Deals of the Week Looks At Illumina’s Roche Rebuff: There Will Be Time To Revisit This Deal

With the news this week that shareholders of Illumina had rebuffed Roche’s efforts to expand and stack its board of directors, the latter withdrew its hostile tender offer for the company.

No surprises there. Illumina’s management has been stalwart in its belief in the company’s positioning and prospects for rebounding from the dent in its earnings resulting from the global economic slowdown and cutbacks in government spending for its genome sequencing equipment.  That view is obviously shared by the institutions that own its stock, who were unmoved by Roche’s most-recent $51 per share ($6.8 billion) offer.  Roche, for its part, tried to use Illumina’s market-weakened position to highlight the risks of the business. As we wrote in IN VIVO in February, its interest in Illumina is strategic, but also opportunistic.

At one point during the parties’ back-and-forth letter writing to shareholders, Illumina alluded to its being called “the Apple of the genomics business.”  But while Apple’s products appeal to a “seemingly endless consumer base,” Roche replied, Illumina’s sequencing tools serve a much smaller and highly regulated market.  “Not even Illumina has projected any surge in revenues from its products in any specific foreseeable time period,” it said.  “As a standalone company, Illumina’s future is far from certain… Roche has the infrastructure, expertise, sales force, and market share required to successfully bring Illumina’s products to the broader Life Science and Diagnostics market and the combined capabilities of our two companies will accelerate the transition of Sequencing into clinical and routine diagnostics.”  Fair points.

As we’ve written, the how and when of applying sequencing to clinical diagnostics is debatable, especially when trying to show that complex patterns of genetic differences – the kind that rapid and inexpensive whole genome sequencing can uncover – can help guide therapy decisions (see here and here). But there’s no debating the research interest, nor that Illumina is the market leader and a continuing innovator in the field.  And while competitors are selling and developing small, fast next-generation sequencing instrumentation for smaller sequence read lengths, including Roche through its own 454 Life Sciences unit, it’s fair to think that large research and clinical labs will continue to invest in the workhorse machines Illumina has placed so successfully, especially as the costs of whole genome sequencing continue to fall.

Roche has called its $51 per share offer a starting point for negotiations, suggesting it would go higher once it has access to Illumina’s internal documents.  Illumina has resisted, presumably because it does not think Roche would pay what it would want as fair value – and that it will be in a much stronger negotiating position down the road.

That’s called being a true believer.  We think Roche is, too – in both the technology and in Illumina itself.  However the next year or so shakes out, Illumina should remain a good fit for Roche, to round out its genomics offerings and provide a channel for them to the clinical community.  The question is only at what price. (The discussion could also revert to some form of equity investment plus collaboration, which is what Illumina thought Roche’s intention was when it first came calling last November.)  The tender offer is set to go away at 6 pm tonight, but the two are still negotiating. – Mark Ratner

As one hostile saga wraps, another unfolds. Read all about it in this week's edition of ...

Adimab/Gilead and Adimab/unnamed partner: Antibody specialist Adimab has built a business on drug discovery partnerships over the past three years, while avoiding drug development of its own. Numerous pharmas have struck discovery deals in which Adimab uses its yeast engineering platform to identify antibodies against specific targets, allowing Adimab to build a cash-flow-positive business without taking on any development risk. This week, the venture-backed company struck two new deals, although it released fairly few details about either. First, Adimab will discover antibodies against two targets selected by Gilead Sciences in exchange for an undisclosed up-front fee plus preclinical and development milestones and royalties, if either is commercialized. The companies did not identify a therapeutic area, nor did they release any further financial details. For its other deal, Adimab didn’t even name the partner, only saying that it will discover bi-specific antibodies against two distinct targets selected by the partner, which can commercialize one or more in exchange for technical milestone payments, licensing fees, clinical development payments and royalties. The arrangements with Gilead and the other stealthy partner join a long list of Adimab deals, including agreements with Merck, Roche, Novo Nordisk, Biogen Idec, Lilly, Genentech and Pfizer. Adimab’s backers include SV Life Sciences, Polaris Venture Partners, Google Ventures, OrbiMed Advisors and Borealis Ventures. – Paul Bonanos

