Friday, September 05, 2008

DotW: Specifics a Surprise; Trends -- Not a Surprise

Your blogger this week did not expect that John McCain would select a nationally obscure, half-term governor of Alaska as his running mate. What wasn’t a surprise was the selection of a pro-life evangelical to shore up the Republican base.

Which leads to our theme in this edition of Deals of the Week. Specifics a surprise. But basic trends: not a surprise.

Take for example the announcement from Zymogenetics and Merck Serono that the two companies were restructuring their deal on the fusion protein atacicept so that Zymo could save up to $260 million in co-development and –commercialization contributions through 2012. (See our Pink Sheet Daily coverage here). Fact is deals which could get biotechs bigger downstream profits also cost them a lot more upfront – and with biotech funding scarce, those obligations are looking pretty scary these days. And particularly scary for Zymo, which was hoping to pay its share mostly out of proceeds from its marketed drug Recothrom. But the recombinant thrombin product hasn’t become the blockbuster Zymo hoped it would be – sales are actually down from the last quarter. In effect, Zymo is now opting to share a lot more of the risk – risk which, following the commercial challenges of Recothrom, looks a lot hairier than it did in 2001, when Recothrom was a great idea about to be a great reality and atacicept the next engine to turbocharge Zymo’s journey to the biotech valuation stratosphere.

And so, on to our surprising but unsurprising...

Medivation/Pfizer: Luckily, little risk sellers have big-company risky buyers to help them out. The late-stage products in other companies’ pipelines look like the only bridges available over the vertiginous patent chasm most Big Pharmas must cross in the next few years -- however shaky those bridges may be. Were it not competing with plenty of other bidders, Pfizer wouldn’t have agreed to pay $225 million upfront, $500 million in development milestones, 60% of the development and commercial costs in order to get 60% of the profits from Medivation’s Alzheimer’s disease drug dimebon (for more of our analysis, see this post). But even Big Pharmas are increasingly unwilling to make these bets on their own. Lilly has taken on financing from TPG-Axon to help it fund Phase III trials of its two late-stage Alzheimer’s drugs. (For a brief idea of what Lilly’s doing, take a look at this posting; for a more significant analysis, see the September issue of IN VIVO – out next week). The economics of the Medivation deal aren’t all that dissimilar from the deal Bristol-Myers Squibb signed last year with Pfizer on apixaban, in which it off-loaded a bunch of the risk that drug might not work out very well. And as we noted last week, that wasn’t a bad move: the drug underperformed Lovenox in its knee-replacement trial and now has lots of people scared that it won’t work in its larger indications, particularly acute coronary syndrome and stroke prevention. Less noted – another big-bet Phase III deal looks smart for the licenser, less so for the licensee: the mid-sized Spanish firm Almirall collected $60 million from Forest Labs plus big help in funding trials, which last week underperformed their sponsors’ and investors’ expectations, with Forest stock dropping 17%.

Shionogi/Sciele: It’s likewise unsurprising, though again the specifics continue to astonish, to see Japanese companies continuing to snap up US properties. We’ve got to believe Shionogi is, years later, still smarting over its decision to out-license Crestor to AstraZeneca. Had it been a bit more self-confident, it could have done what Takeda did with Actos, co-commercializing the drug with a US partner (Lilly, in that case) and then taking the thing over when it could stand on its own two feet. Now Shionogi is paying $1.4 billion, a 37% premium over the pre-announcement 10-day average price (but only an 8% premium to what the company had been trading at last October), to take over spec pharma Sciele Pharma which – probably for all sorts of good reasons – has nonetheless seen declining operating income and prescription volumes in key products. (Check out our PharmAsia News report on the deal.) A comparatively strong yen and a constricting home market are making the US look real good to Japanese companies – which is why you’ve seen them willing to pay up big time for Millennium (Takeda), MGI Pharma and Morphotek (Eisai), and Agensys (Astellas).

Novacea/Transcept: When a company’s major drug fails, and it has plenty of cash left, it’s got basically two choices: distribute the money to shareholders (rarely done) or roll the dice on someone else’s pipeline – usually through reverse mergers (the popular choice). Indeed, since January 2005, we’ve seen 29 such deals announced (not all closed), with privately held Transcept’s reverse-merging into publicly traded Novacea the most recent. Since November of 2007, when it stopped its pivotal trial of its anti-cancer drug Asentar because more people were dying on the drug than in the control arm, the writing was on the wall for the company. With something like $90 million in cash and marketable securities as of its last 10Q, Novacea was more valuable as a bank and a listing than as a company. And although these deals are hardly picnics, they seem a lot easier than going public (two IPOs in the US this year vs. two dozen in 2007). Whether that’s the right thing for investors is another question: analysis from our colleague Chris Morrison shows that the average share price decline for reverse-merged companies was about 40%, worse even than the declines from IPOs or the biotech index in general (we’ll publish a more in-depth analysis in next month’s Start-Up).

Ablynx/Merck-Serono: Apologies for spoiling the theme, but it wasn't all surprises this week. Merck-Serono has been relatively straightforward in its ambitions to assemble rights to a handful of next-generation large molecule technologies around chosen targets (or so said M-S EVP research Dr Bernhard Kirschbaum when we spoke to him for a story about one of their current partners, Archemix, a few months ago). And so its deal with Ablynx announced Thursday fits right in. The two-target deal will see M-S and Ablynx co-discovering and co-developing Ablynx Nanobody-based therapies in the areas of oncology and immunology. Ablynx receives €10 million up-front and the companies will split all costs and profits 50/50. Unless! Unless Ablynx decides to fully opt out (in which case it will receive milestones and a royalty) or partially opt out (in which case it will receive a reduced profit share). Ablynx CBO Eva-Lotta Allan told us today that this was the biotech's first 50/50 deal, a result of being in a solid financial position thanks to last year's healthy IPO proceeds of €85.2 million. --CM

Acucela/Otsuka: On Thursday, Japanese pharma Otsuka and ophthalmology-focused biotech Acucela announced twin licensing deals. In Part One, Otsuka will pay Acucela $5 million upfront plus milestones for co-development rights to Acucela's Phase I dry AMD small molecule compound ACU-4429. The companies will share commercialization expenses and profits 50/50 in North America, Acucela retains all European rights, and Otsuka gets Asia and some rest-of-world territories. The pharma also funds all pre-Phase III development costs. Part Two sees Acucela getting co-dev/co-promo rights to Otsuka's Phase III rebamipide suspension for dry eye in the US. Otsuka will again pay Acucela an (undisclosed) upfront and milestones, plus royalties on sales, and Acucela will take the lead in getting the drug approved. Under certain circumstances, Acucela could co-promote rebamipide as well, but Otsuka will cover all development and commercialization costs. If you are having deja vu, that might be because Otsuka has licensed this drug before (though the first time it probably took money in instead of paying it out). In 2005 Novartis took on worldwide rights to rebamipide (which was in Phase III back then as well), but at some point between now and then killed the project. In a conversation with IN VIVO Blog, Acucela CEO Ryo Kubota, MD, PhD, wouldn't let on what hindered the drug, saying only that the partners hope to run another Phase III and that the drug could be developed "relatively quickly." Acucela was founded in 2002 but only came out of stealth mode earlier this year. The biotech is developing so-called visual cycle modulators and has raised more than $40 million in three rounds of venture funding from Japanese investor SBI Investment Co. Ltd.--CM

No comments: