Vernalis: Rising From the Dead?

Maybe that's over-egging things a bit. But shares in the down-trodden UK biotech, which hit the rocks when marketed frovatriptan (Frova) failed to get a specific US approval for menstrual-related migraine, are creeping back up. And today's oncology research agreement with GlaxoSmithKline will probably help.

The deal provides Vernalis with $3 million up front cash, the same again as an equity purchase, and further potential payments of "in excess of $200 million" (yeah, you know they get carried away with the 'if-all-goes-according-to-plan scenarios') and, maybe, double-digit royalties one day. For this, Vernalis will do drug discovery against an undisclosed target using its structure-based-drug design technologies. (The target is one that both Vernalis and GSK had been working on previously, according to CEO Ian Garland.) If and when an IND emerges, GSK will have 90 days to decide whether or not to exercise its option to license the compound (s) and take on development and commercialization.

Yes, you spotted it--another option-based deal from GSK, option-dealmakers extraordinaire.

"The deal is structured as a risk-sharing agreement," says the release. Amid today's flurry of option-based deals, where risk is often heavily skewed toward the biotech partner, our first reaction was "you bet": Vernalis takes all the early risk, with some pocket money, and GSK may--or may not--choose to take on later risk.

But this deal is in fact a little more biotech-friendly than that. According to Garland, GSK will pay further pre-IND milestones of "more than $6 million", and the Big Pharma is also committed to doing the IND-enabling studies too (whatever they think of it at that point).

All of which helps Vernalis in its aim to fund most, if not all of its research activities. "Research either gets cut, or it pays for itself," Garland summed up to the IN VIVO Blog earlier this year. He says that this deal, plus two earlier alliances with Servier (the latest from May 2009), provide Vernalis with a two-year runway, to about mid-2011. That's assuming, rather conservatively perhaps, that the biotech receives no further GSK milestones.

Garland's hardly going to take undue risks with shareholders money, though--not after what many of them have been through already. Vernalis had become one of the UK's flagships, having acquired (among several) that other fallen hero of the sector, British Biotech, back in 2003. Our back-of-the-envelope calculation suggests and Vernalis and its predecessors had raised at least half a billion dollars prior to the Frova-related crash.

"It's unfortunate that shareholders lost a lot of money," Garland said in an interview in the Spring. "But this isn't British Biotech anymore; I'm not trying to make marimastat work." (Marimastat was the over-hyped BB cancer drug that ultimately failed, bringing the company down with it.)

What Garland is trying to do is as much as possible with Vernalis' residual assets (US commercial operations and marketed drug Apokyn were sold to Ipsen in a 2008 fire-sale; US Frova sales were also given away as part of a restructuring to settle debts and dues), taking advantage of the fact that basically, the only way is up.

When Garland took over as CEO of the downtrodden group back in December 2008 (having previously run vaccines group Acambis, sold in 2008 to Sanofi Aventis for £276 million) "we had a zero value starting point," he said. But he also believed "the negative has been overdone," and that starting again from scratch, with a very low valuation (Vernalis' market cap fell to £10m at one point; it's now just below £48m), provided "an entry point for [investors] to get on the elevator on the ground floor," he said.

For new investors, (or those willing to buy in some more) the elevator's on its way up. Vernalis is a leaner business, with a narrower focus on a few mid-stage projects. These include a Phase IIb neuropathic pain candidate, a Phase I candidate in inflammation, and late-research/pre-clinical compounds in pain and cancer. Meanwhile Biogen Idec will pay Vernalis a milestone if its licensed Phase II Parkinson's compound progresses to Phase III, and Novartis might owe small milestones linked to two Phase I cancer projects.

There are signs of life at Vernalis, then, but this is the company that can least afford to over-promise. Among Garland's 2011 goals are "to get back on our feet and re-establish credibility."

image from flickr user thebigdurian used under a creative commons license.

Viehbacher on R&D: Smaller Teams "Not Enough"

I couldn't help thinking Sanofi Aventis CEO Chris Viehbacher was having a bit of a dig at his old employer, GlaxoSmithKline, this morning. Check out this response to yours truly's question, after the 2Q results announcement, about what the French group is doing to re-invigorate its R&D: "If you think that just by creating a smaller team you make them more biotech-like....well, that's not enough, in my experience," he said.

Surely the veiled (or not-so-veiled) reference here is to the biotech-imitating drug performance unit structure at GSK, announced last year by CEO Andrew Witty (who, remember, nabbed the top-job off Viehbacher)? It's hard to imagine what other "experience" Viehbacher might be referring to--he joined GSK in 1988 after a stint at PwC.

"I don’t think [the R&D solution] is anything to do with structure. No one has found the answer yet, I don’t believe," he continued. (Ok, he's right there.) "We need to find a different way," Viehbacher continued.

What is that different way? Well, we won't know for sure until the third quarter, when the company plans to say more about how it's turning around its 13,000-strong R&D organization. From today's comments, though, expect a much more porous interface with academia and external partners (yes, big change there), less rigid (or perhaps no) budget and instead a more "grant-like" funding set up, and lots of stuff about culture, governance, and flexible processes.

For all of today's poo-pooing of structures, these are changing, though. In a June 2009 release announcing a new R&D model--and declaring the ambitious goal of becoming "the most effective R&D organization in the pharmaceutical industry by 2013" (take that, Glaxo!)--Sanofi Aventis talked about "grouping researchers in more productive structures", and strengthening “exploratory structures” that work in close collaboration with outside entities, and deploying reactive “entrepreneurial units” to encourage the emergence of innovation. The French group has already begun consolidating scientists at the same locations to foster intimacy (and, let's face it, to save costs).

Viehbacher's point, though, is that structural changes "should follow your vision," they should be the means rather than the ends. Doubtless GSK agrees with that, and, to be fair, this company's R&D experiment is just as much about cultural, process and governance change as it is about structure.

Indeed, for all Viehbacher's talk of a"'new way" (and I'd call it that, too, if I was running my own ship and wanted to stand out) there are more similarities between GSK's and Sanofi's (and indeed other Big Pharmas') R&D re-invigoration efforts than contrasts . Externalization, flexibility, entrepreneurial culture, increased accountability, more appropriate reward structures....you get the picture.

Given Viehbacher's 2013 goal, though, of course there's a race on to see who can find the best R&D model--driven perhaps as much by old rivalries as Big Pharmas' compelling need to sort out the innovation engine before everything goes OTC or generic.

Reassuringly, Viehbacher did today keep referring back to innovation as the heart of the company (although they and others, as we well know, are now officially "global diversified health care companies", not "innovation-driven R&D-based companies"). He also asserted that core pharmaceuticals would "always be more than half the company," despite--you guessed it--planned expansions in OTC and generics.

Image by Flickr user Nebbish1 and used under a creative commons license

When Is A Billion Dollars Not a Billion Dollars?

When you read about it in a press release. And today's award for most egregious use of a biodollar deal total goes to Chroma Therapeutics.

Don't get us wrong. Chroma no doubt signed an interesting, solid option-alliance with the King of All Option Alliances, GSK. The deal is in an exciting area of inflammatory disease research, using Chroma's esterase-sensitive motif (ESM) technology to create compounds targeting macrophages. Macrophages are central to inflammatory cascades that give rise to a variety of conditions. The undisclosed upfront and some early milestones will likely--if they're akin to payments in other GSK option-alliances--allow Chroma to fund the disco-development programs through POC.

Fantastic!

But there is zero clarity in Chroma's press release on the financial details. There's only one figure: $1 billion dollars. That's what Chroma gets "in milestone and option payments in the event that all four programs are successful." Cue "$1 billion dollar deal!" headlines. [UPDATE: here's one from Reuters!]

Is it impossible for Chroma to get $1 billion of GSK's cash-money? No. Is it highly friggin' improbable they get anywhere close? Yes.

