Friday, May 07, 2010

Deals of the Week Goes Global

This week's post features work from seven writers in five time zones on four continents. Sorry, we haven't quite cracked Antartica. EBI, the record-label-sounding acronym for the combination of Windhover and FDC Reports, is global. Why not IVB too? Just thought we'd get that out there.

So, another year, another BIO. What did we learn this year, besides all kinds of cool facts about Chicago architecture? On Wednesday this blogger chaired a panel of biotech bigshots to discuss how to build shareholder value in this time of financial duress, high-reimbursement hurdles, and risk-sharing partnerships.

The premise of our chat was that although good science and R&D are pre-requisite for building value in biotech, they aren't enough. A company needs an innovative business model as well. We didn't end up with commandments etched on stone tablets, as our panelists agreed that simply imitating what worked for one successful biotech wouldn't necessarily build value elsewhere.

There were, however, plenty of interesting takeaways:

  • Anything that steers pipeline toward faster decisions is a good thing. Failure is fine, if you fail quickly and cheaply. Few biotechs, noted Ironwood CEO Peter Hecht, wind up scoring on their first try or with their lead asset.

  • Despite the gloomy climate, there has never been a moment in biotech history as now, with so much available capital, experienced management, and promising technology. Not three years ago, not in the 1990s. So said Fate Therapeutics chairman John Mendlein.

  • Deal strategies or service businesses designed to boost capital efficiency and slow down burn rates often crimp proprietary development plans. That isn't to say that these "side businesses" aren't more sustainable, but to avoid distraction they ought to be as close to the biotech's core business as possible, noted Venrock general partner Bryan Roberts.

  • Going public has its advantages: potential liquidity for long-term investors, access to diverse sources of capital, and so on. But the sudden exposure can be a shock to management teams or companies that have been mainly insulated from dissenting opinions expressed by public investors betting against them, noted John Doyle, CFO of private biotech Achaogen. Doyle knows of what he speaks, as he's helped take two biotechs public and was a Genentech finance VP before the Roche takeover. Encouraging dissent among private company managers and board members can build backbone and help prepare for the IPO culture shock.
Not surprisingly, we spent much of the panel discussing the various deal structures, financing trends and business models that can boost or hamper value creation. Just the sort of discussion you can find here every Friday in...

Onyx Pharmaceuticals/S*Bio: Singapore-based S*BIO and U.S.-based Onyx Pharmaceuticals are expanding their existing development collaboration to include additional indications for S*BIO's novel JAK2 inhibitors, the companies announced May 4. Under the terms of the agreement, Onyx will provide $20 million to broaden the existing development program for S*BIO's Janus kinase inhibitors SB1518 and SB1578, also known as INX 0803 and ONX 0805, respectively.The two companies had inked a development collaboration and license option agreement in December 2008, which was considered one of the biggest biotech deals in Asia, especially for such early-stage compounds. Under the terms of the original agreement, S*BIO received an upfront equity fee of $25 million and is eligible for an additional $525 million in equity, options and license fees. Onyx has the option to develop both compounds or either one separately in the U.S., Europe or Canada. In exchange, S*BIO will receive double-digit royalties and retains rights on the compounds in the rest of the world.T he new contract does not change the terms of the earlier agreement, S*BIO CEO Jan-Anders Karlsson told PharmAsia News May 5, but rather "it adds new activities to what we have agreed. — Tamra Sami

Sanofi-Aventis/Glenmark: Sanofi-Aventis, which has been busy bolstering its diabetes business, this week inked a deal with Indian drug maker Glenmark Pharma to develop and commercialize transient receptor potential vanilloid (TRPV3) antagonist molecules. The Glenmark deal is the first ever research agreement in India by the French drug company. There are only a handful of domestic Indian companies--including Piramal, Biocon, and Cadila Healthcare--with drug discovery expertise solid enough to catch a multi-national’s eye. But Glenmark stands out when it comes to monetizing research assets. The pharma has signed several pacts for new chemical compounds, including earlier deals with Forest Labs in the respiratory space. According to sister publication PharmAsia News, Sanofi Aventis' head of R&D Marc Cluzel was in India in March and the finer contours of the deal with Glenmark were likely finalized then. Not that Sanofi put a ton of money down as part of the alliance; only $20 million of the potential $325 million deal value is up front cash. Sanofi-Aventis and Glenmark have carefully divided the marketing rights for the potential products with the big pharma retaining exclusive marketing rights for North America, the EU, and Japan, and the biotech getting rights in India and certain ROW nations. In what is seen by analysts as a coup for Glenmark, the Indian biotech will have co-promotion rights for any drugs that emerge from the collaboration in the US and five undisclosed Eastern European countries. — Vikas Dandekar

