Deals Of The Week Takes Action

It was quiet on the deal making front as major news this week was of a regulatory or clinical nature. Despite a three-month delay, GlaxoSmithKline and Human Genome Sciences earned a BlyS-fully easy approval March 9 for Benlysta (belimumab), the first new lupus treatment in 56 years. That the approval didn’t come with a risk mitigation scheme or onerous labeling shows yet again that regulators are treading lightly in arenas where good therapeutic options are lacking. (Just practice the phrase "unmet medical need" three times fast.)

The good news about Benlysta was likely a comforting balm for GSK – or at least distracted the big pharma’s investors. Less than 48 hours later, the company and its partner Tolerx announced disappointing results for a Phase III trial of their humanized anti-CD3 monoclonal antibody for Type 1 diabetes, otelixizumab. Otelixizumab’s failure wasn’t entirely unexpected: a similar drug from Eli Lilly (remember them?) and MacroGenics called teplizumab has also floundered in the clinic.

While otelixizumab's results haven't yet sparked a “no-deal”, it wouldn’t be surprising if GSK were to decide the DEFEND-1 data made its 2007 agreement with indefensible. For the moment, the big pharma is investigating additional dosing regimens of the drug and has halted recruitment in a separate clinical trial.

Of course, GSK has to share the late-stage failure spotlight with Sanofi-Aventis and its partner Regeneron, who revealed this week that their non-small cell lung cancer drug aflibercept failed to increase overall survival time relative to comparator docetaxel in a Phase III study. The announcement is a definite setback for the French pharma, which has spent the past two years rebuilding its oncology business with a greater emphasis on targeted therapeutics and biologics.

Of course, the failure also raises questions about Sanofi’s ability to meet its revenue goals via its internal pipeline, illustrating yet again that to scale its 2013 patent cliff, the drug maker had few options but to consider a sizeable acquisition on the order of Genzyme. (If anyone's still curious about that M&A, we'll have more in the c oming March IN VIVO.)

Aside from clinical setbacks, this week’s deal-making highlights feature Japanese pharmas, academic collaborations and the importance of reprofiling existing compounds to identify potential new uses. Drumroll, please...

Eisai/Epizyme: Privately-held Epizyme’s March 10 agreement with Eisai is the biotech’s second big pharma partnership of the year, following a January tie-up with GlaxoSmithKline. But Epizyme CEO Robert Gould is eager to stress that the two deals are different and serve separate parts of his firm’s business strategy. The deal with Eisai centers around EZH2, a preclinical epigenetic enzyme expected to yield treatments for lymphoma and other cancers in genetically defined patients. As part of the deal, Epizyme will receive $6 million upfront and can earn up to $200 million in milestones and up to double-digit royalties. The Japanese pharma also will cover 100% of R&D costs through human proof-of-concept, at which point Epizyme can opt in to share development and U.S. commercialization costs and profits. In contrast, the GSK deal centered on a defined but undisclosed package of histone methyltransferases. GSK paid $20 million upfront with the potential for up to $630 million in milestones plus double-digit royalties. That deal is basically a “handover” of the related assets to GSK, whereas the Eisai deal involves joint decision-making with the possibility of Epizyme taking on the role of full partner, says Gould. If Epizyme elects to opt in after proof-of-concept, it would co-commercialize the resulting drug in the U.S., while Eisai would retain development and commercial rights for the rest of the world.--Joseph Haas

