Monday, November 01, 2010

Deals of the Week Gets Its Exercise On

It's always nice to see option buyers out there Sweatin to the Oldies. Last week's exercisers Cephalon and Purdue followed through on their deals with BioAssets Development Corp. and Infinity, respectively. We salute your exertions.

Ablexis/ Pharma 5: This week next-generation antibody company Ablexis, which can also be thought of as Abgenix 2.0, announced the formation of a five-member consortium that includes Pfizer and four other top global drug companies. The alliance gives the pharmas non-exclusive access to Ablexis’s proprietary AlivaMab mouse technology, a next-generation platform for the discovery of antibodies. Financial details of the alliance were not explicitly revealed. However, as part of the transaction, each consortium member paid an undisclosed and non-refundable seven-figure fee to Ablexis as a down payment on the souped-up mice strains in development. Upon delivery of the AlivaMab mice, the drugmakers will each pay an additional eight-figure sum. While the consortium is officially closed to new drug makers, Ablexis is interested in additional partnerships related to its transgenic mouse platform, according to Ablexis CEO Larry Green, who says the nonrefundable upfront payments provide the biotech with “a comfortable runway for building out the technology.” Although the existence of the consortium was only announced October 26, the deal has been in the works for many months; its possibility was one of the primary attractions allowing the San Francisco-based biotech to pull in a $12 million Series A in June from a syndicate that includes Third Rock Ventures and (interestingly) Pfizer Venture Investments. Forming a consortium in order to get a bolus of non-dilutive money near term is one way to solve what has become a chicken and egg problem for platform start-ups. With the IPO market still challenging, and the value of platform alliances dropping significantly in recent years, it’s hard for investors to recoup their outlay in such biotechs in rapid fashion. But Green said in an interview “the back-end obligatory payments by licensees provide a very attractive return for our investors.” According to Green, Ablexis, which is a structurally a limited liability company as opposed to a “C company”, will not require any additional venture money. The start-up will return cash to its investors based on their relative ownership stakes. That’s one reason the LLC structure for Ablexis is so critical. Had the biotech been a standard corporation, the cash distributions would have been taxed heavily. Because of the non-exclusivity, it's clear that various consortium members are free to go after the same target(s) if they desire. What's not clear is how the intellectual property related to the mice are divvied up. If for instance, Pfizer's researchers tweak the mice to improve antibody production, does the consortium own the knowledge? Pfizer? Ablexis? IN VIVO Blog asked Green for clarification but learned only that "those elements of the collaboration will remain confidential."--Ellen Licking

Kadmon/Three Rivers: Former ImClone Systems Chief Executive Sam Waksal’s new biotech Kadmon Pharmaceuticals has officially emerged from stealth mode, purchasing privately-held Three Rivers Pharmaceuticals in a mostly cash deal that is rumored to be worth more than $100 million. Three Rivers will serve as the commercial and operational cornerstone of Kadmon, which is focused on oncology, infectious disease, and immunology. The new biotech has raised over $200 million in debt and equity from investors in Japan and China. Three Rivers will contribute a portfolio of three marketed hepatitis C treatments including Infergen, Ribasphere, and RibaPak, as well as the fungal treatment Amphotec. Kadmon is expected to keep the Three Rivers headquarters in Warrendale, Pa. and its manufacturing plant. Waksal hopes to follow up on the success of ImClone, which was acquired by Eli Lilly in 2008 for $6.5 billion. While Waksal is famous for his contributions to ImClone; he is infamous for his stint in jail after an insider trading scandal involving homemaking guru Martha Stewart erupted in 2002.--Lisa LaMotta

Hikma/Baxter: In an apparent bargain, Hikma’s US subsidiary West-Ward Pharmaceuticals has snapped up the generic injectables business of Baxter Healthcare for $112 million in cash. Multi-Source Injectables, as the group was called, sold roughly 40 different drugs in a variety of dosages and presentations and is on track to book revenue of $180 million in 2010, according to the companies. The deal elevates Hikma to the number two spot behind Hospira in the interesting US generic injectables space and boosts the group’s market share from 1% to 16% by adding Baxter’s suite of chronic pain, anti-infective and anti-emetic products. Hikma and West-Ward executives pointed to the solid strategic fit between the two groups, noting the company was one of the few logical homes for Baxter’s many DEA-scheduled controlled substances products – an area Hikma’s small injectable generics business was already familiar with. Nevertheless, Jason Grenfell-Gardner, sales and marketing VP at West-Ward told “The Pink Sheet”, there is very little overlap between the two companies’ portfolios. Hikma wants to expand the market for Baxter’s products in other territories, and plans to reintroduce heparin to the company’s line up. Beyond portfolio, Hikma adds Baxter’s 20-strong sales force to its current group of 8, as well as Baxter’s Cherry Hill, NJ manufacturing facility and a warehouse/distribution center in Memphis, TN – all told shifting 750 employees from Baxter to Hikma. The deal also shifts the center of balance for Hikma, a multinational with historic strengths in the Middle East and North Africa.--CM

Teva/Merck KGAA's Théramex: Israeli generics maker Teva has been quietly building up its biz dev activities, particularly in the oncology and respiratory arenas. This week, via its acquisition of Merck Serono’s Théramex division for €265 million, comes proof of its desire to deepen its geographic reach in women’s health, especially the contraceptive space. Teva has agreed to acquire 100% of Monaco-based Théramex’s operations, gaining a solid European presence, especially in France and Italy, a diversified portfolio of branded products, and perhaps most importantly, a seasoned sales force. In addition to the upfront payment, Merck Serono stands to receive undisclosed performance-based milestones. The deal’s upfront price is roughly 2.5x Théramex’s 2009 sales; major products of interest include Colopotrophine (promestriene), Lutenyl (nomegestrol acetate), and a combined estrogen/progestin contraceptive currently under development and in partnership with Merck & Co.For Merck Serono, the divestiture should not be viewed as evidence of the company’s lack of interest in women’s health. The company is retaining its valuable fertility franchise, after all. However, it does provide sizeable cash with which to build its oncology and neurology franchises. In September, the maker of Rebif (interferon beta) suffered an unexpected blow when its oral multiple sclerosis medicine cladribine was rejected by European regulators; a decision by US regulators is expected in the fourth quarter of 2010. For Teva, the Théramex transaction is also critically important as its builds out capabilities in Europe, following its acquisition earlier this year of ratiopharm. Group. That deal solified Teva’s number one position in the European generics industry, especially in Germany, where it had heretofore been only a minor player.--EL

Sanofi/BMP Sunstone: Sanofi-Aventis, which is already feeling the revenue impact of generic competition to its Lovenox (enoxaparin) franchise, continues to send a signal to the marketplace that it isn’t idly waiting around for Genzyme to realize the wisdom of its $69-a-share offer. The French drug maker’s hostile offer is stalled in “he said, he said” mode, as Genzyme’s CEO Henri Termeer tries to persuade investors to hold out for a significantly higher offer. In the meantime, Sanofi’s bid to acquire BMP Sunstone for $520.6 million, helps the drugmaker reach its goal of doubling over-the-counter sales– a plan Viehbacher announced in early 2009, when annual nonprescription revenues were $1.4 billion. With BMP Sunstone, which reported $146.9 million in sales in 2009, Sanofi gains a leadership position in China's OTC cough/cold market, thanks to popular brands such as the pediatric cough/cold medicine Hao Wawa (Good Baby) and Kang Fu Te (Confort) for women’s health. Sanofi estimates China’s consumer health space is worth about $16.55 billion. Perhaps more importantly, the BMP Sunstone tie-up gives Sanofi an in-country base of operations from which it can distribute Western OTCs. Certainly, the acquisition builds on Sanofi’s ongoing dealmaking in the region. In October, Sanofi established Hangzhou Sanofi Minsheng Consumer Healthcare Co. – the result of a joint venture with vitamin and supplement company Minsheng Pharmaceutical Group announced in early 2010.--Dan Schiff & EL

GlaxoSmithKline/Amicus Therapeutics: GSK unveiled a standalone rare-disease unit in February and has been aggressively filling its portfolio. On Friday, Oct. 29 it added its nearest-term commercial prospect yet. GSK will pay Amicus Therapeutics $60 million upfront for rights to the Phase III Fabry disease treatment Amigal (migalastat HCl). Half the upfront is an equity purchase of 6.9 million shares of Amicus stock, or 19.9% of the company. GSK is also paying an undisclosed portion of Amigal's development, and the cash infusion will be enough to see Amicus through U.S. approval of Amigal, said the biotech’s CEO John Crowley. The deal could also pay Amicus up to $170 million in milestones, some of which could come in 2011, Crowley said. Genzyme’s manufacturing flubs in its rare-disease business further emboldened Big Pharma competitors to push into orphan and rare diseases, but they were already moving in that direction as industry economics have forced them to look beyond blockbuster primary-care indications. GSK's other rare-disease deals include a March partnership with Isis Pharmaceuticals to use that firm's antisense drug discovery platform to develop new drugs against five targets including infectious disease and conditions causing blindness; an October 2009 agreement with Prosensa to develop four RNA-based compounds for the treatment of Duchenne muscular dystrophy; and the purchase of a nearly 17% stake in Japan's JCR Pharmaceuticals, which makes recombinant biologicals for orphan diseases.--Alex Lash

Celtic Therapeutics/Resolvyx Pharmaceuticals: Private equity investor Celtic Therapeutics Holdings has bought an option to the rights to Resolvyx's RX-10045, a treatment for dry eye syndrome that is slated for Phase III trials in 2011. Financials details were not disclosed, but Celtic has an option to acquire and license rights to RX-10045, which is administered as a topical eye drop, in all ophthalmic indications. It also has an option to license a second Resolvyx compound. As part of the transaction, Celtic also bought a note convertible to Resolvyx equity. Resolvyx is one of several companies in the past several years to benefit from a flurry of venture interest in ophthalmology, a therapeutic area where small, privately backed companies have a possibility of commercializing a product if an attractive alliance or acquisition doesn’t materialize. Resolvyx’s most recently announced round of funding, a $25 million Series B, came in 2008 and was led by QVT Financial LP. The round included new investors Radius Ventures and Biogen Idec New Ventures, as well as existing investors. It's the fourth deal Celtic Therapeutics has made in its new incarnation after founders of Celtic Pharma, which aimed originally to invest $1 billion mainly in assets, not companies, went their separate ways, drastically paring back their ambitions as the model for project financing struggled during the recession.--AL

Boehringer Ingelheim/MacroGenics & Boehringer Ingelheim/ Pfizer: Antibody drug discovery startup MacroGenics Inc. struck two new platform deals that will help compensate for the Phase III failure of type 1 diabetes treatment teplizumab, which it had been developing in conjunction with Eli Lilly & Co. Inc. The broader agreement of the two is with Boehringer Ingelheim GmbH, and represents one of the first signs that the privately-owned German drug maker is serious about deepening its pipeline of biologics offerings. Under the terms of the deal, Boehringer committed an initial $60 million over three years to discover drugs around ten combinations molecular targets using MacroGenics’ trademarked DART platform, which creates compounds that react with two different antigens simultaneously. If any of the molecules becomes a marketable drug, MacroGenics would receive milestone payments worth up to $210 million for each. The partnership will first address immunological disorders, but could extend into oncology, respiratory, cardiometabolic and inflammatory diseases. MacroGenics’ alliance with Pfizer is narrower in scope, covering two dual-action antibodies engineered to redirect the body’s own effector T-cells against tumor cells. Financials of the Pfizer alliance—including the upfront payment—remain undisclosed. MacroGenics, which is privately-held, has raised more than $135 million over a decade from a syndicate of investors that includes Alta Partners, InterWest Partners, and TPG Ventures. Both alliances provide the biotech with important non-dilutive funding as a time when exit options for all venture-backed start-ups are constrained and builds on the $41 million MacroGenics received when Lilly licensed teplizumab.--Paul Bonanos

Endologix/Nellix: Can we call this a venture exit financing? Or a private investment in a public equity that’s buying one of our companies. (PIPETBOOOC)? Well, the branding of this deal clearly needs work. But Essex Woodlands Health Ventures rightfully earned some creativity points from other venture investors for its crafting of an exit/PIPE investment in the form of the announced acquisition of its portfolio company Nellix by publicly traded Endologix Inc. Nellix, which is developing a device to treat abdominal aortic aneurysms, will be acquired by Endologix for $15 million in stock. (Final payout could reach $39 million, all in stock.) At the close of the deal, Essex Woodlands – Nellix’ largest shareholder – will buy $15 million in Endologix stock to fund the continued development and the planned 2012 European launch of Nellix’ device. Essex Woodlands also will take a seat on Endologix’ board. At a time when it’s difficult for venture capitalists to exit companies with development stage products, the transaction gives Essex Woodlands and Nellix investors a somewhat clearer exit route now that it holds public instead of private stock. The returns aren’t great, based on the initial terms, since Nellix raised $30 million from venture investors. Of course, Essex Woodlands says it doesn’t intend to sell any time soon even after the one-year lock up expires. Instead, it and other Nellix investors hope to see the value of their holdings – now in Endologix stock – increase as the publicly traded company uses its existing and future sales teams to push Nellix’ endograft system in an increasingly competitive AAA market.--Tom Salemi

Valeant/Acadia & Valeant/Santhera: One of the inevitable consequences of M&A is the unwinding of certain alliances that aren’t central to the buying company’s strategy. This week’s news that Valeant Pharmaceuticals International has terminated a pair of partnerships and returned the drugs—both Phase III assets to treat Parkinson’s disease—to their originators is further proof of the phenomenon. The moves come four months after Valeant agreed to merge with Canadian biotech Biovail Laboratories Inc., which originated the high risk, high reward collaborations in its efforts to transform itself into a CNS powerhouse. Thus the “no deals” are consistent with Valeant’s desire to pursue a traditional specialty pharma model - i.e. one that doesn’t emphasize in-house research - with a strong focus on emerging markets. As part of a post-merger review following the $3.3 billion union with Biovail, Valeant will return the compound pimavanserin, being evaluated as a treatment for psychosis related to Parkinson’s, to Acadia Pharmaceuticals. As a balm, Acadia will also receive an $8.75 million payment to wrap up the transaction. In May 2009, Biovail agreed to pay $30 million upfront, plus milestone payments, to license the drug in the U.S. and Canada. Separately, Valeant returned fipamezole, a late-stage candidate to treat dyskinesia in Parkinson’s patients, to Swiss drug developer Santhera, after paying the first $12 million of a development and licensing deal covering U.S. and Canadian development rights. An ongoing licensing agreement with Ipsen for fipamezole will continue.--PB & EL

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