DOTW: This Is Spinal Tap Edition

In the immortal words of one Bobbi Flekman, "money talks and bull**** walks."

And on 11.11.11, a day some are lauding corduroy and many are honoring our veterans and active service men and women, we look across the pond for the big money deal.

That's right. In a week when "most blokes, you know, will be playing at ten," Lundbeck and Otsuka took it to eleven with a multi-faceted alliance centered around two late-stage products from the Japanese pharma and up to three earlier stage programs from the Danes. (No word yet on whether Lundbeck's CEO Ulf Wiinberg or Otsuka's President Tatsuo Higuchi will play the role of Nigel Tufnel, alas.) The pipeline- and profit-sharing, co-development, co-commercialization deal requires Lundbeck to pay Otsuka 1.1 billion Danish Kroners, or 200 million George Washingtons, up front and potentially another $1.6 billion in development, regulatory, and sales milestones.

In spirit, Lundbeck/Otsuka recalls the major alliance Lilly and Boehringer Ingelheim struck in diabetes earlier this year --the consequences of that deal, as you will read about below, are still causing ripples. Interestingly today's eleven alliance sees two companies -- both heavily dependent for the bulk of their revenue on a single product that will soon go generic -- try to diversify not only their pipelines but also geographic reach. That Lundbeck is the one on the economic hook stems from the fact that its patent cliff is not only steeper but also arrives in a few months time.

The $200 million upfront Lundbeck is undoubtedly hefty, but analysts and investors in Denmark didn't smell anything rotten, sending the company's stock price, which trades on the Copenhagen exchange, up nearly 10% on the news. "We see this deal as clearly positive for Lundbeck and it bodes well for long-term revenue, top-line diversification and company perception" Nordea analysts wrote in a note to clients.

The reason for the optimism? Recall that Lundbeck is overly dependent on Cipralex (which is partnered with Forest in the US where it is sold as Lexapro) for sales revenue. In 2010, close to 40% of the company's DKK 14.8 billion in revenue came from the antidepressant, whose key patents begin to expire in 2012. And for this upfront payment, Lundbeck gets co-dev/co-commercialization rights in certain regions (North and Latin America, Europe, Australia, and "some other countries") to two late stage Otsuka products that can help smooth its revenue line starting in 2013.

The first is the Japan pharma's depot formulation of aripiprazole, which is the same active ingredient in Otsuka's anti-sychotic juggernaut, Abilify, a drug that is partnered with BMS and goes off patent in 2015. The second is OPC-37415, a partial D2 dopamine receptor agonist in Phase III trials for schizophrenia and major depressive disorder. According to the press release announcing the deal, Otsuka plans to submit an NDA for aripiprazole depot to US regulators "soon" -- and to EMA authorities in 2013.

Lundbeck has done other big deals in the past in a bid to deemphasize its reliance on Cipralex, including its 2009 acquisitions of Ovation and Life Health to gain access to the chorea treatment Xenazine. Those deals certainly helped bolster Lundbeck's US CNS presence (especially after the failed 2008 $100 million alliance with Myriad Genetics around Alzheimer's therapy Flurizan), but are nothing compared to the potential it might reap with this Otsuka alliance, should aripiprazole depot and '37415 both make it to market and enjoy strong payer traction.

And reimbursement remains an open and intriguing question, especially for aripiprazole depot. Note that $1.4 billion of the milestone payments are tied to development and regulatory advances not actual reimbursement, meaning Lundbeck is still on the hook, even if payers ding the next-generation anti-psychotic. And that could well happen. The anti-psychotic market is not only competitive, but ripe with cheaper alternatives, including since October 2011 a generic version of Lilly's Zyprexa. Over a year ago Medco and genetic test developer SureGene, meantime, launched a research project to validate biomarkers that could improve the cost effectiveness of atypical antipsychotic treatments.

For its part, Lundbeck and Otsuka seemed to play up in the press release the known safety and efficacy of the depot formulation, noting there may be an outcomes-based reason to prescribe the more patient-friendly version of Abilify. After all it has been designed to "reduce the chance of reoccurence of symptoms for the patients who sometimes forget to take their medication". Patient adherence to anti-psychotic regimens is admittedly a big problem; whether Otsuka has data convincing payers of this benefit is another question. It's also one that the Japanese pharma, and now Lundbeck, will need to answer effectively to make the economics of the new alliance work for both parties.

