Healthcare Newsletter October 2020

In our last month newsletter, we summarized developments around the much-awaited COVID-19 vaccine.  COVID-19 has been a stark reminder of risk at the One Health convergence and the stark need for innovation capacity in anti-infectives.  We discuss below our enthusiasm around Pfizer acquiring anti-infectives and key approvals pointing to a pharma embrace of the therapeutic area, Bayer digging deeper in cell and gene therapies with a big buy, Asian companies dominating biosimilar developments, medical device M&A led by opportunistic deals and encouraging developments in NGS based companion diagnostics.

Pfizer, Shionogi, Merck wet their feet – hope in barren land of anti-infectives

“Pfizer acquires Arixa and grabs preclinical antibiotic for resistant gram-negative Pfizer, Shionogi, Merck wet their feet – hope in barren land of anti-infectives infections, Shionogi gets FDA approval for FETROJA to treat ventilator-associated bacterial pneumonia caused by multidrug-resistant gram-negative pathogens – Corporate engagement provides hope in the context of glaring AMR challenge and lean global pipeline of less than 50 novel antibiotics.”

AMR, a grave global challenge:

Antimicrobial resistance (AMR) is only getting graver as a global challenge. WHO has declared AMR as one of the top 10 global public health threats facing humanity.  In 2016, OECD had attributed to AMR about 700,000 annual deaths and increased healthcare expenditure of USD 2.9 trillion by 2050. While countries have committed to the 2015 Global Action Plan championed by the WHO, little progress has been achieved.  The way forward calls for intense multi-sectoral efforts as well as global pole vaulting of investments in novel antibiotics for resistant pathogens.

Negligible global pipeline of novel antibiotics and corporate investment appetite:

Dwarfed by corporate interest in areas such as oncology, anti-infectives have long been Global Antibiotic Pipeline – Sep19eased out of the list of industry & VC investment priorities. Consequently, the global pipeline of novel antibiotics is negligible.  The January 2020 update from WHO quantifies the lean pipeline at a stark number of less than 50 novel drugs (60 including biologicals) under development globally. Only two of these 50 drug candidates target the multi-drug resistant Gram-negative bacteria that require urgent solutions. This is in stark contrast to close to 900 oncology drugs in late-stage development (Phase II and beyond) globally.

Catalytic stimulus for antibiotic drug discovery and the collaborative approach:

In the absence of corporate investment appetite, public health and philanthropic stakeholders have until now largely stewarded initiatives to stimulate research engagement in antibiotic drug discovery.  The most notable of these are the Global Antibiotic Research and Development Partnership (GARDP) and CARB-X.  A joint initiative of WHO and Drugs for Neglected Diseases Initiative (DNDI), GARDP has was launched to encourage R&D through a public-private partnership with the end goal of developing five new antibiotic treatments against drug-resistant bacteria identified by WHO as the greatest threats. Biomedical Advanced Research and Development Authority (BARDA), National Institute of Health (NIH) and global funders support CARB-X, a biopharmaceutical accelerator focused on developing antibacterial products.

Earlier this year, AMR Action Fund was launched by the International Federation of Pharmaceutical Manufacturers & Associations, IFPMA.  With the collective contribution of more than 24 biopharmaceutical companies, it has raised USD 1 billion and aims to bring two to three new antibiotics to the market by 2030. In addition to funding these collective efforts, public and philanthropic funders have also extended some support to young ventures that today face high mortality risk due to Venture Capital funds opting out of antibiotics.  At the beginning of this month, we had news to cheer with BARDA’s US144 million funding to Locus Biosciences.  BARDA has committed to co-fund development of CRISPR–Cas3-enhanced bacteriophage (crPhage™), LBP-EC01, a product that targets Escherichia coli (E. coli) bacteria responsible for recurrent urinary tract infections (UTIs). Antibiotic-resistant E.coli was identified as a serious and urgent public health threat by the CDC, requiring the development of new treatments. More details on this news available in our Pharmforward article here.

Pfizer’s Arixa Acquisition – A ray of hope for pharma engagement in antibiotics

WHO has acknowledged that private investment has further declined and antibiotics have been largely abandoned by industry and VC funds. Pharma investments have been galvanized by oncology and now more popularly, cell and gene therapy. Stakeholders have pointed to the need for market shaping and lack of incentive for investments in anti-infectives.  In this context, Pfizer sealing the deal with Arixa and Shionogi and Merck grabbing approvals offers a wide beam of hope. This month, Pfizer’s Hospital Business has acquired Arixa Pharmaceutical Inc., a US-based biotech venture with a dedicated research focus on next-generation oral antibiotics. Arixa’s lead compound ARX-1796 is an oral prodrug of avibactam and is currently under Phase I clinical trial. Once approved, the investigation drug can be used as part of the next-generation oral antibiotic combination regimen for resistant urinary tract infection and other gram-negative bacterial diseases. More information on this deal is in our PharmForward update here. Every novel antibiotic approval is cause for cheer in the current landscape.  Earlier this month US FDA approved the supplemental New Drug Application (sNDA) for FETROJA® (Cefiderocol), an antibiotic by Shionogi, for hospital-acquired, ventilator-associated bacterial pneumonia caused by the following susceptible Gram-negative microorganisms: Acinetobacter baumannii complex, Escherichia coli, Enterobacter cloacae complex, Klebsiella pneumoniae, Pseudomonas aeruginosa and Serratia marcescens. Cefiderocol was developed using a novel mechanism to penetrate the outer membrane of multidrug-resistant gram-negative pathogens and can evade carbapenem resistance, a growing issue world over. The European Commission also approved Cefiderocol in April 2020 to treat aerobic Gram-negative bacteria-related infections in adults 18 years or older. Read more about the approval in our PharmForward update here.

2020 is turning out to be significant for antibiotics. Earlier this year Merck received FDA approval for Recarbrio (a combination of imipenem-cilastatin and relebactam) to treat hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP). The drug has been granted approval under Qualified Infectious Disease Program (QIDP) designation, provided to antifungal and antibacterial drugs that treat serious or life-threatening infections. The parched landscape does cry for substantially more intense stakeholder engagement to address the complex AMR challenge.  However, we are highly encouraged by significant developments this past month. Pfizer’s Arixa acquisition and Shionogi’s approval offer hope of novel anti-infective drugs for resistant gram-negative bacterial infections.  The most reticent stakeholder, big pharma has demonstrated willingness to be part of the solution.  Hopefully, it is onwards and upwards from here.

Bayer buys into Gene Therapy - investment momentum continues unabated

“Bayer acquires Asklepios Biopharmaceutical Inc. in a USD 4 billion deal and Biogen Pfizer, Shionogi, Merck wet their feet – hope in barren land of anti-infectives inks much speculated deal with Nobel Laurette Jennifer Dounda co-founded Scribe Therapeutics. Corporate investment appetite and collaboration momentum rife in Cell and Gene Therapy.”

Cell and gene therapy (CGT) investments have snowballed over the last few years.  With the prospect of advanced biological products holding the potential to treat rare genetic diseases and other unaddressed clinical needs, cell and gene therapy is emerging as the hottest area for biopharma investments.   This is evident in all metrics – patent filings, clinical pipeline and finally, VC investments, M&A and licensing deals.   Last month Gilead had announced FDA approval for Kite Pharma’s second CAR-T cell therapy, Tecartus.  Tecartus targets CD-19 T cells just like Gilead’s flagship therapy CAR-T cell therapy Yescarta.  The two pioneering approvals that heralded the arrival of CAR-T cell therapies were Yescarta and Novartis’ Kymriah.  Co-incidentally last month Novartis also announced that Kymriah has met endpoints in a Phase II trial for an indication expansion to relapsed or refractory (r/r) follicular lymphoma (FL).  Bristol Myers Squibb’s CD-19 targeting CAR-T cell therapy is also headed towards commercial milestones with the