AstraZeneca/Galderma: AZ on March 7 signed up global dermatology giant Galderma to reprofile some of its assets to treat skin diseases such as psoriasis, acne and atopic dermatitis. The five-year R&D agreement, for which financials weren’t disclosed, sees the French-based biotech gain access to several already-identified AZ compounds from within the big pharma’s core therapy areas, including oncology, inflammation and central nervous system. The deal is both a sign of the times, and a reminder of how AstraZeneca stands apart from some of its big pharma peers. It’s another example of large drug firms’ push to squeeze out all the value they can from their assets, especially in non-core therapy areas. This is the second reprofiling alliance AZ has struck: in 2009 it signed a similar agreement with Alcon in ophthalmology. Under terms of that deal, should Alcon discover potentially interesting compounds, it can license them on a case-by-case basis, with AZ eligible for regulatory milestones and royalties. The Galderma tie-up also emphasizes AZ’s ‘pure-play’ strategy and its preference to team up with recognized experts in areas it considers outside its expertise. That’s in contrast to companies like GlaxoSmithKline, which paid $3.6 billion in 2009 to buy dermatology player Stiefel, creating its own specialist business with attractive, risk-mitigating trimmings including OTC and aesthetic portfolios. Not that dermatology is, strictly speaking, a new opportunity for either GSK or AZ: both used to have their own skin-care businesses, in the days before dermatology went out of fashion. --Melanie Senior

Evotec/Harvard: It ain't just big pharma heading back to school. Even biotechs are looking for tie-ups with universities these days. German small-molecule drug discovery company Evotec announced a deal this week with Harvard University and the Howard Hughes Medical Institute to investigate new therapies for diabetes, specifically in the area of beta cell replication. Financial terms weren’t disclosed. Harvard professor Doug Melton will be the principal investigator, working alongside Chevy Chase, Md.-based nonprofit HHMI and the German pharma. The move deepens Evotec’s commitment to diabetes, following a deal last summer to acquire metabolic disorders specialist DeveloGen. That company, now operating as an Evotec subsidiary, has multiple projects underway, including insulin sensitizers and drugs that prevent destruction of existing pancreatic cells as well as compounds that induce beta cell regeneration. Its immune-modulating drug DiaPep277, which protects pancreatic cells, is in Phase III trials, and was partnered with Andromeda prior to the acquisition. DeveloGen also has an ongoing discovery partnership with Boehringer Ingelheim. Evotec says the goal of its new arrangement with Harvard and HHMI is to create orally available small-molecule drugs that trigger or support beta cell regeneration. --Paul Bonanos

Yakult Honsha/Aeterna Zentaris: Behold another sign that regional deal-making is alive and well. On March 9, came news that Aeterna Zentaris, a Canadian company specializing in oncology therapies, has partnered Japanese rights to its lead oncologic, perifosine, for $8.3 million upfront and another $60.9 million in clinical and regulatory milestone payments. Perifosine is a novel oral medicine that inhibits Akt activation in the phosphoinositide 3-kinase (PI3K) pathway, which is associated with programmed cell death, cell growth and cell survival. Phase III trials in colorectal cancer and multiple myeloma are ongoing in the U.S. and EU.The deal with Yakult Honsha, a diversified Japanese player that develops foods, beverages and cosmetics in addition to pharmaceuticals, represents the third time Aeterna has sliced up rights to perifosine. In 2002, it licensed North American rights to the molecule, in Phase I studies at the time, to privately held Access Oncology for at least $18 million. (Those rights transferred to Keryx Biopharmaceuticals when it purchased Access Oncology two years later.) Aeterna also cleaved off Korean rights to the molecule, dealing them to Handok. In general, blocking this particular cellular cascade is an area of great interest to pharmas looking to extend their oncology franchises, with developers of inhibitors specifically targetting PI3K striking rich deals. (Think Gilead/Calistoga or Sanofi-Aventis/Exelixis.) Deal terms for Akt inhibitors don’t appear to be as pricey based on Elsevier’s Strategic Transcations database. Of course, because Aeterna Zentaris out-licensed the highly valuable North American rights to perifosine at Phase I, it’s also limited the upfront potential dollars it could receive, demonstrating the trade-offs companies make when partnering at such an early stage. --EFL

Image courtesy of flickrer ideowl used with permission through a creative commons license.

DotW: Navel Gazing

It was a week of painful navel-gazing from many in the venture community, as some of the industry’s best and brightest gathered in Napa for the annual C21 Bioventures conference at the Meritage Resort.

