Versartis: So Cutting Edge

Early Wednesday, Versartis said it had raised a $21 million B round and, at the same time, spun out its lead molecule, an extended-release version of the type-2 diabetes drug exenatide, into a new company. Dig a little deeper, and you'll find the deal encompasses two cutting-edge trends in biotech financing.

First, Index Ventures, the firm that backed Versartis' Series A in 2009, is also investing in the new company, Diartis. It would love to match what it did with PanGenetics: create companies around single molecules with a leaner, cleaner path to exit. With PanGenetics, Index successfully sold one compound but saw the second fail in 2010. Last year, Index funded Mind-NRG, essentially one person and one asset, with an initial tranche of €1.5 million. This asset-financing vision is one Index has embraced, with other VCs cautiously following, as more traditional venture strategies are buffeted by continuing financial pressures and rare exit opportunities.

Second, the carve-out of Diartis from Versartis creates a second investment for Amunix, the platform company behind each firm's extended-release technology. The technology is the pegylation-like XTEN, which Amunix co-founder Willem "Pim" Stemmer wants to apply to a whole host of proteins. He says the firm is focused on a list of "20 to 30," some already commercial like exenatide, some "fallen angels" that failed in the clinic, and some addressing new targets. The idea is to get them ready for clinic, then either sell them directly or create new, Versartis-like companies around them.

It's a platform-only model, once dismissed as unworkable by investors who didn't see enough value creation to build a viable exit. But it's gaining traction. As this blog first reported last month, yeast-based antibody company Adimab is licensing its technology to newcos that will do the drug-development dirty work. First up is Arsanis, in Vienna, Austria.

We have a lot more on the deal in the next Pink Sheet Daily, including more thoughts from Stemmer -- who's been named a recipient of the 2011 Draper Prize, the nation's most prestigious engineering award -- and Index partner Kevin Johnson -- no, not that Kevin Johnson! -- plus a comparison of the Diartis GLP-1 diabetes molecule to other next-generation diabetes treatments. -- Alex Lash and Chris Morrison

Photo courtesy of flickerer LollyKnit.

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

Deals of the Week: Contents Under Pressure

It's been one of those weeks, hasn't it? Seems like almost every biopharma news story this week illustrated the industry's dire straits. Okay, there was some good news. Pfizer and Eisai won an appeal against a recommendation by the UK government that discouraged use of the Alzheimer’s drug Aricept. But don't get too excited. The British government didn't authorize wider use of the medication. Instead, the drug companies get access to the computer models NICE researchers use to weigh a drug's cost-effectiveness versus its clinical utility.

Meanwhile, Johnson & Johnson announced another round of lay-offs this week, axing 400 employees from OrthoBiotech and Centocor as it combines the two organizations' sales and marketing teams, while Wyeth reduced its numbers by another 1200. The dynamic duo of Genentech and Biogen Idec announced that its best-selling antibody Rituxan doesn't treat lupus any better than placebo, while another fab pair--Genzyme and Isis--struck out with regulators concerning their cholesterol lowering mipomersen.

But we're awarding Merck this week's award for staying on message despite a trifecta of negative news. Late last Friday came the Food & Drug Administration's announcement that it was issuing a "not approvable" letter for the Singulair/Claritin allergy combo being developed in conjunction with Schering. Merck had barely recovered when the FDA delivered more bad news late Monday: another non-approvable letter for another combo pill, the company's extended-release niacin plus the anti-flushing agent laropiprant called Cordaptive. And on Wednesday, came yet another letter from regulators, this time warning Merck about deficiencies at its vaccine manufacturing plant in West Point, PA. Merck wasn't the only company feted by regulators this past week. (In need of amusement? Check out this post from WSJ Health Blog, where Merck CEO Dick Clark admits he "can't blame the media." Whew. I feel soooo much better now.)

Are you feeling the pressure too? Take a load off. It's time for...


Pfizer/Esperion: More than a year after Pfizer closed down its Michigan operations, Esperion, the Ann Arbor company Pfizer bought back in 2003 for $1.3 billion and then shut down, is getting a new lease on life (and a new lease on some Pfizer lab space). Pfizer announced this week that it is spinning out Esperion under the leadership of the original firm's founder, Roger Newton, with $22.8 million in tranched venture backing from co-lead investors Aisling Capital, Alta Partners and Domain Associates, as well as Arboretum Ventures.

Our colleagues at The Pink Sheet Daily were on the case yesterday with the story here (subscription necessary). Esperion 2.0 restarts with a small molecule dual inhibitor of fatty acid and cholesterol synthesis that has not yet reached preclinical. The molecule was part of the original Esperion package bought by Pfizer five years ago, but according to Newton, Pfizer chose not to develop the drug candidate. For now, Pfizer will hang on to the rest of Esperion 1.0's stable of HDL raisers--despite the fact that the ones slated for further development--including the driver of that original acquisition, ETC-216, aka Apolipoprotein A-1 Milano--have been shelved for "scientific and technical reasons," according to the Big Pharma. Why? Pfizer R&D chief Martin Mackay told IN VIVO today that Pfizer would like to out-license the assets separately, perhaps using them as a quid in a separate transaction that will hopefully fetch more immediate and significant value.

