Deals of the Week Takes Stock in M&A

Here at Deals of the Week, we don’t often take note explicitly of buyouts outside the biopharma sphere. But one well-publicized tech deal last month piqued our interest – and it parallels another recent pharma deal in a way we found curious.

As you may have heard, social networking giant Facebook wowed the tech field with its February takeout of smartphone communications app developer WhatsApp for a jaw-dropping $16 billion plus an additional $3 billion in employee-retention bonuses, reportedly the largest-ever acquisition price for a private, venture-backed company. (We’ll note in passing that one of the deal’s biggest winners, venture firm Sequoia Capital, is also a life sciences investor.)

Now, $19 billion is a lot of scratch – it’s a bigger pile of cash than the gross domestic product of Jamaica, and it’s in the ballpark of the price Sanofi paid for Genzyme in 2011. But a closer look at the WhatsApp deal’s terms reveals that Facebook paid just $4 billion in cash – a quarter of the deal’s baseline value – and the balance, including the retention bonuses, in its somewhat volatile stock. It’s a common formula in tech, a sector in which speculative value far outpaces revenue in many cases.

In the biopharma world, such arrangements traditionally are unheard of – but that might be changing. While many pharma mega-deals include both cash and stock components, most feature bigger cash portions than paper value. Just over a third of the $68 billion Pfizer spent to acquire Wyeth in 2009 was in stock, with the rest coming in cash; Johnson & Johnson’s $21.7 billion deal for Synthes in 2011 was in the same league, weighted roughly 65%-35% in favor of cash.

That’s why Actavis’ pending $25 billion deal to acquire Forest Laboratories last month was so unusual. Actavis paid just $26.04 per share, or 29% of the total $89.48-per-share purchase price, in cash, and swapped its stock for the rest. So there’s financial risk involved: If Actavis shares fluctuate, the deal’s total value could go up or down rapidly, perhaps before it even closes. (We note that the Facebook/WhatsApp deal technically gained more than $600 million in value before it was even announced, since its stock component was based on an already-outdated five-day average of Facebook’s share price.)

It’s not the first mega-buyout to favor equity over the hard stuff; Merck’s $42 billion buyout of Schering-Plough was tilted slightly in favor of stock over cash, with 56% of the price paid in equity. But rarely are large pharma deals ever consummated with paper value vastly outweighing cash money; it’s even less likely with smaller deals. A search of our Strategic Transactions database of reveals that only about one in 10 biopharma deals since 2008 falling into the “bolt-on” range – those ranging from a few hundred million dollars to a few billion – had a stock component.

Some life sciences companies, particularly those living off their sunny growth prospects rather than established, dividend-paying, cash-rich ones, soon could find that their stock is becoming a valuable deal-making currency. And with biotechs soaring in the public markets, some of them look like good candidates for stock-heavy deals. Like Actavis’ stock price, the Nasdaq Biotechnology Index has doubled since November 2012. Emilio Ragosa, a partner with Morgan Lewis & Bockius’ mergers-and-acquisitions practice, said mid-cap biotechs – those valued around $1 billion – are in the sweet-spot. “They tend to have less cash, but their stock is appreciating more rapidly,” he said.

Big biotechs and specialty pharmas, responsible for most of the M&A deal-making action in 2013, are enjoying exceptionally high valuations, but don’t always have big pharma-like cash flow. They’re good candidates to use their strong stock prices to beef up their businesses without denting their cash piles severely.

It’s unlikely that big pharmas will change this aspect of their deal-making strategies much; as Ragosa notes, “They have enough cash on their balance sheets.” Ever sensitive to their quarterly earnings, most large pharmas will continue to avoid using stock to take out biotechs. Seven of the top 50 cash holdings among U.S. companies belonged to pharmas, according to a 2013 Moody’s report; six were sitting on double-digit billions, led by Pfizer. - Paul Bonanos

Transactional activity has been as slow as a snowy Interstate lately, but we’re still taking stock of the latest alliances in...

Biogen/Eisai: Biogen Idec teamed up with Japanese pharma Eisai on March 5 to potentially co-develop and co-commercialize four compounds for the treatment of Alzheimer’s disease. While specific financial details weren’t released, Biogen will pay Eisai an upfront payment of undisclosed size, as well as a fixed number of milestones based on development, regulatory and commercial events. The team also will split worldwide profits on the drugs should they reach the market. Eisai will take the lead on the first two compounds, which it will provide. The first is a beta-site amyloid precursor protein cleaving enzyme (BACE) inhibitor dubbed E2609; Eisai discovered the compound in-house, and is about to begin its Phase II trials. The second monoclonal antibody, BAN-2401, is already in Phase II trials; it’s an immunotherapy designed to break down beta amyloid plaques after they develop. Eisai also has the option to jointly develop and commercialize Biogen’s two in-house Alzheimer’s candidates, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody, both of which are in very early stages. The BACE inhibitor space has been heating up as Merck pushes its candidate into Phase III and AstraZeneca follows closely on its heels. Both Roche and Lilly have ended programs in the space after safety signals cropped up in clinical trials. There hasn’t been any proof so far that the safety issues are class-wide, but the industry is keeping a close watch for any signs. - Lisa LaMotta

Genocea/Harvard/Dana-Farber: Fresh from its initial public offering last month, vaccine specialist Genocea Biosciences struck a research deal with Dana-Farber Cancer Institute and Harvard Medical School to study cancer immunology. Under the March 5 alliance, researchers will use Genocea’s proprietary T cell antigen discovery platform to find antigens that correlate with an anti-tumor immune response in melanoma patients. Charitable scientific network Ludwig Trust will sponsor the research; terms weren’t released. The research will play off existing work by Dana-Farber’s Stephen Hodi and Glenn Dranoff in anti-CTLA-4 therapies such as Bristol-Myers Squibb’s Yervoy (ipilimumab). Harvard microbiology and immunobiology professor Darren Higgins will lead the development of a cancer antigen protein library, which will be screened against patient-derived cells using Genocea’s platform in order to seek a correlative immune response. After an initial lukewarm reception, Cambridge, Mass.-based Genocea shares have rebounded, rising more than 50% since the company’s February 5 debut. The company is best known for its clinical pipeline of anti-infective vaccines, including therapies and preventive treatments for herpes simplex virus-2, pneumococcus, chlamydia and malaria. Its most advanced program is GEN-003, a Phase II therapy for HSV-2. - P.B.

NeoStem/Massachusetts Eye & Ear/Schepens: Cell therapy developer NeoStem also inked a deal with some of Harvard Medical School’s tentacles, entering a research collaboration March 6 with Massachusetts Eye & Ear and the Schepens Eye Research Institute. The publicly traded, New York-based stem cell company will sponsor research by Michael Young, director of Mass. Eye & Ear’s ocular regenerative medicine institute, into various eye disorders; financial terms were not revealed. The deal will fund Young’s research using NeoStem’s proprietary very small embryonic-like stem cells, or VSELs. The scientist will perform preclinical work to find uses of NeoStem’s VSEL products to combat degenerative disorders such as retinitis pigmentosa and macular degeneration. Both Mass. Eye & Ear and Schepens are Harvard Medical School affiliates. NeoStem previously has used its VSELs clinically as wound-healing therapy and to treat periodontitis; the company also has targeted cardiovascular diseases and autoimmune disorders. The eye also has been a popular target for gene therapies, thanks to its closed system and immune-privileged status. That has led to several recent fundings of companies with preclinical and clinical-stage programs. - P.B.

Thanks to Flickr user ProAeroPhoto for his photo of a different way to trade cash for stock, reproduced here under Creative Commons license.

Deals Of The Week: New Academia/Industry Partnership Template In Eisai/JHU Collaboration?

As founder and president of a coalition working to enhance academic drug-discovery and collaborations between academia and industry, Barbara Slusher has a good idea of the advantages and pitfalls of such arrangements. She points to ongoing work between Japan’s Eisai and Johns Hopkins University, where she serves as director of neurotranslational drug discovery at the medical school’s Brain Science Institute, as a potentially more mutually rewarding template for academic/industry tie-ups.

In October 2011, Eisai signed a five-year drug-discovery alliance with JHU, initially slated to focus on central nervous system targets. Slusher, who heads up the Academic Drug Discovery Consortium (ADDC) in addition to her responsibilities at JHU, said the partners are about 18 months into a partnership currently focused on two targets, one undisclosed. The other is aimed at identifying drug-like molecules that inhibit xCT, a glutamate cysteine exchanger that Eisai believes could offer potential in combating inflammatory disease.

Barbara Slusher, JHU Brain Science Institute
and Academic Drug Discovery Consortium

Under this alliance, written to last the greater of five years or to the completion or termination of all related projects, the Brain Science Institute reviews target research throughout JHU’s roster of researchers and presents potentially novel and interesting targets for Eisai’s review. Eisai then selects the targets of greatest interest for the high-throughput screening collaboration.

The compound libraries generally available to academic researchers are not as large, diverse or drug-like as those found within a biopharmaceutical company’s library, developed through years of wide-ranging R&D work, Slusher said. Slusher came to JHU in 2010 after working in drug discovery at five biopharma companies, including Eisai, and set a goal of establishing collaborations offering greater potential for academic discovery work.

