Adimab Banks on the Value of Discovery

Adimab, the yeast-based antibody discovery play we wrote about here, and here, will announce its first two alliances today: a multi-target therapeutic deal with Merck & Co. and a single-target therapeutic/diagnostic deal with Roche.

There aren't many details in today's press release, but that's OK: these are very early stage deals anyway. What's more interesting to us is Adimab's overall partnership strategy, and its co-founder and CEO Tillman Gerngross' staunch belief that a focus on discovery--and not taking a single step down the development pathway--will allow the company to capture significant value.

(For our readers familiar with the revolting flavor of spreadable yeast extracts, apparently drug development is a lot like Marmite: either you love it or you hate it. )

First the new deals. For Merck, Adimab will use its discovery platform to identify fully human antibodies against a number of targets selected by Merck. We know that number is greater than one, but that's about it. Merck has rights to develop and commercialize those antibodies as therapeutics. Roche has tasked Adimab with discovering antibodies against a single target, and has the right to develop and commercialize those antibodies as therapeutic or diagnostic products.

Importantly there is absolutely no exclusivity around any of the targets, Gerngross tells us; Adimab can do deals with other companies on the same targets if it chooses. For its labor Adimab gets undisclosed up-front payments, pre-clinical and clinical milestone payments, and eventually commercial milestones and royalties. Though we should note that the two deals aren't necessarily structured in the same way: as Gerngross told us in May at BIO, Adimab is flexible with regards to upfronts versus royalties and terms in between. "Just pay us," he said. The biotech is also open, in some cases, to its partners taking an equity stake (though again, there is no clarity as to whether Merck or Roche has done so).

See here for an overview of Adimab's technology; essentially the company says it has created a faster and more fully human antibody discovery technology unencumbered by the various IP cross-licenses prevalent in existing platforms like phage display. Once Adimab has been given an antigen it typically takes eight weeks to deliver about a hundred antibodies that bind that target.

So Adimab will rake in cash from its discovery deals, which it plans to announce more of in the coming months (Gerngross tells us the biotech is essentially cash-flow positive, with minimal burn and no plans to raise additional capital), and build its business: keep expanding the library, do more deals. But here's where the company parts ways with about 99% of discovery-focused biotechs. It has no plans to build a pipeline of its own. At least not directly.

Adimab will not do development work. "I think that's where many other companies have made mistakes," says Gerngross. Often they're forced down the development route to validate their own technology for partners, he says. If a biotech is promoting a technology platform that isn't well-validated, "what ends up happening is that people will say 'the science sounds great, but show me that this really works,'" he says. "And before you know it you're in the business of conducting preclinical development with a company that was originally put together to solve a scientific problem. And it creates tension and requires resources that are very significant."

Gerngross contends this isn't a problem for Adimab. "Who will argue that fully human antibodies aren't a validated modality? Having strategic access to antibody discovery is a must, it's not an option" for pharmaceutical companies that are near-uniformly saying that 20 or 25% of their pipelines will come from biologics, he says.

So the challenge is to monetize the discovery capabilities within Adimab. If you're going to eschew the development pathway the problem becomes getting sufficient value for the company's investors with a series of discovery alliances. Adimab has raised cash in three venture rounds from SV Life Sciences, Polaris Venture Partners, Orbimed Advisors, and Borealis Ventures.

The simplest way would be to whet the appetites of a few pharmas and wait for one of them to pounce. Cue bidding war and a GlycoFi-esque takeout valuation. VCs invested a total of about $35 million since 2000 in that company, Gerngross' previous effort, which Merck bought in 2006 for $400 million.

But "we're not building Adimab to be acquired," insists Gerngross. "We think we can build a cash-flow positive company that can generate an enormous amount of value," he says (though there's always an offer that's too good to refuse).

And to be sure there are other ways of monetizing discovery. Gerngross points to some of the deals signed by Regeneron (like this one) as an example. "Very big upfronts, five-year commitments, royalties ... if you can do a number of those it's more attractive than a single acquisition," he points out. To which we'd add: particularly if you aren't ploughing the cash into pipeline development and can find a way to return it to your shareholders in a tax-efficient manner.

