Deals Of The Week: Icahn And Co. Traverse The Forest Again

Late spring has meant another foray by activist investor Carl Icahn into the forest of biotech board manipulation - literally this time, as Icahn's High River Limited Partnership filed a 13D with the SEC on May 30 announcing an intent to propose a minority slate of new members to the board of Forest Laboratories.

Last year, Icahn unsuccessfully nominated a slate of new board members for the specialty pharma, which staved off the attack and instead obtained enough votes to add three new independent board members of its own liking to the board.

But now, despite Forest's claims that business is going well in the face of patent-cliff woes, Icahn is back for another round. Once again, Icahn is proposing that his associate, Dr. Eric Ende, join Forest's board. Otherwise, his SEC filing does not state how many new board members he wants to nominate, other than clarifying that his would be a minority slate.

Forest CEO and Chairman Howard Solomon, in a May 30 release, said he always welcomes "constructive input" from shareholders but added that he was "puzzled and disappointed" that Icahn chose the threat of a proxy contest for the second consecutive year. Despite the loss this year of patent protection for antidepressant Lexapro (escitalopram oxalate) and the anticipated LOE for Alzheimer's disease drug Namenda (memantine HCl) in 2015, Forest has been offsetting expected revenue losses with new product launches.

“Forest Laboratories is strong and performing well," Solomon asserted. "We are executing on the plan outlined last year. We have continued to advance our late stage R&D pipeline through the FDA, successfully launched Daliresp and Viibryd – our two most recent primary care products – and reported solid financial performance for fiscal 2012 as we managed expected patent expirations. We are optimistic about our future prospects and believe we are well positioned to build on our strong track record of success, while continuing to deliver groundbreaking therapies to the patients and communities we serve.”

During its most recent quarterly earnings call April 17, Forest reported net sales had declined 8.7% to $997 million, which might play into Icahn's pitch to shareholders to back his board slate. With the March 14, 2012, patent expiry of Lexapro, sales of the SSRI already were in steep decline, down to $356 million from $595 million in the quarter one year earlier. Meanwhile, chronic obstructive pulmonary disease drug Daliresp (roflumilast) had posted quarterly sales of $13.1 million, the new SSRI Viibryd (vilazodone HCl) brought in $24.9 million, and another recent launch, broad-spectrum antibiotic Teflaro (ceftaroline fosamil) tallied $7.9 million in net sales.

To offset Icahn's potential arguments about earnings potential and management and board governance issues, Solomon also talked up the value of the three new board members elected last year – Christopher Coughlin, a former CFO at Tyco International and Pharmacia, Gerald Lieberman, the former chief operating officer at Alliance Bernstein, and Brenton Saunders, president and CEO of Bausch & Lomb. "These additions have enhanced our board through their operational skills, financial acumen, investor perspective, compliance expertise, and corporate governance experience," he said.

Whatever his rationale, though, it seems likely that Solomon and his team will have to familiarize themselves with Icahn's relentless brand of activism. Icahn apparently believes in the bromide "try, try again," as former Genzyme CEO Henri Termeer and once and former big names across the biotechnology landscape could well tell him.

In the meantime, Forest is continuing with its own business development strategy, looking to enhance its existing portfolio of hospital-based antibiotics through a June 1 option agreement with Austria's Nabriva Therapeutics. Forest is paying Nabriva $25 million upfront and will co-fund and co-develop the novel antibiotic candidate BC-3781, a pleuromutilin, that produced positive Phase IIb data in acute bacterial skin and skin structure infections in 2011. A pivotal Phase III program is planned for next year. Over the next 12 months as the two companies advance '3781, Forest will hold an option, not just on the antibiotic, but to acquire all of Nabriva, dependent on certain (but of course unspecified) contingences.

Well, as the Icahn/Forest and Forest/Nabriva stories heat up, along with the weather as we head into June, get ready for a seasonally steamy edition of ...

Stiefel/Welichem – With novel dermatitis candidates a rarity, GlaxoSmithKline's Stiefel Laboratories division has agreed to in-license a mid-stage, non-steroidal, anti-inflammatory compound from low-profile Canadian firm Welichem Biotech. Announced May 30, Stiefel will pay Welichem C$35 million ($33.9 million) for worldwide development and commercialization rights to WBI-1001, a topical compound currently in Phase II studies in psoriasis and atopic dermatitis. The agreement, subject to approval by Welichem’s board, excludes rights to the compound in China, Taiwan, Macao and Hong Kong, although Stiefel also can obtain a license those rights at a future date if certain undisclosed conditions are met. Those rights would carry an additional price tag of C$15 million. The deal structure also positions Welichem to collect milestones for clinical development and commercial accomplishments related to WBI-1001. Little is known publicly about the compound, called a potential first-line topical therapy for psoriasis and atopic dermatitis by the companies. Welichem discovered ‘1001 using its proprietary Symbiochem technology platform and has run the compound through four clinical trials total in the two indications. Welichem’s website says the compound inhibits the expression of pro-inflammatory cytokines, and that creams at 0.5% and 1.0% strength have proven safe and well-tolerated in psoriasis and atopic dermatitis patients. – Joseph Haas

Bayer/Covance – Bayer and contract research organization Covance have had a business relationship for years, but the two now are formally partners. The German drug developer announced May 30 that Princeton, N.J.-based Covance will provide research and development services related to clinical studies of mid-to-late stage drugs in Phases II through IV in a “long-term” deal. Covance will work alongside Bayer’s HealthCare unit, a subgroup that includes its Consumer Care, Medical Care, Animal Health and Pharmaceuticals division. Specific details and financial terms of the arrangement weren’t disclosed, although Bayer’s announcement suggested that the deal will bring “significant financial benefits” to both organizations while “reducing the overall time and cost of drug development.” Bayer said in 2010 that it would cut 4,500 jobs worldwide, including some in R&D. Also on May 30, Eli Lilly said it had partnered with Covance to discover diabetes treatments at its Lilly China Research and Development Center. – Paul Bonanos
  
