Deals of the Week Wants Cash on the Barrelhead

 

For pharmas making all but the largest acquisitions, cash is king. From speculative buyouts of preclinical start-ups all the way through bolt-on deals worth a few billion dollars, pharmas typically spend cash rather than swap stock to make their acquisitions. Except in the cases of mega-mergers, a pharma’s purchasing power lies on its balance sheet, not in its share price.

So when Moody’s Investor Service issued a March 18 study of the U.S. companies whose cash coffers were the richest, Deals of the Week couldn’t help but turn an eye to the seven health care companies named in the report. None of them has disclosed a pharma acquisition yet in 2013, but rumors are swirling that one will strike soon.

Pfizer was the wealthiest in the bunch, with $46.9 billion in the till at the end of 2012. That’s enough to place it fourth across all industries, behind only Apple, Microsoft and Google. And although Pfizer had the world’s best-selling drug for several years running until Lipitor (atorvastatin) lost patent protection in 2011, not all of its bounty came from product sales. It did, after all, pare off its nutrition business in an $11.85 billion sale to Nestle SA last year, not to mention its Capsugel unit to private equity firm Kohlberg Kravis Roberts in 2011. Pfizer hasn’t done a pharma acquisition since its (all-cash) takeout of NextWave Pharmaceuticals Inc. in November.

Ninth-place Amgen made four large cash buys in 2012, including deals for Micromet Inc., deCODE genetics EHF, KAI Pharmaceuticals Inc., and Mustafa Nevzat Pharmaceuticals that totaled more than $2.5 billion. But those made a small dent on Amgen’s balance sheet; Moody’s said the big biotech had $24.1 billion at year’s end. The report also noted that 78% of Amgen’s liquidity is located overseas; two of its four large 2012 deals were for non-U.S. companies.

Beyond Amgen, Johnson & Johnson wasn’t far behind at 13th place with $21.1 billion, while Merck was 15th with $16.1 billion. (J&J-owned Cordis made one device acquisition this month, buying Flexible Stenting Solutions Inc. for an undisclosed sum.)

Moody’s reported that Abbott had $15.2 billion in cash on Dec. 31, enough for 17th on the overall list, but a day later, the company split in two. Its pharma descendant, AbbVie, had $7.98 billion upon launch, according to a March 15 regulatory filing. Rounding out the top pharmas were Lilly at 23rd with $12 billion and Bristol-Myers Squibb at 40th with $6.4 billion.

More broadly, the pharma industry holds about 14% of the $1.45 trillion corporate cash pile, a share which has remained roughly the same for several years. It’s the second largest sector behind technology, which gained share to 38%, while energy is among the industries losing share.

If Big Pharma isn't yet striking, some companies are still buying, licensing, and partnering. You won't get thirty days in the jailhouse, but you won't be abreast of this week's dealmaking news without...

Valeant/Obagi: Canada’s Valeant Pharmaceuticals is again strengthening its dermatology business through acquisition, this time by buying Obagi Medical Products, the maker of several proprietary aesthetic and prescription skin-care lines sold through physician offices. The companies announced Valeant’s plans to acquire the Long Beach, Calif., company March 20 for $19.75 per share in cash, or about $360 million. Valeant’s offer represents a 42% premium to Obagi’s closing share price March 14, the last trading day prior to the disclosure of its fourth quarter and full-year 2012 earnings. The company generated sales of $120.7 million in 2012. Obagi’s portfolio includes a range of skin-care lines, including Obagi Nu-Derm, Obagi-C Rx, Obagi Condition & Enhance and ObagiCLENZIderm M.D. acne therapeutic system. Valeant has built itself into one of the world’s leading dermatology players through acquisitions. Last year, Valeant announced plans to buy Medicis Pharmaceutical for $2.6 billion, positioning it as the largest dermatology player in the U.S. and second in the world behind only Galderma. - Jessica Merrill

AstraZeneca/Moderna: Along with its new R&D strategy and organizational restructuring, AstraZeneca unveiled a massive bet on an early-stage biotech platform March 21 that suggests the big pharma has taken to heart its new CEO’s directive to be more willing to embrace risk. The deal, an option agreement for up to 40 programs across several therapeutic areas with privately held Moderna Therapeutics, carries an eye-catching price tag: $240 million up front, plus potential earn-outs. All told, Moderna, which aims to use messenger RNA (mRNA) as therapeutics, could earn more than $1 billion under the deal with AstraZeneca, announced March 21. That same day, AstraZeneca also unveiled a research partnership in cardiovascular, metabolic and regenerative disease with Sweden’s Karolinska Institute, one of several collaborations between those two groups in recent years. Beyond the $240 million upfront payment – the largest this year in a biotech/pharma collaboration and one of the biggest ever for a deal built around preclinical assets – Moderna also can earn up to $180 million in “technical milestones,” an arrangement Moderna CEO Stephane Bancel described as almost a secondary, contingent upfront payment. Moderna also could bring home development, regulatory and commercial milestones for each drug candidate licensed by AstraZeneca, as well as sales royalties ranging from the high single digits to low double digits. - Joseph Haas