As David St. Hubbins would no doubt tell you it's such a fine line between stupid and clever. In the meantime, turn the amperage all the way to the right 'cuz you'll feel much worse if you aren't under such heavy sedation. With none more black than IVB, it's time for...


Merck Serono/Ablynx: In a move that might reduce the sting of last week’s announcement that Pfizer was handing back a pair of anti-TNF-alpha programs, Ablynx said this week that partner Merck-Serono would expand its alliance with the Nanobody specialist. The new deal will see the partners co-discovering and co-developing Ablynx’s brand of single-domain antibodies against two targets in osteoarthritis. Ablynx gets €20 million up-front (paid as two tranches over the next three months) and will conduct and fund all pre-clinical work on the programs. Merck-Serono can then opt in at IND stage at a price of €15 million per program, after which Ablynx gets the choice to move forward as a 50/50 partner or choose a more traditional milestone/royalty-based licensing structure. This is the two companies' third deal since 2008; they’re currently also working on programs in oncology, immunology and inflammation. The deal has done little to reverse the slide in Ablynx’s market value since the Pfizer news, however. That drop worsened this week when Ablynx said its lead proprietary asset, the IV-formulated anti-vWF ALX-0081, did not meet its primary endpoint in Phase II studies. – Chris Morrison

Salix/Oceana: Gastroenterology-focused Salix Pharmaceuticals will expand its product portfolio and increase its revenues almost immediately with the planned $300 million acquisition of privately held Oceana Therapeutics. Announced during Salix’s third-quarter earnings call Nov. 8, the acquisition brings the specialty pharma two marketed products – Solesta for fecal incontinence and Deflux for vesicoureteral reflux. The company’s optimism about Oceana seems largely based on the upside potential of Solesta, an injectable gel approved by FDA as a Class III medical device in June, to win a large share of the fecal incontinence market. Oceana launched Solesta in September at a price of $3,690 per treatment. It can be administered on an out-patient basis without anesthesia. By contrast, surgical methods for treating fecal incontinence are thought to cost about $30,000 per patient. Salix did not say how much Solesta has earned to date but CEO Carolyn Logan predicted the product could produce peak-year sales greater than $500 million. Also an injectable gel, Deflux was approved by FDA in 2001. It is indicated for children affected by Grade II to Grade IV vesicoureteral reflux, a bladder malformation that can result in severe kidney infections and irreversible renal damage. It also is approved and marketed in 40 countries outside the US and posted net sales of about $26 million through the first nine months of 2011. –Joseph Haas

Amylin/Lilly: Once a fruitful partnership, the nine-year tie-up between diabetes specialist Amylin Pharmaceuticals and Eli Lilly around the GLP-1 agonist exenatide is being unwound. Although the agreement produced an $800 million drug in Byetta, a twice-daily injectable compound that stimulates insulin production in the pancreas, and a potential blockbuster follow-on in the once-weekly Bydureon, the writing’s been on the wall for some time, as their relationship became frostier over time. Lilly co-developed a different drug, DPP-4 antagonist Tradjenta (linagliptin) alongside Boehringer-Ingelheim; that led to a lawsuit, as Amylin believed Lilly breached their confidentiality agreement by using a shared sales force for both Byetta and Tradjenta. To remedy the situation, Lilly will return worldwide exenatide rights to Amylin in exchange for $250 million up-front plus 15% of sales, the latter of which could be worth up to $1.2 billion. All related litigation will be dropped. The separation occurs as Amylin awaits approval of Bydureon in the US; the drug has a PDUFA date of January 28, 2012. In the meantime, as this "Pink Sheet" Daily story discusses, Amylin plans to build its domestic sales force while seeking an international partner to sell Bydureon, which is already approved in Europe. Some observers, however, think Amylin could be acquired by another pharma instead. – Paul Bonanos

2009 Exit/Financing DOTY Nominee: Lundbeck/Ovation and the March of the CVRs

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.
We think what we'll do for this one is give you about 60% of this nomination post now, and if all goes well with the rest of the nominations and we hit certain targets--X thousands of votes, clicks and whatnot, then you'll get another 20%. If the nomination of Lundbeck's acquisition of Ovation wins, then you'll see another 10%. Of course to get the full nomination, you'll need those guys to provide a killer acceptance speech.

