DOTW Keeps Tabs As Tax Trimming Fuels Deals

As an industry, biopharma actually fares pretty well when it comes to taxes. Among profitable companies, biotech and pharma have some of the lowest effective U.S. tax rates compared to companies in other sectors. But that doesn’t mean they have stopped working to push their tax rates even lower.

Along with a recent ramp-up of the usual strategies, such as buying companies or assets based in low-tax locales or moving intellectual property there, the industry also is starting to take advantage of the newest twist on tax inversions – in which two companies in high tax locales, only one of them the U.S., merge and create a new company based in a low-tax country.

The specialty pharma consolidation frenzy is driven in part by tax benefits derived from buying companies in lower tax jurisdictions like Ireland. The spec pharma with the lowest tax rate wins – or at the very least earns the right to leverage all that cash on their books to gobble up higher tax rate competitors, thereby making higher margins on the same products.

Valeant is the obvious winner on this front; it will have an astonishing 2% tax rate in 2014, according to data from RBC Capital. But most recently, taxes were also a factor in the Actavis purchase of Forest Laboratories Inc. Actavis had already lowered its tax rate with the acquisition of Irish-headquartered company Warner Chilcott that completed last fall. Now Actavis can apply that reduced tax rate to a product portfolio that will encompass Forest. Prior to the deal announcement, RBC expected Forest would have a 24% effective tax rate in 2014 and that Actavis’ would be 17%.

And, of course, Perrigo is also a newly Irish company, with its purchase last year of the floundering Elan. But there aren’t a lot of direct routes left to Ireland. The largest independent, public Irish therapeutics company is drug delivery company Alkermes; it’s only one of six remaining that also include another drug delivery play Merrion Pharmaceuticals as well as antibody company Prothena, according to the Strategic Transactions database.

(In Ireland, all roads lead back to Elan. Alkermes garnered its Irish locale after a 2011 merger with the drug delivery unit of Elan, while Prothena is the 2012 spin-out of Elan’s drug discovery business. Merrion is also based on IP purchased from Elan.)

Most biopharmas count themselves lucky to have an effective tax rate in the teens – or even the low 20s. The big biotechs with the highest anticipated 2014 effective tax rates are Biogen Idec Inc. at 27% and Gilead Sciences Inc. at 25%, according to RBC. Between them they’ve had two of the most successful launches in recent years for Biogen’s Tecfidera (dimethyl fumarate) and Gilead’s Sovaldi (sofosbuvir).

Intellectual property for each of these products is domiciled in Ireland in an effort to curb tax expenditures. But that’s a long-term solution that could take years to work. Biogen had a 28.8% non-GAAP tax rate in the fourth quarter. Due to a larger percentage of its profits coming from the U.S. with the Tecfidera launch, the biotech expects the rate to remain at this level through 2014 but for it to subsequently decline in the following two years.

Alexion beefed up its Irish and Singapore operations last year and in January bought an Irish vialing facility for its Soliris (eculizumab). These efforts resulted in tax benefits that are expected to give it a 2014 non-GAAP tax rate of 11% to 12% (GAAP tax rate of 20% to 25%). That’s down from a whopping 51.9% effective tax rate in 2013, which translated into an income tax provision of $273 million. Alexion’s non-GAAP rate is expected to rise to 13% to 14% in 2015 and 16% to 18% in 2016 and beyond, since some benefits are only short-term tax credits.

The most creative tax tactic in the sector is the recent Endo-Paladin deal. The usual approach to tax inversion is for a U.S. company to become the subsidiary of a foreign company. The latest twist on this long-standing move, the third deal of its kind according to RBC, is exemplified by the Endo-Paladin merger, in which a U.S. and Canadian company are merging to form a new entity – in this case, an Irish company.

One risk of being overly imaginative with corporate tax strategy is always bad publicity, as it can trigger allegations of being a ‘tax avoider’ or, even worse, attract the tender attentions of the IRS. Those issues make it difficult for the big multinationals to be very aggressive on the tax front, although becoming enormous hasn't slowed Valeant’s efforts on this front.

The highest corporate income tax rate in the United States is around 40%, including federal, state and local taxes. But at $242 billion in 2012, corporate income taxes are a small percentage of U.S. federal receipts compared to the $1.1 trillion in individual income taxes and $845 billion in social insurance taxes during that year, according to a recent Government Accounting Office report. Since the 1980s, corporate taxes have ranged from roughly 6% to 15% of federal revenue.

Ireland isn’t the only useful tax locality – the top four are the UK, Ireland, the Netherlands and Switzerland, according to RBC. These countries had a 2013 corporate tax rate of 23%, 12.5%, 25%, and 18%, respectively, according to data from KPMG.

