The IN VIVO Blog

Deals of the Week: Swap Meet

c.morrison@elsevier.com (Chris Morrison) — Fri, 20 Nov 2009 12:47:53 PST

People, we seriously need to talk about Eggo Waffles.

But first, a dearth of meaty deals this week has us thinking more about Bristol-Myers Squibb's share-swap/buyback/spin-off of its nutritionals unit Mead Johnson.

We tried to make the point earlier this week that Bristol's move was too focused on short-term gain. Others have pointed out to us that without some sort of short-term gain to appease investors, BMS might not have a medium- or long-term future in which to let it's string-of-pearls strategy play out.

Perhaps that's true. But the biopharma could have found a middle ground, cutting its stake in Mead Johnson down to 50%, for example. Again, maybe that wouldn't be enough. But let's move on.

As our colleagues at OTC Today have put it, BMS went 'full biopharma.' But now that Mead will be an independent company, the question is: for how long? And what does BMS do next?

BMS needs to keep its rivals at bay by maintaining or boosting its worth in the face of two massive patent expirations to make sure nobody can buy them on the cheap. That means good growth from existing and in-line products and potentially spending its $10 billion cash pile on a few more near-market pearls. See, it's simple!

As for Mead, everyone out there says it's just a matter of time before the Nestles and Heinzes of the world come calling. Nestle will surely have the cash thanks to its put-option on Alcon's shares as part of this deal with Novartis. But nobody seems to be talking about any potential pharmaceutical acquirers. What about diversification-loving Sanofi-Aventis? GSK? Even Pfizer?

Our colleagues at The Tan Sheet will take an in-depth look at potential Mead suitors from the worlds of pharmaceuticals, nutritionals and food in Monday's edition. Who are your favorites?

_ _ _ _ _

OK, waffle time. Meanwhile, Kellogg Co., the makers of Eggo Waffles, seem to be having even more trouble than Genzyme in sorting out some manufacturing issues (at least they have a flood-related excuse. And it's not all bad news. We didn't find out this week that Eggo interferes with metabolizing Plavix, for example). These factory problems though have apparently led to a US-wide shortage of this blogger's children's favorite mass-produced breakfast-waffle product. So here's the question: what's the best Eggo substitute?

While we wait for inevitable stories in the press about Eggo-riots and Eggo price gouging, Eggo eBay entrepreneurs, and what not, these deals below don't have to l'eggo of anything, because they're the ...

GlaxoSmithKline/Nabi Pharmaceuticals: GSK's option-based deals often occur in discovery and early-stage development, but it shifted focus much farther up stream to get a toehold on a potential blockbuster, Nabi's NicVAX smoking vaccine. NicVAX is currently in Phase 3, and GSK paid $40 million for an option to grab full rights by the end of Phase 3. Exercising the option triggers another $58 million payout to Nabi, which for the time being has to foot the development costs. The upfront fee will help, as will a $10 million grant from the US National Institute on Drug Abuse. The vaccine is a monoclonal antibody that binds to nicotine and prevents it from crossing the blood-brain barrier and hitting the brain's pleasure centers--receptors that release stimulants such as dopamine. Other milestones include $20 million for successful completion of Phase 3, up to $70 million for US or European Union approval, and up to $61 million for approval in other major markets. In the first of two Phase 3 trials, patients get six injections over six months and try to stay away from the smokes for at least a year. They'll also get counseling. (One piece of advice: Don't hang out with your friends who smoke.) GSK also receives rights to develop a next-generation smoking vaccine based on Nabi patents and technology, regardless of its decision to exercise the NicVAX option. All told, Nabi could earn option and milestone payments up to $500 million, plus sales royalties. Royalties for NicVAX will be 10-15% based on a minimum of annual net sales from $300 million to $600 million. Royalties for next-generation products will range from 7-9% based on the same annual net sales figures. - Alex Lash

Cosmo/BioXell: Not all European spin-offs from Big Pharma have quickly secured approval of a lead product and filed for an IPO like J&J progeny Movetis. After raising north of 100 million euros since inception, BioXell, the 2002 Roche spin-off once thought to mark a resurgence in Italian biotech fortunes, said on Wednesday it would be acquired by compatriot Cosmo Pharmaceuticals for CHF15.1 million in cash, and Cosmo shares worth another CHF26 million (both companies are listed on the Swiss exchange). The purchase price was at roughly a 17% premium to BioXell's 60-day average. Cosmo, a GI-focused specialty company, will also pay potential earn-outs based on the sale of certain BioXell assets to third parties. BioXell has been on the block since earlier this year when Phase IIb results for lead compound Elocalcitol in overactive bladder disappointed. Interestingly BioXell's now-lead asset is a humanized antibody against nerve growth factor (NGF) receptor TrkA acquired from Lay Line Genomics. Lay Line was also the source of another NGF program, the one PanGenetics just sold last week to Abbott for $170 million in cash.--CM

image by flickr user ken mccown, creative commons.

Financings of the Fortnight Has European Flavor, Movetis Roadshow Fever

c.morrison@elsevier.com (Chris Morrison) — Fri, 20 Nov 2009 04:56:38 PST

Gas up, everyone, it's time for a European road trip. First stop, Turnhout, Belgium, where gastrointestinal biopharma Movetis is gearing up for a trip of its own.

This morning the Belgian J&J spin-out said it filed to raise up to more than €112 million in what could be Europe's first biopharma IPO since Italian biotech Molmed raised €56 million in February 2008 (sorry, MondoBIOTECH).

Is this the kind of discovery-oriented biotech listing that would announce the IPO window is open for the backlog of companies keeping warm by burning through VC cash from insider rounds? Not really.

Movetis spun out of J&J at the end of 2006 with about €60.8 million in Series A venture funding led by Sofinnova (Sofinnova Partners holds 22.5%, Sofinnova Ventures has 16%) and Life Science Partners (16.9%). At the time its lead asset, the newly-approved-in-Europe for a subset of constipation patients Resolor, was already in Phase III. (In exchange for pipeline, J&J held on to 21.2% of the company and received an upfront fee.)

Still this will be a good sign that public investors in Europe are ready to wade back into biopharma plays, even if backing the launch of a specialty product is more than slightly different than backing most other life sciences start-ups.

Movetis said this morning that the price range of the offering was set at €11.25 to €14.25 per share. The offering comprises a public offering in Belgium to retail investors and a private placement to institutions in Belgium and other ex-US territories. The offer opens on Monday and runs through December 2nd, with Movetis shares scheduled to hit the market on December 4th.

The company will spend its haul supporting the commercial launch and post-marketing regulatory commitments for Resolor (prucalopiride) in Europe. The drug, a selective 5-HT4 receptor agonist, received EMEA approval in October for the symptomatic treatment of chronic constipation in women in whom laxatives fail to provide adequate relief.

Movetis plans to launch and promote Resolor itself in markets where it can make do with a lean, specialist sales force. CEO Dirk Reyn told us after the drug's approval last month that in the UK for example, "GI specialists prescribe between 30 and 40 percent" of drugs for this market and where GPs prescribe drugs, they do so under centrally controlled guidelines from bodies such as NICE and local primary care trusts.

In other markets, where GPs have more freedom, Movetis will need to partner to access a primary care sales force. In Italy, for example, "it is more difficult to reach that audience with a targeted approach," Reyn said.

Before leading Movetis, Reyn was head of the worldwide GI marketing group and VP, new business development at J&J's Janssen-Cilag unit. He told us last month that although J&J realized Resolor was unlikely to serve the kind of large, primary care market it was initially intended to reach, smaller companies like Movetis could succeed in smaller, neglected sub-segments of the GI market.

Resolor's label, said Reyn, provides the necessary ingredients for success. By going after patients for which laxatives do not provide adequate relief, "it created the stronger probability of regulatory approval and, secondly, creates a target market that is very defined and which is also more palatable and digestible for payers."

We will see in a couple weeks whether it is also palatable for public investors, too.

Get back in the car, it's time for ...

ThromboGenics NV: Still in Belgium, now, for an hour long drive to the outskirts of Leuven. With significant funding from Belgian and international institutional investors, public Belgian biotech ThromboGenics seems to have gotten the momentum it needs to complete development of its Phase III biologic microplasmin for vitreomacular adhesion. The company announced on November 17 that it raised €42 million ($63 million) by selling 2.6 million shares--approximately 10% of its outstanding stock--for €16, a very slight discount to the 10-day market average. The raise lends weight to the idea that investors increasingly see ophthalmology as an area with large potential and unmet need, or at least an area where they can turn a nice profit. Microplasmin, a potential alternative to surgery also in Phase II for AMD, diabetic retinopathy, and diabetic macular edema, works by dissolving protein formations that link the vitreous to the retina. Beyond microplasmin, ThromboGenics has done a good job of monetizing other pipeline projects through dealmaking. Most notable is its long-term partnership with BioInvent International in which both companies can contribute candidates and split costs and revenues. Initially focused on ThromboGenics’ Factor VIII inhibitor TB402 for deep vein thrombosis and atrial fibrillation, the deal was later expanded to include Thrombo’s placental growth factor (PIGF) blockers. The partners’ work on the latter class of drugs paid off last year when Phase I cancer candidate TB403 from the PIGF program was exclusively licensed to Roche in exchange for €50 million up front and the potential for €450 million in development and commercialization milestones.--Amanda Micklus

NicOx: Three hour drive to Paris, now, where NicOx is tapping into the French government’s latest hand-out to help top-up a planned €30 million private placement. Still short of a US partner (and thus of a partner's money) for recently-submitted naproxcinod, the company says the capital increase will allow it to “significantly advance” its launch preparations for the drug. More specifically, in line with its long-stated goal of becoming a fully-integrated specialty pharma, NicOx will create a specialist sales and marketing infrastructure in the US. The government-supported Fonds Stratégique d’Investissement, set-up late last year to support local mid-sized companies in key growth sectors, will invest €20 million in total across the two-step financing (for a 5.1% stake in the biotech), which will include a subsequent rights issue (when market conditions permit) that may take the total fundraising up to €100 million. (That’s a fair chunk from the FSI, given that average investment size was initially slated at €5-10 million.) CEO Michele Garufi has long worked to secure a commercial partner for naproxcinod, but this now looks unlikely to materialize before the drug is approved. Despite the hit it will take on dilution, the company is right to raise cash while it can, particularly given its downstream ambition. But although this move shows NicOx’s confidence in its product, it should be wary of under-estimating approval risk--even for an anti-inflammatory drug that’s based on a well-known, proven NSAID, and claims better safety than naproxen.--Melanie Senior

4SC AG: And off to Munich, Deutschland! On November 16, Germany-based 4SC grossed €30 million ($44.7 million) in a collateral rights offering of 10 million shares to existing backers. Stock was sold at €3, a 10-day market average. In 2008 the medicinal chemistry and discovery company's drug development pipeline (and expenses) took off when it purchased eight oncology projects from Nycomed, which was exiting the space. 4SC expects the new funds will take it through 2011 and allow it to complete proof-of-concept studies for its two lead candidates: resminostat, an HDAC inhibitor for hepatocellular carcinoma and non-Hodgkin's lymphoma and 4SC101, an oral DMARD being tested with methotrexate for rheumatoid arthritis. --AM

Fate Therapeutics: OK, one stop in the US of A, so we'd probably better fly. Stem-cell concern Fate's $30 M Series B round was led by returning investor OVP Ventures and includes corporate funders Genzyme Ventures, Astellas Venture Management, and a mystery third company. (The corporate venture train keeps on rollin'.) Fate officials told us they won't need cash for two years, but from their list of activities it sounds like they'll spend every penny. One on side, they're racing to create a commercial supply of pharma-grade induced pluripotent stem cells, the kind drug companies can use for all kinds of screening and testing. (They're not the only ones who want to supply the world with stem cells or create screening tools.) Fate could help licensees differentiate cells, or sell them the pluripotent versions. CFO Scott Wolchko said to look for license deals in the next 12 months. The company will also be its own customer. It's got one small molecule in Phase 1 that aims to redirect hematopoetic stem cells and help cord-blood transplant patients recover faster. The drug, FT1050, is the first test of the company's proposition that it can modulate a patient's own stem-cell populations, using small-molecule triggers, for therapeutic effect. OVP's Carl Weissman joined the Fate board, and all the Series A subscribers joined the B round. -- Alex Lash

image courtesy flickr user mrlerone used under creative commons

Julie Brill Nominated to FTC: A Message to Drug Manufacturers?

c.morrison@elsevier.com (Chris Morrison) — Thu, 19 Nov 2009 12:11:18 PST

The Obama administration may have sent a subtle message to drug manufacturers Monday, when it nominated Julie Brill to be one of two new commissioners at the Federal Trade Commission. The message? Make sure your marketing practices don’t collide with consumers’ best interests.