Ensemble/Genentech – Ensemble Therapeutics now has scored its third large partner in as many years; announcing May 29 that it is teaming up with Roche’s Genentech Inc. in what it deemed its most attractive deal yet, trumping earlier deals with Bristol-Myers Squibb and Pfizer. Ensemble and Genentech will work together to develop macrocyclic drugs against a variety of targets supplied by Genentech. Using its proprietary DNA-Programmed Chemistry platform, Ensemble produces thousands of what it has dubbed Ensemblins – oral, small molecule macrocyclic compounds that interact with substrates through difficult extended binding motifs to reach targets not adequately reached by small molecules or biologics. While Genentech and Ensemble would not disclose the financial terms of the deal, Ensemble CEO Michael Taylor said that it includes milestones both early and late in the partnership, as well as milestones related to multiple targets. The agreement has no set timeframe, but Taylor said that these collaborations typically last for a couple of years, depending on when the partner wants to internalize the research. Ensemble typically develops molecules against a target until preclinical development and then transfers the drug over to its partner for further development. In 2009, Ensemble received $5 million upfront plus $7.5 million in R&D funding from Bristol to develop Ensemblin candidates against eight undisclosed targets. The biotech can earn up to $29.5 million in clinical development and commercialization milestones plus global sales royalties for each of the eight programs. It also signed a deal with Pfizer in January 2010 to develop Ensemblins for an undisclosed number of targets. Financial details of the deal were not disclosed, but Pfizer provided an upfront payment, research funding and potentially could pay out development milestones and sales royalties. – Lisa LaMotta

The International Immuno-Onocology Network – Bristol-Myers Squibb has formed a collaboration with 10 of the leading cancer research centers in the world to help further research for their immune-oncology pipeline; the alliance has been dubbed the International Immuno-Oncology Network (II-ON). Memorial Sloan-Kettering in New York will be part of the collaboration, as well as Clinica Universidad Navarra in Pamplona, Spain; Dana-Farber Cancer Institute of Boston; Institut Gustave Roussey in Villejuif, France; The Earle A Chiles Research Institute of Portland, Oregon; Istituto Nazionale per lo Studio e la Cura dei Tumori “Fondazione G. Pascale” of Naples, Italy; Johns Hopkins Kimmel Cancer Center in Baltimore; The Royal Marsden NHS Foundation Trust and The Institute of Cancer Research of London; The Netherlands Cancer Institute; and University of Chicago Medical Center. The company is now looking into biomarkers that could indicate some sort of genetic profile that would tip off doctors to the patients who would benefit the most from the therapy. The II-ON will be looking at post-response data to determine a biomarker for Bristol’s recently approved Yervoy (ipilimumab), as well as biomarkers for other treatments that are studied from Bristol-Myers’ pipeline. – LL

Havas/Creative Lynx – No one in pharma needs to be reminded of the future potential of social media for all sorts of health education and digital marketing purposes, even if the initial performance of Facebook's shares post-IPO has disappointed investors. The Paris-based global advertising group, Havas, which includes the Euro RSCG global network of health care agencies, has boosted its resources in this area by acquiring Creative Lynx, one of the European leaders in creating digital and social media campaigns in the health and wellness sector. Creative Lynx is based in Manchester, U.K., has 50 staff and an annual turnover of more than £4 million ($6.2 million). Its digital offerings include producing e-detailing aids for sales reps and exhibition stands, and the design of websites. Clients have included Johnson & Johnson, Merck Serono, AstraZeneca and GlaxoSmithKline. Havas is a public company with a network of health care communication agencies around the world. It handles approximately 30 global brands, including Sanofi, Pfizer and Novartis. – John Davis

Photo credit: Wikimedia Commons

M&A Predictions! Fortune Tellers -- They Are Not

Even though the New Year has come and gone, analysts are still making their predictions about what 2011 will bring for the pharma and biotech industries. (Admittedly, it is still early enough to do so, but March would have been pushing it.)

The latest endeavor to predict the future comes from the fine analysts at Morningstar, who released their “2011 M&A Outlook for Healthcare” report this week. The report includes some sound, albeit a little obvious, deductions on what will be moving M&A in 2011 – a move into emerging markets, slowing R&D productivity, and (cue ominous music) the upcoming patent cliff.

Morningstar experts expect further consolidation in Big Pharma; and say Eli Lilly & Co., as well as Bristol-Myers Squibb will be ripe for the picking as the patents on their lead drugs reach their expiration date – but, honestly, who would buy them?

Merck & Co. (Schering-Plough), Pfizer Inc. (Wyeth), Roche (Genentech), and Novartis (Alcon)have all made major acquisitions in the past two years that have added significantly to their debt situations and are unlikely to dump the burden of a major restructuring on top of the issues they’ve already had to bear while trying to make these puzzle pieces fit.

Morningstar analyst Damien Conover suggests Abbott Laboratories could handle acquiring either Lilly or Bristol. He also thinks Sanofi-Aventis and GlaxoSmithKline could benefit from an acquisition of Bristol as well. This sounds all well and good, but Glaxo has made it pretty clear that it is not interested in any large acquisitions and Sanofi has its hands full already with that little Genzyme deal it has been drawing out for months. And let’s be honest, if the past has taught us anything, it’s that bigger is not always better.

So moving on to more realistic prospects for mash-ups in 2011 – let’s take a look at what biotechs Morningstar thinks will offer the best bang for the buck.

They list Biogen-Idec, Seattle Genetics, Human Genome Sciences, Dendreon, and Actelion as their top five take-out targets this year. The reasoning is complex but the basic insight is that these companies have strong pipelines or technology in really HOT therapeutic areas like neurology, orphan drugs, and cancer. Yet, Biogen, Celgene, Gilead, and Merck KGaA will offer an acquirer the most immediate and gratifying (think mid-to single-digit billions) boost to earnings – something every Big Pharma could use right now. These companies also have the nice bonus of having a lot of cash on hand and fairly low burn rates.

While all of these companies have their positives and negatives, it’s important to keep in mind that just because they can be acquired doesn’t mean that they will be. Take the #1 takeout target this year for example, Biogen; it’s been on Morningstar’s take-out list for three years now despite plenty attempts by billionaire shareholder Carl Icahn to get the company on the market.

That said; Morningstar hasn’t done abysmally in its predictions over the last two years. Three companies from the 2009 list were acquired – Trubion, CV Therapeutics, and Medarex, but none of these companies were in the top 15 that year. Another seven got picked up from its 2010 list – Crucell, ZymoGenetics, Talecris, King Pharmaceuticals, OSI Pharmaceuticals, Biovail and Genzyme – with three of these companies being in their top 15 picks.

