Wednesday, December 21, 2011

2011 Alliance of the Year Nominee: Abbott/Reata

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Do you like sequels? We know, they're never quite as good as the original (we're looking at YOU, Temple of Doom). But sometimes they surprise on the upside. And that was the case for last week's Abbott/Reata deal, which just makes it in under the wire to close out our 2011 DOTY competition nomination process.

Last week Reata said Abbott would pay $400 million up-front for worldwide co/co rights to its preclinical stable of antioxidant inflammation modulator compounds. That's on top of the $450 million up-front that Abbott paid Reata last year for ex-US rights to the company's lead AIM compound, bardoxolone. Those of you with long memories may remember that the first Abbott/Reata deal put in a suprisingly iffy showing in the 2010 DOTY contest, finishing with just 7% of the vote. The sign of a strong field, perhaps, but equally likely is the voting public wasn't swayed by the large upfront payment for Reata's Phase II asset.

This time around there are some more interesting wrinkles. First, it's a preclinical deal. And that means, among other things, a measure of DOTY revenge. Last year's DOTY/alliance winner was Celgene/Agios, which at $130 million upfront was until last week the largest ever downpayment on preclinical assets, according to our Strategic Transactions database. Reata's haul vaults it to the top of the preclinical deal charts, by a mile.

Second, Abbott isn't paying Reata milestone payments. This is an oft-discussed but seldom-seen type of structure that allows Reata to cash in immediately and set itself up as an independent biotech for years to come, and to plan for the potentially burgeoning clinical pipeline it may have in a year or so.

That brings us to the third facet that makes this deal sequel better than the original: its broad scope. The global agreement covers a wide range of molecules in several therapeutic areas, with the two companies slated to split development and commercialization costs, as well as profits, equally, except for rheumatoid arthritis and other autoimmune indications. In those categories, Abbott will cover 70% of costs and also take 70% of any profits.

Finally, the Abbott angle. You've seen the Abbott split-up (one of our M&A noms this year) and know about Abbott Pharma's continued reliance on Humira. The bet Abbott has made on Reata's compounds -- at least $850 million so far, not counting any clinical expenses around bardoxolone -- suggests the Big Pharma sees the AIM platform as a key aspect of its diversification strategy going forward. 

Who knows, perhaps bardoxolone clinical success could set this Abbott/Reata sequel up as part two of an epic trilogy. For that you'll need to wait for a future DOTY competition.

image via thisblogrules

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