Merck/Cerecor: Well-funded Baltimore start-up Cerecor has licensed a portfolio of neurology drugs from Merck that have shown potential in treating Parkinson’s disease. The program includes more than 2,000 molecules that inhibit catechol-O-methyltransferase, or COMT, a compound that breaks down dopamine in the brain and is linked to improving brain functions such as cognition, motivation and emotion. In a March 20 statement announcing the deal, Cerecor said Merck’s research has improved toxicity issues related to other COMT inhibitors. Marketed drugs in the class include Novartis’s Comtan (entacapone) and Valeant’s Tasmar (tolcapone), which typically are prescribed with levodopa, a synthetic form of the natural dopamine-producing chemical L-dopa. Terms of the Merck-Cerecor arrangement weren’t released, although Cerecor said it will pay milestones and royalties “consistent with other preclinical licenses in neuroscience.” The start-up has a Phase I anti-tussive drug, as well as a group of preclinical D-amino acid oxidase inhibitors obtained from Johns Hopkins University’s Brain Science Institute, in its pipeline. Last April, Cerecor raised $22 million in a Series A round using placement agent Maxim Group; the specific investors weren’t named. Former Celgene CEO Sol Barer is Cerecor’s chairman. - Paul Bonanos

Celgene/bluebird bio: Speaking of Celgene, the Summit, N.J., gene- and protein-regulation specialist has teamed up with 2012 Deals of the Year nominee bluebird bio in a gene-therapy deal (pdf) that will target oncology. Specifically, the two companies will collaborate to develop therapies that modify a patient’s own chimeric antigen receptor T-cells, then re-introduce them to target cancer cells. Although bluebird bio will foot the bill for Phase I trials on clinical products, Celgene will have the option to obtain a global license for each for an unspecified fee; bluebird bio retains the right to share U.S. rights in exchange for reduced milestone payments. Celgene’s upfront payment wasn’t revealed, but total fees including milestones for each product could total $225 million plus royalties. Celgene also agreed to collaborate on CAR T-cell research with scientists at the Center for Cell and Gene Therapy at Baylor College of Medicine, Texas Children’s Hospital and The Methodist Hospital, Houston. The team at bluebird bio also will have access to the scientists, led by Baylor professor Malcolm Brenner. - P.B.

NPS/Takeda: Two assets came full-circle March 19 as NPS Pharmaceuticals re-acquired ex-U.S. rights to a pair of rare disease drugs in a deal that will increase the equity position of Japanese pharma Takeda Pharmaceutical. NPS previously out-licensed the rights to teduglutide and PTH 1-84 in separate deals with Nycomed Pharma, which then was acquired by Takeda. In an unusual deal structure, NPS, which is marketing teduglutide in the U.S. as Gattex and hopes to file PTH 1-84 under the brand name Natpara later this year as a biologic therapy for hypoparathyroidism, brought the ex-U.S. rights to those two compounds in-house in exchange for $50 million in common stock. Down the road, Takeda can earn an additional $30 million, which will be either cash or additional equity at NPS’ discretion, when the two drugs achieve combined worldwide, single-year net sales of $750 million. Takeda holds an equity position of about 7% following this deal, NPS President and CEO Francois Nader said. Both the licensing fee and the sales-based milestone were structured as equity (although the milestone can be paid out as cash if NPS opts) partly to preserve cash, Nader said. An ex-U.S. license to both drugs is just the start of what NPS gains under the deal. The transaction also transfers an inventory of active pharmaceutical ingredients for both drugs to NPS, a less-expensive method for making teduglutide, a glucagon-like peptide 2 (GLP-2) analog, and a pen delivery system that could be used with PTH 1-84. - J.A.H.

CRT/Janssen: Cancer Research Technology, the technology transfer arm of world’s largest charity Cancer Research UK, and Janssen Biotech have joined in the search to find potential new multiple myeloma drugs. The duo hope they can identify molecules and develop potential medicines that block a key protein on a cell-signaling route called the unfolded protein response (UPR) pathway. Teams at The Institute of Cancer Research (ICR), led by Ian Collins in the Cancer Research UK Cancer Therapeutics Unit and Faith Davies in the Division of Molecular Pathology, will work alongside a team at Janssen. Together, Cancer Research UK and Janssen will fund up to 25 scientists, with Janssen providing some of the funding to support the research at the ICR in London. Janssen also will pay future milestones and royalties and take the lead on the clinical development of any potential drugs. The two sides announced their deal on March 21 but gave no financial details. CRT long ago moved beyond simply commercializing and managing the intellectual property generated by the £500 million in research funding provided by Cancer Research UK to five core research institutes across the U.K., as well as to researchers at dozens of other universities and organizations. The breadth of CRT’s academic network – it has sourced and managed IP from more than a dozen global charities and institutes, as well as that of Cancer Research UK-funded research and drug discovery – positions it as an important gateway to cancer-focused research in the U.K. It has a strong in-house drug-discovery capability and access to clinical development capabilities in conjunction with Cancer Research UK’s drug development office. Janssen Biotech is part of the Janssen Pharmaceutical Companies of Johnson & Johnson. J&J earlier this month opened an innovation center in London but a spokesperson for the U.S. drug company said Janssen’s alliance with CRT was not the result of that center’s establishment. - Sten Stovall