Of course the improbable happens on occasion. For instance (if you'll allow us to go off on a tangent): on Sunday night the US men's national soccer team was up against Egypt in FIFA's Confederations Cup, in the last match of the group stage. For USA to advance to the semi-final, they needed to win BIG against a highly favored Egypt. In fact their margin of victory combined with Brasil's margin of victory over Italy (thanks to the tournament's goal differential rule to break ties in the standings) had to be six goals. And they weren't exactly playing very well going into the game.

What happened? Brazil beat Italy 3-0. Improbable, but not overwhelmingly so. And USA beat Egypt 3-0. Very improbable. USA advances to play Spain tomorrow. Taken all together? Extremely improbable!

The stars do align, sometimes. We were cheering for USA from our couch on Sunday night and we wish Chroma the best too. But lets see what has to happen for Chroma to reach that ten-digit number.

Chroma's macrophage-targeting compounds don't exist yet. The company "will undertake four discovery and development programs" to identify the small molecules. OK, so that has to work out. They need to identify lead compounds, optimize, start preclinical development programs, the whole nine yards.

Those four compounds need to make it to the clinic. Then those four compounds need to be successful up through Phase II proof of concept studies (after they've been deemed safe in Phase I). Then GSK will have to like each one of them enough to pull the trigger on its option.

Now keep in mind that success in the clinic doesn't necessarily translate into an option getting exercised (nor is that necessarily bad for Chroma). See, for example, GSK's deal with Exelixis, where GSK decided not to option Exelixis' Phase III XL184. Bad news for Exelixis? Hardly--BMS came in and paid top-dollar for the program only weeks later.

OK so say the programs are all successful through POC, and GSK options all of 'em. Well then each compound needs to be successful in large Phase III clinical studies, and eventually all four need to get approval. Probably (the release doesn't say) in multiple markets like the EU, the US, Japan, maybe even some developing countries like the BRIC markets? And then we're probably talking sales milestones as well. Do all four drugs need to become blockbusters? Do they need to avoid generic competition for a set amount of time? This is no six-goal differential. It's a sixty goal differential.

We don't think Chroma management is deluding itself. Maybe the up-front is better than some other GSK option-alliances and they'd rather not piss off current partners by having Chroma shout their windfall from the rooftops. But inflationary biodollar figures like $1 billion for a discovery alliance are just, well, silly.

image from flickr user peat bakke used under a CC license

While You Were Getting Your Guthrie On

Welcome to the Inauguration Edition of your (long) weekend roundup here at the IN VIVO Blog, and remember: this blog was made for you and me. On to the news!

So, while you were bird-watching ...

• Is Lundbeck considering a takeout of up-for-sale Elan? According to The Independent it is, but the paper doesn't name any sources. (h/t Reuters) But after the Flurizan debacle it seems like a strange move to us, despite the therapeutic area tie up in CNS. Lundbeck is 70% privately owned, however, and so mightn't have difficulty moving forward with a deal if its investors are on-side.
  
• Swiss biotech Arpida received an FDA 'complete response' letter for its NDA on the intravenous version of its antibiotic iclaprim. FDA, says Arpida, is requesting new clinical studies. The drug was dinged by FDA's advisory committee back in November.
  
• Galapagos and GSK expanded their alliance in anti-infectives to cover three additional targets, triggering a payment of €2 million to the Belgian biotech.
• Put down the knife, and STEP AWAY FROM THE PEANUT BUTTER.
• What? Football? Well that didn't go very well, did it? Congratulations to the Steelers and the Cardinals and their fans.
  

DOTW: Variations On A Theme

2008 is drawing to a close. Today marks the year's final "Deals of the Week" post. As this blogger takes time to reflect on the pre-holiday deal-making activity, it's no surprise that all of the deals in today's recap reflect broader themes at work in the biopharma industry. From Big Pharma's penchant for specialty products to highly structured alliances that allow both parties to share the financial risk (and gain), these deals mirror past DOTW discussions, as well as the larger themes highlighted in our various Deals Of The Year posts. DOTY voting commences on Monday. Remember to vote early and often. Until then, we hope you enjoy this week's variations on a theme. (Bach is optional.)

GSK/Dynavax: It was a good news, bad news kind of week for Dynavax. The biotech announced that it's partnership with Merck concerning the troubled Hepatitis B vaccine Heplisav was officially over (see below). Despite the bad news, Dynavax can at least take comfort in its recent deal with GlaxoSmithKline: an option-style tie-up that gives Dynavax $10 million up-front in exchange for a worldwide strategic alliance involving endosomal toll-like receptor drug candidates in four autoimmune and inflammatory disease areas, including Dynavax's preclinical TLR7/TLR9 inhibitor, DV1079. Under the deal's terms, Berkeley, Calif.-based Dynavax will conduct research and early clinical development using its proprietary technology, and GSK has the exclusive option to license each program at proof-of-concept, or earlier if certain circumstances occur. Should GSK exercise the option, it will take over development and commercialization activities, with Dynavax getting tiered royalties up to double digits, the two firms said Dec. 17. Dynavax, which could realize milestones up to $200 million apiece in each of the four programs, also retains the option to co-develop and co-market one pre-specified product. During a same-day investor call announcing the collaboration, Dynavax CEO Dino Dina called the partnership with GSK "a transformational event" for his biotech. "The alliance will allow us to diversify and advance a very valuable pipeline of products that target significant unmet needs," he said. According to "The Pink Sheet" DAILY, that's likely to be the case even if GSK ultimately declines the option on Dynavax's drug. Certainly, given the pipeline pressures of Big Pharma companies, it's unlikely there will be the stigma of "tainted product" attached to the program if GSK ultimately declines the option--assuming no adverse side-effects and positive clinical data with DV1079. Case in point: Exelixis. In October, GSK declined its option on Exelixis' small molecule oncologic XL184, ending a six-year R&D partnership that brought the latter firm an estimated $260 million in funding, including an $85 million loan. Exelixis regained all rights to XL184 and quickly partnered the molecule, along with an earlier-stage compound, with Bristol-Myers Squibb for $240 million in assured payments plus a major co-development and marketing role. For GSK , the deal marks the continuation of a business strategy heavily weighted toward option-based deals, which involve a relatively minimal upfront commitment for the global pharma, allowing it to hedge its financial exposure until the R&D risks are known more fully. In addition to its 2002 deal with Exelixis, GSK has also inked option arrangements with Cellzome, Affiris, Anacor, NeuroSearch, Regulus Therapeutics and OncoMed, according to FDC-Windhover's Strategic Transactions database.

Wyeth/Thiakis: This deal, which sees Wyeth acquiring London-based Thiakis’ obesity candidates, could best be described by a made-up word: alli-quisition (hey, you want real words, read a book). Wyeth pays $30 million up-front for Thiakis and its portfolio of synthetic gastrointestinal peptides and up to $120 million in earnouts tagged to downstream milestones. Our Pink Sheet DAILY in-depth coverage of the deal is here. Thiakis’ backers secure an exit—the biotech had raised about $19 million from private investors Novo and Advent Venture Partners—but without some of those milestone payments it’s not a particularly good one. Expect these kind of earn-out based deals to become more prominent as we move into 2009. With Big Pharma content to sit on the sidelines and wait while prices for biotech companies fall, most investors surveyed recently by FDC-Windhover believe future M&A activity is likely to place a premium on hedging risk. Earn-outs haven’t featured in a ton of deals lately—in fact thus far in 2008, just 20 percent of all private acquisitions have included earn-outs, down from a high in 2006 of nearly 43 percent of all private deals. (Read all about it in our next issue of START-UP.) Back to Wyeth: the pharma gets Thiakis' lead project, TKS1225, a potent, long-acting analogue of oxyntomodulin, which is a naturally occurring peptide hormone involved in regulating food intake. The hormone is released by the gut following food ingestion, sending satiety signals to the brain. It is thought to work through the GLP-1 receptor and does not cross the blood brain barrier, an important consideration given the suicidality risks associated with another class of obesity treatments, the CB-1 antagonists--Christopher Morrison.

