Deals Of The Week: Can Endo Succeed By Copying The Valeant Model?

Santa’s sleigh may be loaded to the brim with gifts come Christmas Eve but it was Deals of the Week that carried a heavy load during the final full business week before the Yuletide holiday. That’s roughly 20 business development transactions, and counting, for the week of Dec. 16-20 as this column went to press.

Below are some of the highlights, but let’s start with the latest stocking-stuffer at Endo Health Solutions, which has always relied on deal-making to fill its pipeline but may be poised to increase its prior business development pace since Rajiv De Silva signed on as CEO from perpetual deal-maker Valeant Pharmaceuticals in February. On Dec. 16, Endo agreed to acquire NuPathe and its recently approved sumatriptan patch, Zecuity, for $105 million upfront plus potential contingent payments pegged to future sales of the migraine product.

This closely followed the Nov. 5 $1.6 billion buyout of Canadian specialty pharma Paladin Labs, a move that would expand Endo’s international footprint to Canada, South Africa and Mexico, while providing tax advantages by allowing the suburban Philadelphia company to re-domicile in Ireland. It’s been a frenetic pace since De Silva took over and moved toward a Valeant-like pursuit of expansion via M&A activity.

While Wall Street did not rave about the NuPathe acquisition, perceiving it as mainly the acquisition of a single asset likely to post smallish sales but also enhance Endo’s pain product portfolio, analysts told Deals of the Week they approve of De Silva’s approach to re-making Endo.

“I actually like the strategy he’s pursuing,” said UBS Investment Research analyst Marc Goodman. “De Silva came in and said ‘we need to restructure this place first because our costs are out of whack with our revenues.’ That’s pretty much the same thing Valeant did a few years ago. The second thing he did was look at the assets and ask what they wanted to be in and what they didn’t. They decided to get rid of [urological services provider] HealthTronics, so that’s on the block. And it wouldn’t surprise me if in 2015 or afterward, once they fix [medical device unit] AMS that they sell AMS.”

Speaking to the Credit Suisse Healthcare Conference Nov. 12, De Silva said plans to divest HealthTronics, termed “not … a strategic fit with us anymore,” are making solid progress. “We have retained an investment bank and we are in the midst of doing management presentations and are optimistic about the level of interest that has been expressed so far,” the exec said. He didn’t address any plans to sell off AMS but said that apart from its women’s health offerings, the unit is showing quarter-to-quarter performance improvement, including year-to-date revenue growth compared with 2012.

The $105 price tag for NuPathe works out to about $2.85 per share. But if Zecuity, approved by FDA in January but not yet launched, meets certain sales thresholds, NuPathe investors stand to get additional payouts. They’ll get $2.15 per share if net sales of Zecuity top $100 million during any four-quarter period up to the ninth anniversary of the first commercial sale of the product. And they can obtain an additional $1 per share if the product reaches $300 million in sales during a four-quarter period during that same time span.

The only FDA-approved prescription patch for migraine, Zecuity is a disposable, single-use, battery-powered transdermal patch that delivers sumatriptan through the patient’s skin. Its approval was based on a Phase III program that tested nearly 10,000 units of the product in 793 patients.

While Goodman thinks Zecuity is unlikely to top the sales marks established under the deal’s contingent payment language, he believes the technology behind the patch product will make it hard to duplicate, frustrating attempts at generic competition and providing Endo with a “very long tail” of revenue (sumatriptan itself, developed and sold by GlaxoSmithKline, has been generic since 2008).

UBS initially will include annual sales of less than $100 million in its modeling for Endo, because of the highly genericized competition in migraine, the resulting pricing pressure and the possibility that doctors with patients who failed to obtain relief on an oral sumatriptan product might not be greatly inclined to try a sumatriptan patch in those very same patients. “I just wonder about the pecking order,” Goodman said.

Meanwhile, Morningstar analyst David Krempa sees the transaction as keeping with the tradition of bolt-on deals De Silva would have learned to value while serving as president and chief operating officer at Valeant.

“It’s a relatively small deal that basically fits in with the strategy they talked about, pursuing bolt-on deals similar to what we saw at Valeant, combined with the occasional mega-deal like we saw with Paladin,” Krempa noted. “Those are the kinds of deals that Valeant has had success with, ones in which it can acquire a product or asset and take out all the revenue without needing to add on any expenses. They don’t need the sales force