We think you see where this is going. You want the full monty, you gotta EARN IT.

Ah, the earn-out. Not new, for sure (though it seems to have a new, flashy name: contingent value rights [CVR]), but earn-outs were so common earlier this year that it was fair to wonder if they were now a de facto part of every biotech acquisition.

Lundbeck's acquisition of Ovation--our first nominee in the 2009 Exit/Financing DOTY category--boasted a biobucks figure of $900 million. No doubt there was a large down-payment ($600mm) but a substantial sum rested on the regulatory progress of Ovation's epilepsy drug Sabril.

And that's one of the reasons we chose Lundbeck/Ovation over a raft of potential CVR-laden deals (see, among others, Sanofi/BiPar, Sanofi/Fovea, CombinatoRx/NeuroMed, The Medicines Co./Targanta, Onyx/Proteolix, Alcon/ESBATech). We've got no word on whether Ovation's shareholders have received all or only some of that $300 million (GTCR invested $150 million in the company in 2002), but it seems quite probable that they got a fair chunk.

Sabril was approved by FDA in August with a REMS to help mitigate the risk of peripheral blindness, a known side-effect of the drug. So: the CVR-boosted deal structure was established to allow Ovation and Lundbeck to share the risk associated with that approval. The REMS itself was well-anticipated given the rocky history of the drug (which Ovation licensed in from Aventis in 2004) and Sabril is now on the market--second line for epilepsy and first line for infantile spasms, a condition for which the drug has Orphan designation. Folks, we have a winner.

CVRs ought to flourish in tougher economic times, as pharma can place more pressure to share risk on investor syndicates eager for exits. But these aren't usually the typical biobucks figures we're used to seeing tacked onto alliances or in-licensing deals. As Ovation's deal demonstrates, CVRs can be used to bring parties together around binary risk events like drug approvals or clinical trial success. In other words, earn-outs help smooth out differing views of product development or regulatory risk, and help deals get signed that otherwise might languish.

Why vote for this deal? For starters, CVRs aren't going away, even should biotechs become increasingly buoyant if/when public investor dollars return to the IPO scene. And we do hear rumblings that pharma might rather NOT do earn-out heavy acquisitions thanks to some accounting factors that mean they'd have to report future payments as liabilities.

But acquisitions will remain the favored VC exit. And we'd bet our crafty pharma-friends will find a way around those accounting issues, if they exist. And so instead, we'd suggest, get to know CVRs. Embrace them, even. A vote for Lundbeck/Ovation is a vote for the dominant biotech-pharma acquisition structure of 2009, and very likely a vote for the future of biopharma acquisition structures, too.

Sometimes the Bear Gets You: Myriad/Lundbeck Edition

As far as $100 million bets go, this one went south pretty quickly. Only five weeks ago Lundbeck licensed European rights to Myriad Genetics' Phase III Alzheimer's candidate Flurizan, knowing that what cost $100 million upfront in May would cost much more in July should a results of an 18-month Phase III trial of the drug turn out positive. The drug missed each of its primary endpoints, Myriad said in a short statement early this morning. Development of the drug has been discontinued.

For Lundbeck a big part of the backstop to its Lexapro/Cipralex depression franchise, due to go off patent 2012-14, is now gone. Lundbeck shares are off 10% in morning trading. And once markets open in the US, Myriad is likely to lose a big chunk of its own $2 billion market capitalization.

At the time of the deal we thought that Lundbeck's endorsement of what was seen as a risky project reflected a better chance of success--perhaps in hindsight it was just desperation.

