and commercialization.

What resulted was a deal under which AstraZeneca will hold options to select up to 40 mRNA drug candidates for preclinical and clinical development and commercialization. Beyond the $240 million upfront payment, Moderna also can earn up to $180 million in “technical milestones,” an arrangement Bancel described as almost a secondary, contingent upfront payment.

Moderna also could earn development, regulatory and commercial milestones for each drug candidate licensed by AstraZeneca, as well as sales royalties ranging from the high single digits to low double digits. Bancel said total remuneration under the deal could go well beyond $1 billion, as each product candidate will carry potential Phase I, Phase II, Phase III, NDA-filing, U.S. approval and ex-U.S. approval earn-outs.

Under the agreement, Moderna will perform discovery work against targets selected by AstraZeneca, but the pharma will be responsible for preclinical and clinical development for any candidate it then opts to license. This will leave Moderna with substantial opportunity to continue advancing its own proprietary programs, focused on niche opportunities within oncology.

Moderna’s selling point is that its mRNA candidates, based on research licensed from Harvard University and Massachusetts Institute of Technology, will enable the human body to restart or increase the production of endogenous therapeutic proteins inside a patient’s cells without triggering an innate immune response. In addition, while other RNA-based technologies such as RNA interference have faced significant drug-delivery obstacles, Moderna believes it can create injectable drugs for intramuscular, subcutaneous or intravenous administration. Evidently, AstraZeneca agrees.

2013 M&A Of The Year Nominee: Amgen/Onyx

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

Step right up and cast your vote. No reason to hem or haw. Amgen’s $10.4 billion acquisition of Onyx Pharmaceuticals deserves your vote for M&A of the year.

What’s that you say? The deal held no intrigue? No eleventh-hour white knight who stepped in and drove a nail-biting bidding war? No surprises that made you dribble coffee down your chin while reading the morning news?

Well, it’s not as though every deal can be shrouded in as much conspiracy as Roche’s takeover of Genentech, or done at a price that leaves you staggering to the water cooler ala Gilead’s acquisition of Pharmasset.

But what’s so bad about a straightforward acquisition that hedges for the buyer and still rewards the seller, one where the purchase price, at $125 per share, meets a middle ground? Remember how Amgen originally offered $120 per share, which was rejected by Onyx, which thought it could get more like $130 to $140 per share?

How civilized then that they settled squarely on $125 without dragging us through a drawn out campaign. Onyx’s investors still ended up receiving a hefty payout, with the final price representing a 43.9% premium over the stock’s closing price in June before Amgen’s original offer was disclosed.

And, $10.4 is nothing to shrug at either. Amgen’s acquisition of Onyx was the most expensive M&A of the year, reason enough to cast your vote in its favor.

Don’t forget the perfectly sensible strategic rationale behind Amgen’s decision to buy Onyx. The big biotech gains the proteasome inhibitor Kyprolis (carfilzomib) for multiple myeloma, and Nexavar (sorafenib) partnered with Bayer, for liver and kidney cancer, drugs that are already on the market in the U.S. and will immediately contribute to Amgen’s top-line. The company needs new drugs to fill a revenue gap. Before the acquisition it was expecting that sales would be lower in 2015 than in 2013.

The addition of Kyprolis fills that void – and it gives Amgen some street cred in oncology, a therapeutic area it has targeted for future growth, though its marketed cancer portfolio mainly includes supportive care products, not cancer interventions.

Onyx serves as a leg up for Amgen as it looks to establish itself as a major oncology innovator and bring forward a pipeline of oncology drugs it has cobbled together partly through acquisitions.

Wait, you’re still not sold? You’d prefer a deal that’s more high-risk, high-reward? Well, you can rest assured Amgen’s still has plenty of risk to absorb. Kyprolis made it to the market through an accelerated review, but Amgen needs the results of two ongoing Phase III trials, ASPIRE and FOCUS, to play out in the drug’s favor before it can secure full approval and expand into Europe.

In November, a Bank of America analyst issued a note citing reports of cardiovascular events with Kyprolis. That, understandably, has spooked some investors while they wait for the Phase III data to report out in 2014. Amgen called the whole flap a misunderstanding that stemmed from the analyst’s dinner meeting with Celgene management and clarified that event rates are no different from what is already included in the Kyprolis label. The data monitoring committee overseeing the study has not reported any specific safety concerns, Amgen added. There's your intrigue!