EMA validating its Marketing Authorization Application earlier in July. Earlier this week, Bayer added another USD 2 billion to USD 4 billion to 2020 deal value in gene therapy and bought its way into a broader portfolio and platform. Bayer is acquiring Asklepios Biopharmaceutical Inc. (AskBio), a North Carolina based two-decade old private venture founded by UNC researcher and gene therapy pioneer Jude Samulski.  AskBio has several preclinical and early development programs as well as a presence in contract manufacturing for gene therapy.  The deal includes USD 2 billion upfront and up to an equal amount of consideration on certain research milestones being met.  Bayer’s earlier investment in BlueRock included an off the shelf cell therapy technology.  The AskBio buy now positions Bayer as a strong contender in the gene therapy space with access to AskBio’s Adeno Associated Virus 8 (AAV8) manufacturing platform to develop therapeutics for CNS, CVS and musculoskeletal disorder. This could also enable Bayer to develop treatments for indications caused by multiple genetic mutations and rescript the current landscape of monogenic disorders that most gene therapies have targeted to date.  Bayer’s big bug emphatically demonstrates big pharma interest in channelling investment dollars to strengthen the pipeline of gene therapies.

Partnerships have been rife with younger ventures also bolstering R&D programs. This month, Ultragenyx Pharmaceutical has also partnered with Solid Biosciences to develop gene therapy for Duchenne Muscular Dystrophy using Solid’s proprietary microdystrophin construct developed from Adeno Associated Virus 8 (AAV8) variants. Their lead candidate is currently undergoing a Phase I/II clinical trial and faces competition with drug candidates from Pfizer, Astellas and Sarepta Therapeutics. Biogen also finally inked a much speculated deal with Scribe Therapeutics to push further into neurological diseases including Amyotrophic Lateral Sclerosis (ALS). Scribe Therapeutics’ co-founder Jennifer Dounda recently received the 2020 Nobel Prize for her breakthrough work in CRISPR and genetic medicine. As per the terms of agreement, Scribe will receive an upfront USD 15 million and will also be eligible to receive over USD 400 million as milestone payments and royalties post commercialization. In return, Biogen will utilize Scribe’s gene-editing technology known as X-Editing (XE) to develop safer and effective drugs. In 2019, Biogen had acquired Nightstar Therapeutics, a UK based clinical-stage company that focused on AAV therapy to treat retinal disorders.

Corporate investment momentum continues unabated and the boundaries of science are being pushed.  Cell and gene therapies offer possibilities not envisioned earlier. However, access to therapies remains a complex challenge as of date.  With reimbursement and payor support evolving, current price tags are still considered prohibitive by majority of the global population. Reported revenues by segment leaders such as Gilead and Novartis have been rather tepid with commercial landscape still evolving.  We will continue to analyse progress in this exciting space as the era of wider access becomes a reality in the near future.  Follow our PharmForward updates here.

Asian companies Henlius, Celltrion & Centus dominate biosimilars news

“Biosimilar news has been dominated by new star in the segment,Asian companies Henlius, Celltrion & Centus dominate biosimilars news Chinese company Henlius and old dominant Asian contender Celltrion”

The biosimilars segments continues to attract corporate attention, buoyed by regulatory thrust, commercial market creation in high value markets such as US and scientific intricacy. The current commercial wave concentrated in monoclonal antibodies has been largely dominated by global biopharma behemoths (including traditional innovators) and couple of Korean majors. The Asian footprint has largely comprised of Samsung Bioepis and Celltrion and Indian companies such as Biocon, Intas / Accord et al. The month’s development have been dominated by Asian newsmakers including the new star, Henlius from China, and good old Celltrion. The battle now shifts to the lesser-explored space of ‘bio-betters’, niche opportunities in the current wave of biosimilars such as omalizumab and post 2025 opportunities such as denosumab, ipilimumab etc.

