GSK Spins Out Pain Assets, Raises $35.4m

UK-based Convergence's lead asset starts Phase II in neuropathic pain

The first spin-out company to result from GlaxoSmithKline PLC's exit from key CNS areas including pain and depression was announced on October 4. UK-based Convergence Pharmaceuticals raised $35.4 million (£22.4 million) in one of Europe's largest Series A rounds, led by Apposite Capital.

GSK retains an 18% equity stake and an observer role on the board, but there are no other strings attached. Further spin-outs are likely to follow, according to VCs.

Convergence's VC syndicate--which includes New Leaf Venture Partners and SV Life Sciences--was attracted to Convergence's relatively mature portfolio and its experienced management team. The new company has two clinical-stage assets and six earlier-stage programs targeting ion-channels involved in chronic pain.

Its CEO is Clive Dix, a seasoned entrepreneur who, most notably, co-founded DNA-vaccine delivery company PowderMed in 2004, and sold the company two years later for over $300 million to Pfizer. (Also see "Pfizer Makes Vaccines Entry With PowderMed Acquisition" - Pink Sheet, 9 Oct, 2006.). That deal netted its investors--including SVLS--a more-than 6x return over two years. Hence "we [first] got involved [in Convergence] because of Clive," notes Kate Bingham, managing partner at SVLS.

Dix's team includes more than a dozen ex-GSK employees, including scientists with expertise in the pharmacology and chemistry of ion-channel blockers. He also recruited as CSO Simon Tate, who was previously VP of the Pain and Epilepsy Discovery Performance Unit within GSK's now-closed Neurosciences Center of Excellence for Drug Discovery. Dix has also rejoined forces with COO Brenda Reynolds, who worked closely with him as a founder and COO of PowderMed.

Established Mechanism, With a Twist

Convergence isn't breaking ground in terms of new drug mechanisms: its lead, just starting Phase II trials, is a voltage-gated sodium channel blocker and behind it a calcium channel blocker for neuropathic and inflammatory pain will start Phase I.

Indeed, at first glance it seems odd that VCs are willing to fund development of assets whose mechanism is old hat, and which address a large, potentially primary care area like chronic pain, demanding huge clinical trials and where regulatory safety hurdles are likely to be high.

But the company reckons that its assets, unlike most of the sodium- and calcium-channels out there or in development, are state-dependent. That is, they only inhibit neurons in the rapid-firing state that's associated with chronic pain. "These guys have managed, by some very clever chemistry and electrophysiology, to find state-dependent blockers," explains Dix, "and these become more potent the more rapidly the channel fires." Plus, he adds, they won't subdue all nerve action potentials, which would lead to loss of feeling.

As such, "we're not being heroic on mechanisms, but we think we have a better mousetrap," summarizes Bingham. It's still a risky area, though: Newron Pharmaceuticals' selective sodium channel blocker ralfinamide in May 2010 failed to show efficacy versus placebo in a Phase IIb/III trial in neuropathic lower back pain. Back in 2007, Merck & Co. Inc. and partner Neuromed's Phase III calcium channel blocker hit the wall.

All being well, Convergence may produce a highly potent small molecule that's as, if not more, potent than opioid drugs but which has a better side-effect profile and little or no potential for abuse. And this, says Dix, is precisely what regulators such as the FDA are looking for. As for trial size requirements, "we can partner," he asserts.

Dix says the team will talk to potential partners from day one, but prefers to take the two lead compounds to proof-of-concept first, which the current Series A funds will support. "The aim is to build the company so we're in a position where we could, if we wanted, do a Series B," he told The Pink Sheet. "Three years from now, we might even move from Series B to IPO," he ventures.

Convergence's VCs are for the most part banking on deep-pocketed partners and potential buyers, though. "POC data in pain could be very attractive to pharma companies," notes Chris Hollowood, Principal at Apposite Capital in London. And he reckons there will be plenty of them, pointing in particular to Japanese drug firms (most of Apposite's limited partners are Japanese), many of which have a strong interest in CNS and have been very acquisitive. "That helps us get comfy that there are plenty of buyers out there."

More GSK Spin-Outs Likely

Hollowood and Bingham also took comfort from GSK's broad strategic decision to exit entire sub-sectors of CNS, making it less likely that the parent had cherry-picked the best bits beforehand.

Shortly after announcing its portfolio cull in February 2010, GSK sold off its research facility in Verona, Italy (the site of its neurosciences CEDD) to CRO Aptuit, which continues to provide services to the Big Pharma. Such R&D outsourcing is becoming more widespread as drug firms seek to trim overheads; Sanofi Aventis on September 30 announced the largest ever CRO deal, a ten-year partnership with Covance. (Also see "Sanofi Makes Good On Outsourcing Promise In Deal With Covance" - Pink Sheet, 30 Sep, 2010.).

Convergence is unlikely to be the last spin-out to emerge from GSK's unwanted pain and depression portfolio. "There will be more," confirms Hollowood, adding that Apposite had already seen a couple of other projects in the lead-up to their investment in Convergence. SVLS is currently looking at another opportunity.

Until now, though, GSK has not been the most active source of spin-outs. In March 2009 it declared T-cell biology-focused Tempero an 'independent' Drug Performance Unit, but the group remains fully-funded by GSK, even though the plan is to raise further money from external VCs.

But the Big Pharma is now actively encouraging the creation of new independent businesses around its discarded CNS assets, and agreeing to support the most promising. Convergence was Tate's idea, which he took to the GSK R&D Executive Committee. What made him stand out from other hopefuls, according to Dix, was that he went along "with a letter of intent from VCs to fund the venture."

While Convergence was being set up, GSK provided expertise when required, according to Dix and the VCs, and agreed to extend Tate and his scientists' contracts to September 2010 to facilitate the transition.

GSK currently holds an 18% stake in the tranche of funds that Convergence has received to date, which Bingham says is roughly half the full £22 million. Its stake will dilute as further funds are provided, but the Big Pharma will receive further equity if Convergence hits certain milestones.

- Melanie Senior (m.senior @elsevier.com)