Still, these things do get you thinking about the $10.4 billion Amgen paid for Onyx and what could happen between now and when the company reaps a return. In the drug industry, things are never straightforward despite how they might appear. Are you happy now? Then step right up and cast your vote.

flickr image via Dr Colleen Morgan under creative commons

Deals Of The Week Looks At Pricing Conundrums

Some technologies are so unprecedented, so spanking new that they present hitherto unknown and formidable commercial hurdles.

Consider gene therapy and non-invasive vagus nerve stimulation. The pricing challenges remain significant, even as these therapies gather regulatory approvals, high-caliber partners and investors.

uniQure BV is the scrappy Dutch biotech that spun out of Amsterdam Molecular Therapeutics BV to win approval for the first gene therapy to be accepted by regulators in the major world markets. After several false starts and near-death experiences, Glybera (alipogene tiparvovec) got EU approval in November 2012 for the ultra-orphan disease lipoprotein lipase deficiency. LPD is a childhood genetic disorder in which a protein needed to metabolize fat molecules is missing, causing a large amount of fat to build up in the blood.

The company has partnered commercial rights covering Europe and selected major emerging markets for Glybera and a mid-stage hemophilia B gene therapy to Italy’s Chiesi Farmaceutici SPA. It has forged ahead with building U.S.-based manufacturing capacity, particularly in advance of an FDA filing for Glybera pending ongoing discussions with the agency. It has hired a CEO and preliminary staffing for its Boston-based U.S. operations, to build out clinical, regulatory, and commercial infrastructure. It’s busy planning launch strategy, identifying patients, and meeting with payers.

But there’s a problem. We asked uniQure’s CEO, Jörn Aldag, how he planned to price his gene therapies. Our discussion focused on the hemophilia B treatment, next in line for approval. Aldag noted that, unlike the long-acting factors being readied for market by Biogen Inc. and others, where patients may be able to infuse every other week, “we’re offering a one-shot treatment. The patient would not have to come back to the hospital for many, many years.”

Aldag said ten patients in the first hemophilia B Phase I/II trial, still ongoing at St. Jude Hospital in Memphis, TN, have been treated and required no or significantly reduced prophylactic treatment for up to three years.

This is truly wondrous news for patients with hemophilia B. The issue is that each gene therapy carries an unknown duration of effect.  Will those patients enrolled in the St. Jude trial require a booster next week? Or will they continue for another 3 years, 10 years, indefinitely?

Aldag is grappling with the same issue with Glybera, and now Chiesi is weighing in on the discussions. The options they’re considering boil down to whether to ask for a front-loaded “down payment, or do we ask for annuity payments,” says Aldag, describing a system of payments over time. He allows that the pricing paradigm will change when he moves beyond orphan monogenic diseases, for instance, into larger-population neurodegenerative disorders, such as Parkinson’s disease (uniQure has a Parkinson’s gene therapy which is currently in Phase I/II). “Those would not command as high a price.”

New-Jersey based electroCore LLC (which, like uniQure, was absent the day the teacher taught proper capitalization) is at the forefront of companies developing noninvasive vagus nerve stimulation (VNS) devices – DOTW is typically all-pharma, all-the-time, so forgive our excursion into the world of medical devices. These are small, hand-held devices that deliver a mild electrical charge to the cervical branch of the vagus nerve. VNS technology has been around for decades in implanted devices – some are even FDA approved for partial-onset epilepsy and refractory depression. But implanted VNS is expensive and carries the risk and inconvenience of surgery. And that has inhibited adoption of the technology.

But VNS has been validated as a safe and effective alternative to drug therapy in a broad range of indications, says Mir Imran, a device inventor and founder of InCube Ventures. Imran told us that, with regard to epilepsy, the efficacy of VNS is comparable to pharmacotherapy, with similar success rates of 30% to 40%.

