Amgen investors have high expectations for Amgen's Business Review Day, scheduled for April 21. With Medicare's coverage decision on March 16 settled in Amgen's favor (or at least not against it), their main focus now is on whether the big biotech will initiate a dividend. The question is tantalizing to Wall Street analysts, who are predicting that anything less than a positive announcement by the company will be a major setback for the stock.
Dividends have been an active, ongoing part of investor dialog with Amgen for several years. But very recently, the grumbling is getting louder, and Amgen is showing signs of capitulating. Until recently, the big biotech has refused to commit to a number or time frame. Now, apparently, executives have told analysts that they will provide a clear explanation of their capital allocation policy, presumably including dividends, on April 21.
Amgen's approach to dividends says a lot about its place in the biotech world and its strategy going forward, as well, perhaps, about the rise of shareholder activism. With its business maturing, and its growth prospects slowing, it is by far the largest of a small contingent of successful biotechs that are throwing off profits or expected to shortly. All of these companies – Gilead, Biogen, and, down the road, Vertex and Human Genome Sciences - are the subject of dividend questions, some more serious than others.
Most of these companies are sitting tight - HGSI and Vertex have yet even to launch products. And, after all, issuing a dividend means relinquishing a perception – or perhaps illusion – that a growth company can grow forever. Occasionally, one, like EU-based Actelion, the beleaguered maker of Tracleer, latches on to dividend payouts as a short-term, somewhat misguided and obviously desperate lollipop-attempt to respond to shareholder activists until the something it's waiting for happens (in Actelion's case, it wants favorable data from a late-stage compound to come out in late 2011 or early 2012).
With Genzyme and Genentech no longer independent, Amgen is clearly at the moment a special case. Its numbers tell of its maturity: 2010 revenues were roughly $15.1 billion, with growth in recent years ranging from -2.4% to +2.7%. Even with the launch of Prolia/Xgeva (denosumab) in the U.S. in 2010, Deutsche Bank analyst Robyn Karnauskas projects its top-line CAGR will only reach 2% between 2010 and 2014, although bottom line growth will rise 8%. Yet, it has the pharma industry's highest net margin, is sitting on $14 billion in cash (most of it stashed overseas), and generates $5.4 billion a year in free cash flow. With the exception of its purchase of BioVex in January 2011, it hasn't made a sizeable acquisition in years—if one can call BioVex "sizable". Investors and others insist that they want to know how the company plans to allocate this enormous amount of capital.
But what they really want is a clear articulation of Amgen's strategy. Analysts are divided on how comfortable they are with what Amgen's told them to date. They largely concur that the core franchise in anemia and anti-inflammatory drugs is set to decline slowly. Even if denosumab peaks at $3 billion to $4 billion, it is likely at best to contribute incrementally to overall long-term growth, Karnauskas says. The company has a sizable Phase II portfolio, but that will take time to mature and everyone knows the stats around R&D success.
Then there's the international question. Amgen has previously hinted that it is intent on making an acquisition that would be synergistic with its base business, perhaps one that is centered in the West but has a presence in emerging markets. Indeed, new CFO Jonathan Peacock, in comments that may have muddied rather than cleared the waters, indicated as much to analysts last year. More recently, on March 1, SVP International Operations Rolf Hoffman told a Citigroup Healthcare investors' meeting that the company "might consider non-organic options" to accelerate its global expansion.
Some on Wall Street fear the worst: a highly dilutive acquisition in a region of the world that is hard to value quantitatively and overshadowing any other news affecting the stock. Indeed, "If they are going into something we don't understand, they need to outline their strategy," Karnauskas argues. A sizable dividend would go a long way toward making investors more comfortable.
Ultimately, however, despite the hoopla, Wall Street expects Amgen will initiate a token dividend, yielding 1% to 2.5%. That should be enough to appeal to investors who are restricted to buying only stocks that pay dividends. But it won't eat up too much cash flow, especially in the long-term, when several key Amgen products go off line.
"The idea is that if you give a token dividend, those investors can 'check the box,' " says Karnauskas. On the other hand, for some investors, even 2% isn't enough, so Amgen might aim higher, at about 4.5%. About 10% of Amgen's annual cash flow would have to be dedicated to a dividend with a 1% yield, she says.
If this math addresses the logical part of the equation, it doesn't directly help the cultural transition from a growth to a value investment, which comes once a company enters the dividend world. Still, the move for Amgen may be unavoidable, as the market is already putting it in the value category, points out Standard & Poor's analyst Steve Silver.
The market is pushing less hard for other biotechs to change for now; indeed, the biggest step the next tier companies like Celgene and Biogen are taking to placate shareholders is introduction of stock buy backs. It behooves them to watch how Amgen maneuvers into a space where few biotechs have tread.
Friday, March 18, 2011
Amgen's Dividend Dilemma: To Pay Or Not?
Wednesday, March 09, 2011
Actelion On The Defensive: Corporate Governance White Paper
Thursday, February 17, 2011
"We ARE Creating Shareholder Value," Argues Actelion's Clozel
The clash came despite Actelion's management unashamedly using the event to reassure investors that the company DOES have their interests at heart, that it IS creating optimal long-term value and that"to consider a sale at this time [in the company's evolution] would be the worst time imaginable" for existing shareholders.
image by flickr user USFWS Pacific used under a creative commons license.
M&A Predictions! Fortune Tellers -- They Are Not
Even though the New Year has come and gone, analysts are still making their predictions about what 2011 will bring for the pharma and biotech industries. (Admittedly, it is still early enough to do so, but March would have been pushing it.)
The latest endeavor to predict the future comes from the fine analysts at Morningstar, who released their “2011 M&A Outlook for Healthcare” report this week. The report includes some sound, albeit a little obvious, deductions on what will be moving M&A in 2011 – a move into emerging markets, slowing R&D productivity, and (cue ominous music) the upcoming patent cliff.
Morningstar experts expect further consolidation in Big Pharma; and say Eli Lilly & Co., as well as Bristol-Myers Squibb will be ripe for the picking as the patents on their lead drugs reach their expiration date – but, honestly, who would buy them?
Merck & Co. (Schering-Plough), Pfizer Inc. (Wyeth), Roche (Genentech), and Novartis (Alcon)have all made major acquisitions in the past two years that have added significantly to their debt situations and are unlikely to dump the burden of a major restructuring on top of the issues they’ve already had to bear while trying to make these puzzle pieces fit.
Morningstar analyst Damien Conover suggests Abbott Laboratories could handle acquiring either Lilly or Bristol. He also thinks Sanofi-Aventis and GlaxoSmithKline could benefit from an acquisition of Bristol as well. This sounds all well and good, but Glaxo has made it pretty clear that it is not interested in any large acquisitions and Sanofi has its hands full already with that little Genzyme deal it has been drawing out for months. And let’s be honest, if the past has taught us anything, it’s that bigger is not always better.
So moving on to more realistic prospects for mash-ups in 2011 – let’s take a look at what biotechs Morningstar thinks will offer the best bang for the buck.
They list Biogen-Idec, Seattle Genetics, Human Genome Sciences, Dendreon, and Actelion as their top five take-out targets this year. The reasoning is complex but the basic insight is that these companies have strong pipelines or technology in really HOT therapeutic areas like neurology, orphan drugs, and cancer. Yet, Biogen, Celgene, Gilead, and Merck KGaA will offer an acquirer the most immediate and gratifying (think mid-to single-digit billions) boost to earnings – something every Big Pharma could use right now. These companies also have the nice bonus of having a lot of cash on hand and fairly low burn rates.
