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Wednesday, November 26, 2008

DotW: You Can Get Anything You Want at IVB

This post is called Deals of the Week, and it's about deals, and the week, but Deals of the Week is not the name of the blog, that's just the name of the post. And that's why I called the post Deals of the Week.


You can get anything you want at IN VIVO Blog.

You can get anything you want at IN VIVO Blog.

Log right in, it's a click away.

Just a finger tap. You don't have to pay.

You can get anything you want at IN VIVO Blog.

Now it all started one Thanksgiving ago, was on--last Thanksgiving, when Chris Morrison and I start writin' a blog about deals, but not every day, just once a week. And writin' about deals once week, you know it's a lot of work, and there's a lot of garbage you gotta sift through, but we decided it would be a friendly gesture on behalf of readers.

So we trolled around the Internet with our shovels and rakes and other implements of destruction (aka FDC-Windhover's Strategic Transactions database) looking for deals to analyze. But then a big bad editor said why are you doin' that? We are closed on Thanksgiving.

And we had never heard of a blog closed on Thanksgiving before (we don't get out much) and with tears in our eyes we drove off into the sunset looking for another place to put the garbage--I mean our deals.

We didn't find one. So we wrote our post anyway, went back and had a Thanksgiving Day that couldn't be beat, and it's been a recurring feature here at IVB ever since.

In honor of the day, we hope you consider joining the IN VIVO Blog Movement. All you've got to do is walk into the office wherever you are, just walk in and say "You can get anything you want at IN VIVO Blog." And walk out.

You know if one person, just one person does it, they might think he's really sick and they won't take him...And can you, can you imagine fifty people a day, I said fifty people a day (okay, we'd really like 1000) walking in, quoting a line from IN VIVO Blog and walking out?

And friends, they might think its a movement. And that's what it is, the IN VIVO Blog Movement.

Remember Deals of the Week? (This is a post about Deals of the Week.) Without further ado, we bring you this week's installment inspired by Arlo Guthrie. Feel free to sing along in four part harmony. With feeling.

King/Alpharma: King Pharmaceuticals' is finally king of pain. Its relentless--and often contentious--battle to win Alpharma came up aces this week. The two companies announced Nov. 24 that they have signed a definitive merger agreement in a deal that values Alpharma at $37 a share or roughly $1.6 billion. The deal, which remains subject to approval by the Federal Trade Commission, substantially bolsters King's pipeline of marketed pain products, adding Kadian and the Flector pain patch. The merger also gives King Alpharma's experimental Embeda, an abuse-resistant oral form of morphine that won a positive but not overwhelming vote of support from the FDA's Anesthetic and Life Support Drugs and Drug Safety and Risk Management Advisory Committee on Nov. 14. Together with King's own tamper-resistant version of oxycodone, Remoxy XRT, whose approval also is under review at FDA, the addition of Embeda stands to make the Bristol, Tenn.-based specialty pharma a leader in the abuse-deterrent opioid market. Analysts lauded the news: Corey Davis, of Natixis Bleichroeder called the deal "a no-brainer for King", while Cowen and Company's Ian Sanderson wrote in a same-day research note that "the merger is a strategic and financial plus for King. Still it almost didn't come to pass. Even after Alpharma had a change of heart and began entertaining the offer, King still had to come up with the financing to get the deal done--no mean feat in the current business climate. In the end, the company's lenders came up with a smaller total loan package than was originally proposed: a combined debt financing that provides King with $775 million in cash to complete the Alpharma acquisition and another $430 million on the books post-acquisition for drug development and additional deal-making. But it didn't come cheap: Cowen's Ian Sanderson estimated the proposed interest rates on both facilities were LIBOR plus 500 basis points, or 7.15 percent. "The debt repayment terms are fairly onerous, reflecting the risk aversion of the lending banks even to a well-capitalized merger transaction," he said in an interview with "The Pink Sheet" DAILY.

Novo Nordisk/Merrion: Diabetes powerhouse Novo Nordisk announced Nov. 24 that it would continue it's collaboration with Merrion Pharmaceuticals to develop and commercialize oral insulin analogs, despite its wishy washy approach to another alternate delivery technology, inhaled insulin. Under the deal, Merrion will apply its proprietary GIPET process to synthetic insulin candidates selected by Novo Nordisk. In return, the Dublin, Ireland-based biotech will receive €47.5 million ($58 million) in up-front fees and milestone payments, plus royalties, for the first product developed under the partnership. In an interview with "The Pink Sheet" DAILY, Merrion CEO John Lynch declined to break out the upfront and milestone-based deal figures. (Translation: there ain't a lot of money flowing into Merrion's coffers just yet.) The move isn't too surprising. Novo Nordisk has a history of hedging its bets when it comes to insulin delivery. That was very much the company's strategy when it partnered with Aradigm for that biotech's inhalable insulin. But following the failure of Exubera in the marketplace--and the rapid exits of both Pfizer and Lilly from the inhaled insulin stage, Novo Nordisk quickly followed suit, transferring its entire portfolio of inhaled-insulin patents to Aradigm earlier this year. Merrion might want to have a chat with another Novo partner: Emisphere. Earlier this summer Novo and Emisphere teamed up to develop an oral version of Novo's long-acting GLP-1 analog Victoza in a deal worth $10 million up-front. Emisphere is no stranger to the oral insulin field. It gave up on that delivery route some months ago.

