Deals of the Week Takes Stock in M&A

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

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

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

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

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gained more than $600 million in value before it was even announced, since its stock component was based on an already-outdated five-day average of Facebook’s share price.)

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

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

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

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

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

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

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

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

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

DOTW Keeps Tabs As Tax Trimming Fuels Deals

As an industry, biopharma actually fares pretty well when it comes to taxes. Among profitable companies, biotech and pharma have some of the lowest effective U.S. tax rates compared to companies in other sectors. But that doesn’t mean they have stopped working to push their tax rates even lower.

Along with a recent ramp-up of the usual strategies, such as buying companies or assets based in low-tax locales or moving intellectual property there, the industry also is starting to take advantage of the newest twist on tax inversions – in which two companies in high tax locales, only one of them the U.S., merge and create a new company based in a low-tax country.

The specialty pharma consolidation frenzy is driven in part by tax benefits derived from buying companies in lower tax jurisdictions like Ireland. The spec pharma with the lowest tax rate wins – or at the very least earns the right to leverage all that cash on their books to gobble up higher tax rate competitors, thereby making higher margins on the same products.

Valeant is the obvious winner on this front; it will have an astonishing 2% tax rate in 2014, according to data from RBC Capital. But most recently, taxes were also a factor in the Actavis purchase of Forest Laboratories Inc. Actavis had already lowered its tax rate with the acquisition of Irish-headquartered company Warner Chilcott that completed last fall. Now Actavis can apply that reduced tax rate to a product portfolio that will encompass Forest. Prior to the deal announcement, RBC expected Forest would have a 24% effective tax rate in 2014 and that Actavis’ would be 17%.

And, of course, Perrigo is also a newly Irish company, with its purchase last year of the floundering Elan. But there aren’t a lot of direct routes left to Ireland. The largest independent, public Irish therapeutics company is drug delivery company Alkermes; it’s only one of six remaining that also include another drug delivery play Merrion Pharmaceuticals as well as antibody company Prothena, according to the Strategic Transactions database.

(In Ireland, all roads lead back to Elan. Alkermes garnered its Irish locale after a 2011 merger with the drug delivery unit of Elan, while Prothena is the 2012 spin-out of Elan’s drug discovery business. Merrion is also based on IP purchased from Elan.)

Most biopharmas count themselves lucky to have an effective tax rate in the teens – or even the low 20s. The big biotechs with the highest anticipated 2014 effective tax rates are Biogen Idec Inc. at 27% and Gilead Sciences Inc. at 25%, according to RBC. Between them they’ve had two of the most successful launches in recent years for Biogen’s Tecfidera (dimethyl fumarate) and Gilead’s Sovaldi (sofosbuvir).

Intellectual property for each of these products is domiciled in Ireland in an effort to curb tax expenditures. But that’s a long-term solution that could take years to work. Biogen had a 28.8% non-GAAP tax rate in the fourth quarter. Due to a larger percentage of its profits coming from the U.S. with the Tecfidera launch, the biotech expects the rate to remain at this level through 2014 but for it to subsequently decline in the following two years.

Alexion beefed up its Irish and Singapore operations last year and in January bought an Irish vialing facility for its Soliris (eculizumab). These efforts resulted in tax benefits that are expected to give it a 2014 non-GAAP tax rate of 11% to 12% (GAAP tax rate of 20% to 25%). That’s down from a whopping 51.9% effective tax rate in 2013, which translated into an income tax provision of $273 million. Alexion’s non-GAAP rate is expected to rise to 13% to 14% in 2015 and 16% to 18% in 2016 and beyond, since some benefits are only short-term tax credits.

The most creative tax tactic in the sector is the recent Endo-Paladin deal. The usual approach to tax inversion is for a U.S. company to become the subsidiary of a foreign company. The latest twist on this long-standing move, the third deal of its kind according to RBC, is exemplified by the Endo-Paladin merger, in which a U.S. and Canadian company are merging to form a new entity – in this case, an Irish company.

One risk of being overly imaginative with corporate tax strategy is always bad publicity, as it can trigger allegations of being a ‘tax avoider’ or, even worse, attract the tender attentions of the IRS. Those issues make it difficult for the big multinationals to be very aggressive on the tax front, although becoming enormous hasn't slowed Valeant’s efforts on this front.

The highest corporate income tax rate in the United States is around 40%, including federal, state and local taxes. But at $242 billion in 2012, corporate income taxes are a small percentage of U.S. federal receipts compared to the $1.1 trillion in individual income taxes and $845 billion in social insurance taxes during that year, according to a recent Government Accounting Office report. Since the 1980s, corporate taxes have ranged from roughly 6% to 15% of federal revenue.

Ireland isn’t the only useful tax locality – the top four are the UK, Ireland, the Netherlands and Switzerland, according to RBC. These countries had a 2013 corporate tax rate of 23%, 12.5%, 25%, and 18%, respectively, according to data from KPMG.

Ernst & Young’s Mitchell Cohen, the life sciences global tax leader at Ernst & Young, also includes Belgium (35%, with substantial patent and R&D related deductions and credits), Singapore (17%) and Puerto Rico (20% to 30%) among the ranks of countries with a significant life sciences presence that provide tax benefits.

Among profitable companies overall, the average effective tax rate is 26.6%, according to a current dataset from Aswath Damodaran, a professor of finance at the Stern School of Business at New York University. The profitable pharma companies in his dataset had a 22% average effective tax rate, while the money-making biotechs were at an average of 17.4% That puts both groups in the bottom one-third of corporate tax paying sectors.

And while DOTW can't promise that you'll personally enjoy an effective tax rate of 2% this season, we do want to send you off with this week's deal news. Please read on to discuva the latest, including a pair of preclinical deals and another two that were called off in this week's edition of. . . .

