A Biotech's Path To Acquisition

By Cathy Yarbrough, Contributing Editor
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During the final days of 2011, Steve Worland, Ph.D., and his 26 colleagues at Anadys Pharmaceuticals transferred their work — and the company’s assets in hepatitis C (HCV) drug development — to Roche Holding AG. Dr. Worland, CEO and president of the company since 2007, and his staff no doubt also spent some time updating their CVs, because in late November, the Swiss pharmaceutical company finalized its takeover of the San Diego company. When Roche first announced its plans to purchase Anadys (pronounced UH-nad-iss), its officials clearly communicated to the San Diego biotech’s staff that it did not plan to use the acquisition to establish an R&D foothold in Southern California, said Worland.

Back in 2001, Worland and his team began research to develop drugs that would subdue HCV infection, the primary cause of liver failure. He had joined the company in March of that year as its chief scientific officer, after serving as VP, head of antiviral research at Agouron Pharmaceuticals, a Pfizer Company. Prior to Pfizer, he was a VP at Warner-Lambert. Six years after joining Anadys, the company’s board of directors asked him to become the head of the company.

Even though the takeover meant he no longer would lead Anadys, Worland applauded the merger. “With Roche’s considerable capabilities and experience in hepatitis C, we believe this acquisition provides the best chance of success for the new potential treatments to reach patients,” he explained. “Roche has the resources to complete what we began.”

5 YEARS OF UPS AND DOWNS
“Roller coaster” has been used to describe the past five years at Anadys. For example, the company began 2009 by announcing positive results from the first eight HCV patients enrolled in the company’s Phase 1 clinical trial of ANA598 as the centerpiece of a drug cocktail that also included interferon and ribavirin. The cocktail eliminated 99% of the virus in the patients, who received the lowest dosage. The price of Anadys stock soared from $1.91 to $4.10 per share.

Several months later, Anadys again reported positive findings, this time from more HCV patients who were treated with higher dosages of ANA598. The combination of ANA598 with the two standard therapies increased antiviral activity without serious side effects or indications of drug resistance. However, despite these favorable results, Anadys’ stock price plunged because healthy volunteers given the drug as part of the company’s clinical studies developed skin rashes, a side effect that at that time had not been seen in the HCV patients treated with ANA598. “People thought the rash was more severe than it was,” Worland recalled. “It was an extreme reaction.”

For leaders of life sciences companies who are in a similar situation, Worland’s advice is, “If you are confident in your compound, don’t let the investment landscape overly influence your decisions. Perseverance is required in the biotech industry.”

After the stock price dipped, Worland took steps to ensure Anadys would have the financial resources to continue its clinical trials of ANA598. He reduced the company’s expenditures by terminating about 40% of the company’s staff and setting aside its R&D program on ANA773, a toll-like receptor (TLR) agonist for the treatment of cancer and hepatitis C. To generate a cash influx, new shares and warrants were sold at reduced prices.

Also in 2009, Worland and his team made two bold decisions that he now regards as “critical junctures” for the company, and in particular for ANA598. Their intent: to prove ANA598’s long-term effectiveness and safety to the financial community as well as potential suitors in the life sciences industry.

TWO KEY BUSINESS/CLINICAL DECISIONS
First, with the FDA’s blessing, Anadys adopted a rigorous 12-week protocol for the Phase 2a and 2b clinical trials of ANA598. “People asked, ‘Can you really do that? Is the FDA going to allow you to do that?’ The answer is yes. They encouraged it,” Worland said.

This trial incorporated several features designed to further enhance the competitive position of ANA598, including 12 weeks of triple combination treatment and a randomized exploration of shortening the overall duration of HCV therapy in conjunction with ANA598 treatment. The viral levels of the 90 HCV patients who enrolled in the Phase 2a trial were measured at weeks 4 and 12. Patients with undetectable levels of virus at weeks 4 and 12 were randomly assigned to two groups, one of which stopped all treatment at week 24, while the second group ended treatment at week 48. Both the ANA598 and the control groups included patients who had not been previously treated for HCV.