So noninvasive VNS, electroCore CEO J.P. Errico believes, “is something that can compete [with drugs] at the front end of the continuum of care.” Merck & Co. Inc.’s Global Health Innovation Fund, which was attracted to electroCore’s technology because it can be used in the home setting, fitting in with the fund’s focus on technologies featuring flexible access to care, apparently agrees. Merck’s fund joined with two other private equity groups to fund electroCore’s $40 million series A round earlier this year.

electroCore is currently in four registration trials for indications including cluster and migraine headache. It expects to launch its first product, gammaCore, in the U.S. in the next two years. Besides headache, electroCore is developing gammaCore for anxiety, epilepsy, depression, as well as for inflammatory conditions like gastroparesis, COPD, and asthma.

But there’s a rub. Because essentially the same device would be used across all indications, patients using it for migraine who hear about a trial testing the device in, say, gastroparesis, might try to self-treat for gastroparesis. Patients using the device for one indication may also experience the unintentional resolution of symptoms in other indications. Patients could possibly even share devices. Any of these scenarios could cut into the commercial opportunity for electroCore.

Errico says electroCore might offer different products based on specific usage. “If the person’s going to use it only to treat acute headaches, there may be a cheaper entry point for them than if they’re going to need the device to last for a very long period of time and use it over a period of years,” he says. But usage could be further complicated by electroCore’s preliminary finding that the amount of required treatment is not so much dependent on the specific disease state or severity; it’s more related to individual patient response.

All of this informs how the company will model usage of its products, and therefore, how to appropriately price them.

Both uniQure and electroCore need to proceed carefully. A miscalculation could be costly. -- Mike Goodman

Here are some of the deals that caught our eye this week . . .

Celgene/OncoMed: Celgene Corp. struck again Dec. 3, inking its ninth deal this year and adding to its impressive roster of oncology partners. This time, the company will put up $155 million upfront in a six-program partnership with OncoMed Pharmaceuticals Inc. centered on a Phase Ib monoclonal antibody being tested in pancreatic and non-small cell lung cancer. Celgene will also make a $22.3 million equity investment in OncoMed. In exchange, Celgene will receive option rights on six novel anti-cancer stem-cell therapeutic candidates, including the lead asset, demcizumab (OMP-21M18), a humanized MAb inhibitor of Delta-Like Ligand 4 (DLL4) in the Notch signaling pathway.

The deal also covers five preclinical or discovery-stage large-molecule programs - Celgene gets full license to one of the preclinical programs, while OncoMed retains U.S. co-development and co-commercialization rights on the other assets. If Celgene options demcizumab, the companies will share global development costs, with Celgene covering two-thirds of the expense. If the drug is approved by FDA, they will co-commercialize it in the U.S., with 50/50 profit sharing. Outside the U.S., Celgene would develop and commercialize the antibody, with OncoMed eligible for milestones and tiered double-digit royalties.

Celgene also gets rights to OncoMed’s preclinical anti-DLL4/vascular endothelial growth factor bispecific antibody, as well as four preclinical or discovery-stage biologics programs that target other cancer stem cell pathways, including RSPO-LGR. Celgene’s exclusive license is to one of those four biologics programs. For the four programs not outright-licensed by Celgene, the Redwood City, Calif., biotech gets terms similar to those negotiated for demcizumab – two-to-one global development cost-sharing with Celgene covering the larger portion, 50/50 U.S. co-commercialization with profit-sharing, and mid-single-digit to mid-double-digit royalties on sales outside the U.S. For the licensed program, OncoMed can earn mid-single-digit to mid-double-digit royalties on worldwide sales. Total earn-outs could exceed $3 billion.-- Joe Haas

Forest/Merck: Forest Laboratories Inc. will acquire U.S. commercial rights to Merck & Co.’s antipsychotic Saphris (asenapine) for $240 million upfront and undisclosed sales milestones, marking CEO Brent Saunders first business development initiative since becoming CEO in October. The companies announced the deal Dec. 2, the same day Forest announced a $500 million cost reduction program intended to right-size the company and $1 billion in new financing to fund share repurchases and additional bolt-on acquisitions.

Saphris, which was approved by FDA in 2009, generated sales of $150 million in the 12 months ended September 2013, according to Forest. Forest expects its expertise in marketing drugs for central nervous system disorders will help to drive growth of the brand. The drug will be marketed by Forest’s existing commercial team, which already sells the antidepressant Viibryd (vilazodone) and expects to soon be selling Fetzima (levomilnacipran), a serotonin and norepinephrine reuptake inhibitor (SNRI) that was approved for depression in July.

