January 15, 2005 (Vol. 25, No. 2)

Net Losses in Biotech are Decreasing

The biotechnology industry could become profitable, as a whole, by 2008, said Scott Morrison, Ernst & Young’s U.S. life sciences practice leader, addressing delegates at “BIO-Europe 2004” recently. Europe’s largest biopartnering conference was celebrating its tenth anniversary in Cologne, center of one of Germany’s most productive biotech regions.

“We remain incredibly optimistic about life sciences globally,” said Morrison, pointing out that the industry is now seven times bigger than pharma giant Merck (Darmstadt, Germany). “We believe this progress will continue.”

According to E&Y research, net losses in biotech are decreasing, probably because of restructuring within the industry. There were 4,471 private and public biotech companies worldwide (1,861 of them in Europe) as of 2003, and consolidation will need to continue. “The markets will reward restructuring and rationalization in the futurethis will draw investors back into this space.”

Investors will also be looking for companies whose alliances add value. However, according to Peter Leister, leader of life sciences/pharma R&D for IBM in Central Europe, too many partnerships go wrong and actually lose potential value for companies.

Risk of Failure

A biopartnering survey by IBM’s Institute for Business Value (IBV), covering over 300 respondents, reveals that 52% of partnerships fail to exceed, or even meet, expectations. Participants reported a number of management and scientific challenges around their alliances.

But the main reason given for failure was changes in senior management at pharma companies which led to changes in priorities and strategies. Such failures represent a significant loss of value to the industry as a whole and need to be managed or avoided altogether, particularly as the number of alliances continues to increase.

Biotech companies are becoming more sophisticated in the kind of partnerships they form and, indeed, the biotech-biotech deal is now more common than the pharma-biotech deal. The value of alliances continues to increase.

“In years to come, biotech will continue to flex its muscle, seeking out deals with one another as well as with pharma,” Leister predicted. “Partners need to adapt to a new business paradigm which will include partnering arrangements across the entire value chain, not just at the R&D stage,” he added.

The survey also found that strategic alliances account for 85% of the deals, followed by joint ventures and consortia. And the time to make a deal has come down to between ten and eleven months, but this, Leister said, is still not fast enough.

Finally, risk of failure of alliances was not linked to therapeutic area, stage of initiation, or manner of meeting, all of which should have given heart to the 1,400 or so delegates at the conference, most of whom were out looking for new opportunities.

For instance, BioAlliance Pharma (Paris) is a drug delivery and small molecule company focused on overcoming resistance to treatment in infection and cancer. In its lead product, miconazole Lauriad, the well-known antifungal is formulated into a tiny patch which is placed on the surface of the upper gum using proprietary adhesive technology. The product is intended to replace existing local formulations of miconazole, e.g., gels, where compliance is poor.

Local treatment of fungal infections is preferred, because systemic miconazole often leads to resistance and drug-drug interactions among patients who are often immunocompromised and suffering from many other conditions. The drug is in Phase III trials in HIV-linked oral candidiasis, and a previous Phase II trial was stopped early because of a 90% response among those on active drug.

The FDA will allow for general application to candidiasis in a range of patients including the elderly and those with diabetes, cancer, and HIV. BioAlliance Pharma hopes to partner this technology in areas other than HIV. The company’s other platform is the Transdrug nanoparticle technology, which is being used to deliver the anticancer drug doxorubicin in a Phase I/II trial in France for hepatocellular carcinoma.

Natural Products

Combinature Biopharm (Berlin) hopes to capitalize on what CEO Rolf Zettl, Ph.D., claims is a renewed interest in natural products on the part of the pharma industry.

A combination of genetic engineering of actinomycetes (soil bacteria, which are a rich source of antibiotics) and enzyme chemistry allows optimization of compounds in a way that can’t be done with medicinal chemistry because the structures are too complex; one example is a lipopeptide antibiotic that the company has licensed-in from Aventis (Strasbourg, France).

“We work with interesting natural products with potential that are stuck in drug development for one reason or another. We can move forward where medicinal chemistry cannot,” says Dr. Zettl. The compounds are currently in preclinical development, and should go into Phase I at the end of 2005. The company has ongoing collaborations with Merck, Schering, and Serono, among others.

IntegraGen (Evry, France) is a diagnostics company that was spun-out of the French national genomics and sequencing centers. The company develops tests based upon the genetics of common complex diseases, including type 2 diabetes, autism, bipolar disorder, and obesity, and is looking for both genetic markers and causally-linked genes.

Genome Hybrid Identity Profiling

The technology is based upon genome HIP (Hybrid Identity Profiling), a type of genome-wide scan that is more rapid and precise and gives fewer false positives than SNP or microsatellite analysis, the firm claims.