Ernst & Young’s Mitchell Cohen, the life sciences global tax leader at Ernst & Young, also includes Belgium (35%, with substantial patent and R&D related deductions and credits), Singapore (17%) and Puerto Rico (20% to 30%) among the ranks of countries with a significant life sciences presence that provide tax benefits.

Among profitable companies overall, the average effective tax rate is 26.6%, according to a current dataset from Aswath Damodaran, a professor of finance at the Stern School of Business at New York University. The profitable pharma companies in his dataset had a 22% average effective tax rate, while the money-making biotechs were at an average of 17.4% That puts both groups in the bottom one-third of corporate tax paying sectors.

And while DOTW can't promise that you'll personally enjoy an effective tax rate of 2% this season, we do want to send you off with this week's deal news. Please read on to discuva the latest, including a pair of preclinical deals and another two that were called off in this week's edition of. . . .

Celgene/Abide: Celgene likes to keep all its options open – to acquire companies, to acquire programs and to license programs. In its latest R&D deal with the preclinical Abide Therapeutics, disclosed on Feb. 28, it included an option to purchase its biotech partner as well as an option to license the rest-of-the-world rights on the first two programs to reach the clinic. Abide’s most advanced compound, AB101131, is expected to enter the clinic in 2015. The biotech expects to get three or four additional candidates into the clinic under the collaboration.  Its technology selectively targets serine hydrolases to develop new treatments for inflammation and immunological disorders. Founded in 2011, Abide was seeded by venture firm Cardinal Partners. Celgene and Cardinal Partners both participated in an undisclosed equity financing concurrent with the deal. Other terms of the deal, including the upfront, also remain undisclosed. Abide is headed by Alan Ezekowitz, an entrepreneur-in-residence at Cardinal Partners who became the biotech’s president, CEO and co-founder. Prior to that, he was at Merck Research Laboratories, the research division of Merck & Co. Inc., as SVP and franchise head of bone, respiratory, immunology and endocrine. Abide’s platform is based on work by Professors Ben Cravatt and Dale Boger of the Scripps Research Institute. The biotech secured its first big biopharma deal last May; it partnered with Ezekowitz’ former employer, Merck. In that deal, it garnered an undisclosed upfront and milestones of up to $430 million to discover, develop and commercialize small molecules against three novel targets to treat metabolic diseases with a focus on type II diabetes. In the last few years, Celgene has done at least three prior deals that included an option to purchase the company: an October 2013 deal with cancer and fibrotic disease company PharmAkea Therapeutics, a July 2013 partnership with toll-like receptor agonist developer VentiRx Pharmaceuticals, and an October 2012 deal with selective small molecule histone deacetylase (HDAC) inhibitor developer Acetylon Pharmaceuticals. - Stacy Lawrence

Roche/ Discuva: Roche and U.K. biotech Discuva are collaborating on the discovery and development of new antibiotics to treat multi-drug resistant gram-negative infections using Discuva’s Selective Antibiotic Target Identification technology platform. SATI uses next-generation sequencing and bioinformatics to identify bacterial targets and select from among them promising drug development candidates. The deal, announced on Feb. 28, fits well with Roche’s revamped research strategy in infectious diseases, a field its R&D organization exited more than 20 years ago, but recently has re-entered. The new, narrower focus is on multi-drug resistant, pathogen-specific, hospital-directed therapies, rather than broad spectrum antibiotics that were Roche’s original focus. Companion diagnostics, an area of strength due to Roche’s long experience in molecular diagnostics, will be important in identifying pathogens. In an October 2013 meeting in New York, Roche’s head of research and early-stage development John Reed outlined his organization’s priorities, noting that the antibiotics field is attractive now in part because “the animal models are good in the clinical context” and the regulatory path is clearer, particularly for safety requirements, thanks to recent FDA guidance.” Discuva will receive an upfront payment of $16 million, as well as research fees and payments on multiple programs of up to $175 million per product upon achievement of certain development, commercial and sales milestones. It will also receive potentially double-digit royalties on product sales. Discuva uses proprietary methods built from recent genomic discoveries to identify targets that affect bacterial growth and viability, as well as related genes potentially associated with development of downstream resistance. The problem of multi-drug resistance to gram-negative infections is growing but has not received as much attention as gram-positive infections. Gram negative pathogens addressed by Discuva include Pseudomonas aeruginosa, Acinetobacter baumannii, Klebsiella pneumonia, Escherichia coli, and Neisseria gonorrhoeae. The company was founded in early 2012, with backing from New Wave Ventures. New Wave’s co-founder Tim Bullock is chairman of Discuva’s board; the amount his firm contributed to the start-up is not public. David Williams is an entrepreneur who founded Sareum, a U.K. oncology biotech that went public on AIM, and previously worked at Millennium Pharmaceuticals, Acambis, and Medivir. - Wendy Diller