Roche/Memory: Thanks for the memories, Memory Pharmaceuticals. The latest cash-strapped biotech lost its battle for independence on Tuesday Nov. 25, when Roche announced it would put an end to its partner's misery, buying the company for just $50 million, or 61 cents per share. Having seen its share price drop to just pennies on the dollar, the struggling Memory Pharmaceuticals faced an impending NASDAQ delisting on Dec. 3 and had just a few months of cash left in its coffers. The acquisition gives Roche full ownership to Memory’s nicotinic alpha-7 agonist program, including the Phase IIa drug R3487/MEM 3454 currently in Phase IIa trials for Alzheimer’s disease and cognitive impairment associated with schizophrenia, as well as the Phase Ia Alzheimer’s medicine R4996/MEM 93608. “This deal represents a 319 percent premium to the previous day’s closing price of $0.15, which we believe is fair given the current environment for small cap biotechnology valuations and Memory’s balance sheet,” wrote Rodman & Renshaw analysts Christopher James and Jason Butler in a Nov. 25 research note. Hmm. Wonder if Memory's private investors, which include MPM Capital and Great Point Investors, feel the same way. With just $20 million on its books and another $50 million from Roche, this can't be a money-making deal for investors. According to FDC-Windhover's Strategic Transactions database, Memory raised $80.3 million through a variety of financings, including an $11 million debt placement and a PIPE worth $32.7 million since it went public in 2004. According to the company's CFO, Michael Smith, the news for investors is even more grim: since its founding Memory has accumulated $250 million in deficits. We are tempted to sing a revised version of "Where have all the flowers gone?"--"Where has all the money gone?" Perhaps "Brother can you spare a dime?" is more appropriate.

Cephalon/ImmuPharma: Analysts such as Barbara Ryan at Deutsche Bank may wring their hands at Big Pharma's unwillingness to buy assets (Roche and J&J being this week's exceptions). But we aren't surprised to see more deals like tie-up between Cephalon and ImmuPharma announced this week. The terms of the deal give Cephalon an option to obtain exclusive worldwide rights to ImmuPharma's experimental lupus medication Lupuzor, currently in Phase IIb clinical trials, for a $15 million up-front fee. Cephalon--like King--fits what T. Rowe Price portfolio manager Kris Jenner believes is the profile of the industry's less obvious deal-makers. “There are lots of cash-rich companies short on product flow,” he argues in an upcoming IN VIVO feature. Moreover, while investors are clamoring for acquisitions, licensing arrangements that provide pharmas with valuable products and biotechs with cash to keep the lights on--could become the norm in today's tough business climate. Certainly, the Cephalon/ImmuPharma deal fits that model. ImmuPharma gets some much needed cash right away--as of June 30, the company was down to it's last £1.6 million according to its quarterly filings. (In July, the company announced a private placement worth £2.7 million, making its cash position marginally better. But still...) And if the drug works as advertised, ImmuPharma also stands to gain up to $500 million in various milestones. Cephalon, meanwhile, gets to defray the commercial and regulatory risks associated with buying 100% of Lupuzor until it is much further along in the clinic, when much of the scientific uncertainty about the product has been removed. If Cephalon exercises its option, it will assume all expenses for Phase III studies and beyond. "Our current cash position has created the opportunity to make this type of deal, which helps to position Cephalon and our pipeline for longer term growth," Frank Baldino, chairman and CEO of Cephalon, said in a press release announcing the news.

J&J/Omrix: Johnson & Johnson began its cash tender offer for biosurgical sealant specialist Omrix Biopharmaceuticals this week, valuing the company at $438 million or $25 per share. Omrix will operate separately and report through J&J’s Ethicon unit, which already sells Omrix’s fibrin sealant and thrombin-based product lines. Ethicon will also get a line of antibody-based immunotherapy products for immune deficiencies and various infectious diseases. Sales of those products hit $10.1 million in 3Q 2008, up 40% from the same period in 2007. J&J will take a $120 million charge to complete the deal, which could signal the beginning of an opportunistic J&J buying spree as the medical products giant looks to use its $14.8 billion in cash to buy up assets from companies pressured by shrinking valuations. Leerink Swann analyst Rick Wise calculates Omrix will add a tenth of a percent to 2009 top-line growth, as J&J weathers declines in Procrit and Cypher sales (5% and 3% of total 2007 sales, respectively) and generic pressure on Risperdal and Tomamax, which accounted for just under 10% of total 2007 sales. Although J&J already had a relationship with Omrix and the deal can be seen mainly as a low-risk way to leverage its sales force in new territories, it also shows the logic of Omrix’s development strategy of sourcing multiple products from human plasma (fibrin, thrombin, immune globulins). It stands in contrast to thrombin competitor ZymoGenetics, whose recombinant human thrombin Recothrom, a higher priced product, has been struggling to gain market share since its launch in early 2008. In the face of Recothrom’s troubles and a poor cash position, on November 21, Zymogenetics’ CEO Bruce Carter retired--Mark Ratner.

Just remember. You can get anything you want at IN VIVO Blog. Excepting Roger. Happy Thanksgiving!

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