Deals Of The Week Wonders: Who Will Buy Onyx?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

While You Were Hobnobbing with Hematologists

Much of the industry news this weekend comes out of the American Society of Hematology meeting in San Francisco, which runs til Tuesday. For a roundup of everything out of ASH click here, and we will break down some of the highlights below.

Of course it wasn't 'all ASH, all the time' over the past few days; the fallout from the financial crisis continues, and combined with the cold weather across the Northeast and in parts of Europe it's enough to make you want to curl up with a good movie, or six.

While you were rebuilding your bloody Netflix queue ...

• Blood Simple: Among the newsmakers at ASH this year, as of the wee hours of Monday morning: Seattle Genetics presented Phase II monotherapy data from its dacetuzumab NHL therapy and preclinical data in combination with Rituxan. SG also reported positive Phase I monotherapy data for its SGN-35 antibody-drug conjugate. Antisoma said that an interim look at a Phase II study of its AS1411 aptamer in AML in combination with cytarabine was positive (it was the first such randomized study involving an aptamer in oncology, says Antisoma). Genentech reported positive results for two Phase III Rituxan studies in CLL. Allos Therapeutics announced positive Phase II data from a study of its lead compound pralatrexate in PTCL, as well as data from earlier stage studies in CTCL and NHL. And Sunesis said that two trials of its voreloxin naphthyridine analog revealed the compounds promise as a single-agent or in combination against AML.
  
• Blood Diamond: Year-to-date sales of Millennium-Takeda/J&J's Velcade multiple myeloma therapy have reached $1 billion, putting it in official blockbuster territory. The WSJ notes that sales have increased roughly 25% this year, thanks to an expanded label.
  
• There Will Be Blood: Is January 26th the day Pfizer will announce more layoffs? Jim Edwards has the roundup (and drinks your milkshake. He drinks it up!)
  
• In Cold Blood: VCs face a future that includes the phrase 'defaulting limited partner,' says the WSJ. And rumors are floating around that some major university endowments are selling their VC stakes. We'll have more on how life sciences VCs are reacting to the simultaneous pressures exerted by the financial crisis and a difficult partnering/regulatory/reimbursement climate in the next Start-Up.
  
• First Blood: They've gone and pissed off Ben Goldacre again. The Rambo of Bad Science fights back against more MMR vaccine scare stories.
  
• Youngblood: We got nothin' for this one. But come on readers, yes, we can all agree that Slapshot is the best minor league hockey movie ever made, but we figure you probably have a soft spot for mediocre 80s hockey melodrama. Youngblood of course stars Rob Lowe and Patrick Swayze, but look out for a young Keanu Reeves and the cameo by former Philadelphia Flyers center Peter Zezel. Remember: "You can learn to punch in the barn, but you gotta learn to survive on the ice." Your own blood-related filmage in the comments, please.
  

While You Were Watching Football

You didn't miss anything this weekend. Really, nothing happened, we looked. Oh, but the Eagles destroyed the St. Louis Rams 38-3 and the Phils took the weekend set against the Mets at Shea two games to one. But to dig up anything interesting in the biopharma universe, we had to wait til this morning. So here you go ... while you were driving to work:

• BMS and AstraZeneca released positive data from a study of their DPP-4 inhibitor saxagliptin (Onglyza) at the European Association for the Study of Diabetes meeting in Rome this morning. The companies said that the drug, which was submitted to FDA over the summer, "produced significant reductions across all key measures of glucose control studied."
• Also at EADS, Novo Nordisk said that its liraglutide human GLP-1 analog plus metformin and rosiglitazone led to improved blood glucose lowering, weight loss, blood pressure reduction and improvement in beta cell functioning. For more news out of this diabetes meeting, click here.
  
• Velcade was approved in the EU for combination with melphalan and prednisone for the treatment of patients with previously untreated multiple myeloma (MM) who are not eligible for high-dose chemotherapy with bone marrow transplant.
• Finally, a mini Press Release of (Last) Week: for the PR rep who is sending us pitches to cover the release of "Don't Mess With the Zohan" on DVD, this is for you.

photo of Lincoln Financial field, scene of yesterday's carnage, by flickr user MattP33, used under a creative commons license.

