Deals Of The Weeks Wonders If A Biopharma Super Bowl Is Imminent

Deals of the Week is torn as the Super Bowl approaches – you see, most of this feature’s contributors live either in 49ers country near San Francisco or in the case of this author, a short drive from the home field of the Baltimore Ravens. With our loyalties clearly divided, rest assured DOTW will take a non-partisan approach toward the big game.

But the Super Bowl’s attendant hype puts us in mind of the biopharmaceutical industry’s closest equivalent, the mega-merger, such as those that combined Pfizer and Wyeth and then Merck and Schering-Plough in 2009. A month into 2013, we wonder, what are the chances of a mega-merger in 2013?

Industry sentiment seems inclined against one. In recent earnings calls, CEOs of major companies have disavowed their interest in disruptive deals that require multi-year, complicated integration.

Raghuram Selveraju, the head of health care equity research at Aegis Capital, recently finished up a deep-dive into the mid- and late-stage pipelines of 12 big pharmas. And while he sees companies among the big 12 that badly need a course correction, he does not think a deal the size of Pfizer/Wyeth is likely near-term.

“Some pharmas have out-performed, some are in the middle of the pack and some are absolutely abysmal,” Selveraju said. “If we look at the ones that are performing abysmally, we find clues as to who might do a mega-merger. If a company is doing well on its own, it’s very unlikely that it’s going to do a mega-merger. A company only resorts to a mega-merger only if it feels it cannot go on sustainably in a standalone manner or feels that it doesn’t have sufficient critical mass to continue performing earnings-wise with its existing panoply of products and its existing pipeline.”

At present, Selveraju views Sanofi, Novartis and to a somewhat lesser extent Roche as the top performers in the sector. The middle of the pack consists of GlaxoSmithKline, Bristol-Myers Squibb and AbbVie. But he reserves the “abysmal” label for AstraZeneca and Eli Lilly.

“I think AstraZeneca should find someone to dance with, and Lilly definitely should,” he said. “But both are run by CEOs, especially Lilly, who believe they can just grow organically and discover and develop products internally to justify being a standalone entity. I don’t agree with either – I think AstraZeneca’s approach has been very patchwork.”

One obvious solution might be for AstraZeneca and Lilly to merge, which certainly would qualify as a mega-merger. But Selveraju is unsure they would complement each other in the way that Pfizer and Wyeth did. Of the two 2009 major deals, Selveraju contends that Pfizer made out far better than did Merck.

“Merck’s decision to buy Schering-Plough, on the face of it today, looks like an unmitigated disaster,” he said. “Virtually all of Schering’s once-vaunted late-stage pipeline has fallen flat. Boceprevir (Victrelis) is a commercial failure more or less and probably never will be a success … Merck hasn’t been able to put together a successor for Vytorin (ezetimibe/simvastatin) or expand its usage. It’s been a litany of failures. Now, Merck has resorted to falling back on two other drug candidates that didn’t come from Schering: odanacatib for osteoporosis and suvorexant for insomnia.”

The other possibility for a mega-merger, Selveraju said, would occur if AstraZeneca or Lilly tried to buy out AbbVie, which he thinks could bring one of those companies some of the same benefits Pfizer derived in acquiring Wyeth. “AbbVie is a lot like Wyeth was – it has Humira (adalimumab), just like Wyeth had Enbrel (etanercept), it’s got an interesting set of late-stage candidates in clinical development, none of which are super-great but any one of which potentially could prop up earnings. And we know Humira is going to be very resistant to generic erosion.”

Buying AbbVie seems more feasible for AstraZeneca, the analyst added, as AstraZeneca has a market cap of about $60 billion, compared with AbbVie in the $40 billion range. “It’s not outside the realm of possibility that AstraZeneca could find a way to swallow AbbVie,” Selveraju said. “There’s a lot of synergy there in terms of focus – AstraZeneca likes inflammation and autoimmune disease. AbbVie also has a lot of stuff, just like Wyeth did, that would be easy to divest.”

But Selveraju thinks more focus these days is on the 2011 Sanofi buyout of Genzyme, which he sees as a much better model than either of the 2009 mega-deals,

“That deal is a major reason why Sanofi’s share price has performed so well,” he noted. “And now we’re looking at Lemtrada (alemtuzumab) potentially being approved in multiple sclerosis later this year or early next year – that could be another value-driver because it’s a biologic with an advantageous dosing schedule. Things just keep getting better and better for Sanofi.”

So Selveraju thinks big pharma should look for deals that will increase their exposure to therapies for rare diseases and bring in more “biotech-like stuff.” Two companies to watch as potential targets in the year ahead, he said, are Alexion  and BioMarin. But in the meantime, smaller but nonetheless important deals are being finalized each week in the biopharma arena. Now, let’s check in on the latest survey of …

Idenix/Janssen: Looking to advance its hepatitis C program while its nucleoside polymerase inhibitors are being reviewed for cardiovascular safety concerns by FDA, Idenix Jan. 28 announced a non-exclusive collaboration with Janssen Pharmaceuticals to test two- and three-drug combinations in the virus. FDA placed “nucs” IDX184 and IDX368 on clinical hold last year after a Bristol nuc (BMS094) was shut down due to cardiovascular adverse events that included one death and eight hospitalizations. No financial terms were disclosed for the Idenix/Janssen collaboration. It will involve testing Idenix’s Phase II pan-genotypic NS5A inhibitor IDX719 with Janssen’s protease inhibitor TMC435 (simeprevir) and non-nucleoside polymerase inhibitor TMC647055. The firms will conduct a drug-drug interaction study beginning this quarter, to be followed by a Phase II study of ‘719 and simeprevir dosed with current therapeutic standard ribavirin over 12 weeks in treatment-naïve HCV patients. After that, the two firms plan to try a three-drug combo of ‘719, simeprevir and ‘055, dosed with and without ribavirin. Idenix will conduct the trials and each company will retain all rights to their respective compounds. “This [agreement] will allow us to achieve a key goal of ours for 2013, which is to advance the development of IDX719 as part of all-oral HCV combinations in two- and three-drug regiment,” Idenix CEO Ron Renaud said in a release. - Joseph Haas

Genentech/Afraxis: Genentech has bought a full license to the entire kinase-inhibitor discovery program of Afraxis for an undisclosed upfront fee and up to $187.5 million in milestones. Although not described as a sale, the Jan. 29 deal effectively is the end of the road for Afraxis, which was founded in 2007 by Avalon Ventures. Avalon remains its sole shareholder. Avalon managing partner Jay Lichter, also Afraxis’ CEO and president, tells DOTW that his preference would have been a sale, but the licensing structure still affords Avalon an exit. Lichter declined to say how much Avalon put into the company, but SEC filings show the total could be as high as $11 million. Afraxis originally derived from research in the Massachusetts Institute of Technology lab of Susumu Tonegawa that pointed toward a cure for Fragile X Syndrome, a severe form of autism, by inhibiting P21-activated kinase (PAK) through genetic manipulation of mice, work that gained some attention at the time. Afraxis received funding from the National Institutes of Health’s TRND program to push forward a small-molecule Fragile X compound, but Genentech’s parent Roche has a Fragile X drug in advanced clinical trials. Genentech is likely to use Afraxis’ library of kinase inhibitors to pursue other indications. “Our initial goal was PAK, but we have a variety of compounds selective for other kinases, and I don’t know what indications they’ll move forward in,” Lichter said. - Alex Lash

