Deals of the Week Takes Stock in M&A

Here at Deals of the Week, we don’t often take note explicitly of buyouts outside the biopharma sphere. But one well-publicized tech deal last month piqued our interest – and it parallels another recent pharma deal in a way we found curious.

As you may have heard, social networking giant Facebook wowed the tech field with its February takeout of smartphone communications app developer WhatsApp for a jaw-dropping $16 billion plus an additional $3 billion in employee-retention bonuses, reportedly the largest-ever acquisition price for a private, venture-backed company. (We’ll note in passing that one of the deal’s biggest winners, venture firm Sequoia Capital, is also a life sciences investor.)

Now, $19 billion is a lot of scratch – it’s a bigger pile of cash than the gross domestic product of Jamaica, and it’s in the ballpark of the price Sanofi paid for Genzyme in 2011. But a closer look at the WhatsApp deal’s terms reveals that Facebook paid just $4 billion in cash – a quarter of the deal’s baseline value – and the balance, including the retention bonuses, in its somewhat volatile stock. It’s a common formula in tech, a sector in which speculative value far outpaces revenue in many cases.

In the biopharma world, such arrangements traditionally are unheard of – but that might be changing. While many pharma mega-deals include both cash and stock components, most feature bigger cash portions than paper value. Just over a third of the $68 billion Pfizer spent to acquire Wyeth in 2009 was in stock, with the rest coming in cash; Johnson & Johnson’s $21.7 billion deal for Synthes in 2011 was in the same league, weighted roughly 65%-35% in favor of cash.

That’s why Actavis’ pending $25 billion deal to acquire Forest Laboratories last month was so unusual. Actavis paid just $26.04 per share, or 29% of the total $89.48-per-share purchase price, in cash, and swapped its stock for the rest. So there’s financial risk involved: If Actavis shares fluctuate, the deal’s total value could go up or down rapidly, perhaps before it even closes. (We note that the Facebook/WhatsApp deal technically gained more than $600 million in value before it was even announced, since its stock component was based on an already-outdated five-day average of Facebook’s share price.)

It’s not the first mega-buyout to favor equity over the hard stuff; Merck’s $42 billion buyout of Schering-Plough was tilted slightly in favor of stock over cash, with 56% of the price paid in equity. But rarely are large pharma deals ever consummated with paper value vastly outweighing cash money; it’s even less likely with smaller deals. A search of our Strategic Transactions database of reveals that only about one in 10 biopharma deals since 2008 falling into the “bolt-on” range – those ranging from a few hundred million dollars to a few billion – had a stock component.

Some life sciences companies, particularly those living off their sunny growth prospects rather than established, dividend-paying, cash-rich ones, soon could find that their stock is becoming a valuable deal-making currency. And with biotechs soaring in the public markets, some of them look like good candidates for stock-heavy deals. Like Actavis’ stock price, the Nasdaq Biotechnology Index has doubled since November 2012. Emilio Ragosa, a partner with Morgan Lewis & Bockius’ mergers-and-acquisitions practice, said mid-cap biotechs – those valued around $1 billion – are in the sweet-spot. “They tend to have less cash, but their stock is appreciating more rapidly,” he said.

Big biotechs and specialty pharmas, responsible for most of the M&A deal-making action in 2013, are enjoying exceptionally high valuations, but don’t always have big pharma-like cash flow. They’re good candidates to use their strong stock prices to beef up their businesses without denting their cash piles severely.

It’s unlikely that big pharmas will change this aspect of their deal-making strategies much; as Ragosa notes, “They have enough cash on their balance sheets.” Ever sensitive to their quarterly earnings, most large pharmas will continue to avoid using stock to take out biotechs. Seven of the top 50 cash holdings among U.S. companies belonged to pharmas, according to a 2013 Moody’s report; six were sitting on double-digit billions, led by Pfizer. - Paul Bonanos

Transactional activity has been as slow as a snowy Interstate lately, but we’re still taking stock of the latest alliances in...

Biogen/Eisai: Biogen Idec teamed up with Japanese pharma Eisai on March 5 to potentially co-develop and co-commercialize four compounds for the treatment of Alzheimer’s disease. While specific financial details weren’t released, Biogen will pay Eisai an upfront payment of undisclosed size, as well as a fixed number of milestones based on development, regulatory and commercial events. The team also will split worldwide profits on the drugs should they reach the market. Eisai will take the lead on the first two compounds, which it will provide. The first is a beta-site amyloid precursor protein cleaving enzyme (BACE) inhibitor dubbed E2609; Eisai discovered the compound in-house, and is about to begin its Phase II trials. The second monoclonal antibody, BAN-2401, is already in Phase II trials; it’s an immunotherapy designed to break down beta amyloid plaques after they develop. Eisai also has the option to jointly develop and commercialize Biogen’s two in-house Alzheimer’s candidates, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody, both of which are in very early stages. The BACE inhibitor space has been heating up as Merck pushes its candidate into Phase III and AstraZeneca follows closely on its heels. Both Roche and Lilly have ended programs in the space after safety signals cropped up in clinical trials. There hasn’t been any proof so far that the safety issues are class-wide, but the industry is keeping a close watch for any signs. - Lisa LaMotta

Genocea/Harvard/Dana-Farber: Fresh from its initial public offering last month, vaccine specialist Genocea Biosciences struck a research deal with Dana-Farber Cancer Institute and Harvard Medical School to study cancer immunology. Under the March 5 alliance, researchers will use Genocea’s proprietary T cell antigen discovery platform to find antigens that correlate with an anti-tumor immune response in melanoma patients. Charitable scientific network Ludwig Trust will sponsor the research; terms weren’t released. The research will play off existing work by Dana-Farber’s Stephen Hodi and Glenn Dranoff in anti-CTLA-4 therapies such as Bristol-Myers Squibb’s Yervoy (ipilimumab). Harvard microbiology and immunobiology professor Darren Higgins will lead the development of a cancer antigen protein library, which will be screened against patient-derived cells using Genocea’s platform in order to seek a correlative immune response. After an initial lukewarm reception, Cambridge, Mass.-based Genocea shares have rebounded, rising more than 50% since the company’s February 5 debut. The company is best known for its clinical pipeline of anti-infective vaccines, including therapies and preventive treatments for herpes simplex virus-2, pneumococcus, chlamydia and malaria. Its most advanced program is GEN-003, a Phase II therapy for HSV-2. - P.B.

NeoStem/Massachusetts Eye & Ear/Schepens: Cell therapy developer NeoStem also inked a deal with some of Harvard Medical School’s tentacles, entering a research collaboration March 6 with Massachusetts Eye & Ear and the Schepens Eye Research Institute. The publicly traded, New York-based stem cell company will sponsor research by Michael Young, director of Mass. Eye & Ear’s ocular regenerative medicine institute, into various eye disorders; financial terms were not revealed. The deal will fund Young’s research using NeoStem’s proprietary very small embryonic-like stem cells, or VSELs. The scientist will perform preclinical work to find uses of NeoStem’s VSEL products to combat degenerative disorders such as retinitis pigmentosa and macular degeneration. Both Mass. Eye & Ear and Schepens are Harvard Medical School affiliates. NeoStem previously has used its VSELs clinically as wound-healing therapy and to treat periodontitis; the company also has targeted cardiovascular diseases and autoimmune disorders. The eye also has been a popular target for gene therapies, thanks to its closed system and immune-privileged status. That has led to several recent fundings of companies with preclinical and clinical-stage programs. - P.B.

Thanks to Flickr user ProAeroPhoto for his photo of a different way to trade cash for stock, reproduced here under Creative Commons license.

Deals Of The Week: Novartis Places Bid To Dominate In Cancer

While the largest deal of the week, and certainly the one receiving the most attention, has been Actavis' expansion of its branded portfolio via its $25 billion purchase of Forest Laboratories, the deal that could have major implications for a hot target space in cancer is Novartis' pick-up of a small Massachusetts biotech.

Novartis nabbed young start-up CoStim Pharmaceuticals at the beginning of the week for an undisclosed amount – a move that could make it a major force in the red hot area of cancer immunotherapy.