A panel of VCs kicked off the event with a gloom-and-doom overview of the private financing world. As Ilan Zipkin, a partner with Prospect Ventures succinctly put it, "It’s a good thing we’re not holding this meeting in San Francisco. Here in Napa there are no bridges to jump off."

Ouch. Are things really that bad in private biotech land?

As we’ve been pointing out for some time, for VCs, the answer is yes. Funds raising money now are having a tough time and the expectation is future fund sizes will be smaller too, with returns down across the board. As InterWest Partners’ Chris Ehrlich put it: "People feel worse about themselves. LPs, the life blood of capital for venture, are saying the role of VC an asset class is limited. That casts a pall." Ehrlich likened the current climate for VCs who came of age in the most recent decade as "born in the crossfire of a hurricane." (Our heart goes out to Ehrlich and we’d likely be far more sympathetic--if we weren’t in the publishing industry.)

For biotechs looking for financing, things are a bit more hopeful, thanks to the rise of corporate venture groups, including newly formed units from Boehringer Ingelheim and Abbott. But certainly expectations must be adjusted. In terms of exits, Alison Kiley of Alta Partners is telling her firms to "keep their heads down, operating as if there will be NO IPOs." And, as IVB has said in the past, the shift is away from big M&A to back-end licensing deals, with pharmas using their leverage to make smaller biotechs share the risk and cost of early stage drug development. Still, a negative discussion about the rise of option-based deals in the final panel of the first day suggests many in our own industry are refusing to face up to the new economic realities.

In the words of the immortal Charles Darwin, it’s worth remembering that "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."

Of course, VCs and early stage biotechs aren’t the only ones who need to adapt. J&J and BP come to mind as well. On that cheery note...we break for a holiday weekend and no more tsk-tsking from your mother for wearing white shoes. It's time to fire up the barbecue, crack open a cold one, and turn on the tunes (The Ramones "I want to be sedated" and Greed Day's "Basket Case" come to mind.) All the while reading another edition of …

Sanofi-Aventis/ Nichi-Iko: Sanofi’s deal team has been on a role, especially when it comes to inking very early stage collaborations (see below) or tie-ups with players in the consumer and generics spaces. (So much for the coming M&A storm, eh?) The French drug maker continues its eastward march, moving from Poland to Japan this week with a joint venture with one of the top Japanese generics’ firms, Nichi-Iko. Sanofi-Aventis owns 51% of the new J/V which is less than creatively named Sanofi-Aventis Nichi-Ikko K.K. (we’re guessing the abbreviation of choice will be SANI not SANK.) One of the J/V’s top initial priorities will be to rake over marketing and distribution rights in Japan for Sanofi’s anti-insomnia medicine Amoban, which generated 2009 sales of roughly €43 million. As our sister publication PharmAsia News has noted many a time, western pharmas are increasingly interested in tapping into the Japanese generics market because of a series of national policies that are encouraging generic drug use. (Japanese cos are interested too; hence Daiichi’s desire in 2008 to take partial ownership of Ranbaxy.) Pfizer, Merck, and Novartis have all made forays into the Japanese generics market, as has Teva. In allying with Nichi-Iko, Sanofi gains a considerable footprint in the island nation. Nichi-Iko owns five distribution centers and supplies drugs to 120,000 medical facilities in Japan. Last month the company reported generic sales grew 13.7%, with net profits up 103.9% for the quarter ending in February.—Ellen Foster Licking