Immunomedics/Algeta: Norwegian oncology company Algeta agreed to collaborate on an antibody-drug conjugate with New Jersey-based antibody specialist Immunomedics. Under the Jan. 28 deal, Algeta would join its thorium-227 alpha emitter with Immunomedics’ epratuzumab, an anti-CD22 antibody already being studied in both hematological cancers and autoimmune disorders. Specific terms of the deal weren’t released, but Algeta will issue an upfront payment to Immunomedics, and will owe an antibody-delivery milestone and manufacturing payments. The companies said Algeta will fund preclinical and clinical work on the compound through Phase I, after which the parties will negotiate a license for Algeta based on certain pre-existing but undisclosed parameters. Immunomedics previously partnered epratuzumab with UCB, but re-negotiated that deal in late 2011 to recover full worldwide oncology rights to the drug. UCB returned its buy-in option in cancer, and continues to hold worldwide rights in autoimmune diseases; it is conducting Phase III trials of the antibody in lupus. The compound has shown promise in leukemia and non-Hodgkin’s lymphoma, both on its own and in an yttrium-90 labeled form. Immunomedics has two other antibody-drug conjugates in the clinic: the Phase I milatuzumab-doxorubicin in relapsed multiple myeloma and labetuzumab-SN-38 in colorectal cancer. - Paul Bonanos

Bristol/Lilly: In the first of two “No-Deals” of the week, Eli Lilly during its fourth-quarter call on Jan. 29 revealed to investors that its collaboration with Bristol regarding Phase III oncology asset necitumumab has been terminated in North America and Japan. Bristol pulled out of the three-year partnership for the squamous non-small cell lung cancer treatment, leaving Lilly with sole worldwide development and commercialization rights. A Phase III non-small cell lung cancer trial was dropped two years ago due to safety concerns. “The decision to provide notice of termination for necitumumab was based on a careful review and prioritization of our entire development portfolio, which the company regularly undertakes,” said a spokesperson from Bristol in an e-mail. Lilly assured investors that it intends to continue the development of necitumumab and that data from the late-stage SQUIRE trial are expected in late-2013/early-2014. The company plans to make the therapy part of a comprehensive treatment continuum for lung cancer that also includes Alimta (pemetrexed) and clinical-stage drug ramucirumab. Oncology is one of the main therapeutic areas driving Lilly’s pipeline beyond its so-called “YZ” years that are plagued by patent expirations of blockbuster drugs. - Lisa LaMotta

Teva/CureTech: As part of a pipeline review initiated by new top management, CEO Jeremy Levin and CSO Michael Hayden, Teva has terminated its collaboration with oncology biotech CureTech. CureTech’s lead compound is CT-011, a humanized monoclonal antibody that interacts with PD-1, a B7 receptor family associated protein. It has been assessed in Phase I and Phase II clinical trials for hematological malignancies and solid tumors, including large B-cell lymphoma, colon cancer, metastatic melanoma and other indications. Teva did not say much about the trial results to date, but Hayden, in a statement, noted, “As we looked closely at CT-011 and the most recent clinical and biochemical data, we have made the strategic decision to invest our resources elsewhere, where we can have the most impact for patients.” In the mid-2000s, Teva began dipping its toes into innovative oncology R&D with a few small in-licensing deals, but Levin and Hayden have made it clear that while the company will not completely jettison oncology, it is no longer a priority for Teva’s innovative R&D program, largely because the field is so crowded and also because Teva’s strengths lay elsewhere. The deal revolved around a 2006 agreement that Teva drove, under which it paid $6 million upfront and took an option to invest another $23 million if CureTech met certain development milestones, as well as to buy the rest of the company if CT-011 were approved. At the time, CT-011 had completed Phase I testing. Unlike many other in-licensed assets under review, this one originated at the Israeli drug maker, not one of the companies Teva has acquired. Indicative of the homegrown nature of the deal, CureTech also is based in Israel, where Teva is headquartered, and for a long time, one of Teva’s top executives, Aaron Schwartz, sat on CureTech’s board. Teva is taking a $109 million noncash charge as a result of the impairment cost of the termination. - Wendy Diller

Photo credit: Wikimedia Commons

2009 Big Pharma DOTY Nominee: Merck/Schering-Plough

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.


"What are we on?" you're asking. How can Merck's acquisition of Schering-Plough stand a chance of winning a Big Pharma Roger, when it's up against Pfizer/Wyeth? At $41 billion or so, the Merck deal was considerably smaller than Pfi/Wy, and it wasn't transformative in the way Pfi/Wy is supposed to be (new kind of pharma 'n all that).

Still, we all know size isn't everything, and that details count. Merck might've only been buying time through this deal--time to figure out what on Earth to do about a $4 billion patent-expiry problem--and will be doing the usual, un-prize-worthy cost-slashing (the deal's synergies represent a whopping 40% of sales). But what it lacks in headliners it makes up for, we argue, in behind-the-scenes cleverness.

Firstly, Merck got Schering-Plough for cheap. Less glitzy numbers, then, but less costly for the buyer, too. Merck paid only about 40% more per share than the price when CEO Fred Hassan joined in 2003....and it paid about 60% in stock, unlike both Pfizer and Roche which had to cough up hard cash for their booty.

Yet Schering brings valuable assets to Merck: a marketed portfolio that fits nicely into Merck's current organization, and an R&D palette in the same therapeutic areas but with very little mechanism-of-action overlap. Cheap diversification, then, to create a much more impressive combined pipeline, but within comfortable boundaries.

The second clever bit was the deal's structure, designed to minimize the chance that Johnson & Johnson comes in to spoil the party. Per the companies' 1998 agreement granting Schering ex-US rights to anti-TNF drugs Remicade (and follow-on Simponi), J&J has a change of control clause allowing it to scoop back those rights in the event that Schering-Plough is taken over. (The two drugs in question are potentially worth up to $8 billion together.)

But technically Schering-Plough isn't being taken over: the deal is a reverse-merger in which Schering is the surviving entity--renamed as Merck. And run by Merck's CEO Dick Clark out of Whitehouse Station, N.J. Crafty, eh?

Now okay, J&J has sought arbitration. So that crafty bit may not work out. (And indeed, management at the time of the merger provided guidance both with and without the anti-TNFs.) But good for them, we say, for trying.

Vote for the shrewd under-dog deal, then; the one that appears run-of-the-mill but which may be the smartest, at least in the short-to-mid-term, by going for certainties and not betting on entirely new models. Vote here for the deal that in fact isn't simple or risk-free but which takes a gamble--yet not a crazy, potentially fatal gamble. Vote here for the deal that lets Merck wait and see for a while before committing to anything radical.

(As for what happens when the bought time runs out...well, watch out for DOTY 2012 or thereabouts.)

Is it Merck or is it Schmerck?

When is a reverse merger not really a reverse merger? Maybe when Company A, which is acquiring Company B, tries very hard to convince everyone that it really isn't taking over that other company.

In yesterday's announcement about its new management structure, Merck went out of its way to emphasize that "about 40 percent of Schering-Plough's senior leaders will be part of the newly combined company in executive roles." This is an issue, because Merck must convince a lot of people - particularly arbitrators - that it's really not taking over Schering-Plough.

You may recall that, when its $41.1 billion deal was announced last March, Merck insisted Schering-Plough would be the surviving company, even though it would be called Merck. This didn't hold water with Johnson & Johnson, which is Schering-Plough's U.S. partner in selling Remicade, the anti-TNF agent for treating arthritis and, importantly, the recently approved Simponi follow-up drug.

