Deals of the Week Takes the Rock to the Rack

It’s mid-March, which means there is nuttiness and squeaky sneakers afoot. It’s the time of year when grown men and women burn megajoules of brain power filling out NCAA tourney brackets to win a few hundred bucks and bragging rights in the office pool. We can only shake our heads at the effort expended; everyone knows it’s the person least knowledgeable about the game who always ends up winning the pot. DoTW is rather partial to powder blue... hmm... should we go with North Carolina or UCLA? What do you mean, neither team made the tournament? We have to root for another color? In the immortal words of Lear, “that way madness lies.”

It also lies in China. A front-page article in the Wall Street Journal suggests that despite the hype about boundless opportunity, there’s a growing realization that for foreign entities China's a tough place to do business. In the biopharma world, for example, compulsory licensing provisions hamstring multinationals trying to compete with state-owned drug companies. How can foreign firms really afford R&D in China if, as one law stipulates, they must pay Chinese employees at least 2% of the profit derived from their inventions -- unless the workers waive their rights?

Interesting, then, how AstraZeneca highlighted Poland and Mexico at its emerging markets confab on March 16, which followed on the heels of AZ's March 11 deal with Indian drug maker Torrent to develop 18 branded generics.

Lest we congratulate ourselves too much for being a first-world capitalist paradise, note how easily sophisticated thieves in recent months have targeted trucks and warehouses of several drug companies. Last weekend they reportedly rappeled down ropes from holes cut in the ceiling of an Eli Lilly facility in Connecticut and made off with $75 million in product. We're guessing that company execs and their supply-chain managers aren't humming this exciting tune, but perhaps they can take comfort that the strong arm of the FDA -- its office of criminal investigations -- is on the case. Sound the trumpets! Hamburg, Sharfstein, and now... Friday. Just the indications on the label, ma'am. How do you spell it again? Z-Y-P-R....

Speaking of Friday, it’s time for us to wear out some shoe leather and get on the case. All you have to do is embrace the madness associated with another edition of...

Teva/ratiopharm: When it comes to fighting for generics businesses, you don’t want Teva in your bracket. On March 18, Pfizer and the PE-backed Icelandic Actavis officially lost out to the world’s largest generic maker in the months-long war for the German firm ratiopharm, which apparently could no longer afford capital letters for its name. With this purchase, Teva catapults from nearly nothing to #2 generics player in the coveted German market. Analysts generally regarded Teva's offer of nearly $5 billion (€3.6 billion), including the assumption of $820 million (€600 million) in debt, as fair but exceeding their predictions. The acquisition is in keeping with Teva’s business development strategy; in less than a decade the Israeli giant has become the world’s largest generics market primarily through M&A, followed by rapid integration of acquired assets. (Remember Barr?) But Teva will have to execute flawlessly this time around, say analysts, given drug pricing in the German market is likely grow more uncertain in the coming year. And there’s already plenty of uncertainty thanks to the country’s new Minister of Health, Philipp Roesler, who recently announced a proposal to introduce a mandatory rebate on drugs ('The Pink Sheet' DAILY, March 10, 2010). Teva made no secret of its interest in ratiopharm from the get-go, but competitive bids from Pfizer and Actavis prompted all sorts of whispers from media and investors. Speculation only grew after Pfizer CEO Jeff Kindler was spotted in Germany at the beginning of March, much too early to be Oktoberfest-related. In its quest to become the General Electric of pharma, Pfizer is looking to diversify, especially in emerging markets, through the bolt-on acquisitions of generics players. In the hours after Pfizer’s loss to Teva became official, investors were already linking the New York drug maker to another German generics titan: Stada. -- Wendy Diller

Eli Lilly/Acrux: To bolster late-stage product offerings, Lilly this week pulled out its battle axe. Actually, it’s Axiron. On March 16, Lilly announced a global licensing deal with Acrux to commercialize an experimental underarm testosterone solution currently being reviewed by the FDA for treatment of low testosterone levels, aka hypogonadism. If approved, this would become the first testosterone as handy to use as deodorant. (Does that mean the commercial launch will be a roll-out or a roll-on? We only hope it doesn’t leave a white powdery residue. Talk about killing the mood. If it does, perhaps Lilly can bundle the product with a couple of these.) Here's the nitty-gritty: Acrux gets an upfront payment of $50 million, plus $3 million once manufacturing assets are transferred. If the FDA approves the cream, Acrux gets another $87 million and up to $195 million more in potential commercialization milestones and undisclosed sales royalties. (It’s all about the milestones.) We all know improving men’s sex lives has been a big business opportunity. Even with spiraling health care costs and increased payer scrutiny, Lilly is betting that sex will continue to sell. In explaining its decision to invest in Axiron, Lilly cited IMS data indication global sales of testosterone therapies now exceed $1 billion. -- Ed Silverman