Merck/Ariad: The fate of Ariad Pharmaceuticals’ mTOR inhibitor ridaforolimus is uncertain now that pharma partner Merck & Co. has decided to return rights to the cancer drug. Ariad revealed in its year-end financial release Feb. 25 that Merck is terminating a licensing agreement for the development and commercialization of ridaforolimus effective in November. The move creates “a new clinical and business opportunity for Ariad,” the company said in a statement, but management didn’t even mention ridaforolimus during a same-day conference call. Ariad is focused on the re-launch of Iclusig (ponatinib), which re-entered the U.S. market in January for the treatment of leukemia after sales were temporarily halted last year due to safety concerns. The company is also running clinical trials to meet FDA’s post-marketing commitments for Iclusig and to expand its label to new indications. Merck’s decision to end the agreement shouldn’t surprise investors, especially now that the big pharma’s oncology focus has shifted to its PD-1 immunotherapy program. Ridaforolimus was rejected by FDA in 2012 as a maintenance treatment for sarcoma after it failed to demonstrate a benefit on survival in a Phase III trial and only a limited two-week progression-free survival advantage. Under the original 2007 collaboration between the two companies, Merck paid $75 million upfront for development and commercialization rights to ridaforolimus and agreed to pay up to $452 million in development milestones and $200 million in R&D payments; the deal was revised in 2010 to give Merck global rights rather than a U.S. profit split. Merck paid out some $222.5 million in upfront and milestone payments during the life of the deal, according to the Strategic Transactions database. - Jessica Merrill

Teva/Andromeda: In a case of a “No-Deal” possibly leading to another deal – Andromeda Biotech reacquired rights to type 1 diabetes candidate DiaPep277, along with equity, from fellow Israeli company Teva. To undo the firms’ 2007 partnership around the human heat shock protein 60 (Hsp-60)-derived peptide, Andromeda will pay Teva total consideration of approximately $72 million in future installments based upon revenues or proceeds payable to its shareholders.That unraveling of a deal on Feb. 24 was followed by media reports Feb. 26 that Clal Biotechnology, another Israeli company which owns 96% of Andromeda, was working on selling Andromeda and the DiaPep277 program to an undisclosed U.S. biopharma for a price that might number in the hundreds of millions of dollars. At press time, however, a second transaction could not be confirmed. Andromeda said it will continue a 475-patient confirmatory Phase III trial for the candidate. The 24-month, double-blind, placebo-controlled trial is being conducted at more than 100 locations in North America, Europe, Israel and Argentina. Patient recruitment was completed in September 2012 and the trial is expected to produce data by the end of this year. The trial is studying DiaPep277’s ability to preserve the patient’s insulin secretion by the pancreas, with a primary endpoint of maintenance of glycemic control. - Joseph Haas

Thanks to 401(K) 2013 from Flickr for the use of the image, which we find both alarming and strangely beautiful.

JPM Survival Guide: DOTW Keeps the Party Going

The last few years have been quite a bash for biotech. Astoundingly, the NASDAQ Biotechnology Index (NBI) has added more now than it did during the genomics bubble.

Since the current biotech rally started around August 2011, the NBI has increased about 1,500 points. Around the turn-of-the-millennium, the NBI rose around 1,200 points in a year and a half. Then over the following roughly two years, the NBI proceeded to give back all but about 200 points of that gain by mid-2002.

That makes the ongoing, almost two-and-a-half year upswing the longest, highest biotech rally to date. 

Does this make anyone else nervous? Apparently not, at least not yet.  (In December, Mark Schoenebaum of ISI Group circulated a succinct, hypothetical argument for the bear case in biotech. But this is not his view on the sector.)

Going into the 32nd Annual J.P. Morgan Healthcare Conference, optimism in the sector is continuing unabated. The NBI is up over 5% already this year, by market close on Jan. 10.

That doesn’t even include the phenomenal, two-day 516% climb for Intercept Pharmaceuticals after its Data Safety Monitoring Board recommended stopping early for efficacy at an interim analysis of a Phase II trial of its obeticholic acid to treat the liver disease nonalcoholic steatohepatitis. Intercept isn’t an NBI component. In one week, the biotech has leapt from mid-cap into large-cap territory; it now has a market cap of $8.6 billion, up from $1.4 billion ahead of the news.

On the news front at JPM, Wall Street expects Celgene and Acorda will pre-announce 2014 guidance at JPM. Celgene has hinted it may also update its long-term guidance for 2015 and 2017. Exceeding even the very early JPM curve, Eli Lilly and Bristol-Myers Squibb have already pre-announced their 2014 guidance.

