Saturday, January 31, 2009

DotW: Titanic Meets Iceberg

Titanic, Meet Iceberg. Iceberg, Meet Titanic.

Just what did these two men say to each other on Monday at the press conference announcing their $68 billion cash-and-stock tie up? Readers weighed in with some creative suggestions, including the correct pronunciation of the new merged company's name. "Let me help's pronounced FI-ZER," wrote one of our loyal readers. It was tough to choose the winning-est caption for this photo--anything IS better than the corp speak that accompanied it--but at day's end this Blogger was quite taken with the reference to the storied sinking ship. (Congratulations, "Anonymous"--if that's your real name--you win!)

Will historians look back on Jan. 26 as the date titanic Pfizer started its slow slide into the debths of non-existence? We aren't sure. Debate continues to rage over the wisdom of the deal and the ability of the mega-merger to bridge the chasm of patent expiries. (You can see ongoing coverage of the deal from "The Pink Sheet" here and here and here, as well as here at IVB.)

Another frequent topic of conversation--and of no less import--what to call this new premier biopharma? Wy-Pfi remains a popular and humorous choice. Certainly Pfieth doesn't exactly trip off the tongue, and it's first syllable connotes distaste or disapproval--or at least a big ugly Giant. (Wait, MAYBE it is a fitting name after all.) Wyeth employees are rumored to prefer "Wyzer". That might be the wiser course of action, especially as Pfizer woos some top-notch execs such as vaccine guru Emilio Emini to stay on at the new firm.

But Kindler and Poussot were be no means the only newsmakers this week. Clearly disgruntled that Pfizer pushed its name off the front page of the WSJ--okay, there were other reasons like pending Avastin trial data--Roche made headlines with its openly hostile, lower bid for Genentech. Not surprisingly, Genentech responded to Roche's salvo with a resounding "No" and followed up with a "Nein" and a "Non" just to be sure the Swiss pharma got the message. (See below.)

On the clinical front, Takeda finally experienced some good regulatory news. Despite a missed PDUFA date, the company's Kapidex, a follow-on to the GERD-treatment blockbuster Prevacid, won regulatory approval on Friday. The news came in the nick of time: Prevacid loses patent protection later this year.

This week also brought good news for Lilly and Daiichi Sankyo. As "The Pink Sheet" Daily reports, the two pharmas scored big with the FDA heading into their Feb. 3 advisory committee meeting on prasugrel. In briefing documents to the Cardiovascular and Renal Drugs Advisory Committee, FDA said that prasugrel's strong cardiovascular efficacy profile outweighs its risk of bleeding--largely putting to rest concerns that multiple delays during the NDA review would prevent approval. The news defininitely off-set the pharma's somewhat lackluster earnings.

Speaking of earnings calls, Amgen's was interesting for it's all-denosumab-all-the time undertones, which will likely swell into overtones given the dearth of products in the Big Biotech's pipeline. (Putting even more pressure on denosumab, company execs signaled that disappointing data associated with the phosphate binder and Renagel competitor AMG 223 warranted a "range of options for the development of this molecule rather than pursuing it by ourselves.") AMG 223 was acquired in the $420 million purchase of Ilypsa in 2007--not money well spent, we guess.

As you take a breath and try and catch up on the week's news, we are here to help. Time for...

Roche/Genentech: Remind us never to play poker with Severin Schwann. The man cut his teeth on hostile deal-making when he launched a months long pursuit of the molecular diagnostics maker Ventana Medical Systems in 2007. That courtship had a happy ending--the deal turned friendly after Roche finally upped its price 19%. But Schwann is playing a much trickier game with this latest hostile bid for Genentech, which requires Roche to persuade at least 80% of the biotech's minority shareholders of the deal's value if the Swiss Pharma is to prevail.

Not only could shareholders reject this latest offer, forcing two marquee investment banks to assess a fair value for Genentech that Roche can either accept or walk away from, there's a serious risk that this heavy-handed move will alienate the top-flight Genentech talent Schwann and his team have worked so hard to keep.

While risky, the $86.50 offer, which is 3% lower than the price Genentech rejected last summer, was intended to send a clear message to Genentech execs to return to the negotiating table or face the potential of an even smaller future bid. “We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement,” Roche chairman Franz Humer said in a statement. “We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer.”

The pharma is in a race against time: it would prefer to bring negotiations to a conclusion ahead of the release of widely anticipated data associated with the adjuvant use of Avastin in colorectal cancer. (Indeed, Genentech may have provoked Roche's gambit when it issued news last week that it anticipated trial data as soon as mid-April.) If the data are positive, many analysts expect Genentech's share price could skyrocket into the triple digits, which would add considerable cost to the deal.

