2011 M&A of the Year Nominee: Daiichi/Plexxikon

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

In an era in which biotechs struggle to get financing and Big Pharma is hungry for new drugs (but typically favors deals that delay rewards), Plexxikon was dealt a top R&D hand and played its cards exceedingly well. Its strategy culminated in one of the priciest private buyouts in recent history, its $805 million up-front acquisition by Japan’s Daiichi Sankyo Co. Ltd. And if that don't scream M&A of the year, we don't know what does.

You want more? OK how about a deal that validates Plexxikon's previous partnering strategy, around a drug (the BRAF inhibitor Zelboraf/vemurafenib, which was at the time in pivotal studies) that wowed FDA so much the agency approved it later in the year in a brisk three and a half months? That drug was already half-owned by Roche, Plexxikon's partner since 2006, but the other half stayed at partner-rich Plexxikon, which cannily (some over the years would have said unnecessarily) hung on to its co-promotion rights.

Maybe what'll sway you even more is that little bit extra in earn-outs, cash that could take the value of the deal to $935 million? Or perhaps the estimated 12x return on the average venture investment dollar? (Plexxikon had raised only about $67 million from a syndicate that included Advanced Technology Ventures, Alta Partners and Astellas Venture Capital, thanks largely to its ability to bring in non-dilutive partnership dollars.) Or is it the surprise victor in what was clearly a competitive bidding process for Plexxikon, the seemingly suddenly deal-hungry Daiichi Sankyo?

The truth is there are many reasons to vote this deal to the top of a competitive DOTY field in the M&A category. Not least that Zelboraf, alongside Bristol-Myers Squibb's Yervoy, is one of only a pair of drugs approved to treat melanoma in a decade.  In a year of big approvals and some big deals, Zelboraf and the acquisition of Plexxikon are among the biggest.--Chris Morrison & Emily Hayes 

image from flickr user mrdelayer used under creative commons license

Deals Of The Week Breaks For March Madness

It really is a mad, mad, mad, mad world. Libya. Yemen. Japan.

The relentless worrisome news is enough to drive this blogger to the madness that is the NCAA. (I suppose I could tune into the unceasing Kate/Wills show on BBC and TLC instead, but there's at least another 6 weeks to indulge that craving.)

For now, however, I'll have to make do with Deals of the Week. (EBI's corporate parent frowns a wee bit on live streaming during work hours, even if it allows one to make artful pop culture references.) And thankfully, there are plenty of suprises, setbacks, and leadership changes to make biopharma worthy of its own bracketology.

We'll return to weightier matters on Monday. For now it's time for...

Human Genome Sciences/FivePrime Therapeutics: On March 16, one week after winning FDA approval for Benlysta (belimumab), the first new lupus drug in 50 years, Human Genome Sciences inked a $50 million deal for rights to FivePrime's lead pipeline candidate, FP-1039. FP-1039, an inhibitor of the fibroblast growth factor (FGF) pathway that may be key to survival and proliferation of solid tumors, has been well tolerated in safety studies and is now being tested in endometrial cancer patients. No word yet if HGS will continue down that clinical path or prioritize other cancers. There are several members in the FGF family; FivePrime said its molecule inhibits most of them, with preclinical work showing strong inhibition of angiogenesis related to FGF and VEGF. The license agreement, extremely lucrative for an asset that hasn't yet dosed in Phase II, gives HGS development and marketing rights in the US, Canada and European Union. In addition to the $50 million upfront payment, HGS will pay FivePrime $445 million in potential milestones, plus double-digit tiered royalties on net sales. The biologic will slot into HGS's clinical pipeline, which beyond Benlysta includes monoclonal antibodies for anthrax, cancer and ulcerative colitis. -- Alex Lash

