DOTW Diagnoses the Meaning Behind Roche’s Hostile Bid For Illumina

It’s a cat-and-mouse game in the whole-genome sequencing space, as Roche made a hostile $5.7 billion bid for Illumina on Jan. 25, which the German gene-sequencing powerhouse responded to by adopting a “poison pill.” While stating that its board of directors would review Roche’s offer to determine if it is in the best interest of its shareholders, Illumina adopted a shareholder rights agreement Jan. 26 under which shareholders will receive one preferred share of stock as a dividend for each common share held if Roche or another bidder increases its holding in Illumina to 15% or greater.

Roche’s offer represents a significant premium over Illumina’s recent share prices, which rose substantially after the unsolicited bid, but market analysts have speculated that the Swiss pharma will need to increase its bid to land its prey. (And why not: we've seen this show before, back when it was called Genentech or before that, Ventana.)

With an eye toward pushing gene-sequencing into the routine clinical diagnostic space and a longer-term goal of using the technology to create companion diagnostics for drugs, Roche has been active in acquiring gene-sequencing companies. In 2007, it bought out 454 Life Sciences for $155 million. In a related effort that demonstrated the pharma’s mettle in landing a desired target, Roche made a late increase to its bid to land genetic-testing firm Ventana Life Sciences for $3.4 billion after a seven-month struggle in 2007-08.

As our colleagues at The Gray Sheet explained, Roche’s goal is not merely to grow its diagnostics business, where it is in fierce competition with Abbott, but to accelerate the transition of whole-genome sequencing from research to clinical use. Roche projects a $2 billion-plus sequencing market in 2015 – the worldwide market for sequencing was about $1.2 billion in 2010, with Illumina reporting revenues of roughly $900 million that year.

That revenue, however, did not come from clinical diagnostics but from research applications. About 80% of Illumina’s customers are academic or government labs, with just 10% comprising pharmaceutical and biotechnology companies using the firm’s sequencing and microarray technology for drug-discovery efforts.

Daniel O’Day, chief operating officer of Roche Diagnostics, predicted that while FDA likely will delay very near-term adoption of clinical diagnostic sequencing in the U.S. as it reviews the technology, the opportunity for market applications may arrive more quickly in Europe.

“I don’t think this is something that is five or 10 years out, in Europe in particular,” he said. “I think it’s something we see already and that we can foster and begin to drive. It won’t be a black-and-white situation. There won’t be one day [when] it’s in the research world, the next days it’s in the clinic world, but it will evolve and it will evolve quicker in Europe than it will in the United States.”

While we await Illumina’s next move regarding the hostile bid from Roche, business development folk at numerous other biopharmaceutical companies kept quite busy this past week. Therefore, it’s time for another installment of …

Watson/Ascent – With an eye on expansion in the Australian market, Watson Pharmaceuticals acquired Ascent Pharmahealth, which has a strong generics base in Australia and Southeast Asia. Watson announced the acquisition Jan. 24, buying the business from Indian-based generics company Strides Arcolab Ltd. for AU$375 million ($395.8 million). The acquisition will fortify Watson’s position in Australia and Southeast Asia; the company already has a presence in Australia through its Spirit Pharmaceuticals and Willow Pharmaceuticals subsidiaries, but after the acquisition, Watson will be the fifth-largest generic pharmaceutical company in the country by revenue and the second largest in terms of molecules, according to Watson. Executive VP-Global Generics Sigurdur Olafsson explained the rationale behind the buyout during a same-day investor meeting. The Australian market is growing at about 8%, and has a fast growing penetration rate of 60% that should reach 75% by 2016. “It is a very difficult market to enter,” he added. “The top five companies are 98% of the market.” Ascent also has a strong presence in Southeast Asian markets, including Singapore, Malaysia, Hong Kong, Vietnam and Thailand. The unit had sales of approximately AU$150 million ($158.3 million) in 2011. Ascent markets generics, branded-generics, some brands and over-the-counter and dermatology products in Australia. In Southeast Asia, the company markets branded-generics and OTC products through a sales force of 45. The company employs approximately 300 employees. Strides Arcolab divested the business to focus on its specialty business called Agila, which makes hard-to-replicate sterile injectables. The deal will allow the company to reinvest in capital expenditures for the business, management said during a same-day conference call.—Jessica Merrill