Other likely highlights include various details from big biopharmas with recent management changes. We could get hints from Teva about the direction it plans under newly appointed President and CEO Erez Vigodman, as well as some color from Amgen on why CFO Jonathan Peacock is departing.

The above should give you a few talking points, as will the deals discussed below. That’s essential when you run into industry colleagues you are just meeting or seeing for the first time in years.

A list of all the JPM parties is also indispensable. Last year was the first time we saw a spreadsheet of all these events. Despite the fact that the Excel document ran a couple of pages, shockingly there were still a few omissions discovered by us and a hedge fund manager who shall remain anonymous.

One of this year’s versions of the JPM party list, linked to above, has been upgraded to a PDF and carefully annotated to note invitation-only parties. Although we wonder, isn’t this list specifically designed for party crashers? Or, maybe it’s just so we’ll know all the fabulous parties we weren’t invited to? The most prosperous entities at any given time always seem to commandeer the penthouse at the pricey Clift Hotel, but of course no spot is cheap at the height of the conference.

Another JPM must is a lot of hand-washing – someone at the last JPM gave DOTW a horrible case of the stomach flu that felled us by Wednesday afternoon. Not to alarm anyone, but the number of flu cases in the U.S. is peaking right now, with a heavy concentration in the Western states. And a San Jose hospital reportedly set up an over-flow tent because of all the flu patients. So, avoid shaking hands with all those Silicon Valley VCs, unless you really need their money.

And for the ladies: no high heels, please. Unless you’re a former model trained to stand the fourteen hours of pain or you are powerful enough to have a suite where everyone is coming to you. Although JPM has promised it’s working to cut back on some (non-paying) attendees this year, so perhaps there will be ample seating at every major session and the hallway traffic will flow freely. Or not.

Most importantly, remember to 'slip' at least once and call the conference H&Q. So, everyone will know you’ve been coming to the conference for a long, long time.

As promised, we continue below to give you ample party-chatter fodder with the latest on biopharma wheeling and dealing in this week’s missive of  . . .

Forest/Aptalis: Forest Laboratories continues to build on the business development strategy of new CEO Brent Saunders with its $2.9 billion buy of privately-held Aptalis on Jan. 8. The specialty pharma has been trying to flesh out its key therapeutic areas – CNS, CV, GI, respiratory, and anti-infectives – since Saunders took over the top slot in October. This strategy began with Forest’s $240 million purchase of the antipsychotic Saphris (asenapine) from Merck & Co. in December; building on the company’s central nervous system franchise, which includes the antidepressants Viibryd (vilazodone) and Fetzima (levomilnacipran). Aptalis will give Forest multiple products in the GI space – Carafate (sucralfate) for duodenal ulcer disease and Canasa (mesalamine) for ulcerative proctitis, as well as others. The privately held company also has a strong presence in the cystic fibrosis space in Europe, where it owns three of the five approved drugs for pancreatic enzyme insufficiency: Zenpep, Ultrase and Viokase (pancrelipase, in three formulations). Forest sees this as a way of bolstering its Colobreathe (colistimethate sodium) business. The drug was approved in February 2012 in Europe for the treatment of cystic fibrosis patients aged 6 years and older with chronic lung infection caused by P. aeruginosa. The spec pharma hopes eventually to bring those products to the U.S. market. Forest is acquiring all outstanding shares of the TPG Capital-backed Aptalis with a mixture of cash and debt. The company has secured a $1.9 billion bridge loan to close the deal within the first half of the year, pending regulatory review. The acquisition is expected to add $700 million to 2015 revenues and be immediately accretive to earnings. -- Lisa LaMotta

Royalty Pharma/Fumapharm investors: Royalty Pharma – the investment firm that buys up royalty streams on marketed drugs – is doubling down on its investment in Biogen Idec’s multiple sclerosis drug Tecfidera (dimethyl fumarate), the stand out drug launch of 2013. The firm announced Jan. 6 it would acquire more interest in the earn-outs payable to the former shareholders of Fumapharm for $510 million. Biogen Idec gained dimethyl fumarate with the acquisition of Fumapharm in 2006. Royalty Pharma already owns an interest in Tecfidera from a deal inked with Fumapharm investors in 2012, when it paid $761 million for some rights, back before the drug was approved by FDA. Now it’s obvious why Royalty has come back for more. Tecfidera, which launched in April, appears on pace to generate more than $1 billion in its first 12 months on the market. The royalty company won’t say how much of the sales it stands to receive. Fumapharm investors still own rights to a “substantial portion” of the earn-outs, Royalty said. Under a complicated payout scheme laid out in Biogen Idec’s SEC filings it appears the entire earn-out is worth about 10% of Tecfidera sales annually if the drug reaches $3 billion in sales, which it now seems likely to do. -- Jessica Merrill

