Deals of the Year Nominee: Infinity & Purdue/Mundipharma

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.

Absent irrationally exuberant markets or dilution-friendly capital structures like the R&D Limited Partnerships and SWORDS of the 1980s, it’s virtually impossible to build a self-sustaining biotech without a Big Brother, contends Infinity CEO Steve Holtzman.

There’s thus a certain satisfying continuity in the fact that just a few months after Roche decided to end the most successful Big Brother relationship in pharmaceutical history by bidding to buy out Genentech, Infinity signed the latest incarnation of that legendary idea: a tie-up with the two Sackler-family owned private companies, US-focused Purdue Pharma and European-focused Mundipharma (see the transaction record here and our “Pink Sheet Daily” write-up here).

In return for what could be nearly 38% of its stock and the vast majority – ex-US – of its pipeline, Infinity bought probably five years of freedom from worrying about Wall Street -- enough money for both its discovery and clinical programs -- while retaining, like Genentech, the entire US market in which to create a commercial presence.

The most advanced compound in this enterprise: Infinity’s Phase I hedgehog cell-signaling pathway inhibitor, originally developed in a deal with MedImmune, then returned following MedImmune’s acquisition by AstraZeneca, which was developing a competing hedgehog program. (A few weeks after it signed the Purdue/Mundipharma deal, Infinity improved its position even more by bringing back from AZ its latest stage program, the Phase III injectable HSP-90 inhibitor IPI-504, as well as that drug’s younger brother, a Phase I oral compound, IPI-493 – drugs to which Infinity now owns all rights.)

But we don’t expect this deal to be much copied. The spec-pharmas Purdue and Mundipharma have no discovery programs to protect and Mundipharma has only a single cancer product in its portfolio: there should be no significant jealousies from internal R&D; no desire to interfere. Indeed, the deal is specifically not a collaboration, Infinity CSO Julian Adams points out: as Genentech has been with Roche, Infinity will remain a completely separate operation from its new affiliate.

That’s a rare situation for most companies that can afford a deal of this size (up to $75 million in equity by early 2009; another $200-400 million in R&D support; and a potential $72.5 - $100 million in warranty conversions). Indeed, one reason Roche is buying out Genentech is because it feels it can now do pretty much what Genentech can do – so why pay the royalties and other costs of maintaining an independent R&D and commercial infrastructure? Moreover, the Sacklers have no need to show investors regular profit growth – at Purdue and Mundipharma, they’re the only investors that matter, and they’d prefer the tax breaks from the R&D expense to a nicely upward sloping EPS line.

That’s because the Sacklers know Purdue is living on borrowed time. It was granted an almost magical but limited-term respite from generic attack after first losing exclusivity on its most important product, Oxycontin, and then regaining it in an utterly unexpected judicial reversal of the original ruling (See an in-depth “Pink Sheet” review here). But the drug will go generic again – no later, and possibly earlier, than 2013, just in time for the first of its Infinity products to hit the market.

So who else -- absent a Big Pharma's sudden and shocking conversion -- could do deals like this? Other private companies (or companies who act like them) – in particular mid-sized European firms and maybe even a Japanese company or two. They’d certainly accept the regional aspects of this deal and – unlike the Big Pharmas – wouldn’t necessarily feel the urge to tell Little Sib how to do its job.

Big Brother, Little Sister by Flickr user Onion and used under a creative commons license.

Shocker! Infinity Regains HSP90 From AZ

How a pocketful of cash can change a biotech's negotiating fortunes.

According to a report in today's Pink Sheet Daily, Infinity Pharmaceuticals is announcing that it’s re-acquired from AstraZeneca the rights to its lead clinical program. Infinity will pay nothing upfront to get back full control of its Phase III injectable heat shock-90 inhibitor, IPI-504, as well as its Phase I oral compound, IPI-493.

As part of the break-up, AZ will fund its development obligations for another six months and, if Infinity manages to launch a product, will pay AZ a single-digit royalty.

Although we were not able to speak with AstraZeneca before press time, there’s no indication that it gave back the program because it's in trouble.

Certainly Infinity doesn't think so. A Phase III program in refractory gastro-intestinal stromal tumors trial is ongoing. Meantime, Infinity is expanding its Phase II two-arm lung-cancer trial, and just initiated a Phase I combination trial with Taxotere in an undisclosed indication. The company plans more trials to start in 2009.

Instead, the split appears to be a case of evolutionary incompatibility, marking the definitive end of a deal Infinity had originally signed in August 2006 with MedImmune, then an independent company.

The two companies had been nicely matched – MedImmune had no small-molecule capabilities and a single failed oncology program; Infinity had little money to prosecute its aggressive development program. In a deal for both of Infinity's lead programs -- its then-preclinical hedgehog cell-signaling pathway inhibitor and its then Phase I HSP-90 program (see the deal's evolution in our Strategic Transactions database), the companies agreed to a 50/50 expense-and-profit sharing partnership.

MedImmune paid $70 million upfront, with the potential for another $430 million in late-stage clinical development and sales milestones. (For more analysis of that transaction and other similar early-stage deals, see “The $100 Million IND".)

The deal worked well enough: although MedImmune had the rights and responsibilities for late-stage development, it stepped aside to allow Infinity, which had greater expertise in oncology, to run the Phase III GIST trial (Infinity CSO Julian Adams had invented and done significant clinical work on Millennium’s Velcade).

But the deal began to come apart once AstraZeneca acquired MedImmune. (Start here for our exhaustive coverage of that April 2007 transaction).

AZ probably didn’t feel it needed Infinity’s expertise. It knew little about large molecules--the reason it wanted to buy MedImmune--but plenty about small molecules. And it had a world-leading oncology franchise. It also had a competing hedgehog program – because of which, according to change-of-control terms in the original MedImmune/Infinity deal contract, AZ had to return hedgehog rights to Infinity.

AZ also probably didn’t like the terms it had inherited with the Infinity deal – in particular, the 50/50 profit split MedImmune accepted because it lacked small-molecule and oncology expertise.

With Infinity’s cash position worsening through 2008, it’s reasonable to assume that the two companies discussed a deal to reduce both Infinity’s 50% expense obligations as well as its 50% potential profit share – renegotiations now common in the industry (in September, for example, Zymogenetics renegotiated its atacicept agreement with Merck Serono so the struggling biotech could unload most of its funding obligations).

But if such a renegotiation was on the table, it undoubtedly fell off on November 20, when Infinity announced a huge deal with the privately owned, independent but affiliated spec pharmas Purdue and Mundipharma (click here for our Pink Sheet Daily story, our IN VIVO Blog report here and our Strategic Transactions report here). In return for ex-US rights to most of its pipeline--HSP-90 explicitly excluded-–the two companies and their owners provided Infinity virtually all of its R&D funding through at least 2013, along with the potential for more, and bought $45 million worth of equity (at a 100% premium).

In effect, Infinity solved its funding problem for the next five years or so – and at the same time created the possibility for a US-based commercial operation of its own.

It could thus afford to re-acquire HSP-90, gaining full rights to a relatively late-stage program – as well as the flexibility of raising extra cash by out-licensing ex-US rights. Meanwhile, AZ is able to advertise its willingness to help even a former partner – according to Infinity, AZ rushed ahead the negotiations to allow an early termination to the deal on good terms.

Bridegroom's Friend by Flickr user Andrei Shevelov used under a creative commons license.