Merck Serono/Nordic Bioscience and Merck KGaA/BMS: Merck Serono, a unit of Merck KGaA, said on March 18 it formed a strategic alliance with Denmark-based Nordic Bioscience AS around the German drug maker’s investigational therapy sprifermin, or recombinant human FGF-18, in osteoarthritis of the knee. Under the terms of the agreement, Nordic Bioscience will provide Merck with clinical development services on a shared-risk basis in exchange for a payment structure that includes service fees and potential milestone and royalty payments on the program. Financial terms of the collaboration were not disclosed; however. Merck retains full responsibility for the development and commercialization of the investigational drug. According to the World Health Organization, more than 5% of adults over 40 in developed countries, or more than 30 million people, suffer from osteoarthritis of the knee. A multi-national Phase IIb trial, dubbed the FORWARD study, is expected to begin enrolment in the second half of 2013 to evaluate further sprifermin for inhibition of the progression of structural damage, reduction in pain and improvement of physical function in patients with osteoarthritis of the knee. Sprifermin is a protein thought to induce chondrocyte stimulation leading to matrix synthesis and chondrocyte renewal. It is delivered by intra-articular injection. Two phase I trials in moderate/severe osteoarthritis of the knee previously were completed; a Phase II trial to evaluate the efficacy and safety in patients with cartilage injury of the knee is ongoing. The program was originally was in-licensed in 2004 from ZymoGenetics, a Bristol-Myers subsidiary. The next day, on March 19, Merck KGaA said it inked a deal with Bristol to promote type 2 diabetes drug Glucophage (metformin hydrochloride) under different formulations in China. Under terms of the agreement, Merck Serono and Bristol will co-promote Glucophage in China through a profit-sharing arrangement. Glucophage has been marketed by Bristol-Myers Squibb-SASS in China since 1999. The two companies will tap existing resources and complementary strengths, with Bristol-Myers Squibb-SASS continuing to manufacture Glucophage’s IR (immediate release) formulation. The collaboration will seek to expand the geographic distribution of Glucophage and provide diabetes-related health and medical information including education for health professionals. In addition, the co-promotion will significantly increase outreach to hospitals. Other terms of the agreement were not disclosed. -- S.S.

Thanks to YouTube user cweiandnd for uploading the Louvin Brothers clip. Keep clicking, there's more where that came from.

Financings of the Fortnight, You're Now Cleared For Landing

 

As we write this, at least five biotechs are in registration for initial public offerings. Circling the runway, if you will. Could even be more, what with the allowances for hush-hush registration afforded by this year’s JOBS Act. One has just touched down – the first biotech issue in more than two months -- but only after making major concessions to the public markets. (See Regulus Therapeutics in our roundup below.)

There’s been buzz that 2012 could be the best year for biotech IPOs since 2007, the year before all things financial went to heck in a mortgage-backed handbasket. “Best since 2007” is a rather backhanded compliment, but we understand the feeling that there’s a little more sun shining. As our Pink Sheet brethren reported this week, for example, antibiotic developer Paratek Pharmaceuticals has picked itself off the mat to file for an IPO. In its filing the firm cites more confidence in the revamped FDA guidelines for antibiotic approvals – specifically in skin and skin-tissue infection, which Paratek’s lead candidate, once partnered with Novartis, aims to treat.

But there should be no illusion that landing an IPO will mean a short taxi to the gate and a swift, sprightly exit past the smiling cabin crew. In other words, there’s an oversized suitcase just waiting to tumble out of the overhead bin: IPOs aren’t boosting company valuations. This has been true for years, hence the motto “The IPO is just another round of financing.” But one would think that the rise in other indicators, such as slightly better post-IPO performance, less drastic “haircuts” (the difference between the proposed IPO terms and the eventual ones), and a broader pool of IPO buyers, would put some wind under the step-up wings. (OK, that metaphor is officially grounded.)

As our new colleague Stacy Lawrence reported last week, the step-ups from final venture round to IPO have remained tepid. In fact, according to research from law firm Fenwick & West, the real action recently has taken place earlier in the funding cycle: step-ups at Series B in the second quarter of 2012 averaged 63%, and at Series C, 26%. The jump in valuation at Series D was 9%, and at Series E or higher, it was -9%. Those early boosts in valuation, however, at least are helping the entire group trend in the right direction. In a four-quarter moving average, life sciences venture rounds had a 21% step-up. That’s up from 0% in the first quarter of 2010. Flatter than a flounder on a Nebraska two-lane blacktop, as Dan Rather might have said.

In other IPO news, the upcoming issue of Start-Up breaks down six years of biotech exits, both M&A and IPO, and looks at the companies with corporate venture backers. As we found more than a year ago, private biotechs with corporate VCs on board are acquired at higher returns than those without CVC backing.

Does the CVC magic rub off on IPOs, too? Tune into the new issue to find out. Also in the new Start-Up, we profile a biotech that could be first to market with a disease-modifying drug for an autism disorder; we delve into the unusual business model of a company fully owned by non-profit foundations but looking to attract venture backers; and we examine the strategies of companies working on psoriasis that patients hope will soon make the leap to orally administered treatments.

In Start-Up's annual VC survey, by the way, we asked participants if the aforementioned JOBS Act has had any of its intended effect on the IPO process:

It might be too soon to tell where the IPO market is going, but we, dear readers, are approaching our final destination. Please return your seat back to the upright position, lock your tray tables, and put your  electronic devices away -- except, of course, the one you're using to read the latest edition of....