Brill has overseen consumer protection for states since 1988, with a major emphasis on watching over the pharmaceutical industry. She spent most of that time (1988 until February 2009) in Vermont, as assistant attorney general, when the state became an epicenter for cracking down on drug marketing practices.

You’re familiar with Vermont’s public disclosure of manufacturer payments and gifts to physicians? Yep, Brill was behind that. How about the law cracking down on using physician prescribing data for marketing purposes? That was one of hers too.

And there were those big settlements with PBMs, when they were accused of switching patients’ prescriptions for their own financial advantage. Brill was an important driver behind that deal. Interestingly, FTC very recently opened an investigation into the practices of one of the biggest PBMs, CVS Caremark, and how they impact consumers (see “The Pink Sheet” coverage of this investigation here).

Of course, Brill has other interests – privacy and antitrust issues are big ones – but as a commissioner, she’ll have a big say in what practices get investigated.

She still needs to be confirmed by the Senate, and the process will involve a hearing before the Commerce Committee, which is chaired by Sen. Rockefeller, not one known for his kind words about the pharmaceutical industry. It will be interesting to see how much of that hearing will focus on her pharma-related activities (see more about Julie Brill here in “The Pink Sheet” DAILY).

Plavix Label Change: Good For Effient Now, Bad For Brands in the Long Run?

c.morrison@elsevier.com (Chris Morrison) — Wed, 18 Nov 2009 23:40:47 PST

The Food & Drug Administration's public health alert on Plavix is, as we point out in "The Pink Sheet" DAILY, a nice boost for Eli Lilly and Daiichi Sankyo, who market the competing platelet agent Effient.

But the back story to this regulatory action merits closer attention by all pharmaceutical sponsors. This is no ordinary labeling change, and the implications of how the regulatory response came about only underscore how difficult it will be for all sponsors who hope to sustain (or revive?) the blockbuster model in the years to come.

This labeling change suggests a model for application of pharmacogenomic research that biopharma companies will find very threatening: it sure looks like sponsors hoping to build blockbuster franchises are at a huge disadvantage against payors hoping to limit those opportunities.

And that's why this labeling change may end up being bad news for all brands in the long run--very much including Effient.

First, the news: FDA has revised Plavix labeling to emphasise that the Bristol-Myers Squibb/Sanofi Aventis blockbuster doesn't work too well in patients who are poor metabolizers of the drug. In particular, FDA is concerned about impairment of the CYP2C19 metabolic pathway, whether because of genetic variations or coadministration of other drugs, including the widely used proton pump inhibitor omeprazole (Prilosec).

Okay, none of that is actually news. FDA first issued the warning in January, and quietly modified Plavix labeling in May.

What is news is that FDA has decided that information is now a formal warning, rather than a milder precaution--and, more importantly, the agency chose to amplify that warning (especially regarding PPI use) via a media conference call.

It is easy to see why Lilly and Daiichi would be pleased: anything that complicates the decision to prescribe Plavix will help them make the case that doctors should prescribe Effient (and, as we've already pointed out, they need all the help they can get).

Okay, so this sounds almost reassuringly like a classic story of head-to-head competition in a blockbuster class, and how the regulatory process can play to one side's advantage. Plavix is dinged, Effient benefits.

But this is nowhere near that simple.

Because there are third parties involved: payors and pharmacy benefit managers. The interaction between PPIs and Plavix was first publicized by Aetna and by Medco, both of whom used claims data to suggest an association between PPI use and diminished outcomes for patients treated with Plavix.

Its not just that payors capitalized on a safety issue: they really drove the regulatory response and the application of a newly discovered pharmacogenomic marker. In Medco's case at least, Chief Medical Officer Robert Epstein told us, the whole idea was to find a way to test the emerging theory that CYP2C19 genotyping may predict Plavix response. Since Medco didn't have genotyping data on patients in its database, it looked at concomitant use of omeprazole instead, since the PPI is a known inhibitor of the 2C19 pathway.

FDA's first public health alert followed the Aetna and Medco claims studies; the latest one came after Bristol and Sanofi conducted a drug interaction study confirming the observational results. That's certainly not a regulatory model sponsors are eager to consider--especially since we would be willing to bet that the observational research that triggered the warning cost Medco much less than the clinical trial the sponsors were forced to conduct to confirm it.

Medco, at least, isn't done. As we reported here, the company is now taking the next step, conducting a large scale observational study to test the hypothesis that the superior efficacy demonstrated by Lilly in its head-to-head study of Effient vs. Plavix can be explained by the inclusion of poor metabolizers of Plavix in the comparator group.

And Medco's interest most definitely is NOT in helping either brand in this class.

Medco's interests include advancing the company's positioning as a leader in therapy management, particular as it comes to applying pharmacogenetic knowledge. And Medco certainly wants to work with its payor clients to make sure insured members receive the best possible care.

But what Medco wants above all is to carve out a long term market for generic clopidogrel--and in effect limit Effient's share (as well as the share of all future brands in the class)--to whatever slice can't be held for the generic.

The study design, as Epstein explained to us, is simple: Medco will (at its own cost) run a genetic screen on patients prescribed Plavix to identify those who properly metabolize the drugs. It will then compare 14,000 of those patients to 14,000 Medco members who receive Effient, and see if there is a difference in cardiovascular outcomes.

Medco clearly expects to demonstrate that there is no meaningful difference between the two.

Now this whole thing could backfire on Medco. Its data could end up suggesting superior outcomes even when the comparison arm is enriched for Plavix response. (And Medco has registered the trial on ClinicalTrials.gov, so while we doubt they would trumpet that result, they can't just bury it either.)

And the study could by itself end up promoting the launch of Effient. Certainly, Lilly and Daiichi are only too happy to have Medco's support in spreading the message that their drug is active regardless of that specific genomic marker.

Indeed, as part of the screening effort, Medco is likely to drive some conversions from Plavix to Effient: patients who are genotyped as poor metabolizers will be informed of that status (as will their physician). Medco will not make any recommendations, but it is safe to bet that many identified as poor responders to Plavix will switch therapies. Given that 30% or so of the population has the genotype in question, Medco is likely to notify about 6,000 people that they may not be getting the full benefit of their antiplatelet therapy with Plavix.

But that only underscores the bigger point. Medco is willing to make a relatively big investment--and even to help grow a potential blockbuster franchise in the short term--in order to help limit the size of that market in the long run.

And it will cost Medco far less to do that than it costs for sponsors to bring potential blockbusters to the market in the first place.

Now, Epstein wasn't willing to disclose how much this undertaking will cost, but he did suggest it isn't terribly expensive. Medco collects the outcomes data already, so the only cost will be running the genotyping program. Medco will be doing the tests in house, via its own CLIA-certified lab test, so that expense will be kept as low as possible.

All in all, that is not a trivial expense for a pharmacy benefit management company to take on spec, but we're willing to bet it is less than 1% what it cost for Lilly to "prove" the superiority of Effient in a head to head trial.

Which is why, when it comes to trying to establish blockbusters in an era of high payor influence and ever advancing knowledge of the heterogeneity of drug response, it seems like the odds are stacked in favor of those who want to keep market sizes small.

Look for much more on this topic in an upcoming issue of The RPM Report.

image from flickr user mafleen used under creative commons.

Hard to Get Excited about BI's Flibanserin

c.morrison@elsevier.com (Chris Morrison) — Wed, 18 Nov 2009 07:27:27 PST

You might have missed the 12th Congress of the European Society for Sexual Medicine in Lyon, France, this week. If you did, US Phase III results for Boehringer Ingelheim's flibanserin might have passed you by, too.

The drug--a serotonin 5-HT1A receptor agonist, 5-HT2A antagonist and partial dopamine agonist--is in development for Hypoactive Sexual Desire Disorder among pre-menopausal women. The condition is characterized by a decrease in or lack of sexual desire "that causes distress to the patient, may put a strain on relationships, and is not due to the effects of a substance....or another medical condition."

So we're not going to downplay the importance of this condition, despite suspecting that many might be surprised to learn that it is one--including most women suffering from it, according to Dr. Sheryl Kingsberg of University Hospitals Case Medical Center in Cleveland, Ohio. (Prevalence may, according to Kingsberg, be as high as one-in-ten.) We won't downplay it, even while predicting it will provide more fodder, if ever there was fodder, for industry critics seeking evidence that pharma invents diseases.

But we can't help raise some red flags when it comes to the likelihood of getting this drug past the regulators (let alone the reimbursers) for HSDD. Aside from whether the disease exists (and granted, we mustn't forget that depression was ignored/denied for many years), there's the issue of highly-subjective scoring and accounts in the trials. (How else to run a study measuring how many 'satisfying sexual events' (SSEs, another new acronym for you) a woman has, and just how satisfying they are, aside from asking her to write it into her e-diary?)

Then there's the issue that the pooled data from these two, six-month Phase III trials among a total of over 1,300 pre-menopausal women wasn't exactly compelling (at least to our untrained eye...): women in the highest-dose flibanserin group enjoyed an increase of only about one SSE per month compared to those on placebo. (And it doesn't appear from the release that there was even a statistically significant increase in primary endpoint SSEs in the European flibanserin trials.)

Meantime, and here's the real crunch, 15% of women in that same high-dose flibanserin arm dropped out due to side-effects (versus just 7% on placebo) which included daytime sleepiness, dizziness, fatigue, anxiety, dry mouth, nausea and insomnia. Not to worry, said lead study author and professor of psychiatry and neurobehavioral sciences at the University of Virginia, Anita Clayton, MD, on a webcast announcing the results. "These are side-effects often seen with CNS-acting medications, which affect the brain. They tended to be transient."

For the women, we can only hope those discomforts were worth it for the additional SSE. As far as the regulators go, we reckon it's unlikely that they wave through a centrally-acting drug (in the same broad class as Arena's Phase III obesity candidate lorcaserin, or Sanofi Aventis' insomnia hopeful eplivanserin, which received a complete response letter in September) whose complete mechanism of action is unknown, and which leads to considerable (if not apparently too serious) side-effects, for an indication that took 20 minutes to describe on a recent webcast announcing the results. (Flibanserin is thought to affect the sexual desire/drive component of HSDD, by acting on brain neurotransmitters.)

We're not saying this drug candidate will never be approved; we're just saying we think it's unlikely to happen fast. (Fortunately, Boehringer has other, far bigger, fish to fry.)

Granted, there aren't currently any FDA-approved drugs for HSDD among pre-menopausal women, explains Anita Clayton; couples counseling is about it. And if the SSE data wasn't that exciting, women did report significantly improved sexual desire & functioning, and less distress related to low sexual desire.

image from flickr user michelle brea used under creative commons license

Genzyme: Contents Under Pressure

c.morrison@elsevier.com (Chris Morrison) — Wed, 18 Nov 2009 01:34:46 PST

Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.

The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel. (Note this is the second time the Big Biotech has been dinged by regulators in the span of months. In September, FDA also shot down plans to expand the indicated use of pediatric leukemia drug Clolar to adults.)

The sad thing is the situation is entirely of Genzyme's own making. Don't think so? Let's review.

The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.

And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting "the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there."

Too bad that realization didn't happen one year ago. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.

What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.

On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter relates not to a new problem created by Genzyme's decontamination efforts but arising because of "an older piece of equipment". As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&A session with analysts, "There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address."

Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, "allow us to move more quickly to address those issues." Does everyone feel better now?

In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. True, the most recent news has changed little for the company near-term. The complete response on Lumizyme was widely expected by analysts and, amazingly, the particulate contamination didn't provoke a demand from regulators that Genzyme recall the product.

