Pullan's Pieces #145                                     
Pullan's Pieces #145
February 2019
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,

Happy Year of the Pig!   

JPM and the Biotech Showcase was fun but seems long ago.  Now it is almost time for BioEurope Spring!  



1. Strategies for high impact drugs  
2.  Infographic:  Cardiovascular
3. Jessica:  The business of Crispr 
4.  Trevor: Stock buy-backs a path to glory?

Strategies for high impact drugs
Pressures:   The first part of the great Bruce Booth year-in-review video https://lifescivc.com/2019/02/our-year-in-review-annual-talk-on-macro-biotech-and-atlas/ covers some of the macro environment and the pressures on our industry.  I touch on just a few here. 

1.  New Molecule Competition comes in only 4-5 months after a new class of drug launches.  
2.  Generics are coming in 25% faster than a few years ago at an average of ~140 months after launch.  
3.  Price decreases each year are typical in Japan, China and Europe and price growth is down in the US.  
4.  Pay for value or pay for performance becoming more common insurance mechanisms.  
These pressures means to have pharmaceuticals make a profit, we increasingly need high impact drugs with self-evident value.  

So what strategies are biotech and pharma companies using to aim for high impact drugs?

1.  New indications.  
Treating indications without approved drugs promises high impact with success. But new indications are hard to find and likely to be rare orphan diseases.   
So what are new indications in Phase 2 in inflammation?  I could only find 2 indications in Phase 2 that were not in marketed or Phase 3. 

  •  Job Syndrome is being pursued by NovaDigm, with a vaccine in Phase 2, while there is no drug for that indication marketed or in Phase 3.  Fountain Biopharma has an antibody at IND stage.  Job Syndrome is a very rare auto-dominant form of hyperimmunoglobulin E syndrome.   

  • Schnitzler Syndome, a rare disease characterized by chronic hives and periodic fevers as well as elevated IgM or IgG,  is being pursued by Roche and Olatec Therapeutics, each in Phase 2.  Roche is pursuing the disease with an approved agent, Acterma, an IL6R antibody.  Olatec is developing an NRLP3 inflammasome inhibitor.  

2.  New Targets.  
A new target offers the possibility of differentiation, although that differentiation must be established with data and cannot be assumed. And partners and investors will want lots of biology validating the role of new targets in disease and the potential for intervention.   

So what are new targets in inflammation?  
I found these 16 targets for immunology were only in Phase 1 (not in more advanced development in any indication). 
  • BACH1
  • BTLA
  • Cadherin 5
  • CD200R1
  • Conglutin7
  • DNA Lyase APEN
  • Eotaxin 2
  • FFAR2 and 3
  • Glutamyl Prolyl tRNA synthetase
  • hsp60
  • IgBeta
  • IL17RA
  • LALRA4
  • N-formyl peptide R2
  • SLC17A5
  • STAT1
3.  New biodistribution, dosing frequency or removal of off target effects?
Although these are generally strategies that lend themselves to incremental impact, there may be situations where these sorts of strategies can deliver high impact.  Often the question will be "how much improvement is enough to have a big impact?".  

4.  New biology understanding
The real frontier in drug discovery is always in deep biology.  Academic research often has insights not yet incorporated in drug discovery and those that can effectively tap that new biology may indeed leapfrog the competition.  Examples might be earlier diagnosis for more effective intervention, disease subtyping for a special population for more efficacious treatment, new target interactions in the pathways that lead to new treatments.   But the challenge (and the fun) is how to link that new science to the concrete translation to a drug, bringing expertise from both sides of the gulf to bear in a disciplined analysis.  Incubators such as BioCurate, Biomotiv may offer opportunities to do just that.  