So what do you think – will this be Biogen’s year to find a suitor or will the Massachusetts biotech continue to dance alone?

Image from flickr user What Makes The Pie Shops Tick? used under a creative commons license

Carl Icahn: Biotech Raider, Savior of North Dakota

In case you missed it, Carl Icahn’s campaign to make boards of directors more accountable to shareholders—including, one assumes, the boards of Amylin, Biogen Idec and other biopharma businesses he would like to see move in different directions—now includes a plea for action from Congress.

In an editorial published in the Washington Post February 16, Icahn recaps his frustration with what he sees as a culture of insiderism in corporate boards and the challenges dissident shareholder groups face in making changes to the lineup.

The problem, Icahn argues, can be fixed simply, by allowing shareholders to vote on where their company should be incorporated—thereby allowing them to shop for the most shareholder friendly state laws.

"Corporate law is largely the province of states, which to varying degrees protect flawed governance models," Icahn wrote. "What is needed is a superceding federal law that gives shareholders the right to vote by simple majority to move their company's legal incorporation to states that uphold greater shareholder rights."

And Icahn has found his favorite jurisdiction, apparently: "North Dakota...is recognized as having the most shareholder-friendly corporate laws in the nation, thanks to recent legislative action. By incorporating in the state and adopting its provisions, a public company would in one easy step improve rights for its shareholders and eliminate the often too-cozy relations between managements and boards."

Ah for the gentle kiss of the Great Plains zephyrs in February!

We don’t know what the prospects are for action on Icahn's proposal, though presumably North Dakota’s congressional delegation is on board with the plan.

In the meantime, maybe some of Icahn’s targets can take the opportunity to steal a march on him? Amylin is deep in cost-cutting mode already, but has the company considered swapping its San Diego corporate offices for some new property out near Bismarck? Commercial real estate is much cheaper...

While You Were Awaiting Stimulus

While the rest of nation waits for Congress and President Obama to finally settle on a stimulus package that will jump start/drag down the economy, Sports Illustrated reported that the Yankee third-baseman Alex Rodriguez received a personal stimulus package back in 2003. The magazine reported that Rodriguez flunked a steroid test while playing shortstop for the Texas Rangers.

No word from A-Roid on the charges, but no matter. (Update: Rodriguez admitted it to ESPN.com.) We would still like to , we'd much rather hear what Obama will say tonight at his prime-time press conference. Until then ...

• Drug stocks have historically been safe harbors in troubled economic times, but some harbors are clearly safer than others. Seeking Alpha reports that publicly traded biotechnology companies have outperformed pharma companies since the stock market hit bottom in November. Why? We'll give you two reasons: Pipe and Line. Okay, that’s really one reason.
• Just a few days after news surfaced that GlaxoSmithKline plans to make deep, deep job cuts as part of a plan to shed £1bn a year in costs by 2011, the Wall Street Journal reported the pharma giant is in talks to buy Indian generic-drug company Piramel Healthcare Ltd. for roughly $1.5 billion.
• If you see Charles Darwin, tell him Happy 200th Birthday from In VIVO Blog then feel free to call the San Francisco Chronicle or The Ghost Hunters .
• Pork may be all the rage in Congress. But the FDA is all about the goats (no, we're not making a crack on agency personnel.) The agency approved first product derived from a genetically engineered animal, with the honor going to genetically modified goats. The Wall Street Journal reports on the approval of Atryn, developed by GTC Biotherapeutics Inc. for the treatment of a rare blood-clotting disorder known as hereditary antithrombin deficiency.
• Carl Icahn took a little time away from erecting his siege tower outside Biogen Idec’s headquarters to give his two-cents in the Wall Street Journal on President Obama’s salary cap for those Wall Street execs obtaining federal bailout funds. His take: the cap is understandable but wouldn’t be necessary if management were more accountable to shareholders.
• And no, “While You Were…” post would be complete without some mention of a Philadelphia sports team, so …yada, yada, yada ... aren't the Phillies great ... blah, blah, blah...they signed Ryan Howard. Enjoy.

And How Would You Like to Pay for That, Mr. Lechleiter?

Check please?

When Carl Icahn (whom we probably owe an apology since we thought a $70/share bid was a pipe dream) first announced that Imclone had a mystery bidder willing to fork over $10/share more than Erbitux partner BMS, he suggested that bid was subject to due diligence, but not financing.

Well, Lilly must have left its moneyclip in its other pants, because here comes the credit card. And it's too late to play credit card roulette.

Just how easy it will be for Lilly--or anyone for that matter--to tap the credit markets for a few billion dollars here or there remains to be seen. The newly passed-into-law $700 gagillion bailout hasn't exactly greased the lending wheels just yet.

Our comprehensive coverage of the deal is at Pink Sheet DAILY, where Jessica Merrill notes that Lilly "intends to finance the acquisition with a combination of cash and debt. The firm expects the debt portion to amount to $2 billion to $3 billion. With today's tight credit markets, funding deals has become far from a sure thing, but Lilly said it remains 'confident' about its ability to finance the transaction."

Lilly shareholders? Maybe not so much. True it was a particularly bleak day for the markets yesterday (with the exceptions of Imclone, Dendreon, and, probably, Campbell's Soup), but Lilly shares were taken to the woodshed, down nearly 3% on the day. (In comparison, Bristol-Myers was only down 1%, its own fall cushioned by the $1 billion cash it stands to gain from its own 17% stake in Imclone.)

If pharma's rock is the credit crisis, its hard place is the fact that it will likely need to keep spending a ton of cash to access the medicines it has failed to develop on its own. So how will Big Pharmas like Lilly reconcile the two competing realities? Maybe Uncle Sam will help.

Remember the hilariously titled American Jobs Creation Act that allowed companies to repatriate vast sums of cash at much friendlier tax rates? (Ostensibly this was to lead to job creation but in reality the cash flowed mostly unimpeded to shareholders via dividends and share buybacks.)

Pharma has already succeeded in restarting its stalled R&D tax credit, which was tucked into the bailout bill (now known by the gentler acronym TARP), perhaps it is also hard at work lobbying for another AJCA so it can bring home more cash to pay for the alliances and acquisitions it so badly needs to bolster its own R&D.

