Winners & Losers: Shire Hands Back Juvista As Renovo Sinks

Shire's made some brilliant calls over the years. Buying genetic-diseases-focused Transkaryotic Therapies in 2005 for $1.57 billion was just one of them; the deal not only looks dirt cheap against Sanofi Aventis' tortured and expensive ($20 billion!) purchase of Genzyme, but also turned into what is now Shire's fastest-growing division, Human Genetic Therapies. (Yeah, ok, the 1997 Richwood purchase was another; with that $160 million deal came Adderall, the company-maker. But we digress.)

So Shire got the big things right. These days, thanks in part to some happy regulatory news, its shares are trading at an all-time-high (but maybe not high enough to prevent a take-out...oh dear we're digressing again.) One of Shire's smaller deals didn't work out, though: late on Wednesday evening it handed back rights to scar revision treatment Juvista to its maker, Renovo, after Phase III trials failed. Shire had already started to get cold feet on the drug in March 2010, after some equivocal Phase II results in certain settings, so in a damage-limitation move, it decided not to start U.S. trials (the ones it was due to fund) before seeing the results of E.U. trials (which Renovo funded).

The $75 million in up-front cash and $50 million equity that Shire paid for the drug in 2007 begins to look like small change in the context of Shire's $3 billion plus 2010 sales. Spare a thought, though, for Renovo, which is cutting 100 staff (estimated headcount: 110) and yes, dropping Juvista. Prof. Mark Ferguson, Renovo's founder and CEO, sounded utterly perplexed at how the Phase III trial could have faltered, given Phase II results showing some lovely scar healing. Call it "doing drug development". And call it a bit of a trend right now -- sadly -- in U.K. biotech. (We aren't looking at you, Antisoma.)

So we must look back to Shire, then, for our lessons in success. (Shire was a U.K.-based company once, before it moved its HQ to Ireland in 2008 for tax reasons.) And we must listen to CEO Angus Russell on April 1, one of the keynotes at BIO/Windhover's Pharmaceutical Strategic Outlook conference. The topic: how to apply the value-proving, unmet-need-fulfilling principles so core to rare diseases to the wider, less niche-y parts of the portfolio, including ADHD and GI. (If you're there, you can ask about any potential lessons from Juvista, too.)

image by flickrer Gary Simmons used under creative commons

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.

Shire’s Clean-Out: Dynepo Next?

Hats off to Shire for cleaning out its cupboards and out-licensing $213 million worth of non-core drugs to Spain's newly-listed Almirall. The industry’s notoriously bad at passing unwanted assets down the food-chain, for reasons we know well—too much hassle, no glory, potential egg-on-face.

Egg-on-face isn’t an issue here: Almirall’s unlikely to turn peppermint oil Mintec, one of their eight prizes, into a blockbuster. Anyway, if anyone’s going to find a new use for an old drug, Shire is--this is the group that turned amphetamine salts marketed in Germany for obesity into a multi-billion dollar CNS franchise.

As for hassle: $213 million isn’t a bad bit of money for a company Shire’s size. That’s enough for, say, another couple of Juvistas. (Shire recently paid $75 million up front and made a $50 million equity investment in Renovo for scar treatment Juvista, around which it may build a new franchise, as we reported here.)

$213 million is also enough to plug a gap left by another non-core asset that may yet be the next to emerge from Shire: Dynepo.

Remember Dynepo? It's basically EPO, a follow-on biologic that Shire bought through its $1.57 billion acquisition of TKT in 2005. Dynepo was in fact the core focus of the deal--so much so that Shire had a back-up plan to license the product for $450 million in case the acquisition fell through.

Lucky for Shire it didn’t. Dynepo sells a miserable $2 million per quarter, a far cry from the estimated $150-200 million annual peak sales that Shire, and analysts, were forecasting. Meanwhile two other TKT drugs, Hunter Syndrome treatment Elaprase and Replagal for Fabry disease, are doing very nicely thank you—the $80 million or so combined second quarter 2007 sales of both products exceeded analyst expectations.

There’s a lesson somewhere here about the value of acquiring the restaurant over selecting from the licensing menu, if the industry needed one (which it doesn’t, it seems.) But what about Dynepo?

Its trouble is that it’s neither here nor there. Dynepo offers no advantages over existing EPO drugs—it’s just plain vanilla EPO, and the short-acting version at that. Shire has no hope of competing in the mainstream with the likes of Amgen or J&J. Yet Dynepo isn’t a full-on generic copy of EPO, either, like Sandoz’s recently-approved epoetin alfa.

The Sandoz drug may have some chance, one day, of being substituted in cost-conscious markets for the reference innovator drug, in this case J&J's Eprex (though admittedly, biosimilar substitution will be a long journey, as we reported in a previous blog post.) Not so for Dynepo.

Small wonder, then, that Shire’s management doesn’t want to invest in a new manufacturing plant for Dynepo, and admits the drug “is fighting for space” in the portfolio. We know that, unlike most pharmaceutical firms, Shire’s not allergic to selling. But will anyone buy?

What About Specialty?

We've heard a lot at Pharma Strategic Alliance from the Big Pharma, most especially Bristol-Myers Squibb, about externalization and the attractiveness of speciality markets.