The closely held biotech was founded in 2012 by MPM Capital and led by MPM managing directors Luke Evnin and Robert Millman. Atlas Ventures joined MPM in early 2013 to fund the company’s $10 million Series A round. While terms of the deal were not disclosed, Atlas partner Bruce Booth wrote in a recent blog post that “if the contingent milestones are paid, this deal will return a significant portion of the entire Life Science allocation in Atlas Fund VIII.”

The Swiss pharma knows a thing or two about oncology – it’s been marketing Gleevec (imatinib), one of the earliest targeted cancer treatments and a multi-billion dollar drug annually, since 2003. And it boasts one of the richest oncology pipelines in the industry, spanning numerous solid- and liquid-tumor indications and many of the hottest biological targets. Its latest R&D foray into chimeric antigen receptor technology (CART) – and the programs it’s acquired from CoStim – has enriched the pharma’s immunotherapy platform and upped its commitment to being a dominant player in oncology.

While Novartis has been cagey about revealing what CoStim actually has to offer, Bill Sellers, its global head of oncology, says the Cambridge biotech brings four to five late-stage programs to the table – programs the industry could start hearing about in early 2015.

“One of our strengths is attacking cancer from its genetic base,” said Sellers. “But we have not done a lot of work in immunotherapy until two years ago,” he admitted.

That’s when Novartis inked its deal with the University of Pennsylvania for its CART research. The deal is based on the work of Carl June, whose lab created T-cells that express the receptor CART 19, a synthetic fusion protein consisting of antibodies that attach to the CD-19 protein, commonly expressed in chronic lymphocytic (CLL) and other B-cell mediated leukemias. The genetically engineered T-cells are injected back into the patients, where they find their way to CD-19-expressing leukemia cells and kill them.

Since pairing up with Penn, Novartis has been “building expertise internally,” said Sellers, as well as opening a large-scale manufacturing facility in Morristown, NJ. “CART has shown dramatic efficacy, but it doesn’t work in everybody,” said Sellers. “So there is room to augment that.”

Sellers said Novartis has been looking for a way to get into checkpoint inhibitors and other immunotherapies for a couple of years, knowing it doesn’t have the expertise in-house. That’s where CoStim comes in – one of its late-stage assets targets the PD-1 pathway. The smokin’ hot PD-1 pathway – if you’ve paid any attention to, or even just glanced at, companies like Merck or Bristol-Myers Squibb in recent months, then you’ve heard about their anti-PD-1 drugs. Combination therapies with these checkpoint inhibitors are going to be huge - $35 billion huge, if some analysts are to be trusted.

Merck already is jumping on the combo bandwagon – it’s inked three deals with Pfizer, Incyte and Amgen just this month to combine its anti-PD-1 checkpoint inhibitor MK-3475 with assets in their respective pipelines.

Novartis is employing a different strategy – it’s hoping to move forward with a CART/PD-1 combo. “We are just starting to explore CART in solid tumors, which are thought to be more immunosuppressant,” said Sellers.

CART programs may be just as revolutionary as PD-1. On Feb. 19, Memorial Sloan-Kettering Cancer Center announced results from a trial of adult B cell acute lymphoblastic leukemia that showed 88% of patients achieved complete remission after receiving the modified T-cells. (The technology is the basis for the founding of high-profile start-up Juno Therapeutics, which currently is locked in a patent dispute over the CAR technology with Novartis.)

French biotech Servier also is getting in on the action, as you can read below in ...

Actavis/Forest – Actavis is nearly unrecognizable from the little Icelandic company it was just three years ago. The company has merged with both Warner Chilcott PLC and Watson Pharmaceuticals during that time to become a generics behemoth with multinational presence. Now, it is continuing down the road of transformation with its $25 billion acquisition of Forest Laboratories. The stock-and-cash deal will turn Actavis into a developer of specialty brand name drugs, boosting specialty products to represent about 50% of combined company revenue. North American specialty pharmaceuticals currently comprise about 30% of Actavis’ standalone revenue. Forest shareholders will get $26.04 in cash and a portion of an Actavis share for each Forest share. The total, per-share price of $89.48 represents a premium of about 25% over Forest's closing price on Feb. 14, the last trading day before the deal was announced, of $71.39. For Forest this is an ideal exit for its shareholders; activist investor Carl Icahn has said in news reports that this acquisition is a good example of when activist measures work. Forest CEO Brent Saunders has been touted as having the magic touch – he flipped Forest in less than six months after taking over and was the architect behind the sale of Bausch + Lomb to Valeant Pharmaceuticals for $8.7 billion before that. - Lisa LaMotta

Servier/Cellectis – Servier wants a piece of the CART action; the French biotech inked a collaboration with cell therapy company Cellectis on Feb. 17 for $10 million upfront and $840 million in potential milestones tied to the development, regulatory and commercial success of six potential products. The deal includes the development of UCART19, Cellectis’ lead product, a CD19-targeting compound that is in early stages, but could be a potential rival to Novartis’ lead CART program – which also targets the CD19 T-cells. “These original cell-based therapies will well complement Servier's innovative clinical oncology pipeline, which currently includes immunotherapeutic monoclonal antibodies, an HDAC inhibitor, kinase inhibitors, antiangiogenic and proapoptotic small molecules,” said Jean Pierre Abastado, head of oncology at Servier. The deal initially will focus on leukemias and lymphomas, with Servier having the option to license the products and take over development after Phase I has been completed. - L.L.

Gilead/CURx - Gilead Sciences has had its hands full, what with plotting the domination of the market for all-oral HCV treatment. So busy, in fact, that the biotech has signed only one R&D deal in almost the last two years – a preclinical partnership with antibody company MacroGenics last January, according to the Strategic Transactions database. On Feb. 19, Gilead announced its latest R&D deal, but this time it has flipped the usual script and out-licensed a late-stage candidate for development. It’s calling upon CURx Pharmaceuticals develop non-core asset inhaled fosfomycin/tobramycin to treat Pseudomonas aeruginosa lung infection in cystic fibrosis (CF) patients. The candidate met the primary endpoint in a Phase II trial in 2010 in this indication, but Gilead subsequently discontinued development. There already are two treatments for this indication approved in the U.S.: Gilead’s own Cayston (inhaled aztreonam) and Novartis' Tobi (inhaled tobramycin). In preclinical studies, inhaled fosfomycin/tobramycin has shown activity against several other pathogenic bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). About half of all CF patients become infected with Pseudomonas aeruginosa and about a quarter are infected with MRSA, according to CURx. The financial details of the transaction were not disclosed. - Stacy Lawrence

Pfizer/ MIT’s Synthetic Biology Center - Pfizer and the Massachusetts Institute of Technology are collaborating on the use of novel synthetic biology tools to enhance drug discovery and development. The three-year deal, announced on Feb. 20, covers multiple therapeutic areas at Pfizer and involves several core investigators at MIT’s Synthetic Biology Center, according to the MIT press release. Scientists have different definitions for synthetic biology, but, essentially, it involves integrating current and new biotech tools, systems biology and bioinformatics to enable engineering of new biological parts, in short, making new genetic codes from scratch. The ultimate goal of using such techniques is to make design and construction of novel biological systems into a professional engineering discipline. Synthetic biology as an area of scientific focus has taken off in the past decade, with support from the National Science Foundation, which funded creation of the first synthetic biotech research center, Synberc, in 2006. Participants in Synberc were the University of California at Berkeley and University of California, San Francisco, Stanford University and MIT. Since then, NSF has awarded millions of dollars more to other academic organizations to set up centers of synthetic biology research, including the J. Craig Ventor Institute and New York University. Start-up activity also is climbing, with one of the most visible practitioners, Intrexon, netting $171 million in an initial public offering last year. The ability to use synthetic biology parts as “programmable entities” presents the opportunity to create new biological processes. The partners plan to use cellular genome engineering to support development of next-generation protein expression systems. Pfizer didn’t provide more details, except for comments by Jose Carlos Gutierrez-Ramos, the company’s group  senior VP and head of Biotherapeutics R&D. He noted in a press release that “We are reaching a key inflection point where advances in synthetic biology have the potential to rapidly accelerate and improve biotherapeutic drug discovery and development, from early-stage candidate discovery through product supply.” - Wendy Diller

Photo credit: Wikimedia Commons

Deals Of The Week: Can Endo Succeed By Copying The Valeant Model?

