Billion-Dollar Babies

It was during one of these late-night brainstorming sessions in 2005 that Tung suddenly remembered deuterium—a heavier form of hydrogen he had learned about as a graduate student. Deuterium forms much stronger bonds with carbon than hydrogen does, which can impact a drug’s absorption, distribution, and metabolic properties. Replacing hydrogen atoms with deuterium in existing therapeutic compounds, he thought, might boost their safety or efficacy. And because the shape and size of deuterium is nearly identical to hydrogen, the drugs should still hold their same pharmacological properties, he reasoned.

After doing some background research, Tung convinced himself that his idea was a good one. He immediately started filing patent applications for various deuterium-based compounds and speaking with dozens of venture capital groups and hedge funds to raise the start-up money he needed. Finally, in 2006, with six figures out of his own pocket and $10 million from investors, Tung launched CoNCERT Pharmaceuticals, Inc—five employees (including Tung) on their cell phones in a one-room office in Burlington, Mass., with little more than an Internet connection and a potentially great idea.

Since that time, CoNCERT has raised more than $100 million in capital, filed more than 100 patent applications, grown to about 45 employees, and moved to a 4,200–square meter facility. Almost half of that is laboratory space, where its scientists synthesize, test, and even manufacture many deuterium-substituted compounds.

Last March, CoNCERT announced the Phase I results of a deuterium-modified analog of paroxetine—a serotonin reuptake inhibitor most commonly marketed as an antidepressant (e.g., Paxil, Seroxat), but also shown to reduce vasomotor symptoms (hot flashes) in menopausal women. A serious problem with this treatment, however, is that paroxetine inactivates a liver enzyme important for the metabolism of xenobiotics, which can lead to serious side effects such as cardiovascular toxicity when taken in combination with other drugs. In the CoNCERT clinical trial for hot flashes, however, the deuterium-based product retained the enzyme activity, suggesting that the drug could be used in a broader context than its hydrogen relative.

“It demonstrated that the theoretical efficiency of the platform was really playing out,” Tung recalls. Finding a suitable partner and striking a deal “didn’t happen overnight,” he says, but after several discussions with GlaxoSmithKline (GSK), which sells Paxil, Tung could finally “see the light bulbs going off” in the heads of GSK’s scientific advisory board. “They got very excited about [the technology],” Tung remembers, and the meeting, which was slated for just 1 hour, lasted more than two. Sure enough, just 3 months after releasing the results of the trial, CoNCERT struck a $1 billion partnership with GSK to develop three of CoNCERT’s deuterium-based drug candidates.

When it was all said and done, Tung felt “somewhere between incredible elation and exhaustion,” he admits. “That was a huge deal for us,” he says.

Last year, partnering deals between biotech and pharmaceutical companies totaled over $37 billion, nearly double the deals made in 2008, according to a report released by Burrill & Company this January. “When collaborations work, they’re really beautiful,” said Stuart Peltz, founder, president and CEO of PTC Therapeutics, which struck a nearly $2 billion deal with Roche last September—the largest deal on record for 2009.

Below are the tales of three more deals that made some scientists and business executives with a great idea rich in the last year.

After 3 years as a subsidiary of R. J. Reynolds Tobacco Company (RJR), Targacept became an independent biotech company in August 2000, focused on studying neuronal nicotinic receptors (NNRs) and their role in the central nervous system.

Breaking away from RJR, “the social burden of being in a tobacco company was eliminated, [which was] very good and very energizing” to Targacept’s employees, says CEO Don deBethizy. They got to work applying their understanding of NNRs acquired at RJR to develop new therapies.

“We all know that people smoke [to relieve] stress,” says deBethizy—an effect largely driven by nicotine and its power to block NNRs in the brain. Mimicking that action with an antagonist, he reasoned, may serve as a possible therapy for certain depressive disorders, which are associated with an overstimulation of NNRs.

Looking into this possibility further, deBethizy and his colleagues discovered an old drug already on the market—a noncompetitive antagonist known as mecamylamine. The compound was originally developed by Merck in the 1950s and marketed as a blood pressure lowering agent, and has more recently been used as an off-label treatment for Tourette syndrome and autism to manage anger, deBethizy says. Acquiring the rights to mecamylamine, Targacept decided to test the drug in the context of depression. Promising preliminary results—both from Targacept and a Yale clinical trial—revealed that mecamylamine could help alleviate depression symptoms in patients who did not respond to traditional antidepressants.

