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.

Deals Of The Week: Novartis Places Bid To Dominate In Cancer

While the largest deal of the week, and certainly the one receiving the most attention, has been Actavis' expansion of its branded portfolio via its $25 billion purchase of Forest Laboratories, the deal that could have major implications for a hot target space in cancer is Novartis' pick-up of a small Massachusetts biotech.

Novartis nabbed young start-up CoStim Pharmaceuticals at the beginning of the week for an undisclosed amount – a move that could make it a major force in the red hot area of cancer immunotherapy.

The closely held biotech was founded in 2012 by MPM Capital and led by MPM managing directors Luke Evnin and Robert Millman. Atlas Ventures joined MPM in early 2013 to fund the company’s $10 million Series A round. While terms of the deal were not disclosed, Atlas partner Bruce Booth wrote in a recent blog post that “if the contingent milestones are paid, this deal will return a significant portion of the entire Life Science allocation in Atlas Fund VIII.”

The Swiss pharma knows a thing or two about oncology – it’s been marketing Gleevec (imatinib), one of the earliest targeted cancer treatments and a multi-billion dollar drug annually, since 2003. And it boasts one of the richest oncology pipelines in the industry, spanning numerous solid- and liquid-tumor indications and many of the hottest biological targets. Its latest R&D foray into chimeric antigen receptor technology (CART) – and the programs it’s acquired from CoStim – has enriched the pharma’s immunotherapy platform and upped its commitment to being a dominant player in oncology.

While Novartis has been cagey about revealing what CoStim actually has to offer, Bill Sellers, its global head of oncology, says the Cambridge biotech brings four to five late-stage programs to the table – programs the industry could start hearing about in early 2015.

“One of our strengths is attacking cancer from its genetic base,” said Sellers. “But we have not done a lot of work in immunotherapy until two years ago,” he admitted.

That’s when Novartis inked its deal with the University of Pennsylvania for its CART research. The deal is based on the work of Carl June, whose lab created T-cells that express the receptor CART 19, a synthetic fusion protein consisting of antibodies that attach to the CD-19 protein, commonly expressed in chronic lymphocytic (CLL) and other B-cell mediated leukemias. The genetically engineered T-cells are injected back into the patients, where they find their way to CD-19-expressing leukemia cells and kill them.

Since pairing up with Penn, Novartis has been “building expertise internally,” said Sellers, as well as opening a large-scale manufacturing facility in Morristown, NJ. “CART has shown dramatic efficacy, but it doesn’t work in everybody,” said Sellers. “So there is room to augment that.”

Sellers said Novartis has been looking for a way to get into checkpoint inhibitors and other immunotherapies for a couple of years, knowing it doesn’t have the expertise in-house. That’s where CoStim comes in – one of its late-stage assets targets the PD-1 pathway. The smokin’ hot PD-1 pathway – if you’ve paid any attention to, or even just glanced at, companies like Merck or Bristol-Myers Squibb in recent months, then you’ve heard about their anti-PD-1 drugs. Combination therapies with these checkpoint inhibitors are going to be huge - $35 billion huge, if some analysts are to be trusted.

Merck already is jumping on the combo bandwagon – it’s inked three deals with Pfizer, Incyte and Amgen just this month to combine its anti-PD-1 checkpoint inhibitor MK-3475 with assets in their respective pipelines.

Novartis is employing a different strategy – it’s hoping to move forward with a CART/PD-1 combo. “We are just starting to explore CART in solid tumors, which are thought to be more immunosuppressant,” said Sellers.

CART programs may be just as revolutionary as PD-1. On Feb. 19, Memorial Sloan-Kettering Cancer Center announced results from a trial of adult B cell acute lymphoblastic leukemia that showed 88% of patients achieved complete remission after receiving the modified T-cells. (The technology is the basis for the founding of high-profile start-up Juno Therapeutics, which currently is locked in a patent dispute over the CAR technology with Novartis.)

French biotech Servier also is getting in on the action, as you can read below in ...

Actavis/Forest – Actavis is nearly unrecognizable from the little Icelandic company it was just three years ago. The company has merged with both Warner Chilcott PLC and Watson Pharmaceuticals during that time to become a generics behemoth with multinational presence. Now, it is continuing down the road of transformation with its $25 billion acquisition of Forest Laboratories. The stock-and-cash deal will turn Actavis into a developer of specialty brand name drugs, boosting specialty products to represent about 50% of combined company revenue. North American specialty pharmaceuticals currently comprise about 30% of Actavis’ standalone revenue. Forest shareholders will get $26.04 in cash and a portion of an Actavis share for each Forest share. The total, per-share price of $89.48 represents a premium of about 25% over Forest's closing price on Feb. 14, the last trading day before the deal was announced, of $71.39. For Forest this is an ideal exit for its shareholders; activist investor Carl Icahn has said in news reports that this acquisition is a good example of when activist measures work. Forest CEO Brent Saunders has been touted as having the magic touch – he flipped Forest in less than six months after taking over and was the architect behind the sale of Bausch + Lomb to Valeant Pharmaceuticals for $8.7 billion before that. - Lisa LaMotta

Servier/Cellectis – Servier wants a piece of the CART action; the French biotech inked a collaboration with cell therapy company Cellectis on Feb. 17 for $10 million upfront and $840 million in potential milestones tied to the development, regulatory and commercial success of six potential products. The deal includes the development of UCART19, Cellectis’ lead product, a CD19-targeting compound that is in early stages, but could be a potential rival to Novartis’ lead CART program – which also targets the CD19 T-cells. “These original cell-based therapies will well complement Servier's innovative clinical oncology pipeline, which currently includes immunotherapeutic monoclonal antibodies, an HDAC inhibitor, kinase inhibitors, antiangiogenic and proapoptotic small molecules,” said Jean Pierre Abastado, head of oncology at Servier. The deal initially will focus on leukemias and lymphomas, with Servier having the option to license the products and take over development after Phase I has been completed. - L.L.