GlaxoSmithKline/Human Genome Sciences: It's not quite a deal yet, but it looks like there might be a silver lining for GlaxoSmithKline from the weak sales of Benlysta (belimumab) for lupus. The big pharma now has the chance to buy its Benlysta commercial partner, Human Genome Sciences, and gain full ownership over Benlysta and two other drugs the two have in development. GSK disclosed an unsolicited bid for HGS April 19, offering $13-per-share, or roughly $2.6 billion. HGS’ board of directors promptly rejected the unsolicited bid, saying it does not reflect the inherent value of the company, and hired the investment banks Goldman Sachs & Co. and Credit Suisse Securities to explore strategic alternatives for the firm. The $13-per-share cash offer represents an 81% premium over the company’s closing share price of $7.17 April 18. It also represents a 66% premium over the 30-day trading average closing price of $7.83 and a 58% premium over the ninety-day trading average, according to GSK. Nonetheless, while HGS investors may be relieved to see an offer on the table that represents immediate and certain value, $13-per share is a far cry from where the stock was trading a year ago. Last April, the stock was trading close to $29, riding high on the FDA approval of Benlysta for systemic lupus erythematosus March 2011. But it’s not likely a white knight is going to step forward. GSK splits rights to Benlysta with HGS, and owns rights to two other pipeline assets: albiglutide, a once-weekly injectable GLP-1 agonist for type 2 diabetes, and daraplatib, an inhibitor of lipoprotein-associated phospholipase A2 (Lp-PLA2) in development for cardiovascular disease. That’s likely to deter a competing bidder and limit HGS’ negotiating power. The history between HGS and GSK is long, dating back to the SmithKline Beecham days. SmithKline Beecham partnered on with HGS in 1993 on rights to a gene sequencing technology. The companies expanded on that original alliance several times over. In 2006, GSK paid HGS $24 million for rights to belimumab. --Jessica Merrill

Cell Therapeutics/S*BIO: With an EU regulatory approval potentially on the horizon for Pixuvri (pixantrone) and Phase III trials ongoing for that drug as well as tosedostat, Cell Therapeutics might appear to have more than enough activity at the moment. But on April 19, it paid $30 million upfront to S*BIO Pte. Ltd. for global rights to JAK2 inhibitor pacritinib, giving the Seattle-based biotech three Phase III candidates in blood cancer. CTI will pay S*BIO $15 million in cash and issue $15 million in unregistered preferred stock convertible to common stock – giving the Singapore firm nearly a 5% interest in its partner – and could pay milestones up to $132 million and single-digit sales royalties in exchange for the Phase III-ready myelofibrosis (MF) candidate. S*BIO could realize approval milestones based on regulatory outcomes in the U.S., Europe and Asia, along with sales milestones pegged to reaching amounts such as $200 million, $400 million and $500 million in a calendar year. CTI is not the first company to partner with S*BIO on pacritinib. In 2009, Onyx Pharmaceuticals paid $25 million upfront to acquire an option to the compound, then known as SB1518, as well as another preclinical JAK2 inhibitor, SB1578. With the potential for up to $525 million in milestones, it was among the most lucrative biotech deals seen in Asia to that point. However, in 2011, Onyx declined its option on both compounds, returning all rights to S*BIO. CTI believes pacritinib, as a selective JAK inhibitor, should have a better safety profile than the only FDA-approved drug for myelofibrosis, Incyte Corp.’s Jakafi (ruxolitinib), a JAK1/JAK2 inhibitor launched in late 2011.—Joseph Haas

Eli Lilly/Vanda: In its first in-licensing transaction since 2004, Vanda Pharmaceuticals has acquired development and commercialization rights to a Phase I-ready neurokinin 1 receptor (NK-1R) antagonist from Eli Lilly & Co. for an upfront payment of $1 million and up to $99 million in milestones. The 2004 deal with Novartis gave Vanda worldwide rights to iloperidone, which FDA approved for schizophrenia in 2009; it is now on the market as Fanapt, though sales have been weak. Vanda, focused on central nervous system therapies, has only one other clinical candidate in its pipeline, tasimelteon (VEC-162), in Phase III study for circadian rhythm sleep disorders. In its deal with Lilly, announced April 16, Vanda acquires VLY-686, an NK-1R antagonist that demonstrated proof-of-concept for controlling alcohol dependence in an NIH study. The company said it will complete technology transfer related to ‘686 this year and examine the oral compound’s clinical profile, to determine potential indications for an early-development clinical program. In addition to the upfront fee, Lilly could earn up to low double-digit royalties on sales, up to $4 million in pre-NDA milestones and up to $95 million in regulatory and sales milestones under the deal.—JH