While all of these companies have their positives and negatives, it’s important to keep in mind that just because they can be acquired doesn’t mean that they will be. Take the #1 takeout target this year for example, Biogen; it’s been on Morningstar’s take-out list for three years now despite plenty attempts by billionaire shareholder Carl Icahn to get the company on the market.
That said; Morningstar hasn’t done abysmally in its predictions over the last two years. Three companies from the 2009 list were acquired – Trubion, CV Therapeutics, and Medarex, but none of these companies were in the top 15 that year. Another seven got picked up from its 2010 list – Crucell, ZymoGenetics, Talecris, King Pharmaceuticals, OSI Pharmaceuticals, Biovail and Genzyme – with three of these companies being in their top 15 picks.
So what do you think – will this be Biogen’s year to find a suitor or will the Massachusetts biotech continue to dance alone?
Image from flickr user What Makes The Pie Shops Tick? used under a creative commons license
Friday, September 17, 2010
DotW Contemplates the Beginning of the End for Genzyme
The biggest deal of the week wasn't a chart-topper just because of its size. It was also likely the tip of a much larger iceberg.
We're talking about Genzyme's sale of its genetic testing unit to Lab Corp. for $925 million. Combined with 1,000 layoffs at the big bio, the spinout of the unit -- at a price 30% to 40% higher than at least one analyst expected -- could be a big step toward getting Genzyme ready for a sale. It comes a year and a half after serious manufacturing problems at a Boston-area plant were first disclosed in early 2009, an event that opened top executives to criticism from tub-thumping shareholders.
Now, our chilly choice of metaphor a few sentences ago might lead you to think that anyone steaming toward a rendez-vous with Genzymic destiny could be making a mistake of Titanic proportions. You, dear reader, must let your powers of speculation be your guide. We're certainly not ones to scream at Chris Viehbacher to pull hard alee, or astern, or throttle the jibbers, or whatever you're supposed to say to a ship's captain who needs a course correction, fast. Sanofi has offered $69-a-share, but it could take an offer of $75-a-share to bring Genzyme to the negotiating table, analysts told our Pink Sheet colleagues this week.
Viebacher doesn't seem ready to rush headlong into anything, let alone a $18.5 billion disaster. After all, Genzyme is less an iceberg -- although you have to wonder if other manufacturing nightmares still lurk beneath the surface -- than a collection of islands, which like the Galapagos, have inhabitants that have evolved quite separately, and in some cases, more successfully than others. (We leave it to you to sort out the finches from the tortoises and figure out what the hell to do with the feral goats.)
The sale of the genetics business, combined with the planned sale of the diagnostics and pharmaceutical intermediaries units, don't automatically point Genzyme toward M&A. Nor do the layoffs. The Cambridge, Mass. biotech has plenty of reasons to shift resources around, whether it's hiring more in manufacturing to shore up quality control or amassing cash for a share buyback. The firm raised debt this summer to fund the first tranche of the buyback, and the Genetics unit sale will pay for the second tranche, Genzyme said. But CEO Henri Termeer has publicly said there's a "high probability" of a deal with Sanofi, so every move Genzyme makes from now on must be viewed in that context.
For Sanofi, the sell-off of Genetics and the other two businesses would make for a cleaner eventual acquisition of Genzyme, but otherwise shouldn't make much difference, as they're tangential to the French pharma's interests. Sanofi is willing to wait. Viehbacher said as much at a conference this week: "I don't think they are in a hurry and neither are we in hurry. I don't see anybody else coming into the deal, so that's not pushing anybody in terms of speed."
The wild cards, of course, are the shareholders. Viehbacher spent last week meeting with Genzyme's. Termeer has said his board, which includes dissident investors who agitated their way into the boardroom, is adamantly opposed to the current offer at $69 a share. And don't forget Sanofi's shareholders, which include French corporate titans L'Oreal, the cosmetics company, and the oil firm Total. They haven't revolted, but it seems they're casting a wary eye on the proceedings.
Viehbacher has already served notice early in his term that he'll only appease shareholders so much -- dividends yes, buybacks no -- so how he handles the Genzyme situation, given his previous pledges of no purchases over $20 billion, could be the defining moment of his tenure.
Same goes for Termeer, who was on the buying end of many acquisitions as he built Genzyme over twenty five years into the powerful but hodgy-podgy (or, if you prefer, "diversified") business it is today. He may well come to the end of his term as the big biotech's mastermind, even if Sanofi bows out. Should a deal not transpire (we'll keep the "NO DEAL!" JPEG warm), Genzyme's share price will likely sink back to the pre bear-hug level of the low $50s. With the activist shareholder presence on Genzyme's board, does anyone really believe Termeer can keep his post if the deal doesn't get done?
AstraZeneca/University College London and Cancer Research Technology: AstraZeneca this week revealed a pair of new arrangements to advance its stem-cell research targeting blindness related to diabetes and, separately, its oncology program. The Big Pharma said it will collaborate with researchers at University College London, led by Dr. Marcus Fruttiger, in a three-year partnership to explore uses of regenerative medicine to address diabetic retinopathy, a leading cause of blindness which afflicts about a quarter of Type I and more than half of Type II diabetes patients. The collaboration echoes Pfizer’s ophthalmological research deal with UCL, in which the two are searching for new therapies for age-related macular degeneration. AstraZeneca also said UK-based charity Cancer Research UK and its partner Cancer Research Technology would perform a Phase I/IIb clinical trial on oncology candidate AZD-3965, an inhibitor of the monocarboxylate transporter 1 (MCT1) that is crucial for cell metabolism. Once the trial is completed, AstraZeneca will retain a right to further develop the drug, or offer it to CRT to seek a different partner; the charity will receive a royalty on the drug’s revenues if it’s ever approved, regardless of which company develops it further. -- Paul Bonanos
Merck/Beijing Genomics Institute: With the president of Merck Research Laboratories Peter Kim in attendance, the Beijing Genomics Institute this week announced the signing of a statement of intent to form a working relationship with Merck. The organizations aim to utilize BGI’s high-throughput DNA sequencing and analysis capabilities in a research collaboration, primarily to analyze genomic and epigenetic data generated using Merck samples. “The key is epigenetics,” said one person familiar with the discussions. The deal comes at a time when several US-based next-generation sequencing companies are trying to establish a foothold in drug discovery, including current IPO hopefuls Complete Genomics and Pacific Biosciences, while also aiming at the more lucrative clinical diagnostics market down the road. At the same time, academic genome sequencing centers are operating more frequently as businesses, competing with commercial entities in terms of cost, throughput, and accuracy. For its part, BGI currently boasts a combined sequencing and bioinformatics staff of just under 4000, including 1500 bioinformaticians, and it expects to boost the overall number to 5000 by year-end. Given the scale and complexity of genetic information and the speed at which it is being obtained, a relationship with BGI could offer significant advantages, including on the regulatory front. “From the patient standpoint, we risk getting scooped by others outside this country, whether we are then sending the results to BGI in China to be interpreted or some other offshore thing,” cautions one CSO. -- Mark Ratner
