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Deals Of The Week: Novartis/Enanta, Ligand/Retrophin, Auxilium/Actelion, Amgen/Dako

Executive Summary

A prosaic week in biopharma deal-making leads DOTW to ponder a brain-computer interface specialist’s efforts to apply its technology to patients with severe communication limitations.

[Each week, “The Pink Sheet” presents commentary on some of the week’s most interesting business deals, contributed by the editors of the IN VIVO blog.]

With the exception of what may possibly be a last-gasp deal in the overheated hepatitis C space, courtesy of Novartis AG, the deal flow this past week was thin. Paying $34 million upfront, and promising many millions more in milestones and royalties, the Novartis deal, with Enanta Pharmaceuticals Inc., conforms in structure and value with other back-loaded deals for early-stage assets. It also provides further evidence that the sweet-spot for in-licensing is shifting from Phase IIB proof-of-concept to IND (Also see "IND Over POC: The New Sweet Spot For Biopharma Dealmaking" - In Vivo, 1 Oct, 2011.).

This makes especially good sense with HCV drugs, where licensees might want to design phase II trials testing their new prize(s) in combination with drugs from their own or other partners’ portfolios. Nonetheless, it’s a vanilla deal. And the other deals this week, though not as high-flying in biobucks, are every bit as prosaic.

That’s why DOTW has scoured the transactional landscape this week looking for something totally different. And we found it! This is a deal that confounds every convention of modern deal making from alliance structure to funding mechanism to exit options.

Silicon Valley-based NeuroSky Inc. was founded in 2004 and specializes in products that work at the brain-computer interface. A typical NeuroSky product, developed in partnership with major toy and video game producers, monitors brainwaves and converts those signals into controls. For instance, in Mattel Inc.’s MindFlex game, kids can use their thoughts to move around little balls. It seems that NeuroSky is ready to apply its EEG-on-a-chip technology to the health/wellness sector.

NeuroSky plans to combine its technology – the sleek MindWave Mobile headset, which incorporates the EEG chip technology – with a mobile app (iOS or Android devices) “for patients with severely limited communication conditions, including Traumatic Brain Injury (TBI), multiple sclerosis, ALS and others.” The app is meant to help these patients communicate despite their debility by capturing brainwave input (e.g., blink, attention, meditative state) and combining it along with standard mobile device features such as geo location and video.

That’s where developers – and cost – come in. NeuroSky has the MindWave headset; it needs developers to create the app. So the company is reaching out to “top-tier, disruptive thinking” developers to create the user interface. And it’s reaching out to consumer financiers via a crowdfunding site called IndieGogo to raise the money to pay the developers. The first funding round is targeting $50,000.

We were not able to learn whether developers or funders can expect a return if the product is ever monetized. Nor whether any of several obvious commercial models – a disease management tool for capturing biometric data about the patient’s health status and uploading it to his/her physician; or aggregating the data, scrubbing it and offering it for sale to pharma researchers or marketers – were being considered by NeuroSky management. When we asked a company spokesperson if there was a plan for monetizing the device, or a partnering or regulatory strategy, we didn’t get too far.

The Mindwave headset will cost patients $129, the app will be a free download from the iTunes store, NeuroSky.com or other locations. The point of all this is that while DOTW is out there dutifully tracking all manner of alliances, licensings and M&A, there is a kind of parallel world in which strange, new kinds of health/wellness transactions are taking place.

What’s the commercial significance of NeuroSky? Beats us. But we think these tech-based experiments in partnering and funding are worth keeping an eye on.

Novartis/Enanta

Apparently, the market for a new and improved therapeutic regimen for hepatitis C is so lucrative – estimated at $20 billion annually by some market analysts – that Novartis felt it would be better to enter the race late rather than practically not at all (or perhaps not late, but again: Novartis’ first two clinical assets in HCV were lost to safety signals that doomed the molecules). Paying a $34 million upfront fee, the Swiss pharma in-licensed a Phase I-ready NS5A inhibitor (EDP-239) from Enanta on Feb. 21, doubling its current portfolio of clinical candidates for hepatitis C (Also see "Somewhat Late To The HCV Race, Novartis Licenses NS5A Inhibitor From Enanta" - Pink Sheet, 21 Feb, 2012.).

Novartis also is in line to pay Enanta up to $406 million in clinical, regulatory and commercial milestones related to EDP-239. Enanta also can earn tiered double-digit sales royalties should ‘239 reach the market, and holds a co-detailing option in the U.S. Novartis assumes all development, manufacturing and commercial costs, and will provide undisclosed funding for Enanta’s further research into additional compounds targeting NS5A, taking rights to any compounds it wants.