But regulators' hands were likely tied, in part because of the life-saving nature of Genzyme's medicines and the current lack of approved therapies that could substitute for Cerezyme and Fabrazyme. By the middle of next year that won't be the case. Shire is clearly gunning to steal market share from Fabrazyme with its Replagel product, which has been approved in Europe since 2001. In October, Shire announced plans to submit a BLA for its medicine in the US before year's end.

And the potential competitive threat to Cerezyme is even greater. The FDA has already authorized the use of competing products from both Shire and Protalix despite lack of formal regulatory approval. To date, the headaches required to negotiate the administrative hurdles of the emergency access programs have limited the erosion to Cerezyme's market. But note that Shire filed its NDA for its Vela product in September; if the agency grants the drug a priority review, it could be on the market by March 2010.

That's only four months from now. Can Genzyme get its act together in the meantime? The firm is increasingly vulnerable; it can't afford another announcement like Friday's. The summer shut down already created an opening for competing products to cannibalize on one of Genzyme's main money makers. Another "Dear Health Care Practitioner" or Form 483 letter and the current rumblings of dissent will move from the fringe as patients and investors rightly demand to know: who's minding the store, and why didn't Genzyme execs ensure supply of its most important drug by building up reserves when they had a chance?

Moreover, the company's share price is under pressure, hovering perilously close to its 52-week low and Genzyme has cut its earnings forecast four times this year alone. According to Adam Feuerstein over at The Street.com, adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year.

Much as we were ridiculed for discussing a potential sale of the company three months ago, its impossible to deny that Big Pharma's love affair with hyper-specialist products continues unabated. Any doubts, look at the recent deal between GlaxoSmithKline and Prosensa in Duchenne muscular dystrophy.

Oh, and did we mention that Carl Icahn, who has a reputation for homing in on troubled biotechs and turning them around in time to sell them, disclosed a stake in the Big Biotech on Monday night? Coincidence, you say? (We have 1.45 million reasons to say that's not likely.)

Would GSK or that other convert to ultra-niche, Novartis, pony up the money to buy Genzyme before the biotech cleans its own house? It's unclear. But one thing seems obvious: if Termeer can't clean up the mess that's been brewing in Allston, someone else--either Icahn or another shareholder activist--will.

Image courtesy of flickrer massdistraction via creative commons license.

Bristol Says Buh-Bye to Formula for Stability, Hello to Buyback

c.morrison@elsevier.com (Chris Morrison) — Tue, 17 Nov 2009 07:14:07 PST

It's no secret that Bristol-Myers Squibb has spent the last couple years solidifying its stance as a pure biopharma play. We've documented the moves as they've happened: spinning out orthopedics (Zimmer) in 2001, jettisoning OTC, medical imaging, and wound care (Convatec) in 2005, 2007, and 2008 respectively, and inking deals to divest variety of emerging markets businesses this year and last.

And we like a contrarian argument--BMS is zigging toward focus as the rest of the industry zags toward diversification. Is the company better positioning itself for sale? Going all in on the only thing it thinks it does well to try to stick it out for the long haul ahead of a monster patent cliff? Whatever, it's ballsy, and we think they're all the more interesting to watch because of it.

And we really thought Bristol was onto something interesting when they IPO'd Mead Johnson earlier this year. Back then they convinced us of the merits of offloading a smallish chunk of the nutritionals unit that it is now essentially using to fund a stock buyback. Let The Pink Sheet explain:

In the stock swap transaction, Bristol investors who choose to tender their shares will receive approximately $1.11 of Mead Johnson shares for every $1 of Bristol. Bristol won't receive cash for the deal, but the transaction will be accretive to earnings in 2010 by reducing the number of Bristol's shares outstanding, thus increasing earnings per share. The exchange offer will also be attractive to shareholders because it is expected to be tax free.

So Bristol's 170 million Mead Johnson shares, if all exchanged, would give the biopharma company a ten-cent pop in EPS next year. Plus with all those shares retired, the company will improve its cash flow by paying out $350 million less in dividends (er, that's provided it doesn't raise its dividend on the remaining shares). MJN shares are way up since the IPO, so why not take advantage of that valuation bump and allow management to focus on growing the core business and build on the 'string of pearls' strategy with the $10 billion it expects to have by year end?

Because with or without this buyback BMS has that $10 billion. And management focus was more or less guaranteed when it sold 13% of the company in February 2009. What BMS loses when it takes its Mead Johnson stake down below 50% is the ability to consolidate the unit's sales and earnings. It also loses a relatively strong emerging markets business (Mead's second largest market is China).

The move prioritizes short-term gain over long-term stability. Since BMS sold Zimmer in 2001 the orthopedics company's value has doubled while BMS's has more than halved. The IPO strategy would have worked well there--BMS could have held on to some of that value and cash flow--and it seemed to be working well with Mead Johnson. The cash flow gains from this buyback are a band-aid on the wounds inflicted by the loss of exclusivity on Plavix and Avapro (40% of 2008 revenues). Why not pursue some middle ground while keeping a majority stake in the company?

Back to the 'Sheet for Bristol CEO Jim Cornelius' answer:

"We've always said that one of the main considerations in retaining our ownership position in Mead would be our confidence in the strength and sustainability of our biopharma business in 2013 and beyond," Cornelius said. "The split is a sign of that confidence, as we have made excellent progress in advancing our biopharma business in addition to the new product portfolio."

We aren't arguing that his confidence is misplaced. But BMS could continue to strengthen its biopharma business even with Mead's as an outrigger.

image thanks to flickr user joel p under creative commons license

Fate Seals $30 M Series B, Gets Corporate Venture On Board

c.morrison@elsevier.com (Chris Morrison) — Mon, 16 Nov 2009 04:00:00 PST

Fate Therapeutics has lined up $30 million in a Series B venture round as it pushes development of its lone clinical candidate, works toward making mass supplies of induced pluripotent stem (IPS) cells, and lines up licensees for its IPS platform.

Its Series A venture backers all re-upped, said CFO Scott Wolchko, and three corporate funds jumped in: Genzyme, Astellas Pharma, and an undisclosed party.

Fate will use part of the cash to push its candidate FT1050 through Phase 1. Fate hopes to have data next spring, and one alternative is to advance it into a Phase 2/3 pivotal trial by the end of 2010, said Wolchko. The small molecule is aimed at adult hematopoetic stem cells to help cord-blood transplant patients recover from their transplants faster. Genzyme and Astellas have commercial experience in the transplant area and could provide significant guidance, Wolchko said. Genzyme outbid Millennium Pharmaceuticals in 2006 for a Canadian firm whose product, Mozobil, helped prepare hematopoetic stem cells for collection and autologous transplant. Astellas has built the immunosuppressive Prograf into a $2 billion a year franchise and is trying to fend off generic attack from Novartis.

With FT1050 a key data point to watch for is time to engraftment, or how long a patient's immune system takes to bounce back from the transplant. Shaving several days off the time to engraftment could be a signficant clinical benefit.

FT1050 is Fate's first test of its larger proposition of using drugs to redirect or enhance the healing properties of a patient's own stem cell populations.

Fate is also working on the flip side of the problem: how to use small molecules and proteins to rewind cells back up to pluripotency. Fate cofounder and Scripps Institute professor Sheng Ding said in October his team had found a combination of drugs to speed up the reprogramming process and boost the yield of induced pluripotent stem (IPS) cells, though much work remains before Fate's process can produce industrial-scale amounts of cells that it or other drug companies can use for conventional drug research or, farther down the road, for cell therapy applications.

Wolchko, who directs the firm's business development efforts, said he expects to cut license deals for the platform technology within the next 12 months even if the production methods haven't reached industrial scale. "There are lots of parties we're talking to with different areas of expertise," Wolchko said. "Some might create cardiomyocytes for toxicity screening, or some might see it as a solid foundation for cell therapies; some of the applications might take five to ten years to materialize."

Even without licensing fees, Fate now has two years of capital in its pocket.

Photo courtesy of Flickr user anarchosyn.

While You Were in Orlando

c.morrison@elsevier.com (Chris Morrison) — Mon, 16 Nov 2009 01:46:30 PST

Aha, it's AHA weekend. No mickey mousing around down there in FLA, time for some big drugs to put up some big data. Or something. Hope you had a nice weekened.

While you were refusing to run the football (looking at you Andy Reid...) ...

AHA: The big weekend news was more bad news for Merck's Zetia/Vytorin franchise, as Abbott's Niaspan wins the weekend. Forbes' take here, Reuters here.
AHA: Brilinta beats Plavix in reducing further serious cardiac events post heart attack. An analysis of the toughest patients in the massive PLATO study adds to Brilinta's advantage, reports Reuters.
AHA: The Medicines Co says cangrelor is not dead yet. A full analysis of the Phase III CHAMPION study (which did not hit its clinical endpoints) suggests "cangrelor significantly reduced the composite endpoint of death, Q-wave myocardial infarction (MI) and IDR," says a release.
NYT: Drug prices keep going up! You don't say ...
BMS: Mead Johnson shares have risen nearly 90% since Bristol-Myers Squibb Co. IPO'd its nutritionals business earlier this year, and now BMS is using that boost to finance a share buy back. That February 2009 IPO let BMS focus on its core biopharma business while consolidating MJ's top and bottom line--a nice stabilizer for the company. But this weekend BMS said it would spin off the company (reports Bloomberg), exchanging Mead shares for tendered BMS shares--and boosting EPS in the process. More on this later!
POC: Addex Pharma's lead allosteric modulator ADX10059 passes a big test, hitting all primary and secondary endpoints in a Phase IIb monotherapy trial in GERD patients. A second trial, as add-on to PPI therapy, will read out in January. Next step, partnership?
WTF: At least it was bipartisan. The NYT reports that Genentech lobbyists ghost-wrote health care reform related statements and speeches for 22 republican and 20 democratic Congressmen.

orlando postcard image from flickr user StevenM_61 used under creative commons

DotW: Super Models?

c.morrison@elsevier.com (Chris Morrison) — Tue, 17 Nov 2009 07:01:21 PST

As Frank Zappa probably never said, "Recession is the mother of invention." This nutty decade, which sadly Frank didn't live to see, had two of them. (Recessions, that is.) One was quite a doozy. Still is, actually. And between the decade's bookend busts, at least in our little corner of the world, the writing was on the wall. Venture capitalists were losing their taste for adventure, big pharma was tripping over its erectile dysfunction, and everyone was trying to get their heads wrapped around the donut hole.

But, silver lining seekers such as we are, perhaps the greatest legacy of the Oughts -- as in, you oughta fuggedaboutit -- is the experimentation with new models. And not just here.

Which new ideas are flashes in the recessionary pan, and which might be here to stay? Option-based discovery deals were the topic of exactly that debate, as our colleague Melanie Senior heard at a recent industry confab.

How about pharma skunkworks that take pharma compounds and develop them at biotech-like speed? Or the alphabet soup of decentralization (CEDDs, CEEDDs, DPUs) at GlaxoSmithKline -- to which you can now add VPoC?

On the private equity side, royalty monetization definitely gained momentum this decade, while a few funds tried their hands at biotech project financing. One of the highest profile efforts was Symphony Capital, which struck deals with seven biotechs to buy and help develop one or more clinical candidates. The aim was to sell the compounds back to the biotech at stepped-up returns when the drugs were far enough along, say, to entice a big-pharma buyer.

We bring it up, because this week Symphony sold its "Dynamo" venture back to Dynavax technologies. (Recall Symphony funded the venture,which consisted of programs for hepatitis B, hepatitis C, and cancer to the tune of $50 million back in 2006.) On Nov. 10 Dynavax announced it bought back the hep C and cancer programs, having already bought back the hep B program in 2007. But instead of a fat payout, Symphony took everything but cash: stock, warrants, deferments and contingent milestones. With its 13 million shares, Symphony will own about 24% of Dynavax when the deal closes early next year. It will also have in its pocket five-year warrants for two million more shares and a $15 million debt note from Dynavax kicked down the road 20 months and potentially convertible to stock if Dynavax chooses.

