Each week, "The Pink Sheet" presents commentary on some of the week's most interesting business deals, contributed by the editors of the IN VIVO blog. Visit the blog at ¹ http://invivoblog.blogspot.com/ .

It's the end of an era - or maybe just the end of the beginning. This past week saw the WYE ticker officially disappear, as behemoth (Pfizer) gobbled up the merely big (Wyeth). Two small firms - La Jolla Pharmaceuticals and VaxGen - also entered Biotech's Bermuda Triangle, to the surprise of few.

It also appears to be the end of the beginning for the "FIPNet" (Fully Integrated Pharmaceutical Network) strategy as the industry continues to pursue the "virtual is the new reality" approach to drug discovery. Thus, Big Pharma's focus these days is on externalization, especially the ability to sign partnerships that put the onus on the ally. In exchange for taking on a greater proportion of both the risk and cost of development, a smaller partner gets the chance to take a bigger chunk of the downstream economic reward if said research pans out.

Nowhere has the strategy been more evident than in Asia, where Big Pharma hopes to tap into the increasingly high-quality research available in India and China - countries that also should prove to be a major source of future customers. Merck and Lilly in particular have been active, signing deals with Advinus (Merck), Glenmark (Lilly), Nicholas Piramal (both), and Hutchison MediPharma (Lilly).

Now the FIPNet action - or something similar, anyway - is moving to another closely watched emerging market: Russia. On Oct. 14, Roche announced an interesting licensing deal with Viriom, a Russian biotech founded earlier this year. As it turns out, Viriom was formed specifically to develop and commercialize (in Russia, Ukraine, Belarus and Kazakhstan) Roche's pre-clinical non-nucleoside inhibitors of reverse transcriptase (NNRTI) for the treatment of HIV/AIDS - although it's free to develop and license other targeted medicines in HIV too.

We're not quite talking Roche's FIPNet initiation here, mind you; "we don't believe this is the same kind of deal," asserts Roche Pharma Partnering's Peter Sandbach; "the intention was not a risk-sharing one." Roche didn't intend to develop the compounds internally - so it's more about leveraging de-prioritized assets than pulling in partners to share development risk - although granted, the Swiss pharma will be allowed to use Viriom-generated clinical data for its own purposes and retains rights in all other territories. Viriom will pay Roche royalties on sales of any resulting treatments in its territories.

For the Russian start-up, this deal brings close involvement of an experienced HIV drug developer, given that Roche personnel will participate on Viriom's board. Indeed, Roche reckons this deal is a first for Russian biotech, given that Viriom will take the assets all the way to market.

For Roche - which isn't paying a dime - the deal provides a useful catalyst for building up a presence in a growing market. It provides the Swiss group with a nice 'in' with the Russian government, keen to create home-grown 'bioclusters' and to encourage innovation.

Onyx/Proteolix: In an attempt to fill a mid-stage pipeline gap, Nexavar maker Onyx announced Oct. 12 plans to acquire privately held Proteolix for $276 million in upfront payments and another $585 million in milestones. The deals give Onyx a promising Phase II multiple myeloma medicine, carflizomib, which has been billed as a next-generation version of Takeda/Millennium's first-in-class proteasome inhibitor, Velcade .

The acquisition positions Onyx to expand into the global $16 billion hematological cancer market with a potential blockbuster - if carflizomib proves more effective than Velcade, which last year raked in over $1 billion. (Carflizomib is touted as being more specific, so troubling off-target effects, especially neurotoxicity, should be limited.) The deal structure is heavily weighted towards milestones, with most on Wall Street favoring the tie-up. VCs are likely happy too - it is an exit, albeit not one of the richest ones we've seen in the industry.

Since its founding in 2003, Proteolix has pulled in more than $125 million in financing, including a whopping Series C of $79 million last July. That means the return on the upfront money is only a little over 2x for Proteolix's investors. Of course, if carflizomib is a major success and the earn-outs are realized, that return will jump to around 7x, which sounds a whole lot more venture-like.