Before in-licensing ‘239, Novartis renewed its efforts to compete in the HCV space with a 2010 deal to license worldwide rights (except for Japan) to alisporivir (Debio025), a mid-stage cyclophilin inhibitor, from fellow Swiss company Debiopharm International SA[See Deal]. With two clinical candidates for HCV in its pipeline now, the question remains whether Novartis will pursue other candidates in the protease inhibitor and/or polymerase inhibitor classes, or seek to initiate combination trials with companies that have assets in those classes, but not NS5A or cyclophilin inhibition. The pharma also owns approximately a 31% interest in antiviral-focused biotech Idenix Pharmaceuticals Inc., and holds an option on IDX719, its Phase I NS5A inhibitor for HCV.

Ligand/Retrophin

One-year-old start-up Retrophin has paid just over $1 million to Ligand Pharmaceuticals Inc. for rights to a compound intended to treat rare kidney disorders. The drug, an antagonist of both the angiotensin II and endothelin 1 receptors, was first owned by Bristol-Myers Squibb Co.; later, in the hands of Pharmacopeia Inc. it was known as PS433540 and was studied in hypertension. Pharmacopeia was conducting a Phase IIb study on it when Ligand bought the company in 2008; results presented in 2009 showed significantly superior blood pressure control over irbesartan.

Retrophin will aim to commercialize the drug for renal disorders such as focal segmental glomerulosclerosis, as well as resistant hypertension and diabetic neuropathy. Milestone payments could add $75 million to the deal; Ligand would get a 9% royalty on sales if the drug is commercialized. Retrophin’s CEO is Martin Shkreli, the manager of the hedge fund MSMB Capital; the firm was one of Pharmacopeia’s largest shareholders prior to its sale to Ligand. The start-up has raised about $3 million to date from MSMB and angel investors such as former Schering-Plough Corp. CEO Fred Hassan and Bausch & Lomb Inc. CEO Brent Saunders is also a Schering veteran.

Shkreli said its Series A round remains open, while a much larger Series B is likely. The company also intends to explore alternative financing mechanisms such as reverse mergers to raise more capital from public markets. Retrophin also has a preclinical drug for Duchenne muscular dystrophy.

Auxilium/Actelion

Having recently rejiggered its U.S. commercial strategy for the Dupuytren's contracture therapy Xiaflex (collagenase clostridium histolyticum), because of slow sales, Malvern, Pa.-based Auxilium Pharmaceuticals Inc. has now recruited the Swiss specialty company, Actelion Pharmaceuticals Ltd., to market the product in Canada, Australia, Brazil and Mexico (Also see "Auxilium Revamps Commercial Strategy For Xiaflex" - Pink Sheet, 8 Nov, 2011.).

Actelion has paid $10 million upfront for exclusive rights to market Xiaflex for Dupuytren's contracture and Peyronie's disease in the four countries. Auxilium also could receive up to $16 million in regulatory, pricing and reimbursement milestones, up to $42.5 million in sales milestones and double-digit royalties on sales. Xiaflex has been submitted for regulatory approval in Canada for the treatment of Dupuytren's contracture, with a decision expected in the second half of 2012, and Actelion expects to file for approval in the same condition in Australia, Brazil and Mexico over the next 12 months. Xiaflex is in Phase III clinical trials in Peyronie's disease, with top-line data expected in the late second quarter of 2012.

Actelion has developed a global network of subsidiaries and affiliates for its marketed pulmonary arterial hypertension (PAH) drugs, but there's room for new products as its product portfolio matures. The collaboration with Auxilium does not, however, include Actelion's own backyard, Europe, where the Dupuytren's contracture product is marketed as Xiapex by Pfizer Inc.

Amgen/Dako

Amgen Inc. and Danish diagnostics manufacturer Dako AS announced a new collaboration on Feb. 21, for development of a diagnostic test for an undisclosed Amgen drug in clinical development for cancer. This is the second agreement in as many months for the companies; in January 2012, they agreed on what they called “a new business model,” which supports the concurrent development of drugs and diagnostics for a rare but deadly cancer.

In both cases, they didn’t specify terms of the deals, timelines or the drugs or diseases targeted. Amgen has multiple cancer drugs in development, including motesanib (first-line breast and non-small-cell lung cancer), and Vectibix (panitumumab, which is in development for locally advanced head and neck cancer and first- and second-line metastatic colorectal cancers, and is currently marketed for second-line EGFR+ metastatic colorectal cancer), and others.

The news comes on the heels of several recent collaborations with pharmaceutical companies around Dako’s pharmDx diagnostics kits. Since 2008, Dako has signed deals – none with terms disclosed – with AstraZeneca PLC, Genentech Inc., Bristol-Myers Squibb and OSI Pharmaceuticals LLC, which Astellas Pharma Inc. bought in 2010. Dako makes tissue-based diagnostic tests, which are widely used in pathology labs to diagnose and characterize cancers. It developed the first FDA-approved companion diagnostic test for Genentech’s Herceptin (trastuzumab) for Her2-positive breast cancer in the late 1990s. That collaboration, although initiated under pressure from FDA, remains, arguably, the most successful example of pharma and diagnostics companies working together on a targeted therapy.

Dako, which is owned by the private equity firm EQTV, makes tissue-based cancer diagnostics, which hospitals and research laboratories use to determine effective treatment for cancer patients.

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