Celgene/Abide: Celgene likes to keep all its options open – to acquire companies, to acquire programs and to license programs. In its latest R&D deal with the preclinical Abide Therapeutics, disclosed on Feb. 28, it included an option to purchase its biotech partner as well as an option to license the rest-of-the-world rights on the first two programs to reach the clinic. Abide’s most advanced compound, AB101131, is expected to enter the clinic in 2015. The biotech expects to get three or four additional candidates into the clinic under the collaboration.  Its technology selectively targets serine hydrolases to develop new treatments for inflammation and immunological disorders. Founded in 2011, Abide was seeded by venture firm Cardinal Partners. Celgene and Cardinal Partners both participated in an undisclosed equity financing concurrent with the deal. Other terms of the deal, including the upfront, also remain undisclosed. Abide is headed by Alan Ezekowitz, an entrepreneur-in-residence at Cardinal Partners who became the biotech’s president, CEO and co-founder. Prior to that, he was at Merck Research Laboratories, the research division of Merck & Co. Inc., as SVP and franchise head of bone, respiratory, immunology and endocrine. Abide’s platform is based on work by Professors Ben Cravatt and Dale Boger of the Scripps Research Institute. The biotech secured its first big biopharma deal last May; it partnered with Ezekowitz’ former employer, Merck. In that deal, it garnered an undisclosed upfront and milestones of up to $430 million to discover, develop and commercialize small molecules against three novel targets to treat metabolic diseases with a focus on type II diabetes. In the last few years, Celgene has done at least three prior deals that included an option to purchase the company: an October 2013 deal with cancer and fibrotic disease company PharmAkea Therapeutics, a July 2013 partnership with toll-like receptor agonist developer VentiRx Pharmaceuticals, and an October 2012 deal with selective small molecule histone deacetylase (HDAC) inhibitor developer Acetylon Pharmaceuticals. - Stacy Lawrence

Roche/ Discuva: Roche and U.K. biotech Discuva are collaborating on the discovery and development of new antibiotics to treat multi-drug resistant gram-negative infections using Discuva’s Selective Antibiotic Target Identification technology platform. SATI uses next-generation sequencing and bioinformatics to identify bacterial targets and select from among them promising drug development candidates. The deal, announced on Feb. 28, fits well with Roche’s revamped research strategy in infectious diseases, a field its R&D organization exited more than 20 years ago, but recently has re-entered. The new, narrower focus is on multi-drug resistant, pathogen-specific, hospital-directed therapies, rather than broad spectrum antibiotics that were Roche’s original focus. Companion diagnostics, an area of strength due to Roche’s long experience in molecular diagnostics, will be important in identifying pathogens. In an October 2013 meeting in New York, Roche’s head of research and early-stage development John Reed outlined his organization’s priorities, noting that the antibiotics field is attractive now in part because “the animal models are good in the clinical context” and the regulatory path is clearer, particularly for safety requirements, thanks to recent FDA guidance.” Discuva will receive an upfront payment of $16 million, as well as research fees and payments on multiple programs of up to $175 million per product upon achievement of certain development, commercial and sales milestones. It will also receive potentially double-digit royalties on product sales. Discuva uses proprietary methods built from recent genomic discoveries to identify targets that affect bacterial growth and viability, as well as related genes potentially associated with development of downstream resistance. The problem of multi-drug resistance to gram-negative infections is growing but has not received as much attention as gram-positive infections. Gram negative pathogens addressed by Discuva include Pseudomonas aeruginosa, Acinetobacter baumannii, Klebsiella pneumonia, Escherichia coli, and Neisseria gonorrhoeae. The company was founded in early 2012, with backing from New Wave Ventures. New Wave’s co-founder Tim Bullock is chairman of Discuva’s board; the amount his firm contributed to the start-up is not public. David Williams is an entrepreneur who founded Sareum, a U.K. oncology biotech that went public on AIM, and previously worked at Millennium Pharmaceuticals, Acambis, and Medivir. - Wendy Diller

Merck/Ariad: The fate of Ariad Pharmaceuticals’ mTOR inhibitor ridaforolimus is uncertain now that pharma partner Merck & Co. has decided to return rights to the cancer drug. Ariad revealed in its year-end financial release Feb. 25 that Merck is terminating a licensing agreement for the development and commercialization of ridaforolimus effective in November. The move creates “a new clinical and business opportunity for Ariad,” the company said in a statement, but management didn’t even mention ridaforolimus during a same-day conference call. Ariad is focused on the re-launch of Iclusig (ponatinib), which re-entered the U.S. market in January for the treatment of leukemia after sales were temporarily halted last year due to safety concerns. The company is also running clinical trials to meet FDA’s post-marketing commitments for Iclusig and to expand its label to new indications. Merck’s decision to end the agreement shouldn’t surprise investors, especially now that the big pharma’s oncology focus has shifted to its PD-1 immunotherapy program. Ridaforolimus was rejected by FDA in 2012 as a maintenance treatment for sarcoma after it failed to demonstrate a benefit on survival in a Phase III trial and only a limited two-week progression-free survival advantage. Under the original 2007 collaboration between the two companies, Merck paid $75 million upfront for development and commercialization rights to ridaforolimus and agreed to pay up to $452 million in development milestones and $200 million in R&D payments; the deal was revised in 2010 to give Merck global rights rather than a U.S. profit split. Merck paid out some $222.5 million in upfront and milestone payments during the life of the deal, according to the Strategic Transactions database. - Jessica Merrill

