This week's unprecedented deal activity--Merck's $41.1 billion buy-out of Schering, Gilead's white knight bid for CV Therapeutics, and Roche's rapprochement with Genentech--admittedly leaves this IN VIVO Blogger reeling--and more than a little tired.
But the Merck/Schering deal echoes many of the themes raised by Pfizer's bid for Wyeth: a desire for diversification beyond traditional pharmaceuticals; the need for late stage products that brigde the revenue gap associated patent expirations; and the belief that bigger is better in an age where reimbursement is a challenge and regulatory uncertainty is as least as great as R&D risk. Merck had already taken steps to push a new commercial model. The acquisition of Schering will likely only accelerate the shift though it's hard to know now what the final strucutre of the newly merged organization will look like.
In the meantime, it's hard not to wonder at the potential market size of a drug like Despondex. We guarantee the negative economic news of late means its much smaller than it might have been six months ago. And it's not like there aren't natural remedies for the disorder. Just mention the words "financial runway" to any small biotech exec or "down round" to venture capitalists.
Some other people who aren't good candidates for the drug include Xoma, Cadence, Synta, and Neose employees. Xoma received news this week that it's listing on the NASDAQ is at risk because of steep declines in the company's share price. Cadence, which diluted the hell out of itself with an $86.6 million private placement last month, announced Thursday that is was shelving work on Omigard, its late stage gel for catheter-related infections. Synta, meanwhile, revealed it was laying off 40% of its staffers in the wake of the high profile failure of its melanoma drug elesclomol. And it's the end of the line for troubled Neose, which is auctioning off the last of its worldy goods (preview date March 24). And what about members of "Friends of an Independent Genentech" (we call them FIGs) or sales and marketing reps for Big Pharma? (Have you heard about the layoffs?)
But there are a few people who might benefit from the drug. It stands to reason Jeff Kindler, CEO of Pfizer, might need a short course thanks to his 2008 compensation package. We emphasize "short" since he's probably not over the moon--his pay did drop 5% to a mere $13.1 million last year. And then there's Fred Hassan, who helped orchestrate Merck's take-out of Schering-Plough--just don't call it a change of control. As IVB reported earlier this week, Hassan stands to receive at least $37 million for brokering the deal with Merck, but his pay could jumpt to$60 million if powers that be believe change of control applies to ownership structure but not occupancy of the corner office. (IVB calls that having your cake and eating it too.)
So what if the drug only works for these two men? Hey, maybe that really is the future of primary care! And here's a solution to the marketing dilemma: just call it personalized medicine and charge a fortune for the drug. Does an overpaid, middle-aged white male suffering from excessive happiness count as an orphan indication? (Check out future twitter feeds from Mike, Ellen, Ramsey, and Chris to find out.)
Merck/Schering-Plough: It was hard to pick top honors for biggest deal of the week, but we are going with the Merck/Schering-Plough tie-up since Roche/Genentech (see below) has felt like a foregone conclusion for at least a week (sorry FIGs). We confess Merck's unexpected bid for its cardiovascular partner Schering had folks at IVB at a loss--we even told you last week we didn't think this deal was coming given the historic importance Merck has placed on R&D and organic growth. But Merck, much like Pfizer in its bid for Wyeth, is looking to the mega-acquisition to stem lost profits from its top-selling drug Singulair which loses patent protection in 2012. It also desperately needs to refill its pipeline following some high profile development setbacks. But if the cost-savings from the acquisition will elevate Merck's earnings growing as key drugs lose patent protection, it's less clear whether Schering will help or hinder the company's efforts to compete in a changing healthcare environment, increasingly focused on productivity, agility and specialized, targeted medicines. "The strength of the combination of Merck and Schering-Plough's pipeline, the complementary product portfolio with long periods of exclusivity, the strong commercial models, the expanded global presence, the sustainable cost savings for long-term growth go far beyond just one or two products," CEO Richard Clark said during a same-day conference call. A big positive of Schering's portfolio is that it is less vulnerable to generic competition than many other large pharmas; it's not expected to hit a patent cliff until 2014 and beyond, providing more time to bring pipeline drugs to market. Schering's marketed portfolio includes the tumor necrosis factor inhibitor Remicade, the allergy medication Nasonex, the brain tumor treatment Temodar, and the hepatitis C drug Pegintron. Schering is also relatively more diversified than Merck, bringing a larger biologicals business and substantial operations in animal health and over-the-counter drugs. Combined, Merck and Schering-Plough will have sales of nearly $47 billion based on 2008 sales. No one product, Clark said, will account for more than 10 percent of the combined company's sales. Just getting the deal done required some pretty fancy legal maneuvering, as Merck and Schering found creative ways to do an end run around a change of control clause related to Schering's partnership with J&J for Remicade. The complicated arrangement, dubbed“Project Solar” in SEC documents that reference Merck as “Mercury” and Schering as “Saturn,” involves structuring the deal as a reverse merger in which Schering remains the surviving company. Don't forget, however, that the lasting entity will be called Merck, headed by Merck CEO Richard Clark, and that Schering shareholders will own only a 31 percent stake.