“One of the things that my team did when we first came to Hopkins was try to establish a relationship with a pharma company such that if any targets we identified were of interest to the company, we would develop a high-throughput screening assay, share that with the company, and they would screen using our assay and compound library,” she said.

“At the point that they find hits, they then transfer those back to my team here and we do all the drug discovery and chemistry to identify a compound to get to the clinic,” Slusher added. “At that point, Eisai has first rights to license that compound.”

“The exciting thing about this collaboration is that it is truly a win/win,” she continued. “From my perspective, academia is excellent at identifying new targets of therapeutic interest, but our screening ability is limited due to the size and quality of the compound libraries available. Our collaboration with Eisai gives us access to a real pharma library. From the Eisai side, the collaboration provides access to new targets and novel therapeutic approaches.”

Lynn Kramer, Eisai’s chief clinical officer and president of its Neuroscience and General Medicine Product Creation Unit (PCU), concurs, saying the JHU tie-up and a similar partnership with University College London, offer Eisai “a novel target identification program that incorporates early drug development.”

“For us, it expands the novelty of our programs and it’s designed to utilize the best skills from each of the two partners to facilitate drug development and pass the compounds back and forth between our strengths and their strengths,” he said. The Brain Science Institute is a little unique from an academic perspective in that it has a number of people who have a lot of drug-development experience in pharmacokinetics, medicinal chemistry, toxicology and animal models,” skills that increasingly are available in top academic medical centers as they try to move up the research value chain.

Lynn Kramer, Eisai

Slusher’s team sorts through the most-promising research from a consolidated team of about 550 researchers to find target prospects for Eisai. His company therefore has access to the most concentrated group of neuroscience researchers outside of Boston, but with a single point of contact and first rights to option programs, Kramer said. JHU advances the programs selected by Eisai as far as the IND-ready stage, with pre-arranged terms for licensing fees, milestones and royalties on those assets it takes in-house.

“Eisai has the ability at multiple stages to come in and acquire the project,” Slusher said. “Depending upon when they in-license, the value derived by the university varies. If Eisai in-licenses the drugs early in the process, Johns Hopkins derives less value than if they in-license late in the process. It’s correlative to the amount of effort we’ve put in.”

About 18 months into the collaboration, JHU has developed assays for the two targets, Eisai has conducted high-throughput screening and is now sending first hits back the university for the next stages of work. “We probably have a year or two of chemistry and drug discovery to do before leads will be identified as options for the company,” Slusher noted. “This whole process probably likely will take three to five years.”

Kramer would not specify Eisai’s internal goals for producing a first clinical candidate from the partnership, other than to say “our goal is in the not-too-distant future – by that I don’t mean in a year. This takes a while.”

In general, Kramer thinks further collaboration with academia will be beneficial for his company. ADDC, founded in 2012, intends to serve as a clearinghouse for both academia and industry on research taking place within U.S. and international drug research programs. It doesn’t do tech-transfer work itself, but aims to make it easier for academics and biopharmaceutical companies to work together.

“You see from our two associations that they’re very flexible,” Kramer said. “We have gotten away from a lot of the intellectual property issues that used to plague the industry, because we’re really interested in molecule IP, not target IP, which used to lead to years of back and forth and impaired academic development. By getting over that hurdle, I view the academic groups as our ‘bread-and-butter’ for novel targets. It’s very hard in the industry to develop a novel, previously unidentified target – it’s too expensive and takes too long.”

It wasn’t just the academic world that biopharma companies were dealing with this past week, though. Read on for …

Teva/NuPathe: Teva expects to launch the migraine patch Zecuity (sumatriptan iontrophoretic transdermal system) in the first half of 2014 after acquiring the developer, NuPathe. The two announced the acquisition plans Jan. 21, with Teva’s $3.65 per share offer, approximately $144 million upfront, trumping rival bidder Endo’s proposal of $3.15 per share. Teva, which needs near-term revenue generators, gains a new product to add to its specialty central nervous system portfolio. FDA already approved the drug in January 2013, but NuPathe held out on commercializing it in order to find a partner. The drug is the only patch approved for migraine. The Israeli pharma’s offer represents a significant 58% premium over the $2.30 NuPathe shares closed at on Dec. 13, the last business day before Endo announced its intentions to buy the company. But it doesn’t offer much financial reward for longer-term investors. NuPathe’s stock opened at $3.80 about a year ago, on Jan. 18, the day after Zecuity was approved by FDA. NuPathe investors could receive additional payments, however, of up to $3.15 per share based on the future sales performance of Zecuity. Investors will receive $2.15 per share if net sales of the product are at least $100 million in any four consecutive calendar quarters on or prior to the ninth anniversary launch date. Another $1.00 per share in cash is payable if sales are at least $300 million in any four calendar quarters over the same time period. - Jessica Merrill

Par Pharmaceuticals/JHP Pharmaceuticals: Par Pharmaceutical is looking to expand the types of generic drugs it can offer beyond the solid, oral-dose pills it has been producing for years. The Woodcliff Lakes, N.J.-based company announced Jan. 21 that is has entered into an agreement to acquire privately held JHP Pharmaceuticals for $490 million in cash, a 2.5x return on investment for JHP’s main investor, private equity firm Warburg Pincus. Par has arranged for $505 million in debt financing to cover the deal and related costs. JHP and all of its assets, including a sterile manufacturing facility in Rochester, MI, will become a wholly owned subsidiary once the deal closes later this quarter. JHP was launched in 2007 when it acquired biologics contract manufacturing assets acquired from King Pharmaceuticals (now part of Pfizer) for $92 million. JHP performs contract manufacturing services worldwide for pharma and biotech customers, producing sterile injectables that require liquid, lyophilized and suspension formulations. The King deal also included branded hospital and acute-care drugs that JHP distributes. The main appeal of JHP to Par is the 14 specialty injectables that it already has on the market, as well as 30 additional candidates it has in its pipeline. Par is looking to expand into high-barrier-to-entry injectable generics as some of the major players in that space falter due to manufacturing problems. - Lisa LaMotta

Biocon/Advaxis: India’s Biocon and New Jersey biotech Advaxis announced an exclusive licensing pact Jan. 22 for co-development and commercialization of ADXS-HPV, a novel cancer immunotherapy for treatment of human papillomavirus (HPV)-associated cervical cancer in women. The deal covers India and key Asian emerging markets and gives Biocon access to Advaxis’ innovative and proprietary technology for the development of other novel therapeutics. Advaxis recently completed Phase II clinical trials in patients with recurrent cervical cancer in India, and the immunotherapy also is being evaluated in three clinical trials for HPV-associated cancer like recurrent advanced cervical cancer, head and neck cancer, and anal cancer. A spokesperson for Advaxis said the company will receive double-digit royalties on all sales of its immunotherapy product. The biotech will have exclusive rights to supply ADXS-HPV to Biocon, and Biocon will be required to purchase its requirements of ADXS-HPV exclusively from Advaxis at the specified contract price, which may be adjusted periodically. In addition, Advaxis will be entitled to a “six-figure” milestone payment if net sales of ADXS-HPV for the contract year following the initiation of clinical trials in India exceed certain specified thresholds. - Vikas Dandekar

McKesson/Celesio: In a “No Deal” that has turned into a deal, 10 days after saying its proposed acquisition of German drug wholesaler Celesio had fallen through, U.S. drug wholesaler McKesson has reached agreements that will allow it to complete the purchase after all. McKesson launched its bid to greatly expand its global reach through Celesio in October 2013. However, on Jan. 13 it announced that the deal could not be completed due to its failure to acquire 75% of outstanding Celesio shares through a tender offer. Then, in a Jan. 23 release, McKesson said it had reached an agreement with Franz Haniel & Cie. GmbH to acquire its entire holding of Celesio shares at €23.50 per share and another agreement with an affiliate of Elliott Management to acquire Celesio convertible bonds, which will be enough to give McKesson more than 75% ownership of Celesio on a fully diluted basis. The transactions are expected to close within 10 business days. McKesson plans to launch a voluntary tender offer to purchase shares from the remaining minority shareholders shortly after the close of the other transactions. The company said it will consolidate the financial results of Celesio during its fiscal fourth quarter ending March 31, and McKesson’s earnings will reflect its proportionate share of Celesio’s earnings. It expects to realize annual synergies of between $275 million to $325 million four years after the close of the deal. - Scott Steinke



Photo credits: Johns Hopkins University, Eisai Co. Ltd.

Deals Of The Week Road-Tests Biopharma Options

More options are always better, right? Obviously, that’s a “yes” when it comes to building our dream Tesla Model S. But big biopharma is getting nowhere fast with deals that build in options to license drug candidates.

The number of option-to-license deals executed peaked at more than 30 in 2009, when biotech financing had dried up in the wake of the 2008 U.S. economic meltdown, and has declined every year since, according to data from Elsevier’s Strategic Transactions database. That’s only counting deals with an option-to-license as the main component. What has big biopharma accomplished with its slew of option deals in the last decade and a half? Not much, so far. Even though option-based partnerships can be cheap, they also rarely offer results.

Option-to-license deals, or option-alliances, are often a way of making a half-hearted bet on biotechs’ riskiest, early-stage candidates and technologies. For small biotechs, the extent to which they rely upon these deals can be a sign of their relative fiscal desperation. Option-alliances lock up biotech assets very early, with a high level of continued uncertainty (and development costs) for the biotech and a capped future potential upside.