Deals of the Week: Signage

Another week, another big pharma reorganizes. This week comes news that Lilly's CEO John Lechleiter plans to reorganize several business units, including R&D, to "minimize bureacracy by reducing the layers of management." We wonder if that will impact Lilly's Chorus group, which is attempting to push drugs rapidly to proof-of-concept before investing significant dollars in development.

Shareholder activism reared it head again this week too. More than one third of Glaxo investors refused to endorse the consolation package--a stock bonus estimated between $4 and $5 million--of Chris Viehbacher, who lost out to Andrew Witty for GSK's top spot. (Perhaps they actually want the company to invest in something important, like pipeline? Nah, probably just share buy-backs.)

And Enzon shareholders are itching for that company to explore all strategic options for its remaining commercial operations, according to documents filed with the SEC. Apparently, the recently announced spin-off of the company's biotechnology businesses doesn't go far enough. The twist? DellaCamera Capital, which holds a 5.9% stake in the company, earns this week's award for stirring the pot--not Carl Icahn. (But for you Icahn watchers, fear not. Carl may be up to his old tricks. He's increased his shares in Byetta maker Amylin Pharmaceuticals and is reportedly in discussions with management about ways to maximize product sales and development.)

Meantime, the Institute for Safe Medication Practices published its list of most dangerous drugs and--surprise--Pfizer's Chantix took top billing. As we wrote here, Chantix has been steadily climbing to the top spot on ISMP’s list, based in large part on an increased incidence of psychiatric adverse events. Now comes news, published in Drug & Therapeutics Bulletin, that the Pfizer pill may cause--among other things--serious accidents and falls, potentially lethal cardiac rhythm disturbances, severe skin reactions, acute myocardial infarction, seizures, and diabetes. (Aren't you glad it's for healthy people?) The findings prompted the Federal Aviation Adminstration to ban pilots and air traffic controllers from using the drug. (That makes you feel much better, doesn't it?)

Another "top" list made headlines this week: World Pharmaceutical Frontiers published its annual top 40 most influential people in our industry. Sadly, our own Roger Longman was passed over yet again (hey, I need my job). Still the list was informative and indicative of the changes roiling the industry. In 2007, execs from Pfizer, Novartis, and Bayer all took top billing, but this year no single big pharma exec made the top ten. (Andrew Witty, at number 6, was the one exception, but he hasn't held his position long enough to really screw up.)

Interestingly, the group placed an emphasis on innovation (really!) and regulation, with Genentech's Arthur Levinson taking the number two spot, and NICE chairman Sir Michael Rawlins at Number 5. And guess who took the number 10 spot? Shlomo Yanai, CEO of TEVA, a company that's making a name for itself in follow-on biologics as well as generics. But lest you think Big Pharma has forgotten about innovation, you'll be happy to learn this nugget of truthiness: Joe Jimenez, who recently took charge of Novartis’s pharmaceutical division, told the WSJ that selling drugs is a lot like selling ketchup. It depends on "key account management," code for building better relationships with insurance companies. If that's not a sign of the times, I don't know what is.

Unless, of course, its my own personal favorite:

Myriad/Lundbeck: Myriad Genetics announced a critical tie-up for its Phase III Alzheimer's drug, Flurizan, with the Danish pharmaceutical company H. Lundbeck A/S on Thursday May 22. In exchange for merely European commercialization rights, Lundbeck has agreed to pay Myriad a generous $100 million up-front, plus an additional $250 million in regulatory milestones as well as escalating sales royalties in the 20-39% range. Undoubtedly, the deal terms for Myriad's so-called selective amyloid beta-42 lowering agent are rich, but the real upside seems likely to come later, when the Utah-based biotech looks to ink a revenue-sharing arrangement for the product in the US market. We've written extensively about the potential for alliances to bleed value, but in the case of Myriad's Flurizan, this is a deal that's likely to be validating. Lundbeck, after all, has both the largest CNS sales force in Europe and experience selling Alzheimer's meds. Moreover, Myriad can now afford to partner Flurizan in the US for a dear but not prohibitive price. That's a situation likely to interest partners who might be interested in a biggish deal but who couldn't otherwise afford world-wide rights. Potential interested parties? Forest Labs, which markets Alzheimer's medicine Namenda, comes to mind, as does Takeda, which needs to fill the hole left by the pending patent expiry of its blockbuster Actos. (For an update on the risks and rewards of investing in Alzheimer's drugs, see this recent START-UP piece.)