Pfizer/Auxilium: As Big Pharmas continue to have more negotiating leverage, there’s a clear preference these days for tightly structured alliances rather than the outright biotech purchases. And given the regulatory hurdles associated with many big primary care drugs, Big Pharma is much more interested in specialty care products. Pfizer's tie-up this week with Auxilium illustrates both those trends. The two companies announced this week that Pfizer would pay $75 million upfront for the European rights to Xiaflex, a biological enzyme in Phase III for Dupuytren’s contracture and Phase IIb for Peyronie’s disease. Malvern, Pa.-based Auxilium stands to earn $150 million in regulatory milestones, $260 in sales-based milestones and increasing tiered royalties on Xiaflex if all goes well. Pfizer, meanwhile, has the right to negotiate commercial rights for additional indications within its territories, including frozen shoulder syndrome, where the drug is currently in Phase II trials. It sounds as though there was stiff competition for the biologic. In a conference call discussing the news, Auxilium CEO Armando Anido said the biotech chose Pfizer as its partner over several other global pharmas, because of the larger company's success marketing drugs such as Lipitor and Viagra. As might be expected, Pfizer's newly created specialty care business unit will have the commercialization honors. The Pfizer deal likely occurs at an ideal time for Auxilium, which faces a patent fight with Upsher-Smith Laboratories over intellectual property related to Testim, the biotech's testosterone gel for hypogonadism. Upsher-Smith notified Auxilium in October that it plans to file an Abbreviated NDA with the FDA for its own testosterone gel that it believes does not infringe on Testim's patent, which runs until January 2025.

Baxter/Avigen: Like so many other small biotech companies, Avigen, which focuses on neurological compounds, has had a tough year. The company has the dubious honor of posting one of the largest market cap losses among biotechs valued under $500 million in Q3 according to Rodman & Renshaw. Avigen's share price tanked in October when it announced negative news associated with AV650, its Phase IIb drug for the treatment of spasticity associated with multiple sclerosis. The biotech terminated its development partnership with Austria's Sanochemia Pharmazeutika and said it would focus on developing AV411, a novel glial activation inhibitor, for neuropathic pain and opioid withdrawal. But during its third-quarter financial call on Oct. 28, Avigen unveiled a massive restructuring plan that entailed discontinuing work on the glial activator and another preclinical product, AV513, unless a development partner could be found. CEO Kenneth Chahine said the new direction meant Avigen would have sufficient cash for four years of operations, given the $47.4 million the company had in cash, cash equivalents and securities at quarter's end. But the company's largest shareholder, Biotechnology Value Fund, which holds 29 percent of Avigen's stock and has provided capital directly to the biotech, clearly is troubled by the news. In a Dec. 11 letter to Avigen's board, BVF's Mark Lampert decried the steep decline in the company's share price, which has fallen 90 percent since 2004. He charged the company with threatening to destroy shareholder value by broadening "golden parachute" provisions for executives to one-fifth of Avigen's market cap and adopting a "poison pill" to prevent BVF from trying to intervene by purchasing a majority share. Lampert asserted that "Avigen has no real business at this time and has abandoned the development of all its products." Instead of looking for potential new partners and directions, the letter urged Avigen to return its excess cash to shareholders or at least offer a downside guarantee - an obligation to buy shares back at a specified price on a certain date. This week comes news that might appease Lampert and the crew at BVF. Avigen announced it was partnering its preclinical, oral blood coagulation product, AV513, to Baxter Healthcare in deal worth $7 million. "The sale of AV513 is an example of building value in a product that is differentiated from current therapies, and bringing it to a valuation point that generated a positive return on investment," said Avigen's Chahine in a press release announcing the news. Hmm, we can't wait for BVF's response.

GlaxoSmithKline/Genmab: Back in the days when licensors had clout, co-promote options featured in almost every deal. Biotechs figured they would keep their strategic options open just in case going commercial took their fancy, and Big Pharma were in no position to refuse. This week’s news that Genmab has sold back its co-promote option on CLL candidate ofatumumab to partner GlaxoSmithKline makes two things clear: first, many of these options are unlikely to ever be exercised given the logistical and financial commitments required (which is in large part why Big Pharma were so relaxed about granting them in the first place); second, in today's roiling financial markets, getting a guaranteed cash payment is a wiser course of action than holding out for theoretical money in the future. (A bird in the hand, as they say.) Genmab got just $4.5 million from GSK for the option, which covered a targeted oncology setting in the US and the Nordic region. Not a lot, particularly since GSK had granted Genmab the option to co-promote two of its own drugs , too—and agreed to reimburse some sales reps. But Genmab no longer has anything behind ofatumumab that could make a sales infrastructure cost-effective (one that Genmab estimates would have cost $7 million a year); it ended development of the potentially synergistic HuMax-CD4 for cutaneous T-cell lymphoma and its other program is in head and neck cancer. So if it wouldn’t have exercised the option anyway, why not take the money? And why not re-negotiate a lower share of the (currently 50/50) R&D costs, too, in exchange for a bit of royalty?--Melanie Senior.

AstraZeneca/MAP Pharmaceuticals: Another day, another deal heavily weighted on the back end. On Friday Dec. 18, AstraZeneca and MAP Pharmaceuticals announced a worldwide collaboration to develop and commercialize MAP's proprietary nebulized formulation of budesonide, currently in Phase III development, for treatment of pediatric asthma. While the biodollars sounded huge--"AZ, MAP ink $900 million asthma deal" read one write-up of the transaction--the reality is far less glorious. Under the terms of the agreement, AstraZeneca will pay MAP Pharmaceuticals an upfront cash payment of just $40 million (certainly not bad). True, the company owes MAP another $35 million if the ongoing Phase III trial reaches certain primary endpoints with the appropriate safety results. And, it's also true that at some point in the future, MAP could receive up to $240 million in potential development and regulatory milestones, as well as sales performace-related milestones of up to $585 million in the event the product is a considerable commercial success. Don't get me wrong--$40 million is a sizeable chunk of non-dilutive change and kudos to MAP for getting the deal signed at all. But the other $860 million? It may never well materialize--and MAP and its investors would do well to remember that. (NOTE: MAP wasn't the only potential winner in this deal: Elan Pharmaceuticals may also get a welcome boost. MAP's proprietary formulation of budesonide comes courtesy of Elan's nanocrystal technology. )


Merck/Dynavax: It's official. Merck and Dynavax announced Friday Dec. 18 that they were tabling their agreement concerning Heplisav, a Phase 3 hepatitis B virus (HBV) vaccine placed on clinical hold at the FDA earlier this year after a sgnificant adverse side-effect occurred. All rights to develop and commercialize Heplisav revert to Dynavax. According to the press release, Dynavax will continue to evaluate Heplisav's development options, especially as a treatment for adults outside the U.S. and for the global end-stage renal disease markets, which the company estimates represent approximately 70% of the total market opportunity for this vaccine. If the regulatory feedback is favorable, Dynavax plans to line up a new partner or financing arrangement to support necessary clinical work with the drug. It will be interesting to see how regulators outside the U.S. view the drug. Back in October, the FDA notified Merck and Dynavax that "the balance of risk versus potential benefit no longer favors continued clinical evaluation of Heplisav in healthy adults and children." Though Dynavax is putting on a brave face--it wins our award for the little biotech engine that could--there's no denying the company faces some tough choices in the months ahead. With limited cash resources--just $65 million including the recent up-front from GSK and '08 operating expenses for the first three quarters totalling over $50 million--it's hard to see how the company will be able to push Heplisav to the point where it is sufficiently derisked for potential future partners.

through the fingers by flickr user akash k courtesy of creative commons license.

Deals of the Year Nominee: GSK/Actelion

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Actelion’s worldwide licensing deal with GlaxoSmithKline for Phase III sleep drug almorexant isn't in this competition because of the alluring multi-billion biodollars associated with it. We know that potential regulatory and commercial milestones equal, for the most part, non-existent ones.

