DotW: It's A Mad Mad Mad Mad World

These days it seems like we could all use a dose of Stanley Kramer's 1963 classic movie about a madcap chase through the California desert in search of treasure. (What else is there?) Thankfully we have the NCAA tourney--that professional event masquerading as amateur ball--to distract us from the doom, gloom, and outrage swirling in the air.

Who's not feeling the love? Mad Money's Cramer, who is still reeling from the smackdown Jon Stewart gave him last week. Anyone associated with AIG, which has earned a new acronym in the eyes of many Americans: Arrogance, Ignorance, and Greed. Also, Connecticut Senator Christopher Dodd, given the responsibility he bears for the bail-out legislation that led to outsized AIG bonuses in the first place.

Our level-headed legislators are trying to tamp down the furor related to AIG bonuses by taxing the hell out of them. (The move ought to make VCs feel better; by comparsion the new 39% tax rate on carried interest is quite modest.)

There's no shortage of madness in our own industry. The war of words between BVF and Avigen, continues to escalate. (Remember when Carl Icahn was the only activist shareholder to whom we paid attention?) On Friday, BVF sent a letter to Avigen shareholders promising to pay $1.20-a-share for the company, but only if BVF earns seats on the company's board. BVF, of course, owns a significant share in Avigen. Outraged by the way the biotech has been managed, they are hoping to oust leadership to broker a sale to MediciNova.

Of course, the BVF/Avigen saga is small potatoes compared to the umbrage directed at Harvard professor Dr. Joseph Biederman, whose involvement in a conflict-of-interest scandal related to the use of antipsychotics became headline news once again. So much for the purity of the ivory tower.

Will Pfizer investors rise up in anger at the news the big drugmaker is on the prowl for a generics biz? What about Astellas' investors? Unwilling to be drawn into a bidding war for CV Therapeutics after Gilead trumped its offer, Astellas called off its hostile bid for the company this week. But with billions in cash in its war chest and top-seller FloMax due to go off patent in October, the number 2 Japanese pharma needs to do a deal and odds are investor clamoring to that effect will rise in the coming months.

Are you outraged about the incessant debate about Michelle Obama's right to bare arms? Stop the madness. It's time for...

Merck Serono/Fast Forward: Merck Serono this week showed its willingness to accelerate early stage research in MS by providing up to $19 million in a partnership with Fast Forward, a subsidiary of the National Multiple Sclerosis Society. The agreement—which has a two-year term, but may extend for an additional three—is focused on identifying the most promising drug discovery research in this field, whether in biotech or academia, and providing the funds to take those projects through development. The money might all be coming from Merck Serono, but it’s Fast Forward—set up 18 months ago to provide a bridge, both informational and financial, between academia and the private sector—that will take the lead in selecting awardees for the funds (albeit with participation from the drug firm). Priority areas for development, however, will be determined by a joint committee with representatives from both sides. And yes, there are strings attached: Merck Serono, with (of course) a strong interest in building out its MS franchise beyond Rebif, gets first right of refusal to pursue development of projects that it supports. Fast Forward is keen to point out that these rights don’t extend to the many other projects it’s funding independently of this agreement, however. And if Merck Serono isn’t interested in pursuing a program, Fast Forward is free to find another partner. For Merck Serono, this smells a bit like disease-focused corporate VC—albeit with a significant partner making portfolio decisions. And although many other disease-focused charities besides the National MS Society are supporting and financing research in academia and, increasingly, in the private sector too, few have signed up large drug firms. Not that this means other pharma aren’t interested in supporting early-stage research, of course: GlaxoSmithKline has a drug performance unit (DPU) dedicated to academic collaborations.—Melanie Senior

Merck/MMV: Merck Serono wasn’t the only pharma to announce a tie-up with a not-for-profit this week. Merck & Co. Inc. also made headlines, announcing a deal with the Medicines for Malaria Venture (MMV) around a novel, orally available, IND-ready antimalarial. Under the terms of the agreement Merck, whose researchers discovered the candidate, has granted MMV an exclusive royalty-free license to pursue development of the malaria drug in countries where the disease is endemic. In return, Merck retains the option to become MMV’s development partner upon completion of the first Phase II study of the candidate. But if it exercises that option, Merck has also promised that it will price the drug such that it is “not ultimately profiting from its use in developing countries,” according to the press release announcing the news. Merck scientists have already shown in preclinical studies that the IND-ready drug is effective against P. falciparum, the organism that causes acute malaria, including multi-drug resistant strains. MMV will take-over further testing, launching first in human safety trials later this year. The deal is a good one for Merck on a number of levels. It bolsters the pharma’s public image, showing its intent to play a role in developing treatments for diseases that have long been neglected, a move echoed by GlaxoSmithKline and Novartis. It also offloads some development costs near-term, while retaining a clawback to the product should it ultimately work as advertised. More importantly, from the biz dev perspective, it may give Merck access to a priority review voucher in the future. The PRV program, first proposed by a group of Duke economics professors as a potential approach to incentivize R&D for global public health priorities, was included in the FDA Amendments Act with only minor refinement in 2007. Merck, like Pfizer and Sanofi-Aventis, has signaled its interest in the program, by offering comments on FDA’s draft guidance for the incentive program.—Ellen Foster Licking