By May, J&J filed for arbitration, arguing that Merck and Schering-Plough are simply trying to avoid triggering a change of control provision that would allow J&J to gain ownership of the drugs. Given Remicade's blockbuster sales - it generated $2.1 billion last year - it's not surprising that J&J would want 100% ownership of a valued product or that Merck and Schering-Plough would work so hard to keep it.

And so this week's announcement appears to be a carefully calibrated attempt to blunt that argument by pointing out that several Schering-Plough execs will be heavily involved in top-tier decision making. These include Raul Kohan, the head of the Intervet Animal Health unit, and Stan Barshay, as head of the Consumer Health business, although his status is listed as interim. For now, though, just two of five primary divisions will be run by Schering-Plough people.

Who else from Schering-Plough's upper stratosphere will survive the process? There's Richard Bowles, who is actually a veteran of both drug makers and will become the newly annointed chief compliance officer. A handful of folks will continue to run various manufacturing operations and report to Willie Dees, Merck's manufacturing czar, while another eight people will run research sites or operations and report to Peter Kim, who oversees Merck's labs.

There was, however, no mention of any role for Fred Hassan, the perennially upbeat Schering-Plough chief executive. Perhaps if Merck's board really wants to make good on its contention that this is a reverse merger, the top job will be handed over. Dick Clark, Merck's chief executive, could finish his career comfortably as chairman. Whether investors would be pleased is another matter. But there's no arguiing that would push the managerial change beyond 40 percent in a very symbolic way.

DotW: Damned If You Do, Damned If You Don't

Alliances are a necessary evil.

Despite all the verbiage around the softer virtues of collaboration, the fact is that most companies would just prefer to be left alone. Doing the tango, as the Argentian exhibitors at BIO demonstrated, takes too much work. And frankly costs too much.

Thus this week: Onyx is now suing its partner Bayer for double-crossing it on a next-generation Nexavar (see Ed Silverman's Pink Sheet Daily analysis). Naturally, Bayer would love to find a compound of its own that’s as good as Nexavar and which doesn’t cost it a profit-share. For its part, Onyx says the follow-own is a close chemical brother to Nexavar, discovered as part of the collaboration (well – legally, that is: anything discovered in the field by either company before January 31, 2000 counts as part of the collaboration).

Think about the big acquisitions – most of them are transformations of alliances that looked more expensive than they were worth. Pfizer’s acquisitions of Warner-Lambert and Pharmacia were most fundamentally about the larger company getting 100% of the jointly promoted products (respectively: Lipitor and the Cox-2 franchise, including the star player Celebrex). By our reckoning, Roche’s acquisition of Genentech was fundamentally a response to that extraordinarily successful alliance’s costs – in duplicate infrastructure, royalties, joint decision-making.

And to our minds, the most interesting alliances of the last few months aren’t really alliances but tactics to pool resources without having to actually do all that much ongoing collaboration. The GlaxoSmithKline/Pfizer joint venture in HIV creates an independent company which starts out buying its research from its parents – but can go its own way later. Meanwhile, the Purdue/Mundipharma/Infinity deal seems to be as much an anti-collaboration as an alliance: the funders (Mundipharma and Purdue) basically don’t interfere in any way with Infinity’s research or development or, for that matter, the registration process.

Even most of the option deals we’ve seen recently (and which will be the subject of an in-depth analysis from Ellen Licking in the coming issue of Start-Up) are anti-alliance alliances – the small company does a bunch of work independently; the big company then decides whether there’s enough evidence to buy the thing. Novartis just made that logic explicit – see below in our write-up of its re-arrangement with Elixir.

Novartis announced another variation of the non-alliance alliance this week in its re-structuring of its respiratory collaboration with Schering-Plough. Which is probably a good deal to start with in this week’s edition of ...

Novartis/Schering-Plough: Why share two pies, when you can have one each? Especially when each gets to eat the one it prefers. Novartis and Schering-Plough this week undid two previous co-development and co-commercialization deals around two respiratory combination drugs, each agreeing to instead take full rights to one.

In what’s essentially an un-deal, Novartis gets exclusive worldwide rights to develop and market QMF 149, a fixed-combination of its own indacaterol (a long-acting beta-2 adrenergic agonist) with Schering-Plough’s inhaled corticosteroid mometasone (un-doing this 2006 deal). Schering-Plough, meanwhile, gets similarly full rights to a combination of mometasone with Novartis’ formoterol, another long-acting beta-2 adrenergic agonist (un-doing this 2003 deal).

It’s certainly neat—no money changed hands according to Novartis’ CEO and Chairman Dan Vasella, who added that “we wanted to complete that disentanglement.” Indeed, history has shown that co-developments, co-promotes, co-anything is generally more complicated and likely to end in tears than a pure-play effort—particularly perhaps in this case with newly-enlarged Schering-Plough (though the parties had been discussing this divorce well before the Merck merger was announced, according to Vasella).

Behind what looks like a tidy sharing of the booty, we’re sure there’s some small print (or an awfully complicated equation around the sales-based royalty-sharing arrangement on the compounds). But by and large, it appears that Schering-Plough was happy to accept a later-stage compound (Phase III completed) with less risk and cost to come, in exchange for granting Novartis a combo that’s still in Phase II, but which uses Schering-Plough’s Twisthaler device.

Novartis is taking on more cost, then, but reckons it’s worth it to build up its own respiratory franchise around indacaterol (currently under review as a standalone, and a component of other development combos including one with a compound from UK biotech Vectura)—and to avoid the tangles of co-development and co-commercialization. – Melanie Senior

Shionogi-Sciele/Victory Pharma: And you thought the Chinese were financing the US economy. The Japanese have spent more than $18 billion buying US and European biopharmaceutical companies since 2007. And if you figure CV Therapeutics wouldn’t be part of Gilead had not Astellas launched its hostile bid, well, add another $1.4 billion to the total. Now some more deals – Takeda’s acquisition of IDM (see below) and Sciele’s $150 million acquisition of Victory Pharma, bankrolled by Sciele’s still brand-new owner, Shionogi. Essex Woodlands and Ampersand had committed $45 million to the company back in March – which means that, at least for Essex (Ampersand had been in the company longer, through an acquisition), its IRR on the deal has got to be pretty impressive (and its limiteds pretty happy with the new fund). Indeed, Essex is one of those venture funds sitting pretty right now -- $900 million in a new fund, mostly raised pre-crash, and half a dozen exits over the past year or so (most recently from Dow Pharma for Valeant’s $285 million plus earnouts and – ok, sort of an exit – its $100 million option-to-sell Ception to Cephalon). Essex has been focused on growth companies (revenue generating and close to, or at, profitability, like Victory). But with all that cash, a plethora of cheap deals, and most of the early-stage venture guys sitting on their hands, Essex is probably going to move further upstream and start bankrolling some of those discovery guys.

GSK/Oxford BioTherapeutics: Bankrolling discovery is exactly what GSK has been doing with its seemingly neverending string of option-alliance deals. But this one announced early in the week by Oxford BioTherapeutics has a bit of a twist: GSK will be doing some of the early stage work itself, generating antibodies to oncology targets provided by OBT. GSK will also get an exclusive option to license a monoclonal antibody that OBT will develop through to clinical proof-of-concept. OBT got an undisclosed up-front payment and will receive clinical, regulatory and commercial milestones plus a double-digit royalty on any sales for products OBT took to POC, and single-digit royalties on GSK mabs against OBT targets. If GSK opts out of any programs, OBT has the option to pick them up. OBT's target expertise comes from its Oxford Genome Anatomy Project database, which it calls the world's largest cancer protein database. OBT has one other antibody discovery deal, with Amgen, signed back in 2007 when OBT was still Oxford Genome Sciences.