Teva/Andromeda: In a case of a “No-Deal” possibly leading to another deal – Andromeda Biotech reacquired rights to type 1 diabetes candidate DiaPep277, along with equity, from fellow Israeli company Teva. To undo the firms’ 2007 partnership around the human heat shock protein 60 (Hsp-60)-derived peptide, Andromeda will pay Teva total consideration of approximately $72 million in future installments based upon revenues or proceeds payable to its shareholders.That unraveling of a deal on Feb. 24 was followed by media reports Feb. 26 that Clal Biotechnology, another Israeli company which owns 96% of Andromeda, was working on selling Andromeda and the DiaPep277 program to an undisclosed U.S. biopharma for a price that might number in the hundreds of millions of dollars. At press time, however, a second transaction could not be confirmed. Andromeda said it will continue a 475-patient confirmatory Phase III trial for the candidate. The 24-month, double-blind, placebo-controlled trial is being conducted at more than 100 locations in North America, Europe, Israel and Argentina. Patient recruitment was completed in September 2012 and the trial is expected to produce data by the end of this year. The trial is studying DiaPep277’s ability to preserve the patient’s insulin secretion by the pancreas, with a primary endpoint of maintenance of glycemic control. - Joseph Haas

Thanks to 401(K) 2013 from Flickr for the use of the image, which we find both alarming and strangely beautiful.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo credit: Wikimedia Commons

Deals Of the Week, Once Again, Ponders Biosimilars

Teva Pharmaceutical Industries Ltd.’s and Lonza Group’s announcement on July 25 that they were formally ending their four-year-old biosimilars joint venture was hardly a surprise, given that late last year both companies said they were reviewing their relationship. Their decision certainly reflects the complexities of developing biosimilars, but it also is the consequence of each company’s new leadership, which has different priorities than those who forged the original deal.

Signed at a time when biosimilars seemed like an incredibly promising, albeit vague, long-term opportunity for an assortment of generics and pharma companies, the original deal was ambitious in scope. Each company committed to spend $300 million over six years on the alliance, estimating the cost of developing one biosimilar would be roughly $100 million – considered a lot at the time. Teva saw biosimilars “as a major growth driver” and positioned itself as “a leader in this market,” then President and CEO Shlomo Yanai said at the time. Lonza would bring large-scale biologics manufacturing and development expertise to the table, while Teva offered experience in clinical development and marketing of generic and branded drugs.

Four years later, even as the EU and U.S. regulatory pathways for biosimilars gain some clarity, the overall landscape for the field is as complex as ever. Like their competitors, Teva and Lonza held much of their work close to their vests, but they had counted on developing a franchise around a biosimilar version of Roche’s $7 billion Rituxan (rituximab) franchise, only to halt clinical development last October due to “changes in the regulatory and competitive environment.” They weren’t the only ones to face setbacks on rituximab programs: Celltrion Inc. and its partner Hospira Inc., and the Samsung Biologics/Quintiles Transnational Holdings Inc. alliances also are also in the midst of re-evaluating their biosimilar rituximab programs.

More telling, perhaps, new CEOs at each company are set on revamping priorities across the board. Lonza’s new CEO, Richard Ridinger, who joined the company in April 2012, is in the midst of re-organizing the company into two core areas, pharma and biotech and specialty ingredients. On an earnings call also on July 25, he said the company, which accounts for about a third of all mammalian cell culture manufacturing worldwide, would reduce its manufacturing footprint, including closing two plants. Lonza indicated that it holds CHF100 million ($107.6 million) in assets on its balance sheet in relationship to the joint venture and has expensed CHF38 million since its formation. The company estimates it will save CHF150 million by ending the deal.

Teva releases its second-quarter numbers on August 1, so the company isn’t providing accounting details or elaborating on the announcement. But CEO Jeremy Levin, who assumed his position in May 2012, is emphasizing greater selectivity and focus across the board, rationalizing overlapping projects, and improving the efficiency of an organization that had become unwieldy and unfocused, even as it has grown rapidly in the past decade. A lot of that rationalization is taking place in Europe, where markets are relentlessly unforgiving and where Teva’s –and its competitors’ – first attempts at biosimilars launches are occurring.

Biosimilars work continues at Teva internally. In comments earlier this year, both Levin and Chief Scientific Officer Michael Hayden said they would pursue biosimilars as part of a broader biologics program. Teva currently has several generic versions of marketed biologics on the market, although it went through traditional regulatory routes to get approvals: TevaGrastim, a generic version of Amgen Inc.’s Neulasta (pegfilgrastim) has been available in Europe for several years, for example. “I would say that in the biosimilars space, we still remain enthusiastic, but we’re going to be smart about it,” said Hayden in an investor call late last year, noting. “We're going to be in biosimilars in a very focused way.”

And since Teva is mum on the subject, it’s worth noting an observation by Frederick Wilkinson, president of Teva competitor Actavis Inc.’s specialty brands unit, on the latter’s own earnings call the same day as the Lonza-Teva announcement. Actavis has a joint venture in biosimilars with Amgen and Wilkinson said it expects a news update from that endeavor in August.  “I wouldn't actually read too much into it,” Wilkinson said of the ‘no deal.’ “If you looked at the Teva biosimilar program, they at some point had bought enough different companies that they had multiple projects going on the same product. And so, I think what they've done is probably very efficiently pruned their product line down to the leading entities within their biosimilar portfolio. Lonza for the last year has been out selling or trying to solicit use of space, so it has been obvious that the Lonza Teva relationship was not going to be as deep as it originally was [planned to be].” 

If you're looking for deals that may be smaller scale, but have a fresh start, here are some of the newest developments in what was generally a quiet deal-making week:--Wendy Diller

Adimab/Biogen &Adimab/GSK: Adimab’s tech transfer deals with GlaxoSmithKline  and Biogen Idec represent the small biotech’s greatest business development and financial successes to date.

The deals, each announced July 26, see Adimab setting up its technology platform inside its partners’ R&D shops. By licensing non-exclusive rights and transferring this antibody discovery and protein engineering platform to GSK and Biogen, Adimab enables its partners to expand their use of a technology that the biotech has until now tightly controlled. Both Biogen and GSK had previously allied with Adimab (GSK through the acquisition of Adimab partner Human Genome Sciences Inc.), but like the biotech’s 19 other partners, they were limited to one- or two-target “trials.”