It’s in there because the July deal is one of those rare (and post-crisis, even rarer) partnerships where the biotech calls the shots. And where Big Pharma is very happy for biotech to call the shots because a) it keeps risk under control and b)—here’s the good bit--it’s picking up a tip or two on the way about how to run R&D.

Actelion remains fully in charge of the clinical program (unusual, not unique) and gets to further its own ends of creating a sales force by borrowing an appropriate GSK drug for a short time. Now sure, 'biotech hanging onto control' equals 'Pharma hedging its bets'. Small wonder: as we reported here, this compound is a novel mechanism, primary care pill for a non-life-threatening disorder. No wonder GSK is only funding 40% of the development costs. It won’t book sales, just 50% of profits. And while the $148 million upfront money for the Phase III candidate isn’t bad, it’s not blowaway. Nor are the slightly-less-blue-sky pre-commercial milestones of CHF 415 million associated with the drug’s first indication, primary insomnia. (Remember, this deal was signed pre-meltdown, just.)

But in a sense Actelion wanted GSK to hedge its bets because the biotech wants its own bets to hedge too. It reckons it's the one that can make a success out of a compound that it knows best, and, as a spokesperson claims, it's a “long-term deal" based on industrial logic, "not market logic” (thank goodness for that, then). The Swiss group can afford that luxury, with a market cap of CHF 7.1 billion ($5.9 billion) and CHF 1 billion in cash. This in itself makes Actelion a beast as rare as the novel-mechanism PC pill it's touting.

And it’s a company that GSK’s management apparently wants to learn a thing or two from. According to Actelion, its chief Jean-Paul Clozel was invited to speak to GSK R&D heads while the deal was being negotiated (see this post). That's significant: GSK is acknowledging that it might need to learn a few things about how Actelion does R&D, 'so please, biotech, come in and show us. And that means we can’t squash you or take you over, we need to watch you flourish and invite you to share your secrets.' Which explains why Actelion can boast about the wide-open, smiling communication channels right to GSK's boss Andrew Witty, and the origins of an anecdote about an email Witty sent to senior management in both companies essentially declaring that Actelion is in charge of the co-development program and for anyone who's got a problem to take it up with GSK's R&D chief Moncef Slaoui.

This deal also points to the alleged bureaucracy-slashing, crap-cutting going on under Witty’s watch at GSK. “This is a CEO willing to get his hands dirty,” notes one analyst.

Is the pharma leopard finally changing its spots? Who knows, but this deal might point to tantalizing evidence that it is. That’s why its one of our deals of the year. (And if Long-Awaited Change within Big Pharma doesn’t float your boat as a once-in-a-lifetime thing, how about this: a European biotech with sights set on building its own primary care sales force and with sufficient fuel to think about long-term investment in the pipeline. A rare sight.)

image from flickr user lu lu used under a creative commons license.

Is Biotech Running GSK?

"Smaller, biotech-like units" have been the name of the game at GlaxoSmithKline ever since the CEDDs (Centers of Excellence for Drug Discovery), round one, were announced post-merger in 2000.

Fast-forward eight years and now it's not just biotech's size that's influencing the pharma giant. These days biotech CEOs are showing GSK pod-chiefs how to run an R&D business--and, since earlier this week, one is running part of GSK himself.

Christoph Westphal, former-CEO of Sirtris, which GSK acquired for $720 million in April (one of our Deals of the Year Nominees), will now head up the externally-focused CEDD (or CEEDD), along with Sirtris' VP Corporate Development Michelle Dipp. While remaining at Sirtris' premises, Westphal will "challenge the norm and stretch us to consider new ways of working" in drug discovery, according to GSK's head of Discovery Patrick Vallance.

The idea is that Westphal’s experience founding, running and investing in biotech will help the CEEDD attract promising assets into GSK’s pipeline via alliances and partnerships.

Westphal’s appointment isn’t the first of incoming CEO Andrew Witty’s attempts to infuse the group with biotech-like management, accountability and creativity. Ian Tomlinson, former CEO of Domantis (which GSK acquired in 2007 to beef up its next-generation biologics capabilities) is a senior R&D exec at the Big Pharma. And earlier this year, Witty invited Actelion CEO Jean-Paul Clozel to talk to GSK CEDD heads about how biotech manages research—and give them a few lessons from one of Europe’s few biotech success stories. (Actelion has since signed a deal with GSK on sleep drug almorexant.)

The moves make sense. GSK’s CEDDs are supposed to be run as more or less autonomous units with their own P&L responsibility, but structure alone doesn’t create a mindset. Thus far the CEDDs haven’t exactly revolutionized Glaxo’s pipeline, even though several other Big Pharma, including Roche and Pfizer are trying similar things. “The challenge is to make the CEDD heads entrepreneurial,” comments one analyst--and to incent them to perform, or else.

Witty’s June announcement of the latest CEDD-like iteration, 50-person-strong Drug Performance Units focused on specific biological pathways and competing internally for resources, sends a clear message: We’re no longer just pretending to be like biotech, cushioned within a comfortable, cash-rich bureaucracy. We are a series of biotechs.

And as is abundantly clear out in the real biotech world, there ain’t many safety nets about.

jacket image by flickr user ckount used under a creative commons license

Deals of the Week: A Little Less Conversation, A Little More Action, Please

This week was one of those weeks where so much more seemed to happen than actually did. Yes there was the rumor that Pfizer was buying Bayer (we tend to agree with Derek Lowe's thoughts on that one, the deal is on the "Edge of Reality"), the Carl and Jim Show ("Return to Sender," covered extensively by our Pink friends) and King's hostile attempt to take over Alpharma ("Don't be Cruel," see yesterday's release here and our coverage of King's original offer here), and various other rants and rumors.

Execs across the industry have been "All Shook Up" in the most compelling actual news this week, with Christine Poon retiring from Johnson & Johnson in March 2009, Ellen Strahlman leaving Pfizer to become GSK's chief medical officer and GSK CEO-runner up Chris Viehbacher taking the top slot away from Gerard Le Fur at Sanofi.

Finally we thank the dealmakers below. They didn't step on our "Blue Suede Shoes" and so they have the honor of ...

GSK/Cellzome: GSK has entered into an option agreement with Anglo-German biotech Cellzome around seven kinase inhibitor programs in the area of inflammation, the companies said on Wednesday. Though the deal generated several hyperbolic wire story headlines the guaranteed payments (about $25 million in equity purchases and cash, split undisclosed) were rather more pedestrian. More importantly, the deal has some interesting features and further underscores the externalization of R&D at GSK under new chief Andrew Witty. Cellzome is essentially becoming GSK's center of excellence in kinase drug discovery, at least in the inflammation space, Cellzome CEO Tim Edwards told IN VIVO Blog yesterday. GSK has an option to license--at clinical proof of concept or earlier--drug candidates from Cellzome's kinases programs against four identified targets (which very likely comprise the biotech's previously announced programs against mTOR, Zap-70, PI3K delta and JAK3) and an additional three further targets. Edwards noted the deal does not include Cellzome's lead PI3K gamma program for which the company hopes to file an IND in 12-18 months. Until such time as GSK opts into a project, Cellzome is footing the R&D bill. However the biotech can earn milestone payments along the way that will cover those costs, and keeps rights to programs GSK declines. "We have day-to-day control," explains Edwards. "They're sponsoring us, as it were, and as we make achievements we bring in additional dollars." Cellzome has previously inked a handful of deals around its proteomics mapping platform and has outlicensed Alzheimer's programs to J&J, but this deal is its first around its Kinobeads technology. That platform allows the firm to screen for kinase inhibitors in a "physiological setting," which Edwards claims means they can identify very selective inhibitors of individual kinases. "In oncology you can hit four or five targets," without compromising the safety/efficacy profile of a kinase inhibitor. "But that isn't OK in inflammatory disease, and the solution is to have very selective inhibitors. It's amazing how you can change a molecule in a very small way and change its selectivity profile in a profound way," he says. Optioning nearly all its programs to one partner in its chosen (and crowded) field of kinase discovery does suggest that GSK is the private firm's only potential suitor, however, significantly limiting Cellzome investors' exit options (the company has raised at least €73 million since 2000 from a variety of VCs). "Today that may be the case," says Edwards. But perhaps not for long, he says. Cellzome aims to reconfigure its screening platform for other target classes and is also diversifying out of inflammatory disease into CNS and potentially other therapeutic spaces. And then there's the PI3K gamma program. For now, Edwards is keeping the details of that program under wraps.

