EP Vantage interview – MediGene sets out to roll up German biotech

It must be hard to head up a promising biotech company based in Europe – a region that seems almost completely immune to the wild frenzy of investor enthusiasm going on in the US. But one boss sees things clearly and is not afraid to say what he thinks the answer is: consolidation.

“It makes a lot of sense to bring Germany’s small biotech companies together, and we are very active here,” Frank Mathias, the chief executive of MediGene, tells EP Vantage. “We are in discussions.”

Indeed, a roll-up strategy of Germany’s fragmented biotech sector is something that Mr Mathias has pursued for some time, but so far without much success. EP Vantage understands, for instance, that MediGene had at one point approached its cross-town Munich rival Wilex with a merger proposal.

But the chief executive thinks things have now moved on sufficiently to make another push. “The financial background has changed. There is less finance from the [European] markets, and companies will need to go into consolidation because of this lack of funding,” he says.

Little enthusiasm

It is disappointing to many in Europe that, in contrast to the biotech boom of 1999/2000, the wave of US investor enthusiasm has not been mirrored across the Atlantic this time around. UK and German biotechs have struggled, with some going out of business and others fighting hard to raise ever-decreasing amounts of cash.

“If you look back five to 10 years there is not really any German biotech that has made it through to the market with a product. Veregen [MediGene’s niche genital warts treatment] is an exception,” Mr Mathias says, though he singles out MorphoSys as a company that clearly has been successful.

One problem is that too many biotechs started enlarging their pipelines too soon, for what he calls “de-risking reasons. This brings the company to the limit. There is too much to do.” It has resulted in a hodgepodge of early to mid-stage assets in the hands of a disparate array of biotechs, each struggling to raise cash.

But despite the obvious need in such an environment for M&A just about the only European biotech that has consolidated in recent years is the UK’s BTG. And one reason M&A is difficult is the unrealistic valuation expectations on the part of many chief executives – the “big issue in our industry”, says Mr Mathias.

Another is ego: “Lots of CEOs and other board members have difficulties accepting that consolidation can change the board’s composition.”

That said, recent management shake-ups, like at Berlin’s Epigenomics, might be eliminating many of these ego issues. 4SC, another biotech in the Munich area, recently saw its chief executive depart, and should thus feature prominently on deal bankers’ radars.

Investable entity

As well as wanting to create a more investable entity with something approaching critical mass, Mr Mathias says he wants to “bring pipeline sustainability” to MediGene.

With Veregen marketed, a royalty on the prostate cancer therapy Eligard monetised and EndoTAG-1 positioned for development in triple-negative breast cancer thanks to a strategic deal with Syncore Biotechnology, MediGene’s internal focus in now almost exclusively on its CD80-antagonist RhuDex.

RhuDex had initially been targeted at rheumatoid arthritis, but the company has now decided to pursue an orphan use – primary biliary cirrhosis (PBC) – and is seeking a regional partner, for instance in Asia, to provide additional funding.

“We are financed to the beginning of 2015,” says Mr Mathias, “but we always want to start a study when fully financed.” The planned phase II RhuDex trial in PBC is expected to begin in the second quarter of next year but will not be completed until late 2015, although Mr Mathias says he is also working on alternatives.

Apart from big pharma’s obvious interest in rare diseases, why was PBC chosen? For one thing the competitive landscape was not so strong, says the chief executive, and indeed EvaluatePharma shows just six clinical-stage projects. For another, there are many immune therapy-naive patients – in contrast to RA.

The only marketed drug for PBC is the off-patent ursodeoxycholic acid, but this is merely symptomatic, as in Mr Mathias’s view is Intercept’s obeticholic acid. “This indication is very strongly linked to CD80, the main mechanism of action of our project. By acting on CD80 [RhuDex] might have disease-modifying properties.”

The planned phase II study will test three RhuDex doses against placebo, with change in serum alkaline phosphatase – a key PBC indicator – as the primary endpoint.

But first a partnering alliance must be struck. This, added to Mr Mathias’s M&A remit, should make him a hot target for investment bankers.

To contact the writer of this story email Jacob Plieth in London at [email protected] or follow @JacobEPVantage on Twitter