AstraZeneca PLC has, after a long gestation, given birth to the antibiotic developer Entasis Therapeutics. But because of apparent lack of interest from financial or strategic partners, the Big Pharma has yet to cut the cord: in early July the biotech debuted with $40 million in funding from AZ alone, and a portfolio of the drugmaker’s early-stage antibiotic candidates. [See Deal] For now, Entasis remains a wholly owned subsidiary of AstraZeneca. And it emerges as the debate about incentivizing antibiotics R&D intensifies amid growing concerns about antibiotic-resistant bacteria.

The biotech is led by CEO Manos Perros, PhD, former VP and head of AZ’s infection Innovative Medicines unit, who stresses the opportunity ahead of Entasis and others pursuing targeted, powerful anti-infectives in the era of antimicrobial resistance “which was not there five or 10 years ago.”

“Entasis isn’t looking for incremental improvements but for antibiotics that treat infections that no other antibiotics can treat,” says Perros. “This isn’t about convenience; it’s about saving lives where other drugs can’t.” Perros thinks the technologies needed to discover and develop new classes of antibiotics that are targeted to specific pathogens in specific-use cases are emerging, and says that Entasis “will be leading the wave of pathogen-targeted drugs.” But at this point, most of the specifics of the company’s platform – comprising genetic tools, molecular dynamics simulations, and modeling, according to a release announcing the firm’s emergence – remain undisclosed.

The company’s lead molecule, ETX0914, is a first-in-class oral compound in Phase II for treatment of uncomplicated gonorrhea (despite the name, the bacterium has developed resistance to multiple classes of antibiotics and is a growing public health threat, according to the Centers for Disease Control & Prevention). The drug candidate inhibits DNA gyrase – the target of quinolones and other classes of antibiotics – and has FDA’s coveted Qualified Infectious Disease Product (QIDP) designation that grants fast-track regulatory status as part of the Generating Antibiotic Incentives Now portion of 2012’s FDA Safety and Innovation Act. The drug candidate “works in a different way to any antibiotic out there,” Perros asserts. Preclinical programs against gram-negative bacteria such as Pseudomonas aeruginosa, Acinetobacter baumannii, and carbapenem-resistant Enterobacteriaceae round out the portfolio. He declines to detail the terms of Entasis’ agreement with AZ, but says the company wants to bring in new investors “at the right time,” and that nothing in the AZ pact would prevent future dealmaking.

The Entasis team – which comprises about 20 ex-AstraZeneca employees – is augmented by executives from outside AZ. For example, Chris White, the company’s chief business officer, hails most recently from AMAG Pharmaceuticals and, in mid-July, Entasis said that former Merck & Co. VP Robin David Isaacs, MD, had joined the biotech as chief medical officer.

There are plenty of reasons not to spin out a biotech, and, say, opt to license a handful of assets to a purpose-built entity instead. A search for spin-outs in Informa’s Strategic Transactions turns up fewer than a dozen comparators – and GlaxoSmithKline PLC’s Tempero Pharmaceuticals Inc. immunology spin-off in 2009 was the only other subsidiary-style carve-out whereby the parent retained full ownership. [See Deal] (GSK retains majority ownership of the group as of this writing.) More common are licensing deals whereby a pharma asset holder transfers rights to – and sometimes takes an equity stake in – a newly formed biotech created to house that asset or portfolio.

Pure spin-outs are notoriously difficult to execute, involve navigating legacy employment agreements, and those alternative deal structures tend to be a better fit. (See Also see "AZ Joins Spin-Out Set, Forms GI Play Albireo" - Scrip, 1 March, 2008..) Investors familiar with the nearly two-year process of transitioning AZ’s anti-infectives efforts into a package of biotech assets say part of the snag was likely due to AZ’s outsized ambition: it wanted to finance a complete anti-infectives unit comprising early- and late-stage programs, and may have had outsized valuation expectations. Perros will only say that the team “explored a number of options” to best position the company’s science and pipeline to flourish. “It’s not the only thing we looked at, but we’ve assured ourselves this is the best option.”

The deals are indeed rare, and unsurprisingly tend to happen after broad portfolio realignments. In fact, the last time – and the only other time – AstraZeneca spun out a biotech, pulling in multiple co-investors to launch the gastrointestinal drug-focused Albireo AB in early 2008, it was in the midst of building up its antibiotics business. In 2009, for example, it paid $350 million plus earn-outs to acquire Novexel SA (itself an antibiotics-focused spin-out from Aventis). [See Deal]

Now that AZ has found a home for its earlier-stage assets – and at least some of the cash-burn that would have come with a wholesale package of all of its antibiotics business – the rest of the package may be right-sized for a strategic acquirer.

AZ has, for the moment, hung on to its commercial antibiotics portfolio. It has ex-North American rights to Avycaz (cetazidime/avibactam), an antibiotic against complicated gram-negative intra-abdominal and complicated urinary tract infections that was approved earlier this year (Allergan PLC holds North American rights). It also markets Merrem (menopenem) and Zinforo (ceftaroline) in certain territories (Allergan markets ceftaroline in the US as Teflaro). The Big Pharma has also retained certain rights to clinical candidates that contain avibactam that are being co-developed with Allergan under a deal between AZ, Novexel, and that company’s predecessor, Forest Labs. (See Also see "The Merger/License Dance of AstraZeneca, Forest and Novexel" - Scrip, 1 January, 2010..)

But now that AZ has found a home for its earlier-stage assets – and at least some of the cash-burn that would have come with a wholesale package of all of its antibiotics business – the rest of the package may be right-sized for a strategic acquirer (the acquisitive Allergan would seem to be an obvious suitor). And given the buoyancy in the public markets and enthusiasm for even earlier-stage biotechs, Entasis could be proof-of-concept data away from a mezzanine round and eventually floating on the Nasdaq, points out one venture investor. A public offering, the investor says, could get closer to a valuation AZ might find palatable for giving up full control of its assets.

Meanwhile Entasis enters the fray as investors in antibiotics-focused biotechs – and certain large pharmas who’ve doubled down on antibiotics, like Merck – hope the threat of antimicrobial resistance will create further incentives to spur development. During a plenary session about encouraging novel antibiotics research at this year’s Biotechnology Innovation Organization’s BIO International Convention in Philadelphia, Kenneth Hillan, CEO of the antibiotics developer Achaogen Inc., argued that without incentives akin to those for orphan diseases, investment in new drugs could remain moribund. “Fundamentally, [antibiotics] economically don’t make sense for pharmaceutical companies,” said Hillan. And what doesn’t interest pharma tends not to interest the VCs building biotechs to fill pharma’s pipelines. So “the money will need to come from somewhere else,” he added. Orphan disease incentives could provide a roadmap for changing that dynamic. “In the last five years FDA has approved 55 NMEs for orphan diseases,” Hillan said, noting that the profitability and market valuations of companies in that space reflect those drugs’ high price tags. “We really have to value antibiotics,” perhaps with different reimbursement models, “if we want to get new antibiotics in the future.”

Entasis’ Perros likes a different comparison. In oncology indications such as lung cancer, he says “two decades ago there was one kind, and we would treat it with one or two kinds of chemotherapy without understanding what was best or why.” Today, advances in the biology of lung cancer mean different cancers can be diagnosed and targeted with specialized medicines based on genotype. “Smaller patient populations can be treated in much more effective ways by targeting the right pathways,” he says. “And I believe that antibacterials are moving in that direction.”

AZ Spins Out Entasis To Tackle Resistant Infections

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