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Can the Amgen Takeout of Micromet Juice German Biotech? Can Anything?

By Steve Dickman, CEO, CBT Advisors

Now that Germany has had its first billion-dollar biotech exit, it seems it would be about time for the beleaguered German biotech sector to enjoy a welcome jolt of juice. Amgen plans to lay out $1.16 billion in cash to acquire Micromet (NASDAQ: MITI) in a deal announced on January 26.

Generally, big exits create new opportunities. As a wishful example, consider the impact of the upcoming monster $10 billion IPO of Facebook, which will likely spark financially secure engineers to start new companies and multimillionaire founders to start new venture funds.

So is it time to celebrate in Germany? Not exactly. But there may be some good news for German biotech if we dig deep enough. I believe that the Micromet acquisition and other recent successes could serve as a valuable proof-of-concept for biotech products and technologies “made in Germany.” There are plenty of seedlings growing up from German universities and spinning out of existing companies. This is a good time to focus on them.

Tough trickle-down

Amgen’s big-ticket acquisition will likely not translate directly into a rash of new startups. The techniques used in inventing Micromet’s products – bispecific antibodies for systemic treatment of cancer and other severe diseases – are not easily transferred. Amgen has said that it intends to retain virtually all two hundred employees located at the Munich site. Some itchy would-be founders may eventually leave but the short-term impact will be limited.

More difficult for the German biotech scene, Micromet has not been a purely or even mostly German company for a long time. Its January, 2006, reverse merger with the failed California biotech CancerVax gave it a NASDAQ ticker symbol and a U.S. headquarters. The company raised $328 million in total of which $264 million came in PIPEs and follow-ons following the CancerVax merger. There was also approximately $60 million cash on hand at CancerVax when the companies merged.

Despite its impressive size, the Micromet exit is surprisingly no more than “a mediocre hurrah” for local VCs, one Germany-based VC investor told me. “VCs here have mixed feelings about this deal since … very few investors [who made initial investments into the company] were able to make money.”

Dollars slipping away

Why not? Clinical trials were going to be expensive. Likely acquirers were far away. Some funds faced restrictions on cross-border or public investing. Others simply did not have the money to push a company so far towards clinical proof-of-concept. The lack of local capital threatened to leave the company unable to prove the value in its innovative products. Hence, many of the gains were made by investors in public shares such as crossover funds and hedge funds.

Before I unveil my modest proposal for how to help the next crop of projects and companies in Germany, let’s look at where we are, how we got here and then I’ll return to where we can go next.

Bye-bye bubble

The world’s biotech boom of the late 1990s and early 2000s proved to be too much of a bubble for many German companies and investors. Some early companies were not built for sustainability and after some 2000-era fairy-tale financings on Frankfurt’s Neuer Markt, public biotech investors in Germany were badly burned. They have largely not returned.

The situation is not much better for venture capital funds. Otello Stampacchia, managing partner at Omega Funds, one of the institutional investors with the longest-term stake in Micromet, said that the VC shortage afflicting Europe is “particularly bad in Germany. Compared to what has happened, say, in the UK, there has been a colossal shrinkage.”

What is left in Munich, Berlin, Stuttgart, Heidelberg and other fertile biotech regions is both promising and problematic: truly world-class science; experienced entrepreneurs and employees; over eight hundred companies; and a severe lack of both venture and growth capital. Hence, in Micromet’s case, the truly creative solution of a reverse merger in 2006 and the successive financings in 2006, 2008, 2009 and 2010.

MITIgating factors

The company’s big exit, albeit on a leukemia product not yet been approved by FDA, is a beacon of light for German startups. I asked eight venture and public investors in Germany about the acquisition’s impact and the response was one of optimism tempered with caution. “The general message is positive, namely, that German biotech is capable of turning cutting-edge basic research into a full-blown company,” said one financial VC in Munich.

The capital shortage that Micromet encountered in Germany is emblematic of issues faced everywhere by therapeutics startups: the more innovative you are, the tougher it is. It takes more time than a VC fund lifetime of ten years for such technologies to reach Phase 3 or commercial status or achieve a big exit. A typical timeline is fifteen years. (Micromet was founded in 1996.)

Micromet rings the bell

Micromet rings the bell

Now that Micromet has proven the case for innovative biotech products nurtured in Germany, the burning question for investors, one of them told me, is “whether deals like the Micromet M&A creates more international VC activity in Germany.” With IPO markets shuttered and little in the way of growth capital, I suspect that the answer is likely “not anytime soon.”