Santa’s sleigh may be loaded to the brim with gifts come Christmas Eve but it was Deals of the Week that carried a heavy load during the final full business week before the Yuletide holiday. That’s roughly 20 business development transactions, and counting, for the week of Dec. 16-20 as this column went to press.

Below are some of the highlights, but let’s start with the latest stocking-stuffer at Endo Health Solutions, which has always relied on deal-making to fill its pipeline but may be poised to increase its prior business development pace since Rajiv De Silva signed on as CEO from perpetual deal-maker Valeant Pharmaceuticals in February. On Dec. 16, Endo agreed to acquire NuPathe and its recently approved sumatriptan patch, Zecuity, for $105 million upfront plus potential contingent payments pegged to future sales of the migraine product.

This closely followed the Nov. 5 $1.6 billion buyout of Canadian specialty pharma Paladin Labs, a move that would expand Endo’s international footprint to Canada, South Africa and Mexico, while providing tax advantages by allowing the suburban Philadelphia company to re-domicile in Ireland. It’s been a frenetic pace since De Silva took over and moved toward a Valeant-like pursuit of expansion via M&A activity.

While Wall Street did not rave about the NuPathe acquisition, perceiving it as mainly the acquisition of a single asset likely to post smallish sales but also enhance Endo’s pain product portfolio, analysts told Deals of the Week they approve of De Silva’s approach to re-making Endo.

“I actually like the strategy he’s pursuing,” said UBS Investment Research analyst Marc Goodman. “De Silva came in and said ‘we need to restructure this place first because our costs are out of whack with our revenues.’ That’s pretty much the same thing Valeant did a few years ago. The second thing he did was look at the assets and ask what they wanted to be in and what they didn’t. They decided to get rid of [urological services provider] HealthTronics, so that’s on the block. And it wouldn’t surprise me if in 2015 or afterward, once they fix [medical device unit] AMS that they sell AMS.”

Speaking to the Credit Suisse Healthcare Conference Nov. 12, De Silva said plans to divest HealthTronics, termed “not … a strategic fit with us anymore,” are making solid progress. “We have retained an investment bank and we are in the midst of doing management presentations and are optimistic about the level of interest that has been expressed so far,” the exec said. He didn’t address any plans to sell off AMS but said that apart from its women’s health offerings, the unit is showing quarter-to-quarter performance improvement, including year-to-date revenue growth compared with 2012.

The $105 price tag for NuPathe works out to about $2.85 per share. But if Zecuity, approved by FDA in January but not yet launched, meets certain sales thresholds, NuPathe investors stand to get additional payouts. They’ll get $2.15 per share if net sales of Zecuity top $100 million during any four-quarter period up to the ninth anniversary of the first commercial sale of the product. And they can obtain an additional $1 per share if the product reaches $300 million in sales during a four-quarter period during that same time span.

The only FDA-approved prescription patch for migraine, Zecuity is a disposable, single-use, battery-powered transdermal patch that delivers sumatriptan through the patient’s skin. Its approval was based on a Phase III program that tested nearly 10,000 units of the product in 793 patients.

While Goodman thinks Zecuity is unlikely to top the sales marks established under the deal’s contingent payment language, he believes the technology behind the patch product will make it hard to duplicate, frustrating attempts at generic competition and providing Endo with a “very long tail” of revenue (sumatriptan itself, developed and sold by GlaxoSmithKline, has been generic since 2008).

UBS initially will include annual sales of less than $100 million in its modeling for Endo, because of the highly genericized competition in migraine, the resulting pricing pressure and the possibility that doctors with patients who failed to obtain relief on an oral sumatriptan product might not be greatly inclined to try a sumatriptan patch in those very same patients. “I just wonder about the pecking order,” Goodman said.

Meanwhile, Morningstar analyst David Krempa sees the transaction as keeping with the tradition of bolt-on deals De Silva would have learned to value while serving as president and chief operating officer at Valeant.

“It’s a relatively small deal that basically fits in with the strategy they talked about, pursuing bolt-on deals similar to what we saw at Valeant, combined with the occasional mega-deal like we saw with Paladin,” Krempa noted. “Those are the kinds of deals that Valeant has had success with, ones in which it can acquire a product or asset and take out all the revenue without needing to add on any expenses. They don’t need the sales force that [NuPathe] has and so they add the new product onto their existing sales force’s portfolio and get all of the sales without taking on much of the expense that typically would go along with it.”

But Krempa shares Goodman’s concerns about the viability of the migraine space and pain therapy in general. Endo needs to seek out business areas offering “less pricing pressure and better organic growth prospects,” he said, citing dermatology, ophthalmology, branded generics and over-the-counter products as possible targets. The Paladin acquisition gives Endo entrée into some of those spaces, he added.

Meanwhile, plenty of other companies, including Valeant of course, were negotiating their own deals during the final shopping days before Christmas. Read on as we present a red-and-green tinged edition of ....

Valeant/Solta Medical: Serial buyer Valeant moved to expand its aesthetics business this week with the addition of Solta Medical, the makers of medical device systems for aesthetic applications. Valeant announced Dec. 16 it will acquire Solta for $250 million in the latest in a string of acquisitions by the Canadian firm in recent years, including several that have expanded the company’s portfolio in medical devices and dermatology. Solta will complement Valeant’s portfolio on both fronts by augmenting its offerings to dermatologists and plastic surgeons. Its 2012 revenues were $145 million, coming from products like Thermage CPT radiofrequency skin-tightening system, Fraxel skin repair system and the Clear + Brilliant laser skin-resurfacing system. Solta has made a number of major acquisitions in recent years, including Sound Surgical Technologies in February 2013, and the LipoSonix business from Medicis Pharmaceutical in 2011. Valeant ultimately acquired Medicis in 2012 for $2.6 billion, building significantly on its dermatology and aesthetic offerings at the time. - Jessica Merrill

Merck/GlaxoSmithKline: Merck announced Dec. 18 that it is teaming up its highly anticipated early-stage cancer compound, MRK-3475, with GlaxoSmithKline’s kidney cancer drug Votrient (pazopanib), which was approved in October 2009. The two pharmas will test the protein kinase inhibitor with the anti-PD-1 immunotherapy in a Phase I/II clinical trial that will evaluate the safety and efficacy of the combo in treatment-naive patients with advanced renal cell carcinoma, they said in a statement. Financial details of the collaboration were not disclosed. But the dollar amount attached to the deal is almost irrelevant; for Merck, the anti-PD-1 immunotherapy is one of its few programs to garner much enthusiasm of late – both inside and outside the company – as the New Jersey pharma struggles to move drugs through its pipeline successfully. Merck is relying heavily on the cancer immunotherapy – which has shown a lot of promise but is still very early – to deliver its first blockbuster in several years; and the company intends to partner, partner and partner some more. “We look forward to initiating further collaborations to investigate MK-3475 in combination with other anti-cancer agents across a range of tumor types,” said Iain Dukes, SVP of Licensing and External Scientific Affairs at Merck Research Laboratories. So expect to see plenty more of these little tie-ups in 2014 – but don’t hold your breath for any financial terms to be revealed. - Lisa LaMotta

Pfizer/Siemens: Pfizer and Siemens Healthcare Diagnostics have entered into a master collaboration agreement to design, develop and commercialize diagnostic tests for therapeutic products across Pfizer’s pipeline. Siemens is providing in vitro diagnostic tests that Pfizer can use in its clinical trials and potentially as companion diagnostics for Pfizer drugs. Terms were not disclosed, nor were development priorities, but Trevor Hawkins, SVP, strategy & innovations, diagnostics division of Siemens Healthcare, said the deal is open-ended and could be applied to Pfizer’s entire portfolio, from early-stage development to commercialized drugs. The partners already have two active programs, one of which requires Siemens to identify a marker for a compound and the other of which requires Siemens to develop a test for a biomarker that Pfizer has identified already. The partners have set up a joint governance committee, which is meeting weekly. Both companies have partnerships with others around companion diagnostics, but those are mostly one-offs; Siemens, for example, in June, entered into a global agreement with Janssen Pharmaceutica to create a companion diagnostic for an early-stage heart failure therapeutic. Pfizer has at least three companion diagnostic deals, including one with Qiagen, which it signed in 2011 to develop a molecular test for dacomitinib, then in Phase III for non-small cell lung cancer. And in 2012, it signed a deal with Roche Diagnostics Corp. to develop an immunohistochemistry companion test for Xalkori (crizotinib), also for NSCLC. Pfizer isn’t the first pharma to enter into a master agreement around companion diagnostics; Eli Lilly has one with Qiagen. As the deal’s reach shows, pharma’s inherent skepticism about the value of companion diagnostics is gone, although many uncertainties remain, both technical and commercial, about the field. - Wendy Diller

