BIO 2011 report: Australian biotechnology spotlight

One can hardly start a survey of the latest happenings in Australian biotechnology without pausing to allow the 900 pound gorilla to enter the room and get settled. That gorilla is Mesoblast, which stunned the industry last December when it announced its partnership with US biopharmaceutical company Cephalon. That Mesoblast was an attractive proposition was not overly surprising: the company has been making steady progress with its off-the-shelf mesenchymal stem cells for the treatment of a range of conditions including congestive heart failure, bone and cartilage repair and neurodegenerative disorders (see full story on Mesoblast). But anyone suggesting they anticipated the scale of the deal is fibbing.

Cephalon agreed to acquire 19.99 per cent of Mesoblast stock at an eye-opening 45 per cent premium on its 30-day average at that time, along with a $130 million upfront payment.

In return, Cephalon received worldwide rights to commercialise Mesoblast’s portfolio of regenerative products. The crux, however, is the up to US$1.7 billion forthcoming upon reaching certain key milestones. This made it the biggest stem cell deal worldwide to date.

But this isn’t the end of Cephalon’s excursion into the antipodes with wallet in hand looking for a bargain. It also put in an offer on the remaining shares it didn’t already own in Melbourne-based ChemGenex in March of this year. The $159 million offer represented a 60 per cent premium on the company’s stock, which was hovering around the 45c mark at the time.

To put this in a bit of perspective, ChemGenex was enjoying a share price of over $1 in 2008, but had shed much of that value after the US Food and Drug Administration denied the company regulatory approval for its targeted chronic myeloid leukaemia treatment, Omapro, for lack of a suitably approved diagnostic to pinpoint quite whom the drug ought to target. The drug still looked great on paper, but the delay had caused many investors to move on. Not so Cephalon.

The spate of acquisitions by pharma companies continued in April with Dutch sample and assay specialists, Qiagen, putting in an offer for Victorian diagnostics company Cellestis, for the tidy sum of $341 million, a 24 per cent premium. Qiagen’s sights were firmly set on Cellestis’ highly accurate Quantiferon diagnostic test for tuberculosis to add to its portfolio of diagnostics.

This is likely not the last we’ve seen of big pharma snapping up Australian biotechs. Given the changing state of the pharmaceutical industry, with many blockbuster drugs edging closer to the ‘patent cliff,’ pharma companies are desperately seeking the next big thing – or even many next medium-sized things – to keep them rolling along.

As such, it’s not as much about internal development of blockbusters as it is about snapping up innovative biotechnology companies that have reached a point where their technology is near proven but which don’t have the international marketing and distribution resources to bring the product to market.

Sentiment in the industry suggests there’ll be more moves by big pharma to acquire Australian biotechs in the year ahead, particularly those with products in and around phase II trials. However, who might be next is anyone’s guess. Each pharmaceutical company has its own preferred portfolio, and its own internal data on what treatments might be lucrative.

Some might prefer to speculate on a technology still in development, something like Patrys’ innovative antibody treatment for cancer (see full story on Patrys), or something more developed, like QRxPharma’s combinatory pain-killer MoxDuo. The upshot is: stay tuned, there’ll likely be more acquisitions by pharma happening in 2011.

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Big deals

Mesoblast, ChemGenex and Cellestis weren’t the only beneficiaries of attention from abroad. Acrux achieved a big win in November last year with the signing of a deal worth at least $360 million with pharma giant Eli Lilly to market Acrux’s testosterone replacement treatment, Axiron.

The deal works well for both, giving Lilly a new product for a potentially lucrative market, and giving Acrux distribution into some of the biggest markets in the world. Axiron has already gone on sale in pharmacies across the US. Acrux has already passed on $100 million of its windfall to shareholders as a special one-off dividend.

Biota had to stave off stares of incredulity when it timed a big announcement with April Fool’s Day. The deal, however, was no joke. The company, which develops anti-infectives, cut a deal with the Office of Biomedical Advanced Research and Development Authority within the Office of the Assistant Secretary for Preparedness and Response at the United States Department of Health and Human Services to develop its newest neuraminidase inhibitor, Laninamivir, a long-acting single-dose anti-influenza treatment. The deal, worth US$231 million over five years contingent on key milestones, sent Biota’s shares rocketing by 40 per cent overnight.

Acrux and Biota weren’t the only biotechs to see an injection of funds through partnerships. Western Australian firm Phylogica, entered into a collaboration and licensing deal with Pfizer to discover novel peptide-based vaccines.

Phylogica will receive an upfront payment of US$500,000, and is eligible for a commercial license payment as well as preclinical, clinical and other milestone payments of up to US$134 million, along with royalties in worldwide sales.

Phylogica’s technology is based around a unique proprietary class of targeted peptide therapeutics, Phylomer peptides. These peptides give therapeutic, manufacturing and commercial advantages over other more traditional targeted biologics such as proteins, monoclonal antibodies and most current therapeutic peptides.

Then there’s Melbourne-based Phosphagenics, known for its TPM technology for the transdermal delivery of drugs, which went down a somewhat unconventional, if canny, route to secure funding for its research programme. In April it announced it will launch an anti-cellulite cream, called BodyShaper Cellulite Contour Crème, based on its TPM technology.

The cream reportedly reduces the appearance of cellulite by up to 40 per cent after four weeks, care of the transdermal delivery, which really does deliver the key molecules under the skin. While it might be an unexpected route for a biotech company to take, it’s refreshing to know that at least one range of cosmetic products was actually developed on the back of some solid science.

The company will use the revenues from the cosmetic line to continue development of the TPM platform, particularly for the delivery of pain killers such as oxycodone or insulin for diabetes.