Regulus Therapeutics: If haircuts have been less drastic this year, you wouldn’t know it from the Regulus IPO. The microRNA developer birthed by Alnylam Pharmaceuticals and Isis Pharmaceuticals made its public debut October 4, the first biotech IPO since July, selling 11.25 million shares at $4 a pop. It was a drastic shift from selling 4.55 million shares in the $10 to $12 range it hoped to hit. The cash raised by Regulus is roughly the same as it had first targeted, $45 million instead of $50 million, but the rest of the metrics were ugly. Seeing how the firm was owned by other drug companies, however, the immediate financial impact might not be as urgent as it would be for traditional venture backers. Before the IPO, Alnylam and Isis held 45% and 44% of Regulus, respectively, and Sanofi (9%) owned most of the rest. There were all sorts of side deals with the IPO, too. Regulus partner AstraZeneca agreed to buy $25 million in common stock at the IPO price, which gives AZ 6.25 million shares – practically an equal post-IPO share to Alnylam and Isis, according to the most recent regulatory filing. Other corporate owners are likely to buy in at the IPO, too: the filing indicates Sanofi, Isis and GlaxoSmithKline, which like AZ and Sanofi also is a development partner, have said they’re interested. Filings in coming days should reveal the extent of their purchases. Underwriters have 30 days to buy up to 1,687,500 extra shares. On its first day of trading Regulus closed at $4.20 a share, up 5%. – Alex Lash

Aragon Pharmaceuticals: When prostate cancer drug developer Aragon announced a $42 million Series C round in March, CEO Rich Heyman told "The Pink Sheet" DAILY that another private round was unlikely, but still on the table. Its new $50 million Series D round, then, represents somewhat of a course change for a company that was mulling a partnership before year’s end, and even acknowledged exploring a public offering late last year. Three days before revealing the D round, Aragon presented strong Phase II data for top candidate ARN-509. Unorthodox investor venBio led the round, and prior investors Topspin Fund, Aisling Capital, OrbiMed Advisors and The Column Group also joined. Validation for ARN-509 came with the August approval of another compound in the androgen receptor antagonist class, Medivation and Astellas’ Xtandi (enzalutamide), but that also could crowd the market as both drugs seek to compete with J&J’s Zytiga (abiraterone). Moreover, Aragon faces a breach-of-contract lawsuit from Medivation, which alleges that Aragon’s scientific co-founders, once researchers at the University of California, Los Angeles, hid ARN-509’s existence when Medivation licensed a series of similar compounds, including Xtandi, from the university. Aragon has filed a counterclaim; the original suit could reach trial early next year. – Paul Bonanos

Antabio: The French antibiotic discovery startup said October 1 it completed the first-ever crowdfunding round for a biotech. It’s a difficult claim to verify, but if not exactly true, it’s certainly one of the few not just to have tapped anonymous, Internet-based donors – akin to the grassroots Internet fundraising that President Obama famously put to use in 2008 – but to have cashed them out in the black. Again, a hard claim to verify, but an Antabio spokeswoman told The In Vivo Blog in an e-mail that every one of the more than 200 crowd funders got a 2x return on investment. The total amount the company raised from them was €300,000. The crowd funders exited when a former Swiss biopharma executive, Christophe Richard, and other angels made personal investments in the company earlier this year. The firm is aiming to have its first candidate in the clinic by 2016. One area of focus is on treatments for bacteria that have developed resistance against carbapenems, the antibiotic class traditionally deployed against Gram-negative bacteria such as Escherichia coli, Pseudomonas aeruginosa and Salmonella. – A.L.

Asceneuron: The Swiss firm spun out this week from Merck KgAA’s Merck Serono unit with the group’s preclinical Alzheimer’s assets that target tau, one of the two major misfolding proteins associated with Alzheimer’s disease. Research into drugs that attack the tau-associated pathologies of Alzheimer’s disease have had a resurgence of late, in part because longstanding approaches to attacking beta amyloid, the other misfolding protein of AD, have failed in late-stage drug trials. Merck Serono, through its venture arm, will invest  €5 million in Asceneuron. Its staff will consist of eight current Merck Serono employees to move the preclinical assets into the clinic up to Phase I, at which point the firm says it will look to out-license or partner the three programs. It’s the third firm to emerge from the closure of the unit’s Geneva headquarters, announced in January, tempered by a €30 million fund to back spin-outs like Asceneuron. Merck KgAA bought the family-owned Serono for roughly $13 billion in 2006. -- A.L.

Photo courtesy of honorary FOTF co-pilot alantankenghoe via a Creative Commons license.

Deals Of The Week: Whose Mind Is On Deals Anyway?

To rehash The Event of this week: the Supreme Court ruled 5-to-4 to uphold the constitutionality of the Patient Protection and Affordable Care Act June 28, including the mandate requiring individuals to have health insurance.

The decision seems favorable to the pharmaceutical industry, and may have surprised a few who already were scheming of ways to get back the billions spent on that excise tax to the federal government in 2011. We look forward to sorting out the implications for the pharmaceutical and biotech industries in the weeks and months ahead. Our sister publication, “The Pink Sheet,” DAILY did an initial review here, making the point that many changes already were set in motion by the passage of the act itself. And we'll have much more to say in the days and weeks ahead.