Even with its successful sales, Symphony has taken large chunks of stock. (It put $75 million into its GenIsis venture with Isis Pharmaceuticals then sold program--including the compound that became mipomersen--back to Isis for $120 million. But nearly $40 million was in stock.) So even though six of its seven ventures have been "resolved" -- four sold back to the original biotech, two abandoned by the originator -- Symphony still has plenty of assets on its books of questionable value. To put it another way, that model is still on the catwalk. Will Symphony, or models like it, be in vogue next decade?

Ponder that, but meanwhile, tongues are wagging and the paparazzi are jostling, because here comes another simply fabulous edition of....

Sanofi-Aventis/Regeneron: Antibody platform firm Regeneron is getting $160 million a year in research funding through 2017 from Sanofi, an extension of an alliance in place since 2007, and there's no obligation to pay it back. (Free money. There's a new financial model.)

If the research produces mAbs that Sanofi brings to market, Regeneron will have to divert its share of the profits to reimburse half of Sanofi's clinical development costs. After 2012, Sanofi can cut the last four years of annual research funding to $120 million, but still. What's more, there's no equity component. Sanofi bought 19% of Regeneron in 2007 for $312 million as part of their original $870 million research deal, but none this time around, and the existing standstill remains in effect: Sanofi can boost its stake only to 25% through 2011 and 30% thereafter. In fact, Sanofi has agreed to hold onto its shares until the end of 2017. Talk about a long-term play.

So what does Sanofi get out of the deal? Antibodies 'R' Us. In two years, it's already opted to license five Regeneron molecules, the most advanced of which is an anti-NGF antibody already in Phase 2 for osteoarthritis of the knee. (Anti-NGF is suddenly a hot target, as we'll see in a moment.) Regeneron now aims to pump 30 to 40 more antibodies into Sanofi's pipeline in the next eight years.

Abbott/PanGenetics: How hot is anti-NGF, or nerve growth factor? Let us give you 170 million reasons, upfront and guaranteed. Our colleague Chris Morrison does a fine job here elucidating the method behind Abbott's Phase 1, barely-any-biobucks ($20 million in milestones) madness, so we'll simply say this: We have a top candidate for Upside-Down Deal of the Year.

GlaxoSmithKline/Astex Therapeutics: Speaking of topsy-turvy, how about the undisputed sovereign of option-based discovery deals hooking up without an option in sight? Options have been GSK's main risk-spreading modus operandi of late. (Here's a recent one.)
But Astex, one of several biotechs pursuing fragment-based discovery, managed to corral $33 million in guaranteed cash and up to $60 million in milestones that CEO Harren Jhoti is confident will come within two years, all while shifting the R&D work on compounds of interest to Glaxo at lead optimization.

Bristol-Myers Squibb/Alder Biotherapeutics: BMS added a little pearl to its string this week, paying Alder $85 million upfront for rights to Alder's IL-6 inhibitor ALD-518. Bristol will take the compound, currently in Phase 2, forward in rheumatoid arthritis, and Alder will continue development in oncology. (An interesting twist on indication splitting: If ALD-518 comes to market in a cancer indication, Bristol can opt into ex-U.S. rights.) Alder officials said they chose Bristol from the competition because of the pharma's plans to develop '518 in other inflammation indications. Clinical and commercial milestones across multiple indications could add up to nearly $900 million, and BMS has committed to an equity investment up to $20 million should Alder go public. -- Joseph Haas

Astellas Pharma/Ironwood Pharmaceuticals: Hot on the heels of positive Phase III data, Ironwood (nee Microbia) has secured a third regional partner for its irritable bowel and constipation drug candidate linaclotide, adding $30 million to the $125 million in upfront cash brought in by its first two deals. This time it’s Astellas joining the party, taking exclusive rights to develop and commercialize the compound in Japan, Indonesia, Korea, the Philippines, Taiwan, and Thailand. The pact also boasts $45 million in pre-commercial milestone payments plus royalties, and Astellas will run development and pay expenses. Astellas has been busy with BD, most recently landing Medivation’s prostate cancer treatment last month. The Japanese pharma is Ironwood's third partner for linaclotide: Forest snapped up North America rights in 2007 in a co-dev/co-promote arrangement that included $70 million up-front; Almirall got European rights for $55 million in a straight licensing deal. Linaclotide has in some ways been a poster drug for biotech dealmaking success in the tricky lower GI space, an area largely abandoned by bigger pharma companies. Biotechs like Ironwood and Movetis, a J&J spin-out that recently received European approval for its own constipation drug, Resolor, have recently shown they can help fill the development vacuum. -- Chris Morrison

Sigma-Tau Pharmaceuticals/Enzon Pharmaceuticals: Beleaguered by activist investors, Enzon finally spun off its specialty business this week. The $300 million sale to Italian firm Sigma-Tau could also add milestones and royalties; the four drugs in the portfolio, including Oncaspar for acute lymphoblastic leukemia, tallied $28.6 million in third-quarter sales, down one percent from a year ago. The sale comes nearly a year after a failed attempt to spin out the division, while investors kept up the pressure, though from different directions: Carl Icahn wanted Enzon to sell, and DellaCamera Capital didn't. Icahn won, and his right-hand man Alex Denner said the board was evaluating ways to return the cash to shareholders. DellaCamera had focused its campaign on CEO Jeffrey Buchhalter, even convening a shareholder "town hall" this summer to plot Buchhalter's ouster. As of this writing, Buchhalter is still there. -- Joseph Haas

Qiagen/SABiosciences: On the heels of its acquisition of the cancer molecular diagnostics firm DxS, Qiagen is buying SABiosciences, a maker of PCR assay panels, for $90 million. Although PCR panels are primarily a research tool to analyze nucleic acid, epigenetic, and microRNA targets in disease-associated biological pathways, these arrays are also seeing more use in diagnostic evaluations of patients, especially in areas like cancer where diagnosis aims more at individualized profiling of tumor characteristics. (Did someone say personalized medicine?)

With SABiosciences already near its U.S. operations in the Washington suburbs, Qiagen says it will establish it as a Center of Excellence for development of new array content, which, like the assets of DxS, should make Qiagen a more attractive drug-diagnostic partner for pharma. We also see the move as a step toward disease management. And don't be surprised if Qiagen eventually extends its presence into U.S. clinical lab operations. The greater integration of nucleic acid testing into drug labels is boosting the need for specialized labs to run such complex companion diagnostic tests. -- Mark Ratner

Photo courtesy of flickr user Mikael Miettinen

Abbott/PanGenetics Turns Early-Stage Dealmaking on Its Head

c.morrison@elsevier.com (Chris Morrison) — Fri, 13 Nov 2009 10:09:33 PST

Just how big is the $170 million up-front payment that Abbott ponied up for PanGenetics' PG110 anti-NGF antibody yesterday?

Absolutely enormous. In fact so far as we can tell, it's the largest up-front payment for a Phase I project, ever (and Phase I isn't even complete yet). Put the payment in the context of today's earn-out heavy, let's-share-the-risk dealmaking climate, where options-to-maybe-consider-licensing-in-the-future are de rigeur, and it's positively mind bogglingly gigantic. Of course there's a reason for that, which we'll get to below.

So what did Abbott buy? PG-110 is a monoclonal antibody that hits nerve growth factor and is being tested in patients with osteoarthritis pain. Abbott will broaden out the program should that first clinical study prove successful: chronic back pain, cancer pain, diabetic pain, etc.

NGF is a very promising pain target for drug developers. Right now Pfizer leads the way with a Phase III project it acquired when it bought Rinat in 2006 (that candidate, tanezumab, was Rinat's lead molecule--in Phase II at the time). Sanofi's in the game with Regeneron (more on those lovebirds later today in DOTW), with a Phase II anti-NGF mab, and J&J bought rights to Amgen's NGF project AMG-403 for $50mm up-front plus $385mm in milestones.

That last agreement is particularly illustrative of what PanGenetics is perhaps leaving on the table in its Abbott deal, and the main reason Abbott paid such a massive up-front. No doubt this was a competitive situation and PanGenetics was offered all manner of deal terms. But it went with a deal that turns the very notion of early-stage risk-sharing deals on its head. It's essentially an anti-biobucks deal, and it's fundamentally a result of the company's unique business model.

That huge $170 million up-front is accompanied by only $20 million in potential milestone payments. What's more neither the release put out by PanGenetics nor the one by Abbott mentions anything about royalties.

Surely it can't be. A biotech-pharma deal without a downstream royalty? Where the biobucks hardly factor?

That's exactly it. PanGenetics' investors have no downstream piece of PG-110's upside. And it gets more interesting. PanGenetics, says chairman and Index Ventures partner Francesco De Rubertis, is actually set up and run as two separate, asset-focused companies. So the sale of the NGF product (the second product is further along and targets CD40) resulted in an exit for the company's investors.

De Rubertis would not comment on the return Index and others achieved on the deal. (But rest assured it's quite good.) PanGenetics was seeded by Index in 2005 to find early stage antibody assets and quickly develop them to the point where pharma would step in and buy them. A handful of other investors have since come in through two subsequent rounds totalling €36 million (that cash is spread across the two PanGenetics companies evenly). Index holds a 40% stake in each company and the whole 18-person operation is run by ex-Cambridge Antibody Technology CTO Kevin Johnson, who De Rubertis credits with the fast pace of PG-110's development.

We'll get into the nuts and bolts of Index's single asset-focused company creation strategy in the next issue of Start-Up.

UK Gov't Outlines Hands-Off Approach to Boosting VC

c.morrison@elsevier.com (Chris Morrison) — Fri, 13 Nov 2009 08:04:30 PST

You thought the VC model was broken? Not according to the UK government, which today provided further detail on its plans to support an innovation-focused fund-of-funds to invest in VC funds covering life sciences, clean-tech and digital tech over a 12-15 year period.

The government is coughing up £150 million ($250 million) to kick things off, but expects the fund to raise at least as much again from the private sector, with the lofty aim of eventually creating "the largest technology fund in Europe," potentially worth up to £1 billion.

There's no denying that the UK--and indeed Europe as a whole--needs a shot in the arm. The UK VC market may be the second largest in the world, but it's still tiny compared to the US: only 4% of investor funds go into VC here in Blighty, vs more than 30% across the pond. The UK Innovation Investment Fund will mark a "step change", says the government, "bringing UK VC closer to the US model in scale and scope."

Hang on, hang on. The £1 billion is a best-case; the "biodollars" figure, so to speak. At a minimum, the fund--which will start investing in January 2010--will be worth £300 million. Or possibly more, since Science and Innovation Minister Lord Drayson declared himself "very happy" with the proposals, including forecast private sums, from prospective fund managers (the lucky winner will be announced next month).

Still, whatever its size, the point of a fund-of-funds structure is that it provides a lever effect, pooling money from a range of investors and spreading risk by investing in a variety of VC funds across a variety of sectors. The idea then is to loosen off the stingy, risk-averse shackles blocking much VC investment today by providing them with a slug of money from a fund with sufficient scale, and an appropriately long-term time-horizon, to help reduce risk and increase the likelihood of a return (including in activities such as drug development).

Drayson also asserted that this fund represents a hands-off approach to boosting the sector (contrary to previous interventions, aimed as much at creating local jobs as facilitating long-term sector growth). "There will be no political intervention," he said, explaining instead that the chosen fund manager will be free to make decisions based purely on expected financial return--and free to maintain their particular investment policy. He also mentioned that strategic investors--Big Pharma, for instance--would be free to invest alongside the IIF.

Investors will of course welcome the government's non-interfering policy, but the downside is the risk--to the UK taxpayer--that their money finds its way not into UK biotech or cleantech, but across the pond (or wherever returns are deemed to be most favorable). Indeed, "this fund will have a global scope," clarified Drayson. "We have to be realistic, and go with the market flow."

That said, there is (of course) some small-print. The government has (legitimately) asked that at least the £150 million from its pocket be invested in UK companies--which includes £25 million each to life sciences and cleantech. And in the request-for-proposals document to aspiring IIF managers, it's clearly stated that "managers able to demonstrate greater levels of investment into UK-based businesses" will be favoured (although the manager him/herself can be domiciled anywhere). Those allocating investments both to late-stage opportunities and early/seed-stage ventures will also gain brownie points in the selection process, as will those who demonstrate a willingness to invest in a balanced fashion across the relevant sectors (to avoid ending up with a £500 million cleantech-only fund in 5 years' time, for instance).