Having the three CNS drugs together in one portfolio is a powerful proposition that creates upside without adding cost, Saunders said. It is not only more efficient, but it also improves the quality of Forest’s sales team, he added. “When our rep walks into a psych office, they are not just a one-product detail. They have a whole portfolio of products to talk about depending on what is on the physician’s mind, and it creates a much more relevant rep,” he said. That multi-product commercial strategy is one Saunders would like to carry over to areas like gastrointestinal disease and cardiovascular disease.-- Jess Merrill

The Medicines Company/Rempex: The Medicines Co. has lost no time enlarging its fledgling infectious disease franchise by acquiring Rempex Pharmaceuticals Inc. and its pipeline of assets targeting serious bacterial infections. For $140 million upfront and $434 million in development, regulatory, and commercial milestones, MDCO acquires several anti-infective assets in varying stages.  Chief among them is Carbavance, a Phase II-ready drug for IV treatment of hospitalized patients with multi-drug resistant gram negative infections. It will enter registration studies in 2014. MDCO will market Minocin IV (minocycline for injection) for resistant infections due to Acinetobacter, a pathogen that is especially prevalent in intensive care units. MDCO plans to submit for U.S. approval an improved formulation of Minocin IV in 2014. Finally, MDCO will continue Rempex’s discovery programs focused on beta-lactamase inhibitor-based combination products designed to overcome resistance mechanisms in gram-negative organisms. The Rempex assets complement MDCO’s oritavancin, which targets gram positive complex skin infections and which is slated to file for a late 2013 NDA and a first quarter 2014 MAA in Europe.

The acquisition gives MDCO high-caliber antibiotic discovery and development capabilities to supplement its own development and commercialization strengths. It also gives MDCO a marketed product to better leverage its infectious diseases salesforce, which is typical of the hospital specialist’s deal style, while continuing its interest in early-stage assets that first came to notice with its licensing last February of Alnylam Pharmaceuticals Inc.’s ALN-PCS, a PCSK9-targeting RNAi agent for dyslipidemias. -- Mike Goodman

Roche/Molecular Partners: Roche and the Swiss biotech Molecular Partners AG have signed a research collaboration and licensing pact to discover, develop and commercialize therapeutics using the privately-held biotech’s DARPin platform. DARPins are non-antibody-based small proteins engineered for target binding to hone in on and penetrate deep into solid tumors, making them ideal targeting vehicles to deliver toxic agents to tumors to kill cancer cells. Under the deal, Roche has rights to develop and commercialize several DARPin-based products. Molecular Partners will get a starting payment of $60 million, research funding to support the partnership, and potentially more than a billion dollars in milestone payments, as well as tiered royalties on any successes.

The alliance signals growing interest in the DARPins which, due to their ability to bind to different epitopes than antibodies do – and to bind to multiple epitopes or targets in parallel at the same time – might offer a higher selectivity for tumor cells compared to other biologics, including antibody-drug conjugates.  DARPins are based on a class of proteins found in the body called ankyrin repeat proteins, which contain specific amino acid sequences, including a repeated sequence, which bind to proteins. They are easy to manufacture in E. coli, and are highly soluble and stable, according to Molecular Partners. The strategy is similar to that of using armed antibodies to fight cancer, like Roche's antibody-drug conjugate Kadcyla (ado-trastuzumab emtansine). Molecular Partners has already established alliances with Allergan Inc. and Janssen Biotech Inc., among others. -- Sten Stovall

Theraclone / PharmAthene: Theraclone Sciences Inc. and PharmAthene Inc. have called off a merger, announced in August. Under the plan, privately-held Theraclone would have absorbed publically held PharmAthene in an all-stock, merger of equals. The surviving company, which would have retained the PharmAthene name, would have had a clinical-stage pipeline of four assets and several pre-clinical compounds, centered around infectious diseases. According to news accounts, PharmAthene opted out of the deal. Neither party disclosed reasons, but the decision came a week after the federal government’s Biomedical Advanced Research and Development Authority (BARDA) rejected TheraClone’s application for a grant for its pandemic flu program, TCN-032, which has completed a Phase IIa trial. TheraClone will pay PharmAthene a $1 million termination fee. [CORRECTION: PharmAthene will pay TheraClone the $1 million termination fee. Thanks to IVB reader David for pointing out the mistake.]

