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Friday, June 22, 2012

Deals of the Week: These Boots Are Made For Buying



Are you ready, Boots? Pharmacy chain Walgreen Co. may not have been ready to acquire international drugstore operator Alliance Boots outright, but it did acquire a 45% stake in the company for $6.7 billion in cash and stock this week. The deal includes an option for Walgreens to acquire Boots outright for an additional $9.5 billion, within a six-month window that will begin in 2015. Boots has been owned by private equity firm Kohlberg Kravis Roberts since 2007.

The deal gives Walgreens a vast international presence beyond its 7,890 U.S. stores. Boots currently operates 3,330 locations in 11 countries. The vast majority of its revenues from health and beauty products came from the UK; that amounted to £6.7 billion ($10.4 billion), compared with £965 million from Norway, Thailand, Ireland, the Netherlands and other territories. Headquartered in Zug, Switzerland, Boots also has wholesale pharmaceutical operations that delivered £16.8 billion in revenue last year, giving it a presence in 25 countries total.

The agreement comes as Walgreens struggles to replace U.S. market share it lost over the past several months, particularly due to an ongoing dispute with pharmacy benefit manager Express Scripts. By allying with Boots, the pharmacy stands to gain purchasing power, particularly for generics; Walgreen says it will become the world’s largest buyer of prescription drugs upon completion of the deal. Cost savings from the alliance could reach $1 billion by 2016, the companies say.

Investors reacted to the deal with some consternation, as Walgreens was thought to be taking a risk by entering Europe at a time of economic uncertainty. (“You keep losing when you oughta not bet.”) The prescription drug business could also be rocked by the Supreme Court’s impending decision on the constitutionality of the Affordable Care Act, due as soon as early next week. Walgreens shares dipped to a 52-week low of $28.53 on Wednesday, after having traded above as $32 on Monday.

You keep saying you got something for me, and sure enough, we’ve got something for you in return. It’s…


Sanofi/Joslin Diabetes Center: Sanofi has teamed up (pdf) with Joslin Diabetes Center, a research arm of Harvard Medical School, to discover new biologics and small molecule drugs for the treatment of diabetes. The collaboration is expected to begin mid-summer and is currently set to last three years with the option for an extension; Sanofi VP of external innovation Sridar Nateson said that the French pharma intends to extend the contract at that time in an even bigger collaboration. The company would not reveal the current level of funding that it will be providing to Joslin. Sanofi and Joslin will be working to develop compounds that can treat both type 1 and type 2 diabetes, focusing on four areas. The first is treatments for diabetes complications, specifically nephropathy. Researchers will also be looking into tissue-specific insulin – the first being liver-specific. The next area of focus for the collaboration will be insulin sensitivity; Joslin already has targets that could address this issue. Other projects will delve into personalized medicine for diabetes, using Joslin’s significant efforts in genomics to try to pinpoint why certain patients develop complications when others do not and why other patients development them at different times. Sanofi has been pursuing other collaborations with academic institutions more avidly since 2009, knowing that most of these deals will not produce results until years later. – Lisa LaMotta

Merck/Ambrx: Interest in antibody-drug conjugates remains high, in the wake of Seattle Genetics' launch of Adcetris (brentuximab vedotin) and encouraging late-stage data for Genentech's T-DM1 compound. The latest pharma to strike a deal in the area is Merck, which paid $15 million up-front for access to Ambrx's medicinal chemistry technology in order to discover and develop new drugs. Milestone payments could add $288 million to the deal, and San Diego-based Ambrx could receive additional royalties if a drug is approved and marketed. The companies haven't yet said what therapeutic areas they'll pursue, but both made it clear that they'll seek mutually-selected targets beyond oncology, potentially including autoimmune disease, cardiovascular disorders, inflammation and metabolic disorders. Ambrx has previously partnered with Pfizer-owned Wyeth and Bristol-Myers Squibb to develop specially targeted therapies that carry a therapeutic payload to a specific target by binding antibodies to drugs. As with the other deals, Merck will discover antibodies, then send them to Ambrx for optimizing; the arrangement won't cover any of Merck's existing pipeline candidates. - Joe Haas and Paul Bonanos

Genentech/AC Immune: Genentech must like what it sees in the monoclonal antibodies of Swiss company AC Immune. In a June 18 announcement, Genentech, a division of Roche, says it has turned again to AC Immune to develop antibodies against a target implicated in Alzheimer's disease, this time zeroing in on abnormal Tau protein. In a deal valued at just over $400 million, the two companies will work together to produce anti-Tau monoclonal antibodies, with Genentech taking responsibility for preclinical and clinical development, manufacturing and commercialization. AC Immune will receive an undisclosed upfront payment, development milestones and royalties on sales. Genentech originally partnered with AC Immune back in 2006, to develop monoclonal antibodies against amyloid-beta, another protein thought to be involved in Alzheimer's disease. The Swiss company uses antigens expressed on liposomes to create its molecules, and its anti-amyloid-beta research has produced one antibody, crenezumab, which is in Phase II clinical studies. The so-far benign side effect profile of crenezumab was apparently key to it being selected by the U.S. National Institutes of Health and others for evaluation in a trial aimed at preventing the onset of Alzheimer's, which will take place in a family group in Colombia with an inherited disposition to develop the condition. - John Davis

GSK/Liquidia: GlaxoSmithKline forged a deal with privately-held Liquidia Technologies under which it will use the startup's nanotechnology platform to develop vaccines and inhalable product candidates. Terms weren't released in the June 20 announcement (pdf), but the companies revealed that the up-front payment included both cash and equity, as well as research and development funding. With additional components of the transaction, including milestone payments, licensing fees, and royalties, the deal's value could spiral into the hundreds of millions of dollars over several years, the companies said. Founded in 2004 and based in Research Triangle Park, N.C., Liquidia has created a platform it calls PRINT (particle replication in non-wetting templates), with which it engineers and fabricates nanoparticles, most often used in vaccines thus far. While it retains rights to its own programs, the company also has a 2009 partnership with Abbott to discover particles that deliver siRNA-based drugs. Investors in Liquidia include PPD, Canaan Ventures, New Enterprise Associates, Morningside Venture Investments, Pappas Ventures, and Firelake Capital. - P.B.

Roche/Seaside: Privately-held Seaside Therapeutics has made considerable progress in researching neurological disorders such as Fragile X syndrome and autism spectrum disorder. Now, Roche has partnered (pdf) with the start-up, licensing patents that are the basis for one key drug while taking an option on another. For an undisclosed amount, Roche took rights to patents on a glutamate receptor subtype 5 (mGluR5) antagonist, RG7090, currently entering Phase II for Fragile X; the patents are also of interest for ASD. Roche also obtained an option to license Seaside's GABA-B agonist, known as STX209 or arbaclofen, in Phase III for Fragile X and Phase IIb for autism. Seaside will continue to develop the latter drug with funds received in the deal, but Roche will be able to license it upon completion of certain milestones. Novartis has a competing mGluR5 drug, AFQ056, in late-stage development for Fragile X as well. - P.B.

We're indebted to Scott Steinke for his report on the Walgreens/Boots deal in "The Pink Sheet" DAILY, though he didn't mention Nancy Sinatra. As for Eileen, thanks to the Aquarium Drunkard.

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