But even if traditional VC does not return in significant amounts to Germany, some of the near-ripe fruit there is worth watching. Those companies include two that had the honor of presenting at the 2012 JP Morgan Healthcare Conference: NOXXON, based in Berlin, which is carrying out multiple clinical trials in a variety of high-value indications for its exciting spiegelmer technology; and Probiodrug, based in Halle, which is pursuing a unique and highly interesting approach to treating Alzheimer’s disease by attacking the underlying disease biology in a novel way. A third company, Curetis in Stuttgart, announced in November that Roche Venture Fund had made an investment alongside a Netherlands-based financial VC fund, Forbion. Curetis’ technology can rapidly identify pathogens causing hospital-acquired or severe community-acquired infections like pneumonia by bringing highly multiplexed PCR reactions into the hospital lab.

Those are just the most advanced companies. There are many more behind them and their technologies and approaches have much to offer. (Affimed in Heidelberg and Synimmune in Tübingen are just two examples in the bispecific antibody space.) Consider the technology areas in which German companies have thrived: they are mostly intricate (like Micromet’s bispecific antibody technology or Curetis’ 50-analyte PCR); they are more likely to be enabling technologies than therapeutic products (one local expert estimated that only fifteen or twenty of those eight hundred companies are working on therapeutic products that they themselves intend to develop); these enabling technologies cost $10 million to $50 million (or more) to develop; and, once mature, they will turn out to be highly valuable to big industrial companies in pharmaceuticals and related sectors like diagnostics. Stellar examples, aside from Micromet, are easy to spot:

MorphoSys: inventor of an antibody generation technology, this venture-backed startup nearly succumbed in the early 2000s to the same shortage of capital that forced Micromet out of Germany, then “went public on a hope and a prayer,” according to one investor. “Now it’s a real company,” he said, with a recent market cap of $420 million.

Direvo: an enzyme engineering business for protein therapeutics sold in 2009 for $230 million to Bayer Schering; the original technology was spun out into the “new Direvo” and is now in innovative use for industrial enzyme development; like the original Direvo, it is based in Cologne.

Jerini: a therapeutics company in Berlin acquired by Shire in 2008 for € 328 million ($521 million).

Brahms: a molecular diagnostics company acquired by Thermo Fisher in 2009 for $479 million.

MTM Laboratories: a molecular diagnostics company in Darmstadt acquired by Roche in 2011 for up to € 190 million ($269 million).

No one doubts Germany’s ability to generate attractive up-and-coming academic projects and small companies.  As one investor put it, “the start-up scene is healthy and ‘well-seeded’ by various grant systems like GO-Bio and government-affiliated institutions such as High-Tech Gründerfonds.”* The bottleneck is capital.

Pharma to the rescue?

Last time I checked, the pharmaceutical industry was shutting down internal research and scouring the world for innovation. Some pharma CEOs are saying that pharma should not invest in internal R&D at all any more. By contrast, pharmaceutical companies are beefing up their corporate VC activities. I count no fewer than twelve VC funds affiliated with pharmaceutical companies, some of which have roots in Germany (Boehringer Ingelheim) or German-speaking Europe (Novartis) and some of these have a strong interest in clinical diagnostics (Roche).

All these funds need look no further than Germany. What a fit! On top of the fertile environment for technologies, labor is relatively cheap. As I learned as a venture capitalist in a Germany-based fund, the cost of a laboratory worker in Germany is roughly half of the cost in the United States and the quality of their work is as high if not higher.

And the managers needed to bring technology platforms to proof of concept are present in larger numbers than at any time in the country’s history. They have worked by the dozens in German companies that have had solid exits – starting with Micromet and extending to Brahms, MTM Laboratories, Direvo, Jerini and MorphoSys – and strong sales – Evotec, Miltenyi and Qiagen in addition to the local pharmaceutical industry (Bayer Schering, the former Sanofi Aventis, and Boehringer Ingelheim).

The growth capital bottleneck should present no major obstacle to corporate venture investors who are both investing more and also increasingly working side-by-side in companies such as Aileron Therapeutics and Celladon Corporation, US-based companies that have attracted four corporate VCs each.

If pharma is the investor then the exit could well be integration into one or another pharma company’s own research efforts. Investing with the aim of achieving technical proof of concept in therapeutics or early commercial validation in the case of non-therapeutic platforms would alleviate the need for fifteen years of funding. The “harvest” could come much earlier. But who knows? Once investors see that their efforts are being rewarded, they might choose to let the companies carry on independently, issuing technology dividends and financial dividends alike.

What’s missing is a catalytic action on the part of those VCs, especially corporate VCs, already active in Germany together with the German government. A government co-investment growth fund of € 200 million or € 300 million, actively managed and investing in each deal alongside a minimum of two corporate or financial VCs, could make a huge difference. The seedlings are beginning to grow. Time to water them.