GSK/Aspen: GSK wraps up its final bulk OTC portfolio divestiture, selling 19 international brands to Aspen Pharmacare Holdings Ltd., leaving only the troubled weight-loss drug alli as GSK’s last non-core brand. For £164 million in cash ($263 million under the April 20 exchange rate), Durban, South Africa-based Aspen gets the rights to Dequadin sore throat lozenges, Phillips Milk of Magnesia, Solpadeine analgesics and Zantac antacids, among others, outside the U.S., Canada and Europe. Glaxo said April 20 the non-core OTCs divested to Aspen generated about $95 million in 2011 sales, or a little over 1% of GlaxoSmithKline Consumer Healthcare’s total business of $8.20 billion. GSK declined to provide a full list of the brands included in the Aspen deal. Aspen, Africa’s largest drug maker with a $145 million consumer products business, split the GSK transaction in two: its South African subsidiary acquired the products sold in Africa for about $32 million, while Aspen Global Inc. acquired the rest-of-the-world brands for about $231 million. Aspen CEO Stephen Saad praised the OTCs’ established brand equity and said they “will also provide impetus in territories where Aspen is seeking to grow critical mass, such as Latin America and Southeast Asia.”Full coverage of the deal is in "The Tan Sheet". -- Dan Schiff

Sanofi/Michael J. Fox Foundation: Sanofi has tapped the Michael J. Fox Foundation to run a Phase Ib clinical trial of a potential treatment for cognitive deficits in Parkinson’s disease. MJFF VP if Research Programs, Mark Frasier, said the situation was a unique one. “Sanofi approached us about this molecule that, for internal business reasons, they were not pursuing, but that they thought may have promise for Parkinson’s disease patients,” he added. MJFF will be responsible for costs associated with the trial, but Sanofi will provide the drug at no cost to the foundation, clinicians, or patients. The trial is expected to launch in the latter half of 2012 and data will likely be available in early 2013. MJFF will have all rights to the data and will be able to disseminate that information as they see fit. Sanofi will retain the intellectual property surrounding the molecule and will have the first right of refusal in further development of the compound, based on results of the study. Cognitive deficits like a shortened attention span, trouble multi-tasking, and problems with planning affect 60% to 80% of Parkinson’s disease patients. There are currently no treatments available to help patients with these symptoms. - Lisa LaMotta

Crucell/Royal DSM: Vaccine-maker Crucell N.V. and Netherlands-based Royal DSM have chosen to abandon biosimilar development through their joint venture, Percivia LLC. A spokesman for DSM tells us that "the Shareholders and Board of Managers decided on the restructuring following the lack of agreement on further joint investment in the Company." Crucell is part of Johnson & Johnson, and others have speculated that J&J was simply not interested in financing the JV, which was launched in 2006 and headquartered in Cambridge, Mass. The initial focus of Percivia was to combine DSM’s manufacturing technology with Crucell's PER.C6 cell line for the production of proteins and antibodies within the protein therapeutic and diagnostic field, but the company changed direction in early 2011 to pursue a PER.C6 technology-based biosimilars product development strategy for emerging markets. According to Crucell, all biosimilar work will be terminated. According to a report in BioSpace, thirty employees of Percivia have already been let go and another 10 will remain for the next 30 to 90 days while operations are wound down. Percivia will remain a legal entity for the purposes of continuing the existing PER.C6 technology licensing business, says DSM. –LL

With New Center, New York Aims for Genomics Leadership

Today, 11 of the city’s academic medical centers, along with New York City and two industry partners, Roche and Illumina, announced the formation of the New York Genome Center. Backed by a sturdy $100 million in committed financing from sponsors, with goals of raising another $25 million and employing 550 people within five years, it has ambitious plans. Beginning in February 2012, it will be offering revenue-generating sequencing and CLIA-based laboratory services, as well as opportunities for inter-institution collaboration, and training programs in bioinformatics and other cutting-edge biotech disciplines. Down the road, it seems intent on getting involved in other kinds of activities that pave the way for faster public acceptance of genomics technologies.