For pharma, these deals are a bargain – pay a little upfront and part of early-stage R&D costs and then pick up rights to a candidate, or not, typically after clinical proof-of-concept data emerges. Biotechs are able to retain control of their assets for a while longer, potentially allowing them to move development forward faster.

We analyzed all R&D-based option-alliances with a disclosed potential value of $100 million or more. That’s almost 120 deals, some dating back as early as the late 90s. Many of the more recent ones remain active, of course; these deals typically extend over at least three or four years. Most of the remaining deals either expired or were terminated. We could only find seven of these $100M+ deals that actually resulted in option exercises, and some of those later blew up in the clinic.

GlaxoSmithKline is a nice case in point. It has been one of the most active R&D options dealmakers, with at least 18 of these deals, most of which were initiated from 2006 through 2009. A few of GSK’s option-alliances have resulted in abject disappointments – most prominently with Nabi Biopharmaceuticals for the smoking cessation product NicVax, which failed in Phase III. Last year, Nabi merged with Biota.

Others got shunted to the side due to changes in GSK priorities (a $1.5B bio-bucks deal w Targacept was terminated in 2011 as the pharma left neuroscience) or as biotechs became defunct (after a $1.2B bio-bucks deal in 2007, Epix Pharmaceuticals then slid out of existence in 2009). Several of GSK’s option-to-license deals were done under its Center of Excellence for External Drug Discovery (CEEDD), which silently sank under waves of corporate restructuring around 2010.

(GSK is undeterred from experimenting with its approach to external, early innovation. This week it picked the first set of winners from a discovery-stage academic competition. See below for further details.)

The pharma does have several ongoing option-alliances, including at least four with companies that recently IPO’d. One is an option to back-up compounds for Duchenne muscular dystrophy (DMD) from Prosensa; GSK is partnered with the biotech on lead compound drisapersen, which failed in Phase III testing to treat DMD in September. Optimists are hoping its exon skipping technology has progressed since the first iteration and are looking for an effective DMD treatment among Prosensa’s back-up compounds, some of which GSK can option. Prosensa is the worst-performing 2013 IPO, down 72%.

GSK also has an anti-inflammatory and HCV deal with microRNAi company Regulus Therapeutics, initiated in 2008 and expanded in 2010; an anti-cancer stem cell antibody deal with OncoMed Pharmaceuticals that was for four candidate originally from 2007, but was cut down to two candidates in 2011; and a discovery deal with Five Prime Therapeutics for skeletal muscle diseases and muscle wasting targets and candidates that was originated in 2010 and expanded in 2011.

GSK has exercised its options at least twice, but both times candidates were returned. In 2010, it optioned Anacor Pharmaceuticals’ Gram-negative infection treatment and then subsequently returned it a few years later. That same year, it optioned Traficet-EN (now vercirnon) from ChemoCentryx. This September, GSK returned rights to the candidate for all indications. The pharma retained CCX354 for rheumatoid arthritis, which it also optioned. It may still option a third candidate under the 2006 deal.

Despite keeping a lot of options open, no one’s going anywhere fast. But we’re keeping our eyes on the road, moving ahead to all the latest deals (including loads of academic and discovery partnerships) in this edition of…

Salix/Santarus: The union of Salix Pharmaceuticals with Santarus creates a billion-dollar gastrointestinal specialty pharma that holds U.S. rights to fast-growing diabetes drug Glumetza (metformin extended release). Salix agreed Nov. 7 to pay $32 per share in cash for San Diego-based Santarus, valuing the company at $2.6 billion; its combined annual revenues would be about $1.3 billion based on their most recent quarterly performances. Salix has relied heavily on Xifaxan (rifaximin) for traveler’s diarrhea caused by Escherichia coli infections and hepatic encephelopathy; it produced $514.5 million in 2012 revenues, about 70% of the company’s total product sales. But it says the conjoined entity will be more diversified, with no drug accounting for more than half its revenues. Glumetza, a drug Santarus shares with Depomed, has delivered $131.4 million in revenue to Santarus in the first nine months of 2013. The buyout price represents a 37.8% premium over Santarus’s Nov. 7 closing price of $23.22. Raleigh, N.C.-based Salix had about $817 million in cash at the end of the third quarter, but intends to finance the deal with $1.95 billion in debt and a $150 million revolving credit facility from Jefferies Finance, as well as nearly all of its cash on hand. - Paul Bonanos

Roche/Polyphor: Switzerland-based Roche signed an exclusive global licensing deal to develop and commercialize Swiss biotech Polyphor's investigational antibiotic POL7080 against certain hospital-acquired superbug infections known as Pseudomonas aeruginosa, signaling Roche’s first foray back into antimicrobial development for three decades. Roche will pay up to CHF 500 million ($548 million) for the experimental antibiotic, which has only just entered Phase II testing, the companies said Nov. 4. The world’s largest maker of cancer drugs, which is trying to diversify into other disease areas, will make an upfront payment of CHF 35 million and milestone payments of up to CHF 465 million to the Swiss biotech. Roche said POL7080 belongs to a new class of antibiotics that kills P. aeruginosa, a bacterium found in hospitals and resistant to many antibiotic treatments, by a novel mode of action. It’s the first of a number of novel antibiotic candidate drugs being assembled by research and early development group pRED, which is now under the new leadership of John Reed and focusing on three main areas of unmet medical need: Hepatitis B, Influenza and Antibiotics. The pact with Polyphor is the first demonstration that Roche is back in antibiotics. In contrast, other Big Pharma companies have cut back, including former field leader Pfizer, which closed its antibiotic R&D center in Connecticut in 2011, as well as Bristol-Myers Squibb and Eli Lilly. AstraZeneca, GSK, and Merck remain active in the space. Privately-owned Polyphor discovers and develops macrocycle drugs intended as a complement to classical small molecules and large biopharmaceuticals. Although Polyphor, whose main shareholders are private individuals, doesn’t have any products on the market, its pact with Roche is its sixth deal since 2008. Its three drug candidates developed using its protein epitope mimetics (PEM) drug discovery technology are POL7080; POL6326, a CXCR4 antagonist currently in Phase II and ear-marked for several indications; and POL6014, an elastase inhibitor that’s in pre-clinical studies. PEMs are “medium-sized…, fully synthetic cyclic peptide-like molecules that mimic the two most relevant secondary structure patterns involved in Protein-Protein Interactions (PPIs),” according to the company’s Web site. It adds that they are “among the most potent and selective molecules known to modulate PPIs, GPCRs with large ligand-binding domains, and enzymes.” - Sten Stovall

Endo/Paladin: Endo Health Solutions’ new CEO Rajiv De Silva is making good on following in the footsteps of his former employer Valeant by conducting rapid-fire M&A that adds to the specialty pharma’s business. The Pennsylvania company announced Nov. 5 that it will acquire Montreal-based Paladin. The Canadian spec pharma has over 60 marketed products and will give Endo a jumping off point for building its business in Canada, Mexico, and South Africa. The $1.6 billion deal will be an almost all-stock transaction, with Endo paying CAD$77 ($73.70) per share for all outstanding shares of Paladin, a premium of 20% to Paladin’s share price of $63.91 on Nov. 4, the day before the deal was made public. Paladin shareholders will receive 1.6331 shares of the new company in stock and CAD$1.16 in cash, as well as one share of Knight Therapeutics, a new company. Knight will be spun-out of Paladin and be formed around Impavido (miltefosine), a treatment for the parasitic disease leishmaniasis. Impavido received a positive opinion from an FDA advisory committee in mid-October and has a PDUFA date of Dec. 18. Following the deal, the new company will be re-domiciled in Ireland in an effort to take advantage of a more favorable tax rate. Currently, Endo has a tax rate in the high-20% to 30% range. The new company will have a tax rate closer to 20%. - Lisa LaMotta

Pfizer/Juvenile Diabetes Research Foundation: The Juvenile Diabetes Research Foundation (JDRF) said Nov. 4 it would partner with Pfizer’s Centers for Therapeutic Innovation (CTI) to co-fund up to four jointly selected projects in the fields of immune tolerance, diabetic nephropathy and beta cell health. This is JDRF’s first corporate partnership since it announced a collaboration last year with Novo Nordisk, which will run out of the pharma’s Type 1 Diabetes R&D Center in Seattle. JDRF is the largest charitable supporter of type 1 diabetes R&D; it is currently sponsoring about $530 million worth of research, with $110 million in support last year. Pfizer’s CTI was established in 2010 to help further translational science; it hopes to get its first compound into the clinic this year and to bring two candidates into the clinic every year starting in 2014. CTI works with a network of 24 academic and medical institutions. Financial details of the deal were undisclosed. - Stacy Lawrence

Eisai/Arena: Eisai doubled down on Arena’s weight loss drug Belviq (lorcaserin) by expanding its commercialization rights to most of the world from much of North and South America. That’s despite slow sales in the drug’s first full quarter on the market – only $5.4 million. Insurers have been slow to start to reimburse for Belviq and Vivus’ Qsymia (phentermine/topiramate ER). Under the expanded deal, Arena will receive a $60 million upfront payment and up to $176.5 million in regulatory and development milestones. That’s an increase of $123 million from the milestone amount remaining under the prior agreement. Arena will continue to sell Belviq to Eisai for the U.S. and other North and South American territories for a purchase price of 31.5% and 30.75% of Eisai’s net sales in those regions, respectively. For Europe, China and Japan, Arena will receive 27.5% of Eisai’s net sales, while for all other territories the rate is 30.75%. These rates can increase on a tiered basis. Arena also stands to receive a one-time purchase price adjustment of $1.56 billion based on sales in the territories covered by an agreement; that’s an increase of $185 million from the prior deal. Eisai has exclusive commercialization rights in all countries worldwide, excluding South Korea, Taiwan, Australia, Israel and New Zealand. The partners expect also to investigate Belviq as a smoking cessation treatment. - S.L.

