West Coast Editor
When, near the end of 2001, Millennium Pharmaceuticals Inc. and COR Therapeutics Inc. merged in a stock-swap deal valued at about $2 billion, observers hailed the event not only as the largest biotechnology-biotechnology merger in history, but also as one that said plenty about genomics and said it loudly.
Not that most folks didn’t already get the message.
Millennium, with targets galore, found itself in serious need of products. Investor glee over the mapping of the human genome had dwindled, and deep pockets across the board were asking uncomfortable questions about when drugs might be steered to market by genomics firms.
The heat was rising.
Tool companies and database providers fidgeted in their chairs. Some people kept repeating “mass spectrometry” and “microarrays” in a hopeful tone, but investors only glowered, arms crossed. Such phrases had lost their magic.
Everybody started looking around for something real. Not just targets, but targets that could be hit and made profitable in a “reasonable” period of time. That is, fast.
Other mergers followed MedImmune Inc. acquired Aviron Inc. for $1.5 billion, and Amgen Inc. swept all the chips off the table with its buyout of Immunex Corp. for $16 billion in stock and cash. But the Millennium/COR deal was one with a particularly strong message for genomics.
Earlier in the year, database big-leaguer Incyte Genomics Inc. had heard the bell toll, as well. As it disclosed third-quarter financial data, the firm said it was bailing out of “certain unprofitable custom genomics operations,” which would mean laying off 400 of its 1,100 employees to focus on the “core” business and move toward drug development.
Incyte listed record revenues, up 10 percent, but also said it lost $17.8 million after taking in $57.3 million, compared to a $7.6 million net loss on $52 million in revenues for the same quarter in 2000.
Shortly before that disclosure, Incyte had prevailed over micoarray competitor Affymetrix Inc. in a difficult legal case, but decided to change direction just the same or had decided, as CEO Roy Whitfield said, to renew its energies in pursuing its original direction. And the company was straightforward about why. The markets for microarrays, public domain clones, transgenics and contract-sequencing services were becoming harder to make money from.
The problem: too many competitors. Non-life science outfits such as Motorola Inc. and Agilent Technologies Inc., for example, have been using Incyte’s LifeSeq Gold gene data potentially to beat the company at its own microarray game, so why stay in? Especially when other microarray makers were using Incyte’s technology?
Instead, Incyte said it would be doing more deals like the patent licensing arrangement in which Genentech Inc. gained rights to develop antibodies to four Incyte-discovered proteins for undisclosed applications, providing clinical development milestone payments in return.
Another well-known player in the sector had shifted gears, earlier in 2001: Celera Genomics Group, a business of Applera Corp., bought Axys Pharmaceuticals Inc. for about $173.4 million.
Celera had made its name by mapping the human genome, and had been busy selling genomic information and enabling data management and analysis software. The buyout of Axys gave the company medicinal chemistry, high-throughput screening and pharmacology to use in small-molecule drug discovery, focused first on cancer.
But the Millennium-COR merger meant even more than Incyte’s changes and not only because of its size. The merger meant more than the Celera merger with Axys, too because of its size, and because Millennium, for its $2 billion, got a marketed product in hand immediately.
That drug is COR’s marketed anti-platelet product, Integrilin, for acute coronary syndrome, including patients who are to be managed medically and those undergoing percutaneous intervention, including stenting. It was in more than 20 trials for other indications.
Just what the doctor ordered. And Millennium wanted Integrilin (as well as nine clinical drug candidates) enough to pay by about six times the sales numbers for Integrilin.
Partly, Millennium needed the drug to replace revenues from Campath, for lymphocytic leukemia. The company sold its 33 percent share of that drug to ILEX Oncology Inc. for up to $140 million, dissolving their joint venture.
Mostly, Millennium like many other genomics firms just needed it. In its merger, the company got COR’s half of the profit-sharing deal for Integrilin with Schering-Plough Corp.
The Serious Chase For Drugs Is On
Another deal following the trend, this one disclosed in May 2001, was Vertex Pharmaceutical Inc.’s $592 million, stock-for-stock buyout of Aurora Biosciences Corp., which gave the combined firm one drug on the market, the HIV protease inhibitor Agenerase, and 12 candidates in clinical development targeting viral diseases, cancer and autoimmune, inflammatory and neurological diseases. The matchup combines Vertex’s chemogenomics platform with Aurora’s expertise in G protein-coupled receptors and ion channels.