Gilead/CURx - Gilead Sciences has had its hands full, what with plotting the domination of the market for all-oral HCV treatment. So busy, in fact, that the biotech has signed only one R&D deal in almost the last two years – a preclinical partnership with antibody company MacroGenics last January, according to the Strategic Transactions database. On Feb. 19, Gilead announced its latest R&D deal, but this time it has flipped the usual script and out-licensed a late-stage candidate for development. It’s calling upon CURx Pharmaceuticals develop non-core asset inhaled fosfomycin/tobramycin to treat Pseudomonas aeruginosa lung infection in cystic fibrosis (CF) patients. The candidate met the primary endpoint in a Phase II trial in 2010 in this indication, but Gilead subsequently discontinued development. There already are two treatments for this indication approved in the U.S.: Gilead’s own Cayston (inhaled aztreonam) and Novartis' Tobi (inhaled tobramycin). In preclinical studies, inhaled fosfomycin/tobramycin has shown activity against several other pathogenic bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). About half of all CF patients become infected with Pseudomonas aeruginosa and about a quarter are infected with MRSA, according to CURx. The financial details of the transaction were not disclosed. - Stacy Lawrence

Pfizer/ MIT’s Synthetic Biology Center - Pfizer and the Massachusetts Institute of Technology are collaborating on the use of novel synthetic biology tools to enhance drug discovery and development. The three-year deal, announced on Feb. 20, covers multiple therapeutic areas at Pfizer and involves several core investigators at MIT’s Synthetic Biology Center, according to the MIT press release. Scientists have different definitions for synthetic biology, but, essentially, it involves integrating current and new biotech tools, systems biology and bioinformatics to enable engineering of new biological parts, in short, making new genetic codes from scratch. The ultimate goal of using such techniques is to make design and construction of novel biological systems into a professional engineering discipline. Synthetic biology as an area of scientific focus has taken off in the past decade, with support from the National Science Foundation, which funded creation of the first synthetic biotech research center, Synberc, in 2006. Participants in Synberc were the University of California at Berkeley and University of California, San Francisco, Stanford University and MIT. Since then, NSF has awarded millions of dollars more to other academic organizations to set up centers of synthetic biology research, including the J. Craig Ventor Institute and New York University. Start-up activity also is climbing, with one of the most visible practitioners, Intrexon, netting $171 million in an initial public offering last year. The ability to use synthetic biology parts as “programmable entities” presents the opportunity to create new biological processes. The partners plan to use cellular genome engineering to support development of next-generation protein expression systems. Pfizer didn’t provide more details, except for comments by Jose Carlos Gutierrez-Ramos, the company’s group  senior VP and head of Biotherapeutics R&D. He noted in a press release that “We are reaching a key inflection point where advances in synthetic biology have the potential to rapidly accelerate and improve biotherapeutic drug discovery and development, from early-stage candidate discovery through product supply.” - Wendy Diller

Photo credit: Wikimedia Commons

Deals Of The Week Wonders: Who Will Buy Onyx?

When was the last time biotech had a really juicy, successful, high-stakes bidding war? Likely the $10.2 billion Pharmasset acquisition by Gilead Sciences announced in late 2011, which since has played out quite nicely for the latter. Not only did that deal help drive Gilead shares up by about 150% since the deal announcement, but it also tipped off the start of a very long bull-run for the sector.

If Onyx Pharmaceuticals attracts a bevy of bidders, garners a tidy premium for shareholders, and proves a strong asset for an acquirer, its activities could help bolster a flagging biotech stock market. Mostly in June, the NASDAQ Biotechnology Index has shed almost all of a tidy 9% it gained in the first few weeks of May.

If a competitive Onyx acquisition plays out, a deal could come in the fall. That would coincide perfectly with a roster of large-cap clinical and regulatory milestones – which together might breathe life back into a biotech rally that’s getting very long-in-the-tooth.

For now, Wall Street seems certain that the biotech will attract a flock of suitors, culminating in a deal. In fact, Onyx shares are trading well above Amgen’s $120 per share bid, which Onyx publicly confirmed on June 30 that it had rejected. It hired Centerview Partners to contact other potential acquirers, but said it already had interest from undisclosed third parties. Onyx shares closed at $133.52 on July 3, giving the biotech a $9.7 billion market cap.

Potential bidders could include a number of pharmas with existing oncology franchises that need to bolster their bottom lines, such as Pfizer and Merck & Co. Also in line could be established players in the multiple myeloma (MM) market including Celgene and Takeda, in addition to likely pharma players betting on MM monoclonal antibodies such as Bristol-Myers Squibb and Johnson & Johnson. J&J is partnered with Takeda on MM treatment Velcade (bortezomib).

Onyx investor Oliver Marti of Columbus Circle Investors expects to see more than a half-dozen potential suitors emerge, with an acquisition taking about three months to play out. He expects other companies ultimately will prove more aggressive than Amgen, although he does expect Amgen to raise its bid. Marti thinks $140 per share would be an acceptable price.

Amgen has done only a handful of billion-dollar deals. In 2001, Amgen acquired inflammation company Immunex for $17.9 billion in cash and stock. That’s its only deal for more than a couple billion dollars. Since then, it’s done four deals in the roughly $1 billion to $2 billion range including $2.2 billion for antibody play Abgenix  in 2005, $1.3 billion in a stock swap for gene expression regulation company Tularik  in 2004, up to $1 billion in cash and milestones for cancer vaccine company BioVex  in 2011 and $1 billion in cash for antibody company Micromet in 2012, according to Elsevier’s Strategic Transactions database.

“Pfizer and Bayer are natural candidates, Takeda could be a player as well,” added Dallas Webb of BB Biotech, also an Onyx investor. He anticipates the next round of bids will start at $130 and “depending on the number of bidders should go north of that.” He expects more clarity within the next month on the acquisition process.

Various analysts have pegged a likely Onyx per-share sale price in the roughly $135 to $148 range. On top of that, there could be a contingent value right, particularly for oral MM proteasome inhibitor oprozomib. Gene Mack of Brean Capital proposed a $135 buyout share price, with a CVR of about $30 tied to oprozomib approvals in relapsed/refractory and newly diagnosed MM patients, as well as sales milestones based on up to $2 billion.

Pfizer and Bayer are major Onyx partners. Kidney and liver cancer drug Nexavar (sorafenib) as well as colorectal cancer and gastrointestinal stromal tumor treatment Stivarga (regorafenib) both resulted from the Bayer partnership. Bayer evenly splits Nexavar profits globally with Onyx, excluding Japan, and pays Onyx a 20% net royalty on Stivarga global net sales. The partners recently submitted in the U.S. and EU for Nexavar to treat thyroid cancer.

Onyx co-promotes Stivarga under a fee-for-service arrangement, Bayer has the right to terminate the Stivarga co-promote under a change-of-control agreement. But the Nexavar and Stivarga royalties would survive a change-of-control. Onyx was savvy enough to add that to an October 2011 renegotiation of its Bayer partnership, likely in preparation for a clean acquisition down the road.

Wall Street is skeptical that Bayer would buy Onyx in its entirety, although it may seek to fully capture Nexavar and Stivarga rights. Analyst Tim Race of Deutsche Bank, who covers Bayer, noted in a June 28 call that Bayer long has maintained that buying its biotech partners usually is too expensive and that, given its full pipeline, it doesn't need a major new product at this time. He added that Bayer is very hard-nosed about price and likely to walk away from a high valuation. In addition, Bayer would need to raise debt, a move that would damage its credit rating – something Race sees Bayer as unlikely to do.