Takeda/IDM Pharma: It's roughly a week until ASCO and--here's a surprise--cancer immunotherapy is back in the news. But even though Dendreon's positive Provenge results prove naysayers wrong (for now--the drug still isn't approved) Big Pharma is still in "show me the data'' mode when it comes to this novel form of therapy. The upshot? Companies can find partners--or even buyers--but those deals aren't likely to happen until there's been a major de-risking of the compound. That was the case this week for IDM Pharma.

On May 18, Takeda announced it would acquire the immunotherapy developer for $75 million. The Big Pharma waited until the biotech's novel therapeutic for osteosarcoma, Mepact, was approved by European regulators. That Takeda held off until there was regulatory approval shows that you can teach an old pharma new tricks. Recall that last year Takeda bet $50 million on a partnership with Cell Genesys for its GVAX vaccine for prostate cancer. Let's just say things didn't exactly work out as planned; by year's end the two parties had called off the realtionship, thanks to the failure of GVAX.

For IDM Pharma, the news couldn't have come at a better time. About a week ago, the struggling biotech disclosed first-quarter earnings, noting cash and cash equivalents of $7.4 million as of March 31, down from $12.8 million at the end of last year. To survive, IDM shut down all development programs except Mepact and slashed staff headcount from 80 to 15.

Cancer vaccine makers probably shouldn't expect partners to come courting just because the field's seen one small-ish deal. While Takeda's interest in Mepact was great, IDM's other products, which include a dendritic cell-based melanoma vaccine called Uvidem, were less appealing because of their risky profile, according to the deal's orchestrator, Anna Protopapas, SVP corporate development at Takeda's Millennium Pharmaceuticals unit.

Interestingly, this is the first deal Protopapas and her team have announced since Takeda purchased Millennium for nearly $9 billion one year ago. Thus far, the aim to run Millennium as a stand-alone biotech seems to be working. We aren't exactly sure if Millennium is the Takeda oncology company or simply a Takeda oncology company, however. A closer look at the Mepact arrangement has Takeda Cambridge, the drug firm's European outpost, handling the immunotherapy's commercialization, not Millennium--which also happens to be in Cambridge--Ellen Licking.

Novartis/Elixir Pharmaceuticals: Another week, another option based deal. On Tuesday, Elixir announced that it had granted Novartis the option to acquire the biotech in a deal worth more than $500 million. The acquisition is dependent on Elixir's ability to move it's preclinical oral diabetes drug--a ghrelin antagonist--through successful Phase IIa trials. The announcement was actually just one of two made by Elixir: in addition to Novartis staking a claim on the company, the Novartis/MPM side-fund, which was created in 2007 as an attempt to more closely align Novartis' corporate venture and business development efforts, participated in the biotech's $12 million Series D.

This is actually the second option style deal Elixir has done with Novartis. Back in 2007, Novartis/MPM invested in the biotech, with Novartis taking an option on a different program--a ghrelin agonist. As part of the agreement announced earlier in the week, the two companies have terminated their earlier pact, and all rights to the oral ghrelin agonist compound revert to Elixir.

The equity financing, plus the non-dilutive funding from the option (believed to be nominal--we couldn't identify the actual amount Novartis paid on top of the financing to acquire the company though we tried), put Elixir in a far more secure cash position. According to Elixir's CEO, Paul "Kip" Martha, the company was one of many in the industry operating with less than six months worth of cash. "This is a dramatic turn-around for us," he said in an interview with IN VIVO Blog.

This is the third option-style deal Novartis has done since the start of 2009 and its structure recalls almost exactly the March deal brokered for the rights to acquire Proteon, which is developing a recombinant human elastase designed to improve the outcome of arteriovenous fistula procedures in patients with end-stage renal disease. It used to be hammering out the terms for these kinds of arrangements was tough--traditional VCs and biotech CEOs worried that the option might cap a company's upside. That's less of a concern these days when cash is a biotech’s most important resource; thus, CEOs have accepted the hard reality that non-dilutive funding now and the greater certainty of a deep-pocketed partner or buyer in the future outweigh the potential reduction in overall deal economics necessitated by option arrangements.

Finally this tie-up highlights a potential advantage of the option structure--keeping a Big Pharma engaged and potentially deepening the relationship. In 2007, Novartis's option was much more limited--it was strictly a licensing deal. This latest announcement suggests Novartis is impressed enough with Elixir’s pipeline that it sees value in owning the company outright--Ellen Licking.

Johnson & Johnson/Cougar Biotechnology: Finally, we should note that this has been -- on the investment front -- a relatively good week for biotech. We haven't seen this many acquisitions for a while. And thus, last night, J&J provided us with a pleasant send-off for the Memorial Day Weekend: its $870 million acquisition of Cougar (for more in-depth comments, see this post from earlier today).

Image from Flickr user Mike "Dakinewavamon" Kline used under a creative commons license.

DotW: The Future of Primary Care?

If you haven't seen this video from the funny people at The Onion, you must check it out. Could Despondex, a drug designed to treat the irrationally exuberant, be a future blockbuster in the drastically reordered world of primary care?



This week's unprecedented deal activity--Merck's $41.1 billion buy-out of Schering, Gilead's white knight bid for CV Therapeutics, and Roche's rapprochement with Genentech--admittedly leaves this IN VIVO Blogger reeling--and more than a little tired.

But the Merck/Schering deal echoes many of the themes raised by Pfizer's bid for Wyeth: a desire for diversification beyond traditional pharmaceuticals; the need for late stage products that brigde the revenue gap associated patent expirations; and the belief that bigger is better in an age where reimbursement is a challenge and regulatory uncertainty is as least as great as R&D risk. Merck had already taken steps to push a new commercial model. The acquisition of Schering will likely only accelerate the shift though it's hard to know now what the final strucutre of the newly merged organization will look like.

In the meantime, it's hard not to wonder at the potential market size of a drug like Despondex. We guarantee the negative economic news of late means its much smaller than it might have been six months ago. And it's not like there aren't natural remedies for the disorder. Just mention the words "financial runway" to any small biotech exec or "down round" to venture capitalists.

Some other people who aren't good candidates for the drug include Xoma, Cadence, Synta, and Neose employees. Xoma received news this week that it's listing on the NASDAQ is at risk because of steep declines in the company's share price. Cadence, which diluted the hell out of itself with an $86.6 million private placement last month, announced Thursday that is was shelving work on Omigard, its late stage gel for catheter-related infections. Synta, meanwhile, revealed it was laying off 40% of its staffers in the wake of the high profile failure of its melanoma drug elesclomol. And it's the end of the line for troubled Neose, which is auctioning off the last of its worldy goods (preview date March 24). And what about members of "Friends of an Independent Genentech" (we call them FIGs) or sales and marketing reps for Big Pharma? (Have you heard about the layoffs?)

But there are a few people who might benefit from the drug. It stands to reason Jeff Kindler, CEO of Pfizer, might need a short course thanks to his 2008 compensation package. We emphasize "short" since he's probably not over the moon--his pay did drop 5% to a mere $13.1 million last year. And then there's Fred Hassan, who helped orchestrate Merck's take-out of Schering-Plough--just don't call it a change of control. As IVB reported earlier this week, Hassan stands to receive at least $37 million for brokering the deal with Merck, but his pay could jumpt to$60 million if powers that be believe change of control applies to ownership structure but not occupancy of the corner office. (IVB calls that having your cake and eating it too.)

