The IN VIVO Blog

Wednesday, December 18, 2013

2013 M&A of the Year Nominee: The Ibrutinib Royalty

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™.

Royalty deals have long been the provenance of more conservative private-equity vehicles. Then came... The Ibrutinib Royalty, soon to be a major motion picture starring Matt Damon.

But seriously, it was odd not just to see two venture firms join the royalty deal but also to hear how much each was putting up. Aisling Capital and Clarus Ventures said in August they had paid $48.5 million for a tiny slice of sales royalties from ibrutinib, a cancer drug that hadn't been approved yet.

It's approved now; the FDA granted accelerated approval for mantle cell lymphoma (MCL) to its sponsor Pharmacyclics in November, and it goes by the name Imbruvica. (The Imbruvica Approval, starring Daniel Craig as Richard Pazdur!)

Please, would you pay attention, 007: The PDUFA date for a much larger indication, chronic lymphocytic leukemia, comes in late February 2014. Ibrutinib could be a best-seller. If it isn't, Aisling and Clarus will have trouble recouping their cash. Certainly it’s a less risky investment than they and their brethren are accustomed to. But even if ibrutinib can garner multi-billion dollar sales at its peak, will it bring venture-like returns to Clarus and Aisling?

Here’s some math: in an interview in “The Pink Sheet” DAILY, Royalty Pharma officials pegged the royalty stream 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 – this summer, Barclays Capital estimated peak annual sales between $2 billion and $3.6 billion, while others have gone higher – it will take ibrutinib years to reach those figures. Venture firms like Aisling and Clarus investing from the tail ends of their funds need extremely patient limited partners to wait years, but the ibrutinib scenario could play out – and pay out – in two different ways.

First, the VCs will have a steady stream of returns to pass through to LPs as soon as sales begin. Such near-term returns, however incremental, would be far less likely if the VCs had spread the $50 million among a few earlier-stage biotech companies or other investments.

Second, now that ibrutinib is approved, the value of the royalty stream will probably jump. Other investors, including other royalty funds, don’t take pre-commercial risks the way Aisling, Clarus, and Royalty Pharma, the lead investor in the deal, did. With those risks all but eliminated, perhaps Clarus and Aisling could flip their royalty rights to new buyers. Aisling’s Dennis Purcell and Clarus’ Nick Simon acknowledged as much earlier this year, before the drug's approval.

The firms joined Royalty Pharma, the 800-pound gorilla of royalty funds, to buy the ibrutinib royalty rights from Quest Diagnostics for $485 million, a deal first announced in mid-July without disclosure of the VCs’ names or financial details. (Quest obtained the rights in 2011 when it bought Celera Corp. for its diagnostics business.)

Royalty funds – firms that 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 PLC that was ultimately unsuccessful.

Meanwhile, Clarus and Aisling have looked for deals that emphasize shorter timelines to potential returns as they invest from the tail ends of their current funds. In July, an Aisling-backed start-up, Loxo Oncology, in-licensed an undisclosed preclinical oncology candidate from Array BioPharma, with trials to start in 2014. Clarus has invested in a series of clinical development companies – mini-CROs, of a type – that run late-stage trials of drugs owned by Pfizer and other big drugmakers, with milestone and royalty payments on offer if the drugs succeed.

It’s all part of a scramble within life sciences venture to woo back limited partners turned off by poor returns the past decade. The 2013 IPO boom might help bolster venture returns, but with the fickle window, life science VCs aren’t likely to abandon the pursuit of deals that shorten the time to exit and shore up lower risk, lower reward returns.

flickr image courtesy Deb Roby, creative commons

2013 Financing of the Year Nominee: Juno Therapeutics

With a name connoting royalty and godliness, it’s no wonder Juno Therapeutics received one of the year’s richest rounds of funding. And although its namesake’s existence was only in the minds of her ancient followers, the ambitious start-up’s $120 million Series A funding was no myth. Launched in December, the Seattle-based company instantly became a major player in the rapidly evolving cancer immunotherapy sector.

