BioProcess International

Creative strategic alliances have long defined the biotechnology industry. Historically, biotechnology companies entered into collaborative relationships with pharmaceutical companies to obtain capital and further product development opportunities.Typically, a biotechnology company would receive limited upfront and milestone payments and single-digit royalties, reflecting a modest ownership position in the compound it discovered. With the maturation of the biotechnology industry, however, a greater number of biotech-to-biotech partnerships have been formed, providing greater ownership of product development opportunities and access to additional capabilities.

Although development and commercialization of novel therapeutic products is the best model for a successful and sustainable biotechnology company, such endeavors are high risk, time consuming, and resource intensive. One study estimates the cost of developing a successful novel therapeutic product to be approximately $800 million, taking 12 to 15 years to move from the laboratory to the marketplace ¹

Historically, capital and resource constraints forced biotechnology companies to focus their efforts on only one or two product development programs, eventually licensing those programs early in the development process to pharmaceutical companies in exchange for upfront payments, milestones, and single-digit royalties. Those licensing deals allowed biotechnology companies to slowly build their capital base and eventually take products farther downstream where they would retain considerably more value. The success of such a strategy is highly dependent on the early success of a small number of internal research programs. The lack of portfolio diversification inherent to this approach has been a significant contributor to the high failure rates associated with biotechnology companies.

The sequencing of the human genome ushered in a new era of drug discovery, industrializing genetics and introducing a wide range of high-throughput drug discovery technologies. Industry now realizes that the complexity of human biology governs the ability of genomics to speed drug discovery and decrease associated risks. This complexity is the driving force behind the high failure rates and capital-intensive nature of the drug discovery and development process. No single genomics or drug development platform technology can be expected to significantly reduce the risk and costs associated with this new era of drug discovery.

The Joint-Development Model: To address the capital-intensive, high-risk nature of novel product development, biotechnology companies must develop new and creative ways to gain access to additional capabilities and resources. Joint development relationships allow companies with synergistic technologies to combine their respective capabilities for the discovery and development of therapeutic products that both companies will own. This type of alliance not only allows each party to focus efforts on its particular area of expertise, without having to develop new capabilities, but more important, it allows each organization to expand its product portfolio reasonably and cost-effectively. The joint development model also allows companies to mitigate the risks of drug discovery and development by spreading investment across multiple product opportunities. Simply stated, instead of owning 100 percent of a single product, companies could own 50 percent of two products with equal resource commitment (or less given comparative advantages). A collaborative approach improves the likelihood that each company’s portfolio will result in a product, while providing access to a wider range of drug discovery technologies.

In August of 2000, Athersys and Medarex entered into a joint development relationship for the discovery of fully human monoclonal antibodies for the treatment of cancer and other life threatening and debilitating diseases. The goal of the relationship is to develop novel antibody therapeutics through the joint application of each organization’s platform technologies. Athersys uses its RAGE (Random Activation of Gene Expression) and GECKO (Genome-wide Cell-based Knockout) technologies to identify proteins involved in disease progression that may make good antibody targets. Athersys also supports this relationship through application of its protein expression capabilities. Medarex uses its antibody technology to generate fully human antibodies against the targets identified by Athersys. Under the terms of the collaboration, Medarex and Athersys equally share preclinical and clinical responsibilities. The parties jointly commercialize all products resulting from the research program.

Joint development relationships allow companies with SYNERGISTIC technologies to combine their capabilities to develop therapeutics both companies will own.

IDENTIFYING NOVEL THERAPEUTIC PRODUCTS

The broad set of proprietary biotechnologies that Athersys has developed enables the company to participate in both the discovery and development of therapeutics directed at disease indications with significant unmet medical needs. Two of the company’s core technologies used in the areas of target discovery and validation are RAGE and GECKO. RAGE is based on the random insertion of powerful “on” switches throughout the genome to activate gene expression and protein production in a manner that is independent of their normal expression patterns. Athersys can efficiently create collections of cells (libraries) in which virtually every gene in the genome has been randomly activated to express its corresponding protein. These comprehensive libraries can be used for many different applications, including the study of protein function, production of cell lines expressing validated drug targets, and development of therapeutic proteins and monoclonal antibodies.