So Adimab will continue to sign the kind of funded research programs it has just announced with Roche and Merck, with an eye toward more strategic discovery deals that give large companies direct access to Adimab's platform, says Gerngross. "We can transfer the capabilities to them," he says, for them to use the discovery platform non-exclusively across a pre-determined swathe of targets or programs, unlimited targets, unlimited programs, whatever. It'll depend on the price. These sorts of non-exclusive arrangements sound like the kinds of deals Alnylam has managed to sign with the likes of Roche.

And then there's another wrinkle, a third kind of deal in the works at Adimab outside its Big Pharma discovery services ambitions. "We see opportunities for smaller, more agile players that really understand the valuable targets in, say, oncology," says Gerngross. Put that expertise together with Adimab's antibody platform, he says, "and we're looking at a story that's very compelling."

Adimab has identified oncology, inflammation, and infectious disease as three areas to embark on these sorts of ventures, and is already in active discussions in two of those therapeutic spaces. How such a deal would be structured remains to be seen but Gerngross envisions an autonomous entity in which Adimab and the other party would have equity stakes and which would be able to raise its own development capital.

These ventures will keep Adimab a step removed from drug development, where it won't have to compromise its platform business. The only question is what potential partners and investors would be willing to pay for that discovery platform: do they value discovery as much as Adimab?

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

In Follow On Biologics We Trust

Typically, Big Pharma business briefing days aren't known for being newsy events. Another year, another ho-hum pipeline update--complete with the requisite hyperbolic biodollar citations for clinical candidates to appease investors. But in the case of yesterday's annual Merck confab, that certainly wasn't the case.

At its day long event, the Big Pharma revealed the creation of Merck BioVentures, an ambitious new business unit with a heavy emphasis on follow-on biologics that aims to launch at least six such products in the 2012 - 2017 time period. The group will rely heavily on proprietary technology obtained when Merck bought the glyco-engineering biotech GlycoFi back in 2006 for $400 million.

In an interview with "The Pink Sheet" DAILY, Frank Clyburn, the newly appointed senior VP and general manager of MBV, noted that Merck plans to spend $1.5 billion over the next seven years in the hopes of putting at least five follow-on biologic candidates in the clinic by the end of 2012. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio," Clyburn said.

The company is already 20% there. The only FOB Merck was willing to discuss specifically was its pegylated erythropoietin for anemia, a molecule called MK2578 designed to compete with Amgen's Aranesp currently in clinical trials that could launch as soon as 2012.

In comments to analysts and the press, CEO Richard Clark also played up the importance of FOBs to Merck's future growth strategy. Admitting that "2009 will be an important year of transformation and execution for us," Clark noted that "follow-on biologics represents a significant market opportunity due to the extensive patent expiries of leading biologics in 2017."

It is so nice to be right.

One of our favorite themes here at IN VIVO Blog--in addition to the potential benefits to biopharma of risk mitigation strategies--is that Big Pharma has a huge opportunity to become a leader in FOBs.

Think about it: as Congress continues to mull over FOB legislation, its increasingly unlikely that they will consider an abbreviated pathway to approval for these products. Indeed, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated by legislators for follow-on approvals. And, since the products are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceuticals, it ain't the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," said Ken Cacciatorre, an analyst with Cowen and Co. in this April RPM feature by Kate Rawson.

A majority of Big Pharma even have the technology platforms to make it happen. Late to the biologics party, a number of Big Pharmas were extremely busy in 2006 and 2007 gobbling up so-called next generation antibody companies in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. In addition to Merck's purchase of GlycoFi, other biopharmas inking deals around next-generation players include GSK (Domantis), BMS (Adnexus), Pfizer (Biorexis), and Wyeth (Haptogen).