The pharma industry stands to benefit from the expected increase in insured patients. The Centers for Medicare & Medicaid Services project about 22 million newly insured patients, and that spending on prescription drugs by public and private payers will increase 8.8% in 2014 over 2013 – the year major coverage expansions under the ACA are scheduled to begin – compared to 4.1% growth if it had not passed.

Still, there’s no guarantee of the volume trends newly insured patients will deliver when it comes to pharmaceuticals. “The actual volume upside may be lower and more modest then some expect,” noted Barclays Capital analyst Anthony Butler in a same-day note. A significant portion of the uninsured are believed to be young people who may not use health care services or pharmaceuticals. “The addition of these segments into the coverage pool through the individual mandate may be a smaller net positive from the volume perspective for the pharma sector than some have expected,” Butler said.

There will be plenty of uncertainties as we navigate through health care reform, but for now isn’t it about time to celebrate the federal government’s executive, legislative and judicial branches in action, by heading to the beach for July 4? – Jessica Merrill

Merck Serono/Compugen – The corporate venture arm of Germany’s Merck Serono is collaborating with Compugen to establish a new company, Neviah Genomics, to discover, develop and market novel biomarkers for drug toxicity, with the aim of bringing a product to market within a few years. The Neviah collaboration, announced June 25, is the first investment under Merck Serono Ventures’ Israel Bioincubator program, established by Merck Serono in 2011 with initial funding of €10 million over seven years. Compugen, a Tel Aviv-based biotech with a pipeline of preclinical protein therapeutics and monoclonal antibodies, will bring its predictive discovery technologies to the partnership. The deal is structured so both Merck Serono Ventures and Compugen will be shareholders in Neviah, which will have its own board that will determine how any product profits will be distributed. Compugen also will earn royalties from product sales. Further financial details were not disclosed, including the amount of Merck Serono’s initial investment. The companies have worked together as part of a 2008 partnership to co-develop CGEN855, a GCPR peptide investigated in inflammatory disease. – Joseph Haas

Lilly/PrimeraDx – Massachusetts-based PrimeraDx has entered into a multi-year collaboration with Eli Lilly to develop companion diagnostics for several unspecified clinical candidates, initially focusing on oncology. Neither terms nor timelines were disclosed. PrimeraDx, will develop multiplexed assays using its proprietary ICEPlex system, which is capable of simultaneous detection and quantification of numerous target types such as mRNA, miRNA, SNPs and DNA. Founded in 2004 and formerly known as Primera Biosystems, Inc., the company sells instrumentation, software, assays and consumables. Primary customers are clinical labs at large academic research centers and reference laboratories and biopharmaceutical companies. PrimeraDx is backed by venture investors including Abingworth, InterWest, CHL Medical, MPM Capital, Burrill & Co., and the Malaysian Technology Development Corporation. It last raised a $20 million series C in September 2009. – Mike Goodman

Celgene/Inhibrx – Drug-discovery firm Inhibrx has signed a notable partner, announcing June 27 that Celgene has licensed a preclinical antibody program. The target of the program was not disclosed. The potential value of the deal is $500 million, including upfront, clinical and regulatory milestones. Inhibrx, based in La Jolla, Calif., is focused on the discovery and development of novel drugs for cancer and inflammatory disease. – J.M.

Merck/AstraZeneca – Merck and AstraZeneca announced an agreement to extend their longstanding partnership June 27 after coming to terms that could benefit both parties. The original partnership dates back to 1982 when Sweden’s Astra AB tapped Merck to market its proton pump inhibitor drugs in the US. Nexium (esomeprazole), which is expected to post dwindling sales once losing patent protection in 2014, and Prilosec (omeprazole), which is now sold as an over-the-counter medication, remain the only drugs still under the agreement. AstraZeneca now will have the option to buy the remainder of Merck’s stake in the drugs in the first quarter of 2014 for $347 million plus an amount equal to 10 times Merck's average 1% annual profit allocation in the partnership, which AstraZeneca estimates to be about $80 million. The price paid by AstraZeneca also could include the net present value of up to 5% of future U.S. sales of the painkiller Vimovo (naproxen/esomeprazole). While the extension of the deal will have no immediate effect on AstraZeneca’s earnings, it will help Merck deal with the patent expiration of the blockbuster allergy drug Singulair (monteklast) by adding $200 million in revenues to the 2012 top line. – Lisa LaMotta

Biogen Idec/Isis – Antisense drug-discovery platform operator Isis Pharmaceuticals has partnered prolifically over the years. Its latest deal with Biogen Idec is the second collaboration between the two companies, an arrangement to develop and commercialize a treatment for myotonic dystrophy type 1. The disorder, also known as Steinert disease, is a form of muscular dystrophy that afflicts adults. Biogen Idec will pay $12 million up front to enter the collaboration, but could pay much more over time if it licenses the drug at the end of Phase II. The deal includes $59 million in milestone payments prior to licensing, as well as up to $200 million for a licensing fee and and further clinical milestones. The companies will attempt to develop a drug that repairs a repeating defect in the coding of the dystrophia myotonia-protein kinase gene that results in abnormally long strands of RNA, leading to buildup in cells. Isis and Biogen already have an alliance in spinal muscular atrophy, revealed in January. – Paul Bonanos

Sanofi/Oxford – The UK's Oxford BioMedica announced June 29 that it has earned a $3 million option exercise payment from Sanofi, which has decided to acquire worldwide license to a pair of Phase I/II gene-based treatments discovered by Oxford. Under terms of an agreement signed in 2009, Sanofi has acquired rights to develop, manufacture and commercialize StarGen for Stargardt disease and UshStat for Usher syndrome type 1B. Oxford discovered and developed both candidates using its proprietary LentiVector platform technology. – Joseph Haas

Photo credit: Wikimedia Commons

Deals Of The Week: Pfizer Goes For An IPO

The big news this week was the deal that didn’t happen: the sale of Pfizer’s animal health division. Pfizer announced June 7 that it will split off the business into a new standalone company to be called Zoetis instead and that it is preparing to file an initial public offering of a minority ownership stake in the new company.