The creation of a RAGE library begins with the random insertion of specially designed DNA sequences, termed RAGE vectors, into the genome. RAGE vectors are engineered to include both an “on” switch, designed to turn on the expression of a gene, and also one or more tags or genetic identification sequences that will later facilitate the rapid isolation of a gene of interest. Athersys has optimized this process such that RAGE usually activates only one or a limited number of genes in any given cell. By repeating this process with a large number of cells, a library is created in which collectively almost every gene in the genome can be activated and expressed. Using rapid screening techniques, cells expressing a specific protein of interest or exhibiting a desired biological characteristic can be identified and isolated rapidly and cost-effectively.

GECKO approaches target identification from the opposite end of the gene expression spectrum from RAGE. GECKO works through the random insertion of “off” switches throughout the genome of a cell to silence a gene, preventing protein expression. By identifying changes in a cell’s function or biological properties by virtue of preventing a gene from being expressed, or “knocking-out” protein expression, the function of a gene or genes can be rapidly ascertained. This allows the efficient creation of collections of cells, or libraries, in which the expression of virtually every gene in the genome is reduced or totally knocked-out. These libraries can be used in a variety of human disease-related assays to reveal cells that have developed a new function related to disease progression. Then, through an additional feature of the GECKO technology, the gene responsible for the new function of the cell can be rapidly identified. Because synthetic pharmaceuticals and monoclonal antibodies are often inhibitors or antagonists of protein function, gene silencing is a particularly relevant approach to identifying and validating novel small molecule drug and therapeutic antibody targets.

Figure 1: Medarex human monoclonal antibody technology

PRODUCING FULLY HUMAN ANTIBODIES

Medarex, Inc., brings to the relationship a broad platform of patented technologies for fully human antibody discovery and development as well as production in a state-of-the- art cGMP development and manufacturing facility. By coupling certain fully human antibody development and manufacturing capabilities with its business and partnering strategies, Medarex improves its therapeutic antibody development opportunities and increases its potential to bring important antibody therapeutics to patients worldwide.

Medarex makes antibodies with fully human protein sequences using transgenic strains of mice (the HuMAb-Mouse). The mouse antibody gene expression is suppressed and effectively replaced with human antibody gene expression. In these transgenic mice, the mouse genes for creating antibodies have been inactivated and functionally replaced by human antibody genes (Figure 1). The HuMAb-Mouse transgenic strains contain key gene sequences from unrearranged human antibody genes that code for both the heavy and light chains of human antibodies.

Medarex therefore has no need to humanize murine monoclonal antibodies. The human genes in the HuMAb-Mouse are stably incorporated in this transgenic mouse and are passed on to its offspring. Mice can be bred indefinitely at relatively low cost and with no additional genetic engineering. The HuMAb-Mouse generates fully human antibodies with affinities in the picomolar range, as high as 10¹².

ATHERSYS–MEDAREX ALLIANCE

Although each contains its unique structure and set of terms, alliances have numerous themes in common. To establish and maintain their successful collaboration, Athersys and Medarex addressed three main themes: risk allocation, ownership rights, and control of product development activities.

Risk Allocation: The Athersys–Medarex initiative is based on “to-be-identified” antibody targets and not on a collection of previously identified and validated gene sequences. The level of confidence between the two organizations is built on existing levels of technology validation, with the belief that valuable, medically relevant antibody targets will be identified during the course of the alliance. Based on this approach and information about novel targets identified by Athersys, a research committee uses a predetermined specific process and set of target nomination criteria to determine whether the collaboration should initiate an antibody generation program around a specified target.