GSK/Various Academic Researchers: With a view to front-loading its pipeline, GSK has selected eight winners in its first Discovery Fast Track competition, designed to translate academic research into starting points for new potential medicines. The contest attracted 142 entries across 17 therapeutic areas from 70 universities, academic research institutions, clinics and hospitals in the US and Canada. The program gives certain researchers the opportunity to partner with GSK and jump-start their research into a development program. The winning projects deal with important unmet medical needs, including antibiotics resistance, diseases of the developing world, and certain cancers. The selected scientists will collaborate with GSK’s Discovery Partnerships with Academia (DPAc) team, the sponsor of the competition, to quickly screen and identify novel compounds to test their hypotheses. If advanced chemical testing is successful, the winning investigators could be offered a DPAc partnership to further refine molecules and assess their potential as novel new medicines. GSK devised the contest as a potential engine for accelerating input into its translational research operation, hoping to entice the brightest minds across North America with the promise of lending its potential to their discovery-stage programs. GSK and the academic partner share the risk and reward of innovation, where the U.K. drug maker funds activities in the partner laboratories, and provides in-kind resources to progress a program from an idea to a candidate medicine. Work on the winning Discovery Fast Track projects will begin immediately and the first screens are expected to be completed in mid-2014. - S.S.

Johnson & Johnson/ Evotec: Johnson & Johnson and Evotec are looking broadly, beyond the current focus on beta amyloid and Tau protein-based mechanisms, to identify new targets for Alzheimer’s disease. Under a collaboration announced on Nov. 8, the companies will seek to identify drug targets that could lead to entirely new approaches to treatment using Evotec’s TargetAD database. At best, the drugs in clinical trials today, if successful, will have modest efficacy for treating symptoms of mild-to-moderate patients, and “delay Alzheimer’s symptoms by a few weeks,” said Evotec’s Werner Lanthaler in an interview. The Janssen-Evotec partnership is much more ambitious than current efforts, both in its approach to how it achieves its goals and the goals themselves, he added. The database is derived from analysis of dysregulated genes in high-quality, well-characterized human brain tissues representing all stages of disease progression, Evotec said. It was built off of tissue contributions from The Netherlands Brain Bank and is “systematized, unbiased, and comprehensive,” said Lanthaler, explaining that by being unbiased, it is agnostic to whether the approach is ultimately an antibody, small molecule, or other kind of compound.  No other companies currently have access to the database, and Lanthaler was cagey in stating whether they would or its use would be exclusive to J&J. But he did say that J&J was the first company Evotec approached when it decided to look for licensees, and it jumped on the opportunity – perhaps in part because the companies have had a previous successful relationship in other therapeutic areas. Janssen will reimburse up to $10 million of full-time employee-based research costs and make preclinical, clinical, regulatory and commercial payments, capped at between $125 million and $145 million per program. Evotec will also be entitled to royalties from sales from any products that emerge from the collaboration. The deal runs for three years, and, on J&J’s side, is being conducted through its California Innovation Center. - Wendy Diller

(Thanks to Teslamotors.com for use of this image of our new Tesla S -- are you paying attention Santa??)

Deals Of The Week Wonders What Merck's Latest Biosimilars Move Really Means

Ever since Merck jumped into the biosimilar field in 2008 with a ferocious go get ’em attitude more fitting of an NFL tackle than a big pharma, we’ve been following their progress – and then lack of progress – closely. Back when most pharmaceutical manufacturers were still griping about defending their biologic brands, Merck’s early aggressive ambitions made an interesting case study in how a big pharma might strike offensively by positioning itself as a contender in the biosimilar space.

So the company’s announcement Feb. 20 that it has partnered with Korea’s Samsung Bioepsis to develop multiple undisclosed biosimilar candidates, while delivered quietly in a concise statement, struck us as a noteworthy change in strategy.

You didn’t have to read tea leaves to see that Merck’s original strategy wasn’t working out. In 2008, Merck established a business unit devoted to the field and pledged to invest $1.5 billion and launch six or more biosimilars between 2012 and 2017. But last year, as we reported here, the company closed Merck BioVentures, the unit it created devoted to biosimilars, and folded the research into biologics and vaccines at Merck Research Labs. And Mike Kamarck, the charismatic proponent of biosimilars who led Merck’s charge into the field, left the company.

Now, we can’t help but wonder what the latest announcement means for Merck’s biosimilar strategy.
Is it a reaffirmation of the company’s commitment to biosimilars, albeit through a more modest path, or is Merck effectively washing its hands of biosimilars while still holding out for some hope of an eventual commercial reward? Samsung will be responsible for preclinical and clinical development, manufacturing, clinical trials and registration of any candidates, while Merck will commercialize the products. It’s not clear how much Merck is putting behind the effort either, as the financials of the deal were not disclosed; Merck is paying Samsung an upfront and has agreed to milestones.

Merck declined to offer further insight on the move, but said the deal with Samsung will complement its internal effort. The only biosimilar Merck has in its internal pipeline that has been publicly disclosed, however, is a copy of Roche/Biogen Idec’s Rituxan, the one drug Samsung Bioepsis won’t be developing because the company – formed in 2011 out of joint venture between Samsung Biologics and Biogen – won’t make any biosimilar versions of Biogen products.

Given Merck’s inability to get new drugs to market of late, the decision to take a contract research approach to biosimilars may be the best way for Merck to hold onto the potential commercial upside of biosimilars without the investment internal development requires. Merck ran into the field at high speed, and we admired their optimism, but given the evolving regulatory and commercial dynamics, a cautious path may be the wiser one.

And let’s not forget why the decision to jump into biosimilars was easier for Merck to make than for some other big pharmas: Merck never had a history in biologics and hasn’t traditionally had treasured blockbuster biologic brands to protect. It gained some knowledge of the field and rights to Remicade in certain territories outside the U.S. through its mega-merger with Schering-Plough. But it’s hard to envision Merck’s inexperience as a competitive advantage in a notoriously difficult field like biologics. Development and manufacturing is just as hard for biosimilars, even when manufacturers have a reference molecule to use as a road map.

Three years after the U.S. government laid a regulatory framework for biosimilars, no applications have yet been filed through the new pathway with FDA. Today, while Merck has adopted a more subtle tone when it comes to biosimilars, Amgen – a biologics expert – is crowing about its grand ambitions for the field.

Roche/Chiasma: Roche and privately held Chiasma Inc inked a deal Feb. 18 to develop and commercialize the Israel-based biotech’s proprietary pill Octreolin, initially for acromegaly and, afterwards, for neuroendocrine tumors (NET). Their pact brings a new Phase III drug to Roche’s pipeline, targeting both an oncology (NET) and non-oncology indication (acromegaly). It gives Roche worldwide exclusive license to Octreolin, and Chiasma receives upfront payments of $65 million and future milestone payouts of up to $530 million, along with tiered, double-digit royalties on Octreolin net sales. Roche said it decided to partner with Chiasma and commercialize Octreolin in part because of the convenience and improved quality of life an oral therapy might offer patients. The pill may consequently command a higher price to injectables and there appears to be little oral competition on the horizon near-term. Delivering octreotide orally twice daily would be a major advantage for patients with acromegaly as they would avoid the painful monthly injections involved in current treatment options such as Novartis' Sandostatin LAR. - Sten Stovall

Chiesi/Cornerstone: Cornerstone Therapeutics’ majority shareholder is looking to buy out the company. North Carolina-based Cornerstone announced Feb. 20 that it received a letter from its majority shareholder – Italy’s Chiesi Farmaceutici – offering to buy the remaining outstanding shares of the company. Chiesi offered $6.40 to $6.70 per share for the 40% of the company it doesn’t already own – valuing the specialty pharma at $177 million. In a letter from Chiesi to the board of directors of Cornerstone, Chiesi’s CEO Ugo Di Francesco said the company “has adequate liquidity available and excellent relationships with our banks to effect an all cash bid.” Di Francesco added that Chiesi has “conducted an extensive review of Cornerstone based on publicly available information, our own deep experience in the pharmaceutical industry and consultations with our outside advisors.” The Italian drug maker plans “to move promptly” in regard to the bid “and is committed to working vigorously and expeditiously with [Cornerstone] to complete a transaction.” Cornerstone said in a statement that “no decisions have been made by the board of directors with respect to Chiesi’s proposal.” The two companies paired up in May 2009 when Chiesi granted Cornerstone an exclusive U.S. license to sell its porcine-derived lung surfactant Curosurf (poractant alfa) for a 10-year period. In return, Chiesi took an equity stake in the company that now accounts for a 60% share. - Lisa LaMotta

