Friday, September 23, 2011

Deals of the Week Plays Moneyball

Sometimes picking a winner is easy. But if you ask a baseball general manager, a moviegoer, or a private equity investor, it's the hidden gems, the fixer-uppers, and the unexpected turnarounds that can be the most satisfying. Such salvage cases lie at the heart of Michael Lewis's 2003 book Moneyball, now a major motion picture, a baseball movie that isn't just that. The story of the Oakland Athletics' shoestring-budget team that enjoyed an amazing 20-game winning streak in 2002, it's described by Roger Ebert today as "a brainy baseball movie about cost-benefit analysis," an underdog story that incorporates business savvy, an understanding of human nature, and the relationship between analysis and instinct. (And if Hollywood can turn a book written by a business journalist about football into an Oscar-winning Sandra Bullock star turn, maybe Moneyball itself will be an unlikely success.)

For some drug makers, finding value in compounds where others don't see it is their own game of moneyball. As we'll discuss in an uncoming IN VIVO feature, central nervous system drug maker Jazz Pharmaceuticals went from trading under $1 in 2009 to a 52-week high of $47.88 this week, on the strength of several critical decisions that maximized value of underappreciated assets. It shuffled its priorities multiple times, eventually focusing on narcolepsy treatment Xyrem (sodium oxybate) -- at one point considered a backup plan, now a fast-growing, $200-million-plus-per-year drug -- while pulling additional value out of Luvox CR (fluvoxamine), a controlled-release version of an SSRI that had fallen out of favor in prior years and was withdrawn from the market by Solvay Pharmaceuticals. It's resulted in a windfall for Jazz as well as its PE stakeholders, including Kohlberg Kravis Roberts and Longitude Capital.

This week, Jazz hopes to have found another Scott Hatteberg, one of Moneyball's hidden talents, in Azur Pharma Ltd., an Irish specialty pharma with which it shares several traits in common. California-based Jazz used its strong equity position to merger with Azur in a stock transaction, giving its shareholders about 80 percent of the combined company. The deal will also allow Jazz to move its headquarters to Dublin, potentially resulting in a massive tax savings. Though many of Azur's strengths lie in CNS drugs, the deal also gives Jazz a beachhead in women's health. Analyst Gene Mack of Mizuho Securities USA wrote in a research note that the newly combined entity, Jazz Pharmaceuticals PLC, could even exceed its projection of $475 million in its first 12 months of existence.

If only the Oakland Athletics could relocate somewhere close to home that would allow them to generate more revenue. (Somewhere very close to the computer on which these words are being written, an Athletics season ticket holder sighs.) As they look up at the teams headed for the playoffs, we invite you to have a look at...

Bristol-Myers Squibb/Ono Pharmaceuticals: In a transaction that involves no cash moving in either direction, Bristol-Myers Squibb has expanded its territorial rights to an oncology antibody acquired in its 2009 purchase of Medarex, while Ono Pharmaceutical gets co-development and co-commercialization rights to rheumatoid arthritis drug Orencia (abatacept) in Japan. Ono can earn unspecified royalties if the antibody, BMS-936558/Ono-4538, an anti-programmed cell death (PD-1) antibody in clinical development in multiple types of cancer, reaches market. Bristol Senior VP-Strategy, Alliances and Transactions Jeremy Levin cautions not to consider this deal merely an asset swap. “It’s less a swap than it is an understanding that we have different strategic imperatives,” Levin said. “So we trade the value of an existing product that we like a lot, Orencia, for a product that we think helps build a tremendously important part of the immuno-oncology franchise.” Under the Sept. 20 agreement, Bristol’s rights to BMS-936558 expand to the entire world other than Japan, Korea and Taiwan; Ono will retain rights to the antibody in those markets (In the original Medarex/Ono deal, Medarex received North American rights to the antibody.) In the U.S., ’558 is in Phase I and Phase II trials in a variety of tumor types and treatment settings, Bristol says, including renal cell carcinoma and melanoma. Ono has advanced the compound to Phase II in melanoma in Japan.—Joseph Haas

Bristol-Myers Squibb/Ambrx: In the second deal under its “String of Pearls” strategy in two days, Bristol acquired worldwide rights Sept. 22 to two preclinical biologic candidates, one for type 2 diabetes and the other for heart failure. Ambrx will receive a $24 million upfront payment from Bristol in exchange for worldwide rights to research, develop and commercialize both ARX618, a fibroblast growth factor 21 (FGF 21) protein nearing the completion of preclinical development in type 2 diabetes, and an optimized version of relaxin hormone in earlier preclinical development for heart failure. The deal is Ambrx’s latest using its site-specific conjugation technology platforms to optimize molecules for big pharma partners, but also its first in two years. Ambrx optimized the two large molecule compounds for development using its ReCODE (Reconstituting Chemically Orthogonal Directed Engineering) technology platform. This technology allows the San Diego-based biotech to modify native proteins with amino acid building blocks beyond the common 20 amino acids known to nature to engineer enhanced candidates for therapeutic use. Beyond the $24 million upfront payment, Ambrx also is eligible for milestone and royalty payments on both programs. Of the two programs, ARX618 is said to be closer to entering clinical development. — JAH

Merck Serono/Peptimmune: Merck Serono, the pharmaceutical division of German conglomerate Merck KGaA, acquired the worldwide rights to PI-2301, a Phase II-ready candidate for multiple sclerosis, from cash-strapped Peptimmune on Sept. 19. While the official news release did not mention it, Merck Serono confirmed to DOTW that it paid $1.5 million up-front to Peptimmune for the rights to PI-2301, a second-generation peptide copolymer thought to offer the potential to enhance the immune system’s regulatory response. The compound has completed a Phase Ib study in MS, but Peptimmune, which is in the process liquidation after filing for bankruptcy earlier this year, no longer had the ability to advance the candidate further. PI-2301 which has a mechanism of action similar to Teva’s Copaxone (glatiramer), is believed to offer potential in a number of autoimmune indications, including Crohn’s disease, rheumatoid arthritis and uveitis. — JAH

Merck & Co./FKD Therapies Oy: Finland is considered by some to be a hotspot for gene therapy research, and is the location of a new company, FKD Therapies, set up to exploit a bunch of gene therapy assets found to be surplus to requirements at Merck. The Finnish company, led by gene therapy veteran Nigel Parker, formerly CEO of Ark Therapeutics, has licensed an alpha-interferon gene therapy from Merck, and has options on two other potential gene therapies. The alpha-interferon gene therapy is slated to go into Phase II trials for the treatment of bladder cancer next year. Along with other Big Pharmas, Merck has not been particularly prolific in licensing out technology and products that have fallen outside its tightened therapeutic focus, post-merger with Schering-Plough; the FKD Therapies deal is believed to be one of Merck's largest out-licensing deals in recent times in the pharmaceuticals arena. The U.S. company has taken an equity stake in FKD Therapies, which is also backed by the German investment bank, Wolbern Invest. FKD Therapies also has options on a recombinant adenoviral p21 gene to treat glaucoma surgery failure, and on a conditionally replicating adenoviral technology for the treatment of solid tumors. John Davis

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