Chinese biosimilar takes centrestage

Shanghai-based Henlius biotech has been creating a buzz over the past few months. Recently, it became the first Chinese biosimilar company to launch a biosimilar in the European Union market. Henlius received the EMA nod for its trastuzumab biosimilar Zercepac late in July this year and the product was launched in exclusive partnership with Accord, a subsidiary of Intas Pharmaceuticals, India. Henlius has now expanded its existing marketing partnership with Accord to cover Canada and US markets – further giving it a reach into the regulated biosimilars territory by leveraging Accord’s expertise in bringing drugs to the regulated market. We have covered the details in extensive detail in our PharmForward post here. Recently, Henlius also partnered with Essex Bio-Tech for the commercialization of its phase-III bevacizumab biosimilar for treating wet age-related macular degeneration (wAMD). Essex will be responsible for global regulatory filings and commercialization and Henlius will be responsible for the clinical development of the biosimilar. Strategically enforced biosimilar partnerships are the formula to success in the competitive space of biosimilars where timing is critical and partnerships enable de-risking of investments and gives confidence to developers that the biosimilar candidate has prospects to compete in the market space. Both trastuzumab and bevacizumab biosimilar markets are nearing a saturation point in the regulated market.  Trastuzumab, in particular, has witnessed steep price erosion with the launch of multiple biosimilars. In light of this, timing of launch is paramount for value realization and Henlius’ multiple partnerships with experienced market players gives it the ground to participate in the global biosimilars space.

Asian companies actively advancing biosimilar pipeline and partnering

A dominant shaper of the first wave of global biosimilars, Celltrion is actively pursuing a bio-better strategy and is tapping into commercial white spaces with niche assets such as omalizumab.  Celltrion recently announced initiation of phase III trial of its omalizumab biosimilar (CT-P39) referencing Xolair for the treatment of chronic idiopathic utricaria, a form of hives, on receiving the approval from Republic of Korea’s Ministry of Food and Drug Safety. Xolair is approved for the treatment of adults and children with moderate-to-severe asthma and chronic hives in the United States, the European Union, and Japan. Its market is close to USD 2 billion market for the anti-immunoglobin E monoclonal antibody, with only few other competing products. Patents on Xolair drug compound expired in 2018, but there are no biosimilars in the market yet, mainly due to the complex patent strategy used by the innovator to guard the syringe formulation and additional lyophilized powder formulation, used in EU mainly. The complex patent structure combined with the opportunity size being relatively smaller than other biosimilars has largely fended off competition from the bigger players in the industry. Celltrion has made a significant headway in the omalizumab biosimilar development and is poised to participate in a molecule with lean global pipeline and an attractive market opportunity. Celltrion has also been making news with its infliximab ‘bio-betters’ in the pipeline – it got the EMA approval for the first subcutaneous version of infliximab targeting all 5 indications of the originator biologic Remicade- rheumatoid arthritis, ankylosing spondylitis, Crohn disease (CD), ulcerative colitis (UC), psoriatic arthritis, and psoriasis. It has also partnered with Entera Bio to develop the first oral infliximab formulation. Oral delivery of biologics has historically been an unsurmountable challenge and has been the aspiration of several biopharma developers to gain a competitive edge in the market. Finally, Centus Biotherapeutics, a joint venture between Astra Zeneca and Fujifilm Kyowa Kirin Biologics, received the marketing authorization for its bevacizumab biosimilar referencing Avastin. The approved product Equidacent targets multiple forms of cancer and the approval is based on the results of pivotal phase III AVANA trial – which demonstrated no clinically significant differences in terms of safety, efficacy and immunogenicity compared to the reference product Avastin. Bevacizumab is one of the few oncology biosimilars that is seeing heighted activity as corporate engagement is close to tapering off in the first wave of oncology biosimilars. Samsung Bioepis received the EMA approval for its own bevacizumab biosimilar and has another phase III eculizumab biosimilar in the pipeline. We have also covered some notable South-East Asian partnerships in our PharmForward post here.

Steris, Smith & Nephew keep up MedTech M&A momentum in a relatively quiet month

“While medical devices M&A deal closures have been relatively low key dueSteris, Smith & Nephew keep up MedTech M&A momentum in a relatively quiet month to impact of the pandemic, opportunistic acquisitions with power to expand portfolio have maintained the momentum. Steris buys Key Surgical for USD 850 million with company from Smith & Nephew, Philips and Medtronic in the deal table”

The pandemic and consequently tightened corporate purse strings has led to relatively low M&A activity in the medical devices segment.  Deal momentum picked up late summer with the USD 12 billion Thermo Fisher Qiagen announcement early in the year and later in August with Siemens Healthineer’s announcement to acquire Varian in a USD 16 billion. However, deal closures are taking substantially longer in the pandemic context and only aggregated to USD 2 billion during the first half of the year.  Deal flow hasn’t been the impediment with several smaller companies struggling with stressed cashflows.  However, constraint of access to credit and uncertainty around second and third waves of the COVID-19 pandemic has resulted in a depressed appetite.  While uncertainty looms around pace of resurgence in deal flow, October momentum in medical devices M&A has relied largely on a small set of deals driven by intent to expand portfolio.

The bigger deal announcement this month was of Steris forging a USD 850 million deal with Water Street Healthcare Partners’ portfolio company Key Surgical. Key Surgical’s consumable product portfolio will compliment Steris’ strong presence in sterilization, endoscopy and surgical products.  Key Surgical has benefitted from growth in its personal protective equipment division due to the pandemic and boasts of a strong growth trajectory.  Steris expects the deal to be revenue and EBITDA accretive directly bringing in USD 40 million and 10 cents to fourth quarter revenue and adjusted earnings per share respectively.  The deal terms do reflect buoyant valuation multiples with anticipated revenue and adjusted EBIT for Key Surgical for 2020 being USD 170 million and USD 50 million respectively.  The transaction is expected to close by December 31, 2020.
Mid-sized deals announced this month include Smith & Nephew’s USD 240 million acquisition of Integra LifeSciences’ extremity orthopedics business and Philips’ USD 275 million acquisition of Intact Vascular.  Medtronic also announced acquisition of Companion Medical and Avenu Medical, both for undisclosed sums.

Smith & Nephew’s USD 240 million deal to acquire Integra LifeSciences’ Extremity Orthopedics business will expand its presence in the higher-growth extremities segment. This acquisition will complement Smith & Nephew’s existing Orthopedics portfolio for knees, hips and other reconstruction instruments.  The acquired portfolio of shoulder replacement products and other devices generated revenues of USD 90 million last year.  The attractive deal value is also reflective of current tail winds due to COVID-19 with Integra’s second quarter revenues reported to have fallen 49% amid procedure deferrals due to the pandemic.  In addition to the 300 employees in Texas, Smith & Nephew also gets Integra’s surgeon training site in France.   Smith & Nephew is expected to gain from Integra’s specialized sales force, its distributors across US, Canada and Europe as well as its Integra’s commercial channel.  The divestiture will allow Integra to re-position its focus on neurosurgery, instrumentation and regenerative medicine.  Prior to this acquisition in the orthopedics segment, Smith & Nephew in May 2019 acquired Brainlab Orthopedic Joint Reconstruction and made several other deals with Ceterix, Osiris, Leaf, Tusker Medical, Inc., and Atracsys.
The pandemic has resulted in several high quality portfolios accessible at attractive valuations and we expect the trend of opportunistic deal announcements to continue through the last quarter.