Juno unites researchers from three different institutions: Fred Hutchinson Cancer Center and the Seattle Children’s Research Institute in Seattle, and Memorial Sloan-Kettering Cancer Center in New York. Prior to the deal creating Juno, MSKCC’s closely watched chimeric antigen receptor T cell program was conspicuously un-partnered, especially after the cancer center revealed in March that it had induced a complete response – total remission – in a handful of patients; at December’s American Society of Hematology meeting in New Orleans, it unveiled further data showing full remission in 15 out of 17 patients treated with its immunotherapy.

That data has researchers ecstatic, and persuaded investors to fund Juno’s clinical research. The company uses autologous cell therapies, in which a patient’s own immune cells are removed from the body, genetically modified, and re-infused into the body so that they target tumor cells. The Hutch had a similar CART program underway, as well as a high-affinity T cell receptor program that aims for specific proteins inside tumor cells. Investor and board member Robert Nelsen of ARCH Venture Partners told us that Juno plans to begin no fewer than 13 trials by the end of 2014, in a variety of cancers. (ARCH invested alongside the Alaska Permanent Fund, a diversified, state-operated group.)

Juno is also notable because it unites cancer centers sometimes seen as rivals; Nelsen said they’ll essentially fight it out scientifically in pursuit of the best treatments. “Everyone has the big goal in mind,” he said. “We’ll run parallel programs and let the data decide. The scientists are perfectly willing to throw competing programs in, and see which ones are better.” Others are competing too. Novartis struck a deal for the University of Pennsylvania professor Carl June’s well-regarded CART program in August 2012, bypassing VCs altogether and taking rights for an undisclosed upfront payment and future milestones; at ASH, the pharma released data showing full remission in 19 of 22 patients.

Juno is well-positioned to capitalize on multiple trends. Barriers are falling in the broader area of genetic modification of cells using viral vectors, the field of gene therapy; the European approval of uniQure’s Glybera (alipogene tiparvovec) last year led to a spate of fundings in 2013. And BMS’s antibody Yervoy (ipilimumab) for melanoma, a cancer immunotherapy that doesn’t require genetic tweaking, is one of the year’s success stories; analysts believe sales will clear $1 billion this year.

Researchers don't talk about curative treatments lightly, but the "C" word has been tossed around when discussing Juno's and June's techniques. If it's too early to say Juno has achieved that goal, there's still time for it to claim a smaller victory in 2013, if only you'll consider it for the Roger in our Financings category.

Thanks to Flickr user Richard Mortel for bringing his camera to the Vatican; we've reproduced his photo under Creative Commons license.

Tuesday, December 17, 2013

2013 Financing Of The Year Nominee: GSK/Avalon Team Up

Pharma needs innovative pipeline candidates. VCs need faster, cheaper and easier exits. The partnership between Avalon Ventures and GlaxoSmithKline aims to accomplish both.

In April, the pair put their money where their chocolate-and-peanut-butter-filled mouths are: up to $30 million from Avalon and up to $465 million from GSK will fund up to 10 new companies, each built around a single drug candidate. We'd say that that's a lot of "up to," but like our headphone-wearing pals in the video below, you'd be all "WHAT?" So never mind.

The pharma's portion includes funds for seed financing and R&D support, as well as preclinical and clinical milestones. The initial financing for each company is expected to be around $10 million, with about $3 million coming from Avalon and the remainder from GSK.

The co-investors plan to take about three or four years to create all the newcos. The first company resulting from the deal, Sitari Pharmaceuticals, was disclosed just last month. The start-up was staked by Avalon and GSK with a $10 million Series A round (though GSK's contribution isn't necessarily cash, but could be in-kind services). Sitari is working to address celiac disease, an autoimmune digestive disease caused by intolerance to gluten, by inhibiting the transglutaminase 2 (TG2) pathway. The intellectual property licensed from the Stanford University lab of Chaitan Kholsa. (Oh and if you're sitting there saying, 'hey In Vivo Blog, doesn't this belong in the alliance category?' Well then just imagine the nomination is for Sitari. Feel better?)