Theraclone’s pipeline is built from its antibody platform I-STAR (in-situ Therapeutic Antibody Rescue), which rapidly screens memory B cells for rare human antibodies that may be developed into next-generation antibody-based drugs. TCN-032, a recombinant, fully human monoclonal antibody, is also in development for patients severely ill with seasonal influenza. TCN-032 is partnered in Japan with Zenyaku Kogyo Co. Ltd., and the company is evaluating “opportunities to advance TCN-32 with other potential strategic partners for commercial markets,” CEO Clifford Stocks said in a press release disclosing the bad news about BARDA. In addition, the company has asked to meet with BARDA to gain further insight into the reasons for the decision. Theraclone also has an ongoing partnership with Pfizer Inc.  to identify three targets in infectious disease and / or cancer. 

Theraclone also has a recombinant fully human MAB for treatment and prevention of cytomegalovirus (CMV) infections.    PharmAthene, a biodefense company, is developing a recombinant protective anthrax vaccine, SparVax, which is set to enter Phase II trials, and a medical countermeasure for nerve agent poisoning.  It is also developing Valortim, a fully human monoclonal antibody for prevention of anthrax infection.  CEO Eric Richman said the company will continue to “seek to identify opportunities to maximize value for shareholders.” -- Wendy Diller

Technology Marches On, And Financings Of The Fortnight Is There!

Digital future? Sounds expensive.... and confusing! Instead, let's talk about the recent past. What stood out for us in this latest fortnight-plus – extended a bit to accommodate the Thanksgiving holiday and our expanded waistlines – were two vast sums of money for companies plying cutting-edge biomedical technologies that, despite some successes in previous permutations, are still high risk. 

We’ll start with the second, because it’s a more obvious case. The company is Juno Therapeutics, which has rounded up a few programs of cancer immunotherapy under one corporate roof. None of them use the infused-antibody paradigm of Yervoy (ipilumumab), the Bristol-Myers Squibb product approved for melanoma treatment, but the much more complicated dance of autologous cell therapy that Dendreon, with its prostate cancer treatment, showed a few years ago could make it to market. Dendreon also ran into trouble, however, because the dance – removing blood from patients, isolating T-cells, shipping them to a lab, re-engineering them, shipping them back, and re-infusing them into the patient – was more than just putting your feet on the floor in the right sequence. Juno’s backers, to the tune of $120 million and, soon, a lot more (see our blurb below), think the Seattle/New York startup has all the right moves, including improvements to the process and stunning (but small sample size) Phase I data from one of its programs. (Xconomy's Luke Timmerman got the early access and the jump on everyone this week for an excellent long-take on the company.)

The other technology-driven story is the second massive cash infusion for Moderna Therapeutics, the Flagship company that wants to inject modified messenger RNA into patients to spur them to produce their own therapeutic proteins. Moderna simmered sotto vocce within Flagship for a couple years until late 2012, when it emerged with a $40 million commitment. Still years away from clinical proof of concept, it almost immediately secured a licensing deal with AstraZeneca with a $240 million upfront that gives AZ rights to cardiovascular and metabolic programs that emerge from Moderna. 

Which brings us to the week before Thanksgiving, when Moderna added to the pile with a $110 million Series B round from Flagship and a raft of undisclosed backers. We’re a long ways from learning if Moderna’s ambitious idea works, but if it does, it will have to overcome a hurdle that has bedeviled many other companies – often extremely well-funded, too – using RNA-based therapeutics. Those oligos don’t hold up well in the body. Delivery is hard. 

When two researchers won the Nobel Prize in 2006 for their discovery of RNA interference, the biotech world seemed well on its way to developing therapeutics based on the gene-silencing technique. Two companies in particular, Sirna Therapeutics and Alnylam Pharmaceuticals, seemed poised to battle for years. Not quite. Merck & Co. bought Sirna for a cool billion dollars, and it was never heard from again. Alnylam’s rich alliances with Big Pharma came to a crashing halt at the end of last decade.

Alnylam was left to clean up the mess with a big restructuring, but it has steadily rebuilt value, and it recently scored notable Phase I data for a program based on its subcutaneous delivery technology. Its share price has rebounded and at $62.98, it’s nearly twice as high as it flew in the heady days of the ‘00s, before its pharma partners abandoned ship. 