Onyx partner Pfizer may be a more likely bidder, as the big pharma has made building an oncology franchise a top priority. Onyx and Pfizer have a partnership dating back to 1995 for high-profile Phase III breast cancer candidate palbociclib (formerly PD-991), which recently received breakthrough therapy designation from FDA.

Onyx stands to earn an 8% royalty on palbociclib should the compound get to market. That revenue stream could amount to almost a half-billion in 2026, when analysts expect the drug could generate around $6 billion in sales. If Pfizer really believes in this product, it might be motivated to capture all the palbociclib upside and also add likely blockbuster multiple myeloma drug Kyprolis (carfilzomib).

Existing MM competitors also are likely Onyx acquirers. Celgene's revenue is underpinned largely by MM immunomodulator Revlimid (lenalidomide), which increasingly is being used and tested in combination with Onyx’s Kyprolis. Takeda and J&J market MM proteasome inhibitor Velcade (bortezomib), which Takeda gained when it bought Millennium Pharmaceuticals Ltd.. With the same mechanism of action as Kyprolis and a 2017 patent expiry, Takeda likely needs a replacement. For now, it’s focused on developing its own oral MM proteasome inhibitor, MLN9708.

BMS and J&J also have bets on MM monoclonal antibodies, which are expected to bear fruit in the next few years. AbbVie and Bristol are partnered on Phase III elotuzumab, while Genmab and Janssen Biotech, a unit of J&J, have Phase I/II daratumumab. Daratumumab has Fast Track and Breakthrough Designations for fourth-line MM. These are likely to be used sequentially or in combination with Kyprolis, making Onyx a potentially good fit.

Speculation already has started about which biotech with potential oncology blockbuster companies could be next for a potential take-out. Mark Schoenebaum of ISI Group suggested Ariad Pharmaceuticals, Seattle Genetics and Medivation.

A long Onyx sale saga is likely just at the beginning of unfolding. While DOTW waits for the next shoe to drop, take a look at some actual deals in this week's edition of …

Pfizer/Bioventus: Pfizer will license worldwide rights to its bone morphogenic protein (BMP) portfolio to orthopedic biologics specialist Bioventus. In return, Pfizer will receive an upfront payment, milestones and royalties. Financial terms were not disclosed. The products include a BMP in development and an rhBMP-2 in unspecified indications. The rh-BMP-2 product appears to have entered Pfizer’s portfolio with its acquisition of Wyeth; Wyeth’s pipeline as of May 2009 described a BMP-2 program with indications in fracture repair and hip osteoporosis. Pfizer has agreed to undertake certain early development work for the BMP asset in soft-tissue indications and will manufacture the rhBMP-2 for Bioventus. Bioventus was spun out of U.K. device firm Smith & Nephew with funding from Essex Woodlands in 2012. The company recently has retained the services of BMP experts John Wozney and Howard Seeherman. It plans to soon open a research laboratory in Boston to develop and commercialize the BMP assets. With this deal, Pfizer continues to cull and prioritize its portfolio. The BMP agreement follows a spate of out-licensing in the wake of the Wyeth acquisition, including the CTLA-4 monoclonal antibody tremelimumab to AstraZeneca PLC and the irreversible TKI neratinib to newly formed Puma Biotechnology, both in October 2011. -- Mike Goodman

Merck/Xencor: Xencor already has a string of big pharma partners, but the small California-based biotech is hoping to get the financial flexibility to bring its own internal programs forward. Its latest deal brings the company one step closer to its goals.Xencor announced on July 2 that it has granted Merck a license to a Xencor Fc engineering patent for a monoclonal antibody for use in an undisclosed product that Merck is already working on. The New Jersey pharma also has an option to license the same intellectual property for future products. Merck paid an undisclosed upfront and agreed to pay annual maintenance fees, as well as milestone payments and sales royalties on any products that result. “Merck found an antibody that they needed that we had already patented,” said Xencor CEO Bassil Dahiyat. “They needed it for a use that we hadn’t thought of until they called us,” he added. The companies did not disclose what product the patent applies to or how it would be used. -- Lisa LaMotta

Avanir/OptiNose: CNS-focused Avanir Pharmaceuticals is licensing a proprietary intranasal delivery system from OptiNose for use in developing and commercializing a fast-acting, dry-powder inhaled form of sumatriptan for acute migraine. In the deal announced July 2, Avanir is paying $20 million upfront to license OptiNose’s Breath Powered delivery system; Avanir said it should be ready to file an NDA by early 2014 for AVP-825, the resulting drug/device combination product. The two companies will share development costs and work together on putting together the NDA submission. Avanir will assume responsibility for regulatory, manufacturing, supply-chain and commercialization activities for the product. OptiNose could earn up to $90 million in clinical, regulatory and commercial milestones related to ‘825, as well as tiered royalties on North American sales. Avanir says ‘825, if approved, would the first and only fast-acting, dry-powder inhalable version of sumatriptan for migraine. In a Phase III clinical trial, the OptiNose device demonstrated rapid absorption and provided relief using approximately 80% less drug than is contained in the most commonly prescribed oral sumatriptan product, the company added. -- Joseph Haas

Financings of the Fortnight Battles the Bull Run

Since when did biotech’s epicenter move to Pamplona? The bull run has lasted quite a while now, after having gotten an extra goose, if you don’t mind mixing barnyard metaphors, around the time hepatitis C treatment developer Pharmasset became the $11 billion target of Gilead Sciences in November 2011.

Once they scraped their jaws off the floor, analysts decided the deal wasn’t really so shocking despite the price tag. We’ll soon find out how well it pays off for Gilead. The HIV leader has put the main compound it acquired in that deal, sofosbuvir, through a battery of Phase III tests and applied for a marketing license.     

One could argue that the acquisition has already paid dividends not just to Gilead but to nearly every other biotech company with a pulse. Since the deal was announced in November 2011 the two major biotech indices from NASDAQ (NBI) and the NYSE (BTK) are up 97% and 93%, respectively. That's vastly outstripped the tech-heavy  NASDAQ Index, which is up a tidy 35%. You could slice and dice the good times in other ways, too: In the last five years, the NBI is up 138% and the BTK 170%, compared to 37% for the Nasdaq writ large.

