Thursday, June 05, 2008

Ipsen's Own Deals of the Week

Well, Ipsen's sure been a busy beaver.

Late last night the French group announced three separate transactions designed to turn its US foothold into a 'fully fledged presence'. The $9-per-share acquisition of Tercica--an endocrinology specialist and already an important Ipsen partner--is surely the biggest of the three moves, so lets knock the other two out of the way first before we get to that discussion.

All told Ipsen is bulking up its R&D assets with the acquisition of endocrinology, neurology, and hematology projects, adding a bit of US commercial infrastructure to boot, and along the way vandalizing our deals of the week banner:

Ipsen/Octagen: The most straightforward of Ipsen's acquisitions sees the French pharma buying out its partner Octagen's rights to the Phase II recombinant porcine factor VIII haemophilia treatment OBI-1 (love the name). Ipsen will pay Octagen--with whom its been working for ten years on the project--an upfront payment of $10.5 million, potential milestones totalling $26 million and royalties in the low-to-mid single digits.

Ipsen/Vernalis: The Vernalis fire-sale continues. Ipsen's deal with Vernalis is a bit more complex than the Octagen arrangement. For $6.5 million in upfront cash and a $5 million equity investment (at a 20% premium) Ipsen is acquiring Vernalis' US subsidiary Vernalis Pharmaceuticals along with the rights to market its Parkinson's disease treatment Apokyn (Apokyn, an injectible apomorphine treatment for PD flare-ups, was relaunched by Vernalis in 2006 after it acquired the product from Mylan in '05). The deal--which includes milestone payments that could push the total value to $17.5 million--allows Vernalis to avoid spending a few million dollars to shut down that US operation which mainly comprises the company's specialty neurology sales force. A further wrinkle sees Ipsen and Vernalis teaming up to develop certain undisclosed Ipsen neurology R&D programs. When the deal closes Vernalis will look very different compared to only a few months ago: approximately 90 employees, most of which are in R&D, with approximately two years of cash to spend on its early-to-mid-stage pipeline.

Ipsen/Tercica: Finally, on to Tercica. The foundations of this acquisition were laid back in 2006, when the two companies teamed up in the endocrine space. Back in July 2006 we characterized that deal as a "hedged, step-wise acquisition," noting that "Tercica will probably become Ipsen's US arm, providing a commercial presence there for the French group faster and more cheaply than through building one from scratch."

Indeed that's how it turned out (kudos to Melanie Senior for making the call). As part of that original deal Ipsen took a 25% stake in Tercica, with the option to increase that share to 40%. The deal gave Tercica US rights to Ipsen's sustained-release acromegaly drug lanreotide (Somatuline Autogel) and gave Ipsen rights to Tercica's own recombinant human IGF-1 replacement therapy mecasermin (Increlex), for short stature; it also intertwined the companies' futures by calling for collaboration on improved versions of these and other endocrinology products and candidates.

Buying Tercica back then was certainly an affordable option, but one eschewed by Ipsen in order to retain the expertise of Tercica's team. In an interview about six months ago Tercica CEO Chip Scarlett told us that the company should turn a profit by 2010, but played down the idea of a takeout, instead saying Tercica would continue to execute on an alliance and R&D strategy that saw the group team up with Genentech in July 2007. "You cannot remain so firmly fixated on purely commercial growth and success that you turn around in two or three years with nothing to offer" from R&D, he said. "It's a balancing act."

But two years since its original deal with Ipsen the biotech has added little in terms of market capitalization despite making R&D and commercial progress. Yesterday Ipsen excercised its warrants, upping its stake in Tercica to 42.7%, and bought the remaining 44.9 million shares for a total of $404 million--a 104% premium over the day's share price close and a 49% premium over the past six months' volume-weighted price.

Analysts may find the Tercica acquisition expensive--and we don't dispute that the premium is generous--though it is hardly out of step with the deal prices we've seen lately. But all of a sudden Ipsen has a significant US presence with multiple products on the market. And it's hard to see how it could have pulled that off on the cheap.

image 'happy beaver' from flickr user sherseydc used under a creative commons license.

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