Meanwhile the debate about whether Lilly paid too much for Imclone will continue. Lilly has clearly signaled its intentions to be part of the upper echelon of oncology companies--along with just about every other Big Pharma--and what you think of Lilly's $70/share Imclone offer will probably boil down to the faith you have in Imclone's pipeline (and Lilly's ability to hang on to the next-generation EGFR inhibitor 11F8).

image from flickr user lennonisgod used under a creative commons license.

Deals of the Week: It's All in the Spin

Spin control is the operative phrase in pharma land this week. Merck PR again worked overtime, trying to put the 1200 job cuts announced Monday in a positive light. It's all part of the company's "Plan to Win" strategy, said Kenneth Frazier, the company's president of Global Human Health in a press release. (For an alternate viewpoint, check out this poem written by a Merck employee who sadly has a little too much time on his or her hands. Hat tip: Pharma Marketing Blog.) At least this time the company opted not to leak the news in a PowerPoint presentation. That's how some Merck natural products researchers found out about their early retirement according to C&EN. Meanwhile, Merck's partner in...Vytorin, Schering has its hands full regarding news that the Department of Justice--via federal prosecutors in unspecified U.S. Attorneys’ offices--is investigating the company.

We've also got to give Ken Johnson, a PhRMA VP, his due. The gentleman rose to the industry's defense in advance of Thursday's Congressional hearing concerning direct-to-consumer ads with this stirring tribute in the WSJ: consumer advertising for prescription drugs "brings patients into their doctors' offices and helps start important doctor-patient conversations about conditions that might otherwise go undiagnosed or untreated." (So that's why Robert Jarvik was skulling (er, is it shilling?) for Pfizer.)

Meanwhile, you can bet Amgen's PR team didn't thank CEO Kevin Sharer when he responded to angry shareholders with this comment uttered at Wednesday's Westlake, CA meeting: "I felt real economic pain." (Personally, this blogger would love to say that she took a 29% cut in pay from her 2006 salary and still managed to bring home more than $13 million.)

Are you looking for a different spin on the industry's news? We bring you this edition of:

Enzon/Icahn: Carl Icahn (for oh, yes I can) finally got his way--at least regarding Enzon. A few months back, Icahn upped his stake in the New Jersey-based pharma to almost 7% and quickly started making noises about a possible sale or spin-out. This week comes news that Enzon will be spinning out its biotechnology business into a new public entity that has yet to be named. (Our suggestion: Celian Inc., after Carl of course. It's got a nice ring to it--and its subtle too.) Enzon will gift the newco with $150 million of funding, expected to cover two to three years of research, and Enzon's pegylation and Locked Nucleic Acid (LNA--via Santaris) drug delivery technologies. Jeffrey Buchalter, Enzon's current CEO, will take the reins of the start-up, while Craig Tooman, currently CFO, will move up to the top spot at Enzon. Tooman's slimmed down Enzon retains rights to four marketed products (Abelcet, Adagen, DepoCyt, and Oncaspar), rights to current PEG royalty revenues, and a manufacturing facility in Indianapolis. The news isn't all that surprising--Carl can be a persuasive guy (unless you are Biogen Idec). In addition, Enzon was very much at a point in its life cycle where it was appealing to two very different kinds of investors--those who appreciate the stability and earnings provided by its marketed products and those drawn to the potential of its risky drug delivery/discovery capabilities. We're not sure which camp Icahn belongs to (we're guessing the former), but it's safe to say that lately investors haven't viewed drug delivery too kindly. Last December, David Steinberg told START UP: "The old model of drug delivery is completely broken down. To be successful you have to think far more innovatively." Maybe with this split Buchalter's newco will have the luxury of serving just one shareholder master.

Stiefel Laboratories/ABR: On Tuesday, Duluth, Ga.-based Stiefel announced it was acquiring the shares of two French companies, ABR Invent and ABR development, which make the dermal filler Atlean. Financial terms of the deal weren't disclosed. "Stiefel Laboratories has been looking for the right dermal filler to add to our aesthetic portfolio for quite some time," said Charles W. Stiefel, chairman and CEO, Stiefel Laboratories in a press release. ABR's Atlean consists of tricalcium phosphate particles suspended in a hyaluronic acid (HA) gel. As we reported in this March 2008 Medtech Insight Report, HA is the active component in all of the most popular fillers, including Restylane and Juvderm. Recent advances in HA filler technology--especially the introduction of highly cross-linked HA products that are more durable, easier to handle, and provide immediate cosmetic results without the need for pre-injection allergy skin testing--have resulted in rapid market adoption of these products. Even though sales over the next three years are expected to slow thanks to the sluggish US economy, analysts still predict the annual market for dermal fillers could reach $950 million by 2010. Oh, and we'd be remiss if we didn't mention this acquisition probably wouldn't have been possible without the $500 million in walking around money that Blackstone Group supplied to Stiefel last August.

NuVasive/Osiris Therapeutics: Spinal company Nuvasive announced late Thursday that it was acquiring Osiris' Osteocel biologics business for $35 million in cash upon close of the deal, and milestones worth up to $50 million, which are payable in cash or a combination of cash and stock. For its money, NuVasive gets a proprietary adult stem cell bone graft product derived from mesenchymal stem cells, as well as a processing facility to boost capacity. NuVasive said in a press release that it expects Osteocel revenues to jump from $15 million in 2008 to $25 million in 2009 and that the purchase will have no impact on Nuvasive's EPS, excluding an in-process R&D charge. NuVasive went public in 2004; since then it has acquired a nucleus disc replacement product, AMI Holdings' Neodisc, and a biomaterials platform from Radius Medical LLC. Two years ago, we speculated about Osiris' potential transformation into a orthopedics company. Osteocel was a big part of Osiris initial success. Because the MSC product is labeled as human tissue for transplant, it didn't have to go through clinical trials, making its path to mrket very straightforward. This helped pave the way for the company's 2006 IPO, which raised $35.8 million. Seems likely that Osiris will use the money from this most recent deal to fund ongoing Phase III clinical trials of its Prochymal product for graft vs host disease. In addition to the NuVasive deal, Osiris also announced Thursday that it has been given regulatory clearance to initiate an expanded access treatment program for Prochymal that makes the investigational stem cell product available to children with life-threatening GvHD.

Pfizer/NicOx: It was a bad news/good news kind of week for French spec pharma NicOx, which specializes in reprofiling existing drugs by grafting nitric oxide onto them. On May 6, partner Pfizer announced it would not advance PF-03187207, an experimental glaucoma therapy, into Phase III trials based on lackluster clinical data. Shares of NicOx tumbled 38% as a result. The "spinnable" news? Pfizer might consider continued development of the drug for potential registration in Asia, depending on the results of an on-going Phase II trial in Japan. In addition, despite the set-back with PF-03187207, Pfizer said it remains "commited to our joint program with NicOx, where the follow-up compounds...have produced encouraging results." It's worth remembering that the two companies have collaborated since 2004. In 2006, they significantly broadened their relationship when Pfizer agreed to pay nearly $30 million up-front and more than $350 million in milestones for exclusive, across the board rights to NicOx's technology in ophthalmology. NicOX's tumbing share price could put pressure on its execs to ink a deal for the company's still unpartnered Phase III Naproxcinod, a nitric oxide–donating form of naproxen. Analysts have hailed that compound as as a blockbuster alternative to the blighted Cox-2s. (For more, check out this February IN VIVO piece.)

(Image courtesy of Flickr user ilmungo through a Creative Commons license.)

Carl Icahn vs. Evil Corporate Governance

Don’t get us wrong. We think corporate governance, as a general, rule, stinks. We never understood how Pfizer could have gotten itself into the position of paying Hank McKinnell $180 million in retirement benefits – the man who presided over the deletion of tens of billions in the company’s market value.

Or, in an act of proportionately greater idiocy, how the board of Cell Therapeutics, that reliably subpar performer, could in 2006 pay its CEO James Bianco some $1.1 million in cash (and a ton of underperforming stock) along with, among other perks, $220,000 in the use of chartered aircraft.

Chancellor, Sith School of Corporate Governance

The charters must have been some compensation for the loss of Air Cell Therapeutics (the corporate jet) – which the board, in a short-lived fit of financial responsibility – sold at the end of 2005.

So philosophically we’re on board with Carl Icahn’s idea of taking lax corporate governance to task in his new blog (http://icahnreport.com/), still post-less as of this morning. "I may do something to finally focus on more than making money," Icahn told Dow Jones.

We’re sure Carl gives generously to all sorts of charitable organizations (there are, after all, the Carl C. Icahn Foundation and The Icahn Charitable Foundation). But forgive us for a certain skepticism re. icahnreport. Oh, we’re sure those widows and orphans will benefit as board members get religion and really start corporately governing. And we’re also sure that when they do, our economy will just pull itself up by its bootstraps instead of whining for more bailouts.

But we also figure that the more Carl can whip up support for board-bashing, the more likely he’ll be to get additional board seats at Biogen Idec. Then, with that malign group finally paying attention to the shareholders, they'll finally force the deal to allow Carl to off-load his Biogen shares.

He bought them, remember, figuring that Big Pharmas had such poor corporate governance that they'd be begging like dogs at the Thanksgiving table to overpay for an acquisition. (For our take on that ongoing affair, see here and here).

They didn’t? Hmm. Maybe there is some real corporate governance out there after all.

Deals of the Week: Deal--or No Deal

The debate over Vytorin's medical benefits and, by extension, the utility of all cholesterol meds, continues to rage. Meantime, the Zyprexa marketing scandal reared its head: new this week, the NY Times reports Lilly is in talks with federal prosecutors to settle investigations into its marketing of the antipsychotic. If an agreement is reached, it could cost the pharma $1 billion, the largest fine ever paid by a drugmaker for breaking federal laws governing a medicine's promotion.

And, it was earnings week, with fourth quarter reports from Wyeth (up, but flat forecast for '08 due to generic Protonix), AZ (down), BMS (down, and WSJ's Health Blog highlights concerns that this big pharma may be affected by the sub-prime mess), Novo Nordisk (down, but did beat analysts' expectations sending the stock up), and Merck (down, thanks to Vioxx settlements) among others.

All in all, a crazy week, but not necessarily on the deal-making front. That's prompted this IN VIVO blogger to ponder the deals that happened--and those that did not. Without further ado, the Deal or No Deal edition.

First, a look at the actual deals that got done...

Inverness/Matria: On Monday Inverness announced its third major acquisition in the health management space, buying Georgia-based Matria for $900 million and the assumption of $280 million in debt. Definitely the big money deal of the week, though Wall Street reacted negatively to the news. Inverness continues to build through acquisition: the Matria deal is its twelfth in the past 12 months. (For more on Inverness's acquisition strategy, click here.) The company's recent emphasis on health management suggests another trend we've been following: the expansion of the diagnostic business model to include services not exclusively related to in vitro tests or reagents. Such business activity has muddied the waters stretching the definition of what it means to be a diagnostic company.

Sepracor/Nycomed: A few weeks ago when Nycomed got FDA approval for its inhaled corticosteroid ciclesonide we figured Sanofi-aventis, the original partner of Altana (bought by Nycomed in '06), still had US rights to the drug--we hadn't heard otherwise, after all. So we were a little surprised on Monday when Sepracor picked up rights to the drug (Alvesco) for $150 million upfront plus various development and sales milestones. Nycomed will also receive payments for manufacturing and royalties on sales. Alvesco's route to the US market has been chock-full of speed bumps. Way back in 2002 Altana suggested the drug might be approved in 2003, but an NDA wasn't filed until December 2003. Altana and Aventis received an approvable letter in October 2004 and the drug was launched in 2005 in Europe.

Iroko Pharmaceuticals/ Merck: Specialty pharma Iroko inked a deal with Merck for non-US commercial rights to Aggrastat, a drug used alongside heparin in patients with unstable angina to prevent cardiac ischemic events. Financial terms of the deal were not disclosed. This is the third product Merck has out-licensed to Iroko and the second in the beleaguered cardiovascular space. Last spring the company acquired rights to Indocin, for rheumatoid arthritis, and Aldomet, a hypertension treatment, from the big pharma. As we reported here, the independent futures of many spec pharmas are in question, as product-poor pharmas gobble them up in hopes of fattening their pipelines. Still, primary care remains a popular space for many, especially as big pharma eschews risky products in the cardiovascular and metabolic disease space.