DNA is taken from two family members with the disease, and a proprietary method of removing all sequence that is not identical is used; the remaining sections contain the disease genes and are mapped on a bacterial artificial chromosome (BAC) chip which will show the location of the relevant genes and so give a map for further analysis.

This procedure is then repeated for 150 or so pairs of individuals with the disease. So far, over 40 disease-associated loci have been identified. The company is currently working with a gene for MODY (Maturity Onset Diabetes of the Young), a form of type 2 diabetes that affects those under 25; it is often misdiagnosed, which is a cause of concern because it requires different treatment than other types of diabetes.

IntegraGen hopes to offer a genetic testing service in diabetes by next year, followed by a test for autism. “We already have parents contacting us direct about the autism test,” said David Brady, vp, business development. The firm wants to partner to realize therapeutic potential of the technology and also to develop novel diagnostics in-house.

The company already has many alliances with companies, academic institutions, and government programs; for example, IntegraGen is involved in an EU Framework VI program which is following 8,000 patients for eight years in the hope of uncovering links between genes and nutrition.

Gene-Based Medicines

Oxford BioMedica (Oxford, U.K.) is a biopharmaceutical company focused on developing gene-based medicines in oncology and neurology. The company has two products in Phase II for colorectal, breast, and renal cell cancers, and a preclinical targeted antibody therapy collaboration with Wyeth (Madison, NJ).

The first product, TroVax, is a gene therapy based upon the ST4 cancer antigen that was licensed in from the U.K.’s Cancer Research Technology. An injection of the ST4 gene in a poxvirus vector stimulates immunity.

“TroVax breaks self-tolerance so the body mounts an immune response. We believe it can be used in many scenarios, commented Nick Woolf, senior vp, corporate strategy. The therapy is being developed for use in early- or late-stage disease, alone or in combination, and as an adjuvant to surgery.

The second product, MetXia, is a gene therapy which enhances the efficacy of cyclophosphamide (CPA) in cancer. CPA is a prodrug which needs to be activated to a cytotoxic drug by the P450 enzyme in the liver. CPA is linked to dose-limiting liver and systemic toxicity. But MetXia delivers the P450 gene direct to the tumor, allowing localized activation of CPA.

Proof-of-principle has been obtained in two Phase I/II trials in breast cancer and other accessible tumors, and the product is also in Phase I/II trials for advanced pancreatic cancer.

The company also has a program in Parkinson’s disease and other neurological conditions using LentiVector, a technology for delivering genes to the nervous system. ProSavin, a product which delivers dopamine to the brain using this delivery system, is currently in preclinical for Parkinson’s disease.

Meanwhile, Benitec (Mountain View, CA) is a drug discovery company that holds the only U.S. patent for RNAi use in vivo, according to the company. “From the IP point of view we are strong, as most other RNAi companies only hold licenses,” said Sara Cunningham, Benitec’s COO. The company uses a proprietary technology called DNA-directed RNA interference that triggers RNAi, which is a natural gene silencing process.

Benitec is working on programs in hepatitis C (HCV) and HIV/AIDS. The former was developed in-house at Avocell, an Australian company that was recently acquired by Benitec. RNAi is a natural mechanism for turning genes on and off, and RNAi-based therapies can be used in any disease that has a genetic basis, that is, viral infections, cancer, autoimmune, and inflammation.

RNA viruses such as HCV and HIV are “perfect targets for RNAi,” says Cunningham. Mark Kay, co-founder of Avocell and an expert on liver disease, was the first to publish a proof-of-concept of RNAi (Nature, 2001).

“RNAi is a phenomenal tool for functional genomics and other applications,” said Cunningham. “We know it works as a tool, but its therapeutic use is more speculative.” That is why finding partners may be difficult until Phase II.

Benitec’s HIV program should enter Phase I at the City of Hope Hospital, Los Angeles, for HIV/AIDS related lymphoma in Q4 2005, putting the company slightly behind Acuity Pharmaceuticals (Philadelphia), whose RNAi therapeutic has just entered the clinic.

Benitec is looking at a virally-delivered gene therapy using an ex vivo approach, but would like to try nongene therapy delivery methods too, because of the regulatory issues around gene therapy.

Finally, Atugen (Berlin) is involved in functional gene silencing using siRNA and has a strong IP position in this area. It started as a contract service business but has transformed itself into a drug discovery and development company with its own in-house oncology program. Having obtained in vivo proof-of-concept of the company’s technology, Atugen is working on a number of proprietary targets, and also has a collaboration with Sanofi-Aventis (Paris).

On top of this, the company also has a profitable contract research business in target validation with customers in Europe, the U.S., and Japan.

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