Monthly Archives: December 2010

Lilly’s Big Buy of Avid Anticipates Alzheimer’s Therapies That Actually Work

In one of the highest-value acquisitions of a private, venture-backed healthcare company this year, Eli Lilly & Co. announced on Nov. 8 that it had acquired Avid Radiopharmaceuticals, a Philadelphia, PA-based company with a Phase 3 imaging agent that can reliably detect amyloid plaque in even early Alzheimer’s Disease (AD) patients. Lilly paid $300 million upfront with an additional $500 million due upon FDA approval and commercial launch of florbetapir F 18. There is a pipeline of other diagnostics, with a Phase 2 Parkinson’s test being the most advanced, but by far the most value must have been assigned to the lead product, which already has passed its Phase 3 study with flying colors.

Amyloid plaques (rat)

Amyloid plaques (rat)

What caught our attention about this transaction was not only the (hefty) price Lilly paid to Avid’s investors* but also the identity of the buyer, the structure of the deal and especially the timing.

Our observations:

1)      Who bought: Lilly is a pharmaceutical company, not a diagnostics company.

2)      How much they paid: That means they probably had to pay more to get this product, since they will have to create a sales force around it. We suspect that their bid was preemptive – even with the multibillion dollar revenue stream that investors in our network believe is possible from florbetapir, the diagnostics industry is just not used to paying so much for an entire portfolio of products let alone a single product. For comparison, in early 2006, Fisher Scientific (now Thermo Fisher) paid $283M for Athena Diagnostics and its “advanced neurological diagnostic assays.” Athena’s annual revenues were $55M at the time. Avid’s revenues are zero. That comparable makes it look like Lilly went not for GARP (Growth at A Reasonable Price) but for GAAP (Growth At Any Price).

3)      How they structured it: Lilly generously acknowledged the present value of the company. The last post-money was reported by our sources to be in the $105M range. But most of the returns – a whopping $500M – will come in the form of (what else?) an earnout with the usual regulatory and commercial milestones.

4)      The timing: The deal got done before any mechanistic treatment for the disease has made it to the market and semagacestat, Lilly’s late, great hope for AD, failed in Phase 3 just this past August when patients did worse than controls.

This is where we believe the synergy resides: not in the ability for florbetapir to be able to guide patients into any current AD therapy but for it to be able to serve as a gateway for Lilly when some future AD therapy comes along. This tells us three things:

  • Lilly is convinced that there will be such a therapy.
  • Selling such a therapy successfully will require positive identification of AD status – no more “one size fits all,” no more “let’s hope it works but if it doesn’t we make the money anyway.” Is this an $800M acknowledgement that it is a win/win/win (pharma/patient/payer) to have the right patient – and just the right patient – get the right drug?
  • Meantime, Lilly is probably convinced that the diagnostic alone will be accretive, probably strongly so, even at this (high) price.

Now back to who bought and for how much: we surmise that Lilly had competition for florbetapir, especially once the investment banks put the word out that the product – indeed, the whole company – was for sale. But their bid, especially the back-end payments, show that Lilly sees synergies that others will not be able to realize. The company’s big-time shift towards “open innovation” — and its sharing of its CHORUS development expertise in exchange for access to more molecules – probably make Lilly’s drug developers even more confident that if there is any synergistic product under development anywhere, Lilly has a better chance than ever to be able to access it and to test it effectively. That is what this deal is ultimately about: Lilly will presumably now be in a better position (than Pfizer, say) to bargain for and then test a “companion therapeutic” because they already own the diagnostic.

Nice to see pharma embracing the new thinking on Dx-Rx combinations and “personalizing” therapy. Welcome on board, guys!

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*Avid investors include AllianceBernstein, Alta Partners, BioAdvance, Lilly Ventures and Safeguard Scientifics.

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Convergence West Highlights: From iPhone Sequencing Apps to Funding Innovation in Biotech

Last Friday, Dec. 3, 2010, I attended the excellent Convergence West conference in San Francisco. Here are some highlights. I’ll be doing an additional post on my “fireside chat” with Jamie Heywood of

Topics covered:

  • We have seen the future of high speed genome sequencing – and it’s a bit of a gross-out
  • Diagnostics regulation and iPhone blood tests
  • Diabetes costs are immense
  • MEDCO gets it
  • Creative financing for mainstream biotech

Convergence Forum logo

We have seen the future of high speed genome sequencing – and it’s a bit of a gross-out

With three high-profile liquidity events* in 2010 for high-speed genomics companies, the financial markets seem to have embraced the prospect of low-cost, ubiquitous sequencing for all. But what will the sequencers be sequencing?

During a panel Q&A, I asked Eric Schadt, the Pacific Biosciences CSO, how close we are to wide clinical or even consumer use of that company’s world-beating technology. The applications he named ranged from the not-apparently-useful to the gross:

  • “In four to five years, we will be able to use our third-generation technology to sequence hundreds of gigabases for $100 in 15 minutes.”
  • “In 10 years it will be like an AT&T plan: sign up and get 10 genomes for your family.”
  • “Integrate the sequencer into your iPhone, wave it around and see the genomes of all the pathogens swirling around you all the time.”