Centocor/U. Michigan: Even as debate rages in the public sector about the academia’s ties to industry, Big Pharmas’ efforts to get closer to thought leaders at universities is likely to muddy the discussion. In addition to GlaxoSmithKline and AstraZeneca, Johnson & Johnson has been at the forefront of embracing a new model of innovation that improves information flow between the tree-lined walks of academic institutions and the halls of pharma. In January, J&J’s Belgium affiliate Janssen Pharmaceutica NV teamed up with Vanderbilt University's Program in Drug Discovery to discover and license metabotropic glutamate receptors for the potential development of a new class of schizophrenia drugs. That collaboration, which promises to move J&J’s schizophrenia therapy in a new direction, fits in with the pharmaceutical company's new mantra of "open innovation," a term Paul Stoffels, MD, J&J's chairman of global R&D, Pharmaceuticals, first used in media interviews at the beginning of the year. On March 19, J&J announced another deal, this time between Centocor and the University of Michigan, designed to further its ability to access innovation on the cheap. In an interesting twist, the Centocor/U. Michigan tie-up doesn’t relate to the product pipeline as much as the war for talent. The new program pairs minority post-doctoral fellows recruited by the University of Michigan with Centocor researchers to work jointly on interesting research. Under the program, research proposals will be developed by U Mich and Centocor scientists and then submitted for review by a combined steering committee that will select certain grants and follow their progress. One important mission of the program will be fostering strong relationships with African Americans, Hispanic, and Native American scientists who are working in the strategic areas of focus for Centocor. “This strategic link will help us build strong relationships with these talented individuals thus creating a robust pipeline of potential hires,” said Miguel Barbosa, PhD, VP of Discovery Research at Centocor. It’s the latest attempt to do well financially by doing good, but it’s unquestionably a smart PR move on Centocor’s part. It requires very little financial input, breathes new life into the organization, and may yield interesting products down the road.—Ellen Foster Licking

Inverness/Acon Labs: Point-of-care diagnostics specialist Inverness has scooped up the remaining portion of ACON Labs’ lateral flow immunoassay test kit business for the consumer, point-of-care, and laboratory markets, including tests in infectious disease, cardiology, drugs of abuse, and women’s health. The price of the deal? A mere $200 million. ACON will retain its other worldwide in vitro diagnostics businesses including diabetes testing, clinical chemistry and other immunoassay products. Inverness expects to complete the transaction in a series of cash payments through October 2011, but holds the option to use stock for up to 34% of the purchase price. Three years ago, following a patent dispute in which Inverness alleged ACON infringed several of its immunoassay patents including IP around consumer pregnancy and ovulation tests, it acquired ACON’s rapid diagnostics businesses covering the US, Canada, most of Europe, and parts of the Pacific Rim for $175 million. At the time, Inverness agreed to buy the remainder of ACON’s ROW territories including China, India, Russia, Latin and South America, the Middle East, Africa, and Eastern Europe. That “second territory” business – the subject of this deal -- accounted for $45 million in revenues last year. The deal returns Inverness to its “bread and butter: broadening geographic reach and leveraging sales and manufacturing infrastructure,” according to Leerink Swann analyst Bruce Cranna. Inverness has been on a more expansionist buying spree in the past several years, acquiring Biosite and Cholestech in 2007 (see our coverage in IN VIVO here),then shelling out over a billion dollars to buy Matria Healthcare and establish a health management division alongside its diagnostics business.--Mark Ratner