Bristol-Myers Squibb/AstraZeneca: AstraZeneca announced Dec. 19 that it will acquire the entirety of Bristol-Myers Squibb’s interests in their diabetes alliance, including drug assets, staff and infrastructure, paying $2.7 billion on deal completion, $1.4 billion in regulatory and commercial milestones, and royalties up to 2025. The deal ends a seven-year diabetes alliance between the two parties that culminated in the 2012 co-purchase of Amylin Pharmaceuticals for $7 billion. With the dissolution of the alliance, AstraZeneca gets all patents and global rights to DPP-4 inhibitor Onglyza (saxagliptin) in all combinations and formulations, SGLT4 inhibitor dapagliflozin (Forxiga in Europe), metreleptin (recombinant leptin) for treatment of lipodystrophy, and Amylin’s GLP-1 assets Bydureon (exenatide, weekly injection) and Byetta (exenatide, twice-daily injection). The transaction illustrates the divergence in strategy between the two companies, as AstraZeneca believes its geographic reach and its scale in diabetes assets, infrastructure and capabilities position it to succeed. Bristol, on the other hand, will use the breakup to accelerate its transformation into a sharply focused specialty care company and to re-allocate its resources toward its PD1 program and its immuno-oncology franchise, said CEO Lamberto Andreotti on a same-day business update call. AstraZeneca’s focus in 2014 will be on its upcoming launch of dapagliflozin in the U.S., on building the Bydureon brand, and on life-cycle management of Onglyza. - Mike Goodman

Bayer/Algeta: Everyone likes to see a billion-dollar acquisition or two quickening the markets a bit going into the annual industry festival that is the JPMorgan Healthcare Conference. Obligingly, Algeta and its partner Bayer are providing one; the biotech said on Dec. 19 that it has agreed to be acquired by the pharma for $2.9 billion. Algeta originally disclosed an offer from Bayer on Nov. 26. In the intervening weeks, it got the pharma to sweeten the pot a bit to NOK 362 per share from NOK 336. That increase raised the offer from the original price of about $2.65 billion. The price is a 37% premium to the closing price on Nov. 25, the day before it disclosed the original Bayer offer. The pair partnered on prostate cancer therapy Xofigo (radium-223 dichloride), which was approved and launched in the U.S. in May. It subsequently was approved in the EU in November. In a market crowded with new and expensive entrants, the therapeutic offers a new mechanism of action and is aimed specifically at the treatment of castration-resistant prostate cancer in patients with symptomatic bone metastases, a critically ill subset. In Xofigo’s first full quarter of sales, it had $17 million in revenue during the third quarter. Administration sites have to be licensed to sell the product because of its radioactivity; as of Oct. 18, Algeta said there were 626 facilities licensed to treat patients with Xofigo in the U.S. That number had progressed faster than expected. Algeta received €100 million ($137 million) in Xofigo milestones during the first three quarters of 2013. Half of this amount came due on the FDA submission for Xofigo, with the other half tied to the first sale of the product. Under the terms of the 2009 partnership, Bayer paid €42.5 million up front. Then in 2012, Algeta exercised its option to co-promote Xofigo in the U.S., which entitled it to a 50/50 split with Bayer of profits and commercialization costs. Bayer owns sole rights ex-U.S., paying Algeta a tiered double-digit royalty on product sales. Analysts estimate Xofigo will be a blockbuster. Bayer clearly was unwilling to share any upside with its biotech partner and, with enough cash, it didn’t have to. - Stacy Lawrence

Jazz/Gentium: Recently re-domiciled in Ireland, as Endo now is planning to do, Jazz Pharmaceuticals signed an agreement Dec. 19 to purchase Italy’s Gentium for $57 a share, a bid that would total out to about $1 billion. Key to the deal is Defitelio (defibrotide), approved by the EU this past October to treat veno-occlusive disease in adult and pediatric patients undergoing hematopoietic stem-cell transplantation. The sale is structured as a tender offer – both companies’ boards of directors have approved the transaction. Based on a single-stranded oligodioxyribonucleotide extracted from DNA in pig intestines, defibrotide had been filed for approval in the U.S. but Gentium withdrew its NDA in August 2011 after learning that FDA would refuse to file the application over questions of data quality and the conduct and monitoring of clinical trials. “Incorporating Gentium into Jazz Pharmaceuticals is a strong strategic fit, as Defitelio would diversify our development and commercial portfolio and complement our clinical experience in hematology/oncology and our expertise in reaching targeted physicians who treat serious medical conditions,” Jazz Chairman and CEO Bruce Cozadd said in a release. “Because Defitelio is already approved in the EU, the acquisition would add a new orphan product that has potential for short- and long-term revenue generation, high growth and expansion of our multinational commercial platform.” In a Dec. 20 note, Brean Capital analyst Gene Mack said the acquisition should be immediately accretive for Jazz, with defibrotide bringing in a projected $71 million in sales in 2014, crossing the $200 million annual sales threshold in 2018 and nearing $500 million in 2023. - Joseph Haas

Photo credit: Wikimedia Commons

Deals Of The Week Road-Tests Biopharma Options

More options are always better, right? Obviously, that’s a “yes” when it comes to building our dream Tesla Model S. But big biopharma is getting nowhere fast with deals that build in options to license drug candidates.

The number of option-to-license deals executed peaked at more than 30 in 2009, when biotech financing had dried up in the wake of the 2008 U.S. economic meltdown, and has declined every year since, according to data from Elsevier’s Strategic Transactions database. That’s only counting deals with an option-to-license as the main component. What has big biopharma accomplished with its slew of option deals in the last decade and a half? Not much, so far. Even though option-based partnerships can be cheap, they also rarely offer results.

Option-to-license deals, or option-alliances, are often a way of making a half-hearted bet on biotechs’ riskiest, early-stage candidates and technologies. For small biotechs, the extent to which they rely upon these deals can be a sign of their relative fiscal desperation. Option-alliances lock up biotech assets very early, with a high level of continued uncertainty (and development costs) for the biotech and a capped future potential upside.

For pharma, these deals are a bargain – pay a little upfront and part of early-stage R&D costs and then pick up rights to a candidate, or not, typically after clinical proof-of-concept data emerges. Biotechs are able to retain control of their assets for a while longer, potentially allowing them to move development forward faster.

We analyzed all R&D-based option-alliances with a disclosed potential value of $100 million or more. That’s almost 120 deals, some dating back as early as the late 90s. Many of the more recent ones remain active, of course; these deals typically extend over at least three or four years. Most of the remaining deals either expired or were terminated. We could only find seven of these $100M+ deals that actually resulted in option exercises, and some of those later blew up in the clinic.

GlaxoSmithKline is a nice case in point. It has been one of the most active R&D options dealmakers, with at least 18 of these deals, most of which were initiated from 2006 through 2009. A few of GSK’s option-alliances have resulted in abject disappointments – most prominently with Nabi Biopharmaceuticals for the smoking cessation product NicVax, which failed in Phase III. Last year, Nabi merged with Biota.

Others got shunted to the side due to changes in GSK priorities (a $1.5B bio-bucks deal w Targacept was terminated in 2011 as the pharma left neuroscience) or as biotechs became defunct (after a $1.2B bio-bucks deal in 2007, Epix Pharmaceuticals then slid out of existence in 2009). Several of GSK’s option-to-license deals were done under its Center of Excellence for External Drug Discovery (CEEDD), which silently sank under waves of corporate restructuring around 2010.

(GSK is undeterred from experimenting with its approach to external, early innovation. This week it picked the first set of winners from a discovery-stage academic competition. See below for further details.)