Tripos/Pharsight: Drug discovery informatics player Tripos said this week it was acquiring clinical-software specialist Pharsight for about $57 million ($5.50/share). That price is a 29% premium to Pharsight's 30-day average. The combined company will now provide R&D software and services from discovery through to the market, says the release. Sorry to "Forrest Gump" you, but that's all we have to say about that.

Alfama/hemoCORM: Alfama and hemoCORM, two companies pursuing the use of carbon monoxide releasing molecules (CORMs) in a variety of chronic and acute diseases, merged this week. The terms were undisclosed. We profiled each of these companies back in 2004 (see here and here). Back then we wrote: "CO is produced naturally in the body as a result of the breakdown of heme oxygenase, an enzyme involved in the recycling of iron. But CO is more than simply a useless by-product. Recent research has shown that under physiological conditions, it is also important signaling molecule with vasodilatory, anti-inflammatory and anti-apoptotic properties." Both Alfama and hemoCORM are working on metal carbonyls, one of the first types of compound identified as a potential CO-carrier. hemoCORM's initial efforts are focused on ischemic perfusion injury, while Alfama is working primarily on treatments for inflammatory and auto-immune disease. Alfama chief Nuno Arantes-Oliveira will lead the combined group.

CV Therapeutics/Menarini: This week's late-breaker see's CV Therapeutics licensing European, CIS, and certain South and Central American rights (27 countries in all) to its recently approved ranolazide (Renaxa) to Italian pharma Menarini for $70 million in upfront payments plus a potential $315 million in milestone payments and investments linked to European label extensions and sales figures. The angina treatment has been marketed in the US by CVT since January 2006; currently the company aims to secure approval in a first-line angina setting.

Amgen/potential denosumab partner: Remember when we were all "Amgen might be looking for a denosumab partner, how much would you pay for it"? And you readers were all "sorry, IVB, I'd really like to take a stab at this, but I'm washing my hair, can I get back to you"? Well, it seems absent any solid advice from you guys, Amgen CEO Kevin Sharer is now saying that a US partnership around denosumab is unlikely (though things might be different overseas). "It is very hard for me to imagine what another company would bring to us," in North America, Dow Jones reports Sharer saying at the Morgan Stanley health care conference on Tuesday. Maybe Sharer needs to watch a little Sesame Street to get those imaginative juices flowing. Let us help out: a worldwide or US partner on denosumab would not only bring Amgen a significant upfront payment, primary care expertise, and drug reps, but also a big ol' hedge against the risk that the product will be delayed or even fail. Bonus Denosumab: The Pink Sheet DAILY points out today that doctors worried about denosumab getting adequate reimbursement are asking Amgen for assurances for financial protection in the event Medicare won't cover the full cost of the drug.

New CMO Means Business For GSK

No new CEO in our industry has done more to shake up his organization than GlaxoSmithKline's Andrew Witty (except perhaps Severin Schwan of Roche with his bid for Genentech--but that's another story).

Earlier this spring he created high level positions devoted to corporate strategy and emerging markets and the formation of a new $500 million corporate venture fund. Just days after rumors concerning also-ran Chris Viehbacher's departure were confirmed comes news that Witty's lured Ellen Strahlman, MD, away from Pfizer, where she served as VP Licensing and Worldwide Business Development, to the role as GSK's chief medical officer.

As the press release announcing Strahlman's appointment helpfully points out:

"the Chief Medical Officer is the most senior physician leader of the company with primary responsibility for matters of patient safety, general medical governance, ethics and integrity, medical information, and investigation involving human subjects relating to any GSK products in development or on the market."

Which is what makes Strahlman's appointment so interesting. Yes, she's a well respected physician--an ophthalmologist by training. And since she once served as CMO and Global Head of R&D for Bausch and Lomb, so she's no stranger to the duties a CMO title brings with it. But her most recent stint at Pfizer, where she was at least partly responsible for spin-outs and outlicensing, means she comes with a business focus that's atypical of most of the industry's CMOs.

And Strahlman's background is by no means unique in the boardroom at GSK. When you look at who occupies the top spots at this pharma, a number of them have deep biz dev experience. Among them: Russell Greig, head of the new GSK Venture Fund, who was GSK's senior VP of world-wide business development before becoming president of Pharmaceuticals, International; David Redfern, the company's new strategy guru, who has held stints at GSK as SVP Corporate Strategy and Development and SVP of Northern Europe; and Moncef Slaoui, who was SVP world-wide business development for GSK before becoming chairman of the R&D program.

And that leads this IN VIVO Blogger to wonder...With so many top brass at GSK--including now the CMO--trained to look for products outside GSK's own pharm system, what's the importance of internal R&D to GSK?

It's a fair question. GSK has never shied from inking big deals to fill its late stage pipeline drought. In recent months that's meant tie-ups with Valeant for their Phase III anticonvulsant, Actelion for their Phase III insomnia drug, and Cellzome for their Kinobead technology and kinase inhibitor discovery/early development. And in attempt to spur innovation within GSK's walls, Witty announced in July a reorganization of the CEDDs into discovery performance units that will compete for internal financial resources much the way biotech start-ups vie for VC funding.

“Externalising R&D enables GSK to capture scientific diversity and balance expenditure and risk in drug development. In the future, we believe that up to 50% of GSK’s drug discovery could be sourced from outside the company,” Witty said in a press release announcing the new strategic priorities.

No one is suggesting that Witty wants to jettison GSK's internal R&D--at least for now. But the structural changes that have already been announced and this most recent appointment of Strahlman to CMO suggest that more and more business as usual at GSK will also come with an external focus.

GSK’s Promacta at ASCO: Advisory Committee “Show and Tell”

When it comes to finding ways to recruit new members for its advisory committees, the Food & Drug Administration is getting pretty creative.

Having already undertaken various activities to fill vacancies among its expert panels, FDA embarked on the Ultimate Roadshow at the American Society of Clinical Oncology’s annual meeting last week in Chicago: a committee review of GlaxoSmithKline’s eltrombopag (Promacta), a non-peptide oral platelet growth factor for the treatment of idiopathic thrombocytopenic purpura.

As the saying goes, if you can’t bring the candidates to the advisory committee, bring the advisory committee to the candidates. And we’ve got to hand it to FDA: what better opportunity to attract new members then to hold a meeting smack dab in the middle of one of the biggest medical conferences of the year?

FDA has been working to fill advisory committee vacancies for some time—by creating a central database for committee openings and asking medical associations to nominate potential candidates. But there are still more than 100 openings between the drugs and biologics review centers alone. (For a breakdown by advisory committee, check out this chart in the latest issue of “The Pink Sheet.”)

The committee that reviewed Promacta at ASCO, the Oncology Drugs Advisory Committee, or ODAC, currently has four vacancies. Compared to other advisory committees, oncology isn’t doing too badly: the Dermatologic and Ophthalmic Drugs Advisory Committee, for example, has 12 vacancies, and the Anesthetic and Life Support Drugs Advisory Committee has nine.

But the decision to hold Promacta’s review at ASCO is based less on ODAC’s relative need for additional committee members, and more on the vision of the lead oncology reviewer at FDA, Richard Pazdur. (For more on Dr. Pazdur, check out our earlier story in the The RPM Report; those who don’t subscribe can sign up for a free trial.)

Pazdur is quite dedicated to an open, transparent review process. Summaries of ODAC’s meetings, for example, are published in peer-review journals. By scheduling the Promacta meeting during ASCO, oncologists have a “convenient opportunity to observe first-hand the processes and issues that are considered during an ODAC meeting,” FDA says.

