Mountains and Molehills

First, the Mountain: Denali Therapeutics made their May debut with the announcement that they raised $217 million in a Series A, a very dynamic bit of BioTheatre. Indeed, it is as compelling a headline as we have seen thus far in 2015. It is very good news for the neuroscience sector; the sheer scale is breath-taking; BioCentury referred to Denali’s “mountain of money“, which for the legions of small biotechs who struggle to raise even 10% of this (and for some, 1% has been a challenge), is almost incomprehensible. Denali is being fairly tight-lipped about the specifics of their strategy, but it is fair to partly extrapolate from Genentech‘s principles for their inhouse R&D and inlicensing efforts, given that Denali’s CEO, Ryan Watts, and COO, Alexander Schuth, ran neuroscience and neuroscience partnering for Genentech, respectively.

It is also fair to ask, why now? The availability of ample funding certainly played a role; it could not be assumed that the money would be available at some other point in the future, such windows have a way of eventually closing. The maturation of genomic analysis as a means of explaining variations of biological phenotypes, and the improved ability to track targets and target engagement via protein biomarkers and neuroimaging, also suggested to Denali and its backers that we are on the cusp of a new era for neurodegeneration research–far less of the black box that it has been historically.

Denali cites Alzheimer’s, Parkinson’s, and ALS as three neurodegenerative indications of high interest, with an overriding focus targeting pathways likely common to all of them: Inflammation, axonal degeneration, and cellular trafficking. They cite an emphasis upon biomarker-verified pathways and population enrichment as means by which they will better their chances of success in an area that has been uniformly characterized by failure. This is, unsurprisingly, very similar to the principles by which Genentech’s partnering process operated in recent years, wherein the rational elucidation of relevant pathways for targeting has been highlighted.

We had wondered whether Denali might have licensed any Genentech assets in devising their internal development portfolio, which thus far includes one academic collaboration devised by Fidelity’s FBRI group. That is not the case, at least thus far, though it remains within the realm of possibility that there could be the subject of discussions around collaboration at some point. Genentech had tended to prefer to (at the very least) conduct IND-enabling studies inhouse,based on the expertise and resources  they could bring to those tasks, and with $217 million raised, and more available, Denali can afford to bring in early-stage programs, and they have a long runway available to them. Denali states that they will inlicense from industry and collaborate with academia, but while we have assumed that they tend to prefer discovery-stage and preclinical programs, they are open to clinical-stage alliances as well, provided the assets involved pass their tests regarding biological explication.

Beyond Denali in specific, this particular shockwave has implications for several other components of the neurotherapeutics ecosystem, beginning with what might say about Roche/Genentech, from which some key talent has come, and for Fidelity Biosciences, who played a pivotal role in assembling Denali and the platinum roster of investors who provided it with this munificent Series A–and who have committed to providing more funding in the future.

Genentech has now had major departures to two newcos, with key Genentech people populating Calico and now Denali. Ostensibly, Denali’s formation says little or nothing about Genentech, which retains robust neuroscience capabilities. Genentech is more vulnerable to internal changes at Roche.  Roche has been an exemplary Big Pharma when it comes to supporting neuroscience, but it has been stung by some clinical failures (the bitopertin program in schizophrenia, and one Phase III trial for gantenerumab in Alzheimer’s). Some prominent internal champions of neuroscience are departing from Roche, and we had wondered if this might signal a dimunition in corporate support for neuroscience R&D. Roche is talking about upping the dose of gantenerumab in yet another Phase III, which some would argue is good news, and to the degree to which it indicates persistence, perhaps it is. But it could also divert resources at a time that Roche is reassessing its neuroscience agenda, and for the sake of a mechanistic premise that still behaves more like quicksand than solid ground.

The fact that Fidelity Biosciences played a key role in forming Denali is a welcome signal that Fidelity is not departing from what has been an active role in funding neuroscience drug development, with EnVivo (now Forum Pharmaceuticals) having been the marquee example. Abigail Johnson’s ascension to the helm of the parent company, Fidelity Investments, had been speculated, in some quarters, to augur a loss of the dedication to neuroscience that had been initiated and sustained by her father, Ned Johnson. In terms of absolute dollar amounts, the amount of Fidelity’s participation in the Denali Series A assuredly pales in comparison to their historically full-hearted–and budgeted–support of EnVivo/Forum, but it is much less dire than a 180 degree turn away from the neuro sector would have been.