Seattle Genetics/Millennium: With their antibody-drug conjugate brentuximab vedotin heading toward an FDA approval decision this year, Seattle Genetics and Takeda Pharmaceutical's Millennium have extended their partnership to include an undisclosed second antigen target. The firms did not reveal financial terms, but Millennium will be responsible for all R&D and commercialization of the compound, with Seattle due milestones and single-digit product royalties on worldwide sales. That's different from the b. vedotin collaboration, in which Seattle Genetics has retained US and Canadian commercial rights, with Takeda/Millennium responsible in the rest of the world. Buoyed by positive data in its pivotal trials, b. vedotin inhibits CD-30 and was submitted in February for approval for relapsed/refractory Hodgkin lymphoma and relapsed/refractory systemic anaplastic large cell lymphoma. If approved, the medicine would be the only antibody-drug conjugate on the market, as Pfizer's Mylotarg was removed last year after post-market studies showed serious safety concerns. Other companies, including ImmunoGen and Roche's Genentech group, are pushing ADC technology through the clinic with the hope that the antibody conjugates, which consist of a cell-killing payload tethered to a tumor-homing antibody, provide strong cancer-fighting properties without the drastic side effects of chemotherapy. -- AL

Sanofi Aventis/Genfit: If it were ever in doubt, the high-profile failure of fat-buster Zimulti back in 2007 hasn't put Sanofi-Aventis off metabolic diseases – even outside diabetes. Zimulti's failure forced the French pharma to lean heavily on insulin treatment Lantus, and its moves to build a stronger diabetes franchise are well-documented. (Recall the French pharma’s deals with WellStat, CureDM, Metabolex, and its 2010 update of its 2003 Zealand Pharma alliance.) Most recently, on March 17, Sanofi Aventis signed a research contract with French biotech Genfit, hoping to identify molecules targeting the mitochondrial dysfunctions believed to be behind some metabolic disorders. Genfit has collaborated with both Sanofi-Aventis' predecessor companies since 1999. Back then, when Genfit trendily called itself a 'functional genomics' outfit, the biotech signed up Aventis to work on PPARa agonists in exchange for €5 million up front and some research costs; the same terms applied to a tie-up with Sanofi-Synthelabo in atherosclerosis. The latest pact sees Genfit, now described as experts in gene regulation and nuclear receptors, receiving annual payments to fund research, plus development, regulatory and commercialization-linked milestones that could, in a best-case, reach $54.5 million. Genfit's most advanced in-house compound, GFT505, is in Phase II trials for diabetes/pre-diabetes. –Melanie Senior

Merck/Ariad: Just last year , DOTW covered Merck and Ariad’s decision to revise their 2007 deal for mTOR inhibitor ridaforolimus, with Merck taking development control for the program and Ariad retaining an option to co-promote the medicine in the US and fielding 20% of the US sales effort. This week comes news that Ariad has opted in; and the announcement is worth noting for several reasons. When Ariad downsized its obligations in 2010, the move was about sacrificing long-term return in exchanging for securing its near-term cash runway. But if the company was seeking stability, reserving the right to co-promote provided a healthy compromise, allowing it to preserve some ownership of what could be an important revenue driver, rather than be reduced to sales milestone and royalty payments. Why is that important? For starters, even a 20% stake in ridaforolimus, an oral mammalian target of rapamycin that has the potential to be the first targeted agent for the treatment of sarcoma, is likely to be attractive to future acquirers--and that's above and beyond ridaforlimus licensor Merck. Indeed, with a pipeline of products in development including Phase II ponatinib, Ariad could catch the eye of bigger players looking to build their oncology pipelines. But with even big companies counting pennies, noone wants to leave money from marketed products on the table (or in the pockets of a competitor). Thus, while a co-promote may give existing partner Merck the lion’s share of the value, it still leaves enough to satisfy would-be buyers giving Ariad greater strategic flexibility. Want proof? Just ask Plexxikon, which managed to sell itself for a hefty price to Daiichi for its targeted melanoma drug PLX4032. –Ellen Foster Licking