The second part of the plan happened in 2010 when Anadys launched the Phase 2b trial, which involved about 300 patients, including prior nonresponders, individuals with HCV for whom previous therapies had been ineffective. In October 2011, just a few days before Roche announced that it would purchase the company, Anadys reported positive results from the Phase 2b clinical trial of setrobuvir as the centerpiece of a drug cocktail for treating HCV more effectively, faster, and with fewer side effects than the current standard HCV therapies — interferon and ribavirin. The drug cocktail eradicated HCV in 78% of the patients in the Phase 2b trial. In contrast, standard therapy alone eliminated the virus in 56% of the control group patients.

The most common side effect was a skin rash, occurring in 39% of the drug cocktail-treated patients and 22% of the control group. The incidence of rash in the setrobuvir group is consistent with prior reports of rash due to interferon and ribavirin through 19 weeks of treatment, said Worland.

If clinical studies continue to show a positive efficacy and safety profile for setrobuvir for first-round therapy of HCV, the FDA could approve the direct-acting antiviral drug in 2015, Worland predicted.

HCV THERAPY: AN ENORMOUS BUSINESS TARGET
Despite the availability of interferon and ribavirin, HCV therapy has a major unmet need: highly effective and safe drugs that patients will want to use. Only about 5% of HCV patients, which worldwide total an estimated 170 million people, now take advantage of the standard therapies because these medications are ineffective in the majority of people who are treated with them, and the treatment period can last as long as one year. In addition, interferon injections can be painful.

“Anadys’ compounds provide additional modes of action that could lead to interferon-free treatment regimens without viral resistance,” Jean-Jacques Garaud, M.D., global head of Roche Pharma Research and Early Development, said in the October 2011 announcement about the Swiss company’s plans to acquire Anadys. “Our aim is to offer physicians and hepatitis patients a powerful combination of therapies that bring us closer to a cure, even without the use of interferon.”

Setrobuvir expands Roche’s HCV portfolio, which includes the blockbuster Pegasys (peginterferon alfa-2a) and an experimental protease inhibitor and an experimental nucleoside polymerase inhibitor. Setrobuvir is a small molecule nonnucleoside polymerase inhibitor of HCV RNA polymerase.

Roche is not the only life sciences company with HCV drug development programs. Hepatitis C is an enormous business target, according to Dan Veru, chief investment officer of Palisade Capital Management LLC. Market research firm Decision Resources has estimated that the global HCV market will reach $16B in 2015. It totaled $1.7 billion in 2010.

In 2011, the FDA approved two new medications against HCV: Merck’s Victrelis and Vertex’s Incivek, both of which were designed to be administered with interferon. In the closing months of the year, Gilead Sciences announced it would purchase Pharmasset, which, like Anadys, specializes in HCV.

Roche’s purchase of Anadys for $230 million represented a 256% premium over the biotech company’s closing price of $1.04 on Oct. 14, 2011, before the Swiss pharmaceutical company’s announcement three days later that it planned to acquire the San Diego company.

DEVELOPING A TRANSITION PLAN
Worland and his team celebrated the announcement, but not for long. The company quickly returned to business as usual. “We had a clinical trial and a research program to run,” explained Worland, who also spent the last two months of the year developing a transition plan.

Because earlier in his career he had worked at a company that was subject to a takeover and whose senior leadership “told us very little up front,” Worland realized that the Roche announcement would have a psychological impact on Anadys’ staff. “Of course, people wondered about what’s next.” To minimize staff staring out of the window, lost in thought, Worland and other senior managers frequently and clearly communicated status reports to the team.

“Clarity is important,” he said. “We acknowledged the uncertainty and communicated what we knew when we knew it and reminded people that we were all professionals.”

Worland said he regrets that he’ll not be at the finish line for setrobuvir. “I’m a finisher,” he explained. “I’m driven to achieve a conclusion. My more dominant feeling is that I’ll be very glad to see it get over the finish line if that happens, no matter where I am.”

He also is driven by the opportunity to “make an impact every day on the organization so that it is successful,” he explained. For Worland, a tight link exists between his work every day at a company and its success. “It’s much harder to experience that in a big pharmaceutical company because the organization is so large,” he said. Indeed, he joined Anadys because it enabled him to experience that tight link as well as the ability to make a real difference in people’s lives.

“Personally, I feel a great responsibility to shepherd this asset, to not mess it up,” he added. “People are waiting for these drugs.”