So what to make of these new blockbuster financings? Juno is building upon the rollercoaster experience of Dendreon, even hiring Dendreon's former COO as its CEO. Its investors apparently think nothing short of a full financial blitz will make autologous cell therapy 2.0 a winning version. And Moderna has enough cash now to hand-deliver every dose to every patient on a gold-embossed platinum serving tray. And to get into patients' bodies, they might be able to use a subcutaneous approach, too. 

What will be the next frustrating biotechnology to spur a new round of hopeful spending? When the money flows, you'll certainly be able to read about it in....

Juno Therapeutics/Argos Therapeutics: Hello, cancer immunotherapy. The big Series A financing news this week – this year? – was Juno’s $120 million haul to help the company develop and commercialize not one, not two, but three autologous immunotherapy platforms from two rival research institutions. Autologous is like the high-profile Dendreon: T-cells are removed from the patient, genetically souped up in a lab to recognize and kill cancer cells, then re-infused into the patient. The top-line investors in Juno are ARCH Venture Partners and the Alaska Permanent Fund, which invests that state’s oil revenues. Which means Juno – perhaps a clever way to give Alaska and its capital city naming rights? – is cashing in on former Governor Sarah Palin’s successful campaign to raise taxes on oil companies. That tax hike is now the subject of a major political battle, by the way. But we digress. Alaska’s fund managers won’t have a Juno board seat, which means ARCH’s Robert Nelsen is the main money man to herd cats as Juno’s riches are disbursed to folks at Memorial Sloan-Kettering Cancer Center, the Fred Hutchinson Memorial Cancer Center, and Seattle Children's Research Institute. Nelsen tells us that the groups will continue to run their own cancer immunotherapy programs under Juno’s roof, and “may the best data win.” (The Sloan-Kettering folks are unveiling at ASH this weekend a study that brings the percentage of Phase I patients treated with MSKCC’s CART-19 immunotherapy who had a complete response to 88%, or 15 of 17: basically their cancer disappeared.) What’s more, Nelsen says a Series B round “larger than the Series A” is about six months away. We’ll have more on Juno in this week’s issue of "The Pink Sheet", and in the upcoming Start-Up magazine. Meanwhile, at the other end of the funding rainbow, Juno competitor Argos Therapeutics, which has been plugging away at autologous immunotherapy for more than a decade, also had funding news. It topped up its Series E round to $60 million as it continues a pivotal trial in renal cell carcinoma. The first tranche of the E round came in August and included warrants. Argos withdrew an IPO bid in 2012 and instead brought in a Series D round. Other than both working on autologous immunotherapy systems, Argos and Juno have another connection: Argos’ recent backers included Russian and South Korean pharma companies, which mean Juno’s investors can see Argos’ investors from their kitchen window.  – Alex Lash
 
Xencor: Dilution was the headline for the IPO of antibody company Xencor. It priced December 3 at one-third of the mid-point of its original range, and to compensate it doubled its shares sold, and then some. It first filed to raise $75 million by selling 5 million shares at a mid-point of $15 each; it actually raised $70 million by selling 12.7 million at $5.50. That’s despite existing investors, which include MedImmune Ventures and HealthCare Ventures, committing to buy about $20.5 million, or 29%, of the IPO. Investors are demanding deep discounts as the biotech IPO market has softened this fall, so much so that it was a bit of a surprise Xencor made it out at all. Before it got the deal done, Xencor postponed its IPO, as did at least five other biotechs leading up to Thanksgiving. The Xencor offering was originally slated for Nov. 14. The worry for investors is that bankers are now scraping the bottom of the barrel. Perhaps the typical momentum of January’s JPMorgan conference can breathe a bit of life back into IPOs – if the right companies come along. (For a detailed look at the 2013 IPO strategies of OncoMed Pharmaceuticals, bluebird bio, and Ophthotech, check out this Start-Up feature.) At least for Xencor, the immediate investor upside of a deep discount is the potential for money left on the table. In its first day of trading on Dec. 3, Xencor got a 52% bounce, to $8.64 per share. Longer term, Xencor’s fate likely hangs on lead candidate XmAb5871 to treat rheumatoid arthritis, which won’t see a significant milestone until Phase Ib/IIa data due in the second half of 2014. A Phase IIb proof-of-concept trial would follow in the first half of 2015, with partner Amgen Inc. having data in hand in 2017 to determine if it will exercise its option. – Stacy Lawrence
 