In particular, Athersys conducts disease-related phenotypic screens using its proprietary functional genomics technologies for the identification of collaboration targets for antibody development. Athersys begins its target identification process with the knowledge that a protein identified in a functional screen is involved in a pathway/disease indication of interest. The company gathers additional information on each potential target before formally presenting it to the collaboration. Candidate targets are nominated by virtue of a collection of data that includes protein class, expression pattern, functional information (in vitro and in vivo), intellectual property, and clinical indication. Rather than initiating antibody development against a purely bioinformatically derived target, the two companies initiate their development programs around more biologically validated proteins, reducing the risk that development resources will be used on inappropriate projects. The alliance is currently working on several targets identified by Athersys and selected through the nomination mechanism.

Ownership Rights: Both Athersys and Medarex have invested considerable amounts of time, effort, and resources in the development of their respective technologies. As anticipated, both groups have spent and will be spending significant additional resources during the collaboration in conducting the work required of them. To establish a workable collaboration, it is important to discuss and determine the relative value of the contributions of each party to establish fair product ownership rights.

Athersys and Medarex determined that unless the capabilities of both groups were brought to the alliance, the partnership would not yield meaningful product opportunities. Without the other, neither party would enjoy the same opportunity. As such, the costs for the activities of the two parties start equilibrated: No cash changes hands. The 50:50 split of product rights is reasonable based on the contributions, and both parties can therefore divide all preclinical and clinical costs evenly as well.

Product Development Activities: Because many external and internal forces interact, pushing and pulling a company in various directions, it is impossible to predict how a company’s strategy might change over time. Neither Athersys nor Medarex is immune to this constantly changing environment; it is impossible to know in advance how far each organization might want to take each antibody program together. The default pathway for each program in this collaboration is codevelopment, but over time one development area may possibly be deemphasized by one of the collaborators. If that happens, it would no longer make sense for that collaborator to continue spending resources on a given alliance antibody.

To ensure the appropriate strategic flexibility, the alliance provides various predetermined “opt-out” points along the development path for a party to forego downstream participation in a program and transfer its rights to the remaining party to continue the development program alone if the remaining party wishes to do so. The party that opts out does retain some ownership interest in the antibody to reflect the resources it dedicated up to that point and the risk that it bore along the way. The reduced ownership interest moves on a sliding scale depending on how far the opting-out party bears its 50:50 obligation. Thus, the farther along the development path a party goes, the greater its ownership interest is. Furthermore, if both parties agree, or if they simultaneously opt-out, they can mutually seek a third party license to the antibody and split the licensing proceeds equally.

DEVELOPMENT GOALS

To date, the Athersys-Medarex relationship has made significant progress. The alliance has identified multiple targets in cancer and inflammation and developed functional assays against them. Several of these targets have been accepted for antibody development. Antibodies against a number of these targets are currently being selected.

Companies with complementary technologies and business philosophies can structure cooperative collaborations. Such collaborations can effectively address technical issues, decision-making risks, compensation, and product development paths before initiation of the actual scientific tasks of the alliance. Addressing these issues before commencing the relationship leads to effective therapeutic product development efforts, allowing both parties to obtain significant product ownership rights — economically. In the end, each party can bolster its internal product pipeline, diversify its risk, and create significant value.

REFERENCES

1. Post-Approval R&D Raises Total Drug Development Costs to $897 Million. Tufts Center for the Study of Drug Development Impact Report 5(3), May–June 2003; Kaitin, KI, Editor.

Corresponding author Evan A. Facher, PhD, is Senior Manager, Business Development, Athersys, Inc., 3201 Carnegie Avenue, Cleveland, OH 44115, 216-431-9900, fax 216-361- 9495, efacher@athersys.com; Ron Pepin, PhD, is Vice President, Business Development, Medarex, Inc., rpepin@medarex.com; and Kevin Mendelsohn is Manager, Product Development. Athersys, Inc., kmendelsohn@athersys.com.

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