Further research revealed that the left-handed form of the molecule showed most of the antidepressant activity. Creating and testing a new drug with just the left-handed form, the researchers saw a “dramatic” result, deBethizy recalls—a positive outcome on every endpoint, with p-values of 0.0001 or lower for each.

“That was the moment,” he says, referring to how he felt when he first saw the results. He called a company-wide meeting to share the news, and with all employees gathered around, deBethizy lay down on the floor—as he often does when he’s excited, but never before in front of over 100 people. “Everybody stood up, hooting and hollering,” he recalls. “We were so excited about what [those results] meant. It is a potential paradigm-changing therapy for depression, which is a $20 billion market.”

After nearly 6 months of “pinching ourselves,” deBethizy says, Targacept struck a deal worth $1.24 billion with AstraZeneca last December for the purified version of mecamylamine, known as TC-5214. “Our market cap went from $45 million to $500 million,” he says. “We have now the potential to become a very successful biotech company.”

Stuart Peltz always “liked the idea of unknowns.” The regulation of gene expression via untranslated regions (UTRs) of mRNA transcripts was one such underexploited but important area of research. So shortly after leaving his professor position at the University of Medicine and Dentistry of New Jersey to launch PTC Therapeutics in 1998, he decided to set up a system to test how interactions between various compounds and UTRs affect protein expression. “We built a technology [to] look for small molecules that regulate the expression of a protein through targeting the UTR of the RNA,” Peltz says.

The system involves taking the 5´ and 3´ UTRs of medically important genes, and attaching each to either end of a reporter that allows the scientists to track expression of that gene when exposed to various treatments—any of about 200,000 compounds in the company’s library. Expressing these reporter-UTR hybrids in stable cell lines, Peltz and his colleagues can identify which compounds enhance or inhibit gene expression, providing potential drug candidates of interest.

During one of the very first experiments using the technology, dubbed gene expression modulation by small molecules (GEMS), the researchers screened for factors that inhibit the production of vascular endothelial growth factor (VEGF), which stimulates the growth of new blood vessels, and found several compounds that were selectively targeting the endogenous protein. The researchers realized that “this is a technology we can use over and over again against many different targets,” Peltz says. “We were very excited” to see those results, he recalls.

To date, PTC has five deals with big pharma, and counting. So far the deals include drug candidates for oncology (a candidate that stemmed from the initial VEGF experiments), hepatitis C, and cardiovascular health. Most recently, PTC struck its largest deal to date—nearly $2 billion with Roche—to look for compounds that impact the central nervous system.

In total, the deals involving the GEMS technology total more than $2.5 billion plus royalties, and the company is “hoping to do another GEMS deal this year,” says senior vice president of Corporate Development Claudia Hirawat.

Manufacturing biologics is difficult and expensive, which limits these drugs’ availability and affordability. “It costs us hundreds of dollars per gram to manufacture these [molecules], sometimes thousands,” says Randy Schatzman, co-founder and CEO of Alder Biopharmaceuticals.

Immunex’s Enbrow, for example, a tumor necrosis factor blocker used to treat a variety of immune diseases, including rheumatoid arthritis, became so popular in the early part of the new millennium that the company was unable to produce enough of it to meet the demand of the market. “There needed to be a better way to manufacture these complex biomolecules,” Schatzman says.

Schatzman and his colleagues identified one potential manufacturing problem they thought they could fix—the use of traditional mammalian cell lines, which are expensive to culture and only divide once every 24 to 36 hours. Yeast, on the other hand, are easy to grow, and can divide every 90 minutes or so, reducing the time it would take to fill a 2,000-liter tank from 2 to 4 weeks to just 90 hours. The problem: How does one “get a simple microorganism to express a complex molecule like an antibody?” Schatzman wondered.

The trick, it turns out, is to produce the separate parts of the molecule in different yeast lines, and then to mate the yeast together until you find the right combination of different protein components. “Low and behold there were colonies in there that were making lots of protein,” Schatzman recalls. “It almost seemed too simple, but it worked,” he adds, comparing the first time the experiment worked to having his first-born because of the pride he felt in the success of the program.

Alder just struck its first big pharma deal worth more than $1 billion—an agreement with Bristol-Myers Squibb for a humanized monoclonal antibody that blocks interleukin-6 (IL-6), involved in inflammation. When the contracts were finally signed late one night, Schatzman says he was “tired but thrilled.”