But as bigger players look to fill their pipeline gaps with smaller, niche drugs, they're beginning to compete in a market long dominated by the so-called "spec pharma" players, who've traditionally built their businesses by acquiring and selling under-valued late-stage or marketed assets.

"There's a lot of capital chasing the same assets," notes Jeremy Goldberg, Managing Director of Corporate Development at Endo Pharmaceuticals, which has a handful of products for the treatment of pain. "It's measurably more competitive than it was three years ago," he says.

But Goldberg is confident that his company, at least, won't get shut out of the deal-making game thanks both to its focus and it's smaller size. A new product, notes Goldberg, can make a tremendous difference to his company's growth and top-line, an effect that wouldn't be seen in in a big pharma with a $25 billion revenue stream.

When looking to license, "biotechs need to ask who is the right partner for my asset? In pain, it's Endo," says Goldberg.

Okay, fine. But spec pharmas are certainly under pressure to expand into additional therapuetic areas. Look at Shire's willingness to pay $1.6 billion for TKT in 2005 to move beyond its ADHD franchise via access to biologics. How does a company like Endo become the partner of choice in a therapeutic area that isn't pain?

And will a big deal scare off investors who are presumably very focused on the reliable earnings-per-share returns that a typical spec pharma provides?

It's too soon to say. More than likely we'll be discussing a new business model at next year's meeting.

Shire's Portfolio Solution

Big Pharma management could do worse than take a look at Shire when trying to figure out how to get out of their mess. This specialty pharma turned biopharmaceutical firm has seen its market cap quadruple over the last five years, and just upped 2007 revenue growth guidance to at least 25%. It’s also managed to buy biologics and turn them into a future growth driver—as most Big Pharma are attempting to do.

Now granted, Shire still has a size benefit relative to Big Pharma: it takes less to move the needle. But eager to avoid becoming a top-heavy bureaucracy mired by politics and dulled creativity, CEO Matt Emmens and his team are thinking in terms of portfolio management as the company grows. “We see ourselves [at the corporate level] as a sort of holding company with portfolio businesses sitting under that structure,” Emmens tells IN VIVO Blog.

In other words, top management stays at arm’s length (where possible) with the bigger picture in mind. Beneath are a series of portfolio companies, each run by a separate head and with some degree of independence, steered by the top team. “The primary function of the top group is new business—what to be in and what not to be in. They are not involved in the day to day running of the business,” illustrates CFO Angus Russell. Business development folk sit in each of the units, but they report directly to the corporate BD head, not the head of the unit. That in theory avoids internal squabbles around resource allocation.

For now Corporate sits above two broad divisions, Specialty Pharma and Human Genetic Therapies (ex-TKT, acquired in 2005 for $1.6 billion, shocking the market at the time). It’s a logical split given the fundamentally different nature of biologics versus small molecules. But the fact that TKT has barely changed since it was acquired--“If you went to Cambridge [MA, HGT's main site] now and compared it with four years ago it would probably be the same,” says Emmens, except for the 50% more people—best illustrates the hands-off approach. And the principle applies to the ADHD, GI and renal business units within Spec Pharma too.

Apparently the arm’s length strategy isn’t just helping internal productivity, it’s helping win licensing deals, too. Shire in June won a competitive auction for ex-EU rights to Renovo’s Phase II scar treatment Juvista, a human form of TGF beta 3, for $75 million up front and a $50 million equity stake. Shire beat the Big Pharma, in Renovo CEO Mark Ferguson’s eyes, because it could point to TKT as proof that it was not about to grab the asset and run (not that Shire would have wanted or been able to do so). Renovo’s team will continue development of Juvista, with Shire funding trials relevant to US approval.

Juvista may yet form the seed of Shire’s newest portfolio company—in cosmetic medicine. It’s still specialist, low-ish-risk, with good IP, but provides Shire with a foot in the private market—not a bad thing given the pressure on reimbursement. (And look what Allergan did with Botox, say analysts.) Portfolio management again, then, this time balancing risk across different pricing mechanisms.

So what about Big Pharma? Stop the M&A and start managing a portfolio—which includes selling as well as buying.

Right on Schedule

Over the weekend Shire announced approval of Vyvanse, its next-generation ADHD drug licensed from soon-to-be-acquired partner New River.

Once it is launched in the second quarter this year, Vyvanse should quickly inherit ADHD market share from Shire's current leader Adderall XR, for which a soft landing has already been orchestrated via a variety of authorized generics deals. But despite the new drug's approval, despite the $2.6 billion Shire paid for the 50% of Vyvanse it didn't already own, and despite all the talk of potential resistance to abuse, the FDA has recommended to the DEA that Vyvanse join the majority of ADHD drugs as a Schedule II controlled substance.

(editorial aside: is the DEA logo intentionally trippy?)

Shire isn't letting that get them down, and the decision--surely a disappointment to Shire--has been expected for some time. Quoth Shire CEO Matt Emmens in a statement announcing the approval: “The label we received with the approval letter includes information about the extended duration of effect and abuse-related drug liking characteristics of VYVANSE which illustrate benefits that differentiate this compound from other ADHD medicines."
But the authorities' equivocation here won't give Shire much wiggle-room on price and message.