The pharma does have several ongoing option-alliances, including at least four with companies that recently IPO’d. One is an option to back-up compounds for Duchenne muscular dystrophy (DMD) from Prosensa; GSK is partnered with the biotech on lead compound drisapersen, which failed in Phase III testing to treat DMD in September. Optimists are hoping its exon skipping technology has progressed since the first iteration and are looking for an effective DMD treatment among Prosensa’s back-up compounds, some of which GSK can option. Prosensa is the worst-performing 2013 IPO, down 72%.

GSK also has an anti-inflammatory and HCV deal with microRNAi company Regulus Therapeutics, initiated in 2008 and expanded in 2010; an anti-cancer stem cell antibody deal with OncoMed Pharmaceuticals that was for four candidate originally from 2007, but was cut down to two candidates in 2011; and a discovery deal with Five Prime Therapeutics for skeletal muscle diseases and muscle wasting targets and candidates that was originated in 2010 and expanded in 2011.

GSK has exercised its options at least twice, but both times candidates were returned. In 2010, it optioned Anacor Pharmaceuticals’ Gram-negative infection treatment and then subsequently returned it a few years later. That same year, it optioned Traficet-EN (now vercirnon) from ChemoCentryx. This September, GSK returned rights to the candidate for all indications. The pharma retained CCX354 for rheumatoid arthritis, which it also optioned. It may still option a third candidate under the 2006 deal.

Despite keeping a lot of options open, no one’s going anywhere fast. But we’re keeping our eyes on the road, moving ahead to all the latest deals (including loads of academic and discovery partnerships) in this edition of…

Salix/Santarus: The union of Salix Pharmaceuticals with Santarus creates a billion-dollar gastrointestinal specialty pharma that holds U.S. rights to fast-growing diabetes drug Glumetza (metformin extended release). Salix agreed Nov. 7 to pay $32 per share in cash for San Diego-based Santarus, valuing the company at $2.6 billion; its combined annual revenues would be about $1.3 billion based on their most recent quarterly performances. Salix has relied heavily on Xifaxan (rifaximin) for traveler’s diarrhea caused by Escherichia coli infections and hepatic encephelopathy; it produced $514.5 million in 2012 revenues, about 70% of the company’s total product sales. But it says the conjoined entity will be more diversified, with no drug accounting for more than half its revenues. Glumetza, a drug Santarus shares with Depomed, has delivered $131.4 million in revenue to Santarus in the first nine months of 2013. The buyout price represents a 37.8% premium over Santarus’s Nov. 7 closing price of $23.22. Raleigh, N.C.-based Salix had about $817 million in cash at the end of the third quarter, but intends to finance the deal with $1.95 billion in debt and a $150 million revolving credit facility from Jefferies Finance, as well as nearly all of its cash on hand. - Paul Bonanos

Roche/Polyphor: Switzerland-based Roche signed an exclusive global licensing deal to develop and commercialize Swiss biotech Polyphor's investigational antibiotic POL7080 against certain hospital-acquired superbug infections known as Pseudomonas aeruginosa, signaling Roche’s first foray back into antimicrobial development for three decades. Roche will pay up to CHF 500 million ($548 million) for the experimental antibiotic, which has only just entered Phase II testing, the companies said Nov. 4. The world’s largest maker of cancer drugs, which is trying to diversify into other disease areas, will make an upfront payment of CHF 35 million and milestone payments of up to CHF 465 million to the Swiss biotech. Roche said POL7080 belongs to a new class of antibiotics that kills P. aeruginosa, a bacterium found in hospitals and resistant to many antibiotic treatments, by a novel mode of action. It’s the first of a number of novel antibiotic candidate drugs being assembled by research and early development group pRED, which is now under the new leadership of John Reed and focusing on three main areas of unmet medical need: Hepatitis B, Influenza and Antibiotics. The pact with Polyphor is the first demonstration that Roche is back in antibiotics. In contrast, other Big Pharma companies have cut back, including former field leader Pfizer, which closed its antibiotic R&D center in Connecticut in 2011, as well as Bristol-Myers Squibb and Eli Lilly. AstraZeneca, GSK, and Merck remain active in the space. Privately-owned Polyphor discovers and develops macrocycle drugs intended as a complement to classical small molecules and large biopharmaceuticals. Although Polyphor, whose main shareholders are private individuals, doesn’t have any products on the market, its pact with Roche is its sixth deal since 2008. Its three drug candidates developed using its protein epitope mimetics (PEM) drug discovery technology are POL7080; POL6326, a CXCR4 antagonist currently in Phase II and ear-marked for several indications; and POL6014, an elastase inhibitor that’s in pre-clinical studies. PEMs are “medium-sized…, fully synthetic cyclic peptide-like molecules that mimic the two most relevant secondary structure patterns involved in Protein-Protein Interactions (PPIs),” according to the company’s Web site. It adds that they are “among the most potent and selective molecules known to modulate PPIs, GPCRs with large ligand-binding domains, and enzymes.” - Sten Stovall

Endo/Paladin: Endo Health Solutions’ new CEO Rajiv De Silva is making good on following in the footsteps of his former employer Valeant by conducting rapid-fire M&A that adds to the specialty pharma’s business. The Pennsylvania company announced Nov. 5 that it will acquire Montreal-based Paladin. The Canadian spec pharma has over 60 marketed products and will give Endo a jumping off point for building its business in Canada, Mexico, and South Africa. The $1.6 billion deal will be an almost all-stock transaction, with Endo paying CAD$77 ($73.70) per share for all outstanding shares of Paladin, a premium of 20% to Paladin’s share price of $63.91 on Nov. 4, the day before the deal was made public. Paladin shareholders will receive 1.6331 shares of the new company in stock and CAD$1.16 in cash, as well as one share of Knight Therapeutics, a new company. Knight will be spun-out of Paladin and be formed around Impavido (miltefosine), a treatment for the parasitic disease leishmaniasis. Impavido received a positive opinion from an FDA advisory committee in mid-October and has a PDUFA date of Dec. 18. Following the deal, the new company will be re-domiciled in Ireland in an effort to take advantage of a more favorable tax rate. Currently, Endo has a tax rate in the high-20% to 30% range. The new company will have a tax rate closer to 20%. - Lisa LaMotta

Pfizer/Juvenile Diabetes Research Foundation: The Juvenile Diabetes Research Foundation (JDRF) said Nov. 4 it would partner with Pfizer’s Centers for Therapeutic Innovation (CTI) to co-fund up to four jointly selected projects in the fields of immune tolerance, diabetic nephropathy and beta cell health. This is JDRF’s first corporate partnership since it announced a collaboration last year with Novo Nordisk, which will run out of the pharma’s Type 1 Diabetes R&D Center in Seattle. JDRF is the largest charitable supporter of type 1 diabetes R&D; it is currently sponsoring about $530 million worth of research, with $110 million in support last year. Pfizer’s CTI was established in 2010 to help further translational science; it hopes to get its first compound into the clinic this year and to bring two candidates into the clinic every year starting in 2014. CTI works with a network of 24 academic and medical institutions. Financial details of the deal were undisclosed. - Stacy Lawrence

Eisai/Arena: Eisai doubled down on Arena’s weight loss drug Belviq (lorcaserin) by expanding its commercialization rights to most of the world from much of North and South America. That’s despite slow sales in the drug’s first full quarter on the market – only $5.4 million. Insurers have been slow to start to reimburse for Belviq and Vivus’ Qsymia (phentermine/topiramate ER). Under the expanded deal, Arena will receive a $60 million upfront payment and up to $176.5 million in regulatory and development milestones. That’s an increase of $123 million from the milestone amount remaining under the prior agreement. Arena will continue to sell Belviq to Eisai for the U.S. and other North and South American territories for a purchase price of 31.5% and 30.75% of Eisai’s net sales in those regions, respectively. For Europe, China and Japan, Arena will receive 27.5% of Eisai’s net sales, while for all other territories the rate is 30.75%. These rates can increase on a tiered basis. Arena also stands to receive a one-time purchase price adjustment of $1.56 billion based on sales in the territories covered by an agreement; that’s an increase of $185 million from the prior deal. Eisai has exclusive commercialization rights in all countries worldwide, excluding South Korea, Taiwan, Australia, Israel and New Zealand. The partners expect also to investigate Belviq as a smoking cessation treatment. - S.L.