GenMab/Seattle Genetics: The Danish firm GenMab has licensed Seattle Genetic's antibody-drug conjugate (ADC) platform to use with its own HuMax-TF antibody technology to develop drugs that target the Tissue Factor antigen. GenMab is responsible for all research, manufacturing, preclinical development and Phase I trials of ADCs that combine the two technologies. At the end of Phase I, Seattle Genetics has the right to opt into co-development and share all costs and profits fifty-fifty. If Seattle Genetics does not opt into a compound, GenMab would pay fees, milestones, and single-digit royalties on worldwide net sales. GenMab is paying Seattle Genetics an undisclosed upfront fee. The Seattle, WA-based biotech's ADC technology links cell-killing agents to antibodies to deliver precise payloads to tumor cells while leaving, in theory, healthy cells undisturbed. Its molecules have yet to reach FDA approval, but its lead, brentuximab vedotin, is in Phase III for Hodgkin lymphoma. The collaboration comes as GenMab shifts development focus on its flagship anti-CD20 product Arzerra (ofatumumab) to subcutaneous autoimmune indications. More accurately, GenMab's partner GlaxoSmithKline will make the shift, as it holds development rights to the compound. The partners amended in July their long-running collaboration to give GSK the autoimmune rights, a move that paid GenMab £90 M at the forfeit of development milestones. GenMab still helps pay for oncology development, but its contribution is capped at £145 M total. -- Alex Lash
Santarus/Pharming Group: Faced with a cash squeeze, Dutch protein therapeutics developer Pharming Group inked a deal with San Diego-based Santarus to license Pharming’s late-stage orphan drug Rhucin (conestat alfa) in North America. Santarus will obtain rights to Rhucin, a recombinant human C1 inhibitor which alleviates swelling related to hereditary angioedema, for $15 million up front, plus $5 million if and when the FDA grants approval of the drug’s biologic license application. Further milestones, including ones based on sales goals, are also built into the agreement. Pharming will still be in charge of obtaining approval of the BLA in the U.S., while Santarus will address regulatory hurdles in Canada and Mexico. In April, Pharming dealt away Rhucin’s distribution rights in 24 European countries to Swedish Orphan Biovitrum for an undisclosed amount. The upfront payment will help Pharming deal with a cash flow crunch due to a bond debt payment owed in the fall. Separately, Santarus said it had obtained Covella Pharmaceuticals and its anti-VLA-1 antibody program for $1.8 million plus royalties, future considerations and other expenses; that deal also includes an amended agreement with Biogen Idec, from which Covella licensed the program in January 2009. -- Paul Bonanos
Johnson & Johnson/Crucell: The far-flung Johnson & Johnson health care empire may be adding a vaccines unit as J&J bid €1.75 billion (about $2.3 billion) to buy Crucell NV on Sept. 17. The pharma giant said that if the deal goes through, Crucell would continue to operate as a subsidiary, retaining its facilities, ongoing programs, senior management and its “entrepreneurial culture that has fostered innovation and growth.” J&J’s bid works out to roughly €24.75 per outstanding share of the Netherlands-based vaccine maker, nearly a 58% premium over the closing price of €15.70-a-share on Sept. 17. Recall that in September 2009, J&J acquired a 17.9% stake in Crucell for €301.8 million, a 28% premium, in a transaction that also partners the two companies on an effort to develop a universal monoclonal antibody against all types of influenza A. That deal included a standstill agreement specifying that J&J would not attempt to increase its holding in Crucell for at least three years, but the acquisition bid is going forward as a mutual effort between the two companies. In a joint release, the companies indicated J&J’s board of directors and Crucell’s supervisory board have authorized the negotiations to proceed. This is not the first time a big pharma company has tried to acquire Crucell--Wyeth made a bid estimated at €1.35 billion in early 2009 but dropped the effort when it was bought out by Pfizer.--Joseph Haas
Photo courtesy of Flickr user Rob Lee.
Thursday, September 09, 2010
The Power of DOTY: IVB Fake Award Used as a Shield for Elan/J&J
It was with amusement that we noted Elan CEO Kelly Martin hold up our little old blog as part of his defense of Elan's "18% solution" transaction with Johnson & Johnson, itself a small part of his unusual and unusually lengthy defense of his leadership of Elan. We were amused because we always assumed we were the Rodney Dangerfield of biopharma weblogs, but were encouraged to hear otherwise.
Johnson & Johnson transaction: First, it is important to remember that this was an excellent transaction that significantly reduced our science, financial and execution risk around the immunotherapeutic approach to Alzheimer’s as well as allowing for the acceleration of the development of this technology and approach to the treatment of patients, while at the same time enabling shareholders to participate in the potential for substantial longer term value creation. I noted the positive comments from Moody’s earlier. The highly respected IN VIVO Blog also named it the 2009 M&A/Alliance deal of the year.
Friday, August 27, 2010
DotW Talks Pickles
With all due respect to our FOTF brethren, DOTW may take the occasional vacation from writing intros to our columns, but we somehow manage to put out a weekly edition with astonishing regularity. (In other words, none of that every-other-week stuff, you slackers.)
We do find ourselves in a bit of a pickle this week, with deadlines looming for IN VIVO, START-UP, and our annual Pharmaceutical Strategic Alliances meeting. (You’re coming, right?)
Mmm, pickles. In an ideal world we would simply be referring to a piquant condiment perfect for enlivening pedestrian burgers and dogs in what may be one of the last opportunities of the summer grilling season. But a whole lot of folks found themselves in a barrelful of briny situations this week. Let us dive in.
For starters, how about Jazz, Immunogen/Roche, and EpiCept, which all woke up on the wrong side of the FDA regulatory bed? Throw in Novartis, which still has to woo those pesky independent Alcon shareholders to its cause without shelling out an additional bolus of cash. And squirt on a little Sanofi-Aventis, which not only lost the first round in its fight to stop a Lovenox biosimilar but also can’t seem to seal a deal with Genzyme.
Better add Inspire Pharmaceuticals to that mix as well. This week Inspire amended its partnership deal with Allergan for late-stage dry eye therapy Prolacria. No surprise, really; back in January the company reported Prolacria failed to show efficacy in a Phase III clinical trial, and it's no secret revised deal terms typically follow in a partnership that suffers a clinical setback.
But the revision is a little more complicated since the Prolacria failure also triggered an amendment in the two companies' ongoing relationship for Allergan’s Restasis. To summarize some ancient history, Allergan and Inspire first teamed up in 2001 to develop dry-eye treatments in a deal that gave Inspire the right to co-promote Restasis. In 2008, Inspire withdrew from the co-promote, but still received royalties on the Allergan medicine at the same rate as before. But there was a very big hook.
The royalty rate was good only as long as Allergan and Inspire continued to work on Prolacria. Now ith no new plans for a study, Inspire will get less of the revenue pie from sales of Restasis and “any other human ophthalmic formulations of cyclosporine owned or controlled by Allergan." The upshot? Look for Inspire to focus instead on its denufosol and Azasite programs.
To avoid your own deal-making pickle (or even a jam), we bring you another edition of...
