Shire's tax model under scrutiny, KDEV cozies up to Asian conglomerate, Onxeo heads to PhIII

Welcome to the latest edition of our weekly EuroBiotech Report. After a brief post-AbbVie ($ABBV) deal lull in discussion of Shire's ($SHPG) tax rate, the Irish-headquartered drugmaker found its financial structures in the headlines once again this week when The Guardian made it the centerpiece of an investigation into the role Luxembourg plays in global tax schemes. One of Shire's Luxembourg units reportedly generated profits of $1.87 billion (€1.5 billion) from 2008 to 2013, a sum most of the other biotechs in this report can only dream of. Karolinska Development (STO:KDEV) took steps to turn its business around by striking a wide-ranging deal with Asian conglomerate CP Group. The deal includes an $8.5 million private placement. Fellow Swedish firm Active Biotech (STO:ACTI) also laid the groundwork for fresh funds, which it will use to develop its slimmed-down pipeline. NeuroDerm and PolyPid set the terms for their Nasdaq IPOs, continuing the bumper year for Israeli companies on Wall Street. Onxeo (CPH:ONXEO) committed to moving its oral mucositis candidate into Phase III on the strength of midstage data. And more. Nick Taylor (email | Twitter)

1. Role of Shire's Luxembourg unit in tax structure under scrutiny
2. Karolinska Development strikes wide-ranging deal with Asian conglomerate
3. NeuroDerm, PolyPid head to Nasdaq as Israel powers past record for U.S. listings
4. Onxeo moves to PhIII after oral mucositis drug beats placebo in midstage trial
5. Active Biotech drops clinical candidates, takes steps to raise $30M

And more >>

Role of Shire's Luxembourg unit in tax structure under scrutiny

An investigation by The Guardian has found that Shire ($SHPG) uses a chain of internal loans from Ireland and Luxembourg to lower its tax bill. The in-depth report uses the $1.87 billion (€1.5 billion) in profits made by one of Shire's Luxembourg units as an example of how multinational companies are legally moving money around the world.

Shire CEO Flemming Ornskov

The tiny but hugely profitable Luxembourg unit--Shire Holdings Europe No. 2 S.a.r.l.--reportedly paid a fraction of 1% tax on the $1.87 billion it generated from 2008 to 2013. Most of the money flowing into the unit comes from repayments on loans it has made to its sister companies, which total more than $10 billion. The unit has a wage bill of less than $55,000 a year and four official managers, two of whom are based out of an office in Basingstoke, United Kingdom.

Shire told The Guardian it pays tax where profits are generated and doesn't use tax avoidance schemes. "Shire Holdings Europe No.2 Sarl is part of our overall treasury operations. We have a responsibility to all our stakeholders to manage our business responsibly; this includes managing our tax affairs in the interest of all stakeholders," the company said in a statement. Leaked documents suggest Luxembourg has signed off on the arrangement, which is completely legal.

The legality of the labyrinthine financial structures used by multinational companies is facing more intense political scrutiny, but it is unclear if Europe and the wider international community have the will and might to stop the practice. Ireland, which features in many tax structures, bowed to pressure to end the "Double Irish" scheme last month but included sweeteners in its proposal. The Wall Street Journal reports that some experts think the changes will actually increase tax deductibles. - read The Guardian investigation and WSJ article (sub. req.)

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Karolinska Development strikes wide-ranging deal with Asian conglomerate

Karolinska Development CEO Bruno Lucidi

Karolinska Development (STO:KDEV) has put part of its turnaround strategy into place by striking a wide-ranging deal with Asian conglomerate Charoen Pokphand Group (CP Group). The deal gives Karolinska Development cash through a private placement, plus the possibility of more funds from convertible bonds and investment in its portfolio companies.

Asian life science investment vehicle Sino Biopharmaceutical--which is part of CP Group--has agreed to the private placement, which totals $8.5 million (SEK 63 million) before costs. Bigger sums await if the relationship between Karolinska Development and CP Group advances as expected. Karolinska Development is planning to issue convertible bonds worth $54 million, more than one-third of which will be taken up by another unit of CP Group.

The private placement and convertible bonds would give Karolinska Development a funding boost at a time when its cash reserves are running low. Karolinska Development had around $1 million in cash and cash equivalents at the end of September, 88% less than it possessed one year earlier. The cash was forecast to see Karolinska Development through the next 12 months, prompting the company to appoint Danske Bank to help it find financing. The CP Group deal shores up the financial position.

In the longer term, the deal could give Karolinska Development's portfolio companies greater access to Asia and another source of money. Chia Tai Medicines--another unit of CP Group--has "declared an interest" in investing around $100 million in Karolinska Development's portfolio companies. - read the release

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NeuroDerm, PolyPid head to Nasdaq as Israel powers past record for U.S. listings

NeuroDerm CEO Oded Lieberman

The next two Israeli biotechs are ready to roll off the rack and head to Nasdaq. NeuroDerm and PolyPid are set to contribute to a record year for Israeli companies on Wall Street, in which 26 firms have raised $3.6 billion (€2.9 billion) in initial and secondary offerings.

Globes reports the amount raised in 2014 has already surpassed the previous record of $3.3 billion that was set during the bubble of 1999. Biotechs are responsible for many of the financings. Almost three-quarters of the IPOs were made by biotechs or medical equipment companies, although the $1 billion raised by tech firm Mobileye played a big part in making 2014 such a huge year for Israel. There is still time for new listings to move Israel past the $3.6 billion mark, too.

NeuroDerm and PolyPid are positioned to be the next two Israeli biotechs to go public in the U.S. Both priced their offerings this week. NeuroDerm is aiming to raise around $60 million in an IPO that would value the company at up to $290 million. PolyPid has more modest ambitions. The company is hoping to raise around $17 million, although an overallotment could see the figure rise to $20 million. PolyPid expects existing investors to contribute $7 million to the IPO.

Both companies are still some way off from bringing a product to market. NeuroDerm is on the cusp of late-phase trials. Around $40 million of its IPO money is allocated to Phase III trials of two treatments. The more advanced of the two--a belt pump that delivers a formulation of levodopa and carbidopa to treat severe Parkinson's--is unlikely to be approved until 2018. PolyPid is developing bone graft products, the most advanced of which has been tested in a pilot clinical trial. - read Globes' article and NeuroDerm and PolyPid's F-1s

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Onxeo moves to PhIII after oral mucositis drug beats placebo in midstage trial

Onxeo CEO Judith Greciet

Onxeo (CPH:ONXEO) has reached its first clinical readout since it was created through the merger of BioAlliance Pharma and Topotarget. The Franco-Danish orphan disease specialist hit its targets in a Phase II oral mucositis trial, prompting the advisory board to recommend advancing the candidate into a late-stage study.

In the Phase II trial of 183 people with head and neck cancer, Validive--which is one of BioAlliance's contributions to the merged company--was linked to a significant drop in incidence of severe oral mucositis compared to placebo. Oral mucositis is a side effect of radiotherapy and chemotherapy that can stop people from eating and drinking. Patients suffering from severe forms of the side effect can require hospitalization or breaks from their cancer treatment.

Validive is a mucoadhesive tablet designed to help these patients by delivering clonidine--which is also used as an ADHD treatment--directly to the affected region. Once applied, clonidine activates alpha-2 adrenergic receptors on leucocytes and macrophages, leading to an anti-inflammatory response. The Phase II trial found that the treatment arm experienced fewer cases of oral mucositis and some of those that did occur were delayed, although Onxeo has yet to release a detailed breakdown of the data.

The next step is to move the treatment into Phase III. Onxeo expects to start the trial next year, at which time it will have two candidates in Phase III. FDA put Validive on its fast track in January, and the drug also has orphan drug status in Europe. - read the release

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Active Biotech drops clinical candidates, takes steps to raise $30M

Active Biotech CEO Tomas Leanderson

Active Biotech (STO:ACTI) had an eventful week. On Tuesday, news that its partner Teva Pharmaceutical ($TEVA) is to trial laquinimod in patients with primary progressive multiple sclerosis (PPMS) sent its stock up as much as 20%, only for the release of financial results the following day to wipe out the earlier gains.