Elanco/Janssen Animal Health: Elanco, the animal health division of Eli Lilly and Co. announced an irrevocable, unconditional offer March 14 to acquire Janssen Animal Health, part of Johnson & Johnson subsidiary Ortho McNeill Janssen. Financial terms were not disclosed. Belgium-based Janssen is focused primarily on Europe and would add a portfolio of about 50 products to Elanco’s line. Its products treat both companion animals and livestock, with an emphasis on poultry and swine. The deal would include no manufacturing facilities, but Janssen’s animal health employees would transfer to Elanco, which already employs more than 2,300 people and markets products in 75 countries. Elanco President Jeff Simmons said the transaction would provide synergies with current operations, as well. “Through this transaction, we intend to further expand our European presence, bolster our growing portfolio of companion animal medicines and diversify our food animal portfolio with new swine and poultry products,” he added. Elanco generated sales of $1.39 billion in 2010, 15% growth over 2009, and contributed roughly 6.0% to Lilly’s overall $23.1 billion in sales for the year. J&J does not break out sales data for Janssen Animal Health in its financial reporting. The sale would mean J&J’s exit from animal health, a space in which seven of 12 publicly traded big pharma companies currently play, led by Sanofi-Aventis, which generated €2.64 billion in sales last year, comprising 8.7% of its earnings.—Joseph Haas

Quest/Celera: Players of various stripes continue to snap up specialty labs, starting with GE buying Clarient last fall and Novartis bringing Genoptix into its molecular diagnostics fold in early 2011. Now, Quest is buying Celera for $671 million, or $344 million net of Celera’s $327 million in cash and short-term investments. For the money, Quest gets Celera’s Berkeley HeartLab (BHL) and its proprietary tests, as well as the smaller testing company's biomarker pipeline and R&D capabilities. The move is in line with Quest’s expansion of esoteric and gene-based test operations in cancer, CV, infectious diseases and neurology: less than a month ago, Quest snapped up Athena Diagnostics for $740 million, deepening its neuro testing channel. Celera has been limited by high infrastructure costs and commercial constraints and the BHL business should benefit from Quest’s distribution capabilities, including its patient service centers. Indeed, access to Quest’s patient service centers to perform phlebotomies and get the message out about new tests should accelerate growth. Celera will continue to operate independently and Ordonez and senior management will stay on. Quest no doubt values Celera’s pipeline as much as the tests Celera sells: Quest does not expect the deal to add to EPS for two years.—Mark Ratner

Basilea Vindicated: FDA Warns J&J over Trial Conduct

In what could almost be categorized as the silver lining in an otherwise black cloud for Basilea, the FDA has issued a warning letter to J&J, the biotech's partner on Phase III anti-infective ceftobiprole. The letter--dated Aug 10--lists a range of concerns over J&J's trial conduct and site monitoring, including failure to follow study protocol.

It's a damning--and, frankly, embarrassing--indictment of the Big Pharma. Right up front, the letter declares [our bolding]:

From our review of the establishment inspection report and the documents submitted with that report, and your letter written in response to the Form FDA 483, dated June 24, 2008, and your responses dated September 2, 2008 and September 4, 2008 in response to additional information requests from the FDA, we conclude that you did not adhere to the applicable statutory requirements and FDA regulations governing the conduct of clinical investigations."

The letter strongly vindicates Basilea's February 2009 decision to enter into arbitration against its partner, however. What may have looked like a rather unwise move for the biotech back then (after all, who is going to run out of money/time first?) now seems justified.

Basilea's seeking damages--and, most critically, missed milestone payments--resulting from a string of delays to ceftobiprole's approval. It had long claimed that J&J was doing a shoddy job of developing the drug, and various FDA red flags along the way--including an approvable letter in March 2008 that was "subject to clinical site inspections" seemed to back up its view (Arbitration is still a big and risky step to take; these partners in theory will be co-promoting the drug one day).

Now granted, this warning letter relates to issues raised last year, before the partners submitted their complete response to FDA in November 2008. So there's nothing new in it, and, according to Piper Jaffray analyst Richard Parkes, it's unlikely to affect the ongoing review and audit process that J&J is having to carry out, using an independent assessor.

Whether or not that's the case, the letter is an undeniably useful piece of evidence for Basilea in its arbitration proceedings; a "significant positive", according to Parkes.