GSK/Various Academic Researchers: With a view to front-loading its pipeline, GSK has selected eight winners in its first Discovery Fast Track competition, designed to translate academic research into starting points for new potential medicines. The contest attracted 142 entries across 17 therapeutic areas from 70 universities, academic research institutions, clinics and hospitals in the US and Canada. The program gives certain researchers the opportunity to partner with GSK and jump-start their research into a development program. The winning projects deal with important unmet medical needs, including antibiotics resistance, diseases of the developing world, and certain cancers. The selected scientists will collaborate with GSK’s Discovery Partnerships with Academia (DPAc) team, the sponsor of the competition, to quickly screen and identify novel compounds to test their hypotheses. If advanced chemical testing is successful, the winning investigators could be offered a DPAc partnership to further refine molecules and assess their potential as novel new medicines. GSK devised the contest as a potential engine for accelerating input into its translational research operation, hoping to entice the brightest minds across North America with the promise of lending its potential to their discovery-stage programs. GSK and the academic partner share the risk and reward of innovation, where the U.K. drug maker funds activities in the partner laboratories, and provides in-kind resources to progress a program from an idea to a candidate medicine. Work on the winning Discovery Fast Track projects will begin immediately and the first screens are expected to be completed in mid-2014. - S.S.

Johnson & Johnson/ Evotec: Johnson & Johnson and Evotec are looking broadly, beyond the current focus on beta amyloid and Tau protein-based mechanisms, to identify new targets for Alzheimer’s disease. Under a collaboration announced on Nov. 8, the companies will seek to identify drug targets that could lead to entirely new approaches to treatment using Evotec’s TargetAD database. At best, the drugs in clinical trials today, if successful, will have modest efficacy for treating symptoms of mild-to-moderate patients, and “delay Alzheimer’s symptoms by a few weeks,” said Evotec’s Werner Lanthaler in an interview. The Janssen-Evotec partnership is much more ambitious than current efforts, both in its approach to how it achieves its goals and the goals themselves, he added. The database is derived from analysis of dysregulated genes in high-quality, well-characterized human brain tissues representing all stages of disease progression, Evotec said. It was built off of tissue contributions from The Netherlands Brain Bank and is “systematized, unbiased, and comprehensive,” said Lanthaler, explaining that by being unbiased, it is agnostic to whether the approach is ultimately an antibody, small molecule, or other kind of compound.  No other companies currently have access to the database, and Lanthaler was cagey in stating whether they would or its use would be exclusive to J&J. But he did say that J&J was the first company Evotec approached when it decided to look for licensees, and it jumped on the opportunity – perhaps in part because the companies have had a previous successful relationship in other therapeutic areas. Janssen will reimburse up to $10 million of full-time employee-based research costs and make preclinical, clinical, regulatory and commercial payments, capped at between $125 million and $145 million per program. Evotec will also be entitled to royalties from sales from any products that emerge from the collaboration. The deal runs for three years, and, on J&J’s side, is being conducted through its California Innovation Center. - Wendy Diller

(Thanks to Teslamotors.com for use of this image of our new Tesla S -- are you paying attention Santa??)

Deals of the Week Sells During Slow Season

Capitalism knows no holiday, but people need a break sometimes. The dog days of summer often slow the pace of pharma deals, and 2013 is no exception. If you traded boardroom time for surfboard time last week, or just hung out at home with a glass of lemonade and the sprinkler, Deals of the Week is here to help you catch up with what you’ve missed.

Speaking of front lawn scenes, word is that TPG Capital put a “For Sale” sign in Aptalis Pharma’s yard earlier this year, according to published accounts. Reuters reports that the private equity firm wants $3 billion but hasn’t yet found a suitor for Aptalis, a global specialty pharma whose diversified holdings include several products for gastrointestinal and digestive disorders. The firm engaged JP Morgan Chase and Evercore Partners to pursue the sale.

TPG acquired predecessor company Axcan Pharma US for $1.2 billion in late 2007, taking it private. Then in December 2010, the firm funded Axcan’s buyout of public Dutch company and former partner Eurand NV for $590 million. The merged entity was renamed Aptalis two years ago.

Aptalis’s top sellers include Carafate (sucralfate) for duodenal ulcer disease and Canasa (mesalamine) for ulcerative proctitis, and it owns three of the five approved drugs for pancreatic enzyme insufficiency: Zenpep, Ultrase, and Viokase (pancrelipase, in three formulations). The company also expanded its cystic fibrosis holdings with the acquisition of another former partner, Mpex Pharmaceuticals in 2011 for $62.5 million in up-front and subsequent non-contingent payments, giving it Phase III candidate Aeroquin (aerosol levofloxacin). A late-stage trial revealed some encouraging data about the drug in January, but Aptalis hasn’t made its next step clear.

Parties interested in buying Aptalis have included Elan Corp. prior to its own acquisition by Perrigo Co.; Forest Laboratories, which is currently dealing with a CEO transition; Sun Pharmaceutical Industries; and Salix Pharmaceuticals, but all have reportedly walked away. Buyers would get a company that posted a loss of $66.4 million on $470 million in revenues during fiscal 2011, the last time it reported full-year earnings.

If no buyer materializes, TPG could pursue an initial public offering for Aptalis. The private equity firm was a top stakeholder in contract research organization Quintiles Transnational’s May offering, which raised $1.1 billion at a valuation of $6 billion. TPG holds stakes in numerous biotech and pharma companies, and bought Par Pharmaceutical for $1.9 billion last year.

It’s also possible that Aptalis could be broken apart, either before or after a sale. It’s a diversified company, but one addressing several disparate niches. The value of its cystic fibrosis program is unclear, and might not fit squarely with a buyer’s goals as well, so TPG might not find anyone willing to pay full value for all of Aptalis’s parts. - Paul Bonanos

September's coming soon, and I'm pining for the moon. But for now, summer's here and the time is right for...

Quintiles/Novella Clinical: Quintiles put some of its IPO war chest to work this week, when it revealed an Aug. 14 deal to acquire Morrisville, N.C.-based CRO Novella Clinical, a specialist in oncology, medical devices and biopharmaceuticals. Fifteen-year-old Novella has about 800 employees in North America and Europe, including locations in Ohio, Colorado, Ontario and the UK. Financial terms of the deal weren’t released, although Quintiles said the deal won’t have a material impact on its 2013 earnings. It expects to operate Novella as a standalone division named “Novella Clinical, a Quintiles company.” Analyst Eric Coldwell of Baird Equity Research estimated that Novella will produce $150 million in revenue this year. Before the IPO, Quintiles said it would use the proceeds in part to pursue acquisitions that would broaden its service lines or deepen its expertise. Since 2011, it purchased Outcome Sciences, VCG&A, Advion Bioservices, and Expression Analysis for a total of about $280 million. The CRO had $585.7 million in cash and cash equivalents on its balance sheet June 30, along with more than $867 million in accounts receivable and unbilled services. - P.B.

Pfizer/Sanford-Burnham: The NYC-based Big Pharma has inked a collaboration with Sanford-Burnham Medical Research Institute in Orlando, where scientists will work to screen and discover new targets that could lead to treatments for diabetes and obesity. The pharma-institute tie-up, announced Aug. 13, will focus on identifying targets and compounds that interfere with the accumulation of fat in muscle cells in hopes of finding new treatments for diabetes and obesity. Research has shown that abnormalities in lipid metabolism in muscle are associated with insulin resistance. As fat accumulates in muscle tissue, it becomes insulin-resistant and glucose is not cleared effectively from the blood. Neither party would disclose the financial arrangements surrounding the deal, but Pfizer will be funding all the research efforts. Work will be conducted in both Pfizer's and Sanford-Burnham’s labs. Decision-making within the collaboration largely will be decentralized, and research decisions will be made separately in each lab with the two organizations meeting regularly for updates and to decide on next steps. All intellectual property will remain with the organization making the discovery, with any jointly-invented IP being shared. The collaboration is set to last three years, but may be extended.- Lisa LaMotta

