The resurrection of UK biotech Vernalis continues as the company inked an option deal with GlaxoSmithKline on Aug. 6 to pursue an undisclosed target in oncology using the biotech's Structure Based Drug Design platform. Vernalis receives $6 million upfront in the transaction, which eventually could bring it more than $200 million in milestones plus double-digit royalties on any products from the tie-up that reach market.
Unveiled the same day Vernalis presented its first-half 2009 business update, the transaction demonstrates the company's revised strategy since a retrenchment last year. In 2008, Vernalis settled a loan with U.S. partner Endo Pharmaceuticals by surrendering U.S. rights to the disappointing migraine therapy Frova (frovatriptan succinate) ('The Pink Sheet' DAILY, Feb. 20, 2008).
To get out from under a $56 million obligation that would have come due this month, Vernalis paid Endo $7 million and agreed to forego future U.S. royalties on Frova until annual net sales reached $85 million. At the same time, the biotech shut down its U.S. commercial operations and cut its workforce by nearly 50 percent.
Since signing on as Vernalis' CEO last December, Ian Garland's strategy has been to rebuild the value of what once was one of Britain's shining stars in the biotechnology sector through partnering deals backed by its research platforms.
Technology platform-derived partnerships
The company has a two-compound oncology collaboration in place with Novartis and signed a three-year deal with France's privately held Servier in May for a separate oncology partnership. The Servier tie-up applies Vernalis' proprietary fragment-based and SBDD platforms to drug discovery on an undisclosed cancer target.
During its earnings presentation, Vernalis reported that it has £27.8 million ($46.6 million) in cash, thanks in part to a £22.1 million ($37 million) equity financing earlier this year. In a same-day note, Piper Jaffray analyst Sam Fazeli said the GSK deal provides validation of Vernalis' drug-discovery platforms.
"The significance of today's news is threefold," he wrote. "(1) Management continues to prove it can successfully execute its strategy to monetize the discovery platform; (2) the upfront cash strengthens the balance sheet; and (3) the GSK deal helps cover basic research costs and reduces cash burn."
By now, industry observers are well accustomed to seeing GSK execute low-risk option deals with biotechs, but Garland asserted his company's deal is a bit better than many of the option deals seen currently. In an interview, he said Vernalis sought more risk-sharing and more upfront money than might be typical for a research-stage program, while accepting somewhat less in downstream earnings potential.
Lower risk, somewhat lower downstream reward
"Option deals are batched, I guess, as being risk-sharing arrangements with upsides for both and then a reward downstream for the biotech company, the smaller party taking on that risk," Garland said. "Often, that translates into the smaller company taking [development] all the way through proof-of-concept in man with that sort of financial obligation and risk profile. And then there are chunky option-exercise payments and downstream milestones from the large pharma."
By contrast, he said, Vernalis gets $3 million cash upfront and an additional $3 million by selling GSK 2.04 million new shares of stock, at a slight premium price of 87 pence ($1.46) per share. As of Aug. 6, Vernalis shares were selling at 84 pence ($1.41), with a 52-week high of 98 pence ($1.64) and a low of 39 pence ($0.65).
Overall, the deal is, at worst, a break-even proposition for Vernalis. The upfront money will pay for the biotech's research-stage efforts, with GSK responsible for funding all work once preclinical IND-enabling studies begin. At the IND stage, GSK has 90 days to exercise its option on the compound and undertake development and commercialization (The In Vivo Blog, Aug. 6, 2009). Garland added that Vernalis can earn more than $6 million in pre-IND milestones that are "very achievable."
Vernalis' press release on the transaction calls it an exclusive deal, but Garland clarified that it is exclusive only to the target being pursued, not his company's platform technology.
"We've agreed effectively that we won't then pursue that target in competition with GSK," he said. "It's mutual; they will not pursue that target in competition with us. Often, you see an exclusive out-licensing and sometimes you see that the large pharma can continue with its own in-house program or even run a competing program."
Under terms of the deal, Vernalis cannot release any information on the research target, including timeline goals for identifying a candidate. "If it was our own program, we would be quite secretive about it until it was at a more advanced stage and we were able to declare that we were working on a preclinical candidate," Garland said. "A large pharma then doesn't [even] disclose at that point."
Beyond its collaborations with GSK and Servier, Vernalis boasts an ambitious pipeline. It has seven programs in clinical development, including the two partnered with Novartis and a Phase II Parkinson's disease project (V20006) in Phase II with Biogen Idec.
On July 16, Vernalis earned a $1.5 million milestone from Novartis triggered by the start of Phase I trials for an oral Hsp90 inhibitor in solid tumors (NVP-AUY922). Another Hsp90 inhibitor under the partnership (NVP-HSP990) also has reached Phase I study.
- Joseph Haas (j.haas@elsevier.com)
This article is reprinted from "The Pink Sheet" DAILY -Aug 6, 2009
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