Or, microcosmically, you could point to this morning's Epizyme activity. The epigenetics company, which our In Vivo colleagues profiled a year ago, sold IPO shares at $15 each, raising $77 million, and the stock began trading this morning at $20. (As of this writing it's up to $21.02.) That's a lot of enthusiasm for a company in a cutting-edge area of biomedical R&D with just a few months of a Phase I trial as the sum of its clinical experience (and the drug in that trial, to boot, is partnered to Celgene).  

The majority of the gains have come in the past year and a half. Whichever cut of the steak you prefer, it’s been an unusually long run for the sector, which tends to see run-ups for six months, perhaps a year, then lose much of the ground it has gained. Much of the fervor is driven by large-cap biotechs: Since November 2011, Biogen Idec, Vertex Pharmaceuticals, Celgene, Gilead Sciences, and Amgen have all outperformed the biotech indices (Gilead by a ton, the rest by a few percentage points). As ISI Group analyst Mark Schoenebaum pointed out recently,  the NBI has soared (and even surpassed in March the high water mark that the genomics bubble left in March 2000), all while the median price-to-earnings ratio of large cap biotech has deflated like a forgotten balloon for years.

Many mid-cap biotechs are making hay, too. Onyx Pharmaceuticals is up 125%, Isis Pharmaceuticals 156%, Clovis 166%, Alnylam Pharmaceuticals 249% -- yeah, Alnylam, whose partners abandoned its RNAi platform a few years ago, and which made a sharp right turn as a slimmed-down clinical-stage company in 2010 – and speaking of rising from the ashes, Medivation, they of Dimebon infamy, are up 451%, all since November 2011.

There are others, and the list of billion-dollar market caps is getting a little heavy. We’re not saying that Sarepta Therapeutics, which has been grinding away at a novel approach to treating Duchenne’s muscular dystrophy for several years after shifts in focus, top management, and company name, is the life sciences equivalent to Pets.com; or that Acadia Pharmaceuticals, a 20-year-old firm working toward approval of its Parkinson’s psychosis treatment, is this year’s Webvan. But talk of a bubble is, well, bubbling up, and one wonders if it will pop in the summer heat. It’s conventional wisdom that the down time after the annual American Society for Clinical Oncology (ASCO) conference, gearing up right now in Chicago, is also profit-taking time.

Until now, though, it’s been a seller’s market. To date, biotech follow-on sales have raised $4 billion this year. That’s nearly two-thirds of last year’s $6.5 billion total in just under five months, according to Elsevier’s Strategic Transactions database.

Put another way, there have been 18 follow-on sales of $75 million or more so far in 2013. That nearly equals last year’s total of 21. And it’s not just the high flyers raising barrels-full. As we describe below in our round-up, Ironwood Pharmaceuticals ginned up a cool $136 million by selling 10.5 million shares. Shares of the constipation-relief developer have appreciated only modestly while the male bovines have cavorted. Starting at the November 2011 "goose" mark, Ironwood has only risen 7%. Or, if you prefer a somewhat less arbitrary start date, Ironwood is up 23% since its February 2010 IPO, while the Nasdaq has risen 63% and the biotech indices have more than doubled.

So with the likes of Ironwood raising more than $200 million in equity and another $175 million in debt since the market’s gone nuts, we’re going to speculate that companies below the large-cap range are having little problem getting the cash they need. (In Ironwood’s case, it’s to help with the launch of their first commercial product, Linzess, aka linaclotide, which the FDA approved last August.)

According to Strategic Transactions, since November 2011 biotechs with market caps of $1 billion or more have raised $3.89 billion over 24 sales, an average of $162 million. Companies with market caps between $500 million and $1 billion have raised $2.59 billion over 26 sales, an average just under $100 million. And sub-$500 million cap companies have raised $4.67 billion over 142 sales, an average of $34 million.

It all reinforces the urgency for private firms to get through the IPO window, because the grass really is greener on the other side of the fence. And for now, there's plenty of pasture to graze. The upcoming Start-Up will have fewer bovine puns and more on the current IPO landscape – who’s getting to exits might surprise you -- so stay tuned. And before you exit, make sure you profit from the rest of our column. Sharpen your horns, it’s time for…

  
Ophthotech: The legacy of Eyetech continues. Its successor Ophthotech has raised $175 million to fund a huge Phase III trial for its wet age-related macular degeneration (AMD) candidate, Fovista. Announced May 29, the transaction comprises a $50 million Series C round for the privately held biotech, plus $125 million from long-time investor Novo AS in exchange for royalty rights to Fovista. The financing is the latest in a web of transactions involving the now-defunct Eyetech, Novo AS and other players in the ophthalmology space, including venture firm SV Life Sciences. New York-based Ophthotech was created and is led by Eyetech co-founders David Guyer and Samir Patel. Following the sale of Eyetech to OSI Pharmaceuticals, Guyer was a principal at SV Life Sciences, which focuses much of its investment on eye care companies. The Series C investors were Novo AS and Ophthotech’s other prior investors: SV, Clarus Ventures and HBM BioVentures. The same four participated in Ophthotech’s $30 million Series B round in 2009, and Novo, SV and HBM were the investors in the biotech’s $36 million Series A in 2007. But Novo AS also is ponying up $125 million against future royalties on the sale of Fovista, an anti-platelet-derived growth factor (PDGF) drug slated to start a 1,900-patient, 200-site Phase III study during the third quarter. The company declined to provide specifics on the royalty agreement, such as percentage of sales or whether the royalties would be capped by dollar amount or a certain date. – Joseph Haas

Effector Therapeutics: Effector closed a $45 million Series A round of funding, announced May 20, with commitments from seven venture firms including three tied to Big Pharma. The backers are GlaxoSmithKline’s venture firm SR One, Novartis Venture Funds, and Astellas Venture Management, as well as Abingworth, Osage University Partners, U.S. Venture Partners and Mission Bay Capital. The company plans to develop and commercialize new drugs based on discoveries at the University of California, San Francisco, concerning the process of translation, or protein synthesis. Effector believes it can create compounds that affect multiple oncogenes simultaneously, halting a key mechanism that leads to tumor growth. The company will target so-called “effector mechanisms” selectively, aiming for an upstream process that can activate more than one cancer gene at the same time. San Diego-based Effector believes that newly-discovered methods of disrupting certain malfunctioning effector mechanisms can sever a key lifeline upon which cancer cells depend. For CEO Steve Worland, Effector is a chance to build a new company from the ground up. He was CEO of publicly traded hepatitis C specialist Anadys until its sale to Roche for $230 million in October 2011.  Worland told our Pink Sheet colleagues that his involvement with Effector’s VCs “was like being an entrepreneur-in-residence at three or four firms simultaneously” as he built the syndicate. The corporate investors’ parent firms received no special rights, options, or ties to the programs Effector has underway. According to U.S. Venture Partners’ Larry Lasky, the four firms with board seats – USVP, Abingworth, SR One, and Novartis -- were the “main investors,” while the other firms contributed smaller amounts. – Paul Bonanos