Celiac disease isn’t a precise fit with GSK’s major product areas, which are infectious diseases, cancer, heart disease, respiratory indications including asthma and chronic obstructive pulmonary disease (COPD), as well as epilepsy. But GSK does have a handful of autoimmune clinical candidates such as vercirnon, a CCR9 antagonist that is in Phase III testing to treat Crohn’s disease. It also has at least three Phase II autoimmune candidates: a Sirtuin 1 (SIRT1) activator to treat psoriasis, a Janus kinase 1 (JAK1) inhibitor to treat lupus and psoriasis and a chemokine receptor 1 (CCR1) antagonist to treat rheumatoid arthritis.

Under the Avalon/GSK structure, the pharma can exercise an option to acquire each newco once it produces an IND-ready candidate. If GSK declines to exercise an option, Avalon retains all rights to that asset and can proceed with IND-enabling work on its own or with other partners.

An acquisition would return three to four times Avalon’s investment, Avalon managing director Jay Lichter told our START-UP colleagues. Once in GSK’s hands, a drug’s progress could earn Avalon milestone payments and bump the return to 14x by the time it launches.

Avalon sometimes favors a strategy of founding a company, investing a minimal amount and then partnering or selling the company; it’s had at least a couple of exits matching that description this year.

Avalon and GSK also plan to save money by sharing managerial, operational and R&D resources among their portfolio companies. To that end, they created COI Pharmaceuticals, which stands for Community of Innovation. It will provide operational support, a fully equipped R&D facility and an experienced leadership team to Sitari and the other start-ups, including Avalon portfolio companies.

If it works, the Avalon/GSK model could provide a less painful and more seamless model for VCs and pharma to transition academic research projects into pharma clinical candidates.

"WHAT?" Just vote for Avalon/GSK and enjoy your Reese's.

2013 Alliance of The Year Nominee: Amgen/Astellas

In announcing a strategic alliance with Astellas Pharma in May, Amgen has placed an economic bet on Japan. It is also, indirectly, a bet on economic recovery in the U.S. and Europe, Japan’s two biggest export markets.

In fact, Amgen has been talking up its Asian ambitions since first broaching the idea at a business review meeting in New York last February. After rapid-fire acquisitions in Brazil and Turkey, and a partnership in Russia, “expanding into Japan and China are next on the Agenda,” said CEO Robert Bradway.

Four months later, Amgen inked a two-pronged alliance with Astellas. In the first stage, the partners co-develop and co-commercialize five Amgen drugs for the Japanese market: one in cardiovascular, one in osteoporosis, and three oncology candidates. Among them are AMG145, the Phase III antibody against PCSK9 for hyperlipidemia and Phase II blinotumomab, the anti-CD19 bispecific BiTE antibody against hematological tumors picked up in its 2012 acquisition of Micromet. At a recent Credit Suisse event, Amgen CFO and EVP Jonathan Peacock projected the first launch in 2016.

The second stage, a joint-venture that is 51% owned by Amgen, opened in Tokyo in October. Operating as Amgen Astellas BioPharma KK, the JV is structured to allow Amgen to turn the operation into a wholly-owned Japanese affiliate as early as 2020, and a direct channel into Japan for any molecule in its portfolio including its six biosimilars in development. Eiichi Takahashi, a cardiologist in Pfizer’s Japan subsidiary who led Pfizer’s medical affairs organization for the Asia Pacific region, will head up the JV.