In an attempt to move away from the drip-feed funding philosophy that has blighted the European sector to date, the IIF will--hopefully--be big enough to allow, indeed demand, chunky-sized individual investments, thus increasing the chance of growing blockbuster businesses. (Helpfully, the UK government recently removed a barrier blocking such funds from investing more than £10 million in an individual company.)

It all looks pretty good, then, doesn't it? Even a £300 million fund isn't bad. And if Drayson is right in his claim that 2009 will prove a 'vintage year' for VC investments, not least as the economy emerges (is it really emerging?) from a deep downturn, the total available to help save innovative technologies could be a lot bigger still. Just how big is that 'if'?

image by flikrer HowardLake used under a creative commons license

Hamburg for Lunch: The Commish Serves Up Another Helping of Personalized Medicine

c.morrison@elsevier.com (Chris Morrison) — Tue, 10 Nov 2009 16:00:02 PST

For the second time in as many weeks, Food and Drug Administration commissioner Margaret Hamburg hit the lecture circuit to lay out the agency's vision on personalized medicine, though "vision" is perhaps too generous. Much of the speech, which left an unscientific sampling of attendees sitting near us hungry for actual content, was an apology for the agency's slow adaptation to the dawning era of more targeted therapies.

It wasn't all mea culpas and mushiness, to be sure. Speaking to a conference in San Francisco Monday, Hamburg said that her agency was on track to deliver draft guidance on biomarker qualification by the end of the year, an early step in creating a pathway for drug and diagnostic makers to bring more tailored therapies to market.

Introduced as "our friend Peggy" by conference host Steven Burrill, a San Francisco-based merchant banker and venture capitalist, Hamburg also acknowledged the difficulty in creating such a pathway, which will involve merging responsibilities that are now divided between two FDA divisions. "Personalized medicine in the treatment of disease equals the integration of drugs and diagnostics," she said. "It's clear we need to develop a consistent, integrated approach in the evaluation and regulation of products that comprise personalized medicine."

Close FDA watchers might have noticed the speech was at times verbatim to the talk Hamburg gave Oct. 26 during a personalized-medicine gathering in Washington ("The Pink Sheet" DAILY, Oct. 26, 2009.)

She made several conciliatory gestures to the conferees mainly gathered to discuss ways to make money from diagnostics. More than once she included investors among those who need to see "the promise of new therapies," and conceded that their "ability to realize their investments depends on what they see when they look at the FDA."

"Regulatory agencies are not known for openness, and FDA in particular has gained a reputation for being a bureaucracy-bound black box," she said. "And regulatory agencies are not known for being clear, but we need to be. Few runners would show up for a race without knowing the distance to the finish line."

(Not so business friendly, though, was the lunch menu just before Hamburg's speech that featured a build-it-yourself taco bar. For at least one lunch hour, slippery hand-held fajitas were a graver threat to business attire than an opaque regulatory process.)

After Hamburg's speech, she sat with conference host Burrill for a short Q&A session, which, far from illuminating the details of FDA's personalized medicine pathway, showed off Hamburg's question-avoidance skills. At one point Burrill asked whether industry taxes in the health care reform bills could diminish FDA's ability to raise future funding through its own fees. Hamburg's answer was brilliantly non-committal: "I think industry understands the importance of having a strong FDA. It's clear in the world we live in that success will have to be a partnership. It makes sense to me that we should have a funding stream that reflects industry understanding of the benefits of a strong FDA."

But at the end of the Q&A Hamburg seemed to shine a little light on comparative effectiveness. Burrill asked if comparative effectiveness was "a friend" to FDA (he likes to describe the world along friend/enemy lines, which makes In Vivo Blog wonder what he thought of the tacos at lunch). Would comparative effectiveness become a way for FDA to regulate pharmacoecnomics, Burrill asked?

Here's what Hamburg said: "In our work to date we have a very clear legal mandate to examine safety and effectiveness of products, it's not compared to this or that. But the truth is, some comparative effectiveness knowledge enters into some of what we do" in labeling, recommendations for first line or second line, risk/benefit acceptance, and the number of drugs available in the space in question. She cited interest in new models the EMEA is considering to look at what she called "economic and value issues."

Hamburg also made a pitch for tighter coupling of FDA and the Center for Medicare Services, or CMS. "It really makes sense for us to create a system where there's more coordination and sharing of information and thinking earlier in the process... To have CMS more involved with FDA in a more collaborative way, to talk about products in the pipeline is something people have advocated for." - Alex Lash

Photo courtesy of the FDA.

Omnicare Settles Long Term Care Kickback Case; Is J&J The Real Target?

c.morrison@elsevier.com (Chris Morrison) — Mon, 09 Nov 2009 08:23:42 PST

Now that federal health care fraud prosecutors have broken the billion dollar barrier in recent settlements, the conclusion of a $98 million settlement with long term care pharmacy provider Omnicare may not have caught your eye. And the simultaneous announcement of a $14 million settlement with Ivax (now part of Teva) for its dealings with Omnicare seems almost quaint. (Read our coverage in The Pink Sheet here.)

Ivax is paying just one percent as much as Lilly did to resolve claims related to its promotion of Zyprexa ($1.4 billion) and only about half-a-percent as much as Pfizer did to resolve claims related to the promotion of Bextra and several other products ($2.3 billion).

It stands to reason, right? The Lilly and Pfizer cases focused on primary care marketing--indeed, the Lilly case was fundamentally about Lilly's efforts to redefine schizophrenia as a primary care market. Primary care is where the money is (or was, at least) so the government is sure to claim bigger fines when it prosecutes in those areas.

It may not be that simple. Omnicare may have settled for less than $100 million, but some of its business partners--including the biggest of Big Pharma--are still on the hook.

Because long term care pharmacy may be a relatively small slice of the overall pharma market, but it is a big piece for some products--and the share of costs paid directly by the government is much higher than in primary care. And, with the launch of Medicare Part D, the unique aspects of that marketplace started to attract a lot more attention, both from manufacturers, who discovered that the quirks of the Part D rules appeared to give long term care pharmacy providers a great deal of leverage in the marketplace, and from the government, which began to ask more probing questions about how exactly that market segment works.

As we reported in The RPM Report at the time, the run-up to Part D prompted a number of new investigations of pharmaceutical industry contracting practices.

And those investigations are continuing.

Where might the next shoe drop? Well, the US Attorney's Office in Massachusetts offers a big hint in its press release announcing the Omnicare settlement.

The United States contends that Omnicare solicited and received kickbacks from Johnson & Johnson (J&J), a pharmaceutical manufacturer, in exchange for agreeing to recommend that physicians prescribe Risperdal, a J&J antipsychotic drug, to nursing home patients. The Government contends that J&J’s kickbacks to Omnicare took multiple forms, including: market share rebates that were conditioned on Omnicare engaging in an “Active Intervention Program” for Risperdal; payments disguised as fees for the purchase of data; payments disguised as educational grants; and fees to attend Omnicare meetings. Omnicare then used its consultant pharmacists to encourage physicians to prescribe Risperdal for their nursing home patients, but failed to disclose to physicians that the recommendations were a condition of Omnicare receiving the rebate payments from J&J.

Okay, so the feds are going after J&J just like they went after Ivax for its preferred generic agreements with Omnicare. But there's more:

After the conduct at issue, the Food and Drug Administration mandated that the label for Risperdal carry a “black box” warning that “Elderly Patients with dementia-related psychosis treated with atypical antipsychotic drugs [including Risperdal] are at an increased risk of death compared to placebo.”

That's the real kicker: the press release in effect accuses J&J of providing kickbacks to increase use of its product in a very vulnerable patient population (nursing home patients with dementia) where regulators subsequently concluded the product may have done more harm than good.

Now, apart from the assertions in the press release, the government hasn't made any formal complaint against J&J; the US Attorney says only that the investigation is ongoing. J&J notes its disclosures about the investigation in its SEC filings.

And that, too, makes for interesting reading. Here is what J&J says specifically about the Omnicare investigation:

"In September 2005, the Company received a subpoena from the U.S. Attorney’s Office, District of Massachusetts, seeking documents related to sales and marketing of eight drugs to Omnicare, Inc., a manager of pharmaceutical benefits for long-term care facilities. The Johnson & Johnson subsidiaries involved responded to the subpoena. Several employees of the Company’s pharmaceutical subsidiaries have been subpoenaed to testify before a grand jury in connection with this investigation. In April 2009, the Company was served with the complaints in two civil qui tam cases relating to marketing of prescription drugs to Omnicare, Inc. The complaints assert claims under the federal False Claims Act and related state statutes in connection with the marketing of several drugs to Omnicare. The government has not yet announced whether it will intervene in these cases."

But that is not the only investigation involving Risperdal disclosed by J&J. The company's 10-Q filing cites at least 8 other subpoenas received by the company involving promotions of the product:

(1) a January 2004 subpoena seeking information about "sales and marketing of, and clinical trials for" from the Office of Personnel Management (which runs the Federal Employee Health Benefit Program);

(2) a November 2005 subpoena seeking information about "marketing of and adverse reactions to" Risperdal from the Philadelphia US Attorney (which brought the Zyprexa case);

(3) grand jury "subpoenas" related to that investigation;

(4-6) three separate subpoenas from the feds in Boston, Philadelphia and San Francisco "concerning, respectively, sales and marketing of Risperdal by Janssen (now OMJPI), Topamax by Ortho-McNeil (now OMJPI) and Natrecor by Scios" seeking "information regarding the Company’s corporate supervision and oversight of these three subsidiaries, including their sales and marketing of these drugs";

(7) grand jury "subpoenas" in Boston related to those investigations; and

(8) a "HIPPA Subpoena" from Boston a "seeking information regarding the Company’s financial relationship with several psychiatrists."

That tally does not include product liability cases (including some filed by state and federal government payors) involving Risperdal, nor does it include numerous pricing cases that presumably involve Risperdal as well.

We have no idea when or if any of those cases will result in prosecutions or settlements. But if they do, we're betting there will be some big numbers on the table...

While You Were Reforming

c.morrison@elsevier.com (Chris Morrison) — Mon, 09 Nov 2009 02:38:34 PST

You may have heard this already: The US House of Representatives passed a health care reform bill over the weekend. It was a big victory for House Dems, if more of a squeaker than reform proponents would have liked, and now all eyes are on the Senate's bill. Industry, of course, prefers the Senate's version.

What else is going on?

Bnet is upbeat about Trius Therapeutics potential IPO.
Swiss hearing specialist Sonova said on Monday morning it was buying US cochlear implant maker Advanced Bionics for about $500 million cash.
Evotec is extending a collaboration with Boehringer Ingelheim. The broader deal is worth Eur 15 million in guaranteed research funding plus milestones and royalties.
Bloomberg has an extensive look at the cost, and the consequences, of off-label-marketing for Pfizer and fellow pharma law-breakers. Says one judge: “It almost seems as if the pharmaceutical companies said ‘Yeah, yeah, yeah’ to the FDA and then went and did it anyway."

Biovitrum Creates Rare-Disease Focused Spec Pharma with Swedish Orphan Buy

c.morrison@elsevier.com (Chris Morrison) — Fri, 06 Nov 2009 11:00:01 PST

Sweden’s Biovitrum on November 5 stumped up just over half a billion dollars for compatriot Swedish Orphan, buying itself a tidy additional SEK800 million ($115 million) in revenues, an extended commercial network and a couple of near-term launch opportunities.

The move is yet another step in Biovitrum’s transformation into a specialty pharma company—coming just a week after it offloaded UK-based CNS discovery unit Cambridge Biotechnology Ltd., plus a few other assets, to Proximagen Neuroscience. Originally spun out of Pharmacia as a traditional R&D-focused biotech—albeit a particularly lucky one, cushioned by manufacturing revenues from Wyeth around hemophilia drug ReFacto—Biovitrum announced its turnaround ambitions in 2007.

Back then, newly-appointed CEO Martin Nicklasson, fresh from heading up global marketing at AstraZeneca, declared that the group was scrapping its primary care metabolic diseases pipeline, focusing on specialist programs, building out its commercial operations, and better leveraging its large molecule development and manufacturing expertise.