Roche/BioImagene: In a bid to keep locking up capabilities in personalized medicine, Roche, via its Arizona-based Ventana Medical Systems, this week took out the privately-held digital pathology start-up BioImagene in a deal worth $100 million. The take-out comes just two years after BioImagene investors put $26 million to work in a Series D financing, the small company’s only disclosed fund raising since its inception in 2003. Backers of the company include Burrill and Co., Ascension Health Ventures, Artiman Ventures, and Siemens Venture Capital, the corporate venture arm of industrial giant and competitor to General Electric. Indeed, that Roche won the small firm, known as a leader in pushing pathology into the digital realm, was somewhat of a surprise. Given Siemens’ involvement in the 2008 financing, its presence in imaging markets and its ambition to become a one-stop-shop for medical testing, the odds in Vegas probably didn't favor Roche as the buyer. Still, the deal is a strategic fit for the pharma, since it complements the pathology offerings already in-house as part of Ventana. Moreover, it enhances the Swiss company’s cancer workflow offerings, providing a service element that’s become increasingly of interest to imaging companies, diagnostic players, and even life science tools providers.—Ellen Licking
Procter & Gamble/Somaxon Pharmaceuticals: Somaxon is finally ready to launch the insomnia drug Silenor (doxepin) now that it has a co-promotion partner, Procter & Gamble. The San Diego specialty pharma announced the commercial arrangement Aug. 25, five months after Silenor received FDA approval. Under the agreement, the two companies will launch Silenor in September with a combined U.S. sales force of about 215 reps. P&G will provide about 105 reps who will promote Silenor to targeted primary care physicians and pharmacies, while Somaxon’s team will market to specialists and "top-decile physicians who treat insomnia," the firm said. For its efforts, P&G will receive a combination of fixed fees and royalties on U.S. net sales of the drug. In a same-day conference call, Somaxon CEO Richard Pascoe estimated P&G's take would amount to no more than 15% of the drug's annual net sales. The deal seems like a win for P&G, which made no upfront payment, and also gained an interesting downstream perk -- the right of first refusal to develop and commercialize Silenor as an over-the-counter product.—Joseph Haas
Roche/Aileron: On August 23, Roche announced it would collaborate with privately-held Aileron to use the biotech’s proprietary stapled peptide Pepducin technology to develop drugs against five unnamed targets, some of which have yet to be chosen. At north of $1 billion, the bio-bucks are eye-popping, but the specific deal terms don’t exactly break new ground the way Alnylam’s non-exclusive licensing deals with various pharmas or Celgene’s partnership with Agios have done. The five-target arrangement, centered around oncology and other therapeutic areas, is heavily back-end loaded, worth just $25 million upfront. It does, however, provide Aileron with additional validation and could be the prelude to a larger deal. As such, the deal provides Aileron with always welcome additional undiluted capital, and preserves its exit options. Aileron, which has raised around $60 million, wasn’t exactly hurting for cash. The company has commanded attention not only for its high concept science and platform capabilities, but also for its roster of four corporate backers, once again illustrating the importance of strategic investors in funding early-stage science.—Paul Bonanos and EL
Cypress Bioscience/Alexza; Cypress/Marina Biotech: Even as it continues to fight a public battle with hedge fund operator and minority shareholder Ramius, Cypress Bioscience inked a pair of small deals this week. The specialty player announced it would acquire rights to Marina Biotech’s autism drug for $750,000 upfront, plus milestone payments. It also licensed a preclinical smoking-cessation product from aerosolized CNS drug maker Alexza Pharmaceuticals. The agreement is worth $5 million upfront plus a $1 million milestone-based tech-transfer fee and includes a carried-interest fee in the event of a future acquisition of rights to Alexza’s Staccato technology for nicotine, an inhalable delivery system with electronic dosing controls intended to help smokers kick the habit. In the case of the Alexza alliance, Cypress will also pay for Phase I trials of the medicine, anticipated to commence next year. Back in June, Cypress, which markets fibromyalgia drug Savella (milnacipran), paid $30 million upfront to license an anti-psychotic drug candidate from Israel-based BioLineRx in a deal that also includes milestones. That partnership prompted a hostile takeover attempt last month by Ramius, which harshly criticized Cypress’ management and its acquisition strategy while offering $4 per share to acquire the company.--PB
Isotechnika/3SBio: Isotechnika announced an agreement Aug. 24 with 3SBio covering sales of Isotechnika's lead candidate voclosporin, a Phase III compound that helps suppress the immune system's rejection of transplanted organs. 3SBio will pay $1.5 million upfront to license voclosporin for transplant and autoimmune indications in mainland China, Taiwan and Hong Kong. The Chinese firm also will invest $4.5 million in Isotechnika via a three-year convertible debenture and will be responsible for clinical development, registration and commercialization in China. Interestingly, 3SBio also got the right to develop voclosporin products in other indications (including presumably ophthalmology where troubled Lux had worldwide rights via a 2006 deal.) 3SBio CEO Lou Jing said his company would work with Isotechnika to apply for approval from the Chinese State FDA for a Phase III trial inside China. 3SBio has become one company biotechs can look to for China-only licensing deals. Previously, 3SBio licensed Chinese development and marketing rights to AMAG’s chronic kidney disease drug ferumoxytol.--JH
Image courtesty of flickrer gadgetgirl used with permission through a creative commons license.
UPDATED TUESDAY 08.31.2010. Due to an editing error, IVB inappropriately referred to Aileron's peptide technology via the proprietary trademarked name of Anchor Therapeutics.--EL
Friday, June 11, 2010
Deals of the Week Screams ¡GOOOOOOOOOLLLLLLL!
In honor of the 2010 FIFA World Cup, IN VIVO Blog is channelling its inner Andres Cantor. Come on, there’s a little bit of the Argentinian-born sportscaster in all of us. Perhaps you did your best Cantor this morning when South Africa's Siphiwe Tshabalala found the upper right near corner of the net for the tournament's first score. Alas, host South Africa later surrendered an equalizer to Mexico, and the opening match Friday ended in a 1-1 draw.
It wasn't the only tussle this week that ended without a clear winner. Henri Termeer, CEO of Genzyme, and activist shareholder Carl Icahn have been kicking the ball up and down the pitch for months, and the compromise between the two gentlemen announced Wednesday was definitely your humble blogger’s favorite deal of the week, even if it doesn’t count as a traditional tie-up.
In finding a middle path, both parties gave up something. Icahn has to make do with just two Genzyme board seats, and his right-hand man Alex Denner isn’t one of them. Termeer, meanwhile, must satisfy the demands of Icahn’s representatives if he wants to avoid the fate of Jim Mullen, who just stepped down as CEO of Cambridge, Mass. neighbor Biogen Idec.
But both Icahn and Termeer/Genzyme also gained significantly. Termeer, for now, keeps his job and avoids the circus of a proxy fight. With some representation on the board, Icahn can still fight for more seats in the future if he chooses. As Charles Elson, a professor at University of Delaware's Weinberg Center for Corporate Governance, told our sister publication “The Pink Sheet” DAILY, “Whether it’s four [seats] or one, the fact that you have someone express your viewpoint…is [what’s] important.” The upshot: if that viewpoint is convincing enough, other board members will eventually come around.
In addition, both Icahn and Termeer avoided spending the weekend on the phone trying to sway major shareholders to their cause, when all parties involved would no doubt prefer to watch the beautiful game -- including Saturday’s not-to-be-missed England-U.S. tilt.
One set of winners to emerge from the boardroom draw were Genzyme shareholders, according to Bernstein Research analyst Geoffrey Porges. In a June 9 note, he called the solution “logical” because it introduces Icahn’s influence into the company without the conflict posed by overlap with Biogen’s board representation.