Infographic:  Changing Molecule Types
Jessica:  The business of CRISPR
CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats (see why it’s easier to just say “crisper”?).  It is an RNA-based defense mechanism used by bacteria to protect themselves from invading viruses and plasmids.  It works by recognizing and cutting out the unwanted bits that have inserted themselves in the genomic DNA.  CRISPR has been adapted into a powerful tool to cut and splice human DNA which can be used to correct genetic diseases and/or develop sophisticated cell-based medicines.  The basic machinery comprised of the Cas9 enzyme (for double stranded DNA cutting) delivered along with the guide RNA (gRNA, for targeting) allow for the developer to insert (knock-in) or delete (knock-out) genes at a specified locus; referred collectively as “indels”.  Indels are achieved via non-homologous end joining (NHEJ).  Alternatively, when CRISPR/Cas9 is delivered with a template it can be used to modify (correct) genes using homology directed repair (HDR).  The appeal of the CRISPR system is the low (but not zero) frequency of “off-target” cutting and pasting.
Basically, it is one of the hottest trends in biotechnology these days.  So hot in fact, that many in the space may not realize that it was first characterized as a tool with therapeutic potential in 2012.  Just 7 years ago!

The History of CRISPR (one perspective)

The potential application for this bacterial enzyme system to be used in eukaryotic cells was first recognized by Emmanuelle Charpentier (at Umea University of Sweden at the time).  She reached out to Jennifer Doudna at UC Berkeley and an historic scientific partnership was formed.  Together they published their findings: Jinek et al. 2012 Science_Doudna & Charpentier and filed for patents through UC Berkeley.  Feng Zhang, at the Broad Institute in Massachusetts had been working with many of the existent gene editing tools at the time (eg ZFN, TALENs) and was inspired by the work of Doudna and Charpentier and subsequently published his own findings:  Cong et al. 2013 Science_ZhangZhang and his team at the Broad Institute also filed patents…with expedited review.  The Broad patent application was reviewed by the USPTO first and was granted in 2014.

Patent Battle Royale

Thus, one of the biggest biotech patent battles in history has ensued and the devil is definitely in the details.  The story is not simple, and some say that it is not clear to whom scientific credit should be given.  Legally, in the USA, it’s apparently a bit simpler - and a cautionary tale for scientists to understand the implications of their words as the United States Patent and Trade Office (USPTO) sided with the Broad:  The CRISPR patent decision didn't get the science right.  However in Europe the decision has gone the other way:  EPO revokes the Broad Institute's CRISPR Patents with the European Patent Office (EPO) citing a lack of novelty as the rationale for revoking the patents granted to the Broad. 

The bottom line is that Charpentier and Doudna did the work first and, despite the timing issue of the patent applications, there is also debate about the wording used by the 2 groups with respect to the use of the technology.  The USPTO rationale is that the Berkeley group described application of this naturally occurring prokaryotic enzyme system in eukaryotic cells (implied therapeutic application) while the Broad group described direct therapeutic potential.
Battle Fatigue

The implications of this patent battle for the industry are significant, as the owner of the patents will drive the licensing of the technology.  Larger entities in the space have discussed taking a license from both institutions (or their designated licensing entities) in order to hedge their bets while the battle played out.  Not that this has not, in any way, hindered CRISPR-related patent filings.  As of late 2017, patent applications related to CRISPR or CRISPR associated patent families approached nearly 2,000; with families equating to the same patent in multiple countries The CRISPR Patent Landscape that number has surely exceeded 2,000 by now.   These patent applications have been placed by the Broad and UC Berkeley as well as myriad institutions, companies, and researchers for both R&D and therapeutic applications.  Of all of the patent applications, only a small portion have been actually granted.

What are the options for a fledgling start-up that is developing a CRISPR-based therapy or portfolio of therapies?  Which group shall they license from?  For the smaller entities, there is an organization that is collecting access to patents (it is unclear if UC Berkeley is participating) in order to offer developers a license to the patent pool: MPEG LA, LLC - CRISPR Patent Pool.  The premise is that therapeutic developers can obtain non-exclusive access to the pool, which likely allows them to pay one fee (or schedule of fees) to obtain access to all of the pieces that they need, rather than obtaining access to each piece separately.  This could be a valuable consolidation of effort and cost for products that incorporate various pieces of the IP puzzle.  Because the CRISPR IP landscape is so uncertain and the experimental use exemption to patent infringement is becoming increasingly difficult (in the USA), developers are likely wise to identify a patent holder to license from rather than opting to sort it out later.  