So what if the drug only works for these two men? Hey, maybe that really is the future of primary care! And here's a solution to the marketing dilemma: just call it personalized medicine and charge a fortune for the drug. Does an overpaid, middle-aged white male suffering from excessive happiness count as an orphan indication? (Check out future twitter feeds from Mike, Ellen, Ramsey, and Chris to find out.)




Merck/Schering-Plough: It was hard to pick top honors for biggest deal of the week, but we are going with the Merck/Schering-Plough tie-up since Roche/Genentech (see below) has felt like a foregone conclusion for at least a week (sorry FIGs). We confess Merck's unexpected bid for its cardiovascular partner Schering had folks at IVB at a loss--we even told you last week we didn't think this deal was coming given the historic importance Merck has placed on R&D and organic growth. But Merck, much like Pfizer in its bid for Wyeth, is looking to the mega-acquisition to stem lost profits from its top-selling drug Singulair which loses patent protection in 2012. It also desperately needs to refill its pipeline following some high profile development setbacks. But if the cost-savings from the acquisition will elevate Merck's earnings growing as key drugs lose patent protection, it's less clear whether Schering will help or hinder the company's efforts to compete in a changing healthcare environment, increasingly focused on productivity, agility and specialized, targeted medicines. "The strength of the combination of Merck and Schering-Plough's pipeline, the complementary product portfolio with long periods of exclusivity, the strong commercial models, the expanded global presence, the sustainable cost savings for long-term growth go far beyond just one or two products," CEO Richard Clark said during a same-day conference call. A big positive of Schering's portfolio is that it is less vulnerable to generic competition than many other large pharmas; it's not expected to hit a patent cliff until 2014 and beyond, providing more time to bring pipeline drugs to market. Schering's marketed portfolio includes the tumor necrosis factor inhibitor Remicade, the allergy medication Nasonex, the brain tumor treatment Temodar, and the hepatitis C drug Pegintron. Schering is also relatively more diversified than Merck, bringing a larger biologicals business and substantial operations in animal health and over-the-counter drugs. Combined, Merck and Schering-Plough will have sales of nearly $47 billion based on 2008 sales. No one product, Clark said, will account for more than 10 percent of the combined company's sales. Just getting the deal done required some pretty fancy legal maneuvering, as Merck and Schering found creative ways to do an end run around a change of control clause related to Schering's partnership with J&J for Remicade. The complicated arrangement, dubbed“Project Solar” in SEC documents that reference Merck as “Mercury” and Schering as “Saturn,” involves structuring the deal as a reverse merger in which Schering remains the surviving company. Don't forget, however, that the lasting entity will be called Merck, headed by Merck CEO Richard Clark, and that Schering shareholders will own only a 31 percent stake.

Roche/Genentech: It's official. $95 is the magic number. (We thought it was 3.) Nearly 8 months after Roche launched its initial bid for Genentech, it has succeeded in obtaining the blessing of the biotech's Special Committee. The nearly $47 billion marriage, which assumes enough minority shareholders will tender their stock, may be off to a rocky start if Franz Humer and company can't convince high flying Genentech employees such as CEO Arthur Levinson, president of product development Susan Desmond-Hellman, and EVP for research and CSO Richard Scheller to remain with the company. Roche's patient wooing took a more urgent tone last Friday, when the Swiss pharma upped it's hostile tender offer from $86.50 to $93 a share. The gambit was enough to lure Genentech's special committee back to the bargaining table to address widely divergent opinions on the biotech's value. (Recall last fall $112 was the target price Genentech was vying to obtain.) The subsequent maneuvering hinged on debate over two key points - Roche argued Genentech's value was plunging due to worsening financial markets. Meanwhile, anticipation has continued to grow ahead of the results of the eagerly awaited clinical trial that could greatly expand the market for cancer treatment Avastin. Tellingly, SEC documents released on Thursday show that the Special Committee was increasingly worried about the current economic crisis. Not only has there been a "significant deterioration in financial markets," but the Obama administration's emphasis on reducing health care costs has added uncertainty to the outlook for pricing medications, according to documents Genentech filed with the SEC. In hopes of finalizing the deal, the two companies eliminated a provision in their long-standing affiliation agreement that allowed shareholders to receive a higher price than the tender offer during a so-called squeeze-out. That clause has long been a sticking point for Roche, providing shareholders with little incentive to tender at what might ultimately be a lower price. Moreover, the special committee noted in SEC filings that with this sweetened offer, "the company's stockholders will avoid the risks associated with a negative outcome in the Avastin trial, including potential declines in the trading prices of the shares, a determination by Roche not to purchase any shares, or should Roche determine to purchase any shares that it would do so at a reduced price."

Gilead/CV Therapeutics: What does it say about the week's deal flow that a $1.4 billion dollar white knight bid is third on the deals of the week hit parade? Not to be outdone by the likes of Big Pharma and its Big Biotech cousin, Gilead made news with its $20-per-share offer for CV Therapeutics, which has been fighting off a hostile $16-a-share bid from Astellas. With $3.24 billion in cash and equivalents on hand at the end of 2008, Gilead has the resources--and apparently the moxie--to do the deal. While its focus has traditionally been on antivirals - it markets the HIV therapies Atripla and Truvada - it has also built a budding cardiovascular franchise centered around its pulmonary arterial hypertension drug Letairis and a Phase III drug for resistant hypertension called daruesentan. There's a strategic fit argument, therefore, when it comes to Gilead's buying CVT: the Palo Alto-based biotech provides the company with some additional diversification in a bulked up cardiology franchise--CVT already markets Ranexa and Lexiscan--as well as a ready-made sales force to market the products. "Gilead is essentially buying a sales force for darusentan via Ranexa, but they only get 10 percent of Lexiscan," noted Leerink Swann analyst Joseph Schwartz in an interview with "The Pink Sheet" DAILY. That's because in the U.S., Lexiscan is already partnered with Astellas, with CVT receiving a 10% royalty on sales. Although some analysts have called the price Gilead is paying for CVT excessive, questions about the true ownership of Lexiscan may have nudged Gilead into shelling out the extra $4-a-share. That's because the original 2000 deal between Astellas predecessor Fujisawa and CVT included a "standstill" agreement voiding the deal if Fujisawa or an affiliate tried to buy stock in CVT beyond that specified in the deal. And what happened on Feb. 27? Astellas turned up the heat on CVT, turning its spurned offer into a tender to CVT shareholders, while also filing a lawsuit in Delaware Chancery Court seeking to overturn both the "standstill" and a poison pill that CVT's board extended for one year just before it was set to expire this February. It remains unclear whether Astellas' actions have placed it in breach of the 2000 contract, which could mean full rights to Lexiscan return to CVT. If they do, outright ownership of Lexiscan will certainly boost Gilead's bottom line.