But until 2008, when Teva announced it was buying albumin-fusion play CoGenesys, the corporate spin has been about the opportunities to develop novel biologics. Teva's willingness to commit $400 million to its own FOB program seemed to jolt the thought-processes of other biopharma execs. In a matter of months, former GSK CEO JP Garnier was publicly signaling the strategic importance of Domantis' technology because it allowed the pharma to"re-do a monoclonal for everything that is on the market, from Avastin to Rituxan...without infringing IP. With a product that might even have a twist."

At Pfizer's analyst day in March, meanwhile, CEO Jeff Kindler indicated that the New York giant was also considering how to position itself in terms of FOBs. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, Merck's news should be taken as a full-scale immersion. And it's really not that surprising. Anyone listening to Merck's financial guidance call last week knows the dire shape the pharma company is in thanks to slumping Zetia and Vytorin sales.

The company needs to do something to jump start its R&D. And using GlycoFi's technology to gain a chunk of the follow-on biologics market, poised to take off under the auspices of a new Democratic administration, is a logical place to start.

Thanks to heavily engineered yeast, Merck can develop specific protein versions that are "best-in-class" with "a better circulatory half-life, targeted tissue distribution and/or increased potency," according to Peter Kim, President of Merck Research Laboratories.

And that is the biological equivalent of the fast follower strategy Big Pharma has perfected so successfully for small molecules. At a time of increasing regulatory risk, what better way to gain a grasp on a new therapeutic modality than to create me-better versions of already well studied and hugely successful molecules such as Rituxan or Enbrel and then market the hell out of them?

It will be interesting to see if Merck's news spurs other Big Pharma down the FOB path. Certainly biotechs, such as Amgen and Genentech need to think carefully about life-cycle management strategies for their own products. Hours after the news broke, Lazard analyst Joel Sendek issued a report urging caution when it comes to Amgen:

"We view Merck’s biosimilar program as a serious long-term threat to Amgen’s anemia franchise. Neupogen follow-on biologics currently marketed in the EU have failed to acquire a very significant share of the market or dent usage of Amgen’s dominant products; however, in our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise."

hang-glider dollar bill by flickr user J0nB0n used under a creative commons license.

Bayer/Direvo: Platforms Trump When It Comes to Exits

Yesterday, Bayer HealthCare announced its intent to spend €210 million to acquire Direvo Biotech, a privately held start-up with a promising next-generation protein-engineering platform.

Bayer is the latest in a string of pharmas to bolster its large molecule capabilities via the acquisition route. Other privately held companies with novel technology platforms snapped up by Big Pharma in recent years include GlycArt (Roche), GlycoFi (Merck), Domantis (GlaxoSmithKline), Adnexus (Bristol-Myers Squibb), Agensys (Astellas), Morphotek (Eisai), and CovX (Pfizer). (Are you beginning to see a trend here?)

START-UP recently undertook a comprehensive review of private biotech M&A, analyzing 184 deals that took place from January 1, 2005 to August 31, 2008 to identify possible trends, including age at acquisition, as well as the clinical status and therapeutic focus of a start-up's most advanced program. (You can read the whole article here.) Interestingly, fewer than half of the acquisitions reviewed resulted in a reliable exit for investors, and those numbers appear to be trending downward.

But if M&A has become not so much an exit opportunity as a chance to revamp one's business card, there's one group that has continued to hold value in the eyes of acquirers: the platform biotechs, especially those capable of generating multiple therapeutic products of the large molecule variety. In all, 56% of the private companies acquired during the 2005-2008 time period were platform-based. And of those companies that made healthy exits, nearly 60% were platforms. (See chart above--click to enlarge.)

And that's been very good news for the private investors who've ponied up the cash for these start-ups. For instance, HBM Bioventures, Atlas Venture, Polaris Ventures, Flagship Ventures, and Venrock poured $54.5 million into Adnexus from 2002 until its acquisition by BMS in 2007. But they netted an almost 8-fold return in the process. (And if the company realizes certain developmental milestones, earn-outs could drive the return up nearly 10-fold.) Meanwhile, CoGenesys's backers, which include New Enterprise Associates and OrbiMed Advisors, invested $55 million into the Human Genome Science's spin-out and earned a 7.3x return on their investment when Teva purchased the company earlier this year.

Direvo, too, netted quite a nice return for its backers, which include TVM Ventures, Danisco Ventures AS, S-Equity Partner, and Mulligan BioCapital. (A full list is here.) The company, which spun off from Evotec, has raised more than €30 million over three private rounds since its 2000 founding; by our calculations that's an ROI of 7x.

One reason the return for TVM and others was so high: the sale of Direvo was apparently a competitive process. "There were several parties in the race," Direvo President and CEO Dr. Thomas von Rüden told the IN VIVO Blog.

Late in 2007 and early in 2008, Direvo also inked research agreements with both Pfizer and MedImmune. Financial terms of those deals weren't disclosed--and probably didn't generate a tremendous amount of money for Direvo. But it's clear those deals served their purpose, helping validate the technology in the marketplace. "It put us on the landscape," admits von Rüden.

Certainly Bayer, which has been somewhat late to the biologics party, didn't have the capabilities Direvo was offering. "We can optimize antibodies, proteases, other proteins, and do glyco-engineering. Nobody else offers all this together," notes von Rüden, who will be staying on until year's end to aid the start-up's integration into Bayer Schering.

It's true the pace of acquisitions of these monoclonal- or protein-centric outfits has slowed somewhat. Direvo is only the second such company to be acquired in 2008; back in May, Daiichi-Sankyo purchased another German stand-out, U3 Pharma AG, for €150 million. Still, Big Pharma's desperation to quickly add biologics expertise means we're likely to see out-sized returns for platform start-ups of this type.

And despite a worsening M&A climate, that's definitely good news for the VC community.

image from flickr user bk-robat used under a creative commons license

Teva Buys Cogenesys

Teva said this morning it was buying the albumin-fusion technology company Cogenesys for $400 million. Cogenesys spun out of Human Genome Sciences with $55 million in funding in 2006. (Our 2006 profile of the spinout can be found here.)

We remember when the phrase albumin fusion could only have referred to a Spanish egg-white omelet. Oh, Science, how far you've come!

Teva joins a host of pharmaceutical firms bulking up in large molecule capabilities and drug candidates, a phenomenon we've described in detail several times, perhaps most comprehensibly here. Nothing new there, then.

But for generics giant Teva, this deal is as much about deepening its stake in the ill-defined, yet surely valuable, follow-on biologics arena as is it about biologics capabilities per se. The Israeli group already joined the biogenerics (er, we mean biosimilars) bandwagon in 2003, via its $3.3 billion acquisition of Sicor. This isn't quite the same, though. Cogenesys technology isn't aimed at producing copies of marketed biologics, but at improving them.

The technology, which Human Genome Sciences developed after it acquired Principia Pharmaceutical Corp. (a spin-out of Aventis Behring) in 2000 for $135 million, fuses albumin with a therapeutic protein at the genetic level; translation of the fused genetic code results in a protein with the properties of the therapeutic protein and the long-half-life of albumin. (See diagram below.) The technology's main competition is the more-familiar PEGylation, which also creates longer-lasting protein therapies, though Cogenesys has consistently claimed its technology works better than PEGylation.

Albumin fusion proteins' partnership potential has been validated, first by Human Genome Sciences. That company's Albuferon long-acting interferon is being co-developed with Novartis in hepatitis C. Cogenesys has done some deals of its own since spinning out of HGSI--in 2006 the company struck alliances with PDL BioPharma and Vegenics.

Teva has long worked in both generics and, to a far smaller degree, in innovative R&D (remember MS drug Copaxone?) But competition's hotting up on the small molecule side, and there's continuing uncertainty around the US regulatory aspects, and hence commercial potential, of straight biosimilars. So this deal--for improved, IP-protected versions of existing large molecules--illustrates where Teva, along with plenty of others, including innovators, feel the future may lie: somewhere in between copying and innovating, combining the low-risk of the former with the patent-defense (and, one assumes, the regulatory pathway) of the latter.


