Deals of the Week is torn as the Super Bowl approaches – you see, most of this feature’s contributors live either in 49ers country near San Francisco or in the case of this author, a short drive from the home field of the Baltimore Ravens. With our loyalties clearly divided, rest assured DOTW will take a non-partisan approach toward the big game.
But the Super Bowl’s attendant hype puts us in mind of the biopharmaceutical industry’s closest equivalent, the mega-merger, such as those that combined Pfizer and Wyeth and then Merck and Schering-Plough in 2009. A month into 2013, we wonder, what are the chances of a mega-merger in 2013?
Industry sentiment seems inclined against one. In recent earnings calls, CEOs of major companies have disavowed their interest in disruptive deals that require multi-year, complicated integration.
Raghuram Selveraju, the head of health care equity research at Aegis Capital, recently finished up a deep-dive into the mid- and late-stage pipelines of 12 big pharmas. And while he sees companies among the big 12 that badly need a course correction, he does not think a deal the size of Pfizer/Wyeth is likely near-term.
“Some pharmas have out-performed, some are in the middle of the pack and some are absolutely abysmal,” Selveraju said. “If we look at the ones that are performing abysmally, we find clues as to who might do a mega-merger. If a company is doing well on its own, it’s very unlikely that it’s going to do a mega-merger. A company only resorts to a mega-merger only if it feels it cannot go on sustainably in a standalone manner or feels that it doesn’t have sufficient critical mass to continue performing earnings-wise with its existing panoply of products and its existing pipeline.”
At present, Selveraju views Sanofi, Novartis and to a somewhat lesser extent Roche as the top performers in the sector. The middle of the pack consists of GlaxoSmithKline, Bristol-Myers Squibb and AbbVie. But he reserves the “abysmal” label for AstraZeneca and Eli Lilly.
“I think AstraZeneca should find someone to dance with, and Lilly definitely should,” he said. “But both are run by CEOs, especially Lilly, who believe they can just grow organically and discover and develop products internally to justify being a standalone entity. I don’t agree with either – I think AstraZeneca’s approach has been very patchwork.”
One obvious solution might be for AstraZeneca and Lilly to merge, which certainly would qualify as a mega-merger. But Selveraju is unsure they would complement each other in the way that Pfizer and Wyeth did. Of the two 2009 major deals, Selveraju contends that Pfizer made out far better than did Merck.
“Merck’s decision to buy Schering-Plough, on the face of it today, looks like an unmitigated disaster,” he said. “Virtually all of Schering’s once-vaunted late-stage pipeline has fallen flat. Boceprevir (Victrelis) is a commercial failure more or less and probably never will be a success … Merck hasn’t been able to put together a successor for Vytorin (ezetimibe/simvastatin) or expand its usage. It’s been a litany of failures. Now, Merck has resorted to falling back on two other drug candidates that didn’t come from Schering: odanacatib for osteoporosis and suvorexant for insomnia.”
The other possibility for a mega-merger, Selveraju said, would occur if AstraZeneca or Lilly tried to buy out AbbVie, which he thinks could bring one of those companies some of the same benefits Pfizer derived in acquiring Wyeth. “AbbVie is a lot like Wyeth was – it has Humira (adalimumab), just like Wyeth had Enbrel (etanercept), it’s got an interesting set of late-stage candidates in clinical development, none of which are super-great but any one of which potentially could prop up earnings. And we know Humira is going to be very resistant to generic erosion.”
Buying AbbVie seems more feasible for AstraZeneca, the analyst added, as AstraZeneca has a market cap of about $60 billion, compared with AbbVie in the $40 billion range. “It’s not outside the realm of possibility that AstraZeneca could find a way to swallow AbbVie,” Selveraju said. “There’s a lot of synergy there in terms of focus – AstraZeneca likes inflammation and autoimmune disease. AbbVie also has a lot of stuff, just like Wyeth did, that would be easy to divest.”
But Selveraju thinks more focus these days is on the 2011 Sanofi buyout of Genzyme, which he sees as a much better model than either of the 2009 mega-deals,
“That deal is a major reason why Sanofi’s share price has performed so well,” he noted. “And now we’re looking at Lemtrada (alemtuzumab) potentially being approved in multiple sclerosis later this year or early next year – that could be another value-driver because it’s a biologic with an advantageous dosing schedule. Things just keep getting better and better for Sanofi.”