Basilea's hardly out of the woods, though. Arbitration's cheaper and faster than going to court, but it can still take years--certainly Basilea isn't expecting a decision this year. Meanwhile the patent-clock on ceftobiprole is ticking (first patents expire in the US in 2019) and the longer it ticks before the drug gets to market, the less interested J&J may be in investing in it.

Parkes still reckons ceftobiprole (known as Zevtera) will be approved for its cSSSI indication, but it won't be before next year at the very best--three years after the drug was filed. (And that probably assumes arbitration proceedings are complete.) In Europe, the EMEA has done its GCP inspections and may report back later this year.

FDA may wish to make an example of J&J on this issue by further delaying the drug's approval; warning letters to Big Pharma on quality assurance are rare, after all. But"we do not have any indication that the warning letter could change the agency's view on the approvability of ceftobiprole," argues a Basilea spokesman, pointing out that the regulator already knew about the concerns raised in the missive before it issued its complete response. (Furthermore, the FDA division that inspects how trials are done isn't the same lot that reviews drugs.)

Perhaps more likely, the letter signals that FDA has got its arms around the scope of the problem and the issue is as good as closed (granted of course that J&J doesn't mess up again).

So maybe the clouds will clear in 2010 for Basilea: maybe the FDA letter will mean it wins the arbitration and secures better-than-expected damages, and just maybe Zevtera will get past the regulators--some sources expect an FDA decision in the first half of the new year.

Or maybe J&J will decide the time is right to buy itself out of any future embarrassment or trouble and snap up the biotech--probably cheaply.

Co-Promotes are Out. Extra Royalties are In

Heave a sigh of relief, Big Pharma. Co-promotes are on the way out. At least, according to Ben Bonifant, VP at consultants Campbell Alliance, who was speaking on a panel at Bio-Europe in Hamburg on Monday.

Co-promotions with small biotech partners have been a bug-bear for Big Pharma ever since they’ve been forced to concede them—or at least options for them—in what remains a sellers’ market. As we reported in depth in this IN VIVO feature, Big Pharma hates the thought of sharing promotion with their (usually inexperienced) licensing partner. Launching a product is hard enough, goes the argument. We don’t need the distraction of trying to coordinate with and train relative novices.

Small wonder, perhaps, that many past examples of co-promotes—like the Eli Lilly/ICOS joint venture on erectile dysfunction drug Cialis—have turned into acquisitions. Indeed, Lilly got a good deal. Poor old ICOS put so much resource into its share of promoting Cialis that it wasn’t able to build up a supporting pipeline. The stock fell and Lilly struck. (No need to spell out the lessons in there.)

Nowadays, acquisitions may pre-empt a co-promote being put into practice at all. One of the last things Abgenix was doing before being snapped up by Amgen was preparing to trigger its co-promote option on panitumumab (Vectibix), according to Gayle Mills, former SVP Business Development at Abgenix, now EVP Business Operations at Roxro Pharma and the panel moderator. “I believe that this was the straw that broke the camel’s back,” she told the audience in Hamburg. (The original deal, which included a manufacturing component, was signed between Abgenix and Immunex in 2000.)

In future it may not get to that. Many newer generation biotechs are embracing a ‘let’s get to proof-of-concept and no further’ model, wherein co-promotion rights aren’t relevant anyway. Returns from Phase II deals are good enough, say their investors; why take on further cost, and risk?

Indeed. But no biotech should forget that relinquishing a co-promote—whatever the likelihood that it would be exercised—is a bargaining chip these days in any deal negotiation. What’s it worth? A couple of royalty points, at least, according to panellist Rob Wills, VP Alliance Management in Johnson & Johnson’s pharma group.

How does he know? Well, because when a smaller partner’s taken over, that’s about what Big Pharma might typically agree to give back in return for cancelling the co-promote. It’s all in the change-of-control clause, in other words.

As the panel pointed out, though, some biotechs may not want to wait for royalties (lovely as they are, falling straight to the bottom line, ‘n all that). They want earlier rewards—like some more upfront money, or beefier milestones. For now, “we don’t see situations where, if a co-promote is taken off the table, the biotech gets X more dollars,” noted one panelist. That could soon change.

