Biotech Companies Turn to Capital Markets

By Marie Daghlan

In life sciences, trial results can mean everything. This week's winner was Targacept (TRGT), with shares of the company surging 18.5 percent after the company announced full results of its successful mid-stage study of TC-5214 for depression. Shares of Targacept skyrocketed in July when the company reported preliminary results and are up 1700 percent above their low at the end of November 2008. Targacept completed a secondary offering in the beginning of the month, raising more than $46 million overnight. (Burrill & Company, the owner of this publication, is an investor in the company.)

Investors are gaining confidence in the economic recovery, as evidenced by the benchmark Dow Jones Industrial Index, which has risen 57 percent in the past seven months and topped 10,000 on Thursday, the first time since last October. A quick look at the financings for the week give the impression that investors are back as companies tapped the public markets for capital. Companies completing follow-on offerings this week include Savient Pharmaceuticals (SVNT), Lexicon Pharmaceuticals (LXRX), and Sangamo Biosciences (SGMO) in the United States, and Sinclair Pharma ((LSE:SPH)) and Galapagos (GLPG.BR) in Europe.

In the private markets, Endocyte, a cancer drug discovery and development company, completed a $26 million extension of its Series C financing which included participation from all existing institutional investors, including Sanderling Ventures, Burrill & Co., American Bailey Ventures, Blue Chip Venture, and Triathlon Medical Ventures. Clarian Health Ventures also participated as a new investor.

The Indiana-based company develops new drugs and diagnostics based on the applications of its advanced proprietary Drug Guidance System. Each therapy in development is accompanied by a diagnostic imaging agent which is intended to identify in advance the presence of receptors targeted by the therapies. Endocyte has two compounds in phase 2 targeting ovarian and lung cancer. The company is also development several compounds in partnership with Bristol-Myers Squibb (BMY).

In one of the major deals of the week, Onyx Pharmaceuticals (ONXX) agreed to acquire privately-held South San Francisco based Proteolix for $851 million. Proteolix is focused on discovering and developing novel therapies that target the proteasome for the treatment of hematological malignancies and solid tumors. The company's lead compound, carfilzomib, is a proteasome inhibitor currently in multiple clinical trials, including an advanced phase 2b clinical trial for patients with relapsed and refractory multiple myeloma.

Onyx will pay $276 million cash upfront for the company and additional payments of up to $575 million contingent upon milestones including the achievement of anticipated approvals for carfilzomib in the United States and Europe. The deal is expected to close by the end of 2009.

Novartis (NVS) is no laggard when it comes to dealmaking. This week the Swiss biopharmaceutical giant signed an exclusive licensing agreement with Vanda Pharmaceuticals to commercialize and develop the antipsychotic Fanapt (iloperidone) in the United States and Canada. Fanapt was approved by the U.S. Food and Drug Administration earlier this summer for the acute treatment of schizophrenia in adults.

Vanda will get an upfront payment of $200 million from Novartis and a royalty on net sales in the United States and Canada. Novartis will be responsible for further development in these countries and Vanda is also eligible for up to $265 million in certain development and commercial milestones. Vanda retains commercialization rights in all other countries.

Due to a previously existing licensing agreement with Vanda, Titan Pharmaceuticals (TTP) will be able to receive 8 percent in royalties on net sales of Fanapt up to the $200 million mark and will receive 10 percent on all sales thereafter. Because Novartis must now pay royalties to Titan, it may decide that it will be more beneficial to purchase the company, according to analysts. Besides not having to pay royalties that could total several hundred million dollars over the years, an acquisition would also give Novartis probuphine, Titan's phase 3 drug to treat opioid addiction and the company's drug delivery system.

GlaxoSmithKline (GSK) struck a $680 million RNA deal with ProSensa, a Dutch-based biopharmaceutical company focusing on RNA modulating therapeutics. The companies entered into an exclusive worldwide collaboration for the development and commercialization of RNA based therapeutics for Duchenne Muscular Dystrophy, a severely debilitating childhood neuromuscular disease that affects one in 3,500 newborn boys. Currently, there is no treatment to prevent the eventual fatal outcome.

The alliance includes four RNA-based products intended to treat specific, but different, subpopulations of patients suffering from DMD. Under the terms of the agreement, GSK will obtain an exclusive worldwide license to develop and commercialize Prosensa’s lead compound, PRO051, intended to treat DMD by skipping exon 51 of the dystrophin gene. Mutations in the dystrophin gene result in the absence of normal dystrophin protein, which is necessary for proper muscle cell function. GSK’s Neurosciences Medicines Development Centre will continue to progress the further development of PRO051 in collaboration with Prosensa. Both parties have begun preparations for a phase 3 study, which is expected to start in early 2010. GSK will fund all costs associated with the further clinical development of PRO051. In addition, GSK has exclusive options to license three more RNA-based compounds targeting additional DMD exons. One such option includes Prosensa’s second lead compound, PRO044, which targets the skipping of exon 44 and for which Prosensa expects to initiate a phase 1/2 study before the end of 2009. In this case, GSK’s option rights will be triggered by a successful completion of this study.

The deal includes an upfront payment of $25 million to Prosensa, which is also eligible to receive up to $655 million in milestones if all four compounds are successfully developed and is also entitled to double-digit royalties on product sales. Prosensa retains the option to commercial participatory rights, and has an option to expand its commercial rights, in certain European countries on products arising under the collaboration. Prosensa is a highly innovative Dutch biopharmaceutical company focused on the discovery, development and commercialization of nucleic acid based therapeutics correcting gene expression in diseases with large unmet medical needs, in particular neuromuscular disorders. Prosensa is focused on developing a treatment for DMD. Prosensa’s lead compound PRO051 has shown great promise in an advanced phase 1/2 clinical trial, and will enter a phase 3 trial early next year.

Finally, Belgium based Galapagos expanded its global strategic alliance in metabolic diseases with an affiliate of Merck (MRK) to incorporate the development of new therapies for atherosclerosis. Building on an alliance in obesity and metabolic diseases announced in January 2009, the alliance will make use of Galapagos' proprietary target discovery platform for identification of novel targets in atherosclerosis, as well as in obesity and diabetes. Galapagos is eligible to receive research, regulatory and sales milestone payments that may total as much as $596 million and will be eligible to receive royalties upon commercialization of any products covered under the agreement. The expansion is separate from Galapagos' alliance with Merck in inflammatory diseases announced in April 2009.

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