Thursday, September 11, 2008

“Standstill” Agreements Limit Potential Buyout Deals

A month ago, everyone had the same question: which Big Pharma will be the next to buy-out a biotech partner. First, Roche/Genentech. Then Bristol/ImClone. Who would be next?

So far, the answer is: no one.

It turns out that there just aren’t all that many partnership out there where a buyout is in fact an option. We looked at 12 partnerships cited by analysts and other business media as potential partner-turns-into-prey stories, and it turns out that eight of them involve contracts that prohibit one partner from making an unsolicited offer for the other. (The complete list is published in “The Pink Sheet” this week.)

We got the idea thanks to a sharp-eyed reader of the IN VIVO Blog who responded to one of our posts on Byetta. In a discussion of the disconnect between what struck us as a relatively restrained safety alert by FDA and a hyperbolic panic among Amylin investors, we wondered why Lilly doesn’t just buy out its partner if it believes Byetta is safe.

It ain’t that simple.

As we should have known (since our reader helpfully pointed to the citation in our own database), the Lilly/Amylin agreement includes a comprehensive “standstill” provision that prohibits Lilly from trying to buy its partner.

Similar provisions are included in most of the other deals we looked at.

Most, but not all. It turns out Genzyme can buy out BioMarin any time it chooses, and Genentech is free to bid on either OSI or Biogen Idec—though somehow we don’t think that is a high priority for Genentech right now. And Biogen is free to buy its Tysabri partner Elan—presuming it doesn’t mind triggering the change-in-control provisions in Elan’s Alzheimer’s partnership with Wyeth. (And change-of-control provisions, of course, are a story unto themselves though that particular provision isn't one of the industry's most onerous.)

Nor are all standstill provisions created equal. Lilly is prohibited from buying Amylin for as long as the Byetta partnership lasts—and beyond (unless, of course, Amylin decides to negate the standstill). In other cases—like Bristol/Gilead and Wyeth/Progenics—there are expiration dates that come up soon (as in, during 2009). Other partnerships (J&J/Vertex, Wyeth/Elan) also have standstills that expire—but in those cases the dates are tantalizingly undisclosed.

So if you expected a flurry of Bristol/ImClone style deals to keep you entertained this fall, think again.

Thank goodness ImClone thinks it has another bidder. Its much more fun to watch companies running in place than it is to see them standing still.

PS. Click here for a free copy of all of our coverage of Roche/Genentech...

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