Friday, November 07, 2008

Deals of the Week: 44

Much ink has been spilt this week here and elsewhere about what the election of Barack Obama as 44th POTUS and the continued ascendence of the Democratic party might mean for the health care world.

Who's going to lead FDA, CMS and HHS? What does the potential shuffling of committee leadership mean for industry? Will FDA staffers get paid this week?

We don't expect positions like FDA commish are too high up Obama's priorities list, but we'll have more to say on appointments and other political topics next week.

Meanwhile some of industry's biggest players continued to cut the fat this week. GSK reduced its commercial infrastructure by 1800, which meant the dismissal of 1000 US sales reps. Apparently also lost in the shuffle: Philadelphia as a GSK HQ, which the fine WSJ Health Blog says is a victory for firm's Glaxo Wellcome camp, since GSK will maintain the ex-GW base in RTP North Carolina as its US headquarters. (We remind you that Philly has had its share of victories this fall.)

Also this week Pfizer and Sanofi followed Merck in eliminating obesity R&D around the cannabinoid type-1 receptor. Perhaps they got around to reading the article referenced here?

Obesity R&D got you down? Never fear, there's always Slim Fast--some pharma might think the consumer medicine route a better bet anyway. And besides, the dealmakers extraordinaire below never have to go on a diet. They won North Carolina, Virginia, and Ohio. They are forming formidable transition teams to tackle industry's problems. They have accepted the congratulations of world leaders and will grace the covers of tomorrow's papers. They have all been promised new puppies and indeed they share the honor of being elected to the highest office in the blog-land (for a one-week term), for they are:

Genzyme/Osiris: Genzyme has always been pretty clear on its strategy. Having diversified away from dependence on Cerezyme largely thanks to a series of acquisitions (GelTex, Biomatrix, and Sangstat, among others), the company seems pretty comfortable about forecasting earnings through 2011 (for an in-depth strategic review, see this IN VIVO story). And so it’s now embarked on a new series of deals to continue growth into 2012 and beyond (big deals with Isis, PTC and Ceregene). And Genzyme figures that the current environment – with biotech stock prices at rock bottom and with their managers and investors increasingly anxious for new sources of non-dilutive funding -- will encourage companies to be a lot more willing to encumber their prize assets with major partnerships. Such deals are, from a discounted cash flow point of view, a lot cheaper than acquisitions since, even though Genzyme has to share the ultimate proceeds, the expense money comes out more slowly, with risks adjusted by milestone success. Thus Genzyme’s latest deal, with Osiris on the Phase III anti-inflammatory stem cell treatments Prochymal and Chondrogen: $75 million right away, $55 million in July ’09, $600 million in regulatory milestones (if Genzyme goes ahead with both products) and $650 million in sales milestones (likewise for both products). A lot of money, sure, particularly since Genzyme gets commercial rights only outside the US and Canada. But Osiris still has to finish paying for all ongoing trials (three Phase III programs, plus a number of Phase II studies) plus any new trials (through Phase II) that it starts for new indications (of which there are lots – the products are being studied in graft vs. host; Crohn’s; COPD, osteoarthritis – a flock of inflammatory conditions). Indeed, Genzyme had a lot of leverage in this deal: Osiris had about $11 million in cash at the end of September but an annual burn close to $80 million. Luckily it had a patient majority owner in Swiss investor Peter Friedli, who’d given the company access to another $30 million in a credit facility – but the fact is Osiris needed a deal. An acquisition would have looked cheap (before the deal, Osiris was trading at around $360 million); better to take the Genzyme money, even if it meant closing out some global-rights-demanding acquirors going forward. We think that’s a decision a lot of other biotechs are going to make – granted they get the opportunity to do so.--Roger Longman

Onyx/BTG: Not so long after swallowing Protherics in a stock deal then valued just shy of $400 million, it seems BTG is busy making good on its promise to decide what it will keep in-house and what parts of the companies' combined portfolio is slated for outlicensing. (A weak sterling and decline in BTG's shares have conspired to significantly reduce the value of the Protherics acquisition.) Today the British firm said it was outlicensing to Onyx Pharmaceuticals its preclinical BGC 945, a thymidylate synthase (TS) inhibitor BTG has thus-far developed with the compound's discoverer, The Institute of Cancer Research. BTG gets $13 million up-front to add to its already large cash-pile and stands to see up to $72 million in development milestones and $235 million in future commercial milestones, plus an undisclosed royalty. The ICR sees about 10% of all payments to BTG. Onyx adds to its oncology portfolio the promptly renamed compound (now ONX 0801), which is in the same class as well known drugs like 5-fluorouracil. Onxy notes in its own release that due to 0801's selective tumor cell-specific uptake by the alpha-folate receptor the compound may surpass the efficacy of available compounds. The alpha-folate receptor is overexpressed in a number of tumor types with significant unmet needs, including ovarian cancer, lung cancer, breast cancer, and colorectal cancer, says the company. [UPDATE: we're told that the decision to out-license 945 was made pre-Protherics acquisition and has been underway for some time.]

Replidyne/Cardiovascular Systems: The only response we've received to the post below about this reverse merger goes like this: "Why? Because devices rule and biotech drools, baby!" Better than nothing, we suppose.

Pfizer/WuXi: WuXi PharmaTech, China’s top CRO, announced today that it has signed a new three-year deal with Pfizer to develop in vitro ADME screening assays on compounds it synthesizes for the Big Pharma. This is not the first time the two companies have paired up: beyond these ADME assays, Pfizer has already outsourced certain synthetic chemistry and parallel medicinal chemistry services to WuXi. "A high quality and flexible Asia R&D partnership network is critical to Pfizer's emerging market and Asia strategy. We want to build strong relationship with leading Contract Research Organizations such as WuXi PharmaTech to tap into the scientific talents and R&D capabilities in Asia," commented Dr. Steve Yang, VP and Head of Asia R&D at Pfizer, in a press release. But this WuXi collaboration and a sales-and-marketing agreement with China-based specialty pharma NovaMed Pharmaceuticals announced this summer amount to little more than baby steps for a company Pfizer’s size. Accessing the growing middle classes in both India and China has never been more important to Big Pharmas trying to maintain their top-line growth thanks to late stage product failures and an increasingly difficult regulatory and reimbursement climate. But unlike AstraZeneca, GlaxoSmithKline, Novartis and Roche, which are aggressively building China-based R&D organizations, Pfizer has been slower to elucidate its strategy in this hot market. With more than 80 partnerships, WuXi continues to dominate as one of the leading CROs in China and beyond thanks to its acquisition of AppTec earlier this year. As biopharma companies continue to cut the fat out of their R&D budgets, interest in WuXi seems likely only to grow—Ellen Licking

WaPo image via the Newseum.

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