Photo 'Egg whites omelet from Prana' by Flickr user Table For Three, Please used under a Creative Commons license. Albumin fusion diagram from Cogenesys.

The Biogen Idec Sale: It’s About Revenues – Not Biologics

Last week, IN VIVO Blog broke the news that Biogen Idec had hired bankers to explore a sale.

Now, we know that companies, like people, don’t always act in their economic best interests. And there are plenty of revenue-desperate Big Pharmas (much speculation surrounds Pfizer, as the Wall Street Journal notes here and here) who might let desperation get the better of common sense. One banker peripherally involved in the transaction noted that there was “so much panic [among Big Pharma] about generating revenues they’ll rationalize as much as they need to about cost-cutting to justify the price. If I was at Biogen, I’d be out looking for a job right now.”

But let’s be clear: buying Biogen at this price doesn’t make sense. First, by contract Genentech/Roche will soon be upping their share of Rituxan revenues (from 60% US and greater ex-US to 70% US). And then there’s Elan’s change-in-control option on jointly marketed Tysabri – which could soon be providing a quarter of Biogen’s revenues (or more: it’s likely that Tysabri sales are already beginning to cannibalize sales from Biogen’s other MS drug, Avonex).

It’s possible, perhaps, that Elan and Biogen have reached some sort of understanding over Tysabri. But unless that understanding is worth a ton of money to Elan (which an acquirer would end up paying for), we think it would be hugely stupid for Elan to leave Tysabri in any Biogen-acquiror’s hands without extracting a huge fee (the huge fee they didn’t get when, in 2000, they signed the original deal with Biogen) and probably a far better ex-US royalty rate (we think they now get about 13%).

And Elan would have no trouble – zero – raising the money to buy out Tysabri: investors (who could smell high-profit re-sale to any number of large companies) would jam Elan’s offices with their checkbooks. Imagine what product-poor Novartis would pay for a drug to spearhead its efforts in developing an MS portfolio? “For Elan, this is the best thing since sliced bread,” says a banker. In any event, Elan’s hired Lehman Brothers to advise on the issue – and we’re pretty sure Lehman agrees with us.

So are there non-crazy reasons to buy Biogen at something north of $90/share? If you were intent on stretching a point, you could argue that senior management could use the necessity of making such a big bet pay off to bomb a primary-care mindset into the new world of specialty-care product development and marketing. And a small-molecule Big Pharma could suddenly acquire the rare soup-to-nuts biologics capabilities required to make a go of large molecules. For an in-depth discussion, see this October IN VIVO story.

But there are certainly more sensible compromises an acquirer should make if indeed biologics is the primary goal. For a lot less money, an acquirer could buy PDL, Genmab, MicroMet, Seattle Genetics, Human Genome Sciences or Xoma, each of which would bring some of the requisite capabilities. Certainly there’s plenty of hair on each of these companies—none of them have ever marketed a biological, so they lack proven development and regulatory expertise. None of them are free from management challenges. And they don’t all have the manufacturing capacity some buyers might want. But each of them has far more freedom than virtually any Big Pharma to operate within the IP constraints of the antibody world; they all have at least some of the expertise needed…and the rest can probably be acquired piecemeal.

But we don’t think a biologics business is the goal. The goal is revenues. And what Icahn hopes is that growth-starved, cash-rich Pharmas will be willing to pay an exorbitant exchange rate to trade balance sheet dollars for sales.

Incidentally, while Genzyme stock is up about 20% thanks to the Icahn put-them-in-play treatment, we’re also leery of a sale. To our eyes, Biogen CEO Jim Mullen looks pretty eager to cash out. Our bet is that Henri Termeer, Genzyme’s boss, probably wants to stay right where he is – the grand old man of biotech – and that he’d put up a significant fight to stay independent.

UPDATE: Be sure to vote in our highly unscientific poll on the top-left of the IN VIVO Blog. Who do you think Pfizer and its ilk will take out next?

UPDATE II: Poll is closed. Big winner? Biogen Idec, with more than 50% of the vote!