Janssen/Pharmacyclics/Abbott: Partners Janssen Biotech and Pharmacyclics will work with Abbott to develop a molecular diagnostic test to identify patients with a genetic sub-type of chronic lymphocytic leukemia (CLL). Abbott will develop the test using its proprietary FISH (fluorescence in situ hybridization) technology; the test will identify hard-to-treat CLL patients who have a deletion within chromosome 17p (del17p). These patients are likely to respond to ibrutinib, a small molecule inhibitor of Bruton tyrosine kinase (BTK). At the American Society of Hematology conference in December, the partners presented positive Phase Ib/II data in a subset of relapsed/refractory CLL patients with the 17p deletion. The partners have an ongoing Phase II trial for ibrutinib in CLL patients with the 17p deletion. The company expects enrollment in this trial will take about 12 months to complete. On Feb. 12, FDA granted breakthrough designation to ibrutinib to treat two B-cell malignancies: relapsed or refractory mantle cell lymphoma (MCL) and Waldenstrom’s macroglobulinemia (WM). This could mean an approval for ibrutinib as soon as early next year. Pharmacyclics’ share price has been on a white-hot streak since last May, climbing more than 200%. News of the breakthrough designation bumped shares up about 20%. Details of the Abbott partnership remain undisclosed. - Stacy Lawrence

Eisai/Valeant: Valeant Pharmaceuticals announced Feb. 21 that it has acquired U.S. rights from Eisai Inc., the U.S. subsidiary of Japan's Eisai Co. Ltd., for cutaneous T-cell lymphoma treatment Targretin (bexarotene). Eisai received $65 million up front and is eligible for additional payments tied to undisclosed milestones. In March 2011, Eisai granted exclusive rights to Minophagen Pharmaceutical to develop and commercialize Targretin in Japan, expanding that agreement in April 2012 to cover Asia, Oceania, the Middle East, Eastern Europe and other regions. And in a deal similar to the Valeant agreement, in December 2012, Eisai sold U.S. commercial rights to Gliadel Wafer (carmustine) for glioblastoma to Arbor Pharmaceuticals. Gliadel and Targretin are aging products. However, the company’s cancer pipeline – oncology is 70% of Eisai’s revenues – has shown recent signs of stumbling. Farletuzumab, which entered Eisai’s pipeline with its 2007 acquisition of Morphotek, demonstrated disappointing results last January in platinum-sensitive ovarian cancer, not meeting the primary PFS endpoint in its first Phase III attempt. And Halaven (eribulin), approved in the U.S. in 2010 for metastatic breast cancer, missed its primary endpoints last year in a head-to-head Phase III superiority study against Xeloda (capecitabine). Much of the excitement around eribulin at the time of its approval was the likelihood of extending its label, which is now drawn into question. Eisai said the deal with Valeant would maximize the product’s value in the U.S. It went on to add that the agreement would enable Eisai to “strategically reallocate resources to other mid-to-long-term business growth areas” but it didn’t elaborate. As for Valeant, this deal continues its strategy of acquiring what it considers to be undermanaged commercial assets. - Mike Goodman

UCB/ConfometRx: Belgium’s mid-sized pharma company, UCB, is to link up with the Santa Clara, Calif.-based G-protein coupled receptor (GPCR) structural biology firm, ConfometRx, to discover new drugs in UCB’s sweet spot, the neurosciences. As often stated, GPCRs are the target for 25%-30% of marketed products, but GPCR research is hampered by the difficulty in extracting active receptors from cell membranes for use in research and drug screens. ConfometRx is developing crystallization techniques for GPCRs to make the screening process easier for GPCR-targeted drugs and antibodies. The two-year, multi-target research collaboration between UCB and ConfometRx is intended to gain insights into modulating GPCR targets in order to design differentiated drugs, the companies said Feb. 21. ConfometRx will receive an upfront payment, research funding and milestones, but further details of the agreement were not disclosed. UCB is building “super-networks” of innovation, which include tie-ups with Harvard University and the University of Oxford’s medical sciences division over the past three years. ConfometRx already is collaborating on various GPCR-related research projects with Bristol-Myers Squibb, Novo Nordisk and Lundbeck, while other companies active in providing research insights in the GPCR space include Heptares Therapeutics of the U.K., France’s Domain Therapeutics and San Diego-based Receptos. - John Davis

Photo credit: Wikimedia Commons

2011 Exit/Financing of the Year Nominee: Eisai/SFJ Pharma

It's time for the IN VIVO Blog's Fourth 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 Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) 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™.

With development budgets stretched, it's difficult for burn-minded companies to conduct multiple late-stage clinical trials simultaneously. Biopharma firms with promising assets can always try to find a partner to share the risk and widen the development funnel -- but that means giving up back end rewards. Unless of course you can find someone to foot the bill without asking for a slice of the commercial pie in return.

Enter this year's latest DOTY candidate, Eisai/SFJ.

In their deal announced in September, Eisai is handing the development bill on its thyroid cancer treatment lenvatinib to SFJ, which will pay for Phase III studies. Eisai will pay milestones to SFJ only if lenvatinib gains regulatory approval, and Eisai itself conducts the global trials and also keeps all commercial rights. The financial details weren't disclosed. Levantinib, a home-grown tyrosine kinase inhibitor, is one of Eisai's three oncology assets that have reached Phase III globally; the SFJ deal will allow Eisai to spend its own cash elsewhere in its late-stage pipeline.

Though SFJ isn't conducting the lenvatinib Phase III, it's a CRO itself, and presumably has a pretty good inkling that the drug will eventually get approved. Well, SFJ isn't a CRO, exactly, but nor is it typically simply an investor, as appears the case here. It bills itself as a specialty pharma, and it raised a $45 million Series A round in early 2009, with Abingworth Management and Clarus Ventures in the lead. It hopes to in-license drugs and bring them to market in Japan itself, but has not done so yet (or at least hasn't said so publicly). In its two deals prior to Eisai, SFJ has written the clinical protocol and is conducting the trials. Data from one were supposed to be due in December.

SFJ, which limits its development and commercialization ambitions to the Japanese market, was founded by a former executive at NovaQuest, the ex-financing arm of Quintiles. (It has since split off from Quintiles.) Quintiles has a risk-sharing deal with Eisai in oncology in which the two sides develop an unspecified number of Eisai compounds to proof-of-concept. We asked SFJ President and CEO Bob DeBenedetto about the NovaQuest/Quintiles influence, and he said SFJ's partnering terms and structures were different. But that hasn't prevented them from working together. DeBenedetto told the IN VIVO Blog recently that SFJ and Quintiles are teaming up on other pharma clinical deals for which SFJ provides the cash and the two conduct the trial.

Here, SFJ is again the bankroller, but Eisai holds the clinical reins. The deal -- a straight financing -- allows Eisai to boost the bandwidth of its late-stage development program in the highly competitive oncology space. SFJ is simply making what it hopes is a solid bet -- with a near-term payout.

Deals of the Week Mulls The Wild Frontier

Sometimes, it's said, the pioneers are the ones that end up with arrows in their backs. It's a tech-industry cliché, one designed as a reminder that first-mover advantage isn't everything. There are those whose innovations turn into category winners, and then there are those whose inspired inventions become part of someone else's best-selling product.

While it's rarely quite that way in the pharma business, drug-developing pioneers can still face challenges that benefit their competitors but backfire on their own ambitions. Among the Davy Crocketts struggling to translate a novel product into a sales juggernaut is Seattle's Dendreon, which was thought to be sitting on a goldmine when its Provenge (sipuleucel-T) became the first cancer immunotherapy to be approved by FDA in April 2010. Now, however, the company has more muted expectations for Provenge -- and accordingly, will go through a painful restructuring that will cost a quarter of its employees their jobs.

Many estimates pegged Dendreon to bring in well over $1 billion annually at its peak, given its survival benefit for prostate cancer patients, and Dendreon staffed up accordingly to meet anticipated demand. During a Sept. 8 conference call, CFO Greg Schiffman acknowledged that it had overreached in projecting $350 to $400 million in annual sales, including $175 to $200 million in the fourth quarter alone.

Many doctors are loath to prescribe the expensive buy-and-bill drug, reportedly due to concerns about reimbursement; thus, it's been difficult for Dendreon to reach Provenge's target patient population. While the company ultimately made the decision not to close its three manufacturing plants, it has scaled back production -- and one commercial relationship didn't survive the cut: Dendreon canceled its antigen supplier contract with GlaxoSmithKline, which company officials described as a "second-source" contract rendered unnecessary by the slow sales.

With 500 staff set to be laid off, Dendreon says it can save $120 million annually, and now expects to break even on Provenge if it can generate $500 million in annual sales. A fraction of what they'd hoped for, sure, but sometimes that's the price of being first-to-market with a category-defining product. "We are scientific pioneers," said Gold during the conference call, "and also commercial pioneers."

With that in mind, it's Friday afternoon. Sure, it was a short work week for most of us, but we all deserve a break. So please ride off into the sunset with...