Biogen Idec/Sangamo: In a move that could help validate its proprietary genome-editing technology and further strengthen its balance sheet, Sangamo BioSciences signed a worldwide collaboration and licensing agreement with Biogen Idec on Jan. 9 to co-develop potentially curative stem cell therapies for sickle cell disease (SCD) and beta-thalassemia. During a same-day conference call, Sangamo President and CEO Edward Lanphier noted that those two hemoglobinopathies are serious diseases with sub-optimal current treatment options. There are a number of symptomatic approaches to treating the two conditions that do not address the underlying cause of the disease. And while a bone marrow transplant of hematopoietic stem cells can be curative, such procedures are rare due to a lack of ideal matching donors and the risk of graft versus host disease. Biogen is paying $20 million upfront for worldwide license to both Sangamo’s zinc finger nuclease technology platform and its preclinical intellectual property for treating the two diseases. Richmond, Calif.-based Sangamo also can earn up to $300 million in development, regulatory, commercialization and sales milestones under the agreement with Biogen, along with double-digit royalties on any product sales. In addition, the biotech has an option to co-promote for either indication in the U.S., a decision which the company will not need to make for some time, Lanphier said. Sangamo will continue to perform all R&D activities through the first clinical proof-of-concept trial in beta-thalassemia, while the companies will work together on the IND-enabling work for the program in SCD. Biogen will be responsible for all subsequent clinical development and commercialization of both programs, and will reimburse Sangamo for its internal and external R&D costs related to both programs. -- Joseph Haas

Johnson & Johnson: To bolster its network of innovation centers, the global health care company said this week it has helped establish a new incubator in Israel and has signed early stage collaborations or made investments with eight biotech and academic groups. Johnson & Johnson is teaming with the Israeli government, Takeda, and venture firm OrbiMed Advisors to open the facility in early 2014, adding to incubators J&J has opened with partners in Montreal, Toronto, San Francisco, and Boston. J&J’s Janssen group also runs an incubator in San Diego. The collaborations or licenses are with Cambridge, Mass. biotech Scholar Rock, to pursue new biologics that target TGF-beta 1 for immune-mediated disease; Intrexon, to develop new consumer hair and skin products; University of Texas's MD Anderson Cancer Center, to develop a translational program for cancer immunotherapy; diagnostic firm Nodality, to hone J&J’s immunology R&D, particularly in rheumatoid arthritis and inflammatory bowel disease; and Dutch firm Bioceros, for exclusive rights to develop a monoclonal antibody against an immune checkpoint modulator. Through its venture arm Johnson & Johnson Development Corp., the J&J Innovation group also announced investments in Assembly Therapeutics, which is developing allosteric modulators to treat Hepatitis B and other viral infections; TopiVert, which is working on topical medicine for inflammatory diseases; and SutroVax, a new entity spun out from antibody platform company Sutro Biopharma to pursue vaccines. -- Alex Lash

And The Roger Goes To ... Our Deals of the Year Winners!

To Claim Award: Ctrl-P, cut along border, tape to plaque (note: plaque not included).

M&A of the Year: Amgen/Onyx

Congratulations to Amgen and Onyx, who've won, with more than 62% of the vote, our M&A of the Year nod. The voters chose the biggest deal -- though there were other interesting nominees we aren't surprised -- and we'll all be watching Kyprolis to see whether the price was right.

Alliance of the Year: Celgene/Oncomed

This one was never in doubt. Celgene and Oncomed knew how to canvass, their Get Out The Vote strategy was clearly second to none (the alliance category tallied about 1000 more votes than the other categories). And even a late push from GSK/Community Care of North Carolina (no doubt helped by voters turning up to support GSK in its close race below) couldn't derail Celgene and Oncomed's cancer stem cell alliance from the top spot. It finished with about 63% of the vote.

Financing of the Year: GSK/Avalon

As of this morning the two leaders in this category -- Children's Hospital of Philadelphia funding Spark Therapeutics and GSK/Avalon -- were separated by only a few dozen votes out of thousands cast. Finally, a race worth watching 'til the end. Spark began to pull away, stretching its lead to a few percentage points with an hour to go. And then GSK/Avalon swung back, pipping them at the post in the waning moments of voting. GSK/Avalon 48%, Spark 47%. The achievement is even more impressive in light of the nature of the also-rans. Calico, Juno, and Editas were all noteworthy debuts in 2013. Ophthotech had possibly the best IPO in a crowded biotech IPO field. None of those four deals received more than a tiny sliver of the vote. 