MedImmune/Micromet: Perhaps it isn’t fair to lump this evolving situation into the ‘No-deal’ of the week category, but Micromet’s co-development deal with MedImmune for its lead bi-specific T-cell engaging antibody blinatumomab has definitely been downsized. And, as CEO Christian Itin repeated several times on a conference call that doubled as an explanation of the new arrangement with MedImmune and Micromet’s 2008 results, that isn’t necessarily a bad thing. MedImmune opted out of its US development role for blinatumomab (a.k.a. MT103), a BiTE antibody in development for hematological cancers, but it hasn’t washed its hands of the project entirely. MedImmune will complete development of a commercial scale manufacturing process for the candidate on its own dime. It will also retain an option to regain commercial rights to blinatumomab upon first US approval, at pre-defined but undisclosed terms. And the two companies announced they were pursuing—from scratch—a new BiTE program in hematological cancers as well (the geographic split—MedImmune gets North American rights and Micromet RoW—is the same). To date MedImmune has not put blinatumomab into the clinic in the US, though an IND was approved in early 2007. Micromet has taken blinatumomab into the clinic in Europe, where in Germany the candidate is in a Phase II study in adult patients with acute lymphoblastic leukemia (ALL) and a Phase I study in relapsed non-Hodgkins Lymphoma (NHL). Interim data for both trials will be presented in June at the European Hematology Association meeting in Berlin, according to Itin. So why did MedImmune opt out? Itin declined to speculate beyond suggesting that the companies’ focus so far on rare malignancies might not be a broad enough opportunity for MedImmune parent, AstraZeneca. It’s “not too unusual that the path isn’t at the center of focus for a large pharma company,” he said. Furthermore there have been no disappointing data out of any trial, Itin said, and “the trial is recruiting at higher speed than we predicted.” Micromet now has global rights to develop the drug, at a cost made more palatable by MedImmune’s commitment to funding both manufacturing process development. Blinatumomab isn’t the first MedImmune project that AZ has given back to a partner on pretty good terms. Late last year the Big Pharma handed back to Infinity Pharmaceuticals IPI-504 an Hsp90 inhibitor in Phase III, as well as an oral back up in Phase I. The difference for Micromet is that it cannot turn around and partner US rights or global rights to blinatumomab so long as MedImmune/AZ’s option remains outstanding--Chris Morrison.

The IN VIVO Blog Podcast: Lets Make a Deal!

You'll never guess what our intrepid podcasters are talking about this week. Give up? OK we'll spill the beans: the Merck/Schering-Plough deal! We kid you not. Buckle your seatbelt and click on the logo below, and you're away.

Don't forget, you can access the podcast via iTunes also.

Merck/SGP: Change of Control and Executive Pay Collide

There are several reasons Schering-Plough chief executive Fred Hassan sounded upbeat on the conference call this morning to discuss the $41 billion deal he worked out with Merck. One possibility is that Fred, 63, may walk away with nearly $60 million in the event of a change of control, according to the proxy statement filed last spring, which is the most recent available.

Granted, this could change a bit, because the payout is calculated, in part, by using the Dec. 31, 2007, closing stock price of $26.64. And who knows? Maybe Merck will try to argue the change of control provision doesn't apply, since the deal is structured as a reverse merger. On a conference call, Merck execs insisted the deal isn't a change of control in order for Merck to keep Johnson & Johnson from grabbing international rights to Remicade and a follow-up drug.

However, Schering-Plough's corporate secretary, Sue Wolf, says the deal will likely be considered a change of control for the purpose of executive payouts, according to a Schering-Plough spokesman. So maybe these drugmakers want things both ways?

In any event, it would appear from reading the proxy that Schering-Plough execs were given big incentives to get a deal done. For instance, Fred would get only $37 million if he were terminated prior to a merger, but would receive $56.3 million if booted after a change of control, roughly the same amount under a change of control in which he remains without being terminated.

And Carrie Cox, an executive vp, would get $22.8 million if there's a change of control and $23.7 million if terminated after a change, but just $13.3 million if terminated prior to a change. And Bob Bertolini, the CFO, would $19 million with a change, $12 million if booted before a change and $27.5 million if shown the door after a change. With paydays like that, why hang around? The SGP execs could be big winners, and walk away with enough money to dole out their own stimulus packages (take note former Schering-Plough employees).

Assuming Fred wins, he may receive close to $60 million, anyway. His options may have been underwater or certainly worth less in recent months, but the deal with Merck is moving the stock closer to the December 2007 closing price. And that doesn't include another $3.9 million in phantom stock awarded late last month, while negotiations with Merck were taking place.

Whatever the final number, the payout will likely be memorable and may even generate some debate. On one hand, Fred managed to get a 34 percent premium out of Merck's board, which is better than nothing given the stock market these days. And for all we know, maybe a higher price will materialize if Johnson & Johnson were to bid over fears of losing those Remicade rights.

However, the flap over Vytorin clinical trial data happened on Fred's watch. There's also the notion that, at a time when the global economy is tanking and corporate excess is not cool, perhaps the payout is too large and the Schering-Plough board should have been stingier. What do you think?

Merck and Schering-Plough: Vive La Difference?

So Merck has overcome its institutional reluctance to commit to large-scale M&A and pulled the trigger on a $41 billion Made-in-New Jersey-deal with Schering-Plough.

Unlike a lot of observers who can lay claim to predicting this one, we counted ourselves among the skeptics that Merck would make this kind of move. That said, it's hardly a shocker, replete with cost-savings, synergies and other happy buzzwords that consolidation-hungry folks bandy about in discussing who's gonna pair up with whom. On to the highlight reel.

The deal specs:

• Values SGP at $41.1 billion in cash and Merck stock, a 34% premium to SGP's Friday close; Merck will borrow $8.5bb from JPMorgan to finance the deal.
• Allows Merck to get in on some of the diversity action Pfizer is after in its takeout of Wyeth. Merck gets Schering's animal health biz as well as its consumer unit, and bulks up its overseas presence (53% of the combined company's revenue will come from ex-US, 12% from emerging markets).
• Streamlines the firms' commercial activities and will account for $3.5 billion in annual cost savings by 2011 on top of what the two companies promised individually up until now.
• Gives Merck what it deems the necessary "critical mass" to absorb economic- and health-reform-driven shocks to the system, not to mention some interesting projects in a much deeper late-stage pipeline (like boceprevir in HCV and TRA in cardiovascular disease)
• And consolidates the operations and decision making from the two companies' cholesterol JV.

It also raises some interesting questions, including:

• Just how will Johnson & Johnson react to the quirky structure of the transaction, seemingly designed to allow "a new Merck" to hang on to the J&J-partnered rheumatoid artritis drugs Remicade and golimumab?
• Is the premium high enough?
• Despite being able to describe in detail earnings per share guidance for the combined company, why couldn't CFO Peter Kellogg break out the revenue numbers?
• For all the talk about very little overlap in the two firms' pipelines in terms of their molecules' mechanisms of action there's certainly plenty of therapeutic area overlap. Will this raise regulatory concerns?
• And how will adding sunscreen and dog-trackers to the famously science-driven Merck affect the company's DNA? And what was up with that spike in SGP trading volume and price last Friday?

We'll be all over this deal in the Pink Sheet Daily, the Pink Sheet and IN VIVO, tomorrow and in the days and weeks ahead, and of course we'll have some treats for you here on the blog too. Stay tuned!

While You Were Making A Closing Argument

As the presidential and down-ticket candidates make their final campaign stops we'll have a little pharma-related election coverage for you today. But first: how was your weekend? We hope that Friday's celebration and/or too much Halloween candy didn't make you queasy on Saturday.

If you have the patience to wade through the election news--prank calls, polls, and Prop.s and pundits galore--to the business pages, there were a few nuggets from the world of health care. This weekend's conference news, for example, is courtesy of the AASLD gathering out in San Fran. With each Liver Meeting seems to come further news about Vertex and Schering-Plough's duelling hepatitis C protease inhibitors, and as you'll see below, this year is no exception.

So without further ado: while you were eating thirty-seven fun-size Snickers ...

• Vertex boosted its telaprevir prospects with further data from its Prove Phase II programs, announced on Saturday. Most striking was an interim analysis from the Prove-3 trial of the experimental HCV protease inhibitor in non-responders to prior therapy. Here the addition of telaprevir for 12 weeks at the onset of a 24-week course of standard interferon/ribavirin therapy yielded a 52% SVR12 (undetectable virus 12 weeks after the conclusion of treatment).
  