With any luck, the agency says, some of those oncology experts in the audience might become interested enough to serve on the committee. Hence, “it can also serve as a recruitment tool.”

Pazdur has done this sort of thing before: Promacta is actually the second committee meeting to be held off-site at a medical conference. At Pazdur’s suggestion, Bristol-Myers Squibb’s dasatinib (Sprycel) for chronic-phase chronic myeloid leukemia was the lucky subject of a committee review during the ASCO conference in June 2006.

We say “lucky” because Sprycel was unanimously recommended for approval, and was quickly cleared for marketing later that month. Likewise, Promacta was recommended for approval by a 16-0 vote, despite concerns that eltrombopag’s marketing plan includes, according to FDA, a risk management program that encourages off-label use.

With a sample size of two—and FDA's final say on Promacta's approvability still outstanding—we suppose it is premature to assume that a cancer treatment would have an easier time getting past an FDA advisory committee held in the midst of the greatest oncology R&D love fest in the world. But it is something to think about.

So far, none of the other FDA review divisions have followed Pazdur’s lead. But it may make good sense. Consider this: the Dermatologic and Ophthalmic Drugs Advisory Committee May 29 review of Sirion Therapeutics’ difluprednate (Durezol) convened with just four voting members. That's a lot of power in the hands of just a few people.

Entereg Approved at Last

Perspective is an amazing thing.

In June 2004, Adolor Corp. filed a new drug application for alvimopan (Entereg) for treatment of postoperative ileus. The product had "fast track" status, and Adolor and partner GlaxoSmithKline expected to launch the drug by the start of 2005.

What do you think they would have said if you had told them that the drug would not reach the market for four years, and then only with tough restrictions limiting access to the hospital setting and the course of therapy to two weeks or less? We try to keep our blog clean, so we won't speculate on the exact commentary that company executives might have offered.

In any event, here is what Adolor CEO Michael Dougherty did say during a conference call announcing the approval of the drug May 21: "This is such a big day for Adolor...Gaining approval of our lead product is a transforming event for our company. I cannot tell you how excited we are at Adolor."

And so Adolor joins the ranks of company's that are positively giddy at the prospect of becoming pioneers in the new drug safety era.

It joins a handful of other drugs approved by the agency under the new Risk Evaluation & Mitigation Strategy authorities that took effect March 25. (You can read more about the REMS pioneers in The RPM Report.)

Entereg is a precedent-setting new drug approval: the first new molecular entity approved by the agency with a formal, mandatory restriction on the setting of care in which it can be marketed. As part of the program, Adolor and GSK will have to monitor actual use of the drug and take corrective action if it is being used outside of hospitals or for longer than the 15-day therapy maxiumum.

It is surely a measure of how much the world has changed for drug development companies that the approval of Entereg, four years late and weighed down by those tough marketing restrictions, can still be greeted as a good news event. (Adolor shares jumped 10% in after market trading when the approval was announced May 20; profit takers and launch skeptics have brought it back down today.)

But it is also true that the REMS era is beginning about as well as it possibly could for the industry. Each of the first five products covered by the new authority is a drug that was stuck at FDA. The sponsors certainly didn't expect to find themselves bogged down by safety issues at the agency--but they also eagerly embraced the opportunity to become REMS pioneers as a way to get to the market at last.

S.R. One 2.0?

Andrew Witty hasn’t officially taken over the reins at GlaxoSmithKline from Jean-Pierre Garnier. But already there are signs of significant change. Last week came news of an impending management reshuffle. Now IN VIVO Blog has learned that Witty wants to create a new corporate venture fund that could have as much as $500 million at its disposal.

The eponymously named GSK Venture Fund, which hasn’t formally been announced, will have a two-fold agenda: First, the group will make strategic investments outside the company that will bolster the pharma’s internal R&D strategy; second, the venture group will commit capital to build start-ups around assets that GSK has deprioritized.

Russell Greig, currently GSK’s president of Pharmaceuticals, International, will take control of the fund on June 2, reporting directly to Witty. Prior to running Pharma International, Greig was senior VP of world-wide business development for GSK. No doubt he has a Rolodex—or even an Outlook folder—filled with contacts that will serve him well in the clubby world of VC. Rumor has it, he’s already off to an aggressive start: Greig apparently has spent the past few months renewing or establishing contacts with East and West Coast venture capital firms as part of the diligence required to start the new fund.

This isn’t GSK’s first foray into the world of corporate venture. Back in the 1980s, the pharma established SR One, an evergreen fund that to date has invested $550 million in 125 companies Those investments have been primarily passive—in other words, SR One hasn’t actively sought to gain rights for GSK to the products or technologies of the companies in which it invests. "We don't take options and there are no call-backs," said managing partner Joyce Lonergan, at Windhover's March Pharmaceutical Strategic Outlook meeting. "Our mission is to be on the outside edge of where GSK's BD guys are," said Lonergan.

It seems likely that won’t be the exclusive modus operandi for the GSK Venture Fund, of which SR One will now become a part. Rumor has it that one reason Witty is so keen to start this new fund is that SR One's investments haven't had much impact for GSK. Said one insider, SR One “doesn’t move the needle for GSK.” Certainly, Greig and his team will have unprecedented access to GSK’s top brass, something SR One has never enjoyed. (Until this restructuring, the SR One group reported to GSK’s head of business development, Ad Rawcliffe, who in turn reported to Moncef Slaoui, GSK’s head of R&D.)

GSK is just the latest pharma to take a more active interest in corporate VC. As we reported back in November, big pharma is reaching far and wide for new business development strategies that might help them fill their pipelines without having to overpay for the best licensing and M&A deals. They're are eager to function more like traditional stand-alone venture capital firms, with an eye toward locking early into the best deals and identifying new industries that might help them broaden their product portfolio. Pfizer Inc.'s venture group, for example, is investing heavily in diagnostics while Novartis' venture group is investing in medical device companies. In addition, Novartis company also has a $100 million option fund for investing in companies with early stage platform technologies. The idea: at the time of investment, the fund takes a no-cost option on a given start-up's program--usually after its reached clinical proof-of-concept--giving the pharma (theoretically) cheap access to new compounds.

Nor is GSK unique in looking for new ways to monetize low-priority assets. Every major pharmaceutical company we’ve talked to recently is thinking aggressively about out-licensing and risk-sharing options. (Even Pfizer, which made news last week with the spin-out of Esperion 2.0. We’ll have more about that Big Pharma’s BD strategy in the upcoming May IN VIVO.)

The new bus dev mantras? First, out-license products for cash and royalties, preferably with an option to buy back the product if it’s successful. Alternatively, consider teaming up with another Pharma—preferably one with deep pockets that is willing to share development and commercialization costs—and therefore the risk—much the way Bristol Myers Squibb did in its deals with AZ (two diabetes compounds) and Pfizer (the anti-coagulant apixiban). Pharma companies are also looking to start new companies around non-strategic assets, getting equity in the newco in return for contributing the compounds.

The creation of the GSK Venture Fund raises numerous questions. First, what happens to SR One? The group has been making venture capital investments for more than two decades. Just how will the fund will function as part of this newer, larger GSK Venture Fund entity isn't clear. It's worth noting that despite its 20-year history, management of SR One has seen some significant turnover ever since founder Peter Sears left the group.

Second, GSK already had tried and failed to build a program to license unwanted assets. The now-defunct GSK Ventures had been set up to invest not money but GSK assets--technologies, early-stage compounds, patents--into new venture-backed companies. The program took a hit when its founding managers left GSK to start their own firm. But observers tell us GSK's R&D group simply balked at providing the assets. This is where Greig's direct report to Witty might help just a bit.

Finally, how far afield might GSK Ventures go? Will the group look outside of its core industries as Pfizer and Novartis have done? Could diagnostics, devices, or even services be part of the group's future portfolio?