Especially given the current cost of debt. Roche hasn't said for sure that it's lined up the money to do the deal. But others have reported that the pharma intends to use $14 billion of its own cash, financing the remaining $28 billion with a combination of commercial paper, bonds, and traditional bank financing. In July, sources say the original cost of debt would have been around 4%. But it’s now “at least 6 percent and could be even higher given the terms Pfizer got for Wyeth,” says a knowledgeable financier who spoke with IVB on Friday afternoon.

Moreover, Pfizer’s recent agreement to buy Wyeth for $68 billion may add to Roche’s pressure as banks may have a limited appetite for backing additional large pharmaceutical deals.

Many expect Roche to sweeten this latest offer in the ensuing weeks. But for every dollar per share Roche increases its current offer, it needs to come up with roughly an additional $500 million. The key question is how much higher is the Swiss Pharma willing to go?

Wyeth/Pfizer: Okay, so we covered this deal in last week's edition but we would be remiss if we didn't at least mention it again. (Let all our top-notch analysis go to waste?) As we write in the issue of "The Pink Sheet" due out Monday, with Wyeth, Pfizer gains a levee to buffer the encroaching storm. The deal could set the stage for more industry consolidation to follow as other big pharmas seek to weather their own patent challenges. Certainly it provides one strategy for covering up bad news associated with off-label drug use.

But whether a mega-merger will solve Pfizer’s problems remains to be seen. Although the move helps position Pfizer as a future biologics and vaccines Prevnar powerhouse, the addition of Wyeth doesn’t position Pfizer for near-term growth, but rather will allow the company to maintain its 2008 revenues and earnings-per-share levels through 2012. The company is forecasting $70 billion in combined revenues in 2012, although Wall Street’s consensus estimates have been about $4 billion lower. With that in mind, investors will have to keep an eye on the horizon toward the long-term.

“We’re obviously very focused on here and now and 2012, but this is a very long-term business, and we believe this deal positions us extremely well for long-term shareholder value creation,” CEO Jeff Kindler said during a same-day conference call. (But Jeff, what about the dividend?)

Wyeth partners could feel the pain of the merger sooner rather than later. Kindler indicated Monday that the company would move quickly to integrate the two companies. After months spent righting its own house, that likely means Pfizer aims to slot pipeline programs into its six invest-to-win areas. For Wyeth partners pursuing programs that fall outside this world-view, especially in de-prioritized areas such as CV and obesity--it's likely to be sayonara. Already one would-be partner has felt the axe. On Monday, Crucell announced that Wyeth had broken off acquisition talks in light of the Pfizer's offer.

Astellas/CV Therapeutics: Already partnered on the myocardial perfusion imaging agent Lexiscan, the two companies had been talking behind the scenes for more than a year about partnering in some manner on CVT’s growing angina drug, Ranexa. Then, on Jan. 27, the Japanese pharma went against its country’s traditional business practice of seeking consensus and publicly revealed its $1 billion bid to buy CVT for $16 a share. Astellas’ public letter to the CVT board noted Astellas first offered to buy the Palo Alto, Calif., biotech last November, but was rejected. The letter asserts that Astellas has the U.S. presence and sales infrastructure to help Ranexa, which posted $30.3 million in U.S. sales during third-quarter 2008, reach its market potential and asked that the two firms “work together … to reach a mutually beneficial transaction.” CVT issued a statement Jan. 28 acknowledging that it had declined Astellas’ previous offer, but adding that its board would “again review developments in the context of the company’s strategic plans and the long-term interests of its stockholders.” To be sure, that “context” will mean seeking a higher price for CVT. While Astellas’ offer represented a 41% premium over CVT’s share price at close of trading on Jan. 26, and a 69% premium over the previous 60-day average, the biotech’s shares jumped to a high of $16.68 on Jan. 27 and remained in the $15 range as the week progressed. Cowen & Company analyst Eric Schmidt predicted that Astellas would land CVT eventually, but at a share price ranging between the high teens and low 20s--Joseph Haas and Melanie Senior.

GSK/NeuroSearch: GlaxoSmithKline and NeuroSearch, which have been drug-development partners since well before the merger that created the current GSK entity, extend their five-year drug-discovery collaboration led by Phase IIb depression and ADHD candidate GSK372475. Denmark-based NeuroSearch gets an undisclosed upfront payment to continue the alliance, which now includes an expanded portfolio of novel compounds. NeuroSearch says it could realize more than $1.2 billion in milestones under the deal, along with double-digit royalties on any products that reach market. While Glaxo Wellcome collaborated with NeuroSearch in the 1990s on potassium-channel central nervous system compounds and anti-depressants, the companies’ more recent work has centered on triple monoamine reuptake inhibitors that GSK in-licensed in 2002. The NeuroSearch work was moved into GSK’s Center of Excellence for External Drug Discovery after it was launched in 2005. CEEDD programs like this one enable GSK to expand its pipeline while shifting more responsibility and risk onto its partners – NeuroSearch performs discovery and research of the GSK-partnered programs through proof-of-concept, at which point GSK takes over development and commercialization of the compound. With ‘372475, GSK expects data from two Phase IIb studies on the compound and to make a Phase III go/no go decision during the first half of this year. During 2009-2010, NeuroSearch says it will earn about $90 million from the partnership between the upfront payment and milestones. While the collaboration mainly will focus on joint development of candidates advanced during the previous five years, NeuroSearch says, the expanded deal also includes five preclinical compounds along with several qualified lead compounds that will move into preclinical development by mid-year. The deal also gives NeuroSearch a share-put option to sell up to $25.6 million of its stock to GSK at market price in four equal tranches through November 2010--Joseph Haas and Melanie Senior.

