Plexxikon Deals Kidney Disease Drug To Roche (Updated)

With a three-year financial runway, biotech contends the deal validates its discovery-only business model.

Moving even further away from the need to rely on shaky capital markets, Plexxikon announced Jan. 8 it will receive $60 million upfront plus $275 million in milestone payments and double-digit royalties from Roche for worldwide exclusive rights to the Raf kinase inhibitor PLX5568 in polycystic kidney disease.

It is the biotech's second major deal with the Swiss Big Pharma.

Berkeley, Calif.-based Plexxikon will complete an ongoing Phase I study and then hand the clinical research over to Roche, with Phase II testing slated to start this year. About $100 million worth of the milestone payments are tied to drug development.

As part of the agreement, the partners can choose to develop PLX5568 for other indications, as well as additional selective Raf inhibitors for diseases beyond PKD, but detailed financial terms were not disclosed. In addition, Plexxikon gains the right to co-promote PLX5568 and other compounds in the U.S. for non-PKD indications.

In an interview, Plexxikon President Kathleen Sereda Glaub said the money will extend Plexxikon's cash runway through early 2012, the expected filing year for PLX4032, the oral B-Raf kinase inhibitor it partnered with Roche in 2006 for metastatic melanoma and other cancers (¹ (Also see "Roche Adds To Oncology Lexicon With BRAF Kinase Deal" - Pink Sheet, 4 Oct, 2006.)).

"That is a very good timeframe, especially given the current financial environment," Glaub said.

To date, Plexxikon has raised nearly $230 million in financing, the majority - $160 million - from partnership deals, with the remainder from its venture backers, which include Pappas Ventures, Alta Partners, and Advanced Technology Ventures.

After the handover for Phase II research, Plexxikon will stay involved in development through participation in a joint steering committee, but its costs will be capped at $5 million.

The Plexxikon/Roche deal for PKD reinforces the message that Big Pharma is increasingly externally focused. Hit hard by patent expiries and pipeline failures, many firms-especially Roche-have proven willing to pay handsomely for early-stage drugs--if the compounds are in the hottest areas of pharmaceutical development ( ² (Also see "The $100 Million IND" - In Vivo, 1 Nov, 2006.)).

Roche's Global Head of Metabolic Partnering Andrew Sleight said PLX5568 is worth at least as much as the sale package.

Finding the ideal partner

Although numerous parties were interested in the asset - a reason for the deal's high upfront price tag - Roche was the "ideal partner," said Glaub.

The two companies already know each other well thanks to a successful collaboration on another compound in the same class. Moreoever, Roche's has some experience in the nephrology market through Mircera (epoetin beta), though this drug has faced patent challenges in the U.S. (³ (Also see "Roche Mircera Launch Blocked By Permanent Injunction" - Pink Sheet, 3 Oct, 2008.)).

"It's kind of obvious for them to be playing in that field. They already have a sales force that talks to nephrologists," noted Glaub.

The asset could help Roche move into the renal space with a drug affecting a large population of patients, consistent with its strategy of developing clinically differentiated medicines, Sleight said.

"Clearly this is an important area in which Roche wants to participate," he said.

PKD affects about 600,000 in the U.S. and 12 million worldwide, and few treatments are available. Cysts form in the kidneys and patients may ultimately need kidney transplants or dialysis as their organs become enlarged.

"Neither one is a good option," Plexxikon CEO Peter Hirth said.

Currently, there are no approved treatments so the unmet medical need is high, Hirth said. Also, PKD strikes people early on in life and becomes a chronic problem requiring lifetime therapy.

"About 10 percent of all transplant and dialysis patients suffer from this genetic disease. So this is a major opportunity in medical and financial terms," Sleight added.

Another key attraction of the project, according to Roche Global Head of Pharma Partnering Dan Zabrowski, was that it contained a "personalized medicine component - something important in all of our programs."

Unlike PLX4032, which targets a particular mutant tumor and will be developed and marketed with a diagnostic test, PLX5568 has no associated assay - yet. "But because there's a genetic component to the disease," said Zabrowski, "we'll look to see if a test can identify patients who respond differently to the drug."

Roche also favors forging collaborations early on, thereby avoiding regional deals that sub-segment the marketplace. Indeed, the Swiss pharma still hopes to put an end to its most famous regionally-focused transaction by purchasing the remaining 44 percent of Genentech it doesn't already own ( ⁴ (Also see "The Rise of Regional Dealmaking" - In Vivo, 1 Sep, 2006.) ).

A model built on high-value discovery

PLX5568 has shown promise in other indications, notably pain, and this is a likely area for new research. Hirth said Plexxikon is "agnostic" when it comes to application of targets and remains primarily a drug discovery company.

Hirth and Glaub both contend that their expertise makes their discovery model "sustainable," allowing them to extract very high upfront fees, much higher than the cost of creating the project in the first place. The fees then allow them to avoid going back to the equity markets at a time when financings, when they can be had, are ruinously dilutive.

"Oftentimes you will see a significant upfront in a deal, but the trade-off for the biotech is that they need to continue to share perhaps 50 percent, or sometimes even more, of development costs for Phase II and Phase III trials," Glaub said. "This can be quite a lot of money, perhaps even more than the upfront [cash] they receive."

"When building the business, we looked at how much money we needed to spend to get a drug program to a certain stage," Hirth said. With this model, we bring creativity and innovation to the table without [taking on] expensive development and risk. And we play in multiple therapeutic fields."

What's less clear, however, was whether Plexxikon gave up some of the later-stage profits in return for the generous upfront fee. Roche's Dan Zabrowski noted that "right now, cash is king." To avoid the dilution of near-term financings, biotechs in general, he thinks, may prefer to negotiate for a larger upfront and give up a larger share of downstream profits.

"We have two options going forward," Hirth acknowledged. "We can continue the model we've got, spending less on creating compounds than we get from selling them at an early stage. And once one of our partners gets a product approved, and we start getting royalties, we can begin forward integrating" further into development.

Or, he said, "Big Pharma will take note of our ability to advance multiple candidates" and will bid to acquire the company

But despite Big Pharma's willingness to buy up large molecule-based platform biotechs, they have show less interest in acquiring start-ups focused on small molecule discovery ala Plexxikon.

That's not a big concern for Plexxikon's investors, who also claim not to be overly concerned about the recent Roche tie-ups limiting the biotech's future exit opportunities.

"I am not one who believes in positioning companies for an exit," said Michael Carusi, general partner of Advanced Technology Ventures.

"If you build a company that has valuable assets, platform and management team, through that you will get attention of potential acquirer and have the ability some day to go public," he said.

- Emily Hayes ([email protected])