Friday, December 05, 2008

DotW: Broken Record

The news just keeps getting worse: the economy is bleeding jobs and the band-aid that is interest rate cuts will likely do little to stop the hemorrhage of foreclosures and late mortgage payments. While executives from the Big 3 drove to Washington in their green cars to beseech Washington for a bail-out, reports from biopharma land were equally depressing. (So much for a recession proof industry.)

Your broken record, bad news round-up sounds something like this: Sanofi Aventis announced it was cutting hundreds of sales reps in the US (the ax fell in France some months ago), adding to the growing list of pharmas scaling back on their commercial organizations. Meanwhile BMS laid off workers at its Dewitt manufacturing plant and the outlook for Merck remains...murky after this week's guidance update. (Maybe the company should team up with Schering-Plough to find a way to use Zetia as an alternative fuel source. Now that's innovation--and a way to get rid of excess inventory.)

As Big Pharmas struggle with their lack of research productivity, Goldman Sachs offers a ray of hope, according to the Financial Times: the London firm is apparently in talks to provide hundreds of millions of dollars of funding to a large pharmaceutical company--and it's not AstraZeneca--to create a hybrid R&D model built around the co-development of certain medicines. Hmm, could this be a step forward in the evolution of pharma's business model?

It's not just pharma that needs a new business model. Trouble appears to be brewing in the VC kingdom as well. Rumors continue to abound that limited partners--hit hard by redemptions--have asked various venture firms to delay capital calls while they right their alternative asset allocations. Meantime, Venture Wire is reporting that Sofinnova Partners, which managed to raise a significant portion of its 6th fund, did so with an increased number of LPs, suggesting that even when investors could be swayed to part with their money, they weren't willing to ante up as much as in prior years.

Tired of this monotonous drum beat? We are too. Thankfully it's time for...

J&J/Mentor: J&J is buying aesthetics leader Mentor for $31 per share--or $1.07 billion. They win this week's award for biobucks and curry favor for their recessionista outlook, as they aim to snatch up good assets on the cheap. Since September '08, Mentor’s stock has declined from around $28-per-share to just $16.15 the day before the Dec. 1 announcement. The tie-up makes a lot of sense, given that 90% of Mentor’s revenues come from its breast implant business, and the current plan is to incorporate Mentor firmly within J&J's Ethicon surgery division. Even before the effects of the sub-prime mortgage crisis were fully felt, aesthetic (and other elective, out-of-pocket) procedure volumes had begun to drop. In a depressed economy, Mentor’s large, diversified parent cushions it from the downturn, allowing it to build up its portfolio of office-based products for plastic surgeons and dermatologists—dermal fillers, skin care products, and lipoplasty products. J&J gets into a business that’s adjacent to other core skill sets—surgery and wound care—with good long-term growth prospects. Consolidation in the industry had already begun in early summer—when the industry saw the takeout of LipoSonix by Medicis Pharmaceutical, and the merger of Thermage and Reliant. Now, while shoring up Mentor’s defenses, the J&J acquisition removes a major consolidator from the aesthetics field, at a time when small companies in the space will have a tough time weathering the financial crisis--Mary Stuart.

Novartis/Evotec: Not every Big Pharma is going to Chindia to outsource its R&D. This week comes news that Novartis has teamed up with the Germany-based biotech player Evotec in an early stage research collaboration to identify and develop small molecule therapeutics. As part of the collaboration, which will run for three years, Evotec will be responsible for programs up through preclinical development, with Novartis taking over responsibility--and cost--for the project once the molecules enter human testing. The money certainly isn't huge--for it's cutting edge science, Evotec garners an undisclosed milestone payment and preclinical and clinical milestones that could exceed a whopping $28 million. (Novartis will also pay royalties on sales of any marketed products resulting from the collaboration.) But in these straitened economic times, that's not chump change either, providing the German biotech with important non-dilutive funding to drive forward its four clinical programs--including EVT 201, a partial positive allosteric modulator (pPAM) of the GABAA receptor complex for the treatment of insomnia. Jorn Aldag, president and CEO of Evotec, positively bubbled in a press release announcing the news: "We are excited to be leveraging our drug discovery expertise with such a world class company."

