Question: What do a Swiss pharmaceutical company, a German biotech and a Boston law firm all have in common?
Answer: a recent transaction with the potential to surpass EUR100 million (Euro dollars) in value — currently in excess of $108 million (U.S. dollars).
Boston lawyer Yvonne E. Schlaeppi distinguishes the deal between F. Hoffman-La Roche, Ltd. and her client, Epigenomics AG, based not on size or complexity, or even its flexible structure.
Instead, she emphasizes all three factors.
“As one of a very few high-value platform collaborations within a recent period, the deal stands out,” she said. “But it’s the range of potential products, utilizing a novel technologies with an amazing amount of choice for both parties, that makes this a quite creative deal,” Schlaeppi noted.
A biotech company focused on improving cancer and other complex disease treatments, Epigenomics uses a process known as DNA methylation with an ultimate goal to achieve personalized treatment.
Using Epigenomics’ technology, the two companies will partner to develop diagnostic products for the detection of cancer, the level of aggression of the disease and the ability to predict an appropriate treatment response.
One of the most interesting features of the deal, according to Schlaeppi, is the global nature of the collaboration: F. Hoffman-La Roche, Ltd., one of the largest pharmaceutical and diagnostic companies in the world, is headquartered in Switzerland. Epigenomics’ home office is in Berlin, Germany.
Schlaeppi, chair of the international practice group at Palmer & Dodge and former general counsel for all of Europe for a Fortune 100 company, negotiated the deal from Boston, with visits to Frankfurt and Basil. Her representation of Epigenomics “fits well” within her practice, and being fluent in English, German and French didn’t hurt either.
She has been Epigenomics’ lead counsel for all M&A work, licenses and collaborations since 2000, when she helped them to acquire a biotech company in Seattle, now a wholly owned subsidiary.
Represented by the general counsel of the diagnostics division, Roche agreed to provide an upfront payment of EUR $4 million as well as research and development funding and milestone payments.
In addition, with royalty payments based on a broad variety of diagnostic products being developed, both parties estimate — assuming successful product launches — Epigenomics’ take could surpass EUR100 million.
Increased public awareness of the relatively young company is just as valuable as the cash inflow.
“The deal is a huge endorsement of the potential of Epigenomics’ technology by Roche,” Schlaeppi explained. “It’s also the largest deal in Epigenomics’ history and their first long-term collaboration with a large pharmaceutical company.”
A natural process found in every human being, Epigenomics describes DNA methylation as a “switch” that controls the expression of genes, causing patterns to appear in cells, both cancerous and healthy.
Based upon the patterns present, scientists hope to determine the type and stage of cancer, as well as the most potent form of treatment for a particular individual.
Beyond the obvious advantages of a more precise diagnosis, the use of DNA to more accurately predict the most beneficial form of cancer therapy also decreases health costs.
Of the 6 million cancer cases worldwide, Epigenomics and Roche estimate that that only 20 to 60 percent of these patients are receiving efficacious medication.
This means that roughly 80 to 40 percent of the individuals undergoing cancer treatment are “taking very poisonous, very expensive drugs that aren’t working for them,” Schlaeppi said.
In addition to the savings in treatment, the tests are also less invasive for patients. Epigenomics’ programs are designed to test a specific fluid types or tissue, using samples of blood plasma and serum, urine, saliva, stool and cells.
Given that the current system for testing colon cancer requires an unpopular and invasive colonoscopy, the benefits of a friendlier test would be substantial.
Focusing on colon, breast and prostate cancer with Roche initially, Epigenomics will likely partner with other pharmaceutical companies in the future, Schlaeppi predicts.
“Although Roche has options regarding other products over a number of years, the transaction does not preclude Epigenomics from seeking out collaborations with respect to other cancers,” she explained.
‘Slow And Gradual Process’
Initiation of the deal began years before the transaction was press-released in mid-March. Although their scientists were in contact, other companies in addition to Roche had expressed interest in Epigenomics’ technology.
A pilot study in the colon cancer area between the future partners solidified Roche’s interest in Epigenomics.
“Our situation was typical for a company with platform technology,” Schlaeppi explained. “Those with innovative approaches often need the opportunity to prove themselves at an early stage to one of the big players.”
The success of the pilot study led to the initiation of transaction negotiations. Assisted by fellow Palmer & Dodge attorneys Marcia H. Anderegg and Joshua W. Leichter, Schlaeppi described the transaction as “a slow and gradual process.”
After a great deal of scientific contact, the companies began to negotiate a term sheet, with Schlaeppi and her team facing two major obstacles.
Although the scientific implications of the enormous potential for Epigenomics’ technology were part of the reason Roche wanted to collaborate, the retention and division of intellectual property rights was “extremely tricky,” Schlaeppi said.
IP issues are typically a major concern in any research and development transaction, but were a major factor in discussions because the parties envision a long-term course of collaboration and the types of technology introduced in each part of the process vary.
In addition, Roche diagnostics had recently found itself on the losing side of U.S. litigation with another biotech firm, facing a considerable judgment.
“Understandably, they were very sensitive about entering into another sizable diagnostics R&D biotech deal with issues about IP rights,” said Schlaeppi. “But we were able to distinguish ourselves and create a very satisfactory relationship for both parties.”
Once the term sheet was done, the definitive agreement was signed in just a few months.
Although the parties predict diagnostic products should be available for reference labs (pre-FDA approval) by the end of 2006, the partnership has built-in potential well past that point.
“The sophistication of this collaboration is that the parameters of the tests differ with the types of cancer, and future tests can be built off the successful base programs being developed now,” Schlaeppi said.
For Schlaeppi personally, the transaction provided more than just intellectual and professional fulfillment.
“This is very exciting technology with so many applications, and it holds an enormous amount of promise,” she noted. “To work on a deal like this and contribute in some small way to move the technology forward is really very satisfying.”[A version of this story first appeared in the April 28, 2003 issue of Massachusetts Lawyers Weekly.]
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