Now granted, co-promotes—real, exercised ones--aren’t going to disappear completely. But there are other ways to share commercialization besides straight co-promotes. “It would be wiser to abandon the traditional view of a co-promotion and call it something else—such as a co-sell--taking away the idea that you’re co-launching the same drug,” proffered panellist Louis Scotti, VP Marketing and Business Development at Arena Pharmaceuticals. What he meant was, there’s scope for a smaller partner to come in later, a couple of years’ post-product launch, for instance. The partner can then add to the commercialization effort, perhaps by targeting a specific customer group, and avoids the costs and risks associated with setting up a sales force ready for regulatory approval--whose timing is notoriously uncertain.

There’s a good precedent for this model, pointed out Wills, albeit an old one. In Alza’s deal with Janssen on opioid patch Duragesic (before Alza became part of J&J), Alza came in three years’ post-launch, making incremental calls to a specialist audience. Look out for similar set-ups in future, remarked panellist Timothy McBride, SVP Business Development for Cerimon. “We envisage promotion based on specialist markets, with Big Pharma going to the broader audience,” he said, although without commenting on timing.

$80 million upfront? About Average

So Synta’s PR firm were pushing today’s deal with GlaxoSmithKline at us as “one of the biggest product deals this year” and indeed “among the largest in the industry”…and it’s true, the $80 million cash up front deal for an anti-cancer compound that’s entering Phase III isn’t at all bad.

But $80 million up front isn’t off the scale, either. In fact, it’s looking about average these days for an asset on the cusp of Phase III—Merck in July paid Ariad $75 million up front for its cancer compound, Novartis put the same on the table for Antisoma’s similar-stage oncology asset in April, and outside of cancer, GSK paid $75 million for XenoPort's Phase III RLS compound in February, Shire that same magic figure for Renovo’s late Phase II wound care treatment in June.

Indeed, $80 million even begins to look measly alongside the $102 million that GSK forked out for Genmab’s Phase III antibody, or the $165 million that Johnson & Johnson coughed up for ex-US rights only to Vertex’s then-Phase IIa Hepatitis C gem.

Ok, so these were outliers. Genmab’s contained the antibody premium; Vertex’s was special, too. But the point is, three-digit up front payments for late-stage assets will soon be common, so don’t waste the hyperbole.

And don’t forget to look behind the curtain, either. Milestones: “Up to $1.01 billion in potential payments," our PR friends say. We all know this trick, though. That’s the if-everything-goes-to-plan-across-all-indications-and-the-moon-goes-blue (or biodollar) figure. Think $135 million in pre-approval milestones.

This, according to Synta’s CEO Safi Bahcall, is more than enough to cover the costs of the compound’s Phase III trials and US submission, which Synta stays in charge of.

And that—control—is the bit that’s interesting in this deal; more interesting than the amount of cash that’s changing hands (most of which GSK can capitalize, incidentally--so it doesn't immediately hit the P&L and thus crimp any R&D budgets). Synta will pay for and finish Phase III, and take the compound past the US regulators for metastatic melanoma. That allows the biotech to boast about the “confidence GSK has in our ability to conduct a pivotal trial and register the drug,” as Bahcall explained. But it also allows GSK to hedge risk and be absolutely sure the compound gets past regulators in the first indication before committing any of the $300 million of potential commercial milestones, or much of the $450 million in potential development and regulatory milestones in other cancers.

Still, Bahcall’s right in saying that “it’s unusual, given GSK’s experience, that they allow us to take the lead” in development and regulatory. Typically Big Pharma would want to take the reins, re-do the Phase III trial design and start talking to regulators. (Especially, you might think, given recent biotech casualties at FDA like the one that hit GPC Biotech when it tried to get satraplatin past.) Not this time—no doubt the compound’s fairly straightforward clinical trial design, with an objective end-point of progression-free survival, helped.

And if Synta gets the drug past regulators, it gains credibility in the next stage of the relationship: co-commercialization. That feature’s about average, too, for deals these days—many biotechs want to have their own sales forces, despite all the future problems and complexities and costs those forces bring.