Takeda/Millennium: The Price is Right

Just one week ago, on a blustery early spring day, this IN VIVO blogger crossed the bridge into the PRC--that's the People's Republic of Cambridge--to speak to Deborah Dunsire, CEO of Millennium Pharmaceuticals, for an up-coming feature focused on the biotech's near-term stategy. Most of the discussion was about Velcade and the company's plans to build that drug into a multi-billion dollar cancer franchise through label expansion.

Millennium hit its billion dollar jack-pot a bit sooner than expected. On April 10, Takeda announced it had agreed to acquire the Cambridge-based biotech for $25-a-share in an all-cash tender worth roughly $8.8 billion. If the deal terms remain the same, Millennium will make its biotech exit with the 8th largest market value in that industry--roughly twice as much as the next ones in line, Cephalon, ImClone, and Vertex.

Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets.

From the day Dunsire arrived at Millennium from Novartis three years ago, pundits predicted that the biotech’s days as an independent entity were numbered. Many expected that Dunsire would off-load the company to Johnson & Johnson, whose Ortho Biotech division owns ex-US rights to Velcade. But apparently Takeda was the only serious bidder for Millennium.

Takeda is clearly the new deep pockets in the cancer world. (Remember its $640 million two-part, 13-compound, mostly Japanese deal with Amgen and its even more recent $320 million worldwide deal for Cell Genesys’ GVAX prostate cancer prostat program?) But it also has the tremendous advantage of the dollar’s low value relative to the yen. That’s why Takeda could afford to pay the 65% premium to Millennium’s Wednesday closing price, even without a share of those valuable ex-US Velcade rights owned by J&J. It's a deal that would have been impossible from any US player.

So what is Takeda getting? In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium's fate--barring some kind of external business transaction--was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. In other words, at Millennium it was all Velcade all the time.

Roughly 55,000 patients in the US have multiple myeloma, and only half--those who have refractory cancers that haven't responded to other treatments--are currently eligible to receive Velcade. In December, Millennium submitted a supplemental new drug application for Velcade's use as a front-line agent based on strong clinical data presented at last year's American Society for Hematology meeting. A positive regulatory decision, widely expected by June 2o, would double the drug's market, sending already strong Velcade sales soaring.

Back in January, Howard Liang, an analyst with Leerink Swann, wrote in a research report that "the current Street consensus significantly underestimates Velcade's growth in the next two years," and predicted 2008 and 2009 Velcade sales of $379 million and $488 million respectively. (In a separate press release issued Thursday, Millennium noted that first quarter 2008 sales of Velcade were $83.5 million, a 13% increase over fourth quarter 2007 sales and a 42% increase over the first-quarter of last year.)

Add in potential label expansion into another form of cancer, follicular lymphoma, an event widely expected to happen in 2010, and one begins to see the product’s growth trajectory. “Velcade is enough to sustain the company. We feel confident we can deliver on the pipeline,” Dunsire insisted last week.

Or maybe not. Dunsire admitted that despite step-ups in Velcade's growth, in-licensing a late-stage cancer asset would go a long way to “evening out the bumps” as the company looked to shepherd its other products through clinical development. Still, she was adamant that the company was “under no pressure to do a deal” and it surely wouldn’t overpay for the privilege.

But it’s almost certainly the case that Millennium would have had to pay a pretty penny for any oncology product expecting near term approval. Such assets are rare, and with pharmaceutical companies eyeing such specialty markets with greater favor, the competition for rights to these products is intense. Recall that about 18 months ago, Millennium tried—and failed—to acquire the Canadian biotech AnorMed, which had Mozobil, a small-molecule CXCR4 chemokine antagonist in Phase III clinical trials for hematopoietic stem cell transplantation and non-Hodgkin’s lymphoma. Despite the obvious sales synergies with Velcade, Millennium refused to get caught in a bidding war, and bragging rights for Mozobil ultimately went to Genzyme for $584 million.