GSK’s agreement is for an indefinite number of years, with unlimited product licenses across all therapeutic areas. Biogen’s deal is more limited – a seven year (renewable) term, limited to certain disease areas where Biogen has a presence, and a limited number of commercial licenses. Both companies can use the technology to pursue any antibody format – including antibody-drug conjugates or bispecific antibodies – and have retained options to access any future improvements or additions to the Adimab platform.
The financial specifics of the two new Adimab deals were not disclosed. In each, Adimab will receive a “significant” upfront cash payment, annual license fees for the lengths of the deal, R&D milestone payments, and royalties and commercial milestones on a defined number of therapeutic products.

The upfront funding from the two deals make Adimab a decidedly profitable discovery engine for the foreseeable future, and the company will make its first dividend payment to its venture investors later this year. It expects to sign one more platform transfer deal this year, and three per year through 2015.--Chris Morrison.

Kolltan/Children’s Hospital Of Philadelphia: Cancer-focused biotech Kolltan Pharmaceuticals announced a license of intellectual property and research agreement with Children’s Hospital of Philadelphia July 18 around discovery efforts for neuroblastoma therapeutics targeting anaplastic lymphoma kinase (ALK). Terms of the deal were not disclosed. Based in New Haven, Conn., Kolltan’s focus is on large-molecule approaches to receptor tyrosine kinase (RTK) inhibition – it has six programs ongoing at the discovery and preclinical stage and plans to file an IND for its first clinical candidate before year’s end. The firm will collaborate with researcher Yael Mosse, who studies the causes and potential therapeutic approaches for treatment of children diagnosed with neuroblastoma. In a statement, Mosse said ALK-targeted immunotherapy or antibody-drug conjugates may offer the best approach for patients whose tumors have an ALK mutation or amplification. “We believe immunotherapy and ADCs may provide a therapeutic option for the majority of patients with high-risk disease given the widespread expression of ALK on the cell surface of most neuroblastoma tumors,” she said.--Joseph Haas

Lilly/Transition: Transition Therapeutics  has obtained a worldwide exclusive license for Eli Lilly’s small molecule transcriptional regulator TT-601 for the treatment of osteoarthritis pain, the biotech announced on July 23. The compound has completed preclinical development, and Transition plans to take it into the clinic during the first half of 2014. TT-601 modulates the activity of a novel nuclear receptor target. Tony Cruz, CEO of Transition, says that molecules in this class “have shown target engagement in the joint space and efficacy in multiple animal models of joint pain.” Twenty-seven million Americans have OA. Under the agreement, Transition gets the rights to develop and possibly commercialize TT-601. Lilly keeps an option to reacquire the agent on review of proof-of-concept data, in which case Transition would be eligible for milestone payments of approximately $130 million and a high single-digit royalty on the sale of potential products containing TT-601.

Should Lilly not take the option, and the product comes to market, Lilly would be eligible for a low single-digit royalty from Transition. There’s a good chance Lilly will pull the trigger on the option. This deal comes on the heels of Lilly’s June 17 decision to exercise its option to reacquire another compound licensed to Transition, TT-401 for diabetes. Transition took a $7 million option fee, and could get up to $240 million in milestones from that deal. That goes back to a March 2010 deal between the partners in which TT-401 was included among a few other preclinical candidates from Lilly. Their partnering history began in 2008 with a non-option deal in which Lilly licensed TT-223 and other gastrin-based therapeutics for both Type I and II diabetes from Transition.--Michael Goodman

PolyTherics And Antitope Merge: Britain’s privately owned PolyTherics  and Antitope have merged their biopharma services businesses to tap growing demand from Big Pharma for services and technologies used in the search for biologics such as antibody-drug conjugates.

The enlarged group has a strong client base in the biotechnology and pharmaceutical industry, including the top ten biggest drug makers. It will offer conjugation technologies to generate more stable and homogeneous antibody drug conjugates, technologies to optimize the pharmacokinetics of biologics, technologies for immunogenicity screening, technologies to re-engineer antibodies, and proteins to reduce their immunogenicity, and cell line development technologies.

Antitope, founded in 2004, tests immune responses caused by antibody therapies and engineers modifications for the drugs. That expertise should complement the conjugation and polymer technologies from PolyTherics, which was created in 2002 as a University College London spin-off.

PolyTherics financed the merger with £13.5 million ($20.1 million) raised from a group of backers that includes Imperial Innovations, Invesco Perpetual, Mercia Fund Management, Advantage Enterprise & Innovation Fund, ProVen Health, Oxford Technology VCTs and high net worth individual's funds managed by Longbow Capital.--Sten Stovall

Deals Of The Week Ponders When $2.1 Billion Is A Steal

With the oncology high season upon us and just about everyone in the industry scrambling to decode the secrets hidden in ASCO’s abstracts, we couldn’t help but stop and reflect on how at least one company got where it is in oncology today through stellar deal-making. Bristol-Myers Squibb Co.’s $2.1 billion acquisition of Medarex in 2009, which seemed to some like a fortune at the time, catapulted Bristol into the leading position in the field of immune-oncology, an area of cancer drug development that some analysts are now calling a potential $10 billion to $20 billion market.

When the two companies, already partners, announced the acquisition in July 2009, “The Pink Sheet” called the offer “a coup for the biotech,” which got nearly double its stock price from Bristol. Fast forward four years later and it is Bristol that made out like a bandit.

There is still a lot to learn about how the immune system can be used to fight cancer, but it is increasingly evident that the immune system can indeed be directed to turn against tumors, potentially resulting in long, durable responses. Thanks to Medarex, Bristol has become one of the experts at the forefront of the research. Yervoy (ipilimumab), the immunotherapeutic targeting CTLA4 Bristol developed with Medarex, is already on the market for metastatic melanoma and could achieve blockbuster level sales this year. A second drug, nivolumab, which targets a different immune checkpoint, PD-1, has already moved into pivotal trials.

