Deals of the Week: It's the End of the World as We Know It

Been reading the news this week? Apparently the sky is falling in pharma land. The WSJ reports that pharma's golden age is on the wane thanks to looming patent expirations and a poor track record in product approvals. (Hmm. Where have we heard that before?) BMS is the latest pharma to announce lay-offs--yesterday it announced 10% of its workforce would go. China's drug manufacturing capabilities pose a national security risk according to the Kansas City Star. Poor Carl Icahn: it looks like Henri Temeer and Genzyme will elude his clutches after all. (For more on Genzyme's strategy, make sure to watch for our upcoming IN VIVO feature.) And an FDA advisory panel nixed the use of Genentech's Avastin for breast cancer, sending the company's stock price plunging. (C'est la vie. You can't win 'em all right?)

Yep, it's the end of the world as we know it. And I feel fine. (Thanks to Deals of the Week, of course.) Without further ado:

• Novartis/Morphosys: First up: we tip our hats to Morphosys for their avoidance of pure "biobucks" figures in telling the world what they stand to gain in milestones from their latest HuCAL alliance with Novartis, announced Monday. Revolutionary! Now on to the deal, which for Morphosys is a bit revoluationary itself. Novartis will pay the antibody specialists $600 million over ten years in committed payments (roughly 50/50 technology license fees and research support), with an additional $400 million (non-biobucks) in predicted milestone payments. Morphosys basically consolidates its discovery partnership program into this one deal--as older deals come up for renewal, they'll just expire; for example the biotech's deals with Bayer-Schering and Centocor, scheduled to expire at the end of the year, will do so. Interestingly, Morphosys is maintaining more than a small amount of independence. Novartis remains the biotech's largest shareholder, but hasn't upped its stake beyond the 7% it already held, and does not get a seat on the Morphosys board. Morphosys won't be doing any more discovery deals, but will be able to do product-focused outlicensing deals at its leisure. Novartis gains a fully human antibody discovery engine without breaking the bank.
• Merck/Addex: Not a huge deal, cash wise, but the kind of deal Addex's investors were hoping for. Addex gets $3 million upfront from Merck & Co. plus milestones and undisclosed royalties. The companies are targeting the mGluR4 receptor to develop treatments for Parkinson's disease and other indications. Addex's allosteric modulation platform essentially allows modulation of GPCRs without binding to the receptor's active site, leaving that prime real estate open for the receptor's endogenous ligand.
• Pfizer/Adolor: On Wednesday, Adolor signed a deal with Pfizer worth $30 million up-front and $232.5 million more in milestones for two compounds for pain conditions, ADL5859 and ADL5747. Both compounds belong to the delta opioid receptor agonist class, a class of pain drugs related to morphine and oxycodone, but potentially without their debilitating side-effects. As part of the deal, the two companies will split revenues and expenses in the US 60/ 40 with Pfizer taking the lion's share and Adolor retaining co-promotion rights. This is the third big deal this year for Pfizer in the pain space. This summer the company added to its pipeline, signing a $195 million deal with Hydra Biosciences for its TRPV3 antagonists and a $1 billion-plus deal with Icagen for a sodium channel modulator (For more coverage of the pain space see this 2006 IN VIVO story.) This is some much needed good news for Adolor. The company's stock was decimated earlier this year when the FDA put the brakes on the company's mu-opioid receptor antagonist Entereg because of concerns about its lack of and potential CV side-effects. (For more on this product and other GI-related opioid compounds check out this November IN VIVO feature.)
• Lilly/Aveo: Precision Therapeutics wasn't the only diagnostic company making news this week. (For more on Precision's merger with Oracle Healthcare Acquisition Corp. check out this IN VIVO Blog post.) Cancer biomarker play Aveo Pharmaceuticals announced Tuesday it had struck a deal with Lilly to help the pharma identify patients who respond to one of its cancer drugs under development. Aveo's famous for its in vivo cancer models--essentially mice that have been engineered to develop tissue-specific cancers under controllable conditions. To date, the company also has biomarker discovery deals with Schering Plough, Merck, and OSI Pharmaceuticals. Terms of the deal weren't disclosed but if there anything like the $20 million agreement Aveo inked with OSI earlier this fall, it's unlikely there's big money on the table. Historically, that's been one of the problems with the business models of these molecular diagnostic companies. Although they can sign somewhat lucrative fee-for-service deals with pharmas, these partnerhips never seem to translate into upside related to the actual commericalization of a product.
• Fresenius Medical Care/Renal Solutions: On November 29, the German dialysis product maker announced it was buying Renal Solutions, a venture-backed sorbent cartridge maker for as much as $190 million. Just two years ago, Fresenius bet big, buying Renal Care Group for $3.7 billion. That transaction gave the German company an important foothold in the US market, giving it access to more than 30,000 patients at over 425 dialysis centers. The company also made waves when it agreed to a five-year sole-supplier deal with Amgen in October 2006 for that biotech's Epogen and Aranesp. The reason: many critics saw it as aiding Amgen's strategy to prevent widespread US uptake of a competing product from Roche called Mircera. (For more on Amgen and its anemia franchise click here.)