The move feels like a do-over. Amgen had launched a JV with Kirin Brewery in 1984, and in 1992 it formed Amgen KK in Japan, as a wholly owned subsidiary. It pulled the plug on Amgen KK in 2008, selling shares in the subsidiary to Takeda as part of an agreement in which it licensed 13 molecules to Takeda for development and commercialization in the Japanese market. Takeda paid $200 million upfront and is on the hook for over $700 million in development costs and success-based milestones, as well as Japan-specific royalties. Back in 2008, then-Amgen R&D chief Roger Perlmutter insisted to IN VIVO that Amgen was not "abandoning Japan." Rather, partnering was the answer.

And to be sure, partnering is still the answer. The Big Biotech knows first-hand the challenges, particularly as regards recruitment, in establishing a de-novo presence in Japan. But it is confident that it’s chosen the right partner in Astellas, whose strong cardio franchise and whose savvy moves in oncology recommended it to Amgen.

And it is confident that it’s targeted the right region in Japan, whose economy was the fastest growing in the developed world this year, goosed by the fiscal expansionary policies of Abenomics and by a recovery in exports – particularly car shipments, which grew 31% year-over-year last October. And according to Evaluate Pharma, Japan was the best performing region – using government-reported data – in terms of US$ Rx sales, posting 17% growth in 2010/2011 compared to 3.8% for Europe and 1.5% for the US, and likewise clobbering the US and Europe in terms of local currency growth.

And while the Japanese drug market has recently been slowed by biennial price reductions, generic inroads, and a price constraining national health budget, the future holds an easing of regulatory burden, an aging demographic, and a strong pipeline. Traditional regulations protecting the domestic market have crumbled over the past two decades, ushering in western investment and the presence of western firms. Takeda’s recent announcement naming GSK vaccines chief Christophe Weber as COO, putting him in line to succeed Yasuchika Hasegawa as CEO, is a symptom of this larger opening to the west.

In a canny move, Amgen, in its bold deal with Astellas, finds itself at the intersection of these global trends, and poised to cash in. Definitely worthy of our alliance of the year accolade.

Thanks to Eddie O. for the flickr image // creative commons

Monday, December 16, 2013

2013 Financing of the Year Nominee: CHOP Launches Spark

In October, the Children’s Hospital of Philadelphia launched Spark Therapeutics with $50 million in funding, enough to carry its lead program to market, a gene therapy for an inherited form of blindness. In doing so it is riding a wave of recent high-profile investment in gene therapy, as witness the hefty series A rounds for Audentes Therapeutics and GenSight Biologics.

So gene therapy is gaining steam (again); but Spark is unique, or at least unusual, and we think it deserves your vote for Financing of the Year. First, it has sprung, nearly fully formed (with a Phase III asset), from a research hospital. CHOP is neither the first nor the only hospital to incubate a technology and commercialize it through a wholly-owned company. Cincinnati Children’s Hospital, Boston Children’s Hospital, and Cleveland Clinic Innovations have all engaged in various flavors of company creation.

But CHOP has taken it to another level. The RPE65 gene was first cloned in the 1990s; in 2004, Dr. Katherine High persuaded CHOP to take on the research that culminated in the launch of Spark a decade later. Think about it: a research hospital deciding to pull the trigger on a program that it has nurtured to Phase III, and to launch it into the rough and tumble commercial world with enough cash and with the right mix of clinical/regulatory/manufacturing/commercial capabilities to bring it to market.

Venture companies don’t typically do that. Their cash is too impatient. In fact, the investment is also noteworthy for what it may portend for the beleaguered world of life science VC or technology-hungry pharma.

Note that CHOP did not seek venture funding for its technology. Though Spark is free to turn to venture or other sources of support in the future, including a pharma partner, CHOP apparently felt that Spark the newco, like the decade-long R&D that CHOP sponsored around the RPE65 gene, needed time and a shielded environment to succeed.

