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What Three Biotechs Could Tell Us About The Pfizer-Allergan Merger

Xconomy National — 

The long-speculated Pfizer-Allergan merger, announced last week with a $160 billion price tag, is officially in motion and lurching toward inevitability.

Inevitability doesn’t equal certainty for many involved in the deal. Tens of thousands of employees could potentially get the axe, while dozens of smaller companies partnered with the two behemoths wait to see if their programs survive a portfolio shakeout. I’ll detail three of them in a moment.

Extraordinary political pressure might derail the record-breaking deal, but, as U.S. Treasury Secretary Jack Lew made clear in a letter last month, Congress would have to act, and—-OK, you can stop laughing already.

There certainly will be huffing and puffing over corporate tax evasion—er, inversions—and national loyalties. (The deal would turn Pfizer into an Irish-domiciled company and slash its tax bill.) Watch for officials from Pfizer (NYSE: PFE) and Allergan (NYSE: AGN) to all but tattoo American flags on their foreheads in embarrassing attempts to stave off criticism. The day of the announcement, head honchos Ian Read (CEO, Pfizer) and Brent Saunders (CEO, Allergan) wasted no time on CNBC invoking the deal’s benefits for America. (For good measure, Read squeezed in a plug for “the safety of children.”)

America! Innovation! Children! Unfortunately, transparent sanctimony isn’t likely to scupper the Pfizer-Allergan deal any more than the shameless tax dodge will.

Then there are the companies’ employees, who have every right to be worried. According to a FiercePharma tally in 2014, Pfizer’s previous megamerger—the $68 billion deal with Wyeth in 2009—sliced headcount from nearly 130,000 workers combined to about 78,000. Selling or hiving off divisions such as the animal health group Zoetis (NYSE: ZTS) accounted for 18,000 of the 51,000 job cuts, layoffs the rest.

Remember what helped Pfizer afford to buy Wyeth? Billions of dollars, repatriated from overseas in a one-time tax holiday the pharma industry lobbied for aggressively. It was part of—wait for it—The American Jobs Creation Act of 2004.

After the binge comes the purge.

In theory, talent and assets might be unlocked from bloated corporate structures, but on the ground, the lives of workers with families and other pressing responsibilities can be disrupted at the worst possible moments, all without the golden parachutes bestowed upon those in the C-suites.

The future of smaller companies, too, can lie in the balance when behemoths collide. Biotechs partner with pharmas all the time, trading rights to their work for much-needed cash and other considerations. Sometimes their programs remain high priority within the newly merged company. Sometimes they’re shelved and get stuck in limbo, as biopharma veteran Francois Nader discussed with Xconomy last year.

Sometimes the rights to these programs are punted back to the biotech, which can be good or bad. One example of both: German antibody drug maker Micromet saw its main development partner acquired way back in 2003.

The acquirer severed ties with Micromet and sent the German company into scramble mode, laying off a third of its employees. But Micromet survived. In 2012 Amgen bought it for more than $1 billion and in 2014 received FDA approval for its lead drug, blinatumomab (Blincyto), to treat a rare type of leukemia.

With Pfizer-Allergan, the upheaval could last quite a while at the new company, which will keep the Pfizer name. The two sides have talked openly about massive restructuring in the next few years after the initial dust settles. Add regulatory delays, perhaps, to the uncertainty for smaller partners, and it spells nervous times for dozens of biotechs waiting for signs that their products are making progress or their supporters within the new company are keeping their jobs.

There are three biotechs partnered with Pfizer or Allergan that I find particularly intriguing for various reasons: Claims of having supporters, or “champions” at the highest reaches of the new company. Programs that would speak volumes, whether dropped or supported, about the combined “Pfizergan” appetite for risk. Crucial ties to the new company that could be devastating if severed.

The first is Cellectis. The French gene editing firm touched down in the U.S. this spring, establishing lab space in New York to go along with its lucrative Nasdaq IPO.

Hard to imagine that any Pfizer or Allergan partner will be watched more closely in the wake of the merger, thanks to surprising news last month that Cellectis’s T cell immunotherapy product, dubbed UCART19, saved the life of Layla Richards, a British infant whose acute lymphoblastic leukemia had not responded to other treatments.

The desperate intervention was not part of a clinical trial; it was a special request—what’s called “compassionate use” in the U.S.—by Layla’s parents to try something that had never been tested in humans before. This summer, UCART19 brought Layla back from the brink and allowed doctors to try again a bone marrow transplant, which hadn’t worked previously. As of November, her cancer was in remission. (Doctors will present the case this weekend at the American Society of Hematology’s annual meeting in Orlando, FL.)

Cellectis is tied to Pfizer in two ways. Two weeks after the news about Layla Richards broke, Pfizer finalized a deal for U.S. rights to UCART19, now Cellectis’s most promising product. Thanks to a 2014 deal with Servier, the French pharma had the option to take full rights after Phase 1 trials. When it triggered that option last month far earlier than expected, Servier also said it sold U.S. rights to Pfizer. Reworking the option brought Cellectis more cash upfront, more potentially down the road, and lifted the biotech’s burden of paying for Phase 1 trials for UCART19, which would likely cost tens of millions of dollars, Cellectis CEO André Choulika told me.

So development of UCART19 is completely out of Cellectis’s hands, although Choulika said he tried to win back the U.S. rights when Servier was taking bids. “I tried to bid also, even though we had no marketing power in the U.S., no commercial presence,” Choulika said. “We were turned down several times by Servier, they could do whatever they wanted.” Pfizer and Servier will share costs and marketing duties, if the treatment gets that far. Pfizer will take the U.S. market, Servier everywhere else.