Amgen/Micromet – With its eye on the market for hard-to-treat cancers, Amgen announced plans Jan. 25 to acquire Micromet, a biopharma known for its Bispecific T cell Engager (BiTE) antibody platform that can redirect the immune system to fight tumor cells. Amgen agreed to pay $1.16 billion in cash, roughly $11 per share, a 33% premium over the company’s closing price Jan. 25. In exchange, it gains a promising Phase II asset, several earlier-stage partnered assets and a validated technology platform that could have broad applications in a range of hematologic malignancies and solid tumors. The primary focus of the deal is blinatumomab, a BiTE antibody targeting CD19, Micromet’s lead asset in Phase II clinical development for acute lymphoblastic leukemia (ALL) and in Phase I testing for non-Hodgkin’s lymphoma. The rest of the company’s portfolio is in earlier stages of development – and much of it is partnered. The acquisition moves Amgen further into hard-to-treat cancers, an area where it says it wants to play, and Amgen could benefit from bolstering its oncology pipeline. And, Micromet is no stranger to Amgen. The two have been partnered since July. “We have been interested in Micromet for a long time, basically since the company was started,” Executive VP R&D Roger Perlmutter said. Amgen intends to keep Micromet’s research center located in Munich, Germany, where the company was founded in 1993 by a small team of scientists from the University of Munich. The site will operate as an Amgen R&D center of excellence, the firm said. As for Micromet’s existing partners on the BiTE technology (MedImmune, Bayer Healthcare, Sanofi and Boehringer Ingelheim), Amgen said it is committed to maintaining those relationships. Future out-licensing opportunities could even be on the table. “While we have what we think are a lot of good ideas with respect to how to use the BiTE platform, there are a lot of other smart people in the world who have other ideas, and we do not want to exclude other people from being to employ BiTE technology in order to further their programs,” Perlmutter said.—J.M.


Celgene/Avila – In a move to further diversify its product portfolio away from its Revlimid (lenalidomide) franchise, Celgene announced that it will acquire Massachusetts biotech Avila for $925 million in upfront and eventual milestone payments. The acquisition was announced just prior to Celgene’s fourth quarter earnings call on Jan. 26 and is expected to close during the first quarter. Celgene will pay $350 million upfront, as well as $195 million in milestones tied to Avila’s lead drug candidate AVL-292, a treatment for hematological cancer and autoimmune diseases. AVL-292 will begin Phase II trials in the second half of the year and be developed in conjunction with Revlimid. The deal will bring five-year-old Avila’s investors a strong exit; the aggregate invested capital multiple is almost 7x on the $350 million upfront that Celgene will pay and is more than 11x for the $575 million in milestone payments that will be paid out. “With minimal cash outlay up front (CELG generated nearly $2B in cash flow in 2011), and an asset that fits nicely into CELG’s portfolio, we view this as a nice tuck-in acquisition,” wrote Baird & Co. analyst Christopher Raymond in a note.—Lisa LaMotta


AstraZeneca/Karolinska Institutet – AstraZeneca and Karolinska Institutet of Sweden have a new research agreement – their second – to develop potential imaging biomarkers and diagnostics using Karolinska’s expertise in positron emission tomography (PET) imaging to support AZ’s drug discovery and development programs. The three-year collaborative research agreement builds on the partners’ earlier work, a joint venture, which focused on neuroscience. But the new agreement expands the focus to include pain control, gastrointestinal and cardiovascular applications; AZ has numerous compounds in Phases I and II trials in all of those areas. The joint venture, put in place in 2006, included an investment by AZ in the university’s imaging facilities and has yielded more than 10 novel ligands for PET and many more implemented in AZ’s development programs, the pharma said. These include identification and early development of two compounds that detect amyloid by PET imaging, likely useful in studying and diagnosing Alzheimer’s disease. AZ scientists will supply the expertise for synthesizing and developing new imaging molecules, while Karolinska will be responsible for radiochemistry labeling of the imaging molecules and PET studies. AZ will spend about $1.7 million a year for three years to fund seven full-time positions at Karolinska and facilitate a specific number of PET measures and joint research projects.—Wendy Diller


BioLineRx/Genoscience – Israeli biotech BioLineRx, which has five compounds in clinical development in a variety of indications as well as 12 preclinical programs, added another asset Jan. 24, when it licensed worldwide rights to Phase I-ready hepatitis C candidate BL-8020 from France’s Genoscience. No financial terms were disclosed. The news caused an instant and significant uptick in BioLineRx’s share price in trading on both the Tel Aviv exchange and NASDAQ. Additionally, there was speculation that the Israeli company could join Idenix and Achillion as a buyout target in the red-hot HCV space that has seen a pair of clinical-stage biotechs snapped up at record prices in recent months. BL-8020 offers a different approach to treating HCV, Genoscience claims, by inhibiting HCV-induced autophagy. The compound has demonstrated safety and efficacy in preclinical trials, the company says, along with a synergistic effect when used with other HCV drugs. BioLineRx believes ‘8020 could increase other drugs’ potency and reduce their adverse effects, while also enabling reduced doses of other drugs and shortening total therapy duration. The deal is BioLineRx’s fourth in-licensing transaction in the past two years, following deals to acquire cancer cachexia candidate BL6020 from Santhera, Phase II-ready irritable bowel syndrome drug BL7040 from Hebrew University and neuropathic and inflammatory pain candidate BL7050 from the tech transfer office at Tel Aviv University.—Joseph Haas