Claritin+Singulair=There is No Such Thing as Low-Risk

The way things have been going for the Merck/Schering-Plough joint venture, it really shouldn't surprise anyone that their pending application for a fixed-dose combination of Merck's blockbuster asthma/allergy pill Singulair and Schering's off-patent Claritin received a "not approvable" letter from the Food & Drug Administration.

But the outcome must still be a surprise to investors who reacted with excitement to the companies' announcement at the end of August that it was filing an NDA for the product. (Yes, it really was only 8 months ago that drug stocks could move up on unexpected news.)

The combination was all but forgotten after the companies announced in 2002 that they couldn't demonstrate significant efficacy improvements when Claritin was added to Singulair. So everyone assumed MSP was a one a trick pony, albeit one with a nice trick--Vytorin. (Merck points out that the allergy combo is part of a separate partnership from Vytorin.)

Its hard to remember, but back in August no one was worried about Vytorin. And it doesn't take a rocket scientist to imagine the potential for even modest improvements on Singulair to generate big revenues: after all, the brand is now Merck's biggest at over $4.5 billion per year. So Wall Street cheerfully assumed that the companies had found a way to prove efficacy to FDA's satsifaction and took out their calculators to figure out how to adjust EPS models for the two joint venture partners.

Well, not everyone felt that way. Not to appear immodest, but (ahem) we highlighted the reaction to the NDA filing way back in September as an example of an apparent misreading of regulatory risk.

In the "Safety First" climate dominating FDA, companies and their investors can be forgiven for looking for low-risk development strategies. Just one problem: in the current regulatory climate, there is no such thing as a low risk drug development strategy. That's why, in a presentation to Windhover's Pharmaceutical Strategic Alliances conference, we cited the Singulair/Claritin combo as an example of a drug development program that was probably higher risk than it looked. (Don't believe us? Listen to the audio and see the slides here.)

Did we have some secret source telling us details about the NDA that no one else knew? Alas, no. We tied our observation to the recent travails of some other line extensions that seemed hung up at FDA based on what can only be described as unexpected safety issues. Our example: GlaxoSmithKline/Pozen's naproxen/Imitrex combo for migraines, which had been made "approvable" twice at FDA pending more safety data.

Given the many thousands of people who use those drugs in tandem already, it seemed odd that the agency needed more safety information about the fixed-dose combination--especially since it didn't accompany the "approvable" letters with any kind of warnings about the marketed products. That struck us as a clear indication that plans to market new combinations of already marketed ingredients are probably better considered low priorities for FDA, rather than low-risk development projects. And even a hint of a safety issue is sure to stall the NDA, since the reviewers know that they aren't denying anyone access to the medicine if they ask the sponsor for more data.

Merck and Schering didn't say what issues FDA raised with this combo. The Pink Sheet DAILY, however, logically connects the "not approvable" letter to a recent "early communication" issued by FDA warning of a possible association of use of the drug with suicidality. That regulatory landmine has claimed plenty of innovative products, so it is probably safe to assume it is a big factor in the setback for this combo. (We'll have much more on that theme in the next issue of The RPM Report.)

UPDATE: Logic only gets you so far. According to Merck, safety was not the issue with the Singulair/Claritin combo.

Still, the outcome is odd at best. Take Claritin, one of the safest drugs ever marketed as a prescription-only product. Add it to Singulair, one of the most widely prescribed brands today. And you get a drug that somehow can't get to market.

We'll say it again. There is no such thing as a low-risk drug development strategy.

One other thing: regulatory risk may never be low, but it also isn't infinite. That GSK/Pozen migraine drug? It was approved by FDA on the third go-around. GSK still sounds excited about its potential.

Venture Round: VCs (and others) Win With Sirtris

Tired of Sirtris-GSK talk yet? Too bad. As we now bring you, the venture angle.

As you no doubt know by now, GlaxoSmithKline will pay $725 million for Sirtris Pharmaceuticals Inc., paying $22.50 per share, an 84% premium over Sirtris' closing price.

We've already gone over the particulars of the deal, including some of our concerns. But one irrefutable fact is Sirtris' venture investors made more than a few bucks.

As should be the case, the earlier investors did the best. Polaris Venture Partners, TVM Partners, Cardinal Partners, Skyline Ventures and a few of the company's co-founders will do very well. But by our measure even investors in the company's last private round early last year will see nearly their capital nearly triple, including the cigar-smoking guy directly above.

Now let's go over a round-by-round account:

* Back in the fall of 2004, Series A investors Polaris, TVM, Cardinal and Skyline as well as a few individual—co-founder Richard Aldrich, Paul Schimmel and David Sinclair—paid 50 cents a piece for 10 million shares of convertible preferred stock. At last year's IPO, those shares converted into 1.9 million shares of common stock, so by our measure those investors ultimately paid roughly $2.63 per common share.

* Later that year, Sirtris raised another $12.6 million by selling 21 million shares of Series A-1 convertible preferred stock for 60 cents a piece. The four venture investors bought in along with Wellcome Trust Limited. At the IPO, the shares converted into 4.1 million shares of common stock, meaning investors ultimately paid roughly $3.07 for each common.

* Series B investors, who came along in the spring of 2005, bought 33.7 million shares for $27 million, paying 80 cents per share. All the earlier VCs were joined by Three Arch Partners and Novartis BioVentures. Those 33.7 million shares converted into 6.4 million of common at the IPO, making the per common share price $4.20.

* Sirtris went to the well again in spring of 2006 raising $22.1 million in a sale of Series C stock, priced at $1.12 per redeemable share. Investors this time included all of the Series B investors as well as a trust managed by Schimmel, Paul Schimmel Prototype PSP. After the IPO, the 19.7 million preferred shares converted into 3.7 million common shares so these investors paid $5.88 per share.

* Finally, Sirtris capped off its private fund raising with a $35.9 million round at the start of 2007. Earlier investors TVM, Skyline, TVM, Three Arch as well as Sinclair were joined by CEO Christoph Westphal, co-founder Sinclair and Peter Elliott, senior vice president and head of development. Investors paid $1.68 each for 21.3 million shares of Series C-1 redeemable convertible preferred stock. At the IPO, those converted into 4.07 million shares of common. Per share price: $8.81.

Who were two other big winners? A trust managed by John Henry, the principal owner of the Boston Red Sox (pictured), was the single largest investor in Sitris' C-1 Round. Not sure how he came to be involved in Sirtris, perhaps he met up with fellow Brookline, Mass. resident Westphal at their neighborhood Dunkin’ Donuts. Meanwhile,Venture lender Hercules Technology Growth Capital will crow about its big returns in an upcoming conference call. (Tip of the cap to PE Week Wire for pointing this out.) Hercules provided Sirtris $15 million in venture debt in 2006.

Insider Sales

Sirtris wasn't public long enough to file a proxy. You can find out who owned what just after the IPO right here. But some investors and executives already unloaded some stock, so the final numbers will be different.

Early investor Polaris, for example, distributed close to one million shares to its limited partners on Nov. 30, just after the lock up expired. Shares closed at $16.09 on that day.

Co-founders Westphal and Sinclair, meanwhile, sold off 55,000 and 30,000 shares, respectively, over the past few months, with the shares selling anywhere between $11.23 and $14.95. The sales were part of a Rule 10b5-1 trading plan, a prearranged and gradual sell-off of shares by insiders. Separately, Schimmel also sold off just over 11,000 shares at $17 a piece.

Westphal's Future

In our earlier post, we wondered whether Westphal would remain with GSK to run the unit or return to his venture capital roots as he was a proficient company starter while at Polaris. Westphal has kept his fingers in the venture game serving as senior advisor to Flybridge Capital, formerly IDG Ventures.

No doubt, venture capital will continue to call to Westphal, but he will have strong incentive to stay at GSK. According to the 424B4 form filed after the IPO, the stock vesting scheduls for Westphal contain a "double trigger" requirement that "prevents an unintended windfall to management in the event of a friendly (non-hostile) change of control."