Medivir/Tibotec: HCV polymerase inhibition gets a boost as Medivir inked an R&D pact with J&J's Tibotec subsidiary. Medivir sees €5 million in cash now, potentially much more later if two compounds reach the market and are approved in two indications. Joining up with J&J keeps Medivir's NS5B polymerase activity in the family as it were, given the two groups' previous deal in the area of protease inhibition (TMC435350 is in Phase IIa trials). HCV polymerase inhibition has had a tough ride lately, with Wyeth/Viropharma and Novartis/Idenix each dropping mid-stage programs in the past ten months. Medivir has pretty extensive R&D experience in the polymerase area--it's developing compounds against herpes virus, shingles, HBV, CMV and HIV polymerases, and even has a five-year old deal with Roche in HCV polymerase (terms of which are/were undisclosed). As in it's 2003 deal with Roche, Medivir has hung onto Nordic commercialization rights in its deal with Tibotec.

Pfizer/FivePrime: Pfizer announced a research tie-up with next generation protein developer FivePrime this week. The collaboration will focus on the discovery of antibody targets and novel protein drugs to treat cancer and diabetes according to the press release. Specific deal terms weren't disclosed, but FivePrime will receive an up-front payment and three years of research funding for its efforts. In addition, Pfizer is taking an equity stake in the company. This deal highlights two major trends we've been watching for some time: the importance of bringing in biologics capablities and the flight to specialist markets. Pfizer has been slow to the biologics party, but has been attempting to make up ground with torrid deal-making, including the recent acquisitions of Coley Pharmaceuticals, CovX, and Biorexis. In addition, the at least partial focus of this deal on oncology represents a shifting attitude among Big Pharma away from the risky primary care markets to a focus on specialty, where there is still great unmedical need but also a less onerous regulatory path. Recently Pfizer CEO Jeff Kindler says he is putting "Pfizer's full scope and scale" behind a push into the cancer market. As part of that effort, he's hired Garry Nicholson, a 30-year veteran of Lilly, to oversee Pfizer's newly created oncology business from clinical trials through marketing.

Daiichi Sankyo/ U3: Another week, another Japanese pharma making noise. Takeda has taken top honors lately, with its big cancer deals with Cell Genesys and Amgen and its acquisition of Velcade developer Millennium. But the other Japanese pharmas aren't giving up on either oncology or their ability to become international powerhouses. Take this week's news that Daiichi Sankyo is buying German biotech U3 Pharma for $235 million in cash. Among the drugs in U3's pipeline: a fully-human anti-HER3 monoclonal antibody due to begin clinical trials this year that is partnered with Amgen. Daiichi is no stranger to the Thousand Oaks biotech. It has Japanese rights to market Amgen's denosumab, currently in Phase III trials for osteoporosis and bone metastases in patients with advanced breast cancer. In addition, Daiichi also has several other cancer products in development, including the Phase II CS-1008 to combat malignant neoplasms.

Photo courtesy of Flickr user ramson via a Creative Commons license.

Lundbeck Thanks Myriad For The Memories

Myriad Genetics announced a critical tie-up for its Phase III Alzheimer's drug, Flurizan, with the Danish pharmaceutical company H. Lundbeck A/S on Thursday May 22. In exchange for merely European commercialization rights, Lundbeck has agreed to pay Myriad a generous $100 million up-front, plus an additional $250 million in regulatory milestones as well as escalating sales royalties in the 20-39% range.

Undoubtedly, the deal terms for Myriad's so-called selective amyloid beta-42 lowering agent are rich, but the real upside seems likely to come later, when the Utah-based biotech looks to ink a revenue-sharing arrangement for the product in the US market. Such a deal may seem counter-intuitive given that Myriad has just given up product rights for a considerable portion of the globe--a fact investors won't take lightly. (For more, see our recent take on the value of alliances in the April IN VIVO.)