So Selveraju thinks big pharma should look for deals that will increase their exposure to therapies for rare diseases and bring in more “biotech-like stuff.” Two companies to watch as potential targets in the year ahead, he said, are Alexion and BioMarin. But in the meantime, smaller but nonetheless important deals are being finalized each week in the biopharma arena. Now, let’s check in on the latest survey of …
Idenix/Janssen: Looking to advance its hepatitis C program while its nucleoside polymerase inhibitors are being reviewed for cardiovascular safety concerns by FDA, Idenix Jan. 28 announced a non-exclusive collaboration with Janssen Pharmaceuticals to test two- and three-drug combinations in the virus. FDA placed “nucs” IDX184 and IDX368 on clinical hold last year after a Bristol nuc (BMS094) was shut down due to cardiovascular adverse events that included one death and eight hospitalizations. No financial terms were disclosed for the Idenix/Janssen collaboration. It will involve testing Idenix’s Phase II pan-genotypic NS5A inhibitor IDX719 with Janssen’s protease inhibitor TMC435 (simeprevir) and non-nucleoside polymerase inhibitor TMC647055. The firms will conduct a drug-drug interaction study beginning this quarter, to be followed by a Phase II study of ‘719 and simeprevir dosed with current therapeutic standard ribavirin over 12 weeks in treatment-naïve HCV patients. After that, the two firms plan to try a three-drug combo of ‘719, simeprevir and ‘055, dosed with and without ribavirin. Idenix will conduct the trials and each company will retain all rights to their respective compounds. “This [agreement] will allow us to achieve a key goal of ours for 2013, which is to advance the development of IDX719 as part of all-oral HCV combinations in two- and three-drug regiment,” Idenix CEO Ron Renaud said in a release. - Joseph Haas
Genentech/Afraxis: Genentech has bought a full license to the entire kinase-inhibitor discovery program of Afraxis for an undisclosed upfront fee and up to $187.5 million in milestones. Although not described as a sale, the Jan. 29 deal effectively is the end of the road for Afraxis, which was founded in 2007 by Avalon Ventures. Avalon remains its sole shareholder. Avalon managing partner Jay Lichter, also Afraxis’ CEO and president, tells DOTW that his preference would have been a sale, but the licensing structure still affords Avalon an exit. Lichter declined to say how much Avalon put into the company, but SEC filings show the total could be as high as $11 million. Afraxis originally derived from research in the Massachusetts Institute of Technology lab of Susumu Tonegawa that pointed toward a cure for Fragile X Syndrome, a severe form of autism, by inhibiting P21-activated kinase (PAK) through genetic manipulation of mice, work that gained some attention at the time. Afraxis received funding from the National Institutes of Health’s TRND program to push forward a small-molecule Fragile X compound, but Genentech’s parent Roche has a Fragile X drug in advanced clinical trials. Genentech is likely to use Afraxis’ library of kinase inhibitors to pursue other indications. “Our initial goal was PAK, but we have a variety of compounds selective for other kinases, and I don’t know what indications they’ll move forward in,” Lichter said. - Alex Lash
Immunomedics/Algeta: Norwegian oncology company Algeta agreed to collaborate on an antibody-drug conjugate with New Jersey-based antibody specialist Immunomedics. Under the Jan. 28 deal, Algeta would join its thorium-227 alpha emitter with Immunomedics’ epratuzumab, an anti-CD22 antibody already being studied in both hematological cancers and autoimmune disorders. Specific terms of the deal weren’t released, but Algeta will issue an upfront payment to Immunomedics, and will owe an antibody-delivery milestone and manufacturing payments. The companies said Algeta will fund preclinical and clinical work on the compound through Phase I, after which the parties will negotiate a license for Algeta based on certain pre-existing but undisclosed parameters. Immunomedics previously partnered epratuzumab with UCB, but re-negotiated that deal in late 2011 to recover full worldwide oncology rights to the drug. UCB returned its buy-in option in cancer, and continues to hold worldwide rights in autoimmune diseases; it is conducting Phase III trials of the antibody in lupus. The compound has shown promise in leukemia and non-Hodgkin’s lymphoma, both on its own and in an yttrium-90 labeled form. Immunomedics has two other antibody-drug conjugates in the clinic: the Phase I milatuzumab-doxorubicin in relapsed multiple myeloma and labetuzumab-SN-38 in colorectal cancer. - Paul Bonanos
Bristol/Lilly: In the first of two “No-Deals” of the week, Eli Lilly during its fourth-quarter call on Jan. 29 revealed to investors that its collaboration with Bristol regarding Phase III oncology asset necitumumab has been terminated in North America and Japan. Bristol pulled out of the three-year partnership for the squamous non-small cell lung cancer treatment, leaving Lilly with sole worldwide development and commercialization rights. A Phase III non-small cell lung cancer trial was dropped two years ago due to safety concerns. “The decision to provide notice of termination for necitumumab was based on a careful review and prioritization of our entire development portfolio, which the company regularly undertakes,” said a spokesperson from Bristol in an e-mail. Lilly assured investors that it intends to continue the development of necitumumab and that data from the late-stage SQUIRE trial are expected in late-2013/early-2014. The company plans to make the therapy part of a comprehensive treatment continuum for lung cancer that also includes Alimta (pemetrexed) and clinical-stage drug ramucirumab. Oncology is one of the main therapeutic areas driving Lilly’s pipeline beyond its so-called “YZ” years that are plagued by patent expirations of blockbuster drugs. - Lisa LaMotta
Teva/CureTech: As part of a pipeline review initiated by new top management, CEO Jeremy Levin and CSO Michael Hayden, Teva has terminated its collaboration with oncology biotech CureTech. CureTech’s lead compound is CT-011, a humanized monoclonal antibody that interacts with PD-1, a B7 receptor family associated protein. It has been assessed in Phase I and Phase II clinical trials for hematological malignancies and solid tumors, including large B-cell lymphoma, colon cancer, metastatic melanoma and other indications. Teva did not say much about the trial results to date, but Hayden, in a statement, noted, “As we looked closely at CT-011 and the most recent clinical and biochemical data, we have made the strategic decision to invest our resources elsewhere, where we can have the most impact for patients.” In the mid-2000s, Teva began dipping its toes into innovative oncology R&D with a few small in-licensing deals, but Levin and Hayden have made it clear that while the company will not completely jettison oncology, it is no longer a priority for Teva’s innovative R&D program, largely because the field is so crowded and also because Teva’s strengths lay elsewhere. The deal revolved around a 2006 agreement that Teva drove, under which it paid $6 million upfront and took an option to invest another $23 million if CureTech met certain development milestones, as well as to buy the rest of the company if CT-011 were approved. At the time, CT-011 had completed Phase I testing. Unlike many other in-licensed assets under review, this one originated at the Israeli drug maker, not one of the companies Teva has acquired. Indicative of the homegrown nature of the deal, CureTech also is based in Israel, where Teva is headquartered, and for a long time, one of Teva’s top executives, Aaron Schwartz, sat on CureTech’s board. Teva is taking a $109 million noncash charge as a result of the impairment cost of the termination. - Wendy Diller
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