In about one week at ASCO, Bristol will release data on Yervoy and nivolumab used in combination, where the potential of immunotherapeutics is believed to be greatest. And those are just two of the immunotherapeutics Bristol has in development. The company is studying multiple immune system targets in earlier trials, some gained through Medarex and some gained through other deals. For example, the company gained a KIR receptor blocker through a licensing deal with Innate Pharma SA in 2011, and a monoclonal antibody against another target, CD-137, was developed internally. Bristol believes these drugs will ultimately be used together in different combinations to turn cancer into a potentially chronic disease.

It’s never easy to quantify the value of an acquisition years after a portfolio is integrated into big pharma, but it is safe to say Medarex turned out to be a smart buy. Investors and analysts have certainly taken note. Citi Research managing director for global pharmaceuticals Andrew Baum upgraded the company May 22 and raised the stock’s price target to $55 from $33 on the strength of the immunotherapeutics portfolio, which he said “will likely exceed $10 billion [in sales] by 2022.”

The company’s stock is up more than 11% since May 15, when the ASCO abstracts were released and Bristol’s data was highlighted in a press preview; it closed May 23 at $47. How is Wall Street valuing Medarex in the share price? “It’s at least $10. Perhaps as much as $15,” speculated ISI Group analyst Mark Schoenebaum.

All that’s not to say Bristol didn’t pay handsomely to be in the position it’s in. The company’s then-CEO James Cornelius took a big gamble on immuno-oncology when he put $2.1 billion down on Medarex as part of his “string of pearls” acquisition strategy before the Phase III data on ipilimumab read out.

The deal was one of the most expensive in oncology in the last five years, trumped only by mega acquisitions like Roche’s $43.7 billion buyout out of Genentech Inc. and Takeda Pharmaceutical Co. Ltd.’s $8.2 billion buyout of Millennium Pharmaceuticals, both in 2008, and by a couple of mid-sized acquisitions including Astellas Pharma Inc.’s acquisition of OSI Pharmaceuticals Ltd. for $3 billion and Celgene Corp.’s purchase of Abraxis BioScience Inc. for $2.9 billion.

Also, weighing in as more expensive is Eli Lilly & Co.’s $6.5 billion acquisition of ImClone Systems Inc. in 2008; ironically, Bristol was outbid by Lilly that time. Months later, Bristol turned around and acquired Medarex instead, a decision it probably doesn’t regret. Even though Medarex was expensive, the value it has brought to Bristol appears to be clear cut. Even a great deal can cost a fortune after all. -- Jessica Merrill

Which one of the deals below will pay dividends?  Check back in a few years, but for now content yourself with the latest edition of ...

Pfizer/Zoetis: Pfizer said May 22 that it will shed its remaining 80% ownership of the Zoetis animal health business that it began spinning out via IPO in February. The timing was earlier than expected. Analysts had anticipated that Pfizer would wait at least 180 days before divesting the remaining portion of the company, partly to help Zoetis establish its footing and also due to a lock-out period by underwriters. Yet, that waiting period could be waived if Zoetis established itself as standalone company, and apparently it has. Pfizer’s former animal health business seems to be adjusting to independence well; Zoetis reported first quarter earnings per share on April 30 of $0.36 per share, up 20% from what the unit reported a year earlier and three cents ahead of analysts’ expectations. The Madison, NJ-based company brought in sales of $1.09 billion, up 4% from the year-prior period. News of the swap didn’t impair Zoetis’ market performance; shares added about 1.5% to $33.55 on the day of the announcement. The Zoetis IPO, which brought in $2.2 billion for Pfizer, was a success. The offer price was above the anticipated range of $22 to $25 per share; the company sold 86.1 million shares at $26 each on Jan. 31. The stock opened at $30.74 on Feb. 1 and was up 20% on the first day. Now, Pfizer shareholders will be given the option to exchange all, some or none of their shares of Pfizer stock for Class A shares of Zoetis stock, which will be issued at a 7% discount to market price, meaning $100 of Pfizer stock would be worth $107.52 of Zoetis shares, according to the company. Though this time Pfizer won’t see any cash, the tax free swap will reduce the Big Pharma’s share count and thus be accretive to earnings per share. – Lisa LaMotta

Elan/AOP Ophan/NewBridge/Speranza: In its continuing effort to spend its way to diversification, Elan Corp. PLC announced a trio of deals this week. It acquired profitable, Central and Eastern Europe-focused orphan disease company AOP Orphan Pharmaceuticals; it invested in Middle Eastern specialty pharma NewBridge Pharmaceuticals; and it spun out its only clinical candidate into Speranza Therapeutics.
These deals come on the heels of its royalty deal with respiratory company Theravance and Elan’s struggle to remain independent. Also this week, Royalty Pharma increased its hostile bid to acquire Elan to $12.50 per share for the company, which it said is the equivalent of $4.6 billion for Elan’s remaining half of its royalties for multiple sclerosis drug Tysabri (natalizumab). That’s a 42% premium to the $3.25 billion for which Elan sold the other half of its Tysabri royalty to partner Biogen Idec Inc. in March. Elan shareholders previously rejected an $11.25 per share offer from Royalty Pharma earlier this year. Elan is acquiring AOP for €263.5 million ($339.8 million) in cash and stock, plus a potential €270 million in regulatory milestones. The Austrian company markets orphan disease products in Central and Eastern Europe and the Middle East. Elan also made a $40 million investment in specialty pharma NewBridge. Elan received a 48% equity stake and has the option to buy the remainder by 2015 for $244 million. Finally, Elan is divesting ELND005 (scyllo-inositol), which did not meet the primary endpoints in a Phase II trial to treat Alzheimer’s disease, into newco Speranza. Elan will invest $70 million for an 18% position in the company, plus royalties or commercial rights in undisclosed markets. A second undisclosed investor will invest $20 million for a 62% equity position, with the remaining 20% distributed among the management. Elan has committed to an additional potential $8 million, while the other investor may invest another $2 million. Elan CMO Menghis Bairu takes the reins at the new biotech as CEO. – Stacy Lawrence