Not only will Cellectis count on Pfizer to bring the suddenly high profile UCART19 to market, it also needs Pfizer’s help to bring another large chunk of its pipeline to fruition. In 2014, the companies signed a sweeping deal in which Cellectis collected $80 million upfront, was promised far more if their joint efforts came to market, and saw Pfizer take a 10 percent stake in the company.

Pfizer took the plunge because Cellectis’s version of CAR-T therapy—juicing up human T cells to help a patient’s own immune system fight off cancer—is considered less complicated than those in development from Juno Therapeutics (NASDAQ: JUNO), Kite Pharma (NASDAQ: KITE), and Novartis (NYSE: NVS). Those firms are working on autologous therapies, which require T cells taken from a patient, altered outside the body, then reintroduced. My colleague Ben Fidler reported recently on some of the hurdles, outlined by experts at an immunotherapy conference.

Cellectis is going “off the shelf”—harvesting T cells and modifying them so they work in a range of patients. To do so, Cellectis is using a gene editing technology called TALEN to alter the cells in a few ways, including a genetic change to keep them from attacking the patients who receive the treatment.

Off-the-shelf might be easier to mass-produce, but what seems like a deep commitment from Pfizer now must run the gauntlet of committees and inside politics, all while well-heeled competitors Juno, Novartis, and Kite (with its partner Amgen) march deeper into the clinic with their lead products. Speaking after Read and Saunders revealed they would be the one-two punch of the new Pfizer, Choulika said Read was a “champion of the deal” and also praised the “chemistry” between Cellectis and Pfizer scientists: “When you have an external view of Pfizer, it’s hard to believe, but it’s a very human company from the inside.”

The second partner I’ll profile, Second Genome, is also on the Pfizer side, and also providing the pharma giant with an expertise in a cutting-edge field of research: the microbiome.

Obesity, diabetes, and other metabolic diseases are a massive health problem, and a new crop of weight-loss drugs, based on traditional drug chemistry, have proven disappointing.

The combined Pfizer-Allergan would have zero metabolic drugs under its roof, according to slides presented at the merger press conference. They’re still a top area of interest, however. Despite cutting back its therapeutic areas after the Wyeth deal, Pfizer has maintained a research group for cardiovascular and metabolic disease, run by Morrie Birnbaum, a diabetes expert who came from the University of Pennsylvania.

Could the microbiome be Pfizer’s way in? Second Genome of South San Francisco was originally founded to pursue microbe-based environmental cleanup, but the biotech is now developing traditional small molecules that alter the way microbes interact with the gut to create or exacerbate diseases. Beyond its nascent clinical program for Crohn’s disease, Second Genome has been working on metabolic research with Pfizer. Announced in May 2014, the two are studying 900 people recruited by Massachusetts General Hospital whose metabolic profiles—of varying states of disease or wellness—are well known. To the patients’ existing profiles, Pfizer and Second Genome have added information about the bugs in their guts, the proteins the bacteria are secreting, and more. It’s not part of a clinical study, but it’s a deep dive to “understand what the bugs are doing in the context of disease,” Second Genome CEO Peter DiLaura told me lsat year.

And now? DiLaura declined to give updates on the project or comment on the merger.

(DiLaura is appearing with Whole Biome CEO Colleen Cutcliffe at our Dec. 10 EXOME event, the Bay Area’s Life Science Disruptors, to talk about building their microbiome therapeutic startups—two of the few so far to emerge from the new field.)

Considering how projects—especially centered on early stage, high risk science—can enter a state of limbo during the long merger process, it would be notable if in coming months Pfizer committed more resources to the collaboration. But if Pfizer punts, it wouldn’t likely be a big blow to Second Genome, which has already secured a deal with the Big Pharma most dedicated to microbiome work, Johnson & Johnson.

The third partner I’ll highlight has built what seems to be more crucial ties to the new Pfizer. Medicines360 of San Francisco is trying something new, and it needs the Allergan sales force to succeed. The nonprofit gained FDA approval this year for an interuterine contraceptive device, or IUD, on the strength of a huge Phase 3 trial funded by an anonymous donor. But Medicines360 wants to be self-sustaining as it pursues its goal of bringing more contraception, and fewer unwanted pregnancies, to young, lower income women in the U.S. and abroad. I described the unique business model here; Allergan’s key role is to sell the device, branded as Liletta, to private clinics at market rates.

The first sales began in April. Medicines360 CEO Jessica Grossman declined to give specifics but said sales have beaten Allergan’s initial forecast.

Medicines360 is using its cut of those sales to offer the IUD to public health clinics for a flat $50. They typically cost hundreds of dollars, said Grossman. The lower price lets the clinic pass savings to their clients or even offer the IUDs for free. But there’s a second benefit: It also allows the clinics to stock the IUDs in advance so women requesting them don’t have to come back—crucial for women with limited resources or working more than one job. “Our price is all about having an affordable product on the shelves of the clinic,” said Grossman.

Medicine360’s original collaboration was with Actavis, which bought Allergan in June and adopted the name. When Liletta launched in February, an Actavis spokesman told Xconomy it had seven women’s health products and sales contacts with 25,000 U.S. healthcare providers.

According to Allergan’s latest financial reports, women’s health is its fourth-largest revenue generator in the U.S., with $767 million in net sales the first three quarters of 2015.  Pfizer has its own women’s health business, led by its Premarin estrogen pills.

Grossman said Allergan has been “a terrific partner.” It’s hard to forecast what happens when two massive organizations collide, but she thinks Liletta’s nonprofit side will boost the new Pfizer’s for-profit sales, based on anecdotes from doctors that their patients “want [the device] immediately” after hearing about “the mission.”

“We feel comfortable there will be a continued commitment,” said Grossman.