A virtually broke biotech finds itself flush with cash while a major pharma's recently launched follow-on biologics play now enjoys an expanded pipeline and increased research and manufacturing capabilities - that's the outcome of a transaction labeled "a win/win for both parties" by Insmed CEO Geoffrey Allan.

Merck BioVentures purchased Insmed's four FOB programs, two of which have reached the clinic, and a 50,000 square foot biologics process development laboratory in Boulder, Colo., Feb. 12 in an all-cash transaction that eventually will bring Insmed $130 million.

Richmond, Va.-based Insmed had just $2.5 million on hand at the end of 2008, but gets $10 million now for its FOB program, with the remainder deliverable when the deal closes, expected by the end of March. Allan said his firm expects to net about $123 million from the deal.

Merck's acquisition provides enough cash to keep Insmed running now, he added, while the full payment will fund the company for several years, given Insmed's typical annual cash-burn rate of about $24 million.

All options are on the table for how Insmed will use the cash, Allan said in an interview, although one focus will be on therapeutic applications of IPLEX (mecasermin rinfabate [rDNA origin] injection).

The acquisition gives Insmed's "tremendous financial flexibility," Allan said. According to him, the biotech may look to in-license or acquire other assets but not before it completes an internal strategic review. In addition, the company is considering using some of the money to provide a dividend to stockholders.

Biosimilars target Neupogen/Neulasta franchise

Certainly the deal continues to show that Merck intends to move aggressively in the FOB space as it follows quickly on its December announcement of the creation of a new business unit, Merck BioVentures, dedicated to the development of biosimilars and innovative biologics (¹ Also see "Merck Announces Major FOB Initiative With Its New Business Unit" - Pink Sheet, 9 December, 2008.).

For its money, MBV gets INS-19, a biosimilar of Amgen's Neupogen (filgrastim) that is ready for Phase III study, and INS-20, a biosimilar of Neulasta (pegfilgrastim), now in Phase I. In addition, Merck gains preclinical programs to develop biosimilars of interferon beta-1b (INS-21) and epoetin alfa (INS-22), an Epogen follow-on.

These assets further position MBV to attack Amgen's market share in the U.S. biologics space - Merck already had announced that its lead FOB project, MK 2578, is a biosimilar based on Amgen's erythropoietin-stimulating agent Aranesp (darbepoetin alfa). Merck's version will use sugar-modification technology acquired in the 2006 purchase of GlycoFi.

With its new acquisitions, MBV will seek to develop products with enormous earning potential. During its 2008 earnings presentation last month, Amgen reported that Epogen brought in $2.45 billion last year, while the Neupogen/Neulasta franchise produced a combined $4.66 billion.

MBV also is poised to go toe-to-toe with Teva Pharmaceuticals, which already is marketing a granulocyte-colony stimulating factor biosimilar called TevaGrastim in Europe. Last month the Israeli drugmaker dramatically increased its own FOB manufacturing capacity when it signed a partnership with the Swiss contract manufacturing group Lonza to develop, manufacture and market "generic equivalents" of selected biological products (² Also see "Teva Adds To Biosimilars Capabilities Through Partnership With Lonza" - Pink Sheet, 20 January, 2009.).

Indeed, Insmed's state-of-the art Colorado manufacturing facility likely was an important draw for Merck as it races Teva to develop all the capabilities necessary to be a leader in FOBs. Allan noted MBV will retain the facility's full staff of about 70. The site also offers yeast-fermentation capability essential to the glycosylation process Merck is employing in its FOB-development efforts.

The site's production capacity, along with the expertise of the existing staff "gives [Merck] in my view an accelerated head start on developing these products," Allan asserted.

Exit from FOB space means renewed emphasis on IPLEX

A need for cash clearly seems to be Insmed's reason for vacating the FOB space, not the continuing lack of a U.S. regulatory pathway for such products. With Neupogen not losing patent protection until 2012, none of Insmed's FOBs would have produced revenues until the middle of the next decade, Allan noted.

And, according to Allan, despite carving out a leadership position in FOBs, Insmed execs always looked at that expertise as an asset that one day could be monetized. It's one of the reasons all of the company's FOB activities were sequestered at a separate facility in Colorado from the outset (³ Also see "Tercica Will Transition Patients On iPlex To Increlex Following Insmed Patent Settlement" - Pink Sheet, 7 March, 2007.).

"In the space of two years, we've created a very significant return to investors with this particular initiative," said Allan.

"What people don't really appreciate is since about 2001 our company's been focused on IPLEX," he continued, referring to Insmed's proprietary protein platform. The company is developing the protein complex, which combines recombinant human insulin-like growth factor 1 with a binding protein, to develop treatments for myotonic muscular dystrophy, amyotrophic lateral sclerosis, and as potential prophylaxis for retinopathy of prematurity in neonates.

-Joseph Haas (j.haas@elsevier.com)

Fresh Start For Insmed, Added Biosimilar Capabilities For Merck In $130M Deal

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