Boehringer Ingelheim/Brigham & Women’s Hospital: Boehringer Ingelheim Pharmaceuticals Inc. and Brigham & Women’s Hospital are partnering on a long-term comparative effectiveness study to assess the use of oral anticoagulants for reduction of stroke risk in U.S. patients with non-valvular atrial fibrillation. B&W researchers will lead the study, which Boehringer is sponsoring. The objective is to better understand the real-world safety and effectiveness of warfarin and newer oral anticoagulants such as Pradaxa (dabigatran), introduced by Boehringer in the U.S. in late 2010. The analysis will be based on claims data from UnitedHealth Group, which covers more than 80 million individuals. The announcement reflects increasing industry interest in sponsoring long-term real-world evidence studies. It also reflects intense interest in the clinical role and safety of new oral anticoagulants, which, in addition to Pradaxa, include Bayer/Janssen’s Xarelto (rivaroxaban) and Pfizer/Bristol-Myers Squibb’s Eliquis (apixaban). The partners did not specify a timeframe for the study, but Sebastian Schneeweiss, vice chief, division of pharmacoepidemiology and pharmacoeconomics at B&W noted in a press release it would take place over several years.  Some 5 million people with non-valvular atrial fibrillation in the U.S. are at increased risk of stroke, Boehringer says. All of the new agents are being scrutinized by the medical community for safety, notably for increased risk of bleeding. This has been a particular concern regarding Pradaxa due to some early reports of severe bleeding by doctors, but a late 2012 FDA review of Mini-Sentinel real world data found Pradaxa did not cause increased bleeding compared to warfarin. So far, there are no head-to-head comparative prospective clinical trials of the new agents, but B&W’s work should provide some RWE insights. - Wendy Diller

Biomotiv/Torrey Pines: Cleveland-based drug developer/accelerator BioMotiv’s asset-based financing model found another backer Aug. 12, when it signed a $40 million deal with Torrey Pines Investment. Each company will contribute $20 million to a collaborative program that will fund early-stage companies over the next seven years. BioMotiv intends to in-license preclinical assets from academic and private-sector researchers, then advance them to Phase Ib or IIa for out-licensing. Assets will be housed in separate corporate structures designed to be sold individually, with returns passed back to investors. CEO Baiju Shah told START-UP in June that BioMotiv will accept smaller up-front payments than VCs typically do, allowing for earlier exits than many start-ups can expect. Further terms, including what San Diego-based Torrey Pines will receive or contribute beyond cash, weren’t released. BioMotiv raised $25 million earlier this month from investors including first-time backer Nationwide Mutual Insurance and founding investors University Hospitals of Cleveland and the Harrington family, as well as individuals. That built upon $21 million in initial funding from the founding backers. The start-up aims to raise a total of $100 million for its projects, not counting the money in the Torrey Pines deal. BioMotiv currently has seven preclinical candidates, but hopes to have 20 in development at once. - Joseph Haas

Thanks to Flickr user the-tim for the overgrown photo, reproduced via Creative Commons license.

Deals Of The Week: Kicking The Tires

Apparently, virtually by the time it became “news,” it transformed into “non-news.” News reports of Roche’s interest in acquiring ultra-rare disease focused Alexion Pharmaceuticals surfaced suddenly July 12 and just as rapidly evaporated the following week, as Wall Street analysts noted the prohibitive premium price and lack of cost-saving synergies.

That doesn’t mean that “tire-kicking” season is over in biopharma, if indeed it ever ends. During a steamy summer season highlighted by the running of the bulls in Spain, the jockeying for position of the bikers in France, and world-class tennis being followed quickly by world-class golf in the U.K., renewed speculation about the fate of cancer specialist Onyx Pharmaceuticals after it it put itself up for sale in in late June surfaced just as the Roche/Alexion story sputtered to an end.

Recall that Amgen got the ball rolling on Onyx speculation with a $120-per-share bid confirmed by Onyx on June 30. Onyx declined the offer but also put itself on the auction block, hoping to attract an even greater price tag. Now, perhaps four or more companies are interested in the oncology firm, possibly including its long-time partner Bayer and competitors in the multiple myeloma space such as Celgene and Takeda.

Media reports also cited Bristol-Myers Squibb and Gilead Sciences as possible suitors, while Pfizer was mentioned as a player, then backed off due reportedly to the price premium. Also not in the running, according to speculation, are Sanofi, GlaxoSmithKline, Novartisand Biogen Idec.

Roche’s reputed interest in Alexion, while understandable because of the Connecticut biotech’s all-out success with Soliris (eculizumab), the highest-priced drug in the world, also is puzzling because of questions about how the Swiss pharma would derive value from such a pricey acquisition. The company has only one commercial product – for a pair of ultra-orphan diseases – albeit a rapidly growing, billion-dollar product, bolstered by an up-and-coming robust pipeline. Reports – unconfirmed – had Roche looking over financing vehicles in order to make a purchase in the range of $25 billion for Alexion.

Deutsche Bank analyst Robyn Karnauskas wrote July 15 that while many European large pharma companies might be able to afford Alexion, they would balk at the price. Roche likely would be better off pursuing “a product/company with more strategic fit or transformational potential,” she said. Projecting Alexion total revenues of $1.7 billion in 2014 and $2.6 billion in 2015, the reported Roche bid would translate into multiples of 15x next year and 10x in 2015, she estimated.

An analyst at UBS Investment Research, Matthew Roden, who covers Alexion, wrote July 15 that the company is an attractive and likely take-out target but would offer few points of potential synergy with Roche. It would be more of a “bolt-on” transaction than a “fold-in” acquisition, he suggested.

“Since the Alexion business model requires a high degree of patient touch and very specialized sales force to reach idiosyncratic PNH (paroxysmal nocturnal hemoglobinuria) and aHUS (atypical hemolytic uremic syndrome) markets, we see limited capability for SG&A cost savings through a deal beyond regulatory structure,” Roden said.

His U.K.-based colleague Andrew Whitney, who covers Roche, noted July 15 that an offer of about $130-per-share for Alexion would represent 35 times the UBS projections for 2014 earnings by the biotech.
So, while Roche/Alexion apparently is not happening and Onyx could end up in the hands of a big pharma, a big biotech or some business model in between, DOTW can offer these transactions that reached the point of signatures along the dotted line …

Spectrum/Talon: Spectrum Pharmaceuticals acquired Talon Therapeutics in the hopes of expanding the indications for Marqibo. The liposomal form of vincristine received accelerated approval from FDA in August 2012 to treat third-line patients with Philadelphia chromosome-negative acute lymphoblastic leukemia (ALL). Spectrum hopes Phase III data to treat newly diagnosed, elderly non-Hodgkin’s lymphoma patients will pan out and lead to an approval in NHL, thereby significantly expanding the potential market for Marqibo. A Phase III trial of Marquibo in newly diagnosed ALL patients also is ongoing. This trial is intended to serve as a confirmatory trial for the accelerated approval. Disclosed on July 17, the deal was slated to close a day later. Spectrum paid $11.3 million in cash, in addition to 3 million of its shares. Spectrum shares closed at $8.77 on July 17. At that price, Spectrum paid $37.6 million in cash and stock, plus contingent value rights (CVRs) worth up to $195 million. CVRs are tied to Marqibo sales milestones and an approval for Menadione, a Phase II topical lotion for the treatment of the skin toxicity associated with epidermal growth factor receptor anti-cancer (anti-EGFR) agents. Spectrum plans to launch Marqibo before early December, with a price point similar to other improved formulations of oncology treatments, like Abraxane, a long-acting, nanotech formulation of paclitaxel, or Doxil, a liposome-encapsulated doxorubicin. Private equity firm Warburg Pincus and hedge fund Deerfield Management recapitalized Talon in 2010, buying at least $69 million in equity in the last three years. - Stacy Lawrence

Pfizer/Sequella: Anti-infective drug specialist Sequella has licensed a mid-stage tuberculosis antibiotic from Pfizer. The privately held Rockville, MD, company acquired worldwide rights to sutezolid, previously known as PNU-100480, for an undisclosed amount. Pfizer previously investigated the oxazolidinone antibiotic in both drug-sensitive and multi-drug resistant tuberculosis, conducting Phase II and pivotal trials in Africa and Russia respectively. Sutezolid complements the Phase II drug SQ109, Sequella’s lead program in Mycobacterium tuberculosis; the company plans to investigate pairing the two in a combination therapy. The 16-year-old company has another TB drug, SQ609, as well as programs in Helicobacter pylori, Clostridium difficile and M. avium paratuberculosis. Sequella traditionally has supported itself by raising capital from hedge funds and other private investors as well as government grants. It also completed a partnership with Maxwell Biotech Venture Fund in 2011, giving the Russian investor territorial rights to SQ109. Pfizer said it is shifting its anti-infective focus from treatment to prevention, and has been seeking to partner drug candidates such as sutezolid. The drug also could be studied in Gram-positive infections such as methicillin-resistant Staphylococcus aureus and vancomycin-resistant Enterococcus, as well as other forms of tuberculosis. – Paul Bonanos