Read More

Pelikan Scoops up a Pouchful of Cash

A wonderful bird is the pelican. In his beak, he can hold food for a week.

And also great wads of cash such as that gathered up by the bird’s namesake, Pelikan Technologies.

Pelikan (that’s the German word for pelican) announced this morning that it raised $69 million in cash and another $20 million in venture debt, bringing funds raised to date to a grand total of more than $150 million.

That sounds like an enormous amount of cash for a device start-up, but it’s not really, not for a company trying to take on the Big Four (Roche, Johnson & Johnson, Abbott and Bayer) in consumer glucose testing, a $7 billion world wide market.

Besides its great big maw, the pelican has other fine attributes. CEO Dirk Boecker told us, “The sea bird is perfectly adapted to its environment and is particularly efficient at catching fish just below the surface of the water, never diving deeper than necessary, nor causing excess ripples or waves.”

That’s how Boecker wants people to see Pelikan Technologies, which is trying to improve compliance in glucose testing. Today, diabetes patients generally don't comply with the clinical recommendations for testing, understandably, since conventional blood sugar tests require them to stick their fingers with a sharp object several times a day to draw blood.

Spun out of Agilent in 2001, Pelikan Technologies is developing a single small device that, with a single push of a button, can draw out a blood sample in a pain-free manner, feed it through microfluidic channels in the device for analysis, and read out results.

The company is still developing this integrated testing platform, which will get rid of all the paraphernalia that patients with diabetes have to carry around today—separate lancing devices, lancets, test strips and a glucose meter--but it has already introduced, as a first stage, a pain-free lancing device, the Pelikan Sun, which it is selling over the Internet.

Pelikan Sun has been launched in Australia and Europe, and the company is on the eve of its US launch. The device still pokes people in the finger, but the company claims it doesn’t hurt because it lances at an exact pre-determined and adjustable depth to reach the capillary loops without perturbing nerve endings, thereby avoiding pain altogether (so they say), and it only needs a tiny blood sample to do its job—60 nanoliters, the smallest requirement in the industry, Boecker says.

Not just any diabetes start-up working to make glucose testing pain-free and convenient can command the kinds of funds that Clarus Ventures LLC, HBM BioVentures Ltd. Global Life Science Ventures, Mannheim Holdings LLC, and Bio*One Capital have put into Pelikan. Non-invasive glucose monitoring companies, for example, are pretty much anathema to VCs because so many have failed, or if they haven’t failed yet, have consumed ten years worth of cash with still nothing to show for it.

Pelikan is attractive because it’s innovating along the same lines as those other icons of success in glucose monitoring, MediSense, and TheraSense, which made incremental but meaningful improvements to conventional blood glucose testing. Both were acquired for a premium by Abbott Laboratories.

MediSense introduced a biosensor-based point-of care blood glucose meter for home use that was more accurate and less expensive than competing products. TheraSense moved testing off the sensitive finger tips to other sites of the body that were less painful to puncture. In fact, this has been the most successful strategy since the very beginning of consumer glucose monitoring back in the 1980's; pioneer LifeScan’s success was due to added convenience; its test strip didn’t need to be blotted and wiped like the tests that came before.

Pelikan still has to face the demands of manufacturing a medical-grade device on the scale of consumer electronics--the challenge of making a complex but robust product in high volumes-- but it doesn’t have to break new ground here either.

Insulin pump manufacturer Insulet Corp., which was struggling to meet an overwhelming demand for its disposable pods of insulin, recently signed an agreement with contract manufacturer Flextronics International, which will help it get up to its goal of producing 200,000 pumps per month by the end of 2008 to meet demand. Coincidentally, Flextronics is Pelikan’s manufacturer too. (Check out the next issue of START-UP for more on glucose monitoring start-ups.)