Few could argue with that strategy back in 2007; even fewer can argue with it now. Investors (those that are still around, anyway) don’t value risky discovery; cash and revenues are king. Europe’s always had a penchant for low-risk, revenue-generating in-licensing focused specialty pharma; the downturn has turned that penchant is a passion and it’s probably gone global.

So Biovitrum’s acquisition of Swedish Orphan “is strategically sound,” declares UK-based NomuraCode analyst Samir Devani, even though he acknowledges it came at “a premium valuation.” Unusually during these days of contingency-based dealmaking, the earn-out component of the deal was negligeable—just SEK 425 million ($61 million), associated with sales ramp-up of one of Orphan’s drugs. Over half the upfront will be paid in cash; Biovitrum plans a rights issue.

Still, a full upfront price-tag was to be expected, given that Swedish Orphan is private-equity owned (42% each by Investor Growth Capital and Priveq) and, with comfortable revenues, didn’t exactly need a fire-sale. What’s more, there was probably more than one suitor, since there aren’t that many niche-disease focused, pan-European commercial companies around. “Who else could they [BioVitrum] have gone after?” asks Devani. The Swedish pairing will help generate the estimated operating synergies of SEK 100 million by 2011 (by cutting head-office costs, for instance) and helps on the cultural front. “The two companies fit like a hand in a glove,” crows Nicklasson in the press release.

Orphan’s key asset is the marketed drug Orfadin, used for a rare fatal metabolic disease called Hereditary Tyrosinemia Type 1. NomuraCode predicts revenue of SEK 300 million this year, but more importantly, growth of 15-20% per annum, at least until patent expiry in 2017 in Europe (and 2013 in the US). Further near-term revenue is expected from the ongoing rollout of Multiferon, a form of interferon-alpha used for malignant melanoma, an intranasal vitamin B12 formulation for pernicious anemia (Nascobal) and from cancer drug Yondelis, approved as second-line treatment for soft-tissue sarcoma and in-licensed from PharmaMar in 2007.

Beyond that, Orphan doesn’t offer much of a pipeline; it’s essentially a commercially-focused organization, wooed for its in-licensing and marketing skills (over 60% of its products are in-licensed). That’s why the deal should be instantly accretive, creating a new group—Swedish Orphan Biovitrum—with Nicklasson at the helm, that generates sales from 60 orphan or niche products, has a handful of late-stage pipeline candidates and which is expected to achieve pro forma revenues of SEK 2 billion in 2009.

By 2015, that figure should have more than doubled to SEK 5 billion, according to management, not least thanks to leveraging Swedish’s European sales and marketing infrastructure to accelerate growth of Biovitrum’s existing drugs.

This won't be Biovitrum's last acquisition. But as the company grows, life will get tougher--as for any spec pharma group. Orphan drugs might not cut the mustard for a larger group--and niche products will be harder to find anyway, given that Big Pharma is also officially now on the hunt.

Maybe SOB will be acquired by a larger suitor, like Zeneus or Celltech before it. Or, even better, maybe it will stumble upon its own Adderall, the ADHD drug that made lucky Shire Pharmaceuticals' fortune.

DotW: Sesame Street

c.morrison@elsevier.com (Chris Morrison) — Fri, 06 Nov 2009 08:20:00 PST

In case you failed to run a Google search this week, you may not have realized that on Tuesday Nov. 10, Sesame Street turns 40. You gotta admit, the show doesn't look a day over five--and that's without Botox.

If you've forgotten how to get to Sesame Street, we have a few reminders--and ear worms-- appropriately tailored for the biopharma industry--hey, it's our version of personalized medicine and it doesn't require a companion diagnostic.

1. Baby We Were Born To Add: For all the CFO types who reported earnings this week--from King, Biovail, Acorda, Facet, Crucell, and dozens of others (25-plus on Thursday alone).

2. It's Not Easy Being Big (er, I mean) Green: In honor of Merck's Dick Clark and Pfizer's Jeff Kindler, of course. And for you Wyeth and Schering types, Kermit offers the definitive explanation on why size matters.

3. Soliloquy on B: For all those biotechs with less than 6 months of cash who are pondering whether 'tis better to--you guessed it--be or not to be.

4. Get Along: Our legislators--Republicans and Democrats not martians and muppets--working to pass a health care reform bill. (GSK and Pfizer execs you can skip this one. The creation of ViiV suggests you've already learned this lesson. We're waiting for the ophthalmology collaboration.)

5. ABC-DEF-GHI: Maybe Big Bird can explain what I. P. O. means to biotech investors. Alimera and Aldagen can only hope.

6. Near and Far: For any biotech exec mulling an acquisition tied to earn-outs. Hint: if you are having trouble seeing the relevance, substitute 'upfront' for 'near' and 'earn-out' for 'far'--or read this amusing rant.

7. Ma Nah Ma Na: Biotech and Big Pharma CEOs who need to change the subject fast when dogged by a reporter. Start singing this, and the press will be crooning "doobie do" along with you.

8. Honker Duckie Dinger Jamboree: Because JP Morgan is only two months away. It's the latest; it's the greatest; it's the only place to be.

9. Just the Way You Are: For Roger Longman, from the IN VIVO Blog Staff.

This week's edition is brought to you courtesy of the letters D, O, T, W, and the number 4.

Roche/Alnylam: Roche’s willingness to pay $331 million up front for access to RNAi pioneer Alylam’s technologies two years ago raised eyebrows because of its price tag and generous (at least for Alnylam) non-exclusivity provisions. Now the companies say they are pleased with their progress and ready to move into the next phase of their relationship: a collaboration to jointly discover and develop specific RNAi compounds for select therapeutic areas, using a shared potpourri of experimental delivery technologies to move the chosen RNAi drugs to their targets. Commercial rights in the US will also be shared, and, ex-US, Alnylam gets royalties and additional milestones. Alnylam has become the poster-child for how to do business development right: although it is an early stage company, its deal-making savvy, expertise in a young and rising field, and IP have enabled it to snare at least three deals with Big Pharma potentially worth billions of dollars. But it's hard to tell whether any more deals like this one with Roche are in Alnylam's future. Most Big Pharma interested in RNAi have already placed their bets and Alnylam's prices are out of reach for nearly all smaller players. Too bad. Looks like there won't be a repeat Deal of the Year for Alnylam this time around.--Wendy Diller

Takeda/Amylin: In recent months, Big Pharma has resisted the urge to gobble up obesity compounds, leaving the market littered with late-stage, unpartnered assets. But on Nov. 1, Takeda announced it was teaming up with Amylin, taking two obesity candidates off the table: pramlintide/metreleptin and davalintide. For Takeda, the deal is an opportunity to build on its heritage in diabetes and metabolic disease, and the price tag shows its desperation. Depending on how the research progresses, the drugs could help fill the holes left by setbacks with the company's DPP-IV inhibitor alogliptin and the genericization of Actos. Under the arrangement, Amylin will receive $75 million upfront and development and sales milestones that could total more than $1 billion. (Near and far, people.) Amylin is also eligible for double-digit royalties on sales. Importantly, Amylin gets someone else to foot what is sure to be a pricey development bill for two drugs that will probably need cardiovascular outcomes studies. Amylin will be responsible for development of potential candidates through Phase II for regulatory approval in the U.S., while Takeda will lead development beyond Phase II in the U.S. and all development outside the U.S.--Jessica Merrill

Biovitrum/Swedish Orphan: Swedish company Biovitrum got in on the deal-making action just one week after unloading its drug discovery unit, Cambridge Biotechnology (CBT) and a number of its own drug development programs to Proximagen Neuroscience. Cuz really who needs drug discovery when you can market a portfolio of 60 orphan/hyper-specialist products? Yep, that's what Biovitrum is buying, having made the decision to plunk $501.59 million down to access Swedish Orphan in a transaction that included a modest earn-out. The move completes Biovitrum's evolution in the specialist direction; Swedish Orphan is one of those new "rare disease players" with two proprietary drugs, Multiferon and Orfadin, along with a diverse in-licensing portfolio of another 50 products. Therapeutic areas include oncology, metabolic disorders, hematology, infectious diseases, urology/nephrology, and emergency medicines. Given Big Pharma's suddenly got religion about playing in the ultraniche disease space--remember GSK's tie-up with Prosensa?--it's interesting to speculate on the deal terms, especially the upfront cash. A competitive bidding process or just PE backers unwilling to accept those terms? The combined company, which will go by the name Swedish Orphan Biovitrum (The name recalls a certain Swedish chef--sorry, wrong group of muppets) forecasts sales of over SEK 5 billion (roughly $716.30 million ) by 2015, with an EBIT margin of over 30% based on its current portfolio and pipeline. Check back with IN VIVO Blog later for a more detailed discussion of the deal.--Ellen Licking

AstraZeneca/Micromet: Your "No deal" deal of the week has been one months in the making. Remember when AstraZeneca/MedImmune opted out of a codevelopment deal for Micromet's blinatumomab, an antibody being studied in hematological cancers. The March deal gave MedImmune the option to reacquire North American commercialization rights if the antibody won FDA approval. At the time, neither company detailed why AZ was exiting the collaboration, but Micromet's CEO Christian Itin speculated the antibody's therapeutic focus on rare malignancies might not be seen as enough of a lucrative opportunity to merit the Big Pharma's attention. (Clearly AZ didn't get the message about ultraniche diseases.) Now the staged divorce is complete (and you thought staged acquisitions were all the rage.) On November 5, Micromet announced it had bought out MedImmune's option on the North American commercialization rights to blinatumomab, bringing an end to a partnership that began in 2003. To regain full rights to its lead program, Bethesda, Md.-based Micromet will pay MedImmune a $6.5 million upfront fee, undisclosed regulatory and strategic milestones and low single-digit royalties on North American sales of blinatumomab should the Phase II mAB reach the market. --Joe Haas

Corporate VCs Star In Financings Of The Fortnight

c.morrison@elsevier.com (Chris Morrison) — Thu, 05 Nov 2009 12:08:05 PST

Oh, venture capitalists. After Dow Jones released its third quarter investment numbers for venture capital two weeks ago, we decided to mine our database to see if all flavors of vc--traditional and strategic--were equally affected. It wasn't terribly surprising to discover that investment from traditional VCs had plummeted--as we noted in our previous post, it's hard to commit money when your pockets are empty.

But to our surprise, investing by strategic groups also dropped in the same period. (You want to know by how much? You'll have to check out the Valuation Watch column in the November START-UP.)

Hang on a minute. Haven't we been arguing for months that corporate venture groups will play a starring role in new company creation, filling the vacuum left by financially struggling traditional players? We have, and we stand by that assesment for the forseeable future--or at least until we see the fourth quarter numbers.

On the one hand, the improving market conditions could make biotechs less willing to accept money from corporate VCs, especially if the funding comes with strings attached. On the other hand, the public markets are still decidedly chilly, suggesting that for the time being, privately-held biotechs will have to hitch their exit aspirations to dreams of lucrative acquisitions by bigger pharma and biotech companies.

But that means finding better ways to capture potential acquirers attention, other than fat sandwich boards that scream "Buy Me!" (If that works, will you let us know?) Certainly one way to forge those ties with pharma is through their corporate venture groups. Perhaps more importantly, even as some limited partners have signaled they are ready to dive back into the risky venture waters, that money is still on the come. Corporates have capital at the ready now, and at least from October's numbers they seem prepared to use it.

Indeed, since October 1, at least eight private biotechs have raised money from corporate venture groups, including three in the past two weels alone. All of which suggests corporate venture's starring role in early stage biotech funding is not yet waning. Still if you doubt us, read on for a round-up of the past two week's financing news.