That's just fine by Roger Newton, who told us that 216 was never part of his discussions with Pfizer on the spin-out. So now that Pfizer has broken the seal on its spin-out strategy is there more deal flow to come? Our Pink Sheet Daily colleagues think so, reporting yesterday that Pfizer is putting together dermatology and CNS packages destined for separate out-licensing deals. We'll have a more in-depth analysis of Esperion 2.0 in the next issue of START-UP and on Pfizer's spin-off and out-licensing strategy in the May IN VIVO.

Medtronic/ Scil Medical Technology: Medtronic’s recent deal with Scil Medical Technology might seem small, but it’s the latest move by the device giant to beef up its biologics business and tackle the so-called convergence between medical devices and biomaterials. The agreement with Scil, a German biopharmaceutical company, centers around that firm’s biologic rhGDF-5 (recombinant human growth and differentiating factor 5), a dental regenerative technology that can regenerate teeth and treat periodontal disease. Under the deal, Scil will continue to push research and development for new dental products while Medtronic will handle clinical trials, regulatory approvals and commercialization. No financial terms were disclosed. The dental application complements Medtronic's own INFUSE Bone Graft program, which won a green light from FDA a year ago for certain oral maxillofacial and dental bone grafting procedures. It's likely that Medtronic is hunting for other deals in this space based on comments Chad Cornell, director of corporate development at Medtronic, made at our IN3 West meeting in Las Vegas earlier this year. (Shame on you if you didn't make the meeting, but you can read that entire discussion here.)

EUSA Pharma/International Drug Development and EUSA Pharma/Alize Pharma Group: EUSA contines to aspire to become a transatlantic spec pharma in the vein of Shire. This week comes news that the two-year-old company is selling off two groups of early stage assets as it continues to focus on building commercial infrastructure in the US and Europe. International Drug Development (IDD) has bought up the start-up's monoclonal antibody research business, which includes a team of research and development scientists and a well characterized library of antibodies; Alize Pharma, meanwhile, has purchased its recombinant L-asparaginase therapeutic research program for acute lymphoblastic leukemia. Terms of neither deal were disclosed, but the agreement with Alize Pharma gives EUSA some kind of call-back option on any resulting product. "This provides EUSA with access to a potential future product that is an ideal fit with the company's oncology focus," the company noted in a press release issued May 1. Both the antibody and the oncology programs originally came to EUSA through its 2007 acquisition of OPi SA. Readers might recall that EUSA has been ruthless in its pursuit of building late stage development and commercial expertise in what it considers its core areas: oncology, pain, and critical care. Back in February EUSA outlicensed a preclinical fully human anti-IL-6 antibody to GSK for $44 million. Then in March the company spent nearly $23 million to acquire Cytogen, a struggling US outfit with expertise in pain and cancer and 40 sales reps to boot. As we noted in an earlier blog post, EUSA has managed to assemble 9 marketed drugs, five late-stage programs, and raise $275 million since its inception, making building a spec pharma look easy. (For another perspective, check out this article from our September 2007 IN VIVO.)

Sepracor/Arrow International: Sepracor decided it was worth its while to make nice with Arrow International, settling a patent dispute over its inhaler solution, Xopenex, that has embroiled Sepracor and an Arrow division, Breath Limited. Under the terms of the deal, Breath has a 180-day exclusive license to launch generic versions of the drug starting in 2012 in exchange for double-digit royalties on generic sales. Perhaps that overture helped smooth the path for another deal between the Massachusetts-based company and Arrow: a global licensing and development deal for a combination Xopenox/ ipratropium therapy that is expected to begin Phase III trials shortly. Arrow's not getting much of an up-front payment--just $500,000--as part of the deal. But milestones for the combo therapy could eventually total $ 70 million. Meanwhile, in a third deal (yes, count them), Sepracor announced its acquisition of Arrow International's Oryx Pharmaceuticals for $50 million up-front plus another $20 million in milestone payments. The tie-up with Oryx, a specialty pharma that in-licenses and markets prescription meds in Canada, could give Sepracor some much needed home field advantage as it seeks to market Lunesta, Brovana, and eslicarbazine in our Northern neighbor. In the press release annoucing the acquisition, Sepracor execs noted that the purchase "fulfills a long-standing corporate objective of developing a commercial footprint in...the Canadian pharmaceutical market." Geographic expansion is, of course, essential to Sepracor right now. In its most recent quarterly earnings report, the company noted that Q1 revenue dropped to $320.8 million from nearly $328 million for the same period last year, while net income slid from $19 million to about $12 million. One reason for the decline: flagging Xopenex prices. As we reported in a recent issue of The RPM Report, Medicare has slashed reimbursement of the drug.
Image courtesy of Flickr user massdistraction through a creative comments license.