Sitari Pharmaceuticals: The joint venture that Avalon Ventures and GlaxoSmithKline announced this spring hatched its first company November 22. The two staked Sitari, which will focus on developing a drug therapy for celiac disease based on research at Stanford University, to a $10 million Series A financing. The $10 million is not a straight cash investment, Avalon Managing Director Jay Lichter told "The Pink Sheet" DAILY. Avalon provides $3 million in cash, while GSK will provide up to $7 million in both cash and in-kind services. Using intellectual property licensed from the Stanford lab of Chaitan Khosla, Sitari will attempt to address celiac, an autoimmune digestive disease caused by intolerance to gluten, by inhibiting the transglutaminase 2 (TG2) pathway. Avalon will transfer tools from the Stanford labs to Sitari’s La Jolla, Calif., location where the GSK chemical libraries will be screened for potential TG2 inhibitors. That will be the starting point of the discovery work, along with considering compounds discovered by Khosla’s team, to determine which chemical scaffold might work best along with other pharmacodynamic factors, Lichter said. The company is years away from selection of a clinical candidate, however. At the time of selection, GSK will have the option to acquire the company or let Avalon take it forward on its own, said Pearl Huang, GSK’s global head of Discovery Partnerships with Academia (DPAC) unit. Huang said $10 million likely will be the standard A round for the companies co-founded by GSK and Avalon, based on both partners’ experience of what it takes to get to candidate selection. – Joseph Haas
 
5am Ventures: The San Francisco Bay Area firm said December 3 it has closed a $250 million fund, its fourth. It’s 20% larger than the group’s third fund, which closed in 2009. Four years between fund closes isn’t bad for an early-stage investor, although as managing partner Andy Schwab told Start-Up last year, “We’re realistic that not all of our companies can be two professors and an early-stage idea.” The firm has reached exits through investments in new companies that were vehicles for mature technologies, such as the Alza pain patch that was spun out and re-jiggered by Incline Therapeutics. 5am cashed out when The Medicines Co. bought Incline in 2012. It’s also had success extending a franchise. It sold Ilypsa in 2007 for $420 million to Amgen, which wanted the startup’s phosphate binder to treat chronic kidney disease. 5am and its syndicate partners spun out of Amgen some of the extra Ilypsa assets into a new company called... Relypsa. (They’re not called 5am for nothing; you’ve got to get up early to be that clever.) Amgen eventually shelved the Ilypsa program, but Relypsa made steady progress and raised north of $150 million in venture cash. It went public this fall, six years after its spin out. Relypsa also dampened its IPO ambitions, going out at $11 a share instead of $16 to $19, and raising $80 million (with insiders buying about a quarter of the shares) instead of roughly $120 million. (Shares closed at $19.60 on Dec. 5.) The new fund keeps the same managing partner lineup of Andy Schwab, Scott Rocklage, and John Diekman.  – Alex Lash
 
Best of the Rest (Highlights of Other Financing Activity This Fortnight): Continuing its focus on drug assets, Versant Ventures will create the biotech incubator Blueline Bioscience, which will spin off start-ups to which Celgene holds an option to buy... Versant also funded the latest Inception spin-off, Inception 4, an ophthalmic company that secured a joint research and option agreement with Bayer...Visterra added $8.1M to its Series A, which now totals $34.2M, and concurrently in-licensed dengue fever IP from MIT…Despite losing GSK as its Fabry disease partner, Amicus Therapeutics was busy: the company restructured its financial and corporate structure, announced $40M in new equity and debt financing, and acquired a lead ERT for Pompe disease in its takeover of Callidus Biopharma…Horizon Pharma netted $144M in a private senior notes sale, $35M of which will fund the purchase of exclusive US rights to AstraZeneca’s pain drug Vimovo…and Gilde Healthcare closed a $200M third fund dedicated to home- and digital-health, diagnostics and medtech, and pharmaceuticals. -- Amanda Micklus

Coming Soon ... DEALS OF THE YEAR 2013!

2013's IN VIVO Blog Deals of the Year competition is right around the corner ... nomination posts will begin this week and as always our readers will vote for the winners in three categories: M&A, alliance, and financing. Who's got what it takes to win this year?