Roche/Genentech: It's official. $95 is the magic number. (We thought it was 3.) Nearly 8 months after Roche launched its initial bid for Genentech, it has succeeded in obtaining the blessing of the biotech's Special Committee. The nearly $47 billion marriage, which assumes enough minority shareholders will tender their stock, may be off to a rocky start if Franz Humer and company can't convince high flying Genentech employees such as CEO Arthur Levinson, president of product development Susan Desmond-Hellman, and EVP for research and CSO Richard Scheller to remain with the company. Roche's patient wooing took a more urgent tone last Friday, when the Swiss pharma upped it's hostile tender offer from $86.50 to $93 a share. The gambit was enough to lure Genentech's special committee back to the bargaining table to address widely divergent opinions on the biotech's value. (Recall last fall $112 was the target price Genentech was vying to obtain.) The subsequent maneuvering hinged on debate over two key points - Roche argued Genentech's value was plunging due to worsening financial markets. Meanwhile, anticipation has continued to grow ahead of the results of the eagerly awaited clinical trial that could greatly expand the market for cancer treatment Avastin. Tellingly, SEC documents released on Thursday show that the Special Committee was increasingly worried about the current economic crisis. Not only has there been a "significant deterioration in financial markets," but the Obama administration's emphasis on reducing health care costs has added uncertainty to the outlook for pricing medications, according to documents Genentech filed with the SEC. In hopes of finalizing the deal, the two companies eliminated a provision in their long-standing affiliation agreement that allowed shareholders to receive a higher price than the tender offer during a so-called squeeze-out. That clause has long been a sticking point for Roche, providing shareholders with little incentive to tender at what might ultimately be a lower price. Moreover, the special committee noted in SEC filings that with this sweetened offer, "the company's stockholders will avoid the risks associated with a negative outcome in the Avastin trial, including potential declines in the trading prices of the shares, a determination by Roche not to purchase any shares, or should Roche determine to purchase any shares that it would do so at a reduced price."
Gilead/CV Therapeutics: What does it say about the week's deal flow that a $1.4 billion dollar white knight bid is third on the deals of the week hit parade? Not to be outdone by the likes of Big Pharma and its Big Biotech cousin, Gilead made news with its $20-per-share offer for CV Therapeutics, which has been fighting off a hostile $16-a-share bid from Astellas. With $3.24 billion in cash and equivalents on hand at the end of 2008, Gilead has the resources--and apparently the moxie--to do the deal. While its focus has traditionally been on antivirals - it markets the HIV therapies Atripla and Truvada - it has also built a budding cardiovascular franchise centered around its pulmonary arterial hypertension drug Letairis and a Phase III drug for resistant hypertension called daruesentan. There's a strategic fit argument, therefore, when it comes to Gilead's buying CVT: the Palo Alto-based biotech provides the company with some additional diversification in a bulked up cardiology franchise--CVT already markets Ranexa and Lexiscan--as well as a ready-made sales force to market the products. "Gilead is essentially buying a sales force for darusentan via Ranexa, but they only get 10 percent of Lexiscan," noted Leerink Swann analyst Joseph Schwartz in an interview with "The Pink Sheet" DAILY. That's because in the U.S., Lexiscan is already partnered with Astellas, with CVT receiving a 10% royalty on sales. Although some analysts have called the price Gilead is paying for CVT excessive, questions about the true ownership of Lexiscan may have nudged Gilead into shelling out the extra $4-a-share. That's because the original 2000 deal between Astellas predecessor Fujisawa and CVT included a "standstill" agreement voiding the deal if Fujisawa or an affiliate tried to buy stock in CVT beyond that specified in the deal. And what happened on Feb. 27? Astellas turned up the heat on CVT, turning its spurned offer into a tender to CVT shareholders, while also filing a lawsuit in Delaware Chancery Court seeking to overturn both the "standstill" and a poison pill that CVT's board extended for one year just before it was set to expire this February. It remains unclear whether Astellas' actions have placed it in breach of the 2000 contract, which could mean full rights to Lexiscan return to CVT. If they do, outright ownership of Lexiscan will certainly boost Gilead's bottom line.
MedImmune/Micromet: Perhaps it isn’t fair to lump this evolving situation into the ‘No-deal’ of the week category, but Micromet’s co-development deal with MedImmune for its lead bi-specific T-cell engaging antibody blinatumomab has definitely been downsized. And, as CEO Christian Itin repeated several times on a conference call that doubled as an explanation of the new arrangement with MedImmune and Micromet’s 2008 results, that isn’t necessarily a bad thing. MedImmune opted out of its US development role for blinatumomab (a.k.a. MT103), a BiTE antibody in development for hematological cancers, but it hasn’t washed its hands of the project entirely. MedImmune will complete development of a commercial scale manufacturing process for the candidate on its own dime. It will also retain an option to regain commercial rights to blinatumomab upon first US approval, at pre-defined but undisclosed terms. And the two companies announced they were pursuing—from scratch—a new BiTE program in hematological cancers as well (the geographic split—MedImmune gets North American rights and Micromet RoW—is the same). To date MedImmune has not put blinatumomab into the clinic in the US, though an IND was approved in early 2007. Micromet has taken blinatumomab into the clinic in Europe, where in Germany the candidate is in a Phase II study in adult patients with acute lymphoblastic leukemia (ALL) and a Phase I study in relapsed non-Hodgkins Lymphoma (NHL). Interim data for both trials will be presented in June at the European Hematology Association meeting in Berlin, according to Itin. So why did MedImmune opt out? Itin declined to speculate beyond suggesting that the companies’ focus so far on rare malignancies might not be a broad enough opportunity for MedImmune parent, AstraZeneca. It’s “not too unusual that the path isn’t at the center of focus for a large pharma company,” he said. Furthermore there have been no disappointing data out of any trial, Itin said, and “the trial is recruiting at higher speed than we predicted.” Micromet now has global rights to develop the drug, at a cost made more palatable by MedImmune’s commitment to funding both manufacturing process development. Blinatumomab isn’t the first MedImmune project that AZ has given back to a partner on pretty good terms. Late last year the Big Pharma handed back to Infinity Pharmaceuticals IPI-504 an Hsp90 inhibitor in Phase III, as well as an oral back up in Phase I. The difference for Micromet is that it cannot turn around and partner US rights or global rights to blinatumomab so long as MedImmune/AZ’s option remains outstanding--Chris Morrison.
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