Novartis/Heptares: Another week, another Novartis Option Fund deal. This time, the investment, a $30 million Series A in Heptares, a UK biotech that specializes in stabilizing G-protein coupled receptors so they can be poked and prodded after being removed from the cell membrane, was announced months ago.

NOF, Clarus Ventures and MVM Life Science Partners invested equally in the round. Why the delay on the option component of the deal? The companies simply took their time deciding which GPCR target to work on, said Heptares CEO Malcolm Weir. And after lots of discussions with various therapeutic area groups at Novartis, Heptares is now getting to work, "starting from scratch on a GPCR we wouldn't have otherwise been working on," he said, although details of the target are thus far kept under wraps.

The deal, with undisclosed upfront payments and milestones that could reach $200 million before royalties, sees Heptares driving drug discovery programs around the target and follows Novartis' stated modus operandi, avoiding Heptares' key assets in favor of a less-advanced program.

GlaxoSmithKline/Prosensa: In another sure sign of Big Pharma's recent embrace of specialist diseases, GlaxoSmithKline announced a four-compound deal this week with Holland's Prosensa, which is focused on RNA-modulating therapeutics for Duchenne Muscular Dystrophy. The deal hinges on a straightforward license component - GSK takes an exclusive worldwide license to lead compound PRO051, in exchange for a £16 million ($26.2 million) up front payment. And far more typical for GSK, the drug maker also gets exclusive options to license three further RNA-based compounds. The total development and commercial milestones across all four candidates could reach £412 million ($674 million), and Prosensa also may receive double-digit royalties.

It isn't completely fair to call drugs for DMD specialist. They're actually ultra-specialist. PRO051, for instance, is designed to treat just 13 percent of the DMD population - a small proportion of a niche disease. Indeed, the small market size was just one reason Prosensa's CEO Hans Schikan said he didn't "in the beginning, honestly expect GSK to be interested" in the programs. But apparently niche is the new blockbuster (especially when meeting high unmet medical need practically guarantees reimbursement from payers). Schikan confirmed that GSK wasn't the only company sniffing around Prosensa's platform.

Novartis/Vanda: Vanda Pharmaceuticals' unlikely success with its once-maligned antipsychotic iloperidone continues. On Oct. 12, the biotech sold U.S. and Canadian development/commercialization rights to its newly approved lead asset back to one-time owners Novartis, for $200 million up front, plus milestones and royalties.

Wyeth/Progenics: Big Pharma mergers don't just create disarray for the integrating parties; they can be very stressful for smaller biotech partners, especially if their assets aren't central to the newly merged company's strategic endeavors. Thus, one of the hallmarks of mega-mergers is the unwinding of smaller deals. Just one day before Wyeth officially became part of Pfizer on Oct. 15, it announced it was paying $10 million for Progenics to take back all development and commercialization rights to its opioid-induced constipation medicine Relistor.

The two companies originally teamed up in 2005 in a deal that gave Progenics $60 million up front, plus the potential to earn another $356.5 million in downstream milestones and royalties. But the injectable medicine, approved by the FDA in 2008, hasn't been a big earner - it garnered just $3.2 million in global net sales in the second quarter of '09. Although revenue was increasing substantially - up 74 percent from the first quarter - it seems Wyeth wanted to shed a low-earning asset prior to the Pfizer merger.

And Progenics wasn't complaining. "Progenics has become increasingly aware that our objective of advancing the Relistor franchise was not aligned with the near-term priority of integrating these two large pharmaceutical organizations," Progenics CEO Paul Maddon said during an Oct. 14 investor call. The revised agreement leaves Progenics free to partner the medicine outside of Japan, where Ono Pharmaceutical locked up rights in 2008 for $15 million. In addition to the $10 million, Wyeth also will continue to provide manufacturing, marketing and sales support for Relistor during a 12-to-15 month transition period, and will fund completion of an ongoing 1,000-patient Phase III safety study for the drug in chronic pain.

- Ellen Foster Licking ( ² e.licking@elsevier.com ), Melanie Senior ( ³ m.senior@elsevier.com ) and Christopher Morrison ( ⁴ c.morrison@elsevier.com )

Deals Of The Week: Onyx Proteolix, Novartis/Heptares, Wyeth/Progenics ...

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