Read More

"FDA Doesn't Have to Follow the Panel's Recommendation, but It Usually Does"

How often have we seen that caveat in news reports about FDA advisory committee meetings? But seldom is it as close as it was yesterday, when Genentech/Roche's Avastin fell 5-4 before the agency's oncologic drugs advisory committee, which was considering the blockbuster cancer drug as a treatment for recurrent or metastatic breast cancer.

Reuters notes that so far Roche stock has fallen more than 4% on the news on Thursday morning in Europe, while Genentech took a whopping 9% hit on Wednesday.

The WSJ reminds us that docs in the US are already prescribing Avastin in these indications off label, but that the FDA's stamp would allow Genentech to promote in that indication and make it more likely insurers would pick up the tab.

What's more, Genentech based its application on a National Cancer Institute study that acutally shows a significant Avastin benefit in a measurement called "progression-free survival," which nearly doubled to 11.3 months for patients on the drug plus paclitaxel vs. 5.8 months on paclitaxel alone.

There was no meaningful difference in overall survival, however.

So, will FDA look at the panel's slim margin and go ahead and approve the drug on the progression-free survival data? If not, are other drugs out there in the clinic that show little in the way of survival benefit (yet solid surrogate-endpoint data) going to cause heartache for companies and their investors?

Read More

A Precision Move

We couldn't help but find a few interesting tidbits regarding the announcement that diagnostics maker Precision Therapeutics Inc. would merge with Oracle Healthcare Acquisition Corp.

First off, this is the first deal struck in the life sciences industry involving a special purpose acquisition company that we've seen in some time, not since Ithaka Acquisition Corp. acquired cooling company Alsius Corp.

Second, we'd just finished writing an article showing how well public investors have embraced diagnostics and imaging companies like Genoptix Inc. and Virtual Radiologic Inc. much to the benefit of the VCs in those companies. (Check out the upcoming START-UP for the full analysis.)

So here we have a diagnostics company that opted to pass on an IPO and embrace a SPAC-buyout. Why? Well, if the deal is consummated it'll likely turn out to be a good move for Precision.

Despite the rational exuberance for diagnostics, IPO buyers weren't likely to give as warm an embrace of Precision as they've given Genoptix simply because the financials aren't there yet. Nanosphere Inc., for example, is doing well but not nearly as well as Genoptix, possibly because its business isn't as developed.

With its cancer diagnostic product on the market (go here for details) Precision brought in $1.7 million in revenue over the first nine months of this year while reporting a loss of $13.5 million. Genoptix is pulling in far more revenue and now is actually making millions. Obviously, public investors prefer companies that actually report income rather than losses or they'll suspend that rule for biotechs and device companies with high upsides.

That certainly isn't to say Precision won't get there. It's just not there yet.

So Precision management probably is wise to put down the IPO dice and accept the merger with Oracle, which comes with a ticker symbol and, more importantly, $120 million in cash.

The company's board likely will have to share power and returns. But the capital and ticker give Precision's investors a surer route to an eventual exit.

With venture investors already committing $73 million to the company, finding attractive terms for more private capital likely would have been difficult if the IPO failed. According to Precision's S-1 filing, the company's largest shareholders include Adams Capital Management, Quaker BioVentures, TVM Life Science Ventures, Birchmere Ventures, Stephens & Co.

So what's in it for Oracle, which was started in 2005 by hedge fund manager Larry N. Feinberg, who founded of Oracle Partners,L.P., a healthcare-focused hedge fund in 1993. David Hamilton at VentureBeat asked that very question today.

We obviously can't say for sure other than to draw on Feinberg's standard comments about the company's strong management team and the fact that "the ChemoFx test has been validated in numerous clinical studies and has been reimbursed by both Medicare and commercial payors."

But one very real issue might have been that Oracle appears to be running out of time.

SPACs are not open-ended things. IPO investors acquire shares in a SPAC because they trust the management team will take that money and buy a company at an attractive price, thereby creating a strong business with valuable shares. But they'd like to get that money back at some point if such a deal can't be made. So all SPACs have an expiration date, so to speak, when investors are promised their money back--minus fees and other costs--if no company is acquired. Oracle shareholders must vote to approve any deal.