Pfizer/Tekmira: Fresh from their own almost-March madness, Vancouverites probably weren't celebrating quite as hard this week when local firm Tekmira Pharmaceuticals teamed up with Pfizer in an RNA interference deal. (Though we're always tickled by a sighting of the RNAi beast in the biopharma wild these days.) No financial terms were discussed, but it's easy to imagine Pfizer’s CSOs and research heads being wowed by the biotech’s stable nucleic acid-lipid particle technology, which promises to solve the pesky RNAi delivery problem in a snap (or should we say SNALP). Announced March 16, the deal is the first between the two companies. But Tekmira has license agreements or collaborations with seven other biopharmas, including Merck, Roche, and Alnylam. (The latter two companies also hold equity stakes in the biotech.) Tekmira bolstered its delivery technology IP in a 2008 merger with privately-held Protiva Biotherapeutics in what was a family affair; both Canadian biotechs were spin-offs of the now defunct liposomal drug delivery firm Inex Pharmaceuticals. Of course, as Exelixis showed last week, it’s tough to create value with early stage discovery deals; you’ve also got to have a product. To that end, Tekmira is advancing two of its own: a next-generation ApoB SNALP for hypercholesterolemia that will enter Phase I trials later this year, and a preclinical anti-tumor biologic called PLK-SNALP. -- Ellen Foster Licking

AstraZeneca/University of Pennsylvania: Another week, another corporate/academic tie-up. This week the collaborators are AstraZeneca and the University of Pennsylvania, coming together to develop tau-targeted therapies for Alzheimer’s disease. As usual with these kinds of deals, financial details were light, but the arrangement includes potential royalties and milestones linked to successful clinical development. As we wrote in this November 2009 START-UP feature, academic-industry partnerships are one of the many ingredients in the R&D secret sauce as big pharmas seek to hedge their development risk and look for more externally sourced programs. AZ already has collaborations with Columbia University Medical Center in two therapeutics areas: obesity and mood/cognitive disorders. It also has a partnership with Virginia Polytechnic Institute & State University (Virginia Tech) and the Mayo Clinic College of Medicine to develop novel compounds for treatment-resistant depression. In many ways it makes sense for AZ to seek an academic partner to get access to novel AD compounds. As notable late-stage failures such as Pfizer/Medivation’s Dimebon show, there’s still considerable uncertainty in this therapeutic area. Even as companies have pursued drugs designed to disrupt the amyloid plaques that are the hallmark of AD, there’s also considerable effort to understand how neurofibrillary tangles comprised primarily of misfolded tau protein contribute to the destruction of brain nerve cells. -- EFL



Astellas/OSI: As expected, OSI officially responded to Astellas’ unsolicited $3.5 billion offer this week with a firm “nai keiyaku." (Because the last thing the biotech wanted was for its answer to get lost in translation.) Arguing that Astellas’ bid ignores the value of OSI’s cash and pipeline, the biotech instructed its bankers to look for a better deal. Apparently OSI believes the Astellas bid discounts the biotech’s financial asset portfolio, which includes cash, securities, and tax-friendly losses estimated (by OSI) to be worth $1.3 billion. Astellas gave no quarter, responding in a statement that it continues to believe in its proposed transaction and will press on with a tender offer of $52-a-share to OSI shareholders. Astellas also made good on its previous threat to nominate its own slate of independent directors at OSI’s next annual meeting. The Japanese drugmaker’s nominees include some well known biotech execs, such as Aptuit founder Michael Griffith and Alpharma board member Jill Kanin-Lovers. Investors seem confident that a white knight bid -- or a sweeter offer from Astellas -- could be in the offing. OSI’s share price quickly shot up above the initial tender price and has remained there. Assuming no other bidder emerges, Astellas will have to wait until the end of March to discover if it’s won the OSI betting pool. The tender offer expires March 31. -- Alex Lash

Basketball photo courtesy of flickr user Erik Charlton.

Badge image courtesy of the Food and Drug Administration.