Karyopharm Therapeutics: After raising more than $30 million in its initial financing, oncology biotech Karyopharm is adding to its cash runway with a $48 million Series B. The Natick, Mass. company will use the new funds to push its lead cancer asset forward in multiple indications. Karyopharm, which was founded in 2008, has been financed largely by a private investor until now. In November 2010, the biotech attracted the attention of deep-pocketed Chione, an investment vehicle that is backed by Polish oil and gas baron Slava Smolokowski, who has also put some of his considerable fortune into Broadway. With Smolokowski’s backing, Karyopharm raised $20 million in its initial round and then added another $10 million during a follow-up offering in 2011. Chione once again has contributed to the most recent round of financing and been joined by a group of private investors, as well as one venture capital firm. Delphi Ventures now has joined the company’s investment syndicate in the latest round of financing and Deepa Pakianathan will join its board to represent Delphi’s interests. Karyopharm also has received $1 million in funding from the Multiple Myeloma Research Foundation and the founders brought in $1 million from other angel investors prior to the Series A. CEO Michael Kauffman said the company largely has avoided including venture capital investors due to the constraints that often come with VC money – particularly more rigid timelines. He said the leeway afforded by private investors was a better fit for the company. – P.B.

Ironwood Pharmaceuticals: The developer of constipation treatment Linzess (linaclotide) netted nearly $130 million in a secondary sale of 10.5 million shares of its Class A common shares at $13 a piece, a 6% discount to the previous day’s closing price. The firm could boost its proceeds if underwriters led by JP Morgan and BofA Merrill Lynch sell an additional 1.575 million shares, cash that will help the company build the recent launch of Linzess, which FDA approved in August 2012 and the EU in November 2012.  Ironwood shares US marketing duties with Forest Laboratories, a deal that was inked in 2007, and Laboratorios Almirall has exclusive European rights. It’s also brought on AstraZeneca to help sell Linzess in China and Astellas Pharma in Japan and other Asian countries. Using both debt and equity sales, the firm has raised nearly $400 million since the start of 2012. The secondary share sale is for Class A stock, notable because Ironwood long ago instituted a dual-class share structure to ensure that pre-IPO shareholders have a disproportionately large say in potential change-of-control scenarios. Holders of Class B stock get 10 votes per share in such matters. Class A holders get 1 vote per share. Starting in 2019, the dual-class structure could disappear if Class B shares total less than 25% of all outstanding Ironwood shares. According to the firm’s regulatory filings, the recent stock sales put the Class A share count at 92.9 million and Class B at 26.4 million.  – Alex Lash

All The Rest: Cardeas Pharma raised $34M in Series B to fund work on inhaled antibiotics for hospital-acquired infections… Jennerex Biotherapeutics closed on $21.6M to support lead oncolytic immunotherapy Pexa-Vec…Trinity College spin-off Trino Therapeutics raised an €9M Series A…TheraCoat, focused on bladder infections, completed a $7M round led by Pontifax…neurodegenerative disease drug developer Oligomerix raised $2.6M in a Series B…concurrent with an $850k grant from Austria’s Research Promotion Agency FFG, antisense company ugichem raised €1.4M…Sofinnova led an undisclosed Series A for First Aid Shot Therapy (FAST), which is developing OTC single-serve liquid products…autoimmune and viral disease firm Kineta received funding from Hydra, an LP formed by retired oil traders…BTG completed a £106M private placement to help pay for acquisitions of interventional device companies Ekos and Nordion’s Targeted Therapies…for a total of $4.6M, Aeterna Zentaris may sell MLV & Co. up to 2.5M shares  in an "at-the-market issuance"…in a convertible preferred stock and warrants offering, Guided Therapeutics raised $2.6M…Rare disease-focused NPS Pharmaceuticals closed on an $87M secondary offering…Stemline Therapeutics, which is investigating oncology therapeutics that target cancer stem cells and tumor bulk, publicly raised $60M…in a follow-on, Cyclacel Pharma grossed $20.5M to fund completion of the Phase III SEAMLESS trial for AML candidate sapacitabine…male and female sexual health company Apricus Biosciences closed a $17.1M FOPO…in the second-highest grossing IPO so far in 2012 behind Quintiles, Portola went public raising $140M... Israeli firm Alcobra completed a $25M US IPO…Regado set terms for their IPOs…PTC Therapeutics, Prosensa, and Evoke Pharma all joined the IPO queue and filed S-1s...Speranza Therapeutics raised $90M in funding and concurrently spun off from Elan to continue work on Phase II ELND005 for CNS indications… ElsaLys Biotech spun off from Transgene with a €2.1M Series A to support development of antibodies for cancer and infectious…Pfizer raised $4B in a five-tranche notes sale…to fund several acquisitions, Elan completed an $800M debt offering…ImmuPharma received a £50M loan from Darwin Strategic to support Phase III studies of lupus candidate Lupuzor…and VentureHealth set up an equity crowdfunding portal to improve clinical outcomes. -- Amanda Micklus

Many thanks to Stacy Lawrence for help with this week's column. 

Photo courtesy of Flickr user Stephan Andrej Shambora. 

Deals Of The Week Sings Of An Icelandic Saga And The Path Forward

Our knee-jerk reaction to Monday’s announcement that Amgen is buying deCODE Genetics for $415 million in cash was “Say what?” It’s hard to get past the unlikely mix of cultures between Amgen, the most button-down of biotechs, and deCODE, whose irascible founder and CEO, Kari Stefansson, is anything but.

On second thought, though, the combination makes sense.  For Amgen, it’s a buy-versus-build way to install a broad-based, genetics-oriented discovery and target validation engine.  For deCODE’s investors Polaris Ventures and ARCH Venture Partners, it’s a timely and profitable exit: they put down roughly $14 million to bring the Icelandic genomics specialist out of bankruptcy in November 2009 and have been carrying it since.  And for deCODE’s scientists, it’s an opportunity to continue discovery research using population genetics and armed with blood samples from Icelanders and the country’s conserved genealogical and health care records.

As Polaris’ Terry McGuire blogged the day the deal broke: “Almost all of the other companies that started in this space gave up and moved to safer ground – developing drugs.  Kari Stefansson never lost sight of what was truly important, which is pioneering the genome.”