As always our winners are welcome to make an acceptance speech in the form of a guest post here on In Vivo Blog. Winners, please reach out if you'd like to do so. Thanks everyone for voting again this year, and congratulations to our winners!

2013 Alliance Of The Year Nominee: Celgene/OncoMed

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

Celgene loves the option-based deal almost as much as it loves bringing new oncology candidates into its early-stage pipeline, and Deals of the Year can prove that mathematically.

The big biotech's early December tie-up with OncoMed for a six-pack of anti-cancer stem cell therapeutic candidates was Celgene's ninth deal of 2013, after negotiating seven transactions in 2012. And of those 16, at least nine involve cancer and eight were option-based agreements.

The deal once again put Celgene at the forefront of early-stage oncology dealmaking and added to the already impressive smorgasbord of drug candidates and technologies to which it holds rights or options. This is not to say the complicated deal with OncoMed was business as usual, for it was one of the most complicated agreements of the year in biopharmaceuticals, necessitating a term sheet that might have resembled a Rube Goldberg machine, and quite lucrative for OncoMed -- potentially very lucrative.

To wit: Celgene paid $177.25 million up front ($155 million cash along with a $22.25 million equity investment in OncoMed, which totaled 1.47mm shares at $15.13, a 15% premium.) It also committed to a myriad of milestones dependent on the success of up to six different projects.

In return, Celgene will receive option rights on six novel stem cell therapeutic candidates, including the lead asset, demcizumab (OMP-21M18), a humanized MAb inhibitor of Delta-Like Ligand 4 (DLL4) in the Notch signaling pathway. The deal also covers five preclinical or discovery-stage large-molecule programs to target cancer by stopping cancer stem cells from replicating and/or differentiating such cells to make them more vulnerable to chemotherapy. Celgene gets full license to one of the preclinical programs, while OncoMed retains U.S. co-development and co-commercialization rights on the other five assets.

Celgene can exercise its option on demcizumab after the completion of planned Phase II studies. The antibody is being tested in three Phase Ib trials with standard of care: with gemcitabine and Abraxane in first-line advanced pancreatic cancer, with carboplatin and pemetrexed in first-line advanced NSCLC, and with paclitaxel in patients with platinum-resistant ovarian cancer. The last of those is a Phase Ib/II study being conducted at MD Anderson Cancer Center.

If Celgene options demcizumab, the two companies will share global development costs, with Celgene covering two-thirds of the expense. If the drug is approved by FDA, they will co-commercialize it in the U.S., with 50/50 profit sharing. Outside the U.S., Celgene would develop and commercialize the antibody, with OncoMed eligible for milestones and tiered double-digit royalties.

In September Celgene got label-expansion approval for Abraxane to treat pancreatic cancer, which Hastings says is the greatest unmet medical need in cancer at present. But the executive said Celgene was motivated just as strongly by demcizumab’s showing to date in NSCLC patients.

“They were equally impressed with the NSCLC data, in terms of response rate and some durability that we’re seeing there,” Hastings said. “What this deal enables us to do is more Phase II studies than we would have done on our own, so we’ll be looking at additional Phase II studies beyond these two to give the drug multiple shots.”

Celgene also gets rights to OncoMed’s preclinical anti-DLL4/vascular endothelial growth factor bispecific antibody, as well as four preclinical or discovery-stage biologics programs that target other cancer stem cell pathways, including RSPO-LGR, a pathway in which human R-spondin proteins are targeted by antibodies to disrupt binding with their receptors, the leucine-rich repeat-containing G-protein coupled receptors. Celgene’s exclusive license is to one of those four biologics programs.

For the four programs not outright-licensed by Celgene, the Redwood City, Calif., biotech gets terms similar to those negotiated for demcizumab – two-to-one global development cost-sharing with Celgene covering the larger portion, 50/50 U.S. co-commercialization with profit-sharing, and mid-single-digit to mid-double-digit royalties on sales outside the U.S. For the licensed program, OncoMed can earn mid-single-digit to mid-double-digit royalties on worldwide sales.

Got all that? If you care about bio-bucks totals, OncoMed could earn more than $3 billion over the lifetime of the collaboration, if virtually every box in the agreement gets checked off. Even if earn-outs don't reach 10 figures, though, it's a lucrative and validating deal for OncoMed, which just raised $88.8 million in an IPO this past July.

image via Wikimedia commons

Deals Ot The Week Searches For Meaning In Deal Breakups

 It’s been a ghoulish week for deal-making – only half a handful of deals made it onto our list of noteworthy new transactions.