GlaxoSmithKline/BARDA: GlaxoSmithKline has received a two-year $38.5 million grant from HHS’ Biomedical Advanced Research and Development Authority to support the pharma’s development of an experimental antibiotic against biothreat pathogens such as Yersinia pestis, which causes bubonic plague, and Bacillus anthracis, which causes anthrax. GSK could receive additional financing from BARDA if the research agreement is extended, bringing the potential total funding to $94.5 million. The work centers around development of GSK2251052, an antibiotic targeted at the bacterial enzyme leucyl tRNA synthetase (LeuRS), which is moving into Phase II in ventilator-associated pneumonia and Phase III for complicated intra-abdominal infections. GSK ‘052, previously known as AN3665, is a boron-based Gram-negative systemic antibiotic that GSK licensed from Anacor Pharmaceuticals under their 2007 platform technology collaboration around four targets. On Sept. 6, GSK and Anacor agreed to extend that research partnership around LeuRS candidates, with the pharma returning all intellectual property related to the other three targets included in the original deal. — Joseph Haas

Evotec/Roche: German drug discovery company Evotec appeared at first blush to have pulled off a coup on Sept. 5, when it announced it was licensing back to Roche a potential Alzheimer's therapy, EVT-302, first inlicensed from the Swiss multinational more than five years ago. A great piece of business for Evotec, apparently, with Roche paying it an upfront of $10 million and potentially over $800 million in future development and commercial milestones. But on closer inspection the ownership of the asset had as many switchbacks as an alpine pass: a predecessor company, Evotec Neurosciences, owned EVT-302 when it was first spun out of Roche, and these rights came with the company when it was later acquired by Evotec. Under the all-new deal, Roche benefits from a package of preclinical and clinical data, collected by Evotec when it tried, and failed, to develop EVT-302, a highly selective MAO-B inhibitor, as an aid to smoking cessation. EVT-302 complements the other approaches Roche is pursuing for the treatment of Alzheimer's, including MAbs against beta-amyloid. With Roche now shouldering all costs of development, the deal works well for Evotec: over the past two years, it has restructured its business and is focused on developing drug discovery partnerships with partners, rather than developing its own R&D pipeline. MAO-B is up-regulated in the brains of Alzheimer's disease patients, and as well as breaking down monoamines like the neurotransmitter dopamine, it also produces oxygen free radicals, which contribute to oxidative stress and could possibly accelerate the disease process. An inhibitor might slow down disease progression, and Roche is to conduct a Phase II trial in 2012 to prove this concept. - John Davis

F-Star/Merck Serono: F-Star, an antibody engineering company based in Vienna, Austria, saw its relationship with one of its pharmaceutical corporate investors blossom this week when it announced a discovery and development agreement with Merck Serono, the pharmaceuticals arm of Merck KGaA. The German company's VC arm, Merck Serono Ventures, has only been an investor in F-Star since January 2010, when it co-led an €8 million extended Series A financing, but its parent company obviously liked what it saw. Merck Serono and F-Star will now build on their relationship by collaborating on the discovery and development of antibody-derived therapeutics against inflammatory disease targets in a deal valued at €492 million ($683 million). Merck Serono will nominate three therapeutic targets and the companies will collaborate on developing targeted and bispecific biologics against these molecules. Merck Serono will have exclusive commercialization and development rights, with F-Star receiving an initial technology access fee, research-based funding, and development and commercialization milestones, as well as tiered royalties on sales. Accessing bispecific antibody capabilities has been a hot topic lately, with this week's F-Star/Merck Serono tie up reminiscent of last week's Zymeworks/Merck collaboration, although the technology access fee and committed R&D dollars make F-star's tie-up richer. - J. D.

Astellas/Evec: Japan’s Astellas Pharma has in-licensed the worldwide development and commercialization rights to a fully-human antibody targeting infectious disease from Japan’s Evec. Specific details regarding the program weren’t provided. While Astellas’ upfront payment for the pre-clinical program is modest at ¥600 million ($7.75 million), development and sales milestone payments could add as much as ¥13 billion ($168 million) to the deal, which also includes royalties. Founded to commercialize research conducted at the University of Hokkaido and based in Sapporo, eight-year-old Evec is developing antibodies for cancer and inflammatory disease as well as infectious disease. Evec previously licensed an antibody to Boehringer Ingelheim in a 2008 deal that could be worth up to €55 million ($75 million). In August, Astellas appointed a new CEO, promoting Yoshihiko Hatanaka, the head of the U.S. Astellas unit, to the top post. – Lisa LaMotta

Eisai/SFJ Pharma: It's a deal -- and a financing! This week's DOTW two-fer illustrates the heightened risk-hedging protocols at work as big pharmas try and limit their cash R&D burn, while still retaining access to a product a la project finance. And based on the press release, there ain't a whole lot for Eisai -- or its shareholders -- NOT to like about the SFJ arrangement. Essentially Eisai has partnered late-stage clinical development of its Phase III tyrosine kinase inhibitor, lenvatinib, in thyroid cancer. Under the agreement, the studies will be conducted by Eisai (so it keeps control!), BUT they will be completely funded by SFJ. That's right --SFJ is picking up the tab, and in return stands to earn milestone payments, but only if the compound wins regulatory approval. In addition, if and when the compound is approved, all commercial rights remain with Eisai. With so many of the financial details of the relationship undisclosed, one has to assume that the future milestone payments owed to SFJ, which is backed by VCs including Clarus and Abingworth, are lucrative. This isn't the first time Eisai has sought a partner to hedge its development risk: back in 2009 Eisai teamed up with the CRO Quintiles to develop multiple oncologics. That particular alliance called for Eisai and Quintiles to share development costs, with Quintiles' cancer specialists conducting the proof-of-concept trials and Eisai paying milestones for compounds that meet predefined POC criteria.--Ellen Licking

Image of Davy Crockett, painted by Chester Harding, reproduced courtesy of Wikimedia Commons.

Deals Of The Week Takes Action

It was quiet on the deal making front as major news this week was of a regulatory or clinical nature. Despite a three-month delay, GlaxoSmithKline and Human Genome Sciences earned a BlyS-fully easy approval March 9 for Benlysta (belimumab), the first new lupus treatment in 56 years. That the approval didn’t come with a risk mitigation scheme or onerous labeling shows yet again that regulators are treading lightly in arenas where good therapeutic options are lacking. (Just practice the phrase "unmet medical need" three times fast.)

The good news about Benlysta was likely a comforting balm for GSK – or at least distracted the big pharma’s investors. Less than 48 hours later, the company and its partner Tolerx announced disappointing results for a Phase III trial of their humanized anti-CD3 monoclonal antibody for Type 1 diabetes, otelixizumab. Otelixizumab’s failure wasn’t entirely unexpected: a similar drug from Eli Lilly (remember them?) and MacroGenics called teplizumab has also floundered in the clinic.

While otelixizumab's results haven't yet sparked a “no-deal”, it wouldn’t be surprising if GSK were to decide the DEFEND-1 data made its 2007 agreement with indefensible. For the moment, the big pharma is investigating additional dosing regimens of the drug and has halted recruitment in a separate clinical trial.

Of course, GSK has to share the late-stage failure spotlight with Sanofi-Aventis and its partner Regeneron, who revealed this week that their non-small cell lung cancer drug aflibercept failed to increase overall survival time relative to comparator docetaxel in a Phase III study. The announcement is a definite setback for the French pharma, which has spent the past two years rebuilding its oncology business with a greater emphasis on targeted therapeutics and biologics.

Of course, the failure also raises questions about Sanofi’s ability to meet its revenue goals via its internal pipeline, illustrating yet again that to scale its 2013 patent cliff, the drug maker had few options but to consider a sizeable acquisition on the order of Genzyme. (If anyone's still curious about that M&A, we'll have more in the c oming March IN VIVO.)

Aside from clinical setbacks, this week’s deal-making highlights feature Japanese pharmas, academic collaborations and the importance of reprofiling existing compounds to identify potential new uses. Drumroll, please...

Eisai/Epizyme: Privately-held Epizyme’s March 10 agreement with Eisai is the biotech’s second big pharma partnership of the year, following a January tie-up with GlaxoSmithKline. But Epizyme CEO Robert Gould is eager to stress that the two deals are different and serve separate parts of his firm’s business strategy. The deal with Eisai centers around EZH2, a preclinical epigenetic enzyme expected to yield treatments for lymphoma and other cancers in genetically defined patients. As part of the deal, Epizyme will receive $6 million upfront and can earn up to $200 million in milestones and up to double-digit royalties. The Japanese pharma also will cover 100% of R&D costs through human proof-of-concept, at which point Epizyme can opt in to share development and U.S. commercialization costs and profits. In contrast, the GSK deal centered on a defined but undisclosed package of histone methyltransferases. GSK paid $20 million upfront with the potential for up to $630 million in milestones plus double-digit royalties. That deal is basically a “handover” of the related assets to GSK, whereas the Eisai deal involves joint decision-making with the possibility of Epizyme taking on the role of full partner, says Gould. If Epizyme elects to opt in after proof-of-concept, it would co-commercialize the resulting drug in the U.S., while Eisai would retain development and commercial rights for the rest of the world.--Joseph Haas