Who else scored a gooooooooooooooooal this week? Maybe Alzheimer’s patients and their loved ones. Five major drug makers -- Johnson & Johnson, GlaxoSmithKline, AstraZeneca PLC, Sanofi-Aventis, and Abbott Laboratories -- have joined forces to share data from 11 failed Alzheimer’s-drug clinical trials. (Data will also be available to outsiders who have valid scientific questions.) Under the auspices of the Critical Path Initiative, it’s the latest evolution in private-public partnerships, and it’s hoped that sifting through massive loads of patient data, researchers will glean new insights into this tricky disease. It's also notable for who’s not participating, at least not yet: Pfizer, which suffered an embarrassing setback earlier this year when its collaboration with Medivation for the Phase III Dimebon blew up.
Meanwhile, rumors are swirling that FDA suppressed negative data associated with the controversial diabetes medicine Avandia. That should add even more drama to the upcoming advisory committee review (or as we dubbed it last week, a "re-review") of the ramifications of allowing long-term safety studies of the medicine to commence.
In other news of pharma potentially behaving badly, it seems more likely that subpoenas will fly as Congress aims to get to the bottom of the recent recall of Johnson & Johnson’s children’s Tylenol. According to a Friday NYT story, Democratic Representative Edolphus Towns, chair of the House Committee on Oversight and Government Reform, says the health care giant has used delaying tactics and hasn’t been forthright with his committee. Even as J&J denies these accusations, a key goooooooooooooal for the drug maker has got to be burnishing its public image.
Whether you tune into the ballet of the masses or opt for the opera of the people, remember this essential piece of soccer wisdom: “Soccer is simple, but it is difficult to play simple.” The same could be said for biopharma deal making. Game on.
Grifols/Talecris: Hoping a merger with a smaller company might pass muster with the US Federal Trade Commission, Talecris Biotherapeutics is trying the business combination route again, about a year after its planned merger with Australia’s CSL was shot down by the FTC. (In FIFA terms, call it round 2, Spain vs. U.S.) In a deal announced June 7, Spanish firm Grifols SA, the number four company worldwide in the plasma protein therapeutics space, plans to buy Talecris, the number three player, for $3.4 billion in cash and stock, while also assuming the U.S. co’s hefty $600 million debt. In essence, the merger provides Grifols an increased North American commercial presence, while Talecris aims to accomplish two primary goals: an exit for remaining venture backer Cerberus Capital Management and improved capacity and efficiency in plasma collection. Formed in 2005 when Bayer spun out its plasma business to Cerberus and Ampersand Ventures, Talecris went public last fall. Cerberus, however, remained a 49% stakeholder in the public company. Even though the tie-up reduces the number of plasma protein players from five to four, Grifols and Talecris believe this deal has a better shot with the FTC than the CSL/Talecris marriage, because it won’t create a duopoly controlling 80% of the plasma protein market. Instead the top three players -- Bayer Baxter, CSL, and Grifols/Talecris -- will have a roughly equal share of the market. -- Joseph Haas
Sanofi-Pasteur/Vivalis: This week’s announcement from Vivalis that it was teaming up with Sanofi to discover and develop monoclonal antibodies against several infectious-disease targets marks the fourth time the two companies have teamed up. Apparently they like each other’s company. In this latest pact, Vivalis will receive €3 million upfront plus up to €35 million in milestones, plus royalties per program for access to its Humalex Mab platform and worldwide rights on resulting antibodies. Previously Vivalis has in three separate deals granted to S-P (twice) and Acambis (now part of S-P) access to its various embryonic stem cell lines for vaccine and antibody production. This week’s deal is based on newer technology that Vivalis itself acquired only this year. Humalex came into the biotech through its January 2010 €10.4 million acquisition of compatriot Humalys SAS, a move designed to broaden its product offering and potential biz-dev opportunities. Humalys shareholders are eligible for up to €15 million in milestone payments based on pharmaceutical partnerships for the Humalex technology. So far, so good. -- Chris Morrison
Forest/TransTech Pharma: Forest Laboratories isn't giving up on Type 2 diabetes. Just two months after scrapping an expensive deal with Phenomix for the late-stage dipeptidyl-peptidase-4 inhibitor dutogliptin, Forest is jumping back in. The specialty pharma has, however, learned its lesson: while it’s spending pretty big money -- $50 million up front and potentially more than $1 billion in milestones -- for a suite of Phase I and preclinical compounds, at least they belong to a novel class of medicines. The deal centers around TransTech’s highly selective glucokinase activators, which target an enzyme found in the liver and pancreas involved in glucose sensing. Transtech’s ability to specifically regulate the liver glucokinase enzyme was apparently key to the deal. When the pancreatic enzyme is targeted, it results in excessive insulin secretion, which can result in potentially life-threatening hypoglycemia. But the Forest/Transtech team certainly doesn’t have this target class to themselves. AstraZeneca, Amgen, and Eli Lilly also have GKAs in the clinic. This week’s announcement shows early stage deal-making for potentially first-in-class molecules still has legs--and the terms are on par with Amgen’s December alliance with Array for its Phase I GKA, ARRY-403. Even as analysts lauded the deal for its long term potential, the arrangement does little to help Forest replenish a portfolio that’s facing patent pressure. Forest’s two biggest products, Lexapro and Namenda, go generic in 2012 and 2015, respectively. -- Jessica Merrill
GlaxoSmithKline/Laboratorios Phoenix: Will the sun never set on the Glaxovian Empire? GSK's latest international foray has the US/UK behemoth spending $253 million cash for Laboratorios Phoenix, an Argentinian branded-generics firm with about £70 million (US $101 million) in annual sales last year, making it the eighth largest drug seller in the country according to IMS. GSK will add products in areas that include cardiovascular, gastroenterology and urology, plus a primary sales force and a manufacturing plant near Buenos Aires. GSK already has an Argentinian division with 2009 sales of £100 million, £56 million of which came from pharmaceuticals, but it said it would keep the entity legally separate from Phoenix. Dust off your atlases and grab your Rick Steves packing cubes, here's a list of GSK's regional deals since the start of 2009. Last month it bought a nearly 10% stake in South Korea's Dong-A Pharmaceutical and in December it snapped up 12.6% of Japan's JCR Pharmaceuticals, after also creating joint ventures with two different Chinese biotechs, Jinagsu Walvax Biotech and Shenzhen Neptunus Interlong Bio-Technique. Don’t forget its purchases of UCB's emerging markets business for €515 million (US $621 million) and Bristol-Myers Squibb's branded-generics operations in Lebanon, Syria, Yemen, Jordan and Libya for $23 million. Piled onto all this pharmerging goodness is Glaxo’s deal to sell Dr. Reddy's products in several regions and its 19% stake in South African generics firm Aspen Pharmacare. At risk of making light of pharmaceutical colonialism, we point out that GSK is one of several massive drug makers playing a "Great Game" of international acquisition. Our colleague Wendy Diller renewed her passport to sort out the emerging-market land grab in this IN VIVO feature. -- Alex Lash
Photo courtesy of flickr user CLF.
Editor's note: This post was updated on June 14th to indicate the top three players in the plasma protein market: Baxter, CSL, and Talecris/Grifols. Bayer was inappropriately mentioned as part of an editing error.
Thursday, February 18, 2010
Swiss Addex Now on BVF's Watch List
Biotechnology Value Fund is making moves. Public records show the high-profile public investor recently grabbed a 6.6% share of the staggering Swiss firm Addex Pharmaceuticals. BVF sometimes makes public its reasons for piling into a stock, but the Feb. 5 document held no clue, and so far BVF hasn't gotten back to us. (We'll keep you posted.)