Oracle Healthcare raised its capital through an IPO of its own on March 8, 2006. As per the structure of most SPACs, Oracle management had 18 months to find a company to acquire or else return the capital back to its investors.

On Sept. 8--the final day of the deadline--Oracle signed a letter of intent to acquire another company, according to Oracle's most recently quarterly filing. The signing of the letter gave Oracle management a six-month extension.

However, the filing goes on to state that the letter of intent regarding that purchase was terminated on Oct. 17, freeing up Oracle to find another deal before the pending March 8, 2008 deadline.

Enter Precision.

We're not suggesting this is merely a marriage of convenience. Precision--with Oracle's support--could grow into a diagnostics powerhouse.

But given how long such a deal can take--ask Alsius and Ithaka management about the six months or so the SEC took to review their paperwork--this may be Oracle's last shot at completing a deal that could produce some real returns for its investors and managers, unless there is a provision for another extension that we can't unearth.

Seems like a potential win-win.

Read More

A NICE New Business: Fee-for-Advice

The UK’s National Institute of Clinical Excellence (NICE) is piloting a fee-for-service business that would see companies paying to receive early advice on what kind of cost-effectiveness and pharmaco-economic data they might require to secure drug reimbursement.

Speaking at the Financial Times’ Global Pharmaceutical and Biotechnology Conference in London on Monday, NICE CEO Andrew Dillon talked about the need for earlier engagement with industry, and mentioned a test-run it was carrying out with Novartis. “We’ve just completed the formal part of the process, in an attempt to provide some sort of proof-of-concept for the idea,” he told the audience. He declined to specify which Novartis drug candidate is the guinea pig.

NICE will present an evaluation report to its Board at the end of the first quarter of next year, according to Dillon, outlining how valuable the process has been, and what resources are required. It will presumably also outline in more detail how many meetings take place and at what stage in the drug candidate’s development. "I would envisage companies seeking advice as they prepare their phase 3 studies, although in principle they might approach us at any stage in the development of a product," noted Dillon in an email after the meeting.

As pressure mounts on drug companies to prove not just that a product works and is safe, but that it's also cost-effective, many firms want and need to engage with bodies like NICE well before approval stage. Sure, some are now being more creative in circumventing negative reimbursement recommendations--as we saw in the case of Johnson & Johnson and the risk-sharing rebate scheme it suggested for blood-cancer drug Velcade. But better still to have the appropriate data in the first place, ideally at minimum extra cost.

If the early-advice scheme is adopted, drug firms will have to pay for the privilege, though. “This will be a fee-for-service business,” Dillon told IN VIVO Blog. NICE will have to charge companies given the additional resources required, he explained.

But isn’t there a conflict here—companies paying NICE for advice on whether their drug might be labelled cost-effective? Not really, according to Dillon. “Regulators charge extra for early consultations with companies,” he says, “so why not us? It’s what everyone wants.”

That’s for sure. And given NICE’s influence beyond the UK, the agency may find clients seeking advice on how to best design their trials and provide optimal pharmaco-economic data even if the UK isn’t their target market.

Potentially a nice bit of business on the side for NICE, then.

Read More

Prasugrel: Lilly Tries to Stop the Bleeding (Part 2)

The speculation about the prospects for Lilly’s clot prevention drug prasugrel continues.

The latest turn has been a rebound for Lilly, prompted at least in part by a November 28 note by Credit Suisse analyst Catherine Arnold. The note reports some interesting survey data on projected use of prasugrel by cardiologists. What Arnold heard in the responses is further support for her view that the drug will indeed be a significant new product for Lilly, with peak sales in the range of $2.5 billion.

Lilly shares have been on a rollercoaster ride for six weeks now surrounding release of the pivotal trial data for prasugrel. Unfortunately for Lilly, most of the ride has been downhill. (We wrote about Lilly CEO Sidney Taurel’s response to the media and investor frenzy surrounding prasugrel last week.)

For now, many analysts remain concerned about an increased risk of major bleeding associated with the drug. In today’s world, they fret that even a demonstration of superior efficacy vesus the market leader, Bristol-Myers Squibb/Sanofi Aventis’ clopidogrel (Plavix), isn’t enough to overcome any hint of a safety risk.

The pivotal trial data undeniably limit the market for prasugrel (approximately 20% of the patients enrolled in the trial were in one of three subgroups Lilly says shouldn’t get the drug). Some analysts expect that the impact will be greater than that, with doctors choosing the more conservative approach of using Plavix first as much as possible. And the biggest fear of all is that FDA simply won’t approve the drug.