There are more deals, a bit further back in history, that can be characterized the same way, such as the August 2000 takeover by German screening firm Evotec BioSystems AG of UK-based Oxford Asymmetry plc, a chemical-services firm, in an all-share transaction worth about $474 million.
Late the same year, LION Bioscience AG, also of Germany, bought Trega Biosciences Inc. for about $35 million in stock. The informatics firm LION got Trega’s iDEA predictive absorption, distribution, metabolism and excretion simulation system, as well as its ChemFolio libraries of small molecules.
In June 2001, Lexicon Genetics Inc. paid $32 million in stock for Coelacanth Corp., gaining the latter’s ClickChem technology for creating sets of chemical “building blocks” used for the production of drug-like compound sets.
Millennium, though, seemed most serious in its response to the handwriting on the genomics wall. Even before COR, it had taken steps.
In November 2001, the company and XOMA Ltd. reached an agreement to develop a pair of Millennium’s biotherapeutic agents, CAB-2 and LDP-01, for vascular inflammation indications. In the spring of 2001, it had signed a deal with privately held BZL Biologics LLC for antibody-based therapeutics targeting prostate-specific membrane antigen Millennium’s first in-licensing deal.
Drug development progress is being made. Millennium’s anticancer proteasome inhibitor, LPD-341, chalked up such good results in a Phase II study, released during a session at the American Society of Hematology meeting in December 2001, about which one of the investigators caused a minor stir among analysts by letting slip some of his enthusiasm even before the study results were presented.
Millennium got aboard the mouse-made antibody train early, too, signing an agreement in March 2000 for Abgenix Inc. to use the Abgenix XenoMouse technology for the making of an unlimited number of antibodies. The pact was worth $100 million or more for Abgenix, plus royalties.
Using mice to quickly tailor antibodies may be the most handy, immediate use of genomics information, and the fact didn’t escape Incyte, either, which signed a 50-50 collaboration with Medarex Inc. in mid-October 2001 to develop undisclosed antibodies using the latter’s UltiMAb Human Antibody Development System. It was Incyte’s “first true foray into drug development,” said Joseph Dougherty, analyst with Lehman Brothers.
Charles Duncan, analyst with Dresdner Kleinwort Wasserstein Securities Inc., said the genomics sector is maturing, even if “the vast majority of investors are underwhelmed [with it] at this point, because the information and tools companies have not yet provided investigational new drug applications.”
But, even as biotechnology sages and the more seasoned investors debate the direction and potential of genomics, others are confused.
“The problem is, when you talk about genomics, you talk about a broad range of companies, from those that are essentially medical device companies to the [Human Genome Sciences Inc.] and Millenniums,” Duncan said.
Even the terminology can be puzzling. “Functional genomics,” for example, is a phrase at which some pundits began snickering as soon as it caught on.
“Functional genomics was put forth by sell-side analysts to differentiate it from structural genomics, which is kind of like stamp collecting,” Duncan said. The sequencing on which structural genomics focuses “is not necessarily an empirical science. You don’t do anything, you don’t do an experiment to prove anything.”
Other potentially confusing terms are “pharmacogenomics” and “pharmacogenetics.” The latter “has been around a long time, and uses population studies,” he said. “It’s the interspecies differences in response to drugs how genes create a difference in response.”
Pharmacogenomics is “more focused on molecular biology,” Duncan said, using the findings with regard to variances in response “as well as some different kinds of tools used to do experiments. Pharmacogenomics is trying to differentiate some of the tools.”
The distinctions, though, are “probably useless and unmeaningful,” he added.
“With pharmacogenetics, you start with the whole organism, and with pharmacogenomics, DNA,” Duncan said. “But they get to a similar answer: How do the variations impact the way the organism responds to a drug?”
Another oft-heard term is “structural genomics, which is more easily understood if you refer to it as structural proteomics,” he added. “But I’ve also heard sequencing referred to as structural proteomics.”
Proteomics, of course, is the study of protein structure, function, localization and interaction to develop drugs.
“What people like to say is that drugs interact with proteins, and not with genes, which is correct, but is a little bit of an oversimplification, and one that we’ve stated in the past to generalists,” Duncan said.