Allow us to cogitate upon the news. BVF could be making a straight value play. Addex closed today at 11 CHF per share. That's down nearly 75% from a high of 41.95 CHF just before safety data for its lead candidate tanked the stock in mid-December.
Addex pulled the plug on its lead candidate ADX10059, a metabotropic glutamate receptor 5 (mGluR5) modulator, when its Phase IIb data for migraines revealed elevated liver enzymes. Addex immediately halted another Phase IIb, for reflux. The company was expected to pull in a big licensing deal, but hope for that vanished with the safety revelations.
Obviously BVF thinks the company is undervalued. Addex, after all, has generated a pipeline of molecules via its allosteric modulation platform. But how much will it push for managerial and/or strategic change? CEO Vincent Mutel said in December he didn't think the safety failure of '059 was a class effect that would cripple another important compound in Addex's pipeline. It remains to be seen if BVF will attempt to steer Addex's R&D efforts in a different direction.
Given BVF has done its share of cage-rattling recently, it certainly might. Recall the fund used its 30% stake in Avigen to steer the firm into a merger with MediciNova last August. And last week BVF went public with a suggestion that diagnostics firm Celera, of which it owns nearly 10%, spin out the royalty stream associated with the Phase III osteoporosis drug odanacatib.
Merck is developing odanacatib as a potential replacement for its now-generic Fosamax (alendronate), once a $3 billion annual cash cow. Celera, which has reinvented itself several times since its founding by Craig Venter, doesn't do drug development anymore--its main business is developing diagnostic tests, including ones for cystic fibrosis and HIV genotyping. Still it's owed a "mid- to mid-high single digit" percentage royalty on sales if odanacatib comes to market.
BVF wrote in the Feb. 9 filing that, "if successful, the royalty asset could generate tremendous free cash flow for the Issuer’s shareholders and, accordingly, this single asset could be worth a significant multiple of the Issuer's current market value."
Since October BVF has bought about a million shares of Celera, all in the range of $6.09 to $6.30 per share. Shares closed Thursday at $7.01, giving it a market cap of $574 million.
With at least one portfolio company, however, BVF has bided its time. It holds a 16% stake in Facet Biotech but agreed not to tender its shares when Facet development partner Biogen Idec went hostile with a $14.50-per-share bid last fall. In exchange for permission to up its Facet stake above 15% without triggering a poison pill plan, BVF held fast when Biogen upped its offer to $17.50. Biogen dropped its bid in mid-December. -- Alex Lash
Photo courtesy of flicker user kevin.
Friday, January 22, 2010
Alcon Outrage at Novartis' Bullying
Far from achieving "clarity" in its Alcon takeover by bidding for the minority shareholders' 23% stake as well as buying up Nestlé's majority ownership, Novartis has apparently whipped up a storm of anger among Alcon's independent directors and shareholders. That may turn into a legal battle unless the Swiss group ups its offer.
Wednesday, November 18, 2009
Genzyme: Contents Under Pressure
Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel. (Note this is the second time the Big Biotech has been dinged by regulators in the span of months. In September, FDA also shot down plans to expand the indicated use of pediatric leukemia drug Clolar to adults.)
The sad thing is the situation is entirely of Genzyme's own making. Don't think so? Let's review.
The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.
And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting "the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there."
What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.
Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, "allow us to move more quickly to address those issues." Does everyone feel better now?
In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. True, the most recent news has changed little for the company near-term. The complete response on Lumizyme was widely expected by analysts and, amazingly, the particulate contamination didn't provoke a demand from regulators that Genzyme recall the product.
But regulators' hands were likely tied, in part because of the life-saving nature of Genzyme's medicines and the current lack of approved therapies that could substitute for Cerezyme and Fabrazyme. By the middle of next year that won't be the case. Shire is clearly gunning to steal market share from Fabrazyme with its Replagel product, which has been approved in Europe since 2001. In October, Shire announced plans to submit a BLA for its medicine in the US before year's end.
And the potential competitive threat to Cerezyme is even greater. The FDA has already authorized the use of competing products from both Shire and Protalix despite lack of formal regulatory approval. To date, the headaches required to negotiate the administrative hurdles of the emergency access programs have limited the erosion to Cerezyme's market. But note that Shire filed its NDA for its Vela product in September; if the agency grants the drug a priority review, it could be on the market by March 2010.
That's only four months from now. Can Genzyme get its act together in the meantime? The firm is increasingly vulnerable; it can't afford another announcement like Friday's. The summer shut down already created an opening for competing products to cannibalize on one of Genzyme's main money makers. Another "Dear Health Care Practitioner" or Form 483 letter and the current rumblings of dissent will move from the fringe as patients and investors rightly demand to know: who's minding the store, and why didn't Genzyme execs ensure supply of its most important drug by building up reserves when they had a chance?
Moreover, the company's share price is under pressure, hovering perilously close to its 52-week low and Genzyme has cut its earnings forecast four times this year alone. According to Adam Feuerstein over at The Street.com, adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year.
Much as we were ridiculed for discussing a potential sale of the company three months ago, its impossible to deny that Big Pharma's love affair with hyper-specialist products continues unabated. Any doubts, look at the recent deal between GlaxoSmithKline and Prosensa in Duchenne muscular dystrophy.
Oh, and did we mention that Carl Icahn, who has a reputation for homing in on troubled biotechs and turning them around in time to sell them, disclosed a stake in the Big Biotech on Monday night? Coincidence, you say? (We have 1.45 million reasons to say that's not likely.)
Would GSK or that other convert to ultra-niche, Novartis, pony up the money to buy Genzyme before the biotech cleans its own house? It's unclear. But one thing seems obvious: if Termeer can't clean up the mess that's been brewing in Allston, someone else--either Icahn or another shareholder activist--will.
Image courtesy of flickrer massdistraction via creative commons license.
Thursday, May 07, 2009
WTF? Regulatory Victory for Vanda's Iloperidone after FDA U-Turn
Does the approval of Vanda's iloperidone (now given the 'just for you, crazy sportsfan!' name of Fanapt)--deemed Not Approvable by FDA only nine months ago--signal a shift at the agency around use of comparative effectiveness considerations in approval decisions?
The atypical antipsychotic was approved yesterday for acute treatment of adults with schizophrenia, and marks a significant turnaround from last July. As we wrote then:
The company and its rejected investigational atypical antipsychotic drug iloperidone appear to be a marker in the ongoing debate over whether FDA is increasingly using a comparative efficacy standard when considering new drug approvals.There was plenty of reason to draw that conclusion. Though Vanda said FDA deemed the drug effective against placebo and having similar efficacy to Pfizer's Geodon, it was concerned about how the drug fared against other comparators, specifically Lilly's Zyprexa or J&J's Risperdal. It also wanted more safety data on the drug's higher, 24mg, dose. The agency was requiring further studies, Vanda said.
Remarks by FDA's 'dean of the drug approval process' Bob Temple at an Institute of Medicine meeting only days later seemed to support the notion that comparative effectiveness was becoming a standard hurdle in certain crowded drug classes. He clarified those remarks in an interview with RPM Report's Ramsey Baghdadi a few days later.
“At the IOM, I was explaining what I perceive drug companies to be perceiving and doing, not describing an FDA standard. That is what I was referring to when I said that ‘It’s getting harder to develop the third, fourth, fifth, and sixth member of a class of drugs because when there’s a generic available [within a class], people are inclined to use the cheap one. ...And in the end, FDA didn't require the kind of large and expensive head-to-head trial that seemed on the cards for Vanda. In September 2008 Vanda reported it had met with FDA to make its case, and that it would file a complete response to FDA's letter. In November, the agency accepted the resubmitted NDA with a decision deadline of May 6, 2009.
