By Denise Roland
LONDON--Novartis AG (NVS) has spun off a trio of pipeline drugs
into a newly formed U.K. biotech company, in a risk-sharing move
that is becoming increasingly commonplace among big pharmaceutical
companies.
In exchange for the assets, the Swiss pharmaceutical giant will
receive a noncontrolling stake in the new company, Mereo BioPharma
Group Ltd., as well as future milestones and royalties.
Mereo, meanwhile, has raised $119 million from two U.K.
institutional investors, Woodford Investment Management LLP and
Invesco Perpetual, to fund the next steps of clinical development
for the drugs.
Big pharmaceutical companies are increasingly entering
risk-sharing deals for drugs that fall outside their core areas of
focus. In many cases, these assets attract higher valuations when
pulled out of the crowded pipelines of large companies. Last year,
GlaxoSmithKline PLC (GSK) spun off an Alzheimer's drug into a new
company for $5 million. That company, Axovant Sciences Ltd. (AXON),
whose sole asset is the former Glaxo drug, later fetched a
valuation of more than $2 billion in a New York Stock Exchange
float.
The drugs involved in the Mereo deal have already undergone
human proof-of-concept trials at Novartis. BPS-804 is aimed at
improving bone density in brittle-bone syndrome, a rare disease
with no existing treatment. BCT-197 treats acute exacerbations in
chronic obstructive pulmonary disease, while BGS-649 is designed to
normalize testosterone levels in obese men with a hormone-imbalance
disease known as hypogonadotrophic hypogonadism.
"We wanted to have products which were not correlated by
indication, mechanism of action or by market," said Denise
Scots-Knight, chief executive of Mereo. "That's because the model
is to provide investors with diversification of risk."
David Epstein, head of Novartis Pharmaceuticals, said the deal
meant the Swiss company had found a way to "work together to bring
these valued innovations to patients."
Dr. Scots-Knight added that she planned to add up to four more
drugs to the pipeline. Under the terms of the deal, Mereo is tied
to acquiring drugs exclusively from Novartis's pipeline for one
year, but after that it will be free to look elsewhere. She
declined to provide the value of the Novartis stake but said it was
"by no stretch of the imagination a controlling stake." In
addition, Novartis intends to make cash investments in future
financings of the new company, according to the announcement from
Mereo.
Write to Denise Roland at denise.roland@wsj.com
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