AstraZeneca, Bicycle Enter into Multi-target Collaboration

Drug firms to develop small molecule medicines to treat respiratory and cardiovascular diseases

a1Pharmaceutical major AstraZeneca PLC (NYSE: AZN) has signed a collaborative deal with U.K.-based private biotech firm Bicycle Therapeutics Ltd. to develop a novel class of small molecule medicines to treat respiratory, cardiovascular and metabolic diseases, as reported by Reuters on December 01st, 2016. The alliance could potentially be worth more than $1 billion to Bicycle, if all planned programs reach the market. AstraZeneca, which fended off a $120 billion takeover by drug behemoth Pfizer Inc. (NYSE: PFE) in May 2014 on grounds of undervaluation, focuses on the discovery, development and commercialization of prescription medicines, primarily for the treatment of diseases in three main therapy areas – Oncology, Cardiovascular & Metabolic Diseases and Respiratory.

a2Bicycle Therapeutics has pioneered a new class of therapeutics based on its proprietary bicyclic peptide (Bicycle®) product platform. Bicycles®, a novel class of small molecule medicines, are peptides between 9 and 15 amino acids long. Their specialty is that they combine the specificity and affinity of antibodies with the dosing flexibility and solubility of small molecules, thereby helping drug developers overcome many limitations of existing drug modalities. This in turn enables rapid tissue penetration and flexible routes of administration for medicines developed through the Bicycle platform.

Scope of agreement

Under terms of the agreement, Bicycle is responsible for identifying Bicycles® for a number of targets specified by AstraZeneca, while AstraZeneca is responsible for further development of these molecules until they reach the stage of product commercialization. If all planned programs reach the market, Bicycle will be eligible for over $1 billion in payments, including an upfront payment, future R&D funding, development, regulatory and commercialization milestone payments. Bicycle would also be entitled to receive royalties on sales of products resulting from the collaboration. So far, Bicycle’s focus has been on oncology; hence, the current deal will provide the biotech with an opportunity to expand its therapeutic scope to indications outside of its core focus.

The early-stage research is focused on using Bicycle’s bicyclic peptide products, which have some of the characteristics of injectable antibody drugs, but are small molecules that could be given as pills. For AstraZeneca, the deal expands its drug discovery capacity in core therapeutic areas outside oncology. Currently, most investors in Bicycle are focused on its pipeline of experimental cancer treatments.

Bicycle, which raised $32 million from investors in an initial funding round in 2014, was set up to capitalize on research initiated at the MRC Laboratory of Molecular Biology in Cambridge, U.K., by foundersa3 Sir Gregory Winter and Professor Christian Heinis. Bicycle is headquartered in Cambridge, UK, with a US subsidiary in Cambridge, Massachusetts.

Increased focus on therapeutic areas

AstraZeneca has been narrowing down its therapeutic focus, shedding non-core assets in externalization deals and building its pipeline in oncology, respiratory disease, and cardiovascular/metabolic disease. In August 2016, AstraZeneca agreed to sell its small molecule antibiotics business to Pfizer in a deal that could be valued at more than $1.5 billion. The two established medicines in the deal, Merrem, used to treat serious infections in hospitalized patients, and Zinforo, an intravenous antibiotic used for skin and soft tissue infections and pneumonia, generated total sales of $250 million in 2015, according to AstraZeneca.

On December 5th, 2016, AstraZeneca entered into an agreement with Cilag GmbH International, an affiliate of Johnson & Johnson (NYSE: JNJ), for the divestment of the rights to Rhinocort Aqua outside the US. Rhinocort Aqua is a nasal spray indicated for allergic and non-allergic rhinitis (inflammation of the inside of the nose), and for the treatment of nasal polyps (swelling of the nasal lining). Under terms of the agreement, AstraZeneca received a payment of $330 million from Cilag GmbH International for the rights to the medicine outside the US.

Cost-cutting measures

In recent years, the loss of market exclusivity on some key products and flagging revenue from aging mainstay drugs such as Crestor has had a negative impact on AstraZeneca’s revenues. For the first nine months of 2016, AstraZeneca reported a 13% drop in profit to $4.7 billion (or £3.69 billion). Earlier in 2016, the company initiated a series of cost-cutting measures to bring down annual costs by $1.1 billion by the end of 2017. At the same time, CEO Pascal Soriot has set a lofty revenue goal of $45 billion in annual revenues by 2023.

As part of its efforts to trim costs, AstraZeneca announced on December 04th, 2016, that it will move some back-office jobs, including consulting roles from its 280-person finance division from Alderley Park, Cheshire in the UK to either its new headquarters and science center in Cambridge or to newly created regional centers (Costa Rica, Kuala Lumpur, and Warsaw) over the next two years.

While new drugs like Tagrisso have seen promising early commercial returns, AstraZeneca has turned to asset sales to make up revenue gaps in the near-term. In October 2016, the company out-licensed rights to a number of drugs through five externalization deals, generating over $800 million in near-term upfront and closing payments.

Stock Performance

a4AstraZeneca’s stock ended the day at $25.82, slipping 0.27%, at the close on Monday, December 05th, 2016, having vacillated between an intraday high of $26.04 and a low of $25.68 during the session. The stock’s trading volume was at 7,943,769 for the day. The Company’s market cap was at $65.32 billion as of Monday’s close.

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