Deals of the Week: The Song Remains the Same

Are you having a case of deja vu? We don't blame you. The main headlines this week echoed those of last week and the weeks prior.

Vytoringate reared its ugly head again. This time Congress is requesting that Internet site CafePharma reveal the identities of contributors who anonymously discussed the controversial ENHANCE trial for the Merck/ Schering Plough cholesterol drug on its message boards. Meantime, more firms announced job cuts this week; among them the drug delivery firms Nektar and Nastech, which both lost partners in high-profile divorces last year.

And here's a shocker: another pharmaceutical company has been accused of anti-competitive practices. No, we aren't talking about Bristol-Myers Squibb, which took some heat last year for its botched negotiations with Apotex over the blood thinner Plavix. Nor are we referring to GlaxoSmithKline, AstraZeneca, or Sanofi-Aventis, whose offices were raided last month by European Commission officials as part of a broad probe into possible industry efforts to delay the arrival of generic medicines. This time the industry bad guy is Cephalon, which apparently spent $200 million to delay generic versions of its blockbuster anti-drowsiness pill Provigil. (You can read the details of the FTC's suit here.)

You see? The song remains the same. Thank god, it's time for deals of the week.

AstraZeneca/ Albireo Pharma: If you feel like AZ's spin-out of its GI assets into Albireo is old news, you're right. We broke news of the rumored event back in November. On Thursday came more specifics about the new Swedish biotech, which is named after a double star in the Cygnus constellation, and has raised $27 million out of a planned $40 million Series A. The new venture inherited several early stage assets and one clinical stage compound from AZ, which maintains a significant minority stake in the company. (For an in-depth discussion of GI R&D strategies, see this story in the November IN VIVO). In their write-up of the deal, our good friends over at the WSJ Health Blog and Fierce Biotech noted that this is an example of pharma's "dis-integration," the industry's need to shed some of its weighty infrastructure, particularly in R&D. Hmmm, that ought to sound familiar to loyal Windhover readers too. (Check here and here and here for more.)

Sanofi-Aventis/Dyax: Another week, another tie-up between an antibody player and a pharma company interested in building its biologics capabilities. This week the honor goes to Dyax and Sanofi, which inked a deal Tuesday worth up to $500 million in up-front and milestone paytments. (Under the terms, Dyax could get as much as $25 million this year.) The agreement gives Sanofi exclusive rights to Dyax's DX-2240, a preclinical monoclonal antibody and cancer therapy that inhibits tumor progression via the Tie-1 receptor. In addition, Sanofi also has non-exclusive rights to use the biotech's phage display technology to discover and develop additional compounds. In addition to illustrating the continuing desire of big pharma to play in the biologics sandbox, the deal also reflects pharma's increased interest in the industry's new blockbusters, specialty products.

Newron/Hunter-Fleming: When we last checked in with Hunter-Fleming, we were quizzing them about VC reluctance to fund early-stage Alzheimer's R&D. And this week we can see the result of a tough fundraising environment for the biotech. H-F was looking to raise about GBP 7 million to finish off proof of concept studies for its lead AD treatment, HF0220, a naturally occurring human steroid that drives production of prostaglandins key for cellular protection and repair. The going back then, in September 2007, was tough. And on Monday the company was acquired by Newron for €8 million (minus net debt) in stock, plus a further potential €17 million in "success-based milestones."

AZ Makes Its Move in GI

Back in November we broke the news that AstraZeneca may be spinning out its gastrointestinal R&D. (Those news outlets that only read the Swedish papers caught up on the news this week.)

Well we can report now that the Big Pharma has made its move, though it's not the move that some reports were salivating after. In fact, it's quite modest in scope compared to most rumors, even if it is a strategic leap for AstraZeneca.

AZ has teamed with Nomura Phase4 Ventures to create a new Swedish biotech, Albireo, around one clinical and an undisclosed number of preclinical GI assets from AZ. David Chiswell, a founder of Cambridge Antibody Technology and a man who knows his way around the European biotech scene, is the firm's executive chairman.

AZ is hanging onto a significant minority interest in the newco, which has raised $27 million out of a planned total $40 million Series A from Nomura, TVM Capital, and Scottish Widows Investment Partnership. AZ retains its GERD franchise (namely the blockbuster Nexium) and reflux R&D.

As we said at the time: AZ is simply too big to manage the internal research it’s got – let alone depend on the notion that it can afford big bets on areas unlikely to generate big advances in medical care. (For an in-depth discussion of GI R&D strategies, see this story in the November IN VIVO).

It isn't the first pharma to spin off its GI assets--Movetis took a handful of Johnson & Johnson projects when it spun out backed by €49 million from Sofinnova et al. back in early 2007. But this is the first such move in any therapeutic area from AZ--a taste of what's to come?

image from flickr user red5standingby used under a creative commons license