In reality, pharma-biotech co-promotes are usually a nightmare, as we discussed in this IN VIVO feature. But Bahcall’s confident that the partners have learnt from what’s gone before, with specific prescriptions and conditions for how the co-promote would work, plus measures to ensure that Synta doesn’t lose out on the tiered profit share, thought to start at 40% and rise to 50%, based on annual net sales. (Profit shares can bite small partners if pharma ramp up their cost of sales to reduce what’s left to distribute.)

There are also provisions in the deal, according to Bahcall, allowing for Synta to assume more responsibility for commercialization in the future—once the drug has been out there for a couple of years, for instance (IN VIVO Blog speculation, not his comment). In other indications, the partners will share development in and outside US, with Synta eligible for double-digit royalties on ex-US sales.

Don't get us wrong: for all our talk of 'average', Synta’s got a good deal, all the more so given it’s the company’s first. Shareholders started celebrating earlier this week on deal speculation. They needed a party; Synta’s shares have done very little since its February IPO.

Co-promotes: No Longer Biotech’s Holy Grail

You could see it coming. Well, kind of. Idenix on Friday snuck out the news that it was bailing out of its US and European co-promote with Novartis on its Hep B drug Tyzeka (Sebivo in Europe).

Co-promotes have until recently been most biotech’s holy grail, and co-promote options, at least, a sine qua non of much of recent licensing activity with larger pharma. It’s all part of that fully-integrated, ‘we-want-to-become-the-next-Genentech’ dream; we wrote about whether the dream made real-world commercial sense in IN VIVO in April.

We also pointed to data showing that barely more than a tenth of biotech-pharma co-promote plans become reality. When they do, they can be a nightmare--there was certainly no love lost between ICOS and Eli Lilly over Cialis before that (inevitable) acquisition.

Now of course, Big Pharma would say that co-promotes are a nightmare: they don’t like diluting their control over commercialization—which is, for all the talk of value inflection points throughout drug development, where the actual money comes from. But some of the arguments they put forward are sound: commercialization costs a helluva lot, even for so-called specialist sales forces, it’s increasingly complex as regulatory and reimbursement hurdles multiply, and, frankly, biotechs would make more profits by securing a good royalty share.

Idenix seems to have come to at least some of those conclusions, too. The biotech needed to rein in after the failure of its Hep C candidate a couple of months back, and this move will save it $40-45 million a year, apparently, by laying off the Tyzeka sales staff. “We have changed our agreement for Tyzeka to a royalty stream arrangement,” said Idenix CEO Jean-Pierre Sommadossi in the release outlining a wider re-structuring at Idenix.

In the original deal, outlined here, Idenix received sales-linked payments only in territories not covered by the co-promote. Neither those, nor the level of the new royalty stream, is revealed, but we’re certainly talking levels far from the single-digit tokens that grateful biotech used to have to put up with.

Funny, though, the timing: just a day or two before the announcement, Susan Koppy, SVP business and corporate development at Idenix, was on a panel at Windhover’s Pharmaceutical Strategic Alliances conference in New York. (Read here and here, for examples of what you missed.) She described the co-promote with Novartis as “a true co-promote,” in response to a question about which of the partners effectively had control (don’t forget that Novartis owns 56% of Idenix). But then, she added: “The relationship may well evolve as we go forward.”

Indeed it has. And it’s a fair bet that the evolution of other biotech co-promotes, real or planned, will go the same way. Biotechs are discovering and developing the drugs right now and benefiting handsomely from that. “Stick to what you do best” applies to them, as much as to Big Pharma.

Another Co-Promote Bites the Dust

When Merck and partner Neuromed yesterday pulled the plug on Phase II chronic pain treatment NMED-160/MK-6721, another co-promote bit the dust, too.

More proof, then, that most co-promote options built into today’s biotech-pharma licensing deals are just window-dressing—comfort cushions for biotech investors dreaming of drug revenues and spec pharma success. Earlier this year we laid out in IN VIVO some of the reasons why fewer than 10% of co-promotes actually turn into market-place reality.