Actavis/Warner Chilcott: Following more than a week of speculation, generics giant Actavis Group agreed to purchase specialty pharma Warner Chilcott PLC on May 20 in an all-stock transaction under which Warner shareholders will end up with a 23% interest in the combined company, to be called Actavis PLC. The deal gains Actavis a favorable tax environment in Ireland and puts to rest for now further talk of a potential Actavis/Valeant Pharmaceuticals International Inc. merger. Valued at about $8.5 billion including the assumption of $3.4 billion in debt, the merger will require approval from 75% of Warner shareholders under Irish law and is likely to close in the fourth quarter, the two companies said. Warner shareholders will receive 0.16 shares in the new company for each full share they hold in Warner, equating to a valuation of $20.08 for each existing share. That’s a 34% premium over the stock’s closing price on May 9. Aside from its core generics business, Actavis PLC will have eight women’s health products including contraceptives, infertility treatments and hormone therapies; six urology drugs across indications such as overactive bladder, testosterone replacement, prostate cancer and benign prostatic hyperplasia; two gastrointestinal drugs, both for ulcerative colitis; and one marketed dermatology product with a second slated for launch this July. It also would boast a pipeline of 25 compounds, 15 of which in the women’s health area. Actavis CEO Paul Bisaro said the merger would result in Actavis deriving about 25% of revenues from specialty branded product sales, compared with about 7% currently.– Joseph Haas

Novo/Xellia: Novo AS added the business-to-business generic anti-infectives manufacturer Xellia Pharmaceuticals AS to its portfolio of health care companies on May 21, building up a life sciences cluster in Denmark that may well be the envy of larger countries. Novo, a life sciences investor and the holding company for the Novo Group, is already the majority shareholder of three Denmark-based companies, Novo Nordisk AS, Novozymes AS and Chr. Hansen Holding AS, and said it was pleased to bring Xellia ownership back to Scandinavia. Xellia specializes in difficult-to-manufacture generic antibiotics and anti-infectives like vancomycin and colistimethate sodium, with fermentation technology not routinely available to bulk manufacturers of other antibiotics like penicillins and cephalosporins. Novo is owned by the Novo Nordisk Foundation, and like the Wellcome Trust in the U.K., the foundation is a major supporter of academic research through grants and other funding. Novo paid the U.K. private equity company 3i and minority shareholders $700 million for Xellia, a company 3i and its management bought from U.S.-based Alpharma Inc. back in 2008. Alpharma was itself created through the merger of companies based in Norway, Denmark and the U.S. 3i made a 2.3 times return on its investment in Xellia, not bad during the past five years of slow economic growth. – John Davis

BTG/Ekos/Nordion: Britain's BTG PLC announced two planned acquisitions this week, one extending its abilities in liver cancer and the other an ultrasound treatment for dissolving severe blood clots, to create an interventional medicine business with potential sales of $1 billion. BTG agreed to pay $180 million in cash and up to $40 million in milestones for Seattle-based Ekos Corp., which will provide control of EkoSonic, a new technology approved in the U.S. and Europe for treating blood clots which is enjoying 29% annual compound growth rate over the past three years. The specialty pharmaceutical group also agreed to buy the targeted therapies division of Nordion Inc., for about $200 million in a deal that adds that company’s Therasphere radioactive glass beads treatment for liver cancer. BTG believes Therasphere will complement its existing chemotherapy beads unit and wants to expand the indications of use for that product and its geographic footprint beyond Europe and the U.S. to Asia, where the prevalence of Hepatitis B – a precursor for liver cancer – is very widespread compared with the West. For example, 5% of primary liver cancers occur in China. BTG thus sees a huge market opportunity there and aims to build on the chemo bead partnerships and regulatory track record it already has in China, Japan and South Korea for promoting Therasphere. Some of the cost of buying the Nordion unit will be met from a May 23 private placement that raised $160.7 million. BTG sold 32.2 million new shares, representing just below 10% of its share capital. -- Sten Stovall

GSK/BARDA: Biopharmaceutical business development executives are oft heard claiming that every deal is different – and so breathless PR claims of “first of its kind” and uniqueness usually tend to be simultaneously overheated and paradoxically unnecessary. But this week’s deal between GlaxoSmithKline PLC and the U.S. Biomedical Advanced Research and Development Authority might fit the bill. The collaboration is essentially a grant over which BARDA exercises an unusual amount of control and will focus on developing antibiotics against resistant bugs and potential bioterror agents. BARDA retains flexibility in which GSK projects it chooses to fund over the life of the deal; it will contribute $40 million over an initial 18 month period and up to $200 million if the deal gets renewed over five years. The only specific GSK asset cited in the award contract is GSK 2140944, an antibiotic against respiratory and skin and soft tissue infections currently in Phase I studies for conventional and biothreat applications. A joint BARDA-GSK committee will determine funding allocations and select or eliminate projects for the team’s portfolio. BARDA doesn’t receive any traditional ownership or return rights (no milestones or royalties to reward its risk taking). Nor will it acquire any rights to GSK’s pre-existing IP, according to a GSK spokesperson. For IP that comes out of the relationship, the spokesperson notes that “GSK may obtain title to any patents for inventions GSK makes as part of the contract, with BARDA reserving certain government rights to such inventions.” The deal underscores the need for new models to fund R&D in a space largely underfunded by traditional means thanks to scientific difficulties and poor return on investment. GSK isn’t alone in its pursuit of new antibiotics, but it’s an increasingly small club.--CM

Deals Of The Week Is Keeping Score – Valeant Wants Actavis, Which Covets Warner Chilcott …

Whether the pastime is baseball, Broadway or the daytime soaps, the old adage is that you can’t keep track of the players without a scorecard. The M&A front involving specialty pharma and generic drug makers has become similarly frenzied, as Canada’s acquisition-driven Valeant Pharmaceuticals sought after the newly minted Actavis, with Actavis then turning to a pursuit of Warner Chilcott once negotiations with Valeant broke down.