"It seems apparent that in my statement I was referring to my impression of what companies are doing to have a commercially viable product when there is a generic available for the drug class, and was not referring to any FDA requirement. In most settings, especially for symptomatic treatments, we do not get or ask for comparative data and are perfectly willing to approve a drug that is shown effective."
It has been far from smooth sailing for Vanda in the meantime. The company did some December restructuring and earlier this year has spent time fending off activist shareholder and 15% Vanda owner Kevin Tang, who proposed back in February to install himself and a colleague at Tang Capital Management on Vanda's seven-member board, presumably to facilitate the liquidation of the company that he has been calling for. The situation escalated only a month ago (See The Pink Sheet Daily for details.).
And yesterday came the approval--hardly a nuisance for Tang, considering the biotech's shares were up more than 800% (yes, EIGHT HUNDRED, that's not a typo) in after-hours Nasdaq trading. Maybe he'll send flowers. (UPDATE: Vanda says Tang has formally withdrawn his proposal to replace the board and call for a shareholder vote on liquidation. Still no word on flowers.)
So what on earth has changed? Vanda's case to FDA must have been convincing. Today the company is trumpeting Fanapt's mild effects on weight in a space where weight gain is a significant issue, and the way patients often switch between antipsychotics--making any safe and effective option worth having.
Does that explain the U-turn? Given the stock's movement, clearly few investors were betting on a happy FDA outcome for Fanapt. Perhaps more complex, political forces are at work?
image from flickr user mag3737 used under a creative commons license.
Saturday, January 31, 2009
DotW: Titanic Meets Iceberg
Titanic, Meet Iceberg. Iceberg, Meet Titanic.Just what did these two men say to each other on Monday at the press conference announcing their $68 billion cash-and-stock tie up? Readers weighed in with some creative suggestions, including the correct pronunciation of the new merged company's name. "Let me help you...it's pronounced FI-ZER," wrote one of our loyal readers. It was tough to choose the winning-est caption for this photo--anything IS better than the corp speak that accompanied it--but at day's end this Blogger was quite taken with the reference to the storied sinking ship. (Congratulations, "Anonymous"--if that's your real name--you win!)
Will historians look back on Jan. 26 as the date titanic Pfizer started its slow slide into the debths of non-existence? We aren't sure. Debate continues to rage over the wisdom of the deal and the ability of the mega-merger to bridge the chasm of patent expiries. (You can see ongoing coverage of the deal from "The Pink Sheet" here and here and here, as well as here at IVB.)
Another frequent topic of conversation--and of no less import--what to call this new premier biopharma? Wy-Pfi remains a popular and humorous choice. Certainly Pfieth doesn't exactly trip off the tongue, and it's first syllable connotes distaste or disapproval--or at least a big ugly Giant. (Wait, MAYBE it is a fitting name after all.) Wyeth employees are rumored to prefer "Wyzer". That might be the wiser course of action, especially as Pfizer woos some top-notch execs such as vaccine guru Emilio Emini to stay on at the new firm.
But Kindler and Poussot were be no means the only newsmakers this week. Clearly disgruntled that Pfizer pushed its name off the front page of the WSJ--okay, there were other reasons like pending Avastin trial data--Roche made headlines with its openly hostile, lower bid for Genentech. Not surprisingly, Genentech responded to Roche's salvo with a resounding "No" and followed up with a "Nein" and a "Non" just to be sure the Swiss pharma got the message. (See below.)
On the clinical front, Takeda finally experienced some good regulatory news. Despite a missed PDUFA date, the company's Kapidex, a follow-on to the GERD-treatment blockbuster Prevacid, won regulatory approval on Friday. The news came in the nick of time: Prevacid loses patent protection later this year.
Speaking of earnings calls, Amgen's was interesting for it's all-denosumab-all-the time undertones, which will likely swell into overtones given the dearth of products in the Big Biotech's pipeline. (Putting even more pressure on denosumab, company execs signaled that disappointing data associated with the phosphate binder and Renagel competitor AMG 223 warranted a "range of options for the development of this molecule rather than pursuing it by ourselves.") AMG 223 was acquired in the $420 million purchase of Ilypsa in 2007--not money well spent, we guess.
As you take a breath and try and catch up on the week's news, we are here to help. Time for...
Roche/Genentech: Remind us never to play poker with Severin Schwann. The man cut his teeth on hostile deal-making when he launched a months long pursuit of the molecular diagnostics maker Ventana Medical Systems in 2007. That courtship had a happy ending--the deal turned friendly after Roche finally upped its price 19%. But Schwann is playing a much trickier game with this latest hostile bid for Genentech, which requires Roche to persuade at least 80% of the biotech's minority shareholders of the deal's value if the Swiss Pharma is to prevail.Not only could shareholders reject this latest offer, forcing two marquee investment banks to assess a fair value for Genentech that Roche can either accept or walk away from, there's a serious risk that this heavy-handed move will alienate the top-flight Genentech talent Schwann and his team have worked so hard to keep.
While risky, the $86.50 offer, which is 3% lower than the price Genentech rejected last summer, was intended to send a clear message to Genentech execs to return to the negotiating table or face the potential of an even smaller future bid. “We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement,” Roche chairman Franz Humer said in a statement. “We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer.”
The pharma is in a race against time: it would prefer to bring negotiations to a conclusion ahead of the release of widely anticipated data associated with the adjuvant use of Avastin in colorectal cancer. (Indeed, Genentech may have provoked Roche's gambit when it issued news last week that it anticipated trial data as soon as mid-April.) If the data are positive, many analysts expect Genentech's share price could skyrocket into the triple digits, which would add considerable cost to the deal.
Especially given the current cost of debt. Roche hasn't said for sure that it's lined up the money to do the deal. But others have reported that the pharma intends to use $14 billion of its own cash, financing the remaining $28 billion with a combination of commercial paper, bonds, and traditional bank financing. In July, sources say the original cost of debt would have been around 4%. But it’s now “at least 6 percent and could be even higher given the terms Pfizer got for Wyeth,” says a knowledgeable financier who spoke with IVB on Friday afternoon.
Moreover, Pfizer’s recent agreement to buy Wyeth for $68 billion may add to Roche’s pressure as banks may have a limited appetite for backing additional large pharmaceutical deals.
Many expect Roche to sweeten this latest offer in the ensuing weeks. But for every dollar per share Roche increases its current offer, it needs to come up with roughly an additional $500 million. The key question is how much higher is the Swiss Pharma willing to go?
Wyeth/Pfizer: Okay, so we covered this deal in last week's edition but we would be remiss if we didn't at least mention it again. (Let all our top-notch analysis go to waste?) As we write in the issue of "The Pink Sheet" due out Monday, with Wyeth, Pfizer gains a levee to buffer the encroaching storm. The deal could set the stage for more industry consolidation to follow as other big pharmas seek to weather their own patent challenges. Certainly it provides one strategy for covering up bad news associated with off-label drug use.
But whether a mega-merger will solve Pfizer’s problems remains to be seen. Although the move helps position Pfizer as a future biologics and
“We’re obviously very focused on here and now and 2012, but this is a very long-term business, and we believe this deal positions us extremely well for long-term shareholder value creation,” CEO Jeff Kindler said during a same-day conference call. (But Jeff, what about the dividend?)