Under this structure, unvested equity awards under our 2004 Stock Plan would continue to incentivize our executives to remain with the company after a friendly change of control. If, by contrast, our 2004 Stock Plan had only a "single trigger," and if a friendly change of control occurred, management's equity awards would all vest immediately, creating a windfall and the new owner would then likely find it necessary to replace the compensation with new unvested equity awards in order to retain management. This rationale is why we believe a "double-trigger" equity vesting acceleration mechanism is more stockholder-friendly, and thus more appropriate for us, than a "single trigger" acceleration mechanism.

Westphal found Sirtris' story compelling enough to leave a general partner position at Polaris. That attraction--coupled with the "double trigger"--means he may stick around for a while.

As always, if you have any private suggestions, tips, and comments on my math email me here.

Deals of the Week: Going Green

There were lots of reasons to evoke the color green this week. Lest you've forgotten, Tuesday was Earth Day. The IN VIVO Blog team hopes you celebrated appropriately--perhaps by replacing those incandescent light bulbs with compact fluorescent ones or off-setting the carbon dioxide emissions from a recent plane trip. (What? You have an alternate suggestion?)

It was also earnings week--that time in the fiscal calendar when certain big pharma are forced to admit to investors and analysts that "it's not easy being green" to quote an overly analytical Muppet. Among those posting quarterly losses were Bristol-Myers Squibb (thanks to charges associated with cost-cutting measures), GlaxoSmithKline (profits down 5% on tumbling Avandia sales), and Schering Plough (down 48% due to costs related to the integration of Organon as well as the Vytorin mess). Pfizer, the industry's favorite punching bag, opted to announce its bad news late last week in advance of a shareholder meeting in Memphis.

But if the quest for greenbacks was onerous, it certainly wasn't impossible. A number of companies posted positive news, including Amgen, Bayer, and Novartis. We confess color-blindness when it comes to Merck and Lilly. Merck's first-quarter earnings rose to 89 cents a share, beating analysts' expectations. Unfortunately, sales missed their mark, edging up only one percent. Lilly meantime posted lower than expected earnings, mostly due to disappointing Byetta sales.

The preoccupation with quarterly earnings meant deal flow was lighter than average, but still we found other green examples--of the biobucks variety.


Astellas/CoMentis: We'll give top-billing to the latest entrant this week, and it's a doozy. In another big win for Japanese pharma, Astellas Pharma said this morning that it licensed worldwide development and commercialization rights to CoMentis' beta-secretase inhibitor programs--for $100 million up-front (80/20 cash/equity split) plus up to $660 million in pre-commercial milestones on the program's lead Phase I compound, CTS-21166, and additional milestone payments on any next-gen compounds discovered as part of a joint research program. CoMentis retained a co-promote/profit share in the US and elsewhere will receive undisclosed royalties. Astellas will fund development up to Phase III and the companies will split the cost of a (probably very expensive) Phase III program. Inhibition of beta-secretase has long been an unrealized goal of industry and CoMentis' ability to get its program into the clinic made it the subject of takeover rumors, as we noted in this September 2007 feature on early-stage Alzheimer's programs. Back then, CoMentis CFO John Donovan told us that the company wasn't being managed toward a quick acquisition. But rather the goal was to partner the beta-secretase program sooner rather than later, he explained, while keeping a significant piece of the back-end value—half of US rights, for example. "Most of the top 20 companies are in this space, and the top five view it as a must-win," said Donovan.

Cubist/Dyax: Cubist Pharmaceuticals signed a licensing and collaboration agreement with Dyax to develop that company's DX-88, an intravenous product in mid-stage clinical trials for the prevention of blood loss during surgery. Deal terms were smallish: Dyax will get $15 million up-front, plus another $2.5 million later this year in milestones. The company is also eligible for an additional $214 million in clinical, regulatory, and sales-based milestones. For good measure, Cubist has generously offered to pay for costs associated with the on-going Phase II trials (known as Kalahari 1), and will thow in tiered, double-digit royalties based on DX-88 sales and an option for Dyax to co-promote the product in the US. If the up-front seems low, at least Dyax gets to keep exclusive rights to DX-88 in all other indications, including its hereditary angioedema program, currently in its second Phase 3 trial.

GSK/Sirtris: Sirtris was the big winner this week. After the markets closed Tuesday, the biotech announced a stunner of a deal: GSK had agreed to acquire the early stage company for $720 million. Yep, that's right. Nearly three-quarters of a billion in cold hard cash for a company with just one less-than-exciting Phase II product and a raft of interesting molecules that have the potential to treat a variety of diseases, including Type II diabetes. IN VIVO Blog frequently writes about pharma's acquisitive nature, especially in areas where it needs to bulk up, such as biologics. But by and large, the out-sized price tags have been associated with platform biotechs such as Adnexus or Sirna. Thing is, Sirtris isn't really a traditional platform company. Its value lies in its targets and we've never seen a target-focused deal command this kind of price tag. Until now.

Shire/Zymenex: Shire agreed to pony up $135 million for global rights to Zymenex's enzyme replacement therapy, Metazym, designed to treat a serious neurological disease called metachromatic leukodystrophy (MLD). Zymenex recently finished a Phase Ib trial of Metazyme in Europe and plans for a Phase II trial in the US are in place. Just 2000 patients suffer from MLD, and Metazyme has been granted orphan drug status in both the US and EU. Genzyme, of course, is the company that pioneered the specialist strategy focused on ultra-niche indications. But with its 2005 acquisition of TKT for $1.6 billion, Shire is now definitely playing in Genzyme's sandbox. Interestingly, Shire's most recent deal comes at a time when Genzyme is facing its own struggles. On Tuesday, federal regulators rejected Genzyme's request for permission to sell a version of its Pompe disease drug, Myozyme, that is made at its Allston manufacturing plant. The FDA decision shows just how difficult the road may be for certain follow-on biologics makers.

Medtronic/Restore Medical: On Tuesday, Medtronic agreed to acquire Restore Medical for $29 million, lured by the company's minimally invasive Pillar palatal implant and demonstrating that the market for obstructive sleep apnea devices is no snorer. (Just before the new year, Philips Medical Systems made a $5.1 billion all cash offer for Respironics, the leader in the sleep apnea market.) The deal makes perfect sense for both companies. First, it gets Medtronic into the new area of sleep disorders, by way of the Ear, Nose & Throat (ENT) market where it’s already a leader. And since many start-ups are hoping to address obstructive sleep apnea with implantable neurostimulators this could be an area where Medtronic can take advantage of its existing expertise. For Restore Medical, the acquisition gives the company access to Medtronic's deep pockets. In addition, via Medtronic, Restore is much more likely to persuade ENTs of the value of its minimally invasive device. Currently, sleep medicine pulmonologists and neurologists dominate sleep medicine; ENTs, meanwhile, have been relegated to an ancillary role, stepping in only when invasive palatal surgery (which is rarely chosen) is the treatment recommendation. Restore execs knew that mounting successul patient education and marketing campaigns would be a nightmare. Now that Medtronic has agreed to acquire them, it's sweet dreams.

TopoTarget/CuraGen: This week's NDotW concerns the future development of the small molecule HDAC inhibitor belinostat. In 2004 Danish biotech TopoTarget licensed rights to the then-Phase I compound to Curagen. The latter company has invested a total of about $44 million in the project which is now in Phase II for a variety of oncology indications (including NCI-sponsored studies there are now 18 trials ongoing). And on Tuesday, TopoTarget bought it all back for $39 million u/f (two thirds cash, one third stock) and a potential $6 million in milestones. In other words: lets just pretend the past four years never happened. Those years haven't been kind to CuraGen which now has $145 million of cash and equivalents on hand to go with its $50 million post-deal market capitalization and $70 million in convertible debt. It plans to focus its energy and that cash on development of another Phase II oncology candidate CR011-vcMMAE. TopoTarget doesn't plan on hanging on to all rights to belinostat; partnering discussions, it said, are already ongoing.

Flickr image courtesy of user The Gansta the killer and the dope dealer's photostream through a creative commons license.