What, exactly, is going on here? And just as vitally, why?

Recall that the dust only recently settled on Actavis, the re-branded Watson Pharma, following the merger of those two firms last year. At an investor day presentation Jan. 25, CEO Paul Bisaro proclaimed that the new Actavis could boast a widened geographic footprint and a diversified portfolio comprising regular and branded generics, brand-name pharmaceuticals and over-the-counter products.

With the Watson/Actavis combination, the resulting company merely was trying to keep pace in a consolidating generics industry that had seen sector-leader Teva continually branching out into branded drugs and perhaps biosimilars and Mylan increasing its capabilities and geographic reach via a run of targeted deal-making.

In late April, reports surfaced that talks of a merger between Valeant and Actavis had collapsed, apparently due to Actavis shareholder concerns over valuation. Actavis has been a centerpiece of Wall Street discussion in recent months, due to a consistently rising share price. (Or has the conversation lifted the share price? A chicken vs. egg conundrum, to be sure.) The stock opened trading March 1 at $85.17, and rose to $92.33 on April 1 and to $105.24 on May 1. At the close of trading on May 16, Actavis’ stock price stood at $123.61.

Meanwhile, it was not necessarily clear who was the suitor in the Valeant/Actavis talks, although the safer bet seemed to be Valeant, helmed by acquisition-hungry CEO Michael Pearson. A Wall Street investment analyst said that the Valeant/Actavis talks seemed to be the catalyst for the resulting Actavis/Warner Chilcott rumors as well as possibly emerging interest in buying out Actavis from Mylan and from Novartis.

“We know that Valeant is an aggressive negotiator in terms of valuation,” the analyst said. “Going by their track record, they’re not going to pay some kind of excessive premium. The question we had was if nothing happened, did Valeant learn something really negative about Actavis during its due diligence?”
The analyst opined that the talks might have been a power-play by Bisaro himself, with the Actavis CEO picturing himself as the leader of a combined company with Valeant. “If Bisaro is talking with Pearson and trying to sell the business for $120 a share, isn’t he sending a signal that the game is up?,” asked our source. “Now, Bisaro might be saying Actavis is undervalued and going to do all these things, but his wallet is doing the talking. Actions speak louder than words, and they’re saying now is the time to pull the ripcord on the parachute.”

But if Valeant was the pursuer, Actavis’ current gambit for Warner Chilcott might have a “poison pill” element, an effort to make Actavis too rich for the Canadian specialty pharma to swallow. “It seems too coincidental that this happened so quickly after the Valeant story,” the analyst said.

In any event, the analyst perceives an Actavis/Warner Chilcott merger as highly likely, given how much the Irish firm has to lose if it puts itself up for sale and fails for a second year in a row. It would broaden Actavis’ portfolio in women’s health and dermatology and a strong sales force that could bolster Actavis’ commercial capabilities. What’s more, a reverse merger would domicile the resulting business in Ireland, providing tax advantages.

More elements were added to the story mid-week: Pittsburgh-based Mylan was reported to have made a roughly $15 billion offer to acquire Actavis, and then multinational pharma Novartis was said to be weighing its own bid. Novartis later publicly denied interest in Actavis, however. - Joseph Haas

The final chapters of that story remain to be written, but other biopharma deal-making has come to fruition in the latest installment of …

Elan/Theravance: In one of the more interesting deals of the past week, or for that matter the year, Elan announced a deal May 13 in which it agreed to pay Theravance $1 billion upfront in exchange for a portion of the potential future royalty payments it will receive from four respiratory programs partnered with Theravance. It’s a hefty up-front that many analysts believe exceeds the value of the interest Elan would acquire. The deal is the first of several Elan plans to make as it looks to reinvent the company through licensing and acquisitions. The announcement also comes as Elan looks to push back a hostile takeover bid from Royalty Pharma. Under Irish takeover law, the Theravance deal will require approval from investors, who already are considering an $11.25 per share buyout offer from Royalty. Elan would gain a 21% interest in potential future royalty payments to Theravance from GSK on four partnered respiratory drugs, including Breo Ellipta, which was approved by FDA May 10 for the treatment of chronic obstructive pulmonary disease. It also includes Anoro Ellipta, a combination of vilanterol with the LAMA umeclidinium, which is pending at FDA with a Dec. 18 user fee date, as well as in a bifunctional muscarinic antagonist-beta1 agonist (MABA) monotherapy and vilanterol monotherapy, both in development. For Theravance, the deal would have been hard to refuse given the rich terms, even though the company recently announced a separation to form one entity to manage the royalty revenue stream from Breo. Management said the arrangement will complement the company’s previously announced plan to separate into two companies. The firm said April 25 it will split into two entities, a royalty company called Royalty Management. Co. with a focus on near-term profitability and returning capital to shareholders, and Theravance Biopharma, a research-focused biopharmaceutical company. - Jessica Merrill

Alvine/AbbVie: On May 14, AbbVie signed its second deal since spinning out from parent company Abbott Laboratories in January, this time with San Carlos, Calif.-based biotech Alvine Pharmaceuticals. AbbVie agreed to pay $70 million upfront for an option to either acquire Alvine outright or license all of the assets related to its lead compound ALV003 for the treatment of celiac disease. The disease, which is characterized by gastrointestinal inflammation due to the ingestion of gluten-containing foods, affects about 3 million Americans and currently has no treatment options other than limiting gluten intake. ALV003 has completed a Phase IIa study and Alvine is prepared to take the drug through a 500-patient Phase IIb study, slated to read out in late 2014. Should AbbVie opt into the program, it will pay a “substantial” option fee, as well as further near-term milestone payments. The amount of those payments was not disclosed. The relationship between Alvine and AbbVie has a rich history; AbbVie’s venture arm (then Abbott Biotech Ventures) backed the biotech in May 2010 when it invested an undisclosed amount. AbbVie’s funds were an extension of Alvine’s Series A – the initial tranche was $21 million in 2006 led by Sofinnova Ventures with additional participation from Prospect Venture Partners, InterWest Partners, Cargill Ventures and Flagship Ventures. Another $21.5 million was raised when Panorama Capital and Black River Asset Management joined the syndicate in 2009. - Lisa LaMotta