AstraZeneca/Galderma: AZ on March 7 signed up global dermatology giant Galderma to reprofile some of its assets to treat skin diseases such as psoriasis, acne and atopic dermatitis. The five-year R&D agreement, for which financials weren’t disclosed, sees the French-based biotech gain access to several already-identified AZ compounds from within the big pharma’s core therapy areas, including oncology, inflammation and central nervous system. The deal is both a sign of the times, and a reminder of how AstraZeneca stands apart from some of its big pharma peers. It’s another example of large drug firms’ push to squeeze out all the value they can from their assets, especially in non-core therapy areas. This is the second reprofiling alliance AZ has struck: in 2009 it signed a similar agreement with Alcon in ophthalmology. Under terms of that deal, should Alcon discover potentially interesting compounds, it can license them on a case-by-case basis, with AZ eligible for regulatory milestones and royalties. The Galderma tie-up also emphasizes AZ’s ‘pure-play’ strategy and its preference to team up with recognized experts in areas it considers outside its expertise. That’s in contrast to companies like GlaxoSmithKline, which paid $3.6 billion in 2009 to buy dermatology player Stiefel, creating its own specialist business with attractive, risk-mitigating trimmings including OTC and aesthetic portfolios. Not that dermatology is, strictly speaking, a new opportunity for either GSK or AZ: both used to have their own skin-care businesses, in the days before dermatology went out of fashion. --Melanie Senior

Evotec/Harvard: It ain't just big pharma heading back to school. Even biotechs are looking for tie-ups with universities these days. German small-molecule drug discovery company Evotec announced a deal this week with Harvard University and the Howard Hughes Medical Institute to investigate new therapies for diabetes, specifically in the area of beta cell replication. Financial terms weren’t disclosed. Harvard professor Doug Melton will be the principal investigator, working alongside Chevy Chase, Md.-based nonprofit HHMI and the German pharma. The move deepens Evotec’s commitment to diabetes, following a deal last summer to acquire metabolic disorders specialist DeveloGen. That company, now operating as an Evotec subsidiary, has multiple projects underway, including insulin sensitizers and drugs that prevent destruction of existing pancreatic cells as well as compounds that induce beta cell regeneration. Its immune-modulating drug DiaPep277, which protects pancreatic cells, is in Phase III trials, and was partnered with Andromeda prior to the acquisition. DeveloGen also has an ongoing discovery partnership with Boehringer Ingelheim. Evotec says the goal of its new arrangement with Harvard and HHMI is to create orally available small-molecule drugs that trigger or support beta cell regeneration. --Paul Bonanos

Yakult Honsha/Aeterna Zentaris: Behold another sign that regional deal-making is alive and well. On March 9, came news that Aeterna Zentaris, a Canadian company specializing in oncology therapies, has partnered Japanese rights to its lead oncologic, perifosine, for $8.3 million upfront and another $60.9 million in clinical and regulatory milestone payments. Perifosine is a novel oral medicine that inhibits Akt activation in the phosphoinositide 3-kinase (PI3K) pathway, which is associated with programmed cell death, cell growth and cell survival. Phase III trials in colorectal cancer and multiple myeloma are ongoing in the U.S. and EU.The deal with Yakult Honsha, a diversified Japanese player that develops foods, beverages and cosmetics in addition to pharmaceuticals, represents the third time Aeterna has sliced up rights to perifosine. In 2002, it licensed North American rights to the molecule, in Phase I studies at the time, to privately held Access Oncology for at least $18 million. (Those rights transferred to Keryx Biopharmaceuticals when it purchased Access Oncology two years later.) Aeterna also cleaved off Korean rights to the molecule, dealing them to Handok. In general, blocking this particular cellular cascade is an area of great interest to pharmas looking to extend their oncology franchises, with developers of inhibitors specifically targetting PI3K striking rich deals. (Think Gilead/Calistoga or Sanofi-Aventis/Exelixis.) Deal terms for Akt inhibitors don’t appear to be as pricey based on Elsevier’s Strategic Transcations database. Of course, because Aeterna Zentaris out-licensed the highly valuable North American rights to perifosine at Phase I, it’s also limited the upfront potential dollars it could receive, demonstrating the trade-offs companies make when partnering at such an early stage. --EFL

Image courtesy of flickrer ideowl used with permission through a creative commons license.

Deals of the Week: Merry Chrismahanukwanzakah

It's that time of year. Time for making merry with wassail, carbohydrates, and Tiny Tim-isms. In the spirit of inclusion, it's tempting to spit "Bah, Humbug," but Joe Lieberman beat us to it.

Perhaps three ghosts will haunt the Connecticut Senator in the coming days to convince him the public option and Medicare buy-in are causes worth supporting. If not, there's always Al Franken, who doused Lieberman's discourse with a well executed bang of the gavel on Thursday.

Health care reform isn't quite dead as a doornail, but it's been a week of few real accomplishments for the legislative branch of our government. That's not the case for our industry's deal-makers, who heeded last week's post and embarked upon some holiday shopping. Indeed, by our count there were more than 18 biopharma M&A and licensing deals announced between Monday and Friday morning, a new record here at IN VIVO Blog.

Finally, a biotech economic stimulus plan! Or is this simply a desire -- made more enjoyable by a signed term sheet -- to get out of Dodge for a couple of weeks? Either way, we commend them for avoiding the last minute holiday shopping frenzy and the extra costs of overnight shipping.

It's the twelve days of Christmas plus eight crazy Hannukah nights all in one ecumenical package waiting to be unwrapped under the cozy glow of a Kwanzaa candelabra. (If you need more light, feel free to fire up the menorah and plug in the ol' Tannenbaum.)

Without further ado, we bring you another naughty-yet-nice edition of ...

Johnson & Johnson/Acclarent: On the first day of Chrismahanukwanzakah, my true love gave to me not a partridge in a pear tree (potentially messy, and what to do with all that fruit?) but $785 million. J&J strikes again, with its Ethicon division taking out privately-held Acclarent in an all-cash offer to boost its presence in a hot market: ear, nose and throat treatments. Acclarent makes a balloon-catheter system that is gradually inflated to treat blocked nasal passages for use in sinus surgery, and the start-up's Balloon Sinuplasty technology and Relieva product portfolio have been approved for use by FDA since 2005. Once again J&J is acting opportunistically to acquire businesses where it sees growth, such as in Alzheimer's, via its Elan deal (a DOTY candidate), and vaccines, provided by its 18% purchase of Crucell. By establishing Ethicon in the large emerging ENT space, the diversified pharma is hoping to reverse a biz which has declined largely as the result of Cordis' loss of market share in drug-eluting stents. The deal also validates the involvement of corporate venture. JJDC, J&J's venture arm, began investing in Acclarent about a year ago as part of a broader strategy to be more strategic in its venturing. -- EFL

Merck/Avecia & Merck/Pfenex: On the second day of Chrismahanukwanzakah, Merck's business team brought home not two French hens, which would have been nice, but two deals to kickstart the firm's biologics manufacturing capacity. A year after shaking up the marketplace with the announcement that it was building a unit dedicated to me-better and follow-on biologics, Merck this week started to bring home the goods. On Monday the big pharma signed a $52 million licensing deal with Pfenex, which only recently spun out of Dow Chemical, to access the biotech's Pseudomonas-derived protein expression technology to develop an undisclosed vaccine. On Thursday, Merck announced it was buying a contract manufacturing organization, Avecia Biologics, for an undisclosed amount, gaining a fully operational facility with four manufacturing streams and 500 employees. Add these plants to the facility Merck bought in February, when it paid Insmed $130 million for its 50,000 square-foot biologics plant staffed by 70 workers . (That deal also included four follow-on biologics.) Merck is wise to grab capacity from the start; bringing biologics plants on-line is costly and time-consuming, and the company has ambitious goals, including the launch of at least six biologic drugs six between 2012 and 2017. -- EFL

Hospira/Orchid Pharmaceuticals: On the third day of Chrismahanukwanzakah, we took a break and instead celebrated Diwali a bit late. It's the thought that counts. Hospira joined us and swooped up Chennai, India-based Orchid Chemicals & Pharmaceuticals' generic injectable drug business for $400 million on Dec. 15, gaining a much-wanted hospital-based medicines business. The move is part of Hospira's effort to broaden its therapeutic coverage. The deal gives Hospira Orchid's beta-lactam antibiotics portfolio and pipeline and facilities, including both manufacturing and R&D operations, and roughly 450 staff. Orchid's product range includes injectable cephalosporins and penems and so far has chalked up sales of around $90 million this year, along with earnings before tax of $35 to 40 million. Hospira already sells seven of Orchid's antibiotics products on a profit-sharing basis in the U.S. and Europe, with a profit margin of nearly 30%. Thus this week's acquisition is the next step in the evolution of an already successful partnership. --Vikas Dandekar and Daniel Poppy

Cubist/Calixa: Cubist Pharmaceuticals, the marketer of Cubicin, fulfilled the holiday wishes of investors -- oh, those pesky calling birds -- and made good on a promise to acquire a late-stage asset to enhance its pipeline. On Monday, Dec. 14, the biotech agreed to pay $92.5 million in upfront cash to acquire privately held Calixa Therapeutics and its Phase II antibiotic CXA-101. The transaction shows how companies are pushing forward with the development of new antibiotics, despite no formal FDA guidance for clinical trials of anti-bacterial medicines in certain key indications. There's been much focus on Calixa's CXA-101, but the key to this deal, which could deliver up to $310 million in milestones to Calixa's venture backers, is actually Phase I candidate CXA-201. This compound combines CXA-101, a novel cephalosporin, with tazobactam, a beta-lactamase inhibitor that is a component of Pfizer/Wyeth's antibiotic Zosyn. While '101 currently is in Phase II studies as treatment for complex urinary tract infections, Cubist thinks the drug's greatest potential is the '201 formulation in drug-resistant, gram-negative infections, especially those involving the pathogen Pseudomonas aeruginosa. -- Joseph Haas