Equally true is that Stefansson’s broad vision caused his reach to exceed his grasp. As we wrote three years ago, the fundamental issue was one of business strategy – an overly optimistic view of the rate at which discoveries made with its genomics platform could convert into tangible drug and diagnostic assets, including IP, and justify the infrastructure investments the company had made.

deCODE's troubles stemmed from a combination of factors including a fragmented set of operations ranging across gene-based drug and diagnostics discovery and development as well as a foray into consumer genomics. As an Iceland-based company, it also had been especially sensitive to the impact of the global financial downturn in the latter half of the 2000s, which hit that country's banking industry very hard. Plus, an arrangement with Lehman Brothers to manage its money had left deCODE with essentially worthless paper.

Stefansson’s unwavering faith in deCODE’s expansive – and expensive – approach to discovery finally has paid off. “This was a 16-year saga,” says McGuire. "But true to the saga, Kari’s has been one of finding the path forward.” Polaris and ARCH together (via the aptly named Saga Investments, organized for the deCODE recapitalization) owned about 65%, roughly one-third each, of deCODE.  They’d put in around $50 million all told (plus some noncash obligations to turn the firm around), netting what appears to be more than a 5x return.

The business model for the recapitalized deCODE focused on establishing corporate partnerships, which is where Amgen came in.  The companies were discussing ideas for partnerships when, as sometimes happens, “there was a moment where they could see the breadth of this engine,” says McGuire.  Some of deCODE’s insights will directly relate to Amgen’s therapeutic areas of interest, he says, but as important will be deCODE’s long-term contribution to R&D.

Becoming part of Amgen presumably puts an end to deCODE’s aspirations as a developer of clinical diagnostics, an area very much in its sights when the firm relaunched.  In that respect, the deal speaks to the relative value of genomics in drug discovery versus clinical diagnostics development. – Mark Ratner

Teva/Xenon – In an effort to streamline its business, Teva Pharmaceuticals has decided to take a more focused approach to R&D, with an emphasis on respiratory diseases and central nervous system disorders (including pain and neurodegenerative disorders). A deal announced with Xenon Pharmaceuticals on Dec. 11 will fit snugly into the Israeli company’s new strategy. In exchange for the global rights to Xenon’s pain drug XEN 402, Teva will pay the Vancouver-based company $41 million upfront, as well as development, regulatory and sales milestones of up to $335 million. Xenon also will be entitled to royalty payments and have the chance to participate in U.S. commercialization, although details of the commercialization split were not disclosed. XEN 402, a Nav1.7 inhibitor, blocks sodium channels that are found in abundance at nerve endings and contribute to chronic pain conditions. Xenon has taken it through the start of Phase II for both inflammatory and neuropathic pain and in topical and oral formulations. Teva, which now has rights to both versions of the drug, plans to begin a full Phase IIb development program immediately. Xenon hasn’t been the only company working on Nav 1.7 inhibitors – a space that has drawn interest because its potential to be an alternative to opioid-based pain drugs. – Lisa Lamotta

Biogen Idec/Isis – Biogen Idec continues to demonstrate faith in antisense technology, announcing a third deal with Isis Pharmaceuticals Dec. 10. Much like the two previous deals between the companies, the recent tie-up focuses on neuromuscular targets. In exchange for access to three early-stage targets, Biogen will pay Isis $30 million upfront. The work is currently in the discovery phase. Once Phase II has begun, Biogen will have the right to option each of the three programs and continue development and commercialization activities. Isis is eligible to receive $200 million in total milestones per program, as well as double-digit royalties should any products be commercialized. In January, Biogen signed its first deal with Isis, agreeing to pay $29 million upfront as well as $45 million in potential milestones for the option to license Isis' Phase I spinal muscular atrophy compound. In late June, Biogen agreed to pay $12 million upfront for the right to a treatment for myotonic dystrophy type (DM1). Early-stage milestone payments could total $59 million. At the end of Phase II, Biogen has the option to license the drug; subsequent payments for meeting certain regulatory milestones could add up to $200 million. – L.L.

AstraZeneca/Isis – Antisense drug-discovery company Isis Pharmaceuticals also landed a second partnership on Dec. 11, an oncology deal with AstraZeneca that will address five targets including one program upon which clinical trials are already underway. For $25 million upfront, plus a $6 million near-term payment due in the second quarter of 2013 if research is ongoing, AstraZeneca gets rights to the Phase I/II clinical compound ISIS-STAT3Rx, as well as one preclinical program and options on other programs. AstraZeneca will fund ongoing research on the programs covered under the partnership, save for a small Phase II trial Isis is still conducting on ISIS-STAT3Rx for lymphoma. Isis also is eligible for $75 million in milestone payments over the next two years, including a $50 million payment if the ongoing study is completed; Isis would receive additional clinical and approval-related milestone payments, licensing fees and royalties on marketed drugs, but the companies didn’t provide further financial information. The partnership covers drugs that use Isis’ proprietary antisense technology, which destroys RNA that creates disease-causing proteins, as well as its Generation 2.5 technology that strengthens the potency of drugs. – Paul Bonanos

Bristol-Myers Squibb/The Medicines Company – In an example of a big pharma out-licensing deal, The Medicines Company has agreed to pay $115 million upfront to Bristol-Myers Squibb for the global rights to Bristol’s already-marketed topical recombinant thrombin product, Recothrom, which is used to stop non-arterial bleeding during surgical procedures. Approved in the U.S. in January 2008, Recothrom brought in $65 million in revenues in 2011. The Medicines Company plans to drive growth by seeking  approval of the drug in other countries. Bristol, which will be responsible for manufacturing, will receive royalties on the product during the two-year collaboration period. After that time, The Medicines Company will have the option to acquire Recothrom. Bristol said its decision to outlicense the drug is part of its effort to streamline operations and improve efficiency. For The Medicines Company, the deal bolsters its offerings in the hospital settings. The company also announced the same day that it has agreed to pay $115 million to acquire Incline Therapeutics, the maker of a needleless, patient-controlled analgesia device used in the hospital setting. – L.L.

Gilead/YM Biosciences – Gilead furthered its diversification strategy with expansion into oncology with the acquisition of Canadian cancer company YM BioSciences, announced  Dec. 12. Gilead will buy YM for $2.95 per share in cash, or about $510 million, with the transaction expected to close in the first quarter. YM had cash and equivalents of $125.5 million as of Sept. 30. The acquisition will give Gilead its sixth clinical-stage oncology compound, a Janus kinase (JAK) inhibitor, CYT387, which has shown promise in treating myelofibrosis. Gilead plans to initiate a Phase III study in the setting in the second half of 2013. The deal represents a solid exit for YM, which gained CYT387 when it merged with Australia’s Cytopia Ltd. in 2010 in a stock transaction that valued Cytopia at around $11 million. YM released results of a 166-patient Phase I/II clinical trial of the drug, its lead product, at the American Society of Hematology meeting Dec. 9, showing that treatment with CYT387, improved transfusion independence rates and spleen response in patients with myelofibrosis. But CYT387 will have to compete with a JAK1/JAK2 inhibitor already on the market for myelofibrosis. Incyte’s Jakafi (ruxolitinib) was approved by FDA for myelofibrosis in November 2011, and was the first JAK inhibitor approved for any indication. CYT387’s second-in-class status could dampen investor enthusiasm for the acquisition, but the fact the drug has been shown to increase hemoglobin and reduce the need for blood transfusions means it could offer a competitive advantage as the preferred treatment for the roughly 30% of myelofibrosis patients who have anemia. – Jessica Merrill

Somaxon/Pernix – Somaxon’s search for strategic alternatives has come to an end, but not exactly a lucrative one. Specialty pharma Pernix will acquire the sleep disorder company for $25 million in stock. That’s a small fraction of the at least $224 million that’s been invested in Somaxon since its 2003 inception. On Dec. 10, the day before the deal announcement, Somaxon’s market cap was a mere $10.5 million. It was trading just above its cash of $8.2 million at Sept. 30. During the third quarter, Deerfield Management initiated a position of 4.5 million shares in the company; that’s almost two-thirds of its shares outstanding. Somaxon shareholders still have to sign off on the deal. It’s been a steady slide for Somaxon. In September 2011, Procter & Gamble, the U.S. marketing partner for Somaxon insomnia drug Silenor (doxepin), terminated an August 2010 deal due to insufficient sales to support marketing expenses. Then in January, Somaxon said it was looking at strategic alternatives after a disappointing Silenor launch. The selling point for Silenor was supposed to be its approval for sleep maintenance, staying asleep into the seventh and eighth hours of sleep. But it’s proven difficult to gain a foothold in an insomnia market awash with generics, particularly of Ambien (zolpidem). Somaxon reported net product sales of $7.8 million in the first nine months of 2012. For its part, Pernix is adding a product to its ranks of generic, branded and OTC products. Until recently, the company has focused on pediatrics. But last month, it bought Cypress Pharmaceuticals for $101 million in cash and stock, thereby diversifying its product offerings. – Stacy Lawrence

Nuron/Pfizer – In another deal that has a big pharma unloading a non-priority asset, Pfizer sold its Meningitec vaccine to Exton, Pa.-based specialty biologic and immunotherapy developer Nuron Biotech. The vaccine is aimed at preventing bacterial diseases such as meningitis, sepsis and pneumonia caused by Neisseria meningitides serogroup C. The product is currently registered in 23 countries, and Nuron plans to expand its availability to markets with unvaccinated and under-vaccinated populations, the company said. N.meningitidis is estimated to cause 500,000 cases of disease annually worldwide with a 10%-20% fatality rate. The company previously acquired the HibTiter Haemophilus influenza Type b conjugate vaccine from Pfizer in April 2011 and is looking to relaunch the product, marketed in the 1990s by Wyeth, in the U.S. following discussions with FDA. Nuron has several vaccines and biologics in development. Terms of the deal were not disclosed. – J.M.

Deals Of The Week: Living With The Constancy Of Change In HCV Drug Development

One of the frequent thematic tropes found in the music of Canadian prog-rock trio Rush is the constancy of change, that change is constant, and constantly changing, etc. Anyone trying to follow hepatitis C drug development probably understands that message.

Just when it appeared that nucleoside polymerase inhibitors were the way to go in the effort to develop a paradigm-changing combination of all-oral, direct-acting antiviral drugs for the virus, a pair of recent setbacks in the “nuc” arena have made other classes of drugs and the companies developing them more relevant, and potentially more valuable.

Hence, the reported increased interest in Achillion Pharmaceuticals, which expects to produce early data for a proprietary combination of a protease inhibitor and an NS5A inhibitor during the first quarter of 2013. Once thought in danger of being left behind as the M&A mavens at big pharma circled Pharmasset, then Inhibitex, and continued to kick the tires on Idenix Pharmaceuticals, Achillion now is considered by many Wall Street analysts to be on the radar screen of HCV players such as Merck & Co., Bristol-Myers Squibb, Roche and possibly others.

Achillion raised $41.7 million in a registered direct offering just before Labor Day, placing 6.4 million new shares with QVT Financial LP at $6.57 per unit, its closing price on Aug. 31. That marked the New Haven, Conn.-based biotech’s third significant fund raise since August 2010, as it brought in $60.9 million through a follow-on public offering in June 2011, and $49.1 million under a PIPE (private investment in public equity) deal in August 2010.

But Wall Street widely expects that Achillion will have some big pharma R&D machinery behind its HCV efforts soon, maybe even before the Phase II combo data for protease inhibitor ACH-1625 (sovaprevir) and NS5A inhibitor ACH-3102 are unveiled.  (The firm also will disclose Phase I proof-of-concept data for ‘3102 this fall.)

Dismissed as barely relevant in the combo race as recently as earlier this year, Achillion may get a second chance thanks to the disastrous safety issues encountered by Bristol’s expensive nuc prospect, BMS-986094. The pharma paid $2.5 billion to buy that drug’s developer, Inhibitex, only months before shutting development of the drug down entirely in mid-August due to cardiotoxicity that killed one patient and hospitalized eight others.

The news then got worse or better, depending on your perspective, when FDA placed Idenix’s nuc, IDX184, and second-generation compound, IDX19368, on clinical hold because of concerns about their similarity in chemical structure to the Bristol nuc. It’s important to note that the “nuc” class is by no means dead – Gilead Sciences is still viewed as the leader in the HCV combo race thanks to the eye-opening data its nuc, GS-7977, is producing. And Vertex Pharmaceuticals is bringing a nuc licensed last year from Alios BioPharma into the clinic, as well.

Achillion has an analyst day presentation slated for Sept. 27, and with the expectation for POC data with ‘3102 and drug-drug interaction data for the ‘1625/‘3102 combination expected this quarter, Robert W. Baird & Co. analyst Thomas Russo thinks a partnership prior to the combo trial would make sense. “While lack of visibility makes this timing impossible to predict, generally speaking we’d view [a] non-exclusive collaboration positively because it would add shots on goal, external validation, and perhaps regimens that would augment investor excitement and conviction,” he wrote in an Aug. 8 note.

He added that Bristol and Abbott Laboratories have been demonstrating in the lab that high sustained virologic response (SVR) rates can be attained by antiviral combos not including a nuc. “Achillion’s pipeline features PIs and NS5A inhibitors that look best-in-class, complementary, and reasonably likely to succeed in interferon-free combos – all under its roof and/or via external collaboration,” Russo said. “We believe big players will fight on for some period longer, with some looking to fill gaps in their HCV pipelines and others perhaps looking for a complete solution.”