CRISPR = $$$

The amount of investment, specifically in the therapeutic applications of CRISPR, is also extraordinary.  The image above demonstrates the total funding of the top 3 companies developing CRISPR-based therapies.  Below is a breakdown of their publicly disclosed patent strategies. 


Editas is the only one of these 3 that obtained an exclusive license from the Broad Institute.  They have subsequently sublicensed to Juno (up to $737M for 3 treatments using CAR-T) and Allergan ($90M for eye disease) for therapeutic development and several non-exclusive R&D applications to tools developers.  CRISPR Therapeutics has a license from UC Berkeley and has sublicensed to Vertex (up to 6 new treatments) and has also formed a joint venture (Casebia) with Bayer ($335M).  Intellia Therapeutics has exclusive access to Caribou Bioscience’s CRISPR-Cas technology for the development of new cell and gene therapies.  Caribou has an exclusive license to foundational CRISPR-Cas9 work from the University of California and the University of Vienna (Caribou Licenses).


Source:  Global Data searches 21Feb2019

CRISPR is here to stay, with over $4.4B invested, just in the therapeutic applications and hundreds of patients poised to be tested in clinical trials.  What will happen when some of these experimental products make it to the market?  What are the implications of the patent battle outcomes on the validity of any of the granted licenses?  Will this impact the ability for these products to reach the patients that so desperately need the therapies?  Have we heard the end of this?  With the amount of money at stake, the answer is likely: probably not.
Trevor: This way to buy-back glory?
One of the tenets underpinning the rationale for buying back shares is that stock prices are supposed to rise as the number of shares in circulation (i.e. outstanding) is reduced when the company repurchases shares from stockholders.  The repurchased shares are technically known as “treasury stock” – issued shares which have been repurchased and returned to the company vaults are no longer outstanding and thus are not counted when calculating dividend payments or earnings per share.

We last wrote about buybacks a year ago February 2018 when discussing the cash piling up on big biotech/pharma balance sheets thanks, in part, to the corporate tax cuts announced in the fall of 2017.  This year, the news about stock buybacks has a more political bent to it than years previous. 

In a New York Times Op-Ed on Feb 3, 2019, US Senators Bernie Sanders and Chuck Schumer revealed to the public that they plan to introduce legislation for a vote that will enforce some sort of a employee benefit or community sponsorship program (ostensibly through the threat of increased taxation?) on companies repurchasing shares from stock holders.  That should make for some lively debate in the House and Senate.  (Behind a paywall – https://www.nytimes.com/2019/02/03/opinion/chuck-schumer-bernie-sanders.html)
But in our industry the desired (or presumed) increase in share prices doesn’t appear to have materialized over the last several years.  In October of last year, Geoffrey Porges, Director of Therapeutics Research at SVB Leerink, wrote a piece about the value destruction that has resulted from buyback programs in the biotech/pharmaceutical industry (see table above).  He charted the relative returns of stock prices against the average price paid during the repurchase program.  The results aren’t pretty.  It’s clearly been hard enough for these companies to generate meaningful increase in value.  Indeed, one might even argue that without the buybacks, these companies share prices would be materially lower than they are at present. 

Fast forward to today, one might think the BMS acquisition of Celgene announced during JPM festivities in January would “right the ship”.  Ehhhh… nope.  Celgene shareholders are still looking at a negative 15% return on that investment.

So, what’s all the fuss about?  Why are Sanders and Schumer out there with a notice to the American public that they are going to mandate a new corporate benevolence when it appears that nobody has been getting rich on share price appreciation using stock buybacks?  Hard to know.  Perhaps it’s political positioning?  The effects of the 2018 corporate tax cuts are one thing… but what about the cash overseas that might return home under a reform of the tax on repatriation?  Widely estimated to be in the trillions, the NY Times piece from Sanders and Schumer feel a bit like they are “getting out in front of” a much larger opportunity – what to do with all the “Big Pharma” corporate money that might someday be given a tax holiday and seek to be put to work back here in the States. 
www.Pullan Consulting.com
Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fund raising, with outreach to partners and investors, help with shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements. 
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Trevor Thompson             Trevor @pullanconsulting.com 
Jessica Carmen               Jessica@pullanconsulting.com 
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