GTC-Biotherapeutics/LEO Pharma: Our, uh, “goat” this week is a deal that has for months apparently been in slow transition, but last Friday took a nasty turn (OK, yes, so it’s a No Deal of Last Week). LEO Pharma has since 2005 held rights to develop and market GTC-Biotherapeutics’ recombinant human antithrombin Atryn in Europe, Canada and the Middle East, but it just doesn’t want those rights anymore. So last year the two companies said that LEO wanted to transition Atryn to a different marketing partner, and GTC has been seeking to do so (Atryn, which is made in the milk of transgenic goats, was approved in Europe in 2006, and was also recently approved in the US as well, where it will be sold by Ovation). Now comes word that “GTC considers LEO to be in breach of its obligations under the contract and is terminating the contract pursuant to its terms and seeking damages under International Chamber of Commerce arbitration procedures.” Terminating the LEO deal should allow GTC to speed discussions with new potential partners, broaden the drug’s label in existing markets and get it approved in other markets, like Canada. One potential partner: LFB Biotechnologies, the French plasma-drugs specialist that loaned GTC $15 million last December and with whom GTC has an existing deal in recombinant proteins and mAbs development. Meanwhile GTC, despite its recent regulatory success in the US—which the company believes is a significant validation of its transgenic technology—has other troubles. This week the biotech received a warning letter from Nasdaq related to the minimum market-value threshold.—Chris Morrison

Image courtesy of flickr user oceanaris through a creative commons license.

The Muddy Waters of IVD

Ron Zwanziger, CEO of Inverness Medical Innovations, must be one helluva juggler. The company announced its twelfth acquisition in as many months. This time the Waltham, MA-based diagnostic player is spending $1.18 billion in cash and stock to bring health management company, Matria Healthcare, into its ever-widening fold. (For a more in-depth look at the Inverness strategy, check out this piece from colleague Tom Salemi.)

Matria is a leading provider of disease management services, especially strong in women's health and oncology. Inverness's acquisition is a big bet--$900 million to acquire the company and the assumption of Matria's $280 million debt--in the importance of building a diagnostics empire that directly touches patients not just in the doctor's office, but also in their homes. The ultimate goal: a range of services from tests that assess risk and help diagnose disease to home monitoring systems that keep a particular scourge, be it congestive heart failure or cancer, under control.

At first blush, the marriage of point-of-care diagnostics with health management services seems odd. It's certainly not one the Street understands. (The market reacted negatively to the news sending the stock down $4.26--about 8%--to $47.97.)

But there is a certain logic to the idea. Importantly, both health management and the diagnostic business are driven by the same underlying principle: companies that succeed in these spaces provide products for which payers will reimburse, which in turn means offering tests or services that improve an individual's health while simultaneously lowering health care costs.

Even more broadly, Inverness’ acquisitiveness is another illustration of the blurring of the lines between previously distinct sectors including the traditional IVD space, home healthcare services, benefits plans, even DTC.

The Matria acquisition comes just months after Inverness ponied up more than half a billion dollars to buy two other leading health management outfits. In October, Zwanziger's team bought Alere, which develops home monitoring systems for patients with chronic diseases, for $302 million; in November, the company bought New Jersey-based ParadigmHealth, which offers disease management services for patients with complex health problems, for $230 million.

In a conference call, Zwanziger reported that pro forma revenues from these three companies will bring in roughly $500 million, giving Inverness a dominant position in the estimated $1.8 billion health monitoring market.

Certainly the purchase price of Matria dwarfs the previous two buy-outs and is second only to its spring acquisition of BioSite. In part, the size of the deal reflects the breadth of Matria's offerings. (Services to more than 1000 employers and managed care organizations, increasing the number of patients under active management from 100,000 to over 1,000,000 according to Inverness's Ron Garety, former Alere CEO.)

There was also, apparently, some competition. "We had to move quickly," confirmed Zwanziger on the conference call. "There were other interested parties."

But Inverness's decision, while rapid, was far from hasty. According to Zwanziger, the point-of-care diagnostic company had been interested in Matria for quite some time. Such a prolonged time, in fact, that as the company sketched out its long-term strategy, they had already penciled in the Matria name.

"It's a transformative acquisition," says Garety, who will be busy integrating Alere, ParadigmHealth, and Matria into Inverness in the coming months. That's because this isn't just about adding patients to Inverness's nascent management system. It's about connecting fragmented and disparate players in the health care delivery system to offer better care for lower cost. Or as Zwanziger told a packed house at JP Morgan a few weeks ago: "Extending diagnostic testing from disease identification to risk assessment to patient management greatly extends our business potential."

To help accomplish this, Inverness also announced its intention to form a joint venture with as yet unnamed financial backers around this bulked up health management business. This JV, seems to be primarily a strategy to reduce the capital risk associated with the move into health management.

But it could also give the company a much needed capital infusion at a time when the public equity and debt markets are--to say it politely--a little uncertain. In addition, noted Zwanziger, "The [JV would provide] strong liquidity to allow us to take advantage of all the opportunities out there."

(Translation: despite the spate of acquisitions, Inverness ain't done buying yet. )

Wall Street's lack of support doesn't appear to phase Zwanziger. "As we integrate our diagnostic products into the health management side, the value of Inverness will only go up," he predicts.