Endo/HealthTronic: Endo Pharmaceuticals has certainly embraced the diversification mantra: On May 5, it announced plans to buy HealthTronic, a provider of urological health services, diagnostics testing services, and devices, for $225 million, plus assumption of $35 million in debt—slightly more HealthTronic's 2009 sales of $185 million. The announcement came less than a week after analysts on Endo's quarterly earnings call pummeled its execs for being too slow to make deals that would reduce its dependence on the painkiller Lidoderm, which represents 50% of sales and which faces patent expiration in 2015. In response, CFO Alan Levin noted, "When we look at opportunities, we certainly have a predisposition for products with on market revenues in order to further diversify our top line." HealthTronic could do just that. For one thing, Endo isn't known for its R&D leadership, and the off-beat move enables it to sidestep direct competition with Big Pharma for pricey, high-quality R&D assets. Furthermore, the company gains additional expertise in urology, an area of interest since its 2009 Indevus buy-out. Endo didn't explain much about its plans to take advantage of HealthTronics' commercial model. Certainly, Endo reps will gain greater access to urologists and have more to talk about with them. And HealthTronic products will benefit from Endo's resources and management skills. Endo projects that HealthTronic will add $80 million to its 2010 revenues, which it now expects will total $1.63 billion to $1.68 billion. Even after the transaction, which Endo is paying for in cash, the company has plenty of cash on hand to pursue more deals. — Wendy Diller

Merck/Ariad: Nearly three years after partnering in a co-development deal for the mTOR inhibitor ridaforolimus, Ariad Pharmaceuticals and Merck revised the terms, giving Merck control of the program and full development and commercialization rights and Ariad a $69 million upfront payment. Even as the climate for biotech financing warms, Ariad’s decision to revise its deal with Merck is telling, showing the sacrifices certain companies must make to fill their coffers near-term. In Ariad’s case, the revisions extend the firm's cash runway into the second half of 2011.They also reduce Ariad's expenses, since the biotech is no longer on the hook for ridaforolimus’ development costs. Ridaforolimus, an oral mammalian target of rapamycin, has the potential to be the first targeted agent for the treatment of sarcoma. It is Merck's only Phase III oncology drug and Merck/Ariad could file an NDA later this year depending on the data in the pivotal trial. Under the revised deal, Ariad stands to gain $514 million if ridaforolimus meets certain regulatory and sales milestones in multiple indications. The original deal called for profit-sharing with Ariad receiving royalties on sales outside the US. The revisions call for Merck to book all sales of the drug and pay Ariad tiered double-digit royalties on global sales. — Jessica Merrill

Valeant Pharmaceuticals/Aton: Valeant Pharmaceuticals announced May 3 that it is shelling out $318 million to acquire Aton Pharma in a move to broaden its non-dermatology US business. But the price tag for Aton--roughly three to four times higher than the acquired company’s annual sales—is steep. For Valeant, the acquisition offers a means to buffer sales that will be lost when its epilepsy drug Diastat (which brings in revenues of about $70 million, or 10% of sales) faces generic competition later this year. In April, Valeant raised $400 million in senior unsecured debt notes, expected to mature in 2020, which "were needed" to acquire Aton – a N.J.-based specialty pharma that focuses on ophthalmology and orphan drugs. But Aton gave no inclination that it was up for sale on April 26, when it announced it was buying U.S. marketing rights to the Parkinson's disease drug Lodosyn from Bristol-Myers Squibb as part of a plan to broaden its niche product portfolio. Aton won’t get the money all at once; the deal includes an up-front payment and earn-outs based "on achievement of development and commercial targets for certain pipeline products still in development" although the two companies declined to disclose further details. In addition, Cerberus Capital Management, the private equity firm that owns Aton, agreed to reinvest a portion of its proceeds from the sale back into pipeline projects, as a partner, Valeant told investors. — Carlene Olsen

Intercell/Cytos: On May 6, Austrian biotech player Intercell announced it was buying Cytos Biotechnology’s monoclonal antibody discovery program for €15 million. In addition to the platform, Intercell’s money buys it certain undisclosed monoclonals in preclinical development and expertise, in the form of Cytos scientists who will join the Austrian firm’s staff. Cytos’s technology is deemed a strategic fit with work ongoing at Intercell, which will use the platform to develop vaccines for Group B Strep and other bacteria. In Cytos’s case, the agreement shows, again, the hard choices struggling biotechs are now forced to make. After receiving disappointing results in the Phase II trials of two of its development candidates—the nicotine vaccine, NIC002, which is partnered with Novartis, and its hypertension vaccine, CYT006-AngQb—Cytos earlier this year slashed headcount from 135 to 85 and announced a restructuring program. As part of those efforts, the Swiss biotech decided to put its monoclonal antibody technology up for sale and prioritize programs partnered with Novartis and Pfizer, as well as in-house discovery efforts related to allergic rhinitis and allergic ashthma. According to Reuters, Vontobel analyst Andrew Weiss called the announcement “excellent news for Cytos” befitting of a “leaner strategy.” — Ellen Licking

Image courtesy of flickr user caveman under a creative commons license.

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