We could not spot one, large or small, involving big pharma or specialty companies. Nor could we see any particularly compelling reason for the interlude. A number of the largest and most active deal makers are adjusting to new leadership and reorganizations, among them Shire PLC, AstraZeneca PLC, Bayer AG, Merck & Co. Inc., and Teva Pharmaceutical Industries Ltd. Certainly, the abrupt resignation of scientist-executive Jeremy Levin as CEO of Teva was a management deal gone bad, leaving the world’s largest generics company adrift and its board of directors on the defensive against a bewildered and angry Wall Street.

That led us to reflect on business deals gone bad and – a trip to the virtual deal cemetery – Deals of the Week’s ‘No Deal’ designation. For the year to date, DOTW has tracked 10 noteworthy terminations, a figure that is in line with stats for the past three years. It’s impossible, or rather meaningless, to speculate much about commonalities among these deals. It’s likewise impossible to extract trends based on, say, the ratio of deals that don’t pan out to those that do. Discarded deals covered a range of therapeutic areas and most involved a big pharma abandoning a biotech collaboration. But breakups occurred at all kinds of points in time and at different phases of development.

A romp among the headstones: GlaxoSmithKline PLC pulled out of a licensing agreement with ChemoCentryx Inc. in September, over Crohn’s disease candidate vercimon following a Phase III miss; ChemoCentryx is trying to figure out why the GSK-led study failed while the Phase II succeeded. Teva itself was the source of several ‘No Deals’ in the course of the year, as its new CEO – now gone – and his management team undertook a pipeline review that resulted in handing back solid tumor therapy Rx 3117 to Rexahn Pharmaceuticals Inc. Also canned was the Israeli generics maker’s much larger, high-profile four-year-old biosimilars pact with biologics manufacturer Lonza Group, which is doing its share of soul-searching and dealing with its own management upheaval.

Amgen Inc. ended a 2009 collaboration around a Type-2 diabetes program with Array BioPharma Inc. Perhaps the fissure with the biggest ramifications was AstraZeneca’s termination of a collaboration with partner Rigel Pharmaceuticals Inc. around the Phase III rheumatoid arthritis drug fostamatinib. Although that deal involved only one asset, it was expensive – AZ paid $100 million upfront – and emblematic of AZ’s ongoing pipeline problems.

But we couldn’t bear to end the week on such a downbeat note, with an energetic meeting like Partnering For Cures about to begin on Monday in New York. This meeting, funded by The Milken Institute, now in its fourth year, is a showcase for venture philanthropy and aims to bring together non-profit disease foundations, patient advocacy groups, investors and biopharma companies in order to look for ways to fund gaps in financial support of innovative medicines for deadly diseases.--Wendy Diller (Thanks to Hollywood Gothique for photo)

Leukemia & Lymphoma Society/ Stemline Therapeutics: One of the few deals announced this week involved one such venture philanthropy initiative. On Oct. 29, the non-profit Leukemia & Lymphoma Society and two-year-old biotech Stemline Therapeutics Inc. announced a partnership to speed up development of a cancer stem cell therapy, SL-401, for the treatment of acute myeloid leukemia and blastic plasmacytoid dendritic cell neoplasm. The latter is a rare hematological disorder with characteristics of both leukemia and lymphoma. LLS is committing more than $3 million to help develop the drug and support an educational program around BPDCN.

The drug has demonstrated efficacy in patients with advanced AML and BPDCN, including multiple durable complete responses in both indications, a greater than 80% overall response rate in BPDCN, and an improvement in overall survival of third-line AML patients relative to historic data, the companies said in a press release.

LLS wouldn’t provide much information about the compound or the deal, but it has a long track record in funding early stage research in blood cancers and getting some of those projects into the clinic.  It awards about $60 million in grants to academic investigators each year, and at any one time has about 300 grant-sponsored projects underway. Because of its close, long-standing ties to academia, it has deep expertise in science and a network of contacts that can facilitate progress of successful development programs, said Louis DeGennaro, the society’s chief mission officer and a scientist by training.

The effort to bring industry closer into the LLS fold began after DeGennaro joined the organization eight years ago, when it had the broad grant program for academics but little else in place to facilitate getting promising research projects through what is referred to as ‘the valley of death’. About 10% to 15% of the projects it funded moved into development, but it was tough to do FDA-compliant studies in an academic environment, he recalled in an interview. In 2008, DeGennaro started the society’s Therapeutic Acceleration Program to assist investigators and companies in filling in that gap, harvesting programs from its research portfolio as well as early-stage programs underway at biotech companies that could be effective in treating blood cancers, but were not being developed because of economic or other concerns.