Investors had been anticipating either a sale of the business or a split-off since CEO Ian Read announced plans to shed the business last year along with its nutrition business, so the news isn’t exactly a surprise.

Still, Pfizer inked a deal for its nutritionals business with Nestle S.A. in April, offloading the business for $11.85 billion, a price that reflects a pretty premium over the $9 billion to $10 billion some analysts had predicted.

Pfizer’s decision to spin-out the business means rival big pharmas like Merck and Eli Lilly won’t be expanding with Pfizer’s assets. The chiefs at both companies have said they remain committed to animal health and the diversified business model. Of the three, Pfizer’s business is the largest with $4.2 billion in sales in 2011. Merck’s animal health business brought in $3.25 billion in sales and Lilly’s $1.67 billion.

A split-off offers tax advantages of a sale, which Read called out in a press release. “Our focus continues to be on taking the actions that will generate the greatest after-tax value for our shareholders,” he said. Analysts had valued a potential sale of the business at around $15 billion.

With the decision to spin-out the business, Pfizer is following a similar route to the one Bristol-Myers Squibb took when it spun-out its Mead Johnson nutritionals business in 2009. That move has been well-received on Wall Street. The initial offering was $24 per share and the stock closed June 7 at $81.12, representing around 70% growth.

Pfizer hasn’t priced the IPO, so it remains to be seen how much it will cost to buy into Zoetis, but Read has vowed to make the company independent by July 2013 so there is plenty of time to analyze the numbers and start wagering.

Elsewhere in the news, GlaxoSmithKline announced June 8 that it has extended its offer to buy Human Genome Sciences from the prior deadline of June 7 to June 29. Otherwise, it was a slowgoing week on the business development front ...

Merck KGaA/ Dr. Reddy's Laboratories – India's global generics firm Dr. Reddy's Laboratories, announced June 6 it was linking up with Merck Serono, the pharmaceutical division of Germany's Merck KGaA, to develop and commercialize biosimilar cancer products, principally monoclonal antibodies. The collaboration will exploit Merck Serono's expertise in biologics manufacturing, development and marketing, which includes the MS therapy Rebif (interferon beta-1a) and the anticancer Erbitux (cetuximab), and Dr. Reddy's pioneering role in biosimilars (it already markets four such products in India). No money is changing hands and the collaborators will share risks and rewards, with Dr. Reddy's conducting early development through Phase I, and Merck Serono taking over further clinical development and manufacturing. Merck Serono will commercialize the biosimilars globally, with Dr Reddy's receiving royalties, except for the U.S., where the companies will co-commercialize on a profit-sharing basis, and certain unspecified emerging markets, where marketing will be co-exclusive, or where Dr Reddy's will have exclusive rights. Biosimilars is a new sphere of activity for Merck KGaA, and one it can enter at a relatively low cost. That's important for the company, as it has just started an efficiency program which calls for R&D facility closures and job losses in order to make around €300 million in costs savings by 2014. For Dr Reddy's, it provides a source of research funding while keeping its options open outside of the oncology sector. – John Davis

Onyx/ Anderson Cancer Center – In just the latest of its research ties to biopharmaceutical companies, the MD Anderson Cancer Center at the University of Texas announced June 4 that it will collaborate with Onyx Pharmaceuticals in an effort to delineate the potential of that company’s anti-cancer candidates carfilzomib and oprozomib in multiple myeloma and lymphoma. Financial terms of the two-year research agreement were not disclosed. Carfilzomib, to be marketed under the brand name Kyprolis, is under review at FDA for relapsed and refractory multiple myeloma. Oprozomib, like carfilzomib, is an oral proteasome inhibitor, is Phase Ib/ II study in hematological malignancies. Onyx and MD Anderson personnel will oversee the collaboration together in a joint steering committee, with MD Anderson conducting all studies related to the agreement. The focus will be on the potential of proteasome inhibitors in tandem with other novel, early-stage cancer candidates, as well as to increase the biological understanding and enhance the clinical profile of the two Onyx compounds. MD Anderson’s most recent deal with private industry was the licensing of an experimental folate-binding protein (FBP) E39 vaccine for the prevention of recurrence of gynecological cancer to Galena Biopharma. – Joseph Haas

Picture credit: Wikimedia Commons

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

Deals of the Week Plays Moneyball

Sometimes picking a winner is easy. But if you ask a baseball general manager, a moviegoer, or a private equity investor, it's the hidden gems, the fixer-uppers, and the unexpected turnarounds that can be the most satisfying. Such salvage cases lie at the heart of Michael Lewis's 2003 book Moneyball, now a major motion picture, a baseball movie that isn't just that. The story of the Oakland Athletics' shoestring-budget team that enjoyed an amazing 20-game winning streak in 2002, it's described by Roger Ebert today as "a brainy baseball movie about cost-benefit analysis," an underdog story that incorporates business savvy, an understanding of human nature, and the relationship between analysis and instinct. (And if Hollywood can turn a book written by a business journalist about football into an Oscar-winning Sandra Bullock star turn, maybe Moneyball itself will be an unlikely success.)