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Disclosure: Steve Dickman or CBT Advisors have worked recently with Curetis, Direvo and Probiodrug and previously with Evotec, Jerini, MorphoSys and NOXXON.

*GO-Bio has financed thirty-four projects in four rounds, leading to fifteen companies. High-Tech Gründerfonds, also based in Berlin, which finances high-tech startups including those in medical technology- and healthcare-related fields, has been active since 2005 and recently began investing a second fund of € 288.5 million.

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Great week for Spiegelmers, other nucleic acid drugs points to brighter future

Great week for Spiegelmers, other nucleic acid drugs points to brighter future

by Steven Dickman, CEO, CBT Advisors

Spiegelmers, the new drug class consisting of mirror-image aptamers created by Germany’s NOXXON Pharma, achieved an important clinical milestone this week. The next day, the lead antisense product of Prosensa garnered one of the largest recent pharma-biotech deals (potential total value: $680 million) from GSK. Taken together, these announcements provide validation not only for Spiegelmers and antisense drugs but also for nucleic-acid-based drugs in general.

It is my belief that nucleic acids, especially aptamers and RNAi but also some other categories, hold huge promise for drug development, a belief that has been validated by pharma interest in some areas (think RNAi) more than in others (gene therapy). What is still missing are late-stage clinical successes and sales: the only two nucleic-acid-based therapies to make it to the market, Isis’ Vitravene™ for AIDS-related eye disease and Eyetech’s Macugen™ for wet AMD (partnered with Pfizer then sold along with the parent company to OSI Pharmaceuticals), have had at best limited marketing success.

According to a company press release from Monday 12 October, NOXXON’s Spiegelmers were safe, well tolerated and had good PK and mechanism-related effects in the Phase 1 trial of the company’s chemokine inhibitor NOX-E36. The trial was carried out earlier this year in 72 healthy UK volunteers. This bodes well, of course, for the company, and for the Spiegelmers product class, for which this was the first clinical trial. Indeed, any lingering concerns about immunogenicity caused by the non-physiological nature of Spiegelmers (see Fig. 1) were allayed in this trial. In terms of safety, the molecules came through with flying colors.

Fig. 1: Through the looking glass – twice. Spiegelmer precursors are synthesized against a mirror-image version of their protein target; the actual spiegelmers are mirror-reversed versions (created from L-RNA nucleotides) of the best binders (Image courtesy Medgadget.com)

Fig. 1: Through the looking glass – twice. Spiegelmer precursors are synthesized against a mirror-image version of their protein target; the actual spiegelmers are mirror-reversed versions (created from L-RNA nucleotides) of the best binders (Image courtesy Medgadget.com)

In the CBT Advisors database, we’ve listed eight broad categories of nucleic-acid-based therapeutics besides gene therapy (see Table 1 below for an excerpt) as well as the most advanced entrants in each category. After a boom in the early-to-mid 1990s, at a time when Gilead Sciences was raising money as an antisense company, this diverse group has fallen on harder times. RNAi’s progress has been slowed by delivery challenges. Antisense is also moving more slowly through clinical development than optimists had expected. Macugen, launched in 2005, sold well only until two antibodies from Genentech, Lucentis and then Avastin, quickly took over the wet AMD market. Generally, aptamers and other nucleic-acid-based drugs have not yet fulfilled their initial promise.

This could change soon, though, based on three factors: these drug classes’ ability to hit targets inaccessible to conventional chemical approaches; their quick cycle times during drug discovery based upon the use of techniques that mimic natural selection; and rapidly improving delivery modalities. One brief example of each area:

Hitting new targets

NOXXON’s Spiegelmer drug E36 targets MCP-1, a chemokine (short for monocyte chemoattractant protein-1) that docks on the CCR-2 receptor on cells in many tissues. Almost all other molecules directed toward this pathway that are in clinical or even preclinical studies target not MCP-1 but rather its receptor CCR-2. The advantages of targeting MCP-1 itself remain to be proven in efficacy studies but they could be significant: greater potency, better pharmacodynamics and faster response time are all strong possibilities. Plus, in contrast to antibodies, Spiegelmers are chemical entities that do not require biologics production facilities. Data from this first-ever clinical trial of Spiegelmers showed dose-linear pharmacokinetics and a dose-dependent decrease in peripheral blood monocytes, consistent with the mode of action of NOX-E36 – neutralization of MCP-1. And of course, approaches like Spiegelmers that target the signal MCP-1 could also be used to complement existing approaches targeting the receptor.

Quick cycle times

Like its fellow aptamer company Archemix, NOXXON, a Berlin-based, VC-backed private company holds a license to SELEX (Systematic Evolution of Ligands by EXponential Enrichment), a patented method for generating potent aptamer binders. These companies have reduced to practice the ability to quickly generate aptamers to almost any target. When the targets are circulating proteins, such as MCP-1, there is no need for further chemistry or conjugation to improve delivery.