We realize that there are plenty of applications for the sequencing of genomes besides the human one. We blogged about the genome-mining of gut bacteria here. But judging from the facial expressions, the reaction to the iPhone app for skin bacterium sequencing was a visceral ‘yuck.’

*Pacific Biosciences raised $200 million in its IPO on Oct. 27; rival Complete Genomics raised $54M in its IPO on Nov. 10. Ion Torrent was acquired on Aug. 18 by Life Technologies for $375M upfront and $350M in possible future milestones.

Diagnostics regulation and iPhone blood tests

A previous panel I moderated (at the Wolfe Biopharma conference in Boston on Oct. 19) featured a discussion of a new regulatory path for MDx at FDA, currently in a bill sponsored by Sen. Orrin Hatch to be introduced in the U.S. Congress’ “lame-duck” session in late 2010 or early 2011. During the Q&A, I asked the MDx panel about this and heard this groan from MDx company Saladax CEO Sal Salamone:

“I’ve been in diagnostics for twenty-five years. There were not a lot of big advances in the technology for diagnostics in that time but the costs of compliance with regulations have increased an order of magnitude.”

On a similar note, FDA is not the only new hurdle that MDx startups encounter on the way to the market. From entrepreneur Sridhar Iyengar, Founder of New Hampshire-based AgaMatrix, which has successfully partnered with Apple to bring real-time glucose testing to the iPhone:

  • “Working with Apple is a lot more difficult than working with FDA.”

Diabetes costs are immense

Tethys Bioscience is one of the highest-profile VC-backed MDx companies around, with a commercial platform, $48 million raised in the recent Series D round alone, high-profile investors from inside and outside healthcare and an indication focus – Type 2 diabetes – that is one of the most prevalent and expensive of those facing society. CEO Mickey Urdea therefore has a bias but he also has a point: Type 2 diabetes is a societal scourge.

  • “If you have gained 30-60 pounds in 6 months, it probably means you just retired from the Air Force” said Urdea.
  • Furthermore, Urdea said, the Air Force believes it will “go into bankruptcy” by 2017 if it doesn’t find a better way to combat diabetes.

MEDCO gets it

We heard from two panels that Medco Health is the company that is most on top of the shift in the U.S. health care system to a more incentive-driven and value-based model.

“Medco has the potential to change the paradigm for diagnostics. They are working on pairing diagnostics with generics to prove they are better than new drugs.” (Saladax CEO Sal Salamone). As one recent article on Medco’s MDx initiative put it, “With Medco Around for Dx Shops Developing PGx Tests Independently, Who Needs Pharma?”

  • Jamie Heywood, Founder-Chairman of said jokingly that “Medco is starting to look like it could buy Merck.” This is not quite true – Medco (NYSE: MHS) at a $26 billion market cap is still much smaller than Merck (NYSE: MRK) at $108 billion. But since Merck spun out Medco back in 2003, Medco is up five-fold and Merck’s value is down.

Creative financing for mainstream biotech

The VC funding panel featured several successful examples of the high-risk, high-reward approach needed to pursue innovation in biotech.

  • Very encouraging: The VCs that are still investing in biotech “are more interested in in funding innovation today than at any time in the last 15 years,” said VC Bryan Roberts of Venrock. But, he continued, this is because “they are so scared by regulatory & commercial risks and [they fund earlier-stage projects because they] think they can get out before [they face those other risks].”
  • Pick your poison: “If you are not getting financial dilution (via VC) or IP dilution (via partnerships) then you have to have ‘bandwidth dilution’ through government funding,” said Oncomed CEO Paul Hastings
  • Find a contrarian: Hastings said that it takes a true contrarian within Big Pharma to push a deal with an innovative biotech. Hastings cited Moncef Slaoui, chairman of R&D at GlaxoSmithKline – who backed GSK’s 2008 acquisition of Sirtris – as one example. Roberts agreed: “Great decisions don’t get made by groups.” This was certainly true when Roberts and Jim Neidel helped CEO Howard Robin sell our Sirna Therapeutics for $1.1 billion to Peter Kim at Merck in 2006. (Sirna’s turnaround PIPE was a deal I did as a VC with TVM Capital in 2003.)
  • Power raiser: Oncomed (which is developing drugs targeting what it calls “tumor-initiating cells” aka cancer stem cells) has raised a lot more money than I had realized: $229M in equity including its investment from GSK & a further $100M from partnerships including GSK and Bayer Schering. Hastings said that Bayer Schering had struck the right attitude by
    • Showing up on a Saturday morning for a kickoff meeting; and
    • By the Bayer Schering team leader telling his 20-person team (visiting the 3-person Oncomed team) “We are here to learn from them and not the other way around.”

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