Sovaprevir, in triple-combination testing with existing standards ribavirin and pegylated interferon, has demonstrated effective inhibition of viral replication without generating “meaningful resistance,” an unending concern in the protease inhibitor class, wrote Brean Murray Carret & Co. analyst Brian Skorney on Aug. 9. “Although not a clear home run … [this is] a characteristic we believe is unique to only handful of antivirals in development for hep C,” he added.

Now, on to our weekly roundup of:

Merck KGaA/Symphogen – Danish biotech Symphogen AS has licensed its lead oncology product, Sym004, a mixture combining two antibodies targeting the epidermal growth factor receptor (EGFR) on tumor cells, to Merck KGaA for an upfront payment of €20 million ($25 million). Symphogen was evaluating Sym004 in two Phase I/II studies, which have shown initial signs of the drug’s clinical benefit and have been transferred into Merck’s control. The deal underlines the growing interest in combination therapies for cancer, as well as Merck’s desire to build on its marketed EGFR-targeted anticancer, Erbitux (cetuximab), which is its second largest-selling product, garnering sales of €855 million ($1.13 billion) in 2011. Merck receives exclusive development and commercialization rights for Sym004 worldwide, and now will fund all further development of the compound. In return, Symphogen receives the upfront and potentially could earn €225 million in clinical development and regulatory milestones, as well as €250 million in combined sales performance milestones and royalties on net worldwide sales, bringing the total potential value of the deal to €495 million. Merck is much in need of clinical-stage products that it can advance quickly following a string of late-stage product failures, which have prompted a management reorganization and the start of a cost-saving program including job losses at its R&D facilities in Switzerland, and across functions in Germany. – John Davis

Valeant/Medicis – In a move to become a leader in dermatology, Valeant Pharmaceuticals announced Sept. 3 that it has agreed to pay $44 per share, or $2.6 billion, for Scottsdale, Ariz.-based Medicis Pharmaceutical – representing a 39% premium to Medicis’ closing price of $31.56 on Aug. 31, the last trading day before the deal was announced. The Medicis acquisition, which will be funded entirely with debt, adding to the company’s $7.6 billion debt (as of the end of 2011), will make Valeant the largest dermatology player in the U.S. and second only to Galderma SA in the rest of the world. While Valeant has interests in several specialty pharma areas including dentistry and branded generics, the largest part of the business belongs to dermatologics with a focus on acne, eczema, and topical antivirals. Medicis brings a handful of products that will be complementary to Valeant’s current portfolio including the oral acne product Solodyne (minocycline oral), which will fit in with the company’s topical acne offerings. The company also makes aesthetic injectables like Restylane, Perlane and Dysport – which fit in with Valeant’s collagen stimulator Sculptra. Valeant expects $225 million in synergies – an estimate the company considers conservative and does not take into account any revenue upside or further upside from anything that may come out of the Medicis pipeline. According to Wells Fargo analyst Michael Tong, the deal will nearly double Valeant’s dermatology business, which was expected to produce revenues of $958.7 million in 2012 (analysts estimated Medicis would bring in approximately $820 million in revenues in 2012). – Lisa LaMotta

Medivir/Novadex – Achillion is not the only player in the HCV space looking to take advantage of recent stumbles by Bristol and Idenix. Medivir AB, which is developing Phase III protease inhibitor simprevir (TMC435) in tandem with Johnson & Johnson unit Janssen Pharmaceuticals for hepatitis C, announced a deal with Novadex Pharmaceuticals Sept. 6 in which it acquired a package of preclinical HCV assets, including novel nucleoside polymerase inhibitors. A release said the deal will include an upfront payment and potential milestones, but did not disclose specific terms. Medivir said the deal will include intellectual property and prodrug technologies that will further strengthen its HCV platform and know-how. The prodrug technologies could be applied to both protease inhibitors and nucleoside analogues to enhance their overall pharmacokinetic profiles, the company added. TMC435 also is being tested in combination with Bristol’s NS5A inhibitor daclatasvir (BMS790052) under a collaboration between Janssen and Bristol that was extended in April. – Joseph Haas

ImaginAb/MacroGenics – Two privately held companies in the antibody development space agreed Sept. 5 to collaborate on a pair of imaging products that could support ongoing development of new therapies. Los Angeles-based imaging specialist ImaginAb said it would develop a clinical imaging product for inhibition of the CD3 T-cell receptor based on an anti-CD3 therapy belonging to MacroGenics of Rockville, Md. The companies did not specifically name teplizumab as the therapy, but that is MacroGenics’ most advanced anti-CD3 program.ImaginAb also will develop a companion imaging agent for an immune-regulating B7-H3 target; MacroGenics’ Phase I clinical candidate, MGA271, addresses B7-H3. ImaginAb’s agents typically are used by partners to select patients and monitor responses to clinical treatments. The two companies share at least one investor, the oncology-focused Nextech Venture of Zurich. MacroGenics has raised more than $125 million from a long roster of venture investors since it was founded in 2000; five-year-old ImaginAb announced its $12.5 million Series A round in March 2012, and already has forged partnerships with drug companies such as Astellas Pharma and Oxford BioMedica, as well as a variety of cancer research organizations. Last month, ImaginAb named Eleven Biotherapeutics CEO Abbie Celniker as chair of its board of directors. – Paul Bonanos

Pfizer/SFJ Pharmaceuticals – Pfizer and SFJ Pharmaceuticals announced a collaborative development agreement Sept. 7 to conduct a Phase III trial for dacomitinib (PF-00299804), a pan-human epidermal growth factor receptor (pan-HER) inhibitor in advanced lung cancer. To be conducted at multiple sites in Asia and Europe, the Phase III trial will test the agent in patients with locally advanced or metastatic non-small cell lung cancer with activating mutations of epidermal growth factor receptor. SFJ will fund the trial and provide clinical development supervision as needed to prepare dacomitinib, an oral, once-daily, small molecule inhibitor of the HER-1, HER-2 and HER-4 tyrosine kinases, for regulatory filings as a first-line treatment in advanced NSCLC. If the compound obtains regulatory approval, SFJ will be in line to earn milestone and other earn-out payments. No other financial details were disclosed. This is the second collaboration between the world’s largest pharma and San Francisco-based SFJ, founded in 2009 a co-development partner for pharma and biotech. Earlier this year, the two partnered to run a Phase III trial in Asia of Inlyta (axitinib) for adjuvant treatment of patients at high risk of recurrent renal cell carcinoma following nephrectomy. – JAH

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