PregLem acquisition adds weight to spin out debate

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In a week in which spin outs have made headlines, Gedeon Richter’s acquisition of private Swiss company PregLem for SFr445m ($463m) should provide further encouragement to pharma companies and venture capital (VC) firms considering backing such a move.

Less than four years after spinning out of Ipsen, PregLem’s lead drug has made decent clinical progress and its investors have now made a “good return” on their investment, according to Rafaèle Tordjman, partner at Sofinnova Partners, PregLem’s seed and lead investor. Ms Tordjman puts PregLem’s progress down to having the “right people who know the asset and field very well”, an obvious but crucial ingredient for any successful spin out. Identifying assets to spin out is the easy part, getting the right people to move with those assets appears to be the real challenge.

Get a champion

Sofinnova is certainly developing a decent track record in being involved with successful spin outs.

Within the last 12 months the VC company has seen similarly swift and successful exits from Movetis and Novexel, spin outs from Johnson & Johnson and Sanofi-Aventis, respectively.

Having completed the rare feat of a European IPO last year, Movetis was recently acquired by Shire for a decent premium. Meanwhile AstraZeneca acquired Novexel last December, just six years after the company was established, a notable achievement in an age of longer investment periods.

According to Ms Tordjman the key ingredient has always been getting the right “champions” for the assets which are being spun out. In PregLem’s case, Ernest Loumaye and Eric Rolin were the key drivers, Mr Loumaye having previously been the head of endocrinology at Ipsen.

This theme of getting the right people involved is echoed by Shaun Grady, VP strategic partnering and business development at AstraZeneca: “You need to work hard to identify the right mix of scientists and business leaders to take the programmes forward, given the environment for start ups is quite different.”

Astra spun out some gastro-intestinal assets into Albireo two years ago, and Mr Grady admits the experience, “showed us that there are legal and structural challenges for splitting out assets in this way”.

Meanwhile, GlaxoSmithKline helped create Convergence Pharmaceuticals this week, providing the start up with two clinical stage assets to go with $35m from a mixture of VC firms. 

Spin outs certainly present significant challenges, yet if the perfect blend of assets and people can be found recent examples suggest they can be worth the effort.

Smart move

Having successfully completed phase III trials of uterine fibroid drug, Esmya (ulipristal), PregLem was at a crossroads. After raising $81m in two financing rounds in 2007, the company needed fresh investment to take the product to the next level of regulatory approval and commercial launch in Europe.

As such, there were rumours that the company might attempt an IPO (Talk of PregLem IPO could be on the money, July 13, 2010).

While Ms Tordjman admits an IPO was an option, Richter made enquiries about Esmya following the positive results in June and discussions quickly progressed, resulting in the deal today.

In many respects the deal is just a step up from a standard licensing deal, a move that is increasingly common within the industry. PregLem will receive $156m upfront and a further $307m in milestones, a decent proportion of which is likely to be payable upon European approval.

According to Ms Tordjman a trade sale within such a short space of time was never the end game for PregLem, but the timing and terms of the deal made sense. An important factor is that PegLem will remain intact, essentially becoming an R&D centre within Richter’s Women’s Health business, retaining its employees and senior management team.

Richter has also committed to investing $104m in PregLem over the next three years, to help commercialise Esmya and develop its current pipeline of clinical and pre-clinical assets, all within the field of reproductive medicine.

Logical partner

Not widely considered to be particularly active on the licensing or M&A front, Richter might seem like an odd partner for PregLem. However, the Hungarian group already markets a portfolio of women’s health products, mainly within Central Eastern Europe and the CIS. More pertinently, last year Richter licensed EllaOne from HRA Pharma, the same company from which PregLem acquired its global rights to Esmya. EllaOne also contains ulipristal as its active ingredient, approved and commercialised in Europe as an emergency contraceptive.

While Richter may seek commercial help to roll out Esmya in Europe, particularly in more western and northern regions, a partner will certainly be required for the US market.

Logical collaborators would be Forest Laboratories, with whom Richter already has a relationship on a number of developmental products, or Watson Pharmaceuticals, who are about to launch the emergency contraceptive version.

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