Laquinimod has a long history of late-phase missteps but still has multiple chances to reach the market. The Phase II PPMS program joins studies in patients with relapsing-remitting multiple sclerosis (RRMS) and Huntington's disease on the list of ongoing trials of laquinimod, which has also been tested in Crohn's disease and lupus. RRMS remains Active Biotech and Teva's big hope for the drug, despite the late-stage failures and regulatory setbacks it has faced in the indication.

The investor goodwill generated by news of the PPMS trial was wiped out in less than one day's trading. Active Biotech posted a loss in its third-quarter results, in which it also discussed changes to its pipeline and financial footing. Lund, Sweden-based Active Biotech currently has candidates for systemic sclerosis and renal cell cancer in Phase I and II, respectively, but has decided against spending any more on the drugs.

Instead, management has decided to focus the company's energy on the late-phase programs it has outlicensed to Teva and Ipsen (EPA:IPN), as well as an in-house program that has yet to advance past preclinical. Active Biotech expects to pick a candidate from the program--which has applications in degenerative diseases and cancer--next year. The amount of money available for the projects is set to be boosted by a SEK 225 million ($30 million) rights issue. - read the news about laquinimod, the results and rights issue

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Of Note:

A report called on the United Kingdom government to increase investment in its catapult program. The proposal is to create at least one new catapult--sites which help turn academic inventions into commercial products--a year until 2030. The Guardian

Genmab (CPH:GEN) struck a deal to transfer its ofatumumab collaboration from GlaxoSmithKline ($GSK) to Novartis ($NVS). The transfer is part of Novartis' acquisition of cancer assets from GSK. Release

Basilea Pharmaceutica (SIX:BSLN) and Inventiva received orphan drug nods. The FDA granted the status to Basilea Pharmaceutica's invasive candidiasis treatment, while the EMA awarded the designation to Inventiva's systemic sclerosis therapy. Basilea | Inventiva

Novo Nordisk ($NVO) broke ground on a $130 million (€104 million) diabetes lab in Denmark. The 54,000-square-foot site is due to open in 2016. FierceBiotech

TiGenix (EBR:TIG) detailed plans to submit a special protocol assessment for Cx601 to the FDA by the end of 2014. A 6-person advisory board is overseeing preparation of the submission. Release

Denmark's Galecto Biotech and Bristol-Myers Squibb ($BMY) inked an option deal. Once Galecto completes its Phase Ib trial, Bristol-Myers will have 60 days to decide whether to buy the company for up to $444 million (€355 million). FierceBiotech

MorEx added a fourth site to a Phase I trial of its radiation enhancer, MTL-005. The activation of a fourth site for the head and neck cancer trial follows the completion of a safety review of the study to date. MorEx hopes to outlicense MTL-005. Release

Targovax named Gunnar Gårdemyr as its new CEO. Release

Molecular Partners moved quickly to restart its IPO. The biotech raised around CHF 96 million ($100 million)--an undisclosed portion of which came from Allergan ($AGN)--and began trading in Switzerland this week. Bloomberg | Reuters | FierceBiotech

Ipsen (EPA:IPN) sold Otonomy ($OTIC) access to data from preclinical and clinical tests of gacyclidine. Otonomy will use the data to support development of OTO-311, a sustained-exposure formulation of gacyclidine. Release (PDF)

BioLineRx ($BLRX) submitted a protocol amendment to FDA to expand a Phase II trial of its acute myeloid leukemia candidate. The amendment covers the enrollment of 20 more participants and the use of the treatment at higher doses. Release

arGEN-X (EBR:ARGX) filed an IND for ARGX-110 in Waldenström's macroglobulinemia. The proposed Phase Ib/II trial would enrol 30 patients at the Dana-Farber Cancer Institute and Memorial Sloan Kettering Cancer Center. Release

Verona Pharma (AIM:VRP) received funding from the Cystic Fibrosis Trust. The cash will be used for preclinical tests of Verona's lead pipeline drug, RPL554, as a cystic fibrosis treatment. Release

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