Sanofi-Aventis/Massachusetts Institute of Technology: Another week, another corporate/academic research collaboration surfaces. This week it’s Sanofi-Aventis’ turn to make headlines, announcing a three-year, $4.2 million research collaboration with MIT’s Center for Biomedical Innovation. The collaboration's initial focus will be in the areas of nanotechnology and biologics. Although no funding has been awarded yet, the pharma is most interested in emerging technologies that provide new solutions for patients, such as next-generation nanoparticles for drug delivery, novel sensor technologies for diagnostic purposes, needle-free and wireless drug-delivery tools, and devices that monitor clinically relevant metabolites and biomarkers. As such, it fits Sanofi’s evolving belief that the drug companies of the future will be those that provide not just pharmaceuticals but end-to-end health care solutions in the vein of its recent acquisition of glucose monitoring play AgaMatrix. The MIT partnership will build on Sanofi's existing presence in Cambridge, Mass., which includes a 60-person research center and the company's vaccine subsidiary, Sanofi Pasteur Biologics. With Big Pharma companies looking at ways to reduce R&D spending, low-risk partnerships with academia and startup drug companies, in which drug makers get access to external R&D for a nominal price, are becoming more common. Pfizer recently announced a five-year tie up with Washington University in which university researchers are granted access to Pfizer compounds and data in a reprofiling effort. In the case of Sanofi's alliance with MIT, a joint steering committee will allocate annual grants ranging from $100,000 to $150,000 to academic researchers, with the French pharma holding an option on any completed research to fund further work.—Joseph Haas

Clovis/Avila: Clovis Oncology, which raised an impressive $145 million Series A in 2009, has partnered with three-year old Avila Therapeutics to develop and commercialize Avila's preclinical epidermal growth factor receptor (EGFR) mutant-selective inhibitor (EMSI) and a companion diagnostic. Under the terms of the deal, Avila and Clovis will collaborate on the preclinical development of the drug, which is being tested as a potential non-small cell lung cancer therapy. Clovis bears responsibility—and cost—for the drug’s clinical development and commercialization, as well as for the creation of the diagnostic. Total biobucks associated with the deal are $209 million, with Avila receiving an undisclosed upfront fee. For Clovis, the deal, announced May 25, marks the second asset the company has acquired since its initial financing. The company-- led by Pat Mahaffy and a band of cohorts formerly from the oncology play Pharmion--was formed with the aim of in-licensing oncology drug candidates in clinical development and pushing them through to commercialization. In November 2009, Mahaffy’s company bought Clavis Pharma’s Phase II lipid-conjugated formula of Eli Lilly's chemotherapy Gemzar (gemcitabine) in development for pancreatic cancer for $15 million upfront. In both the Avila and Clavis deals, the importance of a companion diagnostic targeting the appropriate patients has been a central part of the deal logic. Whether or not Clovis does the actual dx development is a different question. Earlier this year, Clovis signed a deal with Roche's Ventana Medical Systems, Inc. to develop and commercialize the diagnostic for the gemcitabine compound.—Jessica Merrill

Gentiva/Odyssey Healthcare: IVB doesn’t typically devote much space to healthcare services but the size of the Gentiva/Odyssey tie-up makes it impossible to ignore. Gentiva is a major provider of home health care services, while Odyssey is one of the leaders in hospice care in the U.S. Both companies have strong balance sheets and scale, so as Daily Finance writer Tom Tauli put it "assuming the integration is seamless, the result will be a powerful combination." Gentiva will spend about $1 billion to bring Odyssey’s 20 in-patient facilities and 92 Medicare-certified programs in-house, as well as the ability to provide a seamless transition from in-home care to end-of-life care. The $27-a-share price for Odyssey represents a 40% premium to the company’s closing stock price on Friday May 21, the day before the merger was announced. Hospice care is a relative new industry but one of increasing importance, given the aging demographics in the U.S. Analysts have been debating the merits of combining hospice and home-based care for some time, with proponents emphasizing synergies in shared referral and recruitment sources and marketing staff. Certainly the recent regulatory scrutiny over home health-care billing practices may have encouraged Gentiva to diversify, especially after it divested non-core assets in respiratory and infusion therapy back in February. Still, according to the WSJ, at least one analyst, Arthur Henderson of Jefferies & Co., was "taken aback by the magnitude" of the deal, Gentiva’s first in the hospice space. "We view this deal as an indication of management’s renewed vigor in driving accelerated growth through an aggressive acquisition strategy," Henderson said.--EFL

Image courtesy of flickrer vasta used with permission through a creative commons license.

Ed. Note: Let's Go Flyers!