Deerfield/NitroMed: After raising its offer a second time, Deerfield Management’s “black knight” bid to acquire NitroMed, and forestall what it saw as dilutive transactions with Archemix and JHP Pharmaceuticals, appears to have succeeded. On Jan. 27, NitroMed announced it had entered into a merger agreement with Deerfield – which owns 12 percent of its stock – after the investor increased its offer to $0.80 a share. However, the agreement includes a “go shop” provision enabling NitroMed to seek a better offer through Feb. 26. NitroMed said it will actively solicit offers during that period. If a better offer doesn’t materialize, the merger is expected to close in April. At this latest offer price, the question remains whether this deal amounts to an exit for Deerfield, especially with NitroMed’s poor-selling BiDil, a heart-failure drug for black patients, still in the fold. BiDil sales totaled just $7.8 million for the first half of 2008. Deerfield made its initial bid after NitroMed announced two deals last fall, one to sell BiDil to JHP for roughly $26 million, and the other to reverse-merge with private aptamer-focused biotech Archemix. The agreement with Deerfield required NitroMed to terminate the JHP and Archemix deals, resulting in termination fees totaling $2.4 million. The reverse merger would have brought about $60 million in cash – post sale of BiDil – and a NASDAQ listing to Archemix, which had abandoned plans for an IPO early in 2008. Deerfield clearly was unhappy with the merger terms, which gave NitroMed shareholders only a 30 percent stake in a highly illiquid company. Managing Partner James Flynn said a review of other biotechs with Phase III assets showed many of them were valued lower than the theoretical $100 million value the reverse-merger would create for Archemix. Archemix, meanwhile, is pursuing business as usual as a still private enterprise, focusing on advancing its lead aptamer, ARC1779, through Phase IIb clinical trials. Despite losing out on NitroMed’s cash, the company says it has sufficient money to support operations through the end of 2010, thanks in part to a large R&D deal inked with GSK late in 2008--Joseph Haas.

Ipsen/Novartis: In a deal that may reflect increasing sales and marketing clout for regional players — or just the efforts of one big pharma to reduce its overhead in one strategic market — Novartis increased its anti-hypertension drug co-promotion work with Ipsen on Jan. 28. Paris-based Ipsen has promoted Diovan (valsartan), the world’s top-selling hypertension therapy, in France since 2003. It also helps market the product in Europe, along with Nisisco, a combination drug that includes hydrochlorothiazide. The newly expanded agreement calls for Ipsen to sell Exforge, another anti-hypertensive combining valsartan with Pfizer’s amlodipine, in France. Novartis reported 2008 worldwide sales of $406 million for Exforge, which gained FDA approval in 2007. With Ipsen well entrenched in France’s primary-care market, this deal appears to position Novartis to grow its hypertension franchise further through Exforge--Joseph Haas.

Helsinn/Sapphire: Switzerland’s Helsinn apparently picked up privately-owned cancer supportive care group Sapphire Therapeutics for an (undisclosed) bargain. The deal adds three clinical candidates to Helsinn’s pipeline: Phase II anamorelin, an oral first-in-class cancer cachexia treatment, an intravenous compound for post-operative ileus, also in Phase II, plus a Phase I oral drug for opioid-induced bowel dysfunction. It also provides the group with “a direct presence in the major pharmaceutical market of the world,” CEO Riccardo Braglia said. Reflecting the sorry state of many private biotechs, there were reportedly no other interested buyers. Moreover, Sapphire’s VC investors likely were eager to exit from a group that already had re-invented itself once. Bridgewater, N.J.-based Sapphire was launched in 2000 as Rujevenon, with a focus on anti-aging therapies and $12 million in private financing. By 2004, it had changed its therapeutic focus to small-molecule cancer and metabolic drugs, and raised more than $37 million in a Series B financing led by SV Life Sciences--Joseph Haas and Melanie Senior.

1 comment:

Anonymous said...

"Bernard Poussot, meet the Bernard Madoff of Big Pharma". Pfizer's series of large cap buys are like a ponzi scheme. Pay WL's cashflows to investors...then when that runs out, suck in Pharmacia's money....and when that runs out bleed Wyeth out.