It's the same sort of mantra you'll hear when you listen to execs at GE Healthcare, Siemens, or even Royal Philips Electronics, which late in December expanded into the patient monitoring business with its $4.9 billion acquisition of Respironics. (For those who haven't been following, IVD has suddenly become fashionable again in our price-pressured health care environment. Here's IN VIVO's primer from our 2007 trends story.)

Like Inverness, these companies have also been gobbling up smaller entities as they create end-to-end solutions in the health care testing market. One can hardly blame the analysts for seeming a bit confused by Inverness's move into health management (or Siemens' advance into IVD or even pharmacy benefits manager Medco's forays in personalized medicine and disease management, for that matter).

Each acquisition seems to stretch the definition of what it means to be a diagnostic company. With all these companies newly under the Inverness banner--including BioSite, Paradigm, Alere, Diamics, HemoSense, BBI Holdings, Pan Bio and Matria --there's no easy way to label the company anymore. Is it a point-of-care diagnostic company that also develops home monitoring devices? Is it a rapid IVD company that happens to have a service arm for monitoring patients?

The diagnostic waters have gotten very muddy. Perhaps clarity will come with additional acquisitions. Given Zwanziger's track record in 2007, it's likely we won't have to wait very long.

"The Mighty Mekong River" by Flickr user Cap'n Surly used under a creative commons license.

Deals of the Week! Inaugural Edition

We at IN VIVO Blog recognize that it's practically impossible to keep up with the deal flow in biopharma, let alone remember the specifics. (Hey, it's hard for us and we do this for a living.) So we've decided to start posting a weekly column highlighting interesting and potentially important deals that you may have missed as you ponder weightier questions such as: To buy or not to buy Biogen Idec? Look for this every Friday. Aspire to be a part of it. Dare to dream.

• BMS/Pharmacopeia (10/15): BMS is at it again. Pharma's champion externalizer has out-licensed its selective androgen receptor modulator (SARM) program, to New Jersey-based Pharmacopeia. The deal is further proof that BMS believes in monetizing programs that don't fit its therapeutic focus in oncology and immunology. Unlike past deals with AstraZeneca for dapagliflozen and saxagliptin and Pfizer for apixaban, where there was big money on the table, the dollar amount for this deal was zero. Pharmacopeia bartered up to three years of its medicinal chemical expertise applied to one BMS discovery program in exchange for the rights to the SARM--a savvy move by the biotech and perhaps a first (let us know otherwise). BMS retains a right of first negotiation. Here's a link to the Pharmacopeia webcast announcement. Note: we are not calendar challenged--but we liked this deal and since Deals of the Week! didn't exist last week, we figured we'd include it here.
  
• Lilly/MacroGenics (10/18): Two anti-diabetes antibody deals of note: Lilly continues to solidify its stance in both the diabetes and biologics market with this deal for MacroGenics' late stage anti-CD3 antibody, teplizumab. Though the ultimate deal value could go north of $1 billion, it's back-end loaded; it cost Lilly just $41 million to get exclusive rights to the drug. The Baltimore Sun has the news. Bonus: GSK/Tolerx (10/23): GSK inked this deal with MacroGenics' competitor Tolerx just days later for the biotech's anti-CD3 mAB otelixizumab. For biologics-poor GSK, this deal looks like another toe-dip in the large molecule waters. Last December, the pharma bought next-generation antibody player Domantis and inked an expensive deal with Genmab for rights to its late-stage Humax-CD20 antibody.
  
• Janssen/Galapagos (10/24): Another back-ended loaded deal--the upfront was just 15 million euros though the deal value could eventually reach one billion euros. This time Janssen Pharmaceutica, a division of J&J, brokered a deal with Belgian-based Galapagos for small-molecule drugs to treat rheumatoid arthritis. Here's the link to Fierce Biotech's coverage.
  
• Inverness/Alere (10/24): Point-of-care diagnostic player Inverness has acquisition frenzy. On Wednesday the company announced it was buying another company, Alere Medical for $302 million. This move illustrates Inverness' continuiing diversification beyond cardiovascular diagnostics. You see, Alere isn't the typical acquisition fodder of a Dx company. The Nevada-outfit is really a device play with a nifty remote-monitoring system for patients with chronic diseases such as congestive heart failure.
  
• Wright Medical Group/Metasurg (10/22): Wright is paying $2.5 million upfront plus potential earn-outs based on sales for Metasurg's BIO-ARCH subtalar implant, which is used in surgical treatment of flatfoot deformity. This small bone deal is, well, small, but we flag it up as part of a trend: small bone is an unconsolidated, underserved segment of orthopedics that is beginning to show signs of life, consolidation-wise. Don't be caught flat-footed, readers. (Sorry.)