Arnold, clearly, is in the more bullish camp. In her view, investors have over-reacted to the safety issue. Even with limitations on the patient population, prasugrel only needs to capture about a 25% share of the current market for Plavix to generate $2.5 billion in peak revenues.

That type of market share is very achievable, Arnold says. The survey suggests that cardiologists will use prasugrel in more than a third of their PCI patients.

“Surprisingly, the respondents were also very likely to use prasugrel in patients with coronary artery disease who are being medically managed (patients with unstable angina or a recent MI who do not undergo PCI) and patients with established peripheral arterial disease,” Arnold reports. “These are large segments of the antiplatelet market where there is no data to support the use of prasugrel currently but, based on these results and other research we have conducted, we think prasugrel will generate modest off-label use.”

That sure sounds like good news for Lilly. But is it?

The willingness of cardiologists to shrug off the safety questions about prasugrel may be perfectly justified medically, and it would certainly be a great boost for the drug commercially. But it is also exactly the reason why FDA has been so tough on NDAs—and why Congress has given the agency new drug safety tools to control the use of new drugs after approval.

To us, the path for approval of prasugrel seems clear. First, Lilly needs to convince FDA that the subpopulations it has identified where the drug should and should not be used are indeed supported by the data. Lilly says the risk/benefit profile is not supported for the drug in patients over 75 years of age, patients who weigh less than 60 kg, and patients with a prior history of stroke or transient ischemic attack. If those patients are excluded from treatment, the relatively benefits of prasugrel look even better compared to Plavix.

Second, and most important, Lilly will need to convince FDA that the drug will in fact only be used by the subpopulations for which it is appropriate. In that case, the perception that cardiologists are eager to use the drug more broadly actually hurts—rather than considering the risk benefit profile if only the right patients use it, FDA has to consider the risk benefit profile if the wrong patients use it.

FDA’s decision on prasugrel will almost certainly come down to Lilly’s ability to present a credible risk management plan that will give FDA the confidence to say yes to the drug. In that context, the survey data showing a readiness for cardiologists to use prasugrel off-label is an obstacle, not an opportunity.

Read More

While You Were Dealing

The weekend was not without some dealmaking action. More to come on Monday, for sure. But lets kick off the weekend roundup with a big biologics deal between Novartis and Morphosys ...

• Morphosys has signed a "transforming" deal with Novartis. The two companies are building on their existing 2004 alliance with a potential 10-year deal to develop monoclonal antibodies. Morphosys will receive $600 million in committed payments--in addition to potential milestones and royalties and co-promotional options. The deal reduces Morphosys reliance on fee-for-service antibody collaborations, and make no mistake, in terms of guaranteed payments, it's a monster. But it also seems to entwine Morphosys' fate with Novartis Biologics', as Novartis will have near exclusive access to the biotech's platform (Morphosys is ending existing collaborations with J&J's Centocor and Bayer-Schering). We may have more to say after Morphosys' conference call on Monday.
  
• Forest Labs received an approvable letter for its nebivolol beta blocker, a decision related to FDA issues with a manufacturing plant in Belgium. As we wrote last week, approval of nebivolol could buck the trend, and Forest (and partner Mylan's) insistence that FDA found no safety or efficacy reasons to deny the drug will be heartening to the companies. Forest is continuing to plan for a January launch.
  
• Hey, did you know that Biogen Idec was up for sale? No, really, we swear. Apparently they look expensive, given the current credit crunch and aversion to Big Pharma paper.


• The FT points out that the UK's Human Genetics Commission is warning the public off the various consumer genomics information providers. For background, David Hamilton at Venture Beat Life Sciences has been all over the recent consumer genomics news.


• GSK to Viehbacher and Stout: Thanks for playing. Second prize, two weeks in Philadelphia £2 million!


• Addex has announced that it has something to announce--most likely a deal on lead project ADX10059, which is in Phase II trials for GERD, migraine, and anxiety. The details on Monday morning. [UPDATE: Nope, Addex announced an alliance with Merck & Co. this morning to discover and develop positive allosteric modulators targeting the metabotropic glutamate receptor 4 (mGluR4) in Parkinson's disease. Addex gets $3 million up-front and up to $106.5 million in first-product milestones, plus royalties, and retains co-promote options in certain European territories.]

Read More