Then, there’s “bioinformatics” and “computational genomics.” The former often refers to software used to manipulate and collect information, and the latter means the analysis of the information, he said.
A Rose, By Any Name
Confusion over terms or not, genomics is moving ahead.
Duncan called Millennium “the quintessential” genomics company, and said he saw the COR deal coming.
“I knew they were going to do an acquisition, and it would cost them a bunch of money,” he said, noting that he had downgraded the stock to “add” status. “If they didn’t, they were going to miss the guidance of 12 products in the clinic.”
Millennium’s strategy of not only providing databases as a service but also using them to push development forward will be a key to success for others, if they can make the transition, Duncan said.
“[The company] long ago adopted that, and they will be one of the leaders as genomic information becomes integrated into discovery,” he said. From the start, Millennium was “pretty broad in their thinking, and not being confused by the idea that they need to make everything there.”
Such an approach, Duncan added, is “not driven necessarily by investors, but by a realization that many of the platforms do not support a viable business model and don’t get you all the tools you need. Most successful pharmaceutical companies acquire products from all over.”
Duncan noted, though, that what “the product people are excited about is not necessarily the product of [Millennium’s] discovery paradigm” and unfortunately, really does nothing to prove genomics-enabled drug development is working.
What, if anything in the “bellwether” genomics company, does prove it? Duncan pointed to MLN4760, the first drug to result from Millennium’s $250 million collaboration with Abbott Laboratories Inc., entered in March 2001. The anti-obesity compound entered a Phase I trial in November.
“That’s a better marker, because it came from [Millennium’s] internal discovery initiative,” Duncan said.
Russell Hirsch, who was a venture capital associate with Mayfield Fund and helped with the incubation of Millennium, noted that “when Millennium got going formally in the 1992-1993 time frame, the use of genomics technologies was very much on the cutting edge, and people had a strong desire then simply to go out and discover more targets. Now, people are being driven toward new types of tools, whether functional genomics or proteomics.”
Genomics, in general, was “more popular a few years ago,” even before the mainstream press got ahold of the concept, and the map of the human genome was completed, Hirsch said.
“This notion of a tools company,’ we’re not enthusiastic about,” he said. “Tools companies very often are much narrower in their approach, and the reality is, in 12 months to 18 months, some other gifted entrepreneur is going to come up with a better idea, and there’s not going to be a reason for your tools company to exist anymore.”
Platform companies such as Millennium “have a very long path in front of them to actually develop a drug,” Hirsch said. “To the extent that a company is able to do something to reach that pot at the end of the rainbow, they’re going [toward drug development].”
Antibody Companies Poised To Reap Rewards
For faster return in genomics, Duncan said, the likes of antibody aces Abgenix and Medarex (with their collaborators) may be the way to go.
“Antibodies, as a drug class, are most likely to get some traction with the use of genomic information,” he said. “As is the case with therapeutic proteins and small-molecule drugs, you’re already starting to see that development.”
Another firm working with antibodies is Eos Biotechnology Inc., which entered a deal with Medarex in 1999, through which the latter is generating antibodies for the former’s anticancer targets. In February 2001, Biosite Diagnostics Inc. added its Omniclonal phage display technology to the anticancer effort in a three-way pact.
Eos, with programs in oncology, angiogenesis and inflammation, also has a deal with Biogen Inc. (a $55 million agreement for breast cancer therapeutics, entered in September 2000) and with Aventis Pasteur (a collaboration for Eos targets related to cancer vaccines that Aventis aims to develop).
In August 2001, Eos’ disease targets enticed Pharmacopeia Inc. into a $197 million stock and cash merger yet another genomics acquisition in the trend toward consolidating for strength.
“By leaps and bounds” is hardly the right phrase for describing progress in genomics, in the antibody zone or anywhere else, as Duncan noted in a widely circulated report on the “inflection point” that he said the sector is steadily nearing.
“It’s going to be five to eight years before we’re able to say we have enough success to say [genomics is fulfilling its promise],” he said. Investigational new drug applications make up the point where the proverbial rubber meets the road.
“The information and tools companies have not yet provided INDs or other evaluable assets, such as drugs, and the key issues in genomics are filing those INDs and putting products in the clinic that make a difference,” Duncan said, adding that the sector has reached a make-or-break juncture, and drug candidates must be in the clinic now, or very soon.
“The next two to three years are critical,” he said.