Cephalon/Alkermes: Cephalon and Alkermes parted ways on the future prospects for Vivitrol, a monthly injection for alcohol dependence launched in 2006. Alkermes announced Monday that it had acquired full commercialization rights to the extended-release injectable suspension formulation of naltrexone. The deal was nearly a wash for both parties: Cephalon will pay Alkermes $11 million to cover losses related to the product over the next 12 months, while Alkermes will transfer $16 million to the Bristol, Pa., firm to purchase manufacturing equipment. With its strong cash position--Alkermes has nearly $426 million in cash and cash equivalents currently--the company says it plans to continue marketing Vivitrol on its own, with a 12-month commercial strategy of increasing utilization among doctors who already prescribe the drug, streamlining product access and reimbursement, and enhancing continuity for patients transitioning out of the treatment setting. But driving adoption has been difficult, in part because historically the problem has not been recognized as a treatable disease. Alkermes' VP of Corporate Communications Rebecca Peterson puts it this way: "Standard operating procedure was not to use medication [to treat alcohol dependence]; that is changing over time." But even if doctors and payers are more willing to entertain the idea that alcohol addiction can be treated with a pharmalocologic agent, it's likely Alkermes will need every person on the 70 person Vivitrol commercial team it now controls--especially the 55 sales reps--espousing the message at detox centers in order to boost prescription sales. In "The Pink Sheet" DAILY, Peterson admitted that Vivitrol sales have not been "as robust as maybe we had originally expected," adding that the product's main challenge was not in the areas of reimbursement and payer acceptance.

NitroMed/Archemix: To be fair, this really ought to be characterized as a "No Deal?". News surfaced this week that Deerfield Management aimed to scupper Archemix's proposed reverse merger with struggling NitroMed by launching it's own bid--at a whopping $0.50-a-share-price--for the troubled Lexington, MA-based company. In donning the mantle of "black knight," Deerfield's managing partner James Flynn made of point of telling NitroMed shareholders that it has not been one to "wage contentious public debates." But he also insisted that the proposed NitroMed/Archemix tie-up, which basically exchanged NitroMed's cash and NASDAQ listing for a 30% stake in the newly merged entity, placed Deerfield in an "untenable position." "NitroMed shareholders have been allotted a scant 30 percent of the combined company in exchange for NitroMed's cash," he wrote in a letter filed with the SEC. By Deerfield's calculations, the $0.50-a-share price on the table represents a 200 percent premium to NitroMed's closing share price on Dec. 3. It's also approximately double the price of NitroMed's shares in late October, when the company announced the sale of BiDil to JHP Pharmaceuticals for $24.5 million in cash plus additional payments for product inventory. Deerfield's proposed price for NitroMed represents its own calculation of what the biotech would be worth if it continued to sell off the combo heart medication BiDil as planned and then wound down the company, distributing the cash to existing shareholders. Certainly, the news comes at a time when many private biotechs are looking at potential shell companies such as NitroMed as attractive acquisition candidates in order to access non-dilutive cash. Remember Replidyne? But as we've argued in previous posts, even successful companies such as Infinity and MicroMet have been hard pressed to pull off a successful reverse merger event. It's hard to say what's next for Archemix--the company is saying nada publicly about the news. Certainly it could face a tough and very public battle, one that leaves its new investor base less inclined to stick around in a turbulent market. It's possible the company could try the reverse merger route again, with a different troubled entity (We hear Cell Genesys has a lot of cash and little in their pipeline after the official termination of its deal with Takeda). Or maybe Archemix will opt to stay private--there's really no benefit in being public these days anyway--pushing onward with the roughly $20 million it has on hand.

Photo courtesy of Flickr user william kunz through a creative commons license.

No comments: