Deals Of The Week: Managing Expectations

Amgen issued its first dividend ever this week, a move that may officially settle the debate over the Thousand Oaks, Calif. firm's status as biotech or pharma.

Either way, it’s ironic that as it finally gave back cash to its investors, Amgen’s share price dropped roughly 4% to close April 21 at $53.69.

Maybe investors didn’t like the idea that Amgen has officially "pharma-fied" itself. More likely, the reaction stems from unmet expectations.

Amgen has a lot of cash in its coffers, about $17 billion, and even with plans to return much of it to shareholders over the next five years, the initial pay out was smaller than hoped for and well below the threshold set by bigger drug makers. (Proof, yet again, that if you want to act like the big boys you have to play by their rules.)

Still, Amgen deserves some credit for trying to assuage investors and still maintain financial discipline. Amgen’s Prolia/Xgeva franchise has launched with mixed success, with osteoporosis sales lagging as oncology sales are off to a stronger-than-expected start. For the drug maker to meet the ambitious goals outlined by CFO Jonathan Peacock in his business day review (see here for more), the company has no choice but to continue to invest in denosumab’s commercialization--especially in the primary care setting. And it's going to take cash to deploy sales reps to educate physicians, patients and payers about the benefits of Prolia over Zometa and generic alternatives.

And with the Epogen franchise on the wane, Amgen also needs to show investors it can move beyond an all-denosumab-all-the-time strategy. Thus, it can’t afford not to invest in its pipeline, which in turn means maintaining a high R&D burn. (Not a popular sentiment in any corner of our industry these days, but especially in the eyes of Valeant’s CEO Michael Pearson.)

In doing the right thing with its new dividend, however, Amgen got slapped on the hand anyway, a useful reminder that success in this business is as much about managing investors’ expectations, when it can take years to deliver positive results. Here at IN VIVO Blog, we have no problem under-promising and over-delivering. (That’s one benefit of being a free publication.) In honor of Earth Day, chocolate rabbits, and egg rolls (not the brown and crispy but the hard boiled variety) we bring you another edition of...

Sanofi-Aventis/Stanford University: At the JP Morgan confab this winter, Sanofi CEO Chris Viehbacher promised his company would do R&D better. If this week’s tie-up between the French pharma and Stanford University’s interdisciplinary Bio-X Center doesn’t convince you that one crucial leg of Sanofi’s R&D plan is partnerships with academia, well, you haven’t been paying attention. In March, the company inked deals with Columbia University (diabetes) and the French Vision Institute (ophthalmology, bien sur), having already allied itself with institutions such as Cal Tech, Harvard, and MIT. The Stanford collaboration hews closely to the other research partnerships in its structure and ambitions, not to mention in the lack of disclosed financials. As we explained in this IN VIVO feature, Sanofi’s view of academia-industry partnerships puts heavy emphasis on aligning with the top minds in a particular field and building mutual trust via joint-steering committees. Under the terms of this most recent collaboration, a funding committee staffed by Stanford and Sanofi researchers will fund up to five programs annually. Sanofi will also host an annual research forum to bring together Sanofi and BIO-x researchers to discuss science, and may even host post-docs at the company. (Stanford also has the option to invite Sanofi scientists to be visiting scholars.) As we note in this 2009 Start-Up feature, such moves are becoming more and more common, as industry players hope to develop stronger relationships with bright scientists in their efforts to amp up the innovation in their pipelines. --EFL

Ariad Pharmaceuticals/ReGenX: Ariad has struck three new licensing deals for its Argent cell-signaling regulation technology to help further fund its internal oncology programs ponatinib, ridaforolimus and AP26113. Through the three agreements, Ariad will receive undisclosed upfront fees, as well as potential milestone and royalty payments. Privately-held, Washington, DC-based ReGenX Biosciences will use Argent as a complimentary tool to its internally developed NAV gene delivery technology, giving the smaller biotech access to technology that increases its ability to control the genetic payload being delivered. The start-up, which was founded in 2009, has proprietary technology that uses recombinant adeno-associated viral vectors to deliver genes to cells. Ariad's alliance with ReGenX also includes an equity stake, so should any of these discoveries bear out, Ariad stands to gain outside the clinical milestone payments and royalties that are standard licensing fare. Bellicum Pharmaceuticals of Houston, TX, meanwhile, is licensing Ariad's technology for its experimental cancer vaccine and cell therapies. Bellicum has used the Argent technology in Phase I/II trials of the BPX-101 DeCIDe immunotherapy and CaspaCIDe DLI. The third agreement was struck with Clontech Laboratories, a Mountain View, CA-based research reagents provider. Clontech has licensed the technology to provide it to researchers worldwide. -- Lisa LaMotta

Baxter/Prism Pharmaceuticals: Specialty pharma Baxter International entered an agreement to buy privately-held Prism Pharmaceuticals April 18, in a deal slated to include a $170 million upfront payment and up to $168 million in potential future milestones tagged to sales of Prism’s FDA-approved anti-arrhythmic drug Nexterone (amiodarone HCl). The two companies expect the transaction to close during this quarter. Prism first obtained FDA approval of Nexterone in December 2008, but waited to commercialize the drug until after gaining approval for a more convenient, intravenous pre-mixed bag formulation. That formulation was approved in November 2010. Baxter said that formulation should offer numerous conveniences to clinicians in the acute care setting. The ready-to-use product requires no admixing, which helps eliminate potential medication errors associated with compounding, and it can be stored for two years at room temperature. Having been selected as contract manufacturer for the premixed IV bags by Prism, Baxter likely brought considerable knowledge of Nexterone to the transaction. Morgan Stanley analyst David Lewis, in an April 18 note, was bullish on the deal, saying it would bolster momentum and is consistent with Baxter’s stated M&A strategy. “Prism is likely a low-risk deal that will leverage Baxter’s strong sales channel in IV injectables,’ he wrote. “We expect to see more deals in the several hundred million dollar range in coming quarters.” -- Joseph Haas

SciClone/NovaMed: On April 18, SciClone Pharmaceuticals announced it was taking out privately-held NovaMed Pharmaceuticals, a Shanghai-based specialty pharma backed by US venture groups. The deal is worth $62 million upfront, with $24.7 million coming in the form of cash, and another $37.1 million in SciClone stock. For NovaMed’s backers, which include Atlas Venture and Fidelity Asia Ventures, the upfront cash alone appears to provide an exit, though barely. Since its founding, NovaMed has raised $18.8 million via two financings, meaning the cash portion of the deal provides a step up of 1.3. (The SciClone stock is a nice sweetener, but it doesn’t provide the liquidity most VCs really want.) The deal also includes earn-outs worth up to $43 million tied to revenue and earnings targets for legacy NovaMed products. If all the milestones are met, we calculate the step up for Atlas and Fidelity increases to a healthy 5.6. The deal significantly broadens SciClone’s commercial footprint in China, increasing its current number of sales reps more than three-fold to 680. NovaMed’s CEO, Mark Lotter, will stay on to manage the commercial team, and SciClone says the group will be structured as an independent entity. In contrast to big pharmas (see below), biotechs have been slower to commercialize their products in China, but the country has been of strategic interest to SciClone for some time. The firm has been selling its flagship immunomodulator Zadaxin in China since 1996 and has two oncology products, DC Bead and Ondansetron RapidFilm, winding through China's regulatory process. -- Josh Berlin and EFL

Pfizer/Shanghai Pharmaceutical Holdings: On April 21, Pfizer and China's second-largest distributor Shanghai Pharmaceutical Holdings announced a memorandum of understanding to explore business opportunities in China, including the potential to jointly register, commercialize and distribute an undisclosed branded Pfizer product. But near-term the value of the memorandum is undoubtedly increased sales potential of Pfizer’s Prevnar 7 vaccine, which is the drug maker’s biggest revenue generator after Lipitor. For Big Pharmas looking to commercialize products in China, distribution alliances with in-country players are one way to rapidly gain market share, even as they add their own “boots on the ground” capabilities. Indeed, such strategies makes sense given China’s highly fragmented health care market and the difficulty penetrating its rural markets. Pfizer and SPH have a long working history already, with the Chinese pharma acting as the multi-national’s largest distributor in this region. Apart from joint commercialization of Pfizer's innovative products, Pfizer and SPH are also exploring a range of future potential collaborations in R&D, manufacturing and other potential areas. -- Dai Jailing

(Image courtesy of flickrer iaintait used with permission through a creative commons license.)