RuiYi/Genor/CMC Biologics: China-U.S. hybrid RuiYi announced May 16 a series of partnerships to develop RYI-008, a novel anti-interleukin-6 monoclonal antibody in China to treat autoimmune disease and cancer. Formerly Anaphore, the hybrid is 90% a Chinese company, and about 10% U.S.-based, CEO Paul Grayson said. RuiYi conducts research at a facility in the Zhangjiang Hi-Tech Park in Pudong Shanghai, China, with only its executive management team based in offices in La Jolla, Calif. The antibody, in preclinical development now, will be developed first in China, and the company has forged a partnership with three other companies to get it there. China has said it would make biotech innovation a priority, but few companies have been bold enough to develop innovative biologics in the country, choosing instead to focus on biosimilars and generics for China, Grayson said. RYI-008, formerly ARGX-109, was in-licensed from Belgian/Dutch biotech arGEN-X in October 2012. RuiYi inked an exclusive licensing and co-development agreement with Shanghai-based Genor Biopharma to develop RYI-008 in China. Financial details of the deal were not disclosed. The company was chosen partly due to its close relationship with China FDA and its deep knowledge of China’s regulatory environment. Founded in 2007, Genor is focused on development and commercialization of therapeutic mAbs and Fc-fusion proteins. The company has more than 10 products in its pipeline, three of which are at IND and clinical stages. Danish contract manufacturer CMC Biologics will develop a cell line for RYI-008 for global manufacturing in all markets. Specific terms of the agreement were not disclosed. - Tamra Sami
Roche/Curie-Cancer: France’s Curie-Cancer and Roche announced May 15 that they are building upon a four-year partnership to expand their translational research programs and hasten development of new cancer treatments. In 2009, they agreed to partner around a preclinical research program which gave Roche access to a platform of preclinical models developed by the research teams at the Institut Curie. Curie-Cancer develops Institut Curie’s industry partnership activities. The Roche Institute for Research and Translational Medicine is the Swiss group’s arm there which aims to identify leading French academic research teams and build partnerships with them in areas of shared interest. The initial partnership gave Roche access to preclinical models that are highly representative of the tumors observed in patients. Using the platform, Roche determined in which sub-type of breast cancer an antibody was most effective. The Institut Curie also owns the Reverse Phase Protein Analysis platform, which gives researchers better understanding of how a Roche antibody works on the cancer cells at the molecular level, and also helps to identify predictive response markers. Curie-Cancer and Roche currently are working on a number of translational research programs involving Roche molecules that make use of the same technology. For example, a team of Curie-Cancer clinicians, anatomopathologists and researchers are working on developing a new Roche molecule targeting tumors. No financial details of the partnership were disclosed. - Sten Stovall

Quintiles/Merck Serono: Merck-Serono and newly public CRO Quintiles Transnational announced May 15 a five-year strategic collaboration that appears to go beyond the typical consolidation which the provider services industry’s larger pharmaceutical companies have pursued over the past few years. The deal, which the companies described as “first of its kind,” will create a drug-development engine by combining “expertise and experience” from the two organizations. Merck-Serono will lead strategically while Quintiles will handle the nuts and bolts of clinical trial planning and execution. In short, this is about more than saving money for Merck-Serono, a company that apparently is saving quite a bit these days. The mid-sized pharma’s parent company Merck KGAA reported May 14 during its quarterly earnings call that it was ahead of schedule in executing on its restructuring – which involved the closure of Merck-Serono’s Geneva headquarters – and that it would move forward its financial targets from 2014 to this year. Merck-Serono Executive VP and Global Head of Development and Medicine Annalisa Jenkins said that the partnership transcends the typical preferred-partnership outsourcing model. The deal moves beyond trading volume for “a better rate card,” she said. Quintiles has the benefit of seeing across different companies throughout industry, she said, and of integrating that knowledge, adding, “it’s remarkable that we don’t make a greater attempt to embrace and integrate that knowledge in how industry plans and executes studies.” The Merck-Serono/Quintiles tie-up does just that, she said, and “financially the incentives are set up to drive to more efficient decision making.” Specifics of the financials weren’t disclosed. The deal is Quintiles’ first since its public market debut May 8. The industry’s largest CRO and its existing investors sold more than 27 million shares combined at $40 apiece, raising about $950 million (Quintiles netted about $500 million). - Chris Morrison

AbbVie/Galapagos: AbbVie made further news May 17 when it and partner Galapagos announced that they will extend their 2012 collaboration centered on GLPG0634, a Phase II Janus kinase inhibitor, to development in Crohn’s disease. Under the revised agreement, the Belgian biotech will fund and complete a Phase II trial in Crohn’s, which should facilitate rapid progression into Phase III. AbbVie will pay Galapagos $50 million upon completion of the study, expected in mid-2015. Galapagos will initiate what is planned as a 20-week, Phase IIa/b study of ‘0634 in Crohn’s patients in early 2014, investigating for both disease remission and early maintenance of the drug’s beneficial effects. The study will be performed in parallel with a Phase IIb study in rheumatoid arthritis, pursuant to the agreement Galapagos signed with then Abbott Laboratories in February 2012. At the time, Abbott paid $150 million upfront with a commitment for $200 million more if the JAK inhibitor met pre-determined criteria in Phase II study in RA. - J.A.H.
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