Probiodrug AG: On November 2, German biotech Probiodrug announced it pulled in more than €36 million ($54 million) through a Series B financing, a pretty significant venture round in the biotech sector, but by no means the largest this year. (Remember Pharmion spawn Clovis Oncology’s $145 million Series A in May and Hyperion Therapeutics’ $60 million Series C round a month later?) Probiodrug’s financing, which was co-led by first-time investors BB Biotech and Edmond de Rothschild Investment Partners also included other new backers Life Sciences Partners and Biogen Idec’s New Ventures. (Corporate Venture!) The German firm is--or maybe was is the better descriptor--widely regarded as an expert in dipeptidyl peptidase (DPP) IV inhibition, a critical mechanism in treating Type II diabetes. In 2000, its work in this area led to an exclusive global licensing deal with Merck, research from which eventually produced the marketed drug Januvia--although not without some bumps, including the failure of the lead compound around which the Merck deal was centered. Four years later Probiodrug got out of DPP R&D altogether via an asset sale worth $35 million to OSI’s Prosidion division. The retrenching set the stage for further evolution. In 2007, the biotech, which had raised $52 million since its initial founding in 1997, merged with drug discovery firm Ingenium Pharmaceuticals in a deal that also included a €20.6 million Series A recapitalization. Probiodrug’s new focus in on inflammatory and CNS disorders, especially the big kahuna, Alzheimer’s disease.—Amanda Micklus

Aldagen: Regenerative cell therapeutics developer Aldagen has revived its plans to go public, filing an S-1 on October 28. Only a day earlier it disclosed in a Form D filing that it sold $7.3 million through the issue of convertible bridge notes—the first fund raise it’s done since bringing in $18.4 million through a Series D in April 2008. Founded in 2000, Aldagen is developing adult stem cells that have high concentrations of aldehyde dehydrogenase, an enzyme that controls the developmental state of progenitor and stem cells. The biotech firm believes these stem cell populations have a greater ability to differentiate into multiple types of cells and tissues. Its lead candidate, ALD101, is used to improve the engraftment period after umbilical cord transplants for inherited metabolic diseases in children. Completion of the pivotal Phase III trial is expected in the first quarter of 2011. As the biotech looks to an NDA filing, it will likely rely on help from the recently formed Alliance for Regenerative Medicine—an effort in Washington to facilitate the regulatory and reimbursement pathway for stem cell drugs. The company says the net proceeds of its IPO, along with cash and cash equivalents (approximately $8.8 million at September 30, 2009) and interest income will sustain operations for two more years. Aldagen is the latest biotech to test the IPO waters after scupppering a previous attempt last year due to market conditions. Earlier this week ophthalmology player Alimera also announced it would try to go public after canceling its first try this past April.—Amanda Micklus

Pulmatrix: Pulmatrix obtained further validation of its technology for developing broad-spectrum anti-infective drugs Nov. 2, bringing in a $30.2 million Series B led by two new investors, ARCH Venture Partners and Novartis Bioventures Fund. (There it is again. The all important corporate venture backing.) The company also won a $2.2 million grant from the National Institutes of Health to advance work on its lead program, PUR003, currently in Phase Ia/IIb studies as a treatment for influenza. Together the two transactions should give the biotech a financial runway for 18 months or more, says CEO Robert Connelly. Of the $30 million in new funding, $7 million covers bridge funding the privately-held biotech has already burned through. Pulmatrix declined to say whether the financing was a step-up round, other than to note “we were happy with the valuation and financing terms.” (Did you expect a different answer?) In addition to completing the flu study, the VC funds will enable Pulmatrix to launch studies of ‘003 in chronic obstructive pulmonary disease and asthma, while the grant money will support ongoing preclinical studies to extend the spectrum and efficacy of the molecule.—Joe Haas

Virdante: Virdante Pharmaceuticals, a new privately-held biotech focused on antibody-based therapeutics for autoimmune and inflammatory disorders, closed an extended Series A financing on Oct. 29, bringing the total raised since January 2008 to $47.75 million. New investors in the round were led by Thomas McNerney & Partners and also included Osage Partners. They join the initial investors in the Cambridge, Mass.-based newco: Clarus Ventures, Venrock, MedImmune Ventures and Biogen Idec New Ventures. (Ooooh! Two strategic investors. Theoretically that boosts the chances of a higher return upon acquisition.) CEO John Ripple said the company’s business model is to develop and commercialize its own proprietary pipeline and “apply our technology to development candidates from a select group of corporate partners.” We’re guessing MedImmune and Biogen Idec will be among that select group, given their investment in the biotech and its Sialic Switch technology, licensed exclusively from Rockefeller University.—Joe Haas

Image by flickrer Herve Boinay used with permission through a creative commons license.

Option-Based Deals are Here to Stay

c.morrison@elsevier.com (Chris Morrison) — Wed, 04 Nov 2009 10:26:24 PST

Or at least, they're not just a short-term symptom of a buyers’ market, according to a panel of experienced option-dealers talking at Bio-Europe in Vienna on Monday.

And no, this wasn’t just Big Pharma wishful thinking; biotech executives were piping the same tune (although granted, that may have been because their new, deep-pocketed partners were within earshot; the need to woo a partner who has taken only an option is, after all, even more urgent than the requirement to sweet-talk a committed licensing partner—at least until that option is exercised). “I certainly think they [option-based deals] are here to stay,” said Nigel Clark, VP Business Development at Vernalis, which signed such a deal with GSK in August.

The point is that Clark and others aren’t necessarily correlating the rise of option-deals with the state of the public markets—although it appears irrefutable, at least to this blogger, that their recent rise has been driven at least in part by the lack of financing or exit alternatives for biotech.

Indeed, our own Roger Longman (well, now only one-fifth our own, but still fully with us in spirit) argued during our recent Pharmaceutical Strategic Alliances conference in New York that any pick-up in public markets (of which there are, still, some positive signs) would likely spell the end of option-based deals and a return to the uncapped investment model (remember that?).

But for Avila Therapeutics’ CEO Katrine Bosley--who signed a deal with Novartis in July--the capital markets aren’t the main factor driving option-based deals (although she acknowledges they will and do influence them). Instead, their rise reflects what she calls a “profound shift” within (some) Big Pharma: a willingness to have less control over partnered programs. This, Bosley continued, is part of the growing “organizational experimentation” among large drug firms.

The assumption is, then, that such a cultural change will be longer-lived than public-market cycles. That assumption could be quite easily challenged. But as Bosley pointed out during corridor-chat after the panel, option-based deals aren’t always good news only for the Big Pharma, in terms of their low cost, limited risk and minimal hassle/resource requirements. They can also be very attractive to biotechs, too.

Granted the biotech has sufficient financial resource (and yes, that’s a big if), it may prefer the full development control that an option-based deal grants it, believing it could advance the program far faster and more efficiently than the Big Pharma. (This is another reason Big Pharma also cites for doing these deals.) The biotech may, in this situation, prefer to shoot for higher downstream rewards—confident that it will achieve the milestones necessary to access them-- and be willing to sacrifice some up-front payment (and certainty). In sum, “the option-structure could still make sense if cheap capital becomes available,” says Bosley. Plus, if the asset is attractive enough, the downside of a non-exercised option is limited since there would likely be plenty of alternative interest anyway.

Roger’s right too, of course: a return of the capital markets will change the nature and number of alternatives available to biotechs, and dealmaking will change—option-based deals as well as regular licensing deals. (Although it’s interesting to note that according to GSK’s Shelagh Wilson, VP & Head of the European arm of their Center of Excellence for External Drug Discovery, which pretty much does nothing but option-based deals, the value of such transactions, in up-front and milestone terms, hasn’t changed much over the last four years.)

But perhaps the biggest influence on the long-term viability of option-based deals will be whether they deliver a sufficient number of well-developed products to Big Pharma—products that can be slotted successfully back into late-stage pipelines and that are worth the money paid to secure them.

It’s too early to count how many of the options within the recent dealmaking glut are exercised. “There are lots of experiments going on; we’ll have to see [in three or four years] what the data say,” Bosley concludes. If option-deals prove to be part of Big Pharma’s solution—and help biotechs build up their companies along the way—they’ll stick around, whatever the capital markets. GSK's Wilson is bullish: “I can’t imagine a return to the pre-option days. I don’t see those coming back,” she asserts.
image by flickrer mollypop used under a creative commons license

Meet ViiV, Pfizer and GSK's HIV Venture

c.morrison@elsevier.com (Chris Morrison) — Mon, 02 Nov 2009 12:41:48 PST

Ed Silverman at "The Pink Sheet" Daily is reporting that GSK and Pfizer will formally announce tomorrow some details about their new(ish) HIV joint venture. Like, for example, the new name. (Any similarity to your favorite games console or Intel processor is purely coincidental we're sure.)

Meet ViiV Healthcare (eventually that URL will probably work). We've previously written about the JV here on the blog (you can read another full, magazine-length piece here), and our take remains largely the same--of course who knows what they'll say tomorrow to throw us for a loop. But here's some of our previous analysis:

The GSK/Pfizer HIV joint venture is an interesting solution to [pharma's problems of scale and funding a competitive pipeline in niche areas]. The new company is relatively small (first year projected sales: $2.4 billion); it’s got its own managers; it makes its own R&D decisions. The research stays within the parent companies and the JV pays its expenses – but if the pipeline projects don’t work out, and the JV doesn’t like what GSK and Pfizer are producing, the JV can buy their research from wherever they want. “It puts pressure and accountability onto the scientists,” GSK’s chief strategy officer David Redfern told us, echoing a favorite theme of GSK’s R&D boss, Moncef Slaoui.

Stay tuned. Maybe ViiV is about to make its first deal? We'll keep you posted.

You Can Be A Star!

c.morrison@elsevier.com (Chris Morrison) — Mon, 02 Nov 2009 06:00:15 PST

We at the IN VIVO Blog know this is a tough time for plenty of folks in biopharma companies (almost as bad as it is in journalism) and we always try to do what we can to help people who are between jobs. So, when the following casting call came across our desks, we figured we should open it up to as many possible candidates as possible.

Here is it is:

[AGENCY NAME] is seeking talent for a NATIONAL SAG commercial for LIPITOR. We are seeking the following types of talent. Actors and non-actors are welcome to apply:
· Males who are 50-65 years of age
· ALL ethnicities
· Currently taking LIPITOR for at least 6 months
· You do NOT have to have had a heart attack/cardiovascular event
· We are only looking for NEW talent that have not already auditioned for this project in any market/with any other casting company (your tape is already on file).

If you would like to be considered, please send an email with your headshot/snapshot.

No Phone Calls Please. Thank you.

If you think you meet the criteria, drop us a line and we'll provide you the contact details--though we MAY ask you to write up your experience too ... and we don't pay as well as Pfizer...

While You Were Running

c.morrison@elsevier.com (Chris Morrison) — Mon, 02 Nov 2009 02:13:34 PST

It was mostly liver most of the time this weekend, and so your weekend roundup will comply with a few highlights out of AASLD. But there was much, much more. And yes, there was baseball, but we don't want to talk about that right now. Also congrats to you marathon runners.

OK let's do that thing where we tell you what happened this weekend. While you were dealing with children high on Halloween candy ...

HCV: You've seen the $70mm milestone, now see the full Phase Ib data behind BMS and Zymogenetics' decision to move forward.
HCV: Does Vertex's telaprevir work well when given only twice a day? Yes. Yes it does. See also this story from "The Pink Sheet" posted over the weekend.
HCV: Yes but what about Schering-Plough's boceprevir? Does additional data from Sprint-1 look good? Yes. Yes it does.
HCR: What does Jeff Kindler think about the chances for health care reform? Read the FT interview.
Alzheimer's: Private German biotech Probiodrug rakes in more than $54 million to back its glutaminyl cyclase inhibitors. Funds raised from new backers BB Biotech, and Edmond de Rothschild, Life Science Partners, and Biogen Idec, plus A rounders IBG, TVM, HBM, and CFH.
C. Diff Infection: Additional Phase III data on Optimer's fidaxomicin wows 'em at IDSA.
Obesity: Takeda and Amylin team up on obesity compounds--$75 million up-front secures them a spot in this week's DOTW.
Lupus: GSK and HGSI keep the Benlysta train rolling with positive Phase III data from a second pivotal study.
Lidge'd: We said we didn't want to talk about it, OK? Sheeesh.

image from flickr user t_a_i_s //creative commons.