• Schering-Plough counterpunched with its own PI data, presenting Phase II data from a trial of boceprevir in previously untreated patients. After 48 weeks of treatment with boceprevir plus interferon/ribavirin, 74% of patients achieved SVR12, said the Big Pharma.
• Yes, yes, there was more at AASLD than telaprevir and boceprevir. Want more liver meeting news? Click here.
  
• From the department of the bleeding obvious: Tough times for biotech IPOs.
  
• On tap for Monday? Politics, of course. And preemption. Great background at SCOTUS blog (h/t pharmagossip) and, obviously, at The Pink Sheet.
  

wordle by flickr user EricaJoy used under a creative commons license

DotW: Going For Gold

Congratulations, Michael Phelps, on your sixth gold medal. We can only imagine the adrenaline rush as we tune in periodically from our own cube. (Kind of like the high we get writing these posts. NOT.)

But Phelps wasn't the only one turning in medal-worthy performances this week. Genentech certainly deserves at least a bronze for its neatly worded--some might even say restrained--reply to Roche's nearly $44 billion July 21 offer, which noted that the Swiss pharma "substantially undervalues the company." Go figure.

But lest you think there are hard feelings between the two companies, fear not. Charles Sanders, chair of the independent committee evaluating the offer, extended this olive branch to Severin Schwan and company: "In addition, we look forward to the company maintaining its successful relationship with Roche, regardless of ownership structure." (Certain politicos in Russia and Georgia might want to take note.)

As our sister publication The Pink Sheet Daily reports (subscription required), Genentech's response means Roche can now begin bargaining in earnest. Most analysts and industy experts expect Genentech will ultimately score gold (as in a lot more coinage). To seal the deal, Roche may have to offer upwards of $100-a-share to gain its biotech goose. The question is: can the Swiss giant still afford to feed the animal given the high cost? Or will the high price tag necessitate cost-cutting efforts that damage the high-flying culture Roche claims it's intent on preserving?


Speaking of getting air, in the high jump competition, keep your eyes on Oxford Biomedica, up more than 20% today after the beleaguered gene therapy company rejected a second takeover offer from GeneThera, and German generics play Stada, which rose 12% today on rumors of a buyout by always-acquisitive Teva Pharmaceuticals. Protherics could be the favorite to medal here, as the UK biotech was up a whopping 44% earlier in the week after it announced it was in talks with unidentified potential acquirers.

Olympic athletes know that speed isn't everything. Stamina is important too. (Imagine having the staying power to eat Michael Phelp's 12,000-calorie-a-day diet.) In our industry, the medal for stamina has to go to our favorite activist shareholder, Carl "oh yes, I can" Icahn, who bought up more shares of Biogen Idec after that biotech's stock price slipped on negative news associated with its MS drug Tysabri. Icahn's move suggests he may not be finished with the Massachusetts biotech, despite not being able to force a sale of the company roughly one year ago. (Meantime another Icahn holding, ImClone, also looks to be going for (more) gold. The company hasn't officially rejected BMS's $4.5 billion bid, but a NY Times story published August 5 suggests execs at the biotech are likely to oppose the sale at the current price.)

Your IN VIVO Blog team has stamina too. And someday we might even get a medal for the analysis we bring you week in and week out. (It won't be for the humor.) Until then, it's time for another edition of ...

AstraZeneca/Abbott: Carpe diem, says AstraZeneca’s Crestor group. It’s got a great opportunity to step-up its commercial attack on Lipitor (down about 10% in new prescription growth from a year ago) and, perhaps more importantly, Vytorin – down about 40% from a year ago, thanks to negative-sounding, albeit equivocal, data out of the ENHANCE trial and, more recently, similarly disturbing results from SEAS. Problem: AZ’s US business is sputtering, so now is not the time to add infrastructure. Meanwhile, Abbott’s big new launch, Simcor (Niaspan plus simvastatin), hasn’t tracked with expectations. So it's a perfect time for the partners who, since 2006, have been developing combinations of Crestor with Abbott’s new-generation fenofibrate (called TriLipix), to use a Crestor co-promotion to iron out, before the big test, some of the likely kinks in the joint commercialization of TriLipix/Crestor.

CSL/Talecris: Private equity took gold in this week's top bio-bucks deal. Cerberus Partners and Ampersand Ventures announced Tuesday that they were selling Talecris Biotherapeutics to the world's top maker of blood plasma products, Australia's CSL Ltd., for a hefty $3.1 billion. In addition, CSL will assume over $1 billion in debt amassed by the North Carolina player, which was started in 2005 when Ampersand and Cerberus snapped up Bayer AG's plasma products from Bayer's Biologics Products Division for $590 million. Talecris, which currently operates 56 plasma collection centres and two manufacturing facilities in the US, posted $1.2 billion in sales last year. The move by Talecris's backers has apparently been in the offing for months. Indeed Talecris may have been sniffing out M&A exits as early as last July, when it filed to go public. We've noted previously that many companies are now adopting a twin-tracking approach, entering preliminary talks with potential buyers while simultaneously filing for an IPO. Certainly given the stock-market turmoil and the lack of investors' appetite for risky IPOs, M&A was the quicker and more lucrative exit for Ampersand and Cerberus. By buying Talecris, CSL is betting the combined company will be able to capture a bigger share of the expanding market for plasma-based medicines, now a $7 billion-a-year market.

Schering-Plough/Shanghai Schering-Plough Pharmaceutical Co.: Schering-Plough caught Olympic fever, announcing this week that it has expanded its presence in China by acquiring shares of its former joint venture partners and folding them into a wholly-owned operation based in Shanghai. (Beijing is definitely too smoggy.) Financial details were not disclosed. (Clearly the Chinese already get S-P's corporate mantra: "earn trust, every day.) China has long been a focus of major pharmaceutical companies, of course. As drug pricing comes under tighter control in western countries and looming patent expiries will lower sales, the companies are looking for ways to expand into valuable developing markets such as China where an economic boom has created a thriving middle class eager to access Western medicines. AstraZeneca is among the leaders, with its Innovation Centre China, an R&D center based in Shanghai, and its strategic partnership with Peking University 3rd Hospital to open establish a Clinical Pharmacology Unit (CPU). In 2007, it took top selling honors from Pfizer in the country, increasing sales of its drugs from $85 million in 2001 to $423 million last year according to the WSJ.

Barr/BI: Barr Labs is busy showing us why Teva decided to plunk down nearly $9 billion (in cash, stock and assumed debt) to buy out its generics rival back in July. On Tuesday Barr announced agreements to settle its Mirapex (for Parkinson’s) and Aggrenox (an anticoagulant) patent challenges with Boehringer Ingelheim. Those drugs pulled in more than $700 million combined in the twelve months through May 2008, according to Barr. Not only has Barr nailed down early dates on which it can start to market its first-to-file generic versions of BI’s two drugs (2010 and 2015—10 months and 18 months earlier than the drugs’ challenged patents officially expire, respectively), it also inked a co-promotion deal with BI on Aggrenox. Barr’s Duramed division will co-promote the anticoagulant with its specialist women’s health sales force starting in March 2009 (BI will train them up in the interim), in exchange for undisclosed royalties. The two deals come not too long after Barr’s June victory in US District Court in the Mirapex litigation. That ruling found that BI had double-patented the Parkinson’s therapy, and likely forced the German company to enter into serious negotiations with Barr while it considered its appeal. Of course authorized generics deals have always seemed a bit sketchy in the eyes of Congress and the FTC, among others, so expect a thorough review.