(Clearly someone forgot the briefcase models.)

BiogenIdec/Genmab: Perhaps we should say "No deal, yet." This week BiogenIdec was once again in the news thanks to manueuvers by Carl Icahn to install three supporters onto the company's board. Also swirling in the ether, rumors that BiogenIdec intends to buy Genmab. Certainly, such a deal would scupper any attempts by Icahn to sell the company to another entity. Adding Genmab's pipeline would go a long way to securing an independent future for the Cambridge, MA-based biotech. But such a deal won't come cheap. In part, because it seems likely that GSK might up the ante. The British pharma, after all, has three partnerships with Genmab, including a very rich co-development, co-promotion deal for the biotech's HuMax-CD20, an antibody to treat cancer and rheumatoid arthritis. Until now, GSK's had no real reason to bring Genmab in-house--it's already got rights to the antibody cow's milk, after all. But it may not be willing to stomach the risk associated with a change in Genmab ownership, deciding its worth the hefty price tag to nail down its rights to its partnered products.

Lilly/Gastrotech: Deal or No Deal? Here's an odd one for you. On Jan 28, Denmark’s Gastrotech Pharma announced it was in-licensing Lilly’s GLP-1 analog GTP 010 for IBS and functional dyspepsia. That’s a deal, not a non-deal, surely? Well, depends on how you look at it. Simply turn it over and you get….a non-opt-in by Lilly.

Lilly and Gastrotech had been collaborating on GTP 010 since 2004, when Gastrotech took over Phase II trials of this Lilly compound in IBS and dyspepsia (in part thanks to the biotech’s ownership of some use patents for GLP-1 analogs in IBS, according to chairman Hans Schambye, though no, that wasn’t mentioned in the release).

That—four years ago--was arguably the real licensing deal. And that was also when Lilly received an option to later take over development and commercialization of the compound in return for milestones and royalties.

This week's news is that Lilly didn’t take that option, which means Gastrotech gets to keep the compound, instead, paying Lilly royalties. “Sure,” Schambye acknowledged to IN VIVO Blog, “you could look at it both ways. Either party could have licensed the drug.”

See? Hmm, exactly. Now ok, we know that small biotechs need all the positive spin they can get, but we're getting pretty close to "Press Release of the Week" territory here. Perhaps Gastrotech will do something big with 010, who knows (Lilly did take an equity stake). But please, a bit of clarity and objectivity wouldn’t go amiss.

Icahn to Biogen: Take a Mulligan

And a Denner and Young, while you're at it.

From Biogen's terse release this morning:

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Biogen Idec (NASDAQ: BIIB - News) today announced that it has received notice from Icahn Partners LP and certain of its affiliates for the nomination of three individuals, Alexander J. Denner, Richard C. Mulligan and Anne B. Young, to Biogen Idec’s Board of Directors at the Company’s 2008 Annual Meeting.

Analysts have suggested this morning that Icahn's endgame may be to restart the failed auction process that concluded late last year. Part of the reason that auction failed, as we've pointed out before, is the restrictive NDA that Biogen management forced potential bidders to sign, essentially preventing interested parties from negotiating in parallel with Genentech and Elan, which hold options on Biogen's two key products in the event of a sale.

Meanwhile ... in news that inexplicably didn't make it into our weekend roundup (what can we say, we bought the Guardian), the Times is reporting that Biogen may make a bid for Danish biotech Genmab. Genmab is up about 7% today on the speculation.

Biogen Idec and Carl Icant: A Report Card on Shareholder Activism in Biotech

On Wednesday, a panel at Windhover’s Bio/Pharma Partnerships meeting in San Francisco was discussing the prospects for M&A – and in particular the future of activist shareholders.

Less influential, opined Goldman Sachs banker Geoff Parker.

Funny that. More or less as the words were leaving his mouth, Goldman’s best known biotech client, Biogen Idec, was publicly reconciling itself to the equivalent of corporate chastity. No one wanted to buy it. (We point out for the record: we told you so.) At least for a price that would have satisfied the greed of its merger-obsessed shareholders.

And chief among those was Carl Icahn whose colossal and embarrassing failure to foist the company onto Big Pharma was, for many a CEO, the unspoken subtext of the Biogen press release. Kurt von Emster, the fund manager at MPM Bioequities, now dubs him Carl Icant.

Icahn– no doubt still drunk on the profits from AZ’s acquisition of MedImmune—figured that since drug companies were desperate for revenues but had bucketloads of cash, they’d of course be willing to pay $23 billion-plus for a company which could easily lose two of its top-three products to its partners Genentech (which would inherit a bigger share of Rituxan) and Elan (which had a right to buy back Tysabri on a change in control). And that’s precisely what Elan would have done (private equity firms would have clamored to finance the repurchase) unless a buyer made it worth its while to keep the drug in Biogen’s hands.

So much is evident.

But there is also a side story to Icahn’s humiliation. Biogen apparently required bidders to sign a CDA that, while it let them ogle the company’s private data, forbid them from any dealmaking with Elan or Genentech. That means the prospect of buying Biogen wasn’t merely expensive, it was a complete crapshoot. To risk the kind of money Icahn wanted, a buyer would need to be certain it could retain at least Tysabri, which meant it had to come to some pre-acquisition settlement with Elan…to whom it couldn’t talk pre-acquisition.

We assume Carl le Terrible knew about this teensy problem. And we also assume that he won’t let himself be snookered again by the clever folks at Biogen (we had figured that CEO Jim Mullen wanted to sell the company; now – given the sneaky poison pill he inserted into the CDA -- we ain’t so sure any more). Icahn will want his revenge. This is only Act I, says our not merely witty but wise friend Kurt von Emster.

But is there a further meaning to be found in Icahn's loss? We think so—another demonstration of the failure of shareholder activism in the biotech industry.

So far, Icahn is one for three in his most recent attempts to get Big Pharma to buy his shares at big premiums (he certainly made money in ImClone—but was unable to force its sale; and as we note this month in IN VIVO, he didn’t have much effect on Genzyme’s strategy either, which remains soundly diversified).

