JPM Survival Guide: DOTW Keeps the Party Going

The last few years have been quite a bash for biotech. Astoundingly, the NASDAQ Biotechnology Index (NBI) has added more now than it did during the genomics bubble.

Since the current biotech rally started around August 2011, the NBI has increased about 1,500 points. Around the turn-of-the-millennium, the NBI rose around 1,200 points in a year and a half. Then over the following roughly two years, the NBI proceeded to give back all but about 200 points of that gain by mid-2002.

That makes the ongoing, almost two-and-a-half year upswing the longest, highest biotech rally to date. 

Does this make anyone else nervous? Apparently not, at least not yet.  (In December, Mark Schoenebaum of ISI Group circulated a succinct, hypothetical argument for the bear case in biotech. But this is not his view on the sector.)

Going into the 32nd Annual J.P. Morgan Healthcare Conference, optimism in the sector is continuing unabated. The NBI is up over 5% already this year, by market close on Jan. 10.

That doesn’t even include the phenomenal, two-day 516% climb for Intercept Pharmaceuticals after its Data Safety Monitoring Board recommended stopping early for efficacy at an interim analysis of a Phase II trial of its obeticholic acid to treat the liver disease nonalcoholic steatohepatitis. Intercept isn’t an NBI component. In one week, the biotech has leapt from mid-cap into large-cap territory; it now has a market cap of $8.6 billion, up from $1.4 billion ahead of the news.

On the news front at JPM, Wall Street expects Celgene and Acorda will pre-announce 2014 guidance at JPM. Celgene has hinted it may also update its long-term guidance for 2015 and 2017. Exceeding even the very early JPM curve, Eli Lilly and Bristol-Myers Squibb have already pre-announced their 2014 guidance.

Other likely highlights include various details from big biopharmas with recent management changes. We could get hints from Teva about the direction it plans under newly appointed President and CEO Erez Vigodman, as well as some color from Amgen on why CFO Jonathan Peacock is departing.

The above should give you a few talking points, as will the deals discussed below. That’s essential when you run into industry colleagues you are just meeting or seeing for the first time in years.

A list of all the JPM parties is also indispensable. Last year was the first time we saw a spreadsheet of all these events. Despite the fact that the Excel document ran a couple of pages, shockingly there were still a few omissions discovered by us and a hedge fund manager who shall remain anonymous.

One of this year’s versions of the JPM party list, linked to above, has been upgraded to a PDF and carefully annotated to note invitation-only parties. Although we wonder, isn’t this list specifically designed for party crashers? Or, maybe it’s just so we’ll know all the fabulous parties we weren’t invited to? The most prosperous entities at any given time always seem to commandeer the penthouse at the pricey Clift Hotel, but of course no spot is cheap at the height of the conference.

Another JPM must is a lot of hand-washing – someone at the last JPM gave DOTW a horrible case of the stomach flu that felled us by Wednesday afternoon. Not to alarm anyone, but the number of flu cases in the U.S. is peaking right now, with a heavy concentration in the Western states. And a San Jose hospital reportedly set up an over-flow tent because of all the flu patients. So, avoid shaking hands with all those Silicon Valley VCs, unless you really need their money.

And for the ladies: no high heels, please. Unless you’re a former model trained to stand the fourteen hours of pain or you are powerful enough to have a suite where everyone is coming to you. Although JPM has promised it’s working to cut back on some (non-paying) attendees this year, so perhaps there will be ample seating at every major session and the hallway traffic will flow freely. Or not.

Most importantly, remember to 'slip' at least once and call the conference H&Q. So, everyone will know you’ve been coming to the conference for a long, long time.

As promised, we continue below to give you ample party-chatter fodder with the latest on biopharma wheeling and dealing in this week’s missive of  . . .

Forest/Aptalis: Forest Laboratories continues to build on the business development strategy of new CEO Brent Saunders with its $2.9 billion buy of privately-held Aptalis on Jan. 8. The specialty pharma has been trying to flesh out its key therapeutic areas – CNS, CV, GI, respiratory, and anti-infectives – since Saunders took over the top slot in October. This strategy began with Forest’s $240 million purchase of the antipsychotic Saphris (asenapine) from Merck & Co. in December; building on the company’s central nervous system franchise, which includes the antidepressants Viibryd (vilazodone) and Fetzima (levomilnacipran). Aptalis will give Forest multiple products in the GI space – Carafate (sucralfate) for duodenal ulcer disease and Canasa (mesalamine) for ulcerative proctitis, as well as others. The privately held company also has a strong presence in the cystic fibrosis space in Europe, where it owns three of the five approved drugs for pancreatic enzyme insufficiency: Zenpep, Ultrase and Viokase (pancrelipase, in three formulations). Forest sees this as a way of bolstering its Colobreathe (colistimethate sodium) business. The drug was approved in February 2012 in Europe for the treatment of cystic fibrosis patients aged 6 years and older with chronic lung infection caused by P. aeruginosa. The spec pharma hopes eventually to bring those products to the U.S. market. Forest is acquiring all outstanding shares of the TPG Capital-backed Aptalis with a mixture of cash and debt. The company has secured a $1.9 billion bridge loan to close the deal within the first half of the year, pending regulatory review. The acquisition is expected to add $700 million to 2015 revenues and be immediately accretive to earnings. -- Lisa LaMotta