Pfizer/Cytos: Swiss vaccines (jab-elin?) play Cytos Biotechnology this morning said it added Pfizer to its list of R&D partners. The Big Pharma is paying CHF10 million upfront and up to CHF140 million in milestones to access Cytos’ Immunodrug technology to develop vaccines against a set of predefined disease targets. Cytos will also receive research funding and potential royalties; Pfizer takes over development of any products at the preclinical stage. For Pfizer the move is the latest in a string of vaccines deals stretching back to the acquisition of PowderMed in late 2006; more recently the Big Pharma has bought Coley and inked a licensing deal with Avant for a brain cancer program in its efforts to beef up its vaccines efforts.

Thanks to Chris Morrison and Roger Longman, who pitched in with some additional reporting.

While You Were Cheering on the Celtics

Yes, yes, yes, the rolling rally for the World Champion Boston Celtics was Thursday, not this weekend, so the typical "While you were.." parameters might not apply. And, IN VIVO Blog hears that Boston sports teams and their fans aren't all that popular these days, so it's unlikely many of you were cheering for the Green anyway.

But Mark Wan, general partner of Three Arch Partners, was cheering, and we've got pictures (courtesy of the Boston Globe.)

Wan, the cross-armed fellow in the Celtics Green T-shirt, is part of the ownership team that includes many life sciences/

venture capital types including Wyc Grousbeck, Highland Capital Partners, Richard H. Aldrich, Senior Vice President and Chief Business Officer, RA Capital Associates; David Bonderman, Managing Director, Texas Pacific Group; James Breyer, General Partner, Accel Partners and many others.

No doubt, Wan hasn't faced this big or energetic a crowd since he attended one of our medical device conferences.


Now, onto some news from this weekend.

Eli Lilly might hire a few Duck Boats itself if the FDA gives a thumbs up this week on use of its anticlotting drug prasugrel. The Wall Street Journal says analysts aren't ready to hop on Lilly's bandwagon just yet, in some cases giving Lilly slightly better than a 50% chance of getting approval. That's okay, seven out of eight of ESPN's so-called experts picked the Lakers.

European pharma execs are at a bit of a loss. The International Herald Tribune reported on the gloomy mood from the European Federation of Pharmaceutical Industries and Associations where executives at top European pharmaceutical companies wondered how to stop the industry's tailspin. Diversification? Increased R&D? Everything is on the table.

According to the The Wall Street Journal, Merck and Schering-Plough got a dose of bad news/good news regarding US prescriptions for their co-marketed cholesterol drugs, Vytorin and Zetia. IMS Health Inc. says sales of the drugs slipped in May, but at a smaller rate than in previous months. Prescriptions for the two drugs dropped 1.1% to 2.5 million last month after declining 23% since January. The drugs began taking a dive when data from an "Enhance" trial showed showed that Vytorin, which is a combination of Zetia and the generic drug simvastatin didn't perform any better than simvastatin alone "at slowing thickening of the arteries despite producing a greater decline in bad cholesterol." Simvastatin was once known as Merck's Zocor before its patent expired in 2006.

Finally, the Corn Refiners Association wants you to have a Coke AND a smile.

Claritin/Singulair Update: Merck Says Safety Isn't the Issue

We don't know what the issue with the Schering-Plough/Merck combination is, but now we know what it isn't.

Merck called us in response to our post on the "not approvable" letter for a fixed-dose combination of the blockbusters Singulair and Claritin. The letter, Merck says, did not raise any safety or tolerability issues.

We speculated that the letter must have had something to do with a recent notice from FDA suggesting a possible connection between Singulair and suicidality. Apparently that is not the issue--though we still suspect that whatever the issue is may have seemed weightier with that concern in the background.

Merck also pointed out that--contrary to what our post implied--the Singulair/Claritin combo is being developed under its own partnership agreement, separate from the Vytorin joint venture. Our bad.

We still think our point is valid: there is no such thing as a "low-risk" drug development plan.


Just ask Merck about Cordaptive....

Claritin+Singulair=There is No Such Thing as Low-Risk

The way things have been going for the Merck/Schering-Plough joint venture, it really shouldn't surprise anyone that their pending application for a fixed-dose combination of Merck's blockbuster asthma/allergy pill Singulair and Schering's off-patent Claritin received a "not approvable" letter from the Food & Drug Administration.

But the outcome must still be a surprise to investors who reacted with excitement to the companies' announcement at the end of August that it was filing an NDA for the product. (Yes, it really was only 8 months ago that drug stocks could move up on unexpected news.)

The combination was all but forgotten after the companies announced in 2002 that they couldn't demonstrate significant efficacy improvements when Claritin was added to Singulair. So everyone assumed MSP was a one a trick pony, albeit one with a nice trick--Vytorin. (Merck points out that the allergy combo is part of a separate partnership from Vytorin.)

Its hard to remember, but back in August no one was worried about Vytorin. And it doesn't take a rocket scientist to imagine the potential for even modest improvements on Singulair to generate big revenues: after all, the brand is now Merck's biggest at over $4.5 billion per year. So Wall Street cheerfully assumed that the companies had found a way to prove efficacy to FDA's satsifaction and took out their calculators to figure out how to adjust EPS models for the two joint venture partners.

Well, not everyone felt that way. Not to appear immodest, but (ahem) we highlighted the reaction to the NDA filing way back in September as an example of an apparent misreading of regulatory risk.

In the "Safety First" climate dominating FDA, companies and their investors can be forgiven for looking for low-risk development strategies. Just one problem: in the current regulatory climate, there is no such thing as a low risk drug development strategy. That's why, in a presentation to Windhover's Pharmaceutical Strategic Alliances conference, we cited the Singulair/Claritin combo as an example of a drug development program that was probably higher risk than it looked. (Don't believe us? Listen to the audio and see the slides here.)

Did we have some secret source telling us details about the NDA that no one else knew? Alas, no. We tied our observation to the recent travails of some other line extensions that seemed hung up at FDA based on what can only be described as unexpected safety issues. Our example: GlaxoSmithKline/Pozen's naproxen/Imitrex combo for migraines, which had been made "approvable" twice at FDA pending more safety data.

Given the many thousands of people who use those drugs in tandem already, it seemed odd that the agency needed more safety information about the fixed-dose combination--especially since it didn't accompany the "approvable" letters with any kind of warnings about the marketed products. That struck us as a clear indication that plans to market new combinations of already marketed ingredients are probably better considered low priorities for FDA, rather than low-risk development projects. And even a hint of a safety issue is sure to stall the NDA, since the reviewers know that they aren't denying anyone access to the medicine if they ask the sponsor for more data.

Merck and Schering didn't say what issues FDA raised with this combo. The Pink Sheet DAILY, however, logically connects the "not approvable" letter to a recent "early communication" issued by FDA warning of a possible association of use of the drug with suicidality. That regulatory landmine has claimed plenty of innovative products, so it is probably safe to assume it is a big factor in the setback for this combo. (We'll have much more on that theme in the next issue of The RPM Report.)

UPDATE: Logic only gets you so far. According to Merck, safety was not the issue with the Singulair/Claritin combo.

Still, the outcome is odd at best. Take Claritin, one of the safest drugs ever marketed as a prescription-only product. Add it to Singulair, one of the most widely prescribed brands today. And you get a drug that somehow can't get to market.

We'll say it again. There is no such thing as a low-risk drug development strategy.

One other thing: regulatory risk may never be low, but it also isn't infinite. That GSK/Pozen migraine drug? It was approved by FDA on the third go-around. GSK still sounds excited about its potential.