And where research hospitals have traditionally licensed their technologies to for-profit companies at bargain-basement single-digit royalty rates, CHOP may be re-writing the book on how better-capitalized hospitals could monetize their inventions in the future. Not that it has foregone its traditional avenues for raising money – clinical activity is still the biggest source of revenue, along with royalties on its proprietary research. But there’s no doubt it’s getting smarter. In 2008, the hospital sold the royalty on its rotavirus vaccine, now Merck’s Rotateq, to Royalty Pharma for $182 million.
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CHOP, as majority owner, gets a healthy cut of Spark’s revenue, a not inconsiderable boon to a research institution in a time of uncertain support from Federal funding. CHOP CEO Steve Altschuler said that the spin-out of a for-profit vehicle like Spark is part of a broad process of diversifying its revenue streams.

Talk about diversification – Spark has a full pipeline of gene therapies. It has a Hemophilia B program in Phase I/II, as well as other hematological programs, and preclinical programs in neurodegenerative diseases that take it out of the orphan monogenic space. In fact, Spark is following in the footsteps of uniQure BV, which won EU approval of the first gene therapy, the first such approval in the major markets. uniQure has helped investors to visualize a clinical and regulatory path to market for gene therapy.

Now Spark is competing with uniQure to bring the first FDA approved gene therapy to market.

We’ll know soon if the blindness program gets a regulatory nod. If so, it will derisk Spark’s other programs, providing CHOP/Spark with lots of potential exit options for its pipeline, and possibly whetting CHOP’s appetite for more company creation. We’re nominating the launch of Spark Therapeutics because it stands at the crossroads of tomorrow’s medical treatments and how they get funded.

spark image via flickrer adeak reprinted under creative commons license

2013 Financing of the Year Nominee: Calico

Across the pharma industry, companies are developing symptomatic treatments, therapies that attack the root causes of diseases, prophylactic vaccines, and occasionally, holy-grail cures that eliminate diseases from patients entirely. But Calico, a new company launched in September by Google founder Larry Page, aims for an even bigger kahuna: it’s trying to “solve death.”

That’s the way Time put it when it introduced Calico in a splashy cover story. And while some prefer the softer terms “anti-aging” and “life extension” to describe Calico’s aims, make no mistake: It’s the latest well-funded effort to discover treatments that slow down, arrest or reverse the gradual process of atrophy that makes us all older and more vulnerable to disease. If its ambitions seem outsized, its creator has company in Silicon Valley, where audacious goals occasionally take form as hundred-billion-dollar companies just a few years after they’re dreamt up.

Google employs futurist/inventor Ray Kurzweil, who has written a couple of books about life extension. PayPal founder and Founders Fund partner Peter Thiel has voiced a desire to be a supercentenarian, and has contributed funds to related projects. And a group including Facebook founder Mark Zuckerberg, his wife Priscilla Chan, 23andMe founder Anne Wojcicki (Page’s soon-to-be-ex-wife) and Russian billionaire/Valley investor Yuri Milner has launched the Breakthrough Prize in Life Sciences, which awards grants to scientists “curing intractable diseases and extending human life.”

If that just seems like a bunch of techies trying to become more like the robots they like to create, well, Calico has brought in one seasoned biotech veteran to steer the ship toward realistic outcomes. Longtime Genentech CEO Art Levinson – still Genentech’s chairman, a Roche director, and Apple’s chairman – is Calico’s chief executive. In a Google+ post at the time of the company’s launch, Levinson wrote that Page and Google Ventures partner Bill Maris approached him about a project “that would take the long-term view on aging and illness”; Page’s own post described the project as “a long-term bet” that might tackle decreased mobility, loss of mental acuity, and life-threatening diseases that afflict the elderly. (Page said Google itself had invested in the project; the Google Ventures web site doesn’t list Calico as a portfolio company. The venture arm has its own data-driven ambitions, as we discussed in this Start-Up profile.)