Chomp! Wyeth Snaps Up Haptogen

The names are different but the premise seems the same: a struggling big pharma snaps up a promising biologics player to add bite to its large molecule divsion. Less than two weeks after BMS announced its buy-out of next-generation protein player Adnexus, Wyeth broadcast its decision to buy the Scottish biotech Haptogen.

This is the twelfth acquisition by either a big pharma or big biotech in the biologics space since September 1 2006 according to Windhover's Strategic Transactions Database. Does IN VIVO blog see a trend? Hint: Do fish swim?

It's no secret that pharmas have lately had a tough go getting drugs approved. The FDA has approved just 10 new molecular entities through September, representing a 17% drop year-over-year and matching a 10-year nadir, according to a report today by Jim Kumpel, an analyst with Friedman Billings Ramsey. (Kudos to Pharmalot for its posting.)

Desperate to get access to new therapeutic modalities, cash-rish pharmas have spent the last several years trawling for biologics players. Recall these recent deals: Roche's acquisitions of GlycArt Biotechnology and THP; Merck's take-outs of GlycoFi, Abmaxis, and Sirna; GSK's purchase of Domantis; and AZ's $15.6 billion stunner for MedImmune. (Yeah, we're still talking about that deal. If you haven't read our take, click here and here. FYI, there will be even more in the October IN VIVO.)

It's not hard to see why a company like MedImmune would make a pharma salivate--the company's pipeline was full; and they had soup-to-nuts capabilities--from discovery through marketing--in biologics. But why the interest in Adnexus or Haptogen--companies with interesting platforms but no late stage products?

It's easy: Access. Most companies just launching large molecules programs are shut out of the most desirable targets because licenses to them--at least through "gold standard" antibody providers such as Medarex and Genmab--have already been given away.

“If you want to develop a product to one of those really important targets—say the CD-20 antibody—you’re blacked out,” notes Donald Drakeman, former CEO of Medarex and now with the VC firm Advent Ventures.

Better, it seems, to spend some dough and acquire new platform technologies that provide freedom to operate—for example, GlycoFi’s yeast engineering capabilities or Adnexus’s protein program--than engage in licensing deals that may blow up when a next-generation player gets acquired by a competitor.

The Wyeth/Haptogen deal fits nicely in this paradigm. Wyeth, though comparatively biologics-rich thanks to its acquisition of Genetics Institute about a decade ago and its focus on large molecule Alzheimer's Disease therapies, has had it's own share of pipeline troubles.

According to Cavan Redmond, EVP and general manager of Wyeth's biopharmaceuticals division, the pharma has been on the look-out for "technology driven companies that help us take it [biologics] up a notch, so that we can customize antibodies even more than in the past."

That was certainly the thinking behind the pharma's 2006 deal with Trubion, which included a $40 million up-front payment for access to the biotech's CD-20 therapy for rheumatoid arthritis, Tru-15.

Seems like the same philosophy applies to Haptogen. The Scottish biotech promises it can generate antibodies against targets normally too small to elicit an immune response. In addition, the company has developed novel drug discovery techniques based on the shark immune system. (And you thought it was just a great shark picture. Ha!)

Haptogen's shark platform "has a lot of potential to generate smaller therapuetic proteins that can be taken as oral drugs," Steven Projan, VP and head of biological technologies at Wyeth, told BioWorld Today (subscription required).

Wyeth and Haptogen didn't disclose deal terms, but its doubtful there was big money on the table. Wyeth, after all, is notoriously frugal in the business development department. And, in the biologics space, the pharma tends to pursue one-off opportunities, where it can leverage its own biologics infrastructure to lower the total cost of the deal.

There's no sign that pharma's biologics feeding frenzy will abate anytime soon. Who's next? The IN VIVO Blog's crystal ball is cloudy, so it's hard to say for certain. But companies worthy of keeping an eye on include: Ablynx, which makes camelid antibodies; Biolex, which recently registered for its IPO, and uses the plant Lemna to manufacture its proteins; and Xencor, which produces souped-up antibodies using its proprietary protein engineering platform.