GlaxoSmithKline/NanoBio: Five golden rings for privately-held NanoBio this week! The biotech, which has spent the last decade developing a novel nano-emulsion drug delivery technology, announced its first deal: an exclusive license with Glaxo to develop an OTC version of its proprietary, Phase III-ready cold sore medicine, NB-001, in the U.S. and Canada. The deal isn't noteworthy for its terms; the upfront is a hardly staggering $14.5 million (which could increase to $55.5 million based on undisclosed development milestones). And NanoBio continues to shoulder the cost and risk of the Phase III development program. More interesting is the commercial strategy NanoBio intends for NB-001: skipping the prescription market and aiming straight for OTC distribution with GSK's help. According to NanoBio CEO James Baker it's the most logical approach given the current market for therapeutics for cold sores, aesthetic nuisances that don't warrant the time and expense of a doctor's visit. And NanoBio couldn't have picked a better partner than Glaxo, which already markets the number one OTC medicine for cold sores, Abreva. The deal fits nicely with Glaxo's determined push to invest more R&D dollars in its consumer health business, and continues to show the drug marker's renewed interest in dermatology, once considered a therapeutic backwater. -- EFL

Takeda (Millennium)/Seattle Genetics: Just days after Roche/Genentech abandoned Seattle Genetics under the mistletoe, unimpressed by the biotech's dacetuzumab, a CD40 antibody in development for lymphomas and multiple myeloma, the cash-rich Seattle-based biotech shook off the rejection and reapplied its lipstick. Lo and behold, who should appear but another angel of deal-making, Takeda's Millennium oncology unit. Takeda, which has bet heavily on oncology as one of its future areas of growth, didn't take Rochentech's leftovers, however. Millennium was more interested in brentuximab vedotin (SGN-35), a next-generation antibody-drug conjugate in Phase II/III development for lymphomas. And Millennium was feeling generous (ah, the fabled Chrismahanukwanzakah spirit!) giving Seattle Genetics $60 million upfront for exclusive rights outside the U.S. and Canada plus up to $230 million in additional progress- and sales-based milestones. The companies will split the cost of developing B vedotin 50/50, with Takeda expected to contribute at least $75 million over the first three years. Takeda will also be solely responsible for developing the drug in Japan. Until its 2008 acquisition by Takeda, Millennium was a U.S.-only biotech. But as it has become Takeda's center of oncology expertise, it has also sought to build its commercial infrastructure abroad via transactions like the May acquisition of IDM Pharma to access Mepact, an osteosarcoma treatment approved in Europe but not yet available in the U.S. -- Jessica Merrill & EFL

Amgen/Array: Lords a'leapin'! You want proof deal values are on the rise? Look no further than Array BioPharma's tie-up with Amgen this week. The Big Biotech ponied up serious upfront cash, $60 million, for Array's Phase I glucokinase activator, ARRY-403, being developed to treat Type 2 diabetes. Beyond '403, Amgen and Array are teaming up to identify and advance second-generation glucokinase activators in a two-year research deal that requires Amgen to foot the bill. In addition, Array stands to realize up to $666 million in clinical and commercial milestones, although some are pegged to at least one backup compound reaching market in addition to '403. Finally, if '403 does reach the market, Array will receive double-digit royalties on sales and retains a U.S. co-promote option. At first blush, Amgen as a diabetes developer might be a head-scratcher, but the biotech has made an effort to diversify its pipeline away from its historical focus of oncology to include other primary care areas such as osteoporosis (denosumab, anyone?). The disconcerting surge in Type 2 diabetes in the U.S. makes the metabolic disease arena another area of interest, despite potential regulatory hurdles. Indeed, Amgen has two oral molecules of its own -- AMG 221 and AMG222 -- in early to middle clinical trials for Type 2 diabetes. -- JH

Astellas/Ambit: Ambit Biosciences of San Diego could earn up to $350 million in milestones on top of $40 million upfront from Astellas Pharma to jointly develop and commercialize FLT3 kinase inhibitors in oncology and non-oncology indications. The partnership, announced Dec. 18, includes Ambit's lead investigational drug AC220, which started Phase II trials earlier this month in relapsed/refractory acute myeloid leukemia, and other undisclosed FLT3 kinase inhibitors. It's the third oncology partnership signed by Astellas with a U.S. biotech in as many months. Ambit could receive post-approval milestone payments upon certain sales thresholds, as well as tiered double-digit royalties on net sales. The companies will share equally in U.S. profits and losses, and Ambit will have the option to co-promote in the U.S. -- Carlene Olsen

Forest/Almirall: Forest Laboratories on Thursday hung a few ornaments on Almirall's tree, paying $75 million up-front for U.S. rights to the Phase II, inhaled, once-daily, long-acting beta agonist LAS100977. The drug will be developed in combination with a corticosteroid for asthma and chronic obstructive pulmonary disease (COPD), using Almirall's multi-dose dry-powder inhaler, Genuair. Forest also has agreed to pay undisclosed milestones and sales-based royalties around LAS100977, and will assume the majority of development costs. The agreement -- including its rich up-front -- comes even though the last compound Forest licensed from the mid-sized Spanish group, the long-acting muscarinic antagonist Eklira, disappointed in late-stage COPD trials. The U.S. group is scrambling to expand its respiratory franchise as leading anxiety/depression drug Lexapro faces patent expiry. In August, the U.S. group paid $100 million up front for U.S. rights to Nycomed's phosphodiesterase-4 enzyme inhibitor Daxas (roflumilast) for COPD, for which an NDA was filed in July. Although the tie-up helps Almirall claw back credibility since the set-back to aclidinium (a drug widely perceived as a potential blockbuster that could transform the mid-sized group) it doesn't put the partners first in the once-daily LABA/ICS race. GSK and partner Theravance own that honor, closely followed by Novartis. -- Melanie Senior

Eisai/AkaRx: Not to be left out of the party, Eisai piped, danced and drummed a merry tune this week and exercised its option to acquire AkaRx for $255 million. The fourth largest Japanese drugmaker obtained the right when it acquired MGI Pharma for $3.9 billion in 2007. That same year, long before option-to-acquire deals became popular, MGI Pharma struck its arrangement with privately-held AkaRx, which spun out of another Japanese firm, Astellas Pharma. At the time, MGI paid $45 million to buy the company anytime before Jan. 8, 2010 for the $255 million offer price. The deal provides a very tidy exit for AkaRx's backers -- Astellas Ventures, InterWest, and Sutter Hill -- who invested $11.1 million in 2005. Apparently Eisai, which has made oncology a big part of its growth strategy, wanted exclusive rights to AKR-501, an orally available small molecule to treat thrombocytopenia, a side-effect of chemo. -- EFL

Silence Therapeutics/Intradigm: Santa Claus has his favorite ruminant-enabled aerosol-propelled delivery mechanism, but even he can't deliver short interfering RNA molecules to their targets. With their inherent instability, the promise of siRNAs will only go as far as they can travel in the body without breaking up. That's one reason the folks at Silence and Intradigm are merging. Based in London, Silence is buying Intradigm of Palo Alto, Calif. with nearly 80 million shares. A mix of investors from each side, plus some new ones, will buy £15 million in new shares at 23 pence per. The deal leaves Intradigm investors with 37% of the newco, to be called Silence, and three of eight board seats. Intradigm CEO Phil Haworth, who will keep the same title, says the modus operandi of the deal is to bring two distinct delivery platforms together. Silence works with liposome technology, Intradigm with polymers that bind to siRNA molecules and increase payload. Combined, the technologies might issue what Haworth calls "a whole new set of delivery tools," which will be Silence's main focus next year using the cash it's raised with the merger. -- Alex Lash

Biogen Idec/Facet Biotech: And on the last day of Chrismahanukwanzakah, things got complicated. Its a deal, even two, wrapped inside a No Deal, that might lead to an even bigger deal. Wednesday at midnight Biogen officially ended its $450 million, $17.50-a-share hostile bid for its MS development partner Facet. That's the No-Deal part. But Facet strengthened its defense by giving its top two shareholders permission to boost their holdings above 15% without triggering a poison-pill plan. Facet's board launched the plan in September as a response to Biogen's first hostile bid of $14.50-a-share, or $355 million. There was even more quid for the quo: The investors, Baupost Group and Biotechnology Value Fund, agreed that if they do exceed the 15% limit they will vote any shares above that threshold either in proportion with other Facet shareholders or according to the direction of the Facet board in future voting situations. And they can't go higher than 20%. And the potential bigger deal: Facet has asked its bankers to solicit other bids. Will anyone go higher than $450 million, even with Biogen holding 50% of the rights to Facet's top two drug candidates? Whether third parties jump in or not, Facet officials say Biogen is welcome to rejoin the fray. -- Alex Lash