Calico – short for “California Life Company” – hasn’t revealed much more since its September launch, but it hired a few more industry vets and academic figures during the fall. Former Roche EVP of global product development and chief medical officer Hal Barron will lead Calico’s R&D. Ex-Princeton prof David Botstein, who ran the university’s Lewis-Sigler Institute for Integrative Genomics and won one of those Breakthrough Prizes, signed on as Calico’s chief scientific officer. Both are Genentech veterans. Also, former Genentech Senior Oncology Fellow Bob Cohen was named a Calico Fellow, while UCSF professor and researcher Cynthia Kenyon signed on as a Calico scientific advisor.

It wouldn’t kill you to consider Calico for this year’s Roger in the financing category, now, would it? (Though it remains to be seen if Calico can repay the favor with a little life extension.)

Thanks to Flickr user UlfBodin for the photo of a sun-kissed kitty, reproduced here under Creative Commons license.

2013 Financing of the Year Nominee: Opthotech's $192 Million IPO

Ophthotech had a grand vision: its IPO would help fund Phase III testing of its lead candidate, platelet-derived growth factor inhibitor Fovista (E10030) to treat wet age-related macular degeneration. That motivated it to be aggressive in its IPO dealings, leading to the largest biotech IPO fundraising this year: $192 million. And in a year filled with impressive public market debuts when public market debuts of biotechs were one of *the* top stories, Ophthotech's IPO deserves your vote for financing of the year.

How'd they pull it off? Rather than aim for a specific amount, Ophthotech upsized the deal to maximize fundraising in the still-sweltering September IPO market. It increased its IPO price range once and then priced above the second range, at $22. It also increased the number of shares sold to 8.7 million from an initial 5.7 million.

Now that investor IPO interest has cooled, Opthotech’s all-out pragmatic approach seems particularly prescient. “As far as the IPO size, we always believed it best to take any potential financing risk off the table,” Ophthotech CEO David Guyer told our sister publication START-UP. “In biotech, there are always things that come up – the need to enrich a trial or pre-commercial activities. We always thought that if we were fortunate enough, we would increase the size of the offering.”

In May, ahead of the IPO, Ophthotech also got $83 million from a royalty financing worth up to $125 million with existing investor Novo A/S and a $50 million mezzanine venture round. All told, that gave the biotech $319 million in cash at Sept. 30.

Ophthotech might need every bit of that cash, and maybe more, for an ambitious Phase III program. The company initiated two Phase III trials for Fovista in combination with Lucentis (ranibizumab) in August and plans to start a third Phase III trial in the first quarter of 2014. The three trials are expected to enroll 1,866 patients at about 225 locations globally. Fovista is intended to work in combination with anti-VEGF (vascular endothelial growth factor) drugs like Lucentis, Eylea (aflibercept) and Avastin (bevacizumab), which are the current standard of care for wet age-related macular degeneration (AMD), though Avastin is used off-label.

Fovista came out of Eyetech Pharmaceuticals, which kicked off the first post-genome bubble IPO window in 2004. Although the Eyetech IPO went well, the main product as anti-VEGF Macugen (pegaptanib) was soon crushed by competitors. OSI Pharmaceuticals (now part of Astellas Pharma) acquired Eyetech for $935 million in 2005 and then spun-out the anti-PDGF projects, including Fovista, into Ophthotech. Valeant later picked up Macugen for a mere $22 million.

Ophthotech investors are likely to wait a while for the next big milestone – initial top-line data from the Phase III program isn’t expected until 2016. But even as IPO valuations have been sliding into winter, Ophthotech has added to its initial IPO upside. In its first day of trading, Ophthotech was up 20%; by Dec. 11, it had added 27% from the offer price. That gives the company a market cap of $886 million. All this signals that investor hopes are still riding high, undeterred by flagging 2013 IPO returns or the long wait until a major milestone. If all this financial finagling gets investors the wholly owned blockbuster they are hoping for, then it will have been well worth it.