Deals of the Week: Trick or Treat!

c.morrison@elsevier.com (Chris Morrison) — Fri, 30 Oct 2009 12:35:50 PDT

(Top row, L-R: Wyeth, Genentech, Schering-Plough;
Middle: Sepracor, CV Therapeutics, NitroMed;
Bottom: ImClone, Alpharma, Barr Labs)

Knock knock! Can a ghost biopharma get some friggin' candy here?

Terribly sorry, didn't mean to frighten you. We weren't sure whether ghosts--scary or otherwise--fit into what's acceptable Halloween attire. It's so hard to tell these days. A helpful guide reprinted in today's NYT from a California school:

A memo about costume appropriateness sent home recently by Riverside Drive’s principal made the following points:
¶They should not depict gangs or horror characters, or be scary.
¶Masks are allowed only during the parade.
¶Costumes may not demean any race, religion, nationality, handicapped condition or gender.
¶No fake fingernails.
¶No weapons, even fake ones.
¶Shoes must be worn.

Oh California, how you've come a long way since that Halloween scene in ET. Presumably anything financial-crisis, VC fundraising, or swine related is also off limits. Not to mention any member of the Congressional 'gangs' (sorry kids, no Chuck Grassley or Olympia Snowe costumes this year! Inexplicably still OK? Joe Lieberman). Also, Cliff Lee costumes have been banned in NY.

Here's wishing you some fun trick-or-treating this weekend. The deals below don't carry weapons and always wear their shoes, and win IVB's weekly costume contest, for they are ...

Sanofi-Aventis/Micromet: Sanofi is paying $12 million up-front to take a bite of Micromet's BiTE technology platform. The two companies' discovery deal sees Micromet going after an antigen on the surface of carcinoma cells and shepherding the discovery program through Phase I clinical development, where Sanofi takes over. Development and regulatory milestons could total $241 million for Micromet, which can earn further milestones and royalties on world wide product sales. The biotech's platform--bi-specific T-cell engagers--recruits the body's T-cells to recognize and kill tumor cells potently and consistently. Sanofi joins Micromet BiTE partners Bayer Schering, Merck-Serono and MedImmune.--CM

PPD/Unnamed Spinout: Contract research organization PPD announced plans Oct. 27 to split into two companies. The CRO business will remain as the parent company, and PPD's compound partnering unit--which takes risks more typically associated with a drug development business--will spin-out into an as-yet unnamed separate public company. The new firm, to be established by mid-2010, will start with a $100 million financial stake from PPD and the portfolio of assets it already has acquired. In the meantime, it’s business as usual for the unit, PPD CEO David Grange said, and the sitll-intact company anticipates acquiring two more compounds before the end of '09. While no CEO or head of business development has been named yet for the newco, which will employ a core group of PPD personnel. The assets that the spinout will take with it from PPD include royalty rights and sales-based milestones for Janssen-Cilag’s Priligy, a treatment for premature ejaculation that has been approved in five EU nations plus Mexico and South Korea; rights to regulatory and sales-based milestones plus royalties to Takeda’s experimental diabetes drug alogliptin; a dermatology program acquired in the purchase of Magen BioSciences this past April; and a experimental statin licensed from Ranbaxy Laboratories. Read our extended take--along with a discussion of PPD's other announcements this week including a $100 million investment in Celtic ~~Pharma~~ Therapeutics--in "The Pink Sheet" Daily.--Joseph Haas

Cephalon/BioAssets Development Corp.: Though an acquisition is not definite yet, on Oct. 26 Cephalon announced that it doled out $30 million upfront for the option to buy the privately held biotech BioAssets Development Corp. The acquisition depends entirely on the outcome of BioAssets' ongoing Phase II trial of etanercept (Enbrel) for sciatic pain, due next year. That study should help Cephalon gauge the potential for its own anti-TNF (CEP-37247) in sciatic pain, Cephalon Chief Financial Officer and Executive VP Kevin Buchi said in an interview, and buying BioAssets would give the specialty pharma the necessary IP around using anti-TNFs in that indication. Exercising the option would provide BioAssets backers with additional undisclosed cash and the potential to earn development, regulatory and sales milestone payments. --Carlene Olsen

GSK/SuperGen: GlaxoSmithKline added to its option-based alliance total this week, signing a deal with oncology specialist SuperGen to discover and develop cancer drugs based on epigenetic targets. The arrangement is GSK’s sixth option-alliance so far this year, though far from the largest in terms of upfront cash. Under the terms of the five-year deal, GSK will pay SuperGen $5 million upfront, including a $3 million common stock investment, plus up to $375 million in development and commercial milestones. SuperGen is also eligible for tiered royalties into the double-digits based on net sales of any drugs resulting from the collaboration. SuperGen says its okay with an option deal for the program, given that it is one the company already had up and running, and the investment offers a chance to keep the research moving forward. The Dublin, Calif.-based company has been studying epigenetics for a decade, since acquiring decitabine – the drug that eventually became Dacogen – in 1999. --Jessica Merrill

Medivation/Astellas: Medivation has been here before and apparently likes the terrain. In a deal similar to last year’s partnership with Pfizer on Dimebon, Medivation will receive $110 million up front to collaborate with Astellas Pharma on the development and commercialization of Phase III prostate cancer candidate MDV3100. Like the September 2008 deal in which Medivation partnered its Alzheimer’s disease candidate, the Astellas deal for MDV3100 includes significant bio bucks and gives Medivation the option to co-promote the drug in the US. Medivation could earn up $335 million in development and regulatory milestones, along with up to $320 million in commercial milestones. The companies will share US development and commercialization costs, as well as profits, equally, with Astellas responsible for full development and commercialization costs outside the US. Medivation will receive tiered double-digit royalties on ex-U.S. sales of the drug. In an investor call Oct. 27, Medivation CEO David Hung said the deal’s structure will further “our strategic goal of becoming a fully integrated U.S. specialty pharmaceutical company while retaining significant economic participation in MDV3100’s ultimate commercial success.” Medivation chose Astellas because of its global experience marketing urology drugs such as Flomax and Vesicare. ‘3100 is currently being studied in late-stage, castration-resistant prostate cancer patients who did not respond or no longer respond to therapy with docetaxel. Down the road, the two companies hope to expand the drug’s label to earlier-stage prostate cancer.—JH

image from flickr user peasap used under a creative commons license

Hard Time For Biopharma CEOs (Part 2)

c.morrison@elsevier.com (Chris Morrison) — Thu, 29 Oct 2009 13:18:17 PDT

The indictment of former Stryker Biotech President Mark Philip should hammer home a message that the Food & Drug Administration and other federal health care enforcement authorities have been delivering for at least two years: senior management at FDA regulated companies can and will be held criminally liable for marketing practices that run afoul of regulators.

Before today, that message has been (mostly) words. Prosecutions of executives have been rare, and when they do occur they tend to focus on individual sales reps and their direct managers, rather than reaching into the C-suite.

There have been exceptions. Former Intermune CEO Scott Harkonen is facing jail time after being convicted of wire fraud in a case involving claims that the company inappropriately promoted Actimmune via a press release. For Big Pharma CEOs, though, it is easy enough to dismiss that precedent, since Harkonen was personally involved in the activities at issue in the case—a small biotech CEO necessarily leaves more fingerprints, as it were.

Then there is the case of several top Purdue executives, who paid criminal fines as part of a settlement of an investigation into the promotion Oxycontin. That prosecution involved the application of the so-called Park Doctrine, named for a Supreme Court ruling which allows the government to hold top executives accountable for violations of the Food Drug & Cosmetic Act even if they were personally unaware of the violation. That is, the law makes it a crime to introduce misbranded or tainted products into commerce—and a CEO can be guilty of that crime even if he or she had no knowledge that someone somewhere in the company was doing that. (We discussed the implications of that prosecution in The RPM Report; click here.)

Still, the Purdue case was a bit of an outlier, a prosecution motivated by concerns about abuse of Oxycontin in some rural communities, rather than by the more common themes of recent industry marketing cases. It was a classic war-on-drugs case—not part of the war on the drug industry and its marketing practices.

Much more common has been what happened in the recent Pfizer settlement. The case included a record-setting fine ($2.3 billion) and lots of tough talk about holding individuals responsible. But the prosecution in that case focused on only one sales manager, who was convicted for her actions in promoting Bextra. For Pfizer’s senior management, the settlement means another corporate integrity agreement—but not direct accountability in the form of criminal charges.

At least so far.

But one wonders how long that pattern will continue. It is worth noting that the Pfizer settlement was negotiated before Inauguration Day—that is, before the new Administration had a chance to decide what if any changes it wants to make in approaching health care fraud prosecutions.

The Stryker case does not by itself answer that question. This investigation also began in the prior administration, and the charges (against the company and several sales executives in addition to Philip) focus on explicit acts, not the broader notion of executive liability inherent in Park. Specific counts include wire fraud and conspiracy, as well as overt acts of introducing misbranded or tainted products to the market—all based on what the government claims was a deliberate campaign to market bone morphogenic protein beyond the limits allowed by its humanitarian device exemption approval by FDA.

We have no idea whether those allegations are true, of course. But we also know this: Philip is no longer the President of Stryker Biotech, and he is no longer free to travel.

Philip “self-surrendered yesterday and appeared in court,” the US Attorney’s Office told us. “He was released on standard conditions and surrendered his British passport. His arraignment is set for tomorrow (Friday) at 2:00 p.m. in front of Chief Magistrate Judge Judith Dein.”

We’re betting Philip won’t be the only top executive to find himself standing before a judge as the Justice Department works though its backlog of marketing cases.

California More Generous Than Expected With Stem-Cell Money

c.morrison@elsevier.com (Chris Morrison) — Thu, 29 Oct 2009 12:29:29 PDT

CIRM, the California agency in charge of research and development funding of stem-cell related work, is awarding $225 million to 14 preclinical projects, it said this morning. That's nearly $60 million more than its scientific reviewers recommended.

We reported yesterday that CIRM would hand out at least $166 million in "Valley of Death" funding unless its governing board added projects to the approved list at the last minute, and that's exactly what happened Wednesday morning.

The agency's international partners are also kicking in funding, bringing the total to more than $250 million, a huge injection of cash for stem-cell related projects that the funders hope can reach clinical trials within four years. The money will mainly go to eight California-based groups: seven non-profit institutions and one private firm, Novocell.

Reviewers at the agency originally recommended 11 projects and $166 million in funding, but the 29-member CIRM board voted to add three more projects that didn't make the original cut, including one led by Stanford University researcher and stem-cell pioneer Irving Weismann that aims to create anti-CD47 monoclonal antibodies to target leukemia stem cells. (You can read the reviewers' concerns about the project in the report linked above.)

The only for-profit group to lead an award-winning team is Novocell in San Diego. They propose a method of implanting specially-encapsulated beta cells grown from embryonic stem cells to treat type-1 diabetes. Because Novocell is the lead investigator, the cash is structured as a loan, not a grant. Of the $20 million, all but $2.8 million will go to Novocell, CEO John West told In Vivo Blog. West also says the cash infusion from "the stem-cell experts" was a validation of the firm's work and puts it in a "good position" to look for its next round of venture funding.

There are some minor details to work out first, though. West says Novocell hasn't yet received a loan document from CIRM and isn't exactly sure about the terms. Based on the loan program's guidelines, West is aiming for 10% warrant coverage and a payback period closer to 10 years, the far end of the range. "We have a good feeling we'll work it out," said West.

CIRM loans will certainly have more generous terms than typical bank loans, and the agency has said it doesn't expect many of them to be paid back. West said he was surprised that Novocell was the only for-profit to lead a disease team application. But he noted that not many of the state's stem-cell related firms were far enough along to push a program into the clinic within four years, one of the top criteria of the agency's reviewers.

Of the $20 million, $2.8 million will go to co-investigator Jeffrey Bluestone at the University of California, San Francisco. CIRM reviewers were optimistic the project could meet the goal of getting to clinic within four years: "These elements make a successful IND filing to treat diabetes likely and led to a strong recommendation for funding."

CIRM officials originally hoped for more loans in this first disease-team funding round. The agency has spent two years building a $500 million loan pool targeted at for-profits. That program, the brainchild of CIRM chairman Bob Klein, is still in place, but it won't quickly help fill the venture funding void. A second round of funding for translational projects is slated for next year.

Photo courtesy of flickr user Peter Ito.