Meanwhile, the other major hedgie activist in the biotech space has certainly had his effects, but they weren’t what he and his groupies would have liked. Most spectacularly, Dan Loeb and his Third Point fund dismastered PDL by driving Captain Mark McDade from the bridge with a series of entertaining public letters alleging, among less serious business deficiencies, intraoffice kanoodling and geographic self-dealing (like moving the office so McDade could be closer to home and his boat slip) -- the sum of which added up to gross incompetence. Or at least provided the excuse for engaging in Loeb’s subraction-of-parts strategy that involved monetizing its antibody royalty stream and breaking the rest of its business into pieces.

The result: Loeb had bought in at about $18 and apparently exited his position for the tremendous price of … $18. PDL, of course, remains unsold. And it ain’t clear to us that he did anything to improve the shareholder economics of the other companies he’s afflicted—NABI and Ligand.

Now for all we know Third Point did make some money on PDL through some God-knows-what mix of option trading. But the shareholders who jumped into the stock after him didn’t.

And neither did most of the Icahnologers, most of whom rode the stock up on Icahn’s coattails and rode it right down again.

So we’re further downgrading our rating on activist shareholders. Investing in biotech isn't easy. It requires plenty of research; understanding products; contracts; the environment. The best investors in this industry know what they’re talking about because they study hard to figure it out. But by and large, we haven’t seen much evidence that the activists in biotech are doing their assigned homework.

Deals of the Week: The Break Up to Make Up Edition

Break up to make up, that's all we do
First you love me then you hate me, that's a game for fools.

Has Carl Icahn soured on BiogenIdec, the biotech that last month offered itself up to the largest bidder only to find--so far--no takers? Appears so. His new interest, as we wrote about here, is Genzyme. Maybe. So, in honor of Icahn's roving eye--and to celebrate a possible fairy tale ending for Roche and Ventana Medical Systems--IN VIVO Blog brings you the latest Deals of the Week: The Break Up to Make Up Edition.

First the break ups:

• Pfizer/Nektar: Tired of dismal sales and bong jokes, Pfizer announced last month that its marriage to inhaled insulin developer Nektar Therapeutics was over. Now comes the divorce settlement. In a joint statement issued Tuesday Nov. 13, the two companies announced they have “resolved all outstanding contractual issues." As part of the deal, Nektar gets full rights to Exubera and a cool $135 million for its faith in Pfizer's marketing genius. In addition, Pfizer will continue to support on-going Phase IV clinical trials, while Nektar shops the product around. Just one day later, at a media R&D love fest, Nektar's CEO Howard Robin told the press that he was "very very pleased" with the deal. "[Pfizer CEO] Jeff Kindler and I spent a lot of time on this arrangement and we remain friends to this day," he said. Aww, how sweet. Bet the folks working on the two companies' Phase II partnership for a pegylated human growth hormone are relieved the split was amicable. We'll have more on the future of inhaled insulin in an upcoming IN VIVO article. Meantime check out this story from our May issue, which highlights many of marketing and clinical challenges associated with Exubera.



• AZ/ Infinity: This week Infinity and MedImmune (now a wholly owned division of AZ) also called it quits, partially, nixing their agreement to develop small molecule inhibitors of the Hedgehog cell-signaling pathway (the firms' collaboration around Hsp90 continues). As part of the un-deal, which is the result of some change-of-control-provision-inspired negotiations, Infinity gets back rights to the lead candidate, IPI-926, and AZ/MedImmune agrees to shoulder 50% of the development costs through mid-2008. Infinity can also opt-in on AZ's own Hedgehog program through initiation of Phase III trials. Here's the press release.

• Novartis/Speedel: OMG did they break up? Okay, it's not really fair to call the recent dispute over Tekturna/Rasilez payments a break-up. Think of it as a lover's spat. The two companies made news Thursday Nov. 15 when Speedel cried foul, saying it hadn't received monies related to the new blood pressure drug. In what quickly escalated to a "he said, she said" scenario, Novartis issued a statement saying it believed it had fully complied with its reporting duties to Speedel. Alice Huxley, Speedel's CEO, is confident the two companies will be able to work things out: "We trust that this disagreement can be amicably resolved as soon as possible," she said. From Speedel's point of view, they'll need to make up soon. The company expects to burn through 75 million euros in 2007 so it could do with an infusion of cash. (To get Novartis's perspective on Speedel, check out this interview with CEO Dan Vasella from earlier this spring.)

Life was rosier in device land, where we highlight these match-ups from the week:

• NeuroMetrix/Cyberkinetics: The two companies announced the formation of a JV to develop and commercialize a product for peripheral nerve injury based on Cyberkinetic’s Andara electrical stimulation therapy. For NeuroMetrix, which has struggled to develop non-invasive diagnostics for peripheral neuropathy, the JV gives it entrée into the neurostimulation area. For Cyberkinetics, the deal allows it to expand its use of Andara beyond the ultra-niche market of acute spinal cord injuries. Under the terms of the deal, NeuroMetrix will provide up to $2 million to fund the first two years of the joint venture and has first rights to commercialize the Andara platform for spinal injuries, as well as the inside-track if it decides to purchase Cyberkinetics. (For more background on the two companies look here and here.)



• Synthes/N Spine: Synthes has a whole lotta love for the medical device maker N Spine (profiled in the July/August issue of START-UP). This week, Synthes announced it was spending $30 million up-front and as much as $45 million in milestones and earn-outs to acquire the ortho start-up, which develops fusion and stabilization motion-preservation devices for the lumbar spine. Other terms of the deal, including the date of closing, were not disclosed.
  



• Pfizer/Coley: Finally, back to biopharma, where the word just came across the wire that Pfizer is buying Coley Pharmaceuticals for $8/share, or $164 million. Consider this the bonus make up and break up deal. The writing was on the wall that Coley was on the block since June, when Pfizer backed out of a deal the two companies had on a lung cancer therapy. The reason? An independent data safety monitoring committee's verdict that a mid-trial analysis suggests the compound plus chemotherapy works no better than chemo alone. Since then the firm has been trading at a market value not too different than the value of its cash on hand. We'll try to have more on this deal after the companies' conference call.

Why Genzyme's Unlikely to be the Next Target

The Boston Globe reported yesterday that Carl Icahn has taken a sub-1% stake in Genzyme. Is this company his next target for a sale or restructure, the article asks, after the billionaire investor more or less forced the sale of MedImmune to AstraZeneca, and more recently put Biogen Idec on the block?