2013 Financing of the Year Nominee: Editas

One of the financings of the year, in our humble opinion, comes from three venture firms you should all know well: Polaris Venture Partners, Third Rock Ventures and Flagship Ventures. The trio "locked arms," in the words of Polaris principal Kevin Bitterman, to commit $43 million to Editas Medicine. We've nominated this deal for two reasons.

First, Editas -- of which Bitterman is serving as interim president -- is the first startup to declare its intent to turn one of the hottest research tools around into a new wave of therapeutics. One might call it gene therapy, version 2.0: the technology known as CRISPR/Cas9 allows researchers working with cells or model organisms to delete genes or replace them with new ones, but in ways considered more precise than other gene-editing systems currently in use.

Got genes?

The answer to whether the CRISPR/Cas9 modification system can become a basis for pharmaceutical products is years away. It is, relative to most venture-funded efforts, a brand-new field. Most of the critical developments have been described in academic papers only in the last twelve months, and many more will undoubtedly come in the next twelve.

The second reason we've spotlighted this deal is the syndicate. The VC trio involved more often than not will work in stealth on new potential breakthrough technologies on their own, as our START-UP colleagues detailed earlier this year here and here. In the past year, for example, Flagship has done solo work in launching a microbiome company (Seres Health), an epigenetics company (Syros Pharmaceuticals), a patient-as-protein-factory firm (Moderna Therapeutics, also to be nominated in this year's contest), and a nutritional supplement and drug maker (Pronutria).

With advances in CRISPR technology coming quickly from several academic sources, however, the VCs felt it was better to join forces. “Once a decade, it makes more sense to pool the expertise and resources of investors and the technology and expertise of the academic founders instead of creating three, four, or five different companies positioned against each other,” Bitterman told our Pink Sheet Daily colleagues when the company launched. (Also joining the syndicate is the Partners Innovation Fund, the venture arm of Boston-based Partners Healthcare.)

How far have they gotten in front of the competition? Check back around this time next year. Other CRISPR/Cas9 start-ups should soon emerge, and a CRISPR tools company in Berkeley, Calif. hopes to land a Series A round early next year to help it move into therapeutics as well as industrial and agricultural applications. The Berkeley company, Caribou Biosciences, lays claim to all the IP from the lab of University of California professor Jennifer Doudna, according to Caribou CEO Rachel Haurwitz. (This, despite Doudna being one of Editas' scientific co-founders.) As we said, the IP race is afoot.

CRISPR stands for “clustered, regularly interspaced short palindromic repeats.” It describes a nucleic acid system, first discovered in bacteria by Japanese researchers 25 years ago, that banks bits of foreign viral DNA to serve as an immune-system reminder when the pathogen invades again. Re-infection triggers production of RNA associated with the foreign DNA, which seeks out a match. The RNA doesn’t destroy the invading DNA on its own; the CRISPR RNA (crRNA) brings along an enzyme to make a double-stranded break. Scientists have zeroed in on the nuclease Cas9, or “CRISPR-associated protein 9."

Come to think of it, there's a third reason to nominate Editas. If it succeeds, it will have to improve upon two different strands of biotechnology that have proved extremely frustrating the past decade: gene therapy and RNA-mediated drugs. Therapies based on CRISPR/Cas9 will also be RNA-mediated, which has implications both pro and con. One benefit is that, theoretically, there is less engineering required as a company targets more than one disease. That’s because the “scissors” of Cas9 can cut DNA at any juncture; only the RNA guides need to be changed, a simpler engineering problem. But the molecules are tough to deliver. Companies have struggled to formulate agents that don’t break down in systemic applications. Bitterman said one of Editas’ “core competencies” will be delivery: “We’ve spent a lot of time thinking about it, and we don’t need to reinvent the wheel.”

In addition to Doudna, Editas’ scientific co-founders are Feng Zhang of the Broad Institute and three Harvard researchers, including George Church; Keith Joung, also of Massachusetts General Hospital; and David Liu, also of the Howard Hughes Medical Institute.

Friday, December 13, 2013

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

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.

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