NGS in companion diagnostics & power of collaborations for personalized medicine

“Approval of two NGS based companion diagnostic tests including a liquid biopsy isNGS in companion diagnostics & power of collaborations for personalized medicine testimony to power of collaborations between pharma and diagnostic companies to power the remaining wave of personalized medicine. Patients for AstraZeneca’s Tagrisso and Bayer’s Vikrakvi stand to gain with possibility of more informed clinical decision making”

The first companion diagnostic HER2 assay for Herceptin® was approved in 1998 and its success propelled big pharma to invest in companion diagnostics. The criticality of sensitive and specific companion diagnostics for patient selection was emphatic when FDA rejected ChemGenex pharmaceuticals’ Omapro due to lack of companion tests to identify the targeted leukemia population. To date, the FDA has approved 44 companion diagnostics as the personalized medicine sphere continues to extend beyond oncology into multiple therapeutic areas.  Companion diagnostics have been a key enabler of personalized medicine wave and continue to power targeted therapeutics for patient cohorts most likely to benefit.

Recently, US Food and Drug Administration (FDA) approved the Guardant360 CDx a next-generation sequencing (NGS) based liquid biopsy test for AstraZeneca’s TAGRISSO® (osimertinib).  It is a significant development as this is the first companion diagnostic test that combines both technologies – NGS and liquid biopsy.  Liquid biopsies have paved the way for non-invasive testing in lieu of traditional tissue based diagnostics that has been characteristic of oncology care.  Compared to traditional testing for a single mutation, NGS allows high-throughput profiling through large panel genetic sequencing.  The Guardant360 CDx assay detects mutations in 55 tumor genes.  As a companion diagnostic, the test will help identify patients with specific mutations of the epidermal growth factor receptor (EGFR) gene in metastatic non-small cell lung cancer (NSCLC) patients for guiding use of TAGRISSO.  Additionally, with a simple blood draw the test will also provide additional information on critical genomic information and other solid tumor biomarkers that will guide clinical decision making on treatment for metastatic NSCLC patients.  The test received breakthrough designation from the FDA and was approved based on data from over 5000 patient samples.  The Guardant360 CDx is a great example of the highly impactful role that ecosystem partners such as diagnostic solutions providers are playing to expand clinical possibilities in oncology care.

Another NGS based companion diagnostic was also approved in October.  Roche received FDA clearance for the only companion diagnostic for Bayer’s Vitrakvi (larotrectinib), CDx genomic test developed by FoundationOne a Roche subsidiary.  FoundationOne® CDx will help identify neurotrophic receptor tyrosine kinase (NTRK) gene fusion positive patients for treatment with Vitrakvi.  The test is performed on DNA isolated from tissue specimens from patients with solid tumors eligible for treatment with Vitrakvi.   Again, reflecting the potential of NGS, the assay can detect several mutations in addition to NTRK gene fusions.  The test analyzes 324 genes for substitutions, insertion and deletion alterations (indels) and copy number alterations (CNAs) and genomic signatures across all solid tumors, including the three NTRK gene fusions ((NTRK1, NTRK2 and NTRK3) relevant for informing treatment decisions.  The test has been developed as part of the global collaboration between Bayer and FoundationOne for the development of Next-Generation Sequencing (NGS) based companion diagnostics that was forged in May 2019. More details of the approval can be found here.  This is again a great landmark on both counts, potential of NGS in oncology care and personalized medicine, as well as, need for expanded collaborations between pharma and diagnostic companies to truly realize the value.

Finally, the month also witnessed critical developments on use of AI in diagnostics in a way that it can again push the boundaries of drug discovery, therapeutic possibilities and personalized medicine.  Imbio inked partnerships with two major partners – Siemens Healthineers and Genentech.  The Siemens Healthineers collaboration will provide access to Imbio’s AI algorithms to physicians worldwide through an Open Apps interface on Siemens’ syngo.via platform. On the other hand, through the multiyear partnership Genentech will leverage Imbio’s medical imaging AI technology along with its expertise in imaging biomarkers and integrate it with Genentech’s pulmonary disease expertise. This partnership will leverage of power of imaging diagnostics for research, clinical trials, and will power drug development to deliver more personalized healthcare.  Power of NGS and AI emphatically call for breaking down of silos in drug discovery, diagnostics development and clinical practice. While we look forward to realizing the promise of personalized medicine and acceleration potential of NGS and AI, we also seek a future where such several more of such collaborations thrive and are the new normal.

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