It's a reasonable question. But there are reasons why Genzyme is less likely to be acquired than Biogen or MedImmune. For one thing, it’s not a big blockbuster company like most of its Big Biotech peers. Notwithstanding its one $1 billion-plus drug, rare disease treatment Cerezyme, Genzyme, in one of its own executive’s words, “is a company of many small ideas, rather than one big one.”

Sure, small, specialist ideas are cool these days, and small ideas add up. Genzyme's had over $3 billion in revenue last year (and is on track for as much as $3.8 billion this year). But Big Pharma at least needs more than a diverse bunch of highly niche and often highly complex products to solve its near-term problems.

And then there’s Genzyme’s structure—it’s organized as half-a-dozen quasi-autonomous business units, operating in area like transplant, surgery, or rare diseases. That means Genzyme “would not be the easiest company to incorporate,” notes Stelios Papadopoulos, former vice chairman of Cowen & Co.

So maybe Icahn’s idea is to split it all up and sell off the divisions? Analysts will certainly point you to one or two under-performing ones. But that would miss the point—the leverage, de-risking, and choice of where and when to compete for deals that Genzyme’s diversified model offers the corporate whole. (And anyway, the company tried issuing separately-listed tracking stocks during the 90’s and it was a disaster.)

Granted, the Street hasn’t considered Genzyme as the sexiest of Big Biotechs—call it the diversification discount. But as purists like Biogen and Amgen stumble, Genzyme’s breadth and global reach begin to look smart, as does its long embrace of external R&D. (You can read more about this in the forthcoming IN VIVO.) Maybe that’s why Icahn’s jumping on board—to enjoy the ride (Genzyme’s promising 20% compounded earnings growth or thereabouts over the next five years).

Ok, maybe not. But if he is up to something, he’ll have Genzyme’s Chairman & CEO Henri Termeer to contend with. And Termeer’s been set on an independent Genzyme since he joined the company in 1983, two years after it was founded. “It was quite deliberate that we should be diversified, global, and independent,” he tells us. Not for Genzyme the kind of vulnerability that would “at some point” come to the likes of Biogen, which, points out Termeer, “never really diversified in the way that we did.”

Termeer told IN VIVO on Wednesday, the day before the Globe's story, that he wasn’t aware of any activist shareholders buying into the stock. (Surprise!) In any case, he doesn’t dismiss activists, either. “They’re a good thing in one sense,” he says, since they force management to understand where their vulnerabilities are, and to unlock maximum value from the business.

In other words, who needs Icahn?

The Biogen Idec Sale: It’s About Revenues – Not Biologics

Last week, IN VIVO Blog broke the news that Biogen Idec had hired bankers to explore a sale.

Now, we know that companies, like people, don’t always act in their economic best interests. And there are plenty of revenue-desperate Big Pharmas (much speculation surrounds Pfizer, as the Wall Street Journal notes here and here) who might let desperation get the better of common sense. One banker peripherally involved in the transaction noted that there was “so much panic [among Big Pharma] about generating revenues they’ll rationalize as much as they need to about cost-cutting to justify the price. If I was at Biogen, I’d be out looking for a job right now.”

But let’s be clear: buying Biogen at this price doesn’t make sense. First, by contract Genentech/Roche will soon be upping their share of Rituxan revenues (from 60% US and greater ex-US to 70% US). And then there’s Elan’s change-in-control option on jointly marketed Tysabri – which could soon be providing a quarter of Biogen’s revenues (or more: it’s likely that Tysabri sales are already beginning to cannibalize sales from Biogen’s other MS drug, Avonex).

It’s possible, perhaps, that Elan and Biogen have reached some sort of understanding over Tysabri. But unless that understanding is worth a ton of money to Elan (which an acquirer would end up paying for), we think it would be hugely stupid for Elan to leave Tysabri in any Biogen-acquiror’s hands without extracting a huge fee (the huge fee they didn’t get when, in 2000, they signed the original deal with Biogen) and probably a far better ex-US royalty rate (we think they now get about 13%).

And Elan would have no trouble – zero – raising the money to buy out Tysabri: investors (who could smell high-profit re-sale to any number of large companies) would jam Elan’s offices with their checkbooks. Imagine what product-poor Novartis would pay for a drug to spearhead its efforts in developing an MS portfolio? “For Elan, this is the best thing since sliced bread,” says a banker. In any event, Elan’s hired Lehman Brothers to advise on the issue – and we’re pretty sure Lehman agrees with us.

So are there non-crazy reasons to buy Biogen at something north of $90/share? If you were intent on stretching a point, you could argue that senior management could use the necessity of making such a big bet pay off to bomb a primary-care mindset into the new world of specialty-care product development and marketing. And a small-molecule Big Pharma could suddenly acquire the rare soup-to-nuts biologics capabilities required to make a go of large molecules. For an in-depth discussion, see this October IN VIVO story.

But there are certainly more sensible compromises an acquirer should make if indeed biologics is the primary goal. For a lot less money, an acquirer could buy PDL, Genmab, MicroMet, Seattle Genetics, Human Genome Sciences or Xoma, each of which would bring some of the requisite capabilities. Certainly there’s plenty of hair on each of these companies—none of them have ever marketed a biological, so they lack proven development and regulatory expertise. None of them are free from management challenges. And they don’t all have the manufacturing capacity some buyers might want. But each of them has far more freedom than virtually any Big Pharma to operate within the IP constraints of the antibody world; they all have at least some of the expertise needed…and the rest can probably be acquired piecemeal.

But we don’t think a biologics business is the goal. The goal is revenues. And what Icahn hopes is that growth-starved, cash-rich Pharmas will be willing to pay an exorbitant exchange rate to trade balance sheet dollars for sales.

Incidentally, while Genzyme stock is up about 20% thanks to the Icahn put-them-in-play treatment, we’re also leery of a sale. To our eyes, Biogen CEO Jim Mullen looks pretty eager to cash out. Our bet is that Henri Termeer, Genzyme’s boss, probably wants to stay right where he is – the grand old man of biotech – and that he’d put up a significant fight to stay independent.

UPDATE: Be sure to vote in our highly unscientific poll on the top-left of the IN VIVO Blog. Who do you think Pfizer and its ilk will take out next?

UPDATE II: Poll is closed. Big winner? Biogen Idec, with more than 50% of the vote!