Royalty Pharma/Fumapharm investors: Royalty Pharma – the investment firm that buys up royalty streams on marketed drugs – is doubling down on its investment in Biogen Idec’s multiple sclerosis drug Tecfidera (dimethyl fumarate), the stand out drug launch of 2013. The firm announced Jan. 6 it would acquire more interest in the earn-outs payable to the former shareholders of Fumapharm for $510 million. Biogen Idec gained dimethyl fumarate with the acquisition of Fumapharm in 2006. Royalty Pharma already owns an interest in Tecfidera from a deal inked with Fumapharm investors in 2012, when it paid $761 million for some rights, back before the drug was approved by FDA. Now it’s obvious why Royalty has come back for more. Tecfidera, which launched in April, appears on pace to generate more than $1 billion in its first 12 months on the market. The royalty company won’t say how much of the sales it stands to receive. Fumapharm investors still own rights to a “substantial portion” of the earn-outs, Royalty said. Under a complicated payout scheme laid out in Biogen Idec’s SEC filings it appears the entire earn-out is worth about 10% of Tecfidera sales annually if the drug reaches $3 billion in sales, which it now seems likely to do. -- Jessica Merrill

Biogen Idec/Sangamo: In a move that could help validate its proprietary genome-editing technology and further strengthen its balance sheet, Sangamo BioSciences signed a worldwide collaboration and licensing agreement with Biogen Idec on Jan. 9 to co-develop potentially curative stem cell therapies for sickle cell disease (SCD) and beta-thalassemia. During a same-day conference call, Sangamo President and CEO Edward Lanphier noted that those two hemoglobinopathies are serious diseases with sub-optimal current treatment options. There are a number of symptomatic approaches to treating the two conditions that do not address the underlying cause of the disease. And while a bone marrow transplant of hematopoietic stem cells can be curative, such procedures are rare due to a lack of ideal matching donors and the risk of graft versus host disease. Biogen is paying $20 million upfront for worldwide license to both Sangamo’s zinc finger nuclease technology platform and its preclinical intellectual property for treating the two diseases. Richmond, Calif.-based Sangamo also can earn up to $300 million in development, regulatory, commercialization and sales milestones under the agreement with Biogen, along with double-digit royalties on any product sales. In addition, the biotech has an option to co-promote for either indication in the U.S., a decision which the company will not need to make for some time, Lanphier said. Sangamo will continue to perform all R&D activities through the first clinical proof-of-concept trial in beta-thalassemia, while the companies will work together on the IND-enabling work for the program in SCD. Biogen will be responsible for all subsequent clinical development and commercialization of both programs, and will reimburse Sangamo for its internal and external R&D costs related to both programs. -- Joseph Haas

Johnson & Johnson: To bolster its network of innovation centers, the global health care company said this week it has helped establish a new incubator in Israel and has signed early stage collaborations or made investments with eight biotech and academic groups. Johnson & Johnson is teaming with the Israeli government, Takeda, and venture firm OrbiMed Advisors to open the facility in early 2014, adding to incubators J&J has opened with partners in Montreal, Toronto, San Francisco, and Boston. J&J’s Janssen group also runs an incubator in San Diego. The collaborations or licenses are with Cambridge, Mass. biotech Scholar Rock, to pursue new biologics that target TGF-beta 1 for immune-mediated disease; Intrexon, to develop new consumer hair and skin products; University of Texas's MD Anderson Cancer Center, to develop a translational program for cancer immunotherapy; diagnostic firm Nodality, to hone J&J’s immunology R&D, particularly in rheumatoid arthritis and inflammatory bowel disease; and Dutch firm Bioceros, for exclusive rights to develop a monoclonal antibody against an immune checkpoint modulator. Through its venture arm Johnson & Johnson Development Corp., the J&J Innovation group also announced investments in Assembly Therapeutics, which is developing allosteric modulators to treat Hepatitis B and other viral infections; TopiVert, which is working on topical medicine for inflammatory diseases; and SutroVax, a new entity spun out from antibody platform company Sutro Biopharma to pursue vaccines. -- Alex Lash

Deals Of The Week Wonders: Who Will Buy Onyx?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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