[Updated: 07/02/10 at 10:14 am Eastern time] It appears to be a rare case of fast money made in a biotech startup. The drug giant Eli Lilly (NYSE:LLY) has bought Cambridge, MA-based Alnara Pharmaceuticals and its lead drug for cystic fibrosis patients just two years after the biotech startup incorporated. The companies revealed the deal this morning.
Indianapolis-based Eli Lilly isn’t yet disclosing how much it paid for Alnara, so it’s unclear how well the startup’s elite group of biotech investors are doing in this deal. But read between the lines. Alnara applied to the FDA for approval of its enzyme supplement liprotamase for patients with cystic fibrosis and other conditions in which the pancreas fails to produce enough enzymes to break down foods. Alnara officials have said they hope to have the drug on the market by as early as late this year. Lilly is among multiple drug powerhouses that are in a position to pay a premium to acquire firms that bring new products into their pipelines.
If the FDA approves liprotamase, Lilly will likely have a small but dedicated following for the product among CF patients. Cystic fibrosis, which causes lethal lung infections and digestive problems, affects about 30,000 Americans. Liprotamase, a pancreatic enzyme supplement made in a microbial process, will be offered as an alternative to existing products made with pig enzymes. Bob Gallotto, Alnara’s chief business officer, has estimated that the U.S. market for such supplements is about $400 million annually.
This deal is likely good news for Alnara’s investors, which have pumped $55 million into the startup in two rounds of venture capital financing, including a $35 million round announced early this year. The company’s venture investors include Bessemer Venture Partners, Frazier Healthcare Ventures, Longwood Founders Fund, MPM Capital, and Third Rock Ventures.
“Our agreement with Lilly is an important development as we move liprotamase through FDA regulatory review,” Alexey Margolin, Alnara’s chief executive and co-founder, said in as statement. “Lilly’s deep expertise in the U.S. pharmaceutical business, including regulatory affairs and the development of innovative compounds that address unmet medical needs, created a natural fit and could allow for opportunities in markets beyond cystic fibrosis.”
Alnara and Lilly haven’t officially closed this buyout deal, but for now Alnara is continuing to operate in Cambridge as it pursues market approval of liprotamase, Margolin said in an interview this morning. He and Gallotto declined to discuss any terms of their agreement with their buyer, but Margolin said that “it’s a good deal for everyone.” [Editor’s note: This paragraph was added to the initial version of this story that was published this morning.]
Lilly’s buyout of Alnara is more proof that Big Pharma companies want in to the genetic diseases market.
New York-based Pfizer (NYSE:PFE), the world’s largest drug company, said this month that it would set up a rare disease research center in Cambridge, and in December the company agreed to pay $60 million upfront and up to $55 million in future fees to license an experimental drug for the rare genetic disorder Gaucher’s disease from Israel-based Protalix Biotherapeutics. British drugmaker GlaxoSmithKline (NYSE:GSK) has a collaboration with Carlsbad, CA-based Isis Pharmaceuticals worth up to $1.5 billion to discover drugs for rare diseases and other ailments.
These companies are muscling in on Cambridge-based biotech powerhouse Genzyme (NASDAQ:GENZ). The firm, which took in $793 million from 2009 sales of its top-selling genetic disease drug imiglucerase (Cerezyme), has shown that insurance companies are willing to pay hundreds of thousands of dollars per patient for such treatments. And U.S. healthcare reform offered up special protections for companies that develop innovative new medicines for rare diseases, potentially mitigating the risk these companies face from cheap generic competition.
Lilly talked to Xconomy back in April about its interest in the genetic disease market.
“It’s almost unanimous that all the Big Pharmas are paying much more attention to rare diseases than they have in the past,” said Mark Miller, Lilly’s vice president of corporate development, at the time. “I think people look at the Genzyme model and think that that is a reasonable model to try to emulate.”
The Alnara buyout is another victory for the elite biotech veterans who founded the company. Rich Aldrich, the startup’s chairman and co-founder, is a veteran biotech investor who made millions of dollars as an early executive and shareholder at Cambridge-based Vertex Pharmaceuticals (NASDAQ:VRTX). And Christoph Westphal, another Alnara co-founder and director, was a founder and chief executive at Sirtris Pharmaceuticals, the Cambridge biotech that Glaxo bought for $720 million in 2008. Westphal is now president of SR One, Glaxo’s venture fund. He and Aldrich, who also co-founded Sirtris, have also formed Longwood Founders Fund in Boston to hatch and invest in more biotech startups still.
Like many successful startups, Alnara has benefited from fortunate timing as well as talented management. The company launched in late 2008 with a $20 million Series A round of funding to pioneer new protein drugs, which are typically injected, that patients can swallow. Alnara develops protein drugs that go straight to the gut and aren’t intended to travel further into the body like protein therapies that are injected into patients. Margolin, who was previously developing similar technology as chief scientist at the former biotech Altus Pharmaceuticals, took the helm as Alnara’s founding CEO. Though Altus ultimately went broke, Margolin’s efforts at the defunct Waltham, MA, biotech have paid dividends for he and his associates at Alnara. [Editor’s note: This paragraph was updated with additional details about Alnara’s technology.]
Altus was the original developer of Alnara’s top drug, liprotamase, which is a recombinant microbial enzyme that enables cystic fibrosis patients to metabolize fats, proteins, and carbohydrates that they would otherwise have difficulty digesting. But hard times prompted Altus to cede its rights to liprotamase to the Cytic Fibrosis Foundation, the Bethesda, MD, disease group that had funded its development, in January 2009. And Alnara, just months removed from its $20 million first-round financing, was in a position to strike a licensing deal with the CF Foundation in March 2009 that gave it rights to the late-stage clinical candidate.
Two years and sold is an unusually stellar outcome for a biotech startup. For those biotechs that succeed in getting bought, most of them take way more than two years before buyers come knocking. Many more never get the call like Alnara has.
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