That statistic reassures the Big Pharma partner—most of which hate the thought of sharing their commercial spoils with inexperienced biotech, even if some of them say otherwise. But the main reason co-promote promises don’t often become reality is product discontinuation, as in this case, which helps no-one.

Luckily for Neuromed, the aborted program, an N-type calcium channel blocker, wasn’t its lead. Not since April 2007 anyway, when the biotech licensed US rights to a Phase III extended-release opioid analgesic OROS Hydromorphone from Johnson & Johnson’s Alza.

This deal means Neuromed may yet fulfil its dream, shared with most other biotechs, of setting up its own specialist sales force. And Neuromed may yet get to co-promote products with Merck, since the 2006 deal granted the biotech the option to co-promote to US specialists any N-type calcium channel blockers emerging from the collaboration—and the partners say they’ll keep looking for others.

But with NMED-160/MK-6721 gone, at least in pain, Neuromed will miss out on at least $202 million in milestones, and possibly more. It also paid $30 million up front for OROS. That product had better make it onto the US market (it's approved in Europe, but still not in the US, seven years after an approvable letter ). Otherwise private Neuromed may be in danger of biting the dust, too.

Size Matters for Specialist Drugs, Too

Sales force size, that is. ZymoGenetics’ ex-US commercialization deal with Bayer HealthCare on lead recombinant human thrombin didn’t come as a huge surprise: the west-coast biotech had always said it would seek a partner ex-US.

But what was interesting about today’s deal was that Bayer also gets to co-promote rThrombin in the US for the first three years post-launch, in exchange for up to 20% sales commission plus bonus payments up to $20 million. Now, this is a specialist drug, sure—it was filed in December 2006 as a safer alternative to bovine thrombin for use in helping control bleeding during surgery, and the entire US market is today worth only $250 million or so.

But ZymoGenetics isn’t the only one going after it (which, incidentally, says much about the growing competition even for niche products). It shouldn’t have too much trouble displacing King Pharmaceuticals’ bovine-derived product Thrombin-JMI, given the recombinant drug’s superior safety and convenience. Bovine thrombin has a black box warning due to immunogenicity, which doesn’t affect rThrombin; the Zymo product can be stored for two years at room temperature, unlike some plasma-derived drugs.

But Johnson & Johnson is also on the loose, thanks to a 2004 deal granting the Big Pharma European and then North American rights to Omrix Biopharmaceuticals’ human blood-plasma derived thrombin, which, like rThrombin, is due for approval later this year.

Zymo argues that surgeons don’t like human plasma derived products either, and that the Omrix drug will also likely carry a warning. But a battle pitting Johnson & Johnson versus Zymo's planned 50-strong US sales force looked too one-sided, whatever the products. That helps explain why Zymo’s share price has remained so muted this year.

It also helps explain why Zymo agreed to the three-year US co-promote--even though it was earlier firm in its intention “to commercialize rThrombin in the US on our own”.

Zymo will still be in charge of US pricing and commercialization, and will book US sales. But Bayer’s added muscle will allow Zymo to quickly penetrate the market, converting a maximum number of hospitals to recombinant thrombin as fast as possible, and also countering any threat from J&J. With the support of Bayer’s 70 US sales reps and 25 scientific liaisons, “we’ll have the largest field force in the hemostasis market,” Zymo's president and CEO Bruce Carter said on the conference call following the deal's annoucement, “as well as what we believe to be a superior product.”

As for Bayer: it has long abandoned global, Big-Pharma style ambition in favor of a more specialist focus. Like other mid-sized pharma, it has tried to position itself as a flexible partner that’s willing to consider ex-US rights only—and let’s face it, that’s increasingly all that’s on offer in today’s sellers’ market, as we've discussed in previous IN VIVO articles.

But the Zymo partnership offers a glimpse of how mid-cap pharma may now be able to leverage the size they do have—relative to many a biotechs, anyway—to secure what are effectively global product deals for products with (relatively) low risk.

And the cost isn’t bad either: Bayer pays Zymo $30 million up front, $40 million on approval, and up to $128 million in milestones, most of which are sales based. Ex-US, it’s in charge, and pays Zymo double-digit royalties.