Medtronic/Amgen: Medtronic reps who sell the firm’s interventional spine devices will need to expand their skill set to include drug sales beginning this month. Under a three-year strategic partnership with Amgen, announced July 15, Medtronic will start promoting the biotech's Prolia (denuosumab) to U.S. spine specialists by July 31. Prolia is an FDA-approved biologic for the treatment of postmenopausal women with osteoporosis at high risk for fracture. For Amgen, the deal offers access to Medtronic’s expansive customer base of spine physicians, “who are at the forefront of evaluating and treating women with fractures caused by [postmenopausal osteoporosis],” said Marion McCourt, a VP with Amgen, in a July 15 press release. “This partnership allows us to intervene shortly after an osteoporosis-related fracture has occurred, and encourage therapeutic interventional to help reduce the risk of a subsequent fracture.” The upshot for Medtronic is not as clear cut. Financial terms of the agreement were not disclosed. “This new agreement increases awareness and access to our current base of orthopedic and spine physicians already treating patients with osteoporotic vertebral compression fractures,” said Doug King, president of Medtronic Spine. “Identifying successful treatment options and access to care at the site of service for the growing number of women with osteoporosis at high risk for fracture is our primary objective.” - David Filmore

Royalty/Quest: Quest Diagnostics has divested its stake in the highly-anticipated cancer drug ibrutinib as it continues to refocus its business on information services and simplify its operations. Quest sold the single-digit royalty stream to Royalty Pharma for $485 million, the companies announced July 18. Ibrutinib, an oral Bruton’s tyrosine kinase inhibitor (BTK), is being developed by Pharmacyclics and Johnson & Johnson for the treatment of chronic lymphocytic leukemia, small lymphocytic lymphoma and mantle cell lymphoma. Pharmacyclics submitted an NDA for the drug to FDA on July 10. Earlier this year, the regulatory agency granted the drug its new breakthrough designation, a means of pushing highly-effective drugs through regulatory approval more quickly. The drug is expected to receive a fast track review and could be on the market by early next year. Analysts estimate worldwide peak sales between $2 billion and $3.5 billion. Royalty Pharma buys up royalty streams from other companies – the investment firm has stakes in several of the largest drugs on the market, including AbbVie’s blockbuster rheumatoid arthritis drug Humira (adalimumab), Pfizer’s fibromyalgia pill Lyrica (preagbalin), J&J’s RA drug Remicade (infliximab), Biogen Idec’s recently approved multiple sclerosis pill Tecfidera (dimethyl fumarate), and Merck’s diabetes blockbuster Januvia (sitagliptin). - Lisa LaMotta

Auxilium/Sobi: Auxilium Pharmaceuticals has found a new partner to take over commercialization of its treatment for Dupuytren’s contracture and Peyronie’s disease, Xiapex (collagenase clostridium histolyticum), in Europe after its prior partnership fell through due to slow sales of the drug. Swedish Orphan Biovitrum (Sobi) will take over where Pfizer left off, taking on commercialization of the drug in the 28 EU member countries, Switzerland, Norway, Iceland, 18 Central Eastern Europe/Commonwealth of Independent countries, including Russia and Turkey, and 22 Middle Eastern & North African countries. In exchange for the commercialization rights, Auxilium will receive tiered double-digit royalties on all sales and will be eligible for up to $40 million in milestone payments that are tied to undisclosed sales benchmarks. Pfizer originally signed on to commercialize Xiapex in Europe in 2009. At the time, Pfizer paid Auxilium $75 million upfront, and agreed to pay $150 million in regulatory milestones and $260 million based on undisclosed sales milestones. In addition, Auxilium was to receive increasing tiered royalties based on sales in Pfizer's territories. Pfizer to pull out of the partnership in November 2012, but did not stop promoting the product until the end of March. It will continue supplying the product to physicians until mid-October. - L.L.

Rexahn/University of Maryland, Baltimore: Rexahn Pharmaceuticals has in-licensed a novel drug delivery platform, Nano-Polymer-Drug Conjugate Systems (NPDCS), from the University of Maryland, Baltimore, the company announced July 17. The technology delivers chemotherapeutics directly into tumors, potentially increasing efficacy and reducing toxicity. Rexahn plans to use the technology to develop RX-21101, a preclinical-stage polymer conjugated form of docetaxel. By minimizing the circulating concentration of docetaxel in the blood and maximizing the concentration in the cancer tumor, RX-21101 may increase anti-tumor activity while lowering adverse events. The financials were not disclosed. Rexahn, based in Rockville, Md., has three oncology candidates in clinical development, the lead of which is Archexin, an akt1 inhibitor partnered with Teva Pharmaceutical Industries. - Jessica Merrill

Bausch & Lomb/Mimetogen: Eye-care company Bausch & Lomb has acquired the option to license a Phase II compound for dry eye syndrome from Mimetogen Pharmaceuticals. The compound, MIM-D3, stimulates the production of mucin, which is essential for lubrication of the eye. The drug was shown to be effective and safe in Phase II studies and a late-stage trial is expected to begin before the end of the year. B&L paid Mimetogen an undisclosed option fee and will have the opportunity to pursue development upon Phase III results. At that time, B&L will assume all development costs and will pay Mimetogen development and sales milestones, as well as royalties. Dry eye affects 25 million people in the U.S. alone and tends to affect more people as they age. The global market is currently worth $2.5 billion and is growing at a rate of 10% annually. - L.L.

Alexion/Ensemble: Bringing to a close a week highlighted by Roche’s apparent buyout interest, Alexion signed a drug-discovery collaboration July 18 with Ensemble Therapeutics. Financial terms were not disclosed, but Ensemble gets an upfront payment and research funding, along with potential for development and commercial milestones under the agreement. Ensemble, whose Ensemblin technology platform can produce novel small-molecule candidates to address targets normally addressed by biologic therapies, will screen more than 10 million macrocyles against undisclosed disease drug targets specified by Alexion. Alexion, which focuses on life-threatening, ultra-rare disorders, will have exclusive worldwide rights to develop and commercialize any candidates emerging from the collaboration. Recently hired Executive VP and Head of Global R&D Martin Mackay said this transaction is meant to expand Alexion’s product portfolio. “We seek to broaden the number of pathways toward developing potentially transformative first-in-class drug candidates for patients with selected severe and life-threatening ultra-rare disorders,” he said in a release. - Joseph Haas

Ocera/Tranzyme: Ocera Therapeutics has made its way to the public markets through a reverse merger with the publicly-traded biotech Tranzyme. The new company will focus on developing Ocera’s lead drug, an ammonia scavenger OCR-002 in development for hyperammonemia, the ammonia build-up in the blood when the liver is no longer able to remove toxic substances from the blood. That build-up can cause hepatic encephalopathy, marked by worsening brain function, which eventually can lead to brain swelling, coma and death. Ocera’s investors also committed $20 million in a private placement financing, cash that will see the company through most of a Phase IIb trial testing OCR-002. Becoming a publicly-traded company wasn’t the impetus for the transaction, however, CEO Linda Grais said. “The strategic rationale was really the strength of the combined management team, particularly bringing the clinical development team from Tranzyme together with the program from Ocera,” said Grais. “We realized that this was a team that would take us a long time to build from scratch.” Though Tranzyme’s research was focused in gastrointestinal disease, its Research Triangle Park, NC, team led by Chief Medical Officer Franck Rousseau has extensive experience in liver disease. Before joining Tranzyme, he worked at Gilead asTherapeutic Area Head, Hepatic Diseases and VP Clinical Development. Tranzyme ran into trouble in 2012 when a Phaes III trial in postoperative ileus on lead drug TZP102 failed to meet its primary and secondary endpoints. It began reviewing strategic options early this year. - J.M.

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