In today’s market, where deep-pocketed pharmaceutical companies are competing with mid-sized biotechs for valuable assets, prices are likely to go much higher. And cash-poor Millennium—the company had about $900 million in cash on its balance sheet at the end of 2007—probably doesn’t have the financial wherewithal to buy a product and simultaneously invest in its pipeline. (For those keeping track, Millennium hasn’t done a significant acquisition since it bought Cor Therapeutics in 2001.)

So the company was forced into its “All Velcade” strategy. Until Takeda entered stage right, that is.

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.

At February’s BIO CEO conference in NYC, Dunsire noted the company was anticipating the need to “aggressively manage its portfolio,” and was shopping around non-core assets, including atherosclerosis and inflammatory disease products. Without a sudden windfall, the company might have been forced to give up rights to products with more strategic value, such as the second generation, orally administered proteasome inhibitor MLN-2238, which is scheduled to begin Phase I trials later this year.

Thanks to Takeda, Millennium execs can delay such hard decisions.

No Cure, No Pay

For most other consumer goods, you’d expect to get your money back if the product didn’t work. Not so for drugs, where many treatments don’t work in at least a significant minority of patients—but payors and governments can’t claim a refund.

That may be about to change. Today Johnson & Johnson’s Janssen-Cilag subsidiary offered to pay back the UK’s National Health Service if their blood cancer drug Velcade fails to help improve patients’ condition.

It’s not a done deal—the Department of Health will now consider the proposal. And there are still plenty of creases to iron out, such as what levels of improvement the drug would need to show in order to trigger payment. But the proposal has the backing of the UK’s cost-effectiveness body, the National Institute of Clinical Excellence, which means it’s likely to be accepted in some form or another.

Janssen isn’t doing this just to look good: for them, this scheme is the only way it will see any reimbursement for the £25,000-per-cycle drug, which NICE initially deemed too expensive to be cost-effective. This risk-sharing agreement is part of Janssen’s appeal against that decision, and the trend will probably catch on as other firms seek to overturn negative reimbursement outcomes. Some are already talking to NICE about similar schemes.

And small wonder: no cure, no pay makes absolute sense. It renders the cost of treatment economically feasible for payors, and it may help manufacturers, too, by forcing them to identify patients that will respond best to their treatment, and to find ways to improve compliance if a drug does not appear to have the same effect in daily use as it does in controlled trials. That will facilitate more widespread reimbursement and sales.

So why hasn’t 'no cure, no pay' caught on? It’s not as if Janssen is the first mover here. Novartis in 2004 tried it with hypertension treatment Diovan, to try to boost flagging sales in the US; the company claims it worked. In 2005, Bayer did the same with erectile dysfunction drug Levitra in Denmark, offering patients a refund if they were not satisfied. There are plenty of other even earlier examples, according to a paper in the British Medical Journal by Claus Møldrup, Associate Professor in the Department of Social Pharmacy at the Danish University of Pharmaceutical Science in Copenhagen. (See Box.) No cure, no pay hasn't caught on because it hasn't had to: traditional marketing techniques have worked fine.

Until now, that is. From here on, we'll see more money-back guarantees, and we’ll also see other schemes linking price to performance. GSK in September 2006 announced that it had persuaded two European governments to allow the price of pharmaceuticals to vary, in either direction, according to real-life data that emerge on the drug's effectiveness. (See February's IN VIVO article for a discussion of this and other price-discounting schemes underway in the UK.)


So governments and payors had better get cracking and set up their systems to receive funds, rather than simply pay them out—this was just one of the challenges that helped snuff out the Danish no-cure, no pay arrangements.

In the latest Velcade proposal, the NHS will be refunded in the form of a credit note from Janssen, according to the BBC. It’s not quite your money back, then—but at least you can try a new product for free.


SOURCE: BMJ 2005;330:1262-1264 (28 May)