For some drug makers, finding value in compounds where others don't see it is their own game of moneyball. As we'll discuss in an uncoming IN VIVO feature, central nervous system drug maker Jazz Pharmaceuticals went from trading under $1 in 2009 to a 52-week high of $47.88 this week, on the strength of several critical decisions that maximized value of underappreciated assets. It shuffled its priorities multiple times, eventually focusing on narcolepsy treatment Xyrem (sodium oxybate) -- at one point considered a backup plan, now a fast-growing, $200-million-plus-per-year drug -- while pulling additional value out of Luvox CR (fluvoxamine), a controlled-release version of an SSRI that had fallen out of favor in prior years and was withdrawn from the market by Solvay Pharmaceuticals. It's resulted in a windfall for Jazz as well as its PE stakeholders, including Kohlberg Kravis Roberts and Longitude Capital.

This week, Jazz hopes to have found another Scott Hatteberg, one of Moneyball's hidden talents, in Azur Pharma Ltd., an Irish specialty pharma with which it shares several traits in common. California-based Jazz used its strong equity position to merger with Azur in a stock transaction, giving its shareholders about 80 percent of the combined company. The deal will also allow Jazz to move its headquarters to Dublin, potentially resulting in a massive tax savings. Though many of Azur's strengths lie in CNS drugs, the deal also gives Jazz a beachhead in women's health. Analyst Gene Mack of Mizuho Securities USA wrote in a research note that the newly combined entity, Jazz Pharmaceuticals PLC, could even exceed its projection of $475 million in its first 12 months of existence.

If only the Oakland Athletics could relocate somewhere close to home that would allow them to generate more revenue. (Somewhere very close to the computer on which these words are being written, an Athletics season ticket holder sighs.) As they look up at the teams headed for the playoffs, we invite you to have a look at...

Bristol-Myers Squibb/Ono Pharmaceuticals: In a transaction that involves no cash moving in either direction, Bristol-Myers Squibb has expanded its territorial rights to an oncology antibody acquired in its 2009 purchase of Medarex, while Ono Pharmaceutical gets co-development and co-commercialization rights to rheumatoid arthritis drug Orencia (abatacept) in Japan. Ono can earn unspecified royalties if the antibody, BMS-936558/Ono-4538, an anti-programmed cell death (PD-1) antibody in clinical development in multiple types of cancer, reaches market. Bristol Senior VP-Strategy, Alliances and Transactions Jeremy Levin cautions not to consider this deal merely an asset swap. “It’s less a swap than it is an understanding that we have different strategic imperatives,” Levin said. “So we trade the value of an existing product that we like a lot, Orencia, for a product that we think helps build a tremendously important part of the immuno-oncology franchise.” Under the Sept. 20 agreement, Bristol’s rights to BMS-936558 expand to the entire world other than Japan, Korea and Taiwan; Ono will retain rights to the antibody in those markets (In the original Medarex/Ono deal, Medarex received North American rights to the antibody.) In the U.S., ’558 is in Phase I and Phase II trials in a variety of tumor types and treatment settings, Bristol says, including renal cell carcinoma and melanoma. Ono has advanced the compound to Phase II in melanoma in Japan.—Joseph Haas

Bristol-Myers Squibb/Ambrx: In the second deal under its “String of Pearls” strategy in two days, Bristol acquired worldwide rights Sept. 22 to two preclinical biologic candidates, one for type 2 diabetes and the other for heart failure. Ambrx will receive a $24 million upfront payment from Bristol in exchange for worldwide rights to research, develop and commercialize both ARX618, a fibroblast growth factor 21 (FGF 21) protein nearing the completion of preclinical development in type 2 diabetes, and an optimized version of relaxin hormone in earlier preclinical development for heart failure. The deal is Ambrx’s latest using its site-specific conjugation technology platforms to optimize molecules for big pharma partners, but also its first in two years. Ambrx optimized the two large molecule compounds for development using its ReCODE (Reconstituting Chemically Orthogonal Directed Engineering) technology platform. This technology allows the San Diego-based biotech to modify native proteins with amino acid building blocks beyond the common 20 amino acids known to nature to engineer enhanced candidates for therapeutic use. Beyond the $24 million upfront payment, Ambrx also is eligible for milestone and royalty payments on both programs. Of the two programs, ARX618 is said to be closer to entering clinical development. — JAH

Merck Serono/Peptimmune: Merck Serono, the pharmaceutical division of German conglomerate Merck KGaA, acquired the worldwide rights to PI-2301, a Phase II-ready candidate for multiple sclerosis, from cash-strapped Peptimmune on Sept. 19. While the official news release did not mention it, Merck Serono confirmed to DOTW that it paid $1.5 million up-front to Peptimmune for the rights to PI-2301, a second-generation peptide copolymer thought to offer the potential to enhance the immune system’s regulatory response. The compound has completed a Phase Ib study in MS, but Peptimmune, which is in the process liquidation after filing for bankruptcy earlier this year, no longer had the ability to advance the candidate further. PI-2301 which has a mechanism of action similar to Teva’s Copaxone (glatiramer), is believed to offer potential in a number of autoimmune indications, including Crohn’s disease, rheumatoid arthritis and uveitis. — JAH