Wyeth partners could feel the pain of the merger sooner rather than later. Kindler indicated Monday that the company would move quickly to integrate the two companies. After months spent righting its own house, that likely means Pfizer aims to slot pipeline programs into its six invest-to-win areas. For Wyeth partners pursuing programs that fall outside this world-view, especially in de-prioritized areas such as CV and obesity--it's likely to be sayonara. Already one would-be partner has felt the axe. On Monday, Crucell announced that Wyeth had broken off acquisition talks in light of the Pfizer's offer.
Astellas/CV Therapeutics: Already partnered on the myocardial perfusion imaging agent Lexiscan, the two companies had been talking behind the scenes for more than a year about partnering in some manner on CVT’s growing angina drug, Ranexa. Then, on Jan. 27, the Japanese pharma went against its country’s traditional business practice of seeking consensus and publicly revealed its $1 billion bid to buy CVT for $16 a share. Astellas’ public letter to the CVT board noted Astellas first offered to buy the Palo Alto, Calif., biotech last November, but was rejected. The letter asserts that Astellas has the U.S. presence and sales infrastructure to help Ranexa, which posted $30.3 million in U.S. sales during third-quarter 2008, reach its market potential and asked that the two firms “work together … to reach a mutually beneficial transaction.” CVT issued a statement Jan. 28 acknowledging that it had declined Astellas’ previous offer, but adding that its board would “again review developments in the context of the company’s strategic plans and the long-term interests of its stockholders.” To be sure, that “context” will mean seeking a higher price for CVT. While Astellas’ offer represented a 41% premium over CVT’s share price at close of trading on Jan. 26, and a 69% premium over the previous 60-day average, the biotech’s shares jumped to a high of $16.68 on Jan. 27 and remained in the $15 range as the week progressed. Cowen & Company analyst Eric Schmidt predicted that Astellas would land CVT eventually, but at a share price ranging between the high teens and low 20s--Joseph Haas and Melanie Senior.
GSK/NeuroSearch: GlaxoSmithKline and NeuroSearch, which have been drug-development partners since well before the merger that created the current GSK entity, extend their five-year drug-discovery collaboration led by Phase IIb depression and ADHD candidate GSK372475. Denmark-based NeuroSearch gets an undisclosed upfront payment to continue the alliance, which now includes an expanded portfolio of novel compounds. NeuroSearch says it could realize more than $1.2 billion in milestones under the deal, along with double-digit royalties on any products that reach market. While Glaxo Wellcome collaborated with NeuroSearch in the 1990s on potassium-channel central nervous system compounds and anti-depressants, the companies’ more recent work has centered on triple monoamine reuptake inhibitors that GSK in-licensed in 2002. The NeuroSearch work was moved into GSK’s Center of Excellence for External Drug Discovery after it was launched in 2005. CEEDD programs like this one enable GSK to expand its pipeline while shifting more responsibility and risk onto its partners – NeuroSearch performs discovery and research of the GSK-partnered programs through proof-of-concept, at which point GSK takes over development and commercialization of the compound. With ‘372475, GSK expects data from two Phase IIb studies on the compound and to make a Phase III go/no go decision during the first half of this year. During 2009-2010, NeuroSearch says it will earn about $90 million from the partnership between the upfront payment and milestones. While the collaboration mainly will focus on joint development of candidates advanced during the previous five years, NeuroSearch says, the expanded deal also includes five preclinical compounds along with several qualified lead compounds that will move into preclinical development by mid-year. The deal also gives NeuroSearch a share-put option to sell up to $25.6 million of its stock to GSK at market price in four equal tranches through November 2010--Joseph Haas and Melanie Senior.
Deerfield/NitroMed: After raising its offer a second time, Deerfield Management’s “black knight” bid to acquire NitroMed, and forestall what it saw as dilutive transactions with Archemix and JHP Pharmaceuticals, appears to have succeeded. On Jan. 27, NitroMed announced it had entered into a merger agreement with Deerfield – which owns 12 percent of its stock – after the investor increased its offer to $0.80 a share. However, the agreement includes a “go shop” provision enabling NitroMed to seek a better offer through Feb. 26. NitroMed said it will actively solicit offers during that period. If a better offer doesn’t materialize, the merger is expected to close in April. At this latest offer price, the question remains whether this deal amounts to an exit for Deerfield, especially with NitroMed’s poor-selling BiDil, a heart-failure drug for black patients, still in the fold. BiDil sales totaled just $7.8 million for the first half of 2008. Deerfield made its initial bid after NitroMed announced two deals last fall, one to sell BiDil to JHP for roughly $26 million, and the other to reverse-merge with private aptamer-focused biotech Archemix. The agreement with Deerfield required NitroMed to terminate the JHP and Archemix deals, resulting in termination fees totaling $2.4 million. The reverse merger would have brought about $60 million in cash – post sale of BiDil – and a NASDAQ listing to Archemix, which had abandoned plans for an IPO early in 2008. Deerfield clearly was unhappy with the merger terms, which gave NitroMed shareholders only a 30 percent stake in a highly illiquid company. Managing Partner James Flynn said a review of other biotechs with Phase III assets showed many of them were valued lower than the theoretical $100 million value the reverse-merger would create for Archemix. Archemix, meanwhile, is pursuing business as usual as a still private enterprise, focusing on advancing its lead aptamer, ARC1779, through Phase IIb clinical trials. Despite losing out on NitroMed’s cash, the company says it has sufficient money to support operations through the end of 2010, thanks in part to a large R&D deal inked with GSK late in 2008--Joseph Haas.
Ipsen/Novartis: In a deal that may reflect increasing sales and marketing clout for regional players — or just the efforts of one big pharma to reduce its overhead in one strategic market — Novartis increased its anti-hypertension drug co-promotion work with Ipsen on Jan. 28. Paris-based Ipsen has promoted Diovan (valsartan), the world’s top-selling hypertension therapy, in France since 2003. It also helps market the product in Europe, along with Nisisco, a combination drug that includes hydrochlorothiazide. The newly expanded agreement calls for Ipsen to sell Exforge, another anti-hypertensive combining valsartan with Pfizer’s amlodipine, in France. Novartis reported 2008 worldwide sales of $406 million for Exforge, which gained FDA approval in 2007. With Ipsen well entrenched in France’s primary-care market, this deal appears to position Novartis to grow its hypertension franchise further through Exforge--Joseph Haas.
Helsinn/Sapphire: Switzerland’s Helsinn apparently picked up privately-owned cancer supportive care group Sapphire Therapeutics for an (undisclosed) bargain. The deal adds three clinical candidates to Helsinn’s pipeline: Phase II anamorelin, an oral first-in-class cancer cachexia treatment, an intravenous compound for post-operative ileus, also in Phase II, plus a Phase I oral drug for opioid-induced bowel dysfunction. It also provides the group with “a direct presence in the major pharmaceutical market of the world,” CEO Riccardo Braglia said. Reflecting the sorry state of many private biotechs, there were reportedly no other interested buyers. Moreover, Sapphire’s VC investors likely were eager to exit from a group that already had re-invented itself once. Bridgewater, N.J.-based Sapphire was launched in 2000 as Rujevenon, with a focus on anti-aging therapies and $12 million in private financing. By 2004, it had changed its therapeutic focus to small-molecule cancer and metabolic drugs, and raised more than $37 million in a Series B financing led by SV Life Sciences--Joseph Haas and Melanie Senior.