But in this case, the alliance may play an important and--dare we say it--validating role for Myriad. Consider that Lundbeck currently has the largest CNS sales force in Europe and experience selling Alzheimer's meds. (The company has ex-Japan marketing rights to Ebixa, known as Namenda in the US where it is marketed by Forest Labs). Given this neuro expertise, the company's willingness to pay a hefty price just for EU rights certainly gives the risky Flurizan added street cred.

Moreover, Myriad can now afford to partner Flurizan in the US for a dear but not prohibitive price. That's a situation likely to interest partners who might be interested in a biggish deal but who couldn't otherwise afford world-wide rights. "Flurizan is more affordable to a broader pool of companies and that's likely to increase the possibility of partnering" in the US, says Charles Duncan, an analyst with JMP Securities.

Which ironically means that, with the possibility of multiple bidders, the price for any future deal could go up a bit more than mid-sized companies might want to pay -- even if staying below the threshold of the industry's largest deals.

In the meantime, Myriad pockets a $100 million--about 20% of which will be paid as a sub-license royalty to Encore Pharmaceuticals--and gains access to a ready-made sales force of more than 1300 reps well versed in selling Alzheimer's drugs in the various EU nations. That's critically important, says Duncan, who believes that "Lundbeck's infrastructure in CNS maximizes the sales potential for Flurizan in Europe."

The oral Flurizan seems to work work by dialing down--but not completely inhibiting--activity of γ-secretase, the protein responsible for chopping up amyloid precursor protein into its more toxic form, Aβ42, via an anti-inflammatory cascade. Because it lowers overall levels of toxic amyloid, the thinking goes, Flurizan is able to inhibit the negative cascade of plaque formation and neurodegeneration that follow from its initial deposition.

Results from Phase II studies are certainly tantalizing. Patients with mild forms of the disease who took a once-daily 800 milligram dose of Flurizan did not decline as rapidly as those on placebo as measured by standard cognition tests and assessments of daily living. In addition, a meaningful, but not statistically significant, portion of patients experienced zero decline in cognitive ability after two years on the medication, and in some cases, actual improvement.

Currently, Myriad is conducting two Phase III clinical trials of Flurizan: a US-based study of more than 1600 patients with mild Alzheimer's disease and a second, global trial of more than 800 patients. Results of the US-based study are expected to be announced in about a month with results of the world-wide study coming before the end of 2008.

One reason Duncan is so bullish on today's announcement is that he thinks Lundbeck inked the deal solely based on publicly available clinical data. That suggests to him that Lundbeck has anecdotal information about Flurizan's efficacy in late stage trials based on its own surveys of customers. That's important because it suggests Lundbeck believes strongly in the drug's chances for approval in the EU, if not its overall efficacy. Flurizan is expected to launch in 2010.

If that happens, the consultancy Datamonitor forecasts Flurizan revenues in excess of $1.5 billion in the seven major markets and $470 million in the EU by 2016. Still there's considerable risk associated with the product. It's quite possible given the lack of statistical significance associated with the Phase II trials, that data from the pivotal studies may be subject to interpretation.

Will that be enough to limit approval? Probably not, say analysts such as Duncan. Currently available Alzheimer's treatments such as Aricept and Namenda didn't come with overwhelmingly strong data packages either. Moreover, unlike other late stage, potentially disease-modifying drugs such as Wyeth/ Elan's antibody bapineuzumab, Flurizan is without significant adverse side-effects. (Wyeth and Elan's antibody, for instance, has been linked to severe gastrointestinal bleeding making it more likely that drug will be reserved for severe cases of the disease.)

Given the overwhelming unmet medical need and significant economic burdens of Alzheimer's, Flurizan's safety profile is important -- a safe drug that offers even the potential of slowing the scourge of Alzheimer's is likely to be prescribed.

Undoubtedly that's something Myriad is betting on as it looks for a deep-pocketed partner to help establish Flurizan's US market. Any number of potential suitors might be interested in non-EU rights, including both Forest Labs and Takeda Pharmaceuticals. Meantime, Myriad can rely on the help--and yes, we'll say it again, validation--- of Lundbeck.

Image courtesy of Flickr user .nello via a creative commons license.