Axovant: Setting Sights On a Molehill
Then there are companies who are built around the principle of ‘One Man’s Trash, Another Man’s Treasure.’ Opportunism can be a good thing, but Axovant has suddenly bloomed like the radar blob of a tornado expanding near a quiet Kansas town–and there are some warning sirens to be heard. Axovant has been assembled around SB742457, GSK’s 5HT-6 antagonist for the improvement of cognition in Alzheimer’s. The efficacy data from GSK’s most recent Phase IIb trial showed a minuscule impact on rating scales used over a 48 week period (e.g. ADAS-cog decline altered by less than two points, CDR-SB differential that essentially vanishes at 48 weeks). Two earlier, well-sized Phase II studies had shown nothing as a monotherapy, and only an inconsistent, borderline impact as an adjunct, so GSK dropped its development. Not that GSK’s recent judgment calls in neuroscience have been indicators of anything more than rapid-onset spinal atrophy, but the beauty of this asset is definitely in the eye of a few beholders. Which in this case, included a hedge fund executive who set up shell companies in Bermuda (Roivant Sciences Inc., and Roivant Sciences Ltd), which then spun off a neuroscience virtual company (Axovant), to which it licensed SB742457, acquired from GSK for just $5 million upfront (we worry when the number of discrete corporate entities exceeds the number of pharmacological assets). They added some advisors with credentials from legacy projects like Aricept and memantine, and plan to start a single Phase III trial later this year, assuming that success will suffice for NDA filing. This falls into ‘a little is better than nothing’ camp of pharmacotherapeutic aspiration, but  in fact, statistically significant, predictable mediocrity just might make it.

This is molehill territory, aiming to slightly increase the temporary, minimal improvement in cognition provided by cholinesterase inhibitors in Alzheimer’s, without impacting the course of the disease itself. It’s like switching out steel for aluminum in parts of a car frame to eke out a two-miles-per-gallon improvement in gas mileage. And the car only lasts for a year.

But here is the stunning part–Axovant is looking to raise as much as $309 million in an IPO (at the maximum of the price range, with the overallotment), an amazingly heady goal for a nearly virtual newco that is organized primarily around this single asset, plus soon, Arena’s nelotanserin, which has no value attributed at present. The S-1 displays some examples of self-service (e.g. family members getting cheap stock options, Roivant getting paid for providing services to Axovant), the former (and some other features) has already attracted the healthily skeptical attention of Adam Feuerstein at Street.com. Axovant is hoping that the dearth of cognition enhancers in late-stage, other than Forum and Lundbeck’s drugs, justifies aiming high. The main cautionary note for those who jump on the bandwagon is one of timing: Both Forum and Lundbeck are ahead of Axovant in Phase III execution, and Forum’s nicotinic alpha7 drug (FRM-6124) also showed an efficacy signal, albeit over just three months. Whether that signal will be replicated in Phase III and sustained over a longer duration is not to be assumed, but if FRM-6124 were to reach the finish line earlier and stronger, the opening for one or both 5HT-6 antagonists would narrow considerably.

Is Axovant a scam? No, though some of the built-in rewards for the principals veer towards bad taste. After all, Lundbeck/Otsuka have idalopirdine in Phase III, a 5HT-6 antagonist with its own modest-at-best clinical power, and with companies like Avanir and Auspex being bought out for $3.5 billion each, a transaction that values Axovant at over $1 billion out-of-the-gate is not nearly as ludicrous as it might have sounded in early 2013.

The Neuro Sector
Two years ago, had we predicted that in 2015, the largest Series A round  in CNS sector history would be generated by Denali Therapeutics, a newco dedicated to research in neurodegeneration, a mental status exam would have been called for, given the hallucinatory departure from reality that would have been implied. But in a pharma world where prominent companies have thrown up their hands and exited from neurodegeneration programming while whining that it was ‘too hard’,  here are highly credible scientists and investors saying–’No, it’s not; we now have access to the tools necessary to make it do-able.’ For those companies who have stayed the course, this is validation; for those who have departed, this should sow still more seeds of self-doubt. Axovant is a reminder that healthy evolution can quickly be followed by marriages of convenience, riding the coattails of sentiment change, and the thought of such a hastily cobbled-together enterprise aspiring to be the largest CNS IPO in history is not reassuring to anyone wondering how much of the neuro sector’s recovery reflects a ‘bubble’.

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