Merck & Co./FKD Therapies Oy: Finland is considered by some to be a hotspot for gene therapy research, and is the location of a new company, FKD Therapies, set up to exploit a bunch of gene therapy assets found to be surplus to requirements at Merck. The Finnish company, led by gene therapy veteran Nigel Parker, formerly CEO of Ark Therapeutics, has licensed an alpha-interferon gene therapy from Merck, and has options on two other potential gene therapies. The alpha-interferon gene therapy is slated to go into Phase II trials for the treatment of bladder cancer next year. Along with other Big Pharmas, Merck has not been particularly prolific in licensing out technology and products that have fallen outside its tightened therapeutic focus, post-merger with Schering-Plough; the FKD Therapies deal is believed to be one of Merck's largest out-licensing deals in recent times in the pharmaceuticals arena. The U.S. company has taken an equity stake in FKD Therapies, which is also backed by the German investment bank, Wolbern Invest. FKD Therapies also has options on a recombinant adenoviral p21 gene to treat glaucoma surgery failure, and on a conditionally replicating adenoviral technology for the treatment of solid tumors. — John Davis

Merck Serono Re-Shuffle:Deckchairs on the Titanic?

Okay, so the Titanic analogy is a bit unfair. But it just kept springing to mind, reading about Merck Serono's latest two Big Pharma hires, Annalisa Jenkins (ex-BMS) and Belen Garijo (ex-Sanofi) who will, respectively, drive a new R&D organizational structure and re-shuffle the group's global commercial and marketing organization. The Merck Serono ship isn't exactly going full-steam ahead: oral MS drug cladribine, the post-Rebif hopeful with peak sales once slated at $1.5 billion, was officially scrapped June 22, after both European and U.S regulators had turned up their noses (mostly at a potential link to cancer). Cladribine's trip-up followed a string of other development setbacks and most probably prompted the departure of pharma CEO Elmar Schnee in December 2010.

Enter the Big Pharma blood to sort things out. (One thing Big Pharma execs should by now be highly-trained in is how to cut costs and try to boost R&D productivity). Stefan Oschmann, previously head of Merck & Co. Inc.'s emerging markets business, joined in January as President of Merck Serono (and also heads the company's consumer health division). After six months assessing the damage, he's now hiring in the troops to sort things out.

Belen Garijo, previously SVP Global Operations Region Europe and Sanofi Aventis, will take on a newly-created COO role and "define a highly competitive commercial and marketing strategy to strengthen Merck Serono's product brands and lead its global business to profitable growth across all therapeutic areas," says the release. Make what we've got work harder, in other words. And no doubt she'll also leverage some of the synergy-extracting experience gleaned from latterly leading the integration of Genzyme at Sanofi, as well as draw on Oschmann's emerging markets background.

Jenkins' appointment as Global Head of Drug Development & Medical marks the first step of a R&D overhaul that, certainly at first glance, appears familiar to anyone following Bigger Pharma's attempts to invigorate their innovation engines: the creation of a pre- and post-POC divide, with Jenkins heading post-POC development including life-cycle and regulatory functions, and Bernhard Kirschbaum, until now head of all R&D, looking after Global Research & Early Development to proof-of-concept. (This isn't the first time Merck has split R&D: earlier in his six-year career at Merck, Kirschbaum ran pre-clinical and global technologies, reflecting an older-fashioned R&D dividing line).

Yes, and the new R&D operation is going to be all about fostering agility, creativity and entrepreneurship, to allow more efficient use of resources, etc. etc....We've heard many similar stories before. What's more, if Eisai's R&D experience is anything to go by, Merck Serono's mid-cap credentials -- it has just 2500 R&D employees -- needn't rule it out of creating small, biotech-like autonomous units either, a la GSK's DPUs.

As yet, there are scant details on offer of Merck Serono's makeover: Oschmann isn't talking until at least the end of the year, we are told; perhaps understandable given that Jenkins and Garijo don't start until September.

But Oschmann likely knows the broad outlines of what he needs done, and has hired the appropriate troops to execute on the plan. Cost-cuts and efficiency drives will almost certainly feature strongly, as will in-licensing, especially to salvage the MS franchise. Line extensions for 13-year old, three-times-a-week injectable MS therapy Rebif (interferon beta-1a) continue (the company recently submitted an application to EMA for Rebif in early-stage MS) but are unlikely to be enough, particularly with MS competition from the likes of Biogen's Tysabri, Novartis' oral Gilenya and, perhaps soon, Sanofi/Genzyme's Lemtrada (though recent Phase III results for that drug were mixed).

Merck has done two neuro-degenerative diseases focused deals this year so far; expect that rate to increase. If it doesn't, maybe that deckchair analogy will creep back in after all, even though the company is somewhat protected from the full force of the elements by its 70% family ownership and its minority non-pharma operations.

image by flickrer Steve Parkinson used under creative commons