Merck Acquires SmartCells, Inc.

As we approach the end of 2010, were any of my readers curious what was going on with the companies that hope to shake-up the U.S. insulin market? I certainly have been following them to see where things may be headed, and there have been a few news items in the last few weeks worth sharing with my readers.

You may recall my 2010 inaugural blog post entitled "The Business of Diabetes: Big Changes May Be In Store For The U.S. Insulin Market", and as we approach the end of 2010, I should note that my predictions weren't too far from reality. Although the FDA did delay (see HERE) an approval on Biodel's Linjeta insulin, that still appears that it could very well emerge in 2011, and the company's financial forcast had always assumed the product would not launch on a worldwide basis until 2011 anyway. Although the stock took a beating, the prospects for Biodel to be acquired by a company like Eli Lilly or Sanofi Aventis (see HERE) still remains a strong possibility, especially as their own products lose patent protection and the liklihood of follow-on (biosimilar) versions becomes reality thanks to new laws that mandate that the FDA issue guidance for biosimilar versions of insulin and various other biotech medicines.

But what about the other startups in the insulin market? Well, there were a few big news items that emerged just within the last week.

One was from a company I only mentioned in closing my early post in January 2010 -- SmartCells, Inc., largely because the development horizon for that company's product is considerably longer than it was for the other companies I cited. The big news was that on December 2, 2010, pharma giant Merck & Co. announced it was acquiring SmartCells, Inc. (see HERE and HERE).

Under the terms of the deal, Merck will acquire all outstanding stock of SmartCells. In return, SmartCells shareholders (which consists mostly the senior management team of the company) will receive an upfront cash payment and be eligible to receive clinical development and regulatory milestones for products resulting from this transaction. Dow Jones reported that Merck did not say how exactly much it would pay up-front, but did report that the total payment could exceed $500 million if development and regulatory milestones are met. SmartCells' board of directors has apparently unanimously approved the transaction. There was much more detail on the financials and how much of a financial windfall SmartCells' CEO Todd Zion might get from the sale of the company to Merck, details of which can be viewed at Xconomy.com's Boston site. Below is an interesting excerpt from that particular story:

SmartCells began pursuing business development opportunities in earnest about nine months ago, Zion said, and after talking to multiple pharmaceutical companies the startup received a definitive buyout offer from Merck. "We're on the doorstep of running human clinical studies," he said, "and at this point it really does make sense to transition [our technology] to a large pharmaceutical company that can provide the type of resources you need to get a potential blockbuster diabetes drug like this through the clinic and onto the market."

Although SmartInsulin has not yet reached human clinical trials, Zion did say that the firm has approval for an initial human study of the product in the European Union. Mr. Zion certainly sounds confident that SmartInsulin will indeed become a $1 billion plus "blockbuster" in spite of having no clinical evidence (at least which has been released to the public) in humans that it will work the same way it works in animal models, something which has dogged other promising discoveries in the past. Still, Merck framed the acquisition a tad differently, as you might expect, although the acquisition itself speaks volumes:

"Through the acquisition of SmartCells we have obtained innovative technology that may enable us to develop glucose-responsive insulins. If this investigational technology is ultimately approved for use with patients, it could provide an important new therapy for the treatment of diabetes. This holds the potential to significantly impact the treatment of this disease." said Merck Research Laboratories Senior Vice President Nancy Thornberry.

This is very big news indeed, because it puts big-pharma dollars behind bringing SmartInsulin to market. JDRF invested in this, too, but the investment was only for pre-clinical testing, and came after the organization was screwed by Eli Lilly & Co. for the Transition Therapeutics islet regeneration treatment (see HERE for more background on that debacle), so the payments were contingent upon the company meeting various milestones.

Although it is not a guarantee, the Merck acquisition does help ensure that the necessary human clinical trials can be undertaken and fully-funded, and what's more, it is a tremendous threat to the current insulin oligopoly (consisting of Eli Lilly & Co., Novo Nordisk and Sanofi Aventis). Until this announcement, Merck was pretty much a non-entity when it comes to type 1 diabetes treatments. Although the company is one of the world's largest contract manufacturers of insulin thanks to it's 2009 acquisition of Schering-Plough (which owned Organon N.V., who will supply insulin to Biodel pending FDA approval) and also happens to own Intervet, which sells insulin for companion animals, this announcement also means that the manufacturing could all be done in-house by Merck, making it a pretty good strategic fit for both parties.

While Merck's track record on ethics ranks relatively poorly, it is clear this move has potential to put Merck in the big-leagues among insulin manufacturers, right up there with Novo Nordisk, Eli Lilly and Sanofi Aventis should it make it to commercialization. Think about it: Merck could go from an also-ran to top players almost overnight.

Today, Merck has almost no brand recognition or products for people with type 1 diabetes (even though it's type 2 medicine Januvia meets the definition of a blockbuster), that product is completely irrelevant to type 1's, as it's not approved for the treatment of type 1 diabetes. My readers may recall that I interviewed SmartCells CEO Todd Zion back in 2006 (see my interview HERE), but my personal take is that the Merck acquisition will be a good thing for the future of SmartInsulin. You may recall that when I interviewed Mr. Zion, I was concerned that the product might be sold to Novo Nordisk thanks to the company's relationship with Jens Brange (who authored a number of scientific books on the subject of insulin and is considered one of the world's foremost authorities on that subject). Initially, Jens Brange was employed by Novo Industri A/S (now known as Novo Nordisk A/S, due to a merger) but his advisory role for SmartCells, Inc. was just that, and the Merck acquisition is proof that he was being truthful. A Novo Nordisk acquisition, given that company's shady ethical standards, would not have been a good thing by any stretch of the imagination.

Beyond SmartInsulin, which still has to pass a fair number of hurdles before it can even go to human clinical trials, there were a few other companies I mentioned, so let's just call this an end-of-year update.

One of those was Thermalin Diabetes, Inc., which is a Cleveland, Ohio startup. I noted that Thermalin had an an 18-month, exclusive option to an entire portfolio of insulin analogues developed by Dr. Michael Weiss at Cleveland's Case Western Reserve University. On Tuesday, December 1, 2010, Thermalin annnounced that it had exercised it's right to that portfolio, and signed a licensing agreement with Case Western (see HERE for the news release).

Others, like MannKind's Afrezza insulin still remain under review, but the company is confident that it's inhalable insulin will ultimately be approved. In March 2010, MannKind received a Complete Response letter to it's NDA (new drug application) for Afrezza from the FDA, and the FDA requested additional information. In July 2010, the FDA accepted MannKind's reply to the Complete Response letter and set up a Prescription Drug User Fee Act (PDUFA) action date of December 29, 2010. (see HERE), so as we approach the new year, we may learn of what happens on Afrezza.

Separately, there was also unrelated news on another product I mentioned in my aforementioned ARTICLE, albeit not specifically on their product that would be applied to insulin, was that Halozyme Therapeutics announced that it's CEO had left the company "to pursue other opportunities" and the company named the appointment of Gregory I. Frost, Ph.D., to serve as president and CEO, effective immediately. That's not likely to change the timeline of the insulin-additives it calls the rHuPH20 enzyme which the company believes may produce more rapid absorption and faster action for prandial insulin formulations to be absorbed into the bloodstream, but it was hot off the press in early December 2010.