Elanco/ChemGen – In a transaction that will continue the ongoing consolidation of the animal health industry, Eli Lilly division Elanco Animal Health will buy out privately held ChemGen Corp. at undisclosed terms, the two companies announced Jan. 24. Lilly said the deal was driven by a desire to increase Elanco’s expertise and pipeline in innovative feed enzyme products that can improve the efficiency of poultry, egg and meat production. The enzymes ChemGen produces are naturally occurring digestive enhancers that help animals unlock and better utilize nutrients in the feed they receive. ChemGen, which will maintain research operations in Maryland and manufacturing activities in Indiana, will become a wholly owned subsidiary of Lilly as well as an operating unit of Elanco. Jeff Simmons, Elanco president, said ChemGen’s existing presence in poultry and swine markets in North America and Asia will benefit Elanco, while Elanco’s presence in Europe and Latin America will offer a growth opportunity for the ChemGen product line. “This acquisition allows Elanco to leverage our expertise in developing trusted, science-based solutions into the enzyme space, which is an emerging field with significant growth potential,” he added. Animal health, while producing small revenues overall for big pharma, nonetheless has offered strong growth rates in recent years, helping explain why Lilly and others have increased their emphasis on this portion of their business.—JAH


Spectrum/Bayer – Oncology drug developer Spectrum Pharmaceuticals now has full global rights to lymphoma treatment Zevalin (ibritumomab tiuxetan), thanks to a new deal to acquire Bayer AG’s license to commercialize the drug outside the U.S. The publicly traded, Henderson, Nev.-based Spectrum has held full U.S. rights to Zevalin since spring 2009, when it acquired the 50% it did not already own of a joint venture with Cell Therapeutics to market the drug; CTI had previously licensed Zevalin from its originator, Biogen Idec. For a one-time payment of €19 million ($24.7 million), Spectrum said it gains all rights to marketing, sales and intellectual property of the drug covering ex-U.S. territories, as well as access to Bayer’s existing inventory of it. Spectrum may seek additional partnerships to market the drug outside the U.S.; it says it will rely on a combination of alliances and company resources. Zevalin, a radiotherapeutic that is given by intravenous injection, is approved in more than 40 countries, including locations in Europe, Latin America and Asia, to treat follicular non-Hodgkin’s lymphoma. The merchant banking group of Burrill & Co. advised Spectrum as it completed the acquisition.—Paul Bonanos

Ipsen/Santhera – In our “No-Deal of the Week”, Ipsen returned to Santhera ex-North American and Japanese rights to Parkinson’s disease drug fipamezole on Jan. 24. Never mind that neurology – and in particular movement disorders – remain a key focus area for the mid-sized French group, following its restructuring last year. And never mind that the drug, a first-in-class selective adrenergic alpha-2 receptor antagonist for managing levodopa-induced dyskinesia in PD patients, fits perfectly with Ipsen’s dystonia treatment Dysport, one of its most important commercial assets. Ipsen gave fipamezole the boot because its development wasn’t going anywhere very fast: Biovail, which licensed U.S. and Canadian rights to the Phase II drug in mid-2009, handed back the asset – still in Phase II – in October 2010, following its acquisition by Valeant. Santhera in early 2011 said it would find a new partner for Phase III, but that didn’t materialize. So Ipsen, with its newly streamlined and de-risked R&D, isn’t about to continue forking out co-development fees for a drug that’s effectively sitting on the shelf as no one’s priority (Santhera’s focal point remains Friedreich’s ataxia drug Catena, even now that it has global rights to fipamezole). And besides, “all our R&D efforts are now focused on peptides and toxins,” as per the 2011 re-structuring, explained an Ipsen spokeswoman. Still, if fipamezole ever does get any closer to market (Santhera declares it to be ‘perceived by clinicians as one of the most promising drug candidates for PD-related dyskinesia’), Ipsen wants a way back in. That’s why it has maintained a call option for worldwide license to the program ‘under certain conditions’. We assume that means if Santhera or someone else starts to de-risk the Phase III. Meantime, Ipsen is owed milestone payments and royalties based on any future partnering and commercial success of the drug.—Melanie Senior


image by flickr user dennis defreyne via creative commons