LLS provides these companies with non-dilutive capital, expertise and access to networks of key opinion leaders and contract research organizations; in exchange, the recipient company has to agree to continue work on the project for a period of time after LLS funding has ended. The largest subsidy to date is $12 million, and the development timeline of interest is from late preclinical through Phase III.

LLS does not ask for equity or take a typical private-sector return; it seeks comparatively small milestone payments tied to approval of the drugs it funds in major markets, as well as a small royalty. The aim is to provide enough capital for companies to advance a compound to the point where they can attract private-sector funding. Nor does LLS retain intellectual property on the products it funds; it wants the asset to be unencumbered when its owners look for outside financing, he added.

One LLS relationship in particular, with Celgene Corp., continues to expand. About a year and a half ago, the organizations entered into a partnership, which Celgene is supporting, and which LLS and Celgene are administering. In its simplest terms, the partners use a grant program to vet and fund early-stage research, and Celgene gets first right of negotiation for intellectual property coming out of the programs over a protected period of time. If it is interested, the big biotech then has the right to negotiate with the academic investigator and his or her institution. LLS does not participate in any deal Celgene works out.--WD

Cancer Research Technology/ Chroma Therapeutics: Cancer Research Technology (CRT), the commercial arm of the charity Cancer Research UK, is accelerating its support of early biotech research through a deal with the U.K.'s Chroma Therapeutics Ltd.

With funding from the CRT Pioneer Fund (CPF), Chroma will move a lead molecule, a mitogen-activated protein kinase (p38) inhibitor, towards clinical trials, with the CPF receiving rights to further develop and commercialize any resulting products, CRT announced Oct. 31. Chroma attaches chemical motifs onto drugs that are freely transported into cells but then cannot exit. The therapeutic molecule then accumulates within tumor-associated macrophages, reprogramming them to attack tumors, the company explained. The deal is the third made by the $80 million asset-centric CPF, which was set up in 2012 by CRT, the charity, and the European Investment Fund.--Sten Stovall, John Davis
 

Adimab/ Alector: The formation and financing of Alzheimer’s disease-focused Alector LLC ties what its founders call “unique biological insight” with the prolific antibody discovery platform of Adimab LLC – and demonstrates private investors’ appetites for making distinct bets on discovery and development opportunities.  

Alector, which announced an undisclosed amount of Series A financing Oct. 31, is the second R&D-focused biotech to spring in part from Adimab’s antibody discovery engine. The company is not a spin-off of Adimab; instead it holds a license to Adimab’s technology and aims to exploit novel biology elucidated by co-founders Asa Abeliovich and president and CEO Arnon Rosenthal.

The terms of the deal between Adimab and Alector are extremely flexible. In the near term, Alector will cover fee-for-service costs associated with Adimab’s discovery process. But it essentially accesses Adimab’s antibody discovery technology for free. Downstream there are different flavors of project-specific licensing options depending on Alector’s financial and strategic priorities. These range from heavy upfront and milestone deals that are royalty free through to all-royalty deals that are back-end loaded.

Alector and Adimab are separate companies, but the newco is part of the Adimab family tree. Alector’s chairman and co-founder is Tillman Gerngross, co-founder and CEO of Adimab, and co-founder of Arsanis  (a similar Adimab-offshoot in the infectious diseases space) and other companies. Adimab co-founder and COO and Arsanis director Errik Anderson is also an Alector co-founder. And Alector’s backers – the company simultaneously announced an undisclosed Series A financing – are Adimab investors Polaris Venture Partners and Orbimed Advisors; Polaris general partner Terry McGuire and Orbimed general partner Carl Gordon, both Adimab directors, also sit on the Alector board.--Chris Morrison

 

And then there's the:

Numab/Sucampo: Yes, there’s another “No Deal” this week. The Zurich, Switzerland-based company Numab AG announced Oct. 29 that it had reacquired rights to an investigational bispecific antibody fragment, ND003, from its collaborator, Sucampo AG, a subsidiary of Sucampo Pharmaceuticals Inc., and intended to develop the compound further as an inhaled therapy for severe asthma. Further financial details of the agreement were not disclosed.

The two companies entered into a multi-target collaboration in 2011, just months after Numab was founded, aimed at discovering high-affinity antibodies with sub-picomolar affinities against difficult-to-reach targets. Sucampo would retain exclusive commercial rights to any potential products identified, in return for research funding and other potential payments.

Numab says it is now raising Series A financing to advance ND003 and another compound, the potential anti-inflammatory ND007, to the next value inflection point.  ND003 is expected to be administered by inhalation, thereby attacking lung-resident eosinophils that play a role in severe asthma but are difficult to reach with systemic-administered antibody-based products, the Swiss company noted. ND003 targets interleukin-5 receptors on eosinophils, rapidly depleting their number. --SS, JD