Those involved read like a who’s who list of New York’s scientific and biotech worlds: Welsh, Carson, Anderson & Stowe, Columbia University, and top officials of Cold Spring Harbor Laboratory, Cornell Medical College, The Jackson Laboratory, Memorial-Sloan Kettering Cancer Center, Mount Sinai, NYU School of Medicine, The Rockefeller University, North Shore – LIJ Health System, Venrock, Stony Brook University, and The Simons Foundation. And then of course, there’s the pharma partner, Roche, with more pharma companies hopefully to follow, says Nancy Kelley, the attorney who co-founded the center and is its executive director.

The idea for a collaboration germinated from talks beginning in August 2010 between Kelley and Tom Maniatis, one of the world's top molecular biologists and entrepreneurs. The process came together relatively quickly, says Kelley, who, perhaps not coincidentally, is a Bostonian like Maniatis. Kelley is moving to New York and Maniatis recently became chairman of the department of biochemistry and molecular biophysics at Columbia University. In part, the timing was right, as local scientific and health care leaders realized that they were falling behind other regions as centers of innovation. “We are poised on a revolution in genomic medicine and New York has the strongest science in the world, but it is almost weakest in grant and sequencing activities,” she says. “These institutions are at risk of ceding leadership in a huge industry.”

As for industry, in addition to the fees Illumina and Roche have paid to play, Illumina is supplying the sequencing equipment—giving it a high profile position in a region with lots of multi-ethnic subjects to draw from. And Roche, with one of its two major U.S. R&D sites based across the river in Nutley, NJ, is eager to replicate in New York some of broader regional biopharma initiatives ongoing elsewhere. The effort to sign on Roche also may have been helped by connections (speculative but quite possible); Marc Tessier-Lavigne, president of The Rockefeller University and a board member of the new consortia, was CSO of Genentech until early 2011.

Unlike some of its Big Pharma brethren, Roche hasn’t made any splashy new-model alliances with academia, but has tended to stay with low-key, smaller deals. And though it has made overtures to cut R&D spend, it hasn’t undertaken the same kind of big reorgs as Sanofi, AstraZeneca, and Pfizer. “As a lot of big pharma companies move their R&D operations to Boston, we have chosen to remain in Nutley,” Jacques Banchereau, SVP, DTA, head of inflammation and virology, and CSO at Roche Nutley, told an audience of several hundred at a ceremony announcing the consortia; Banchereau too has recently changed positions, joining Roche last year from the Texas-based Baylor Institute for Immunology Research, which he founded.

As a die-hard New Yorker, it’s good and timely to see NY academic institutions, local government, and industry finally get their act together -- or at least make a start. They’ve had a history of infighting and competing, with efforts to come together collapsing. Nor has the city government been terribly supportive, focused as it is on financial services, fashion and media. (Given New York’s reputation as a place where start ups get born, funded, and then flee, it’s no surprise that the local biotech Vivaldi Biosciences, co-founded more than three years go by Mount Sinai Medical Center scientists, has made a splash because of its decision to keep its headquarters in New York, although its key venture backer Bay City Capital is based in San Francisco.)

Not that New York hasn’t already taken some steps to stake out a regional claim on biotech: the new East River Science Park, with laboratories and corporate space designed specifically for life sciences companies is fully leased, including at least two big pharma tenants, Pfizer and Lilly (Kelley previously was an SVP at Alexandria, which developed the ERSP). And Pfizer has pulled together a consortium of seven New York academic medical centers as part of its expansive Centers for Therapeutic Innovation R&D network – although word has it that proposals initially selected in New York came from a few of the participating institutions, not all, as originally hoped.

Plenty remains unsettled – not least the location and capacity of the new laboratories. Trickier may be figuring out how data will be shared and intellectual property protected—issues that are under discussion but not yet resolved and are key challenges for other kinds of life sciences consortia. And trickiest of all may be keeping many big and ambitious egos happy; the institutions involved are building their own programs in the same space as NYGC. The deal is in its early days and may work out dandy, but likely faces similar challenges as do other broad industry collaborations.

image from flickr user hjjanisch used under a creative commons license