Delivery improvements

For those targets that are intracellular in nature or otherwise hard to reach, delivery methods are continually improving. For example, in the September, 2009, issue of Nature Biotechnology, there is an exciting paper by Kortylewski et al. reporting successful targeting of tumor cells using an siRNA covalently linked to oligonucleotide agonists for TLR-9 (toll-like receptor 9). These agonists are similar to the CpGs currently in Phase 3 trials of a novel hepatitis B vaccine (Heplisav™) being conducted by Dynavax. The Kortylewski group, led by Hua Yu at the City of Hope Medical Center, achieved potent antitumor immune responses in mice bearing both mouse tumors and human tumors. These results build on earlier findings using antibody-mediated delivery and aptamer-siRNA chimeras. Meantime, most nucleic acid therapeutics companies are pursuing multiple avenues to achieve intraorgan and intracellular delivery of their molecules. To say delivery is a top priority, especially for RNAi companies, would be an understatement.

Meantime, partnering activity continues apace. This week (Tues. Oct. 13) Prosensa, a Netherlands-based, VC-backed private company with an antisense-like molecule to treat Duchenne muscular dystrophy (DMD), signed a deal with GSK for $25 million up front and $655 million in milestones, plus “high double-digit royalties,” according to the GSK press release. The release goes on, “PRO051, the first molecule with this mechanism of action, acts 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.”

Other approaches to treat DMD (for instance gene therapy) have failed, which helps explain why Prosensa’s early data helped the company land such a lucrative partnership. NOXXON already has deals with Pfizer, Roche and Lilly. Many of the other nucleic acid companies in Table 1, most notably Alnylam, have also struck high-value deals with pharma.

In the early days of RNA- and DNA-based therapeutics, company values climbed a “wall of worry” amid speculation that such products would never work. Even the  early clinical success of Macugen and the 2006 acquisition of RNAi drug development company Sirna Therapeutics by Merck & Co. for $1.1 billion did not do much to change the prevalent skepticism. In the meantime, several nucleic-acid-based therapeutics companies trade at healthy valuations and the previous blanket rejection among some skeptics has shifted to a more nuanced analysis. The jury is still out on these advances but the chance of long-term value creation just went up.

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Disclosure: NOXXON has been a consulting client of CBT Advisors. Steve Dickman invested in Sirna Therapeutics when he was a venture capitalist. CBT Advisors has worked for four other companies in the nucleic-acid-based therapeutics field including Alnylam Pharmaceuticals and Sirna Therapeutics.

Table 1: Nucleic-acid based drugs in development (selected). Data courtesy CBT Advisors

Nucleic acid based drug status October 2009

Drug class

Companies

Farthest advanced

Indication(s)

Antisense Isis Market CMV in eye disease
Isis/Genzyme Phase 3 Hypercholesterolemia
Phase 2 Type 2 diabetes
Isis/Oncogenex Phase 2 Mult. cancers
Isis/Atlantic Phase 2 Ulc. colitis/pouchitis
Isis/Teva Phase 2 Multiple sclerosis
Prosensa Preclinical DMD
Aptamers Archemix Phase 2b Thrombotic diseases
Archemix Phase 2 Refractory AML
Archemix/Antisoma Phase 2 Renal Cell Carcinoma
Archemix/Regado Phase 2 Perc. Card. Intervention
Archemix/Regado Phase 3 CABG
Eyetech Market AMD
CpG oligos & TLR agonists/ antagonists Coley Pharma Phase3 (terminated) Hepatitis B (vaccine) adjuvant; oncology adjuvant
Dynavax Phase 3 Hepatitis B (vaccine)
Idera Phase 2 Renal Cell Carcinoma
DNA decoys Avontec Phase 2a Asthma
Avontec Phase 2a Psoriasis
DNA vaccines Inovio Phase 1 HIV
Inovio Phase 1 Cervical cancer
Vical Phase 3 Metastatic melanoma
Vical Phase 2 CMV in transplant
Vical Phase 1 Pandemic flu
Ribozymes RPI Phase 2 (failed) Oncology & others
RNAi drugs Alnylam Phase 2 RSV in infants
Alnylam Phase 1 Liver cancers
Merck/Sirna Undisclosed
MDRNA (fmly Nastech) Preclinical Liver cancers
Opko Phase 3 (terminated) Wet AMD
RXi preclinical Inflammatory disease
Silence/Pfizer/Quark Phase 2 AMD
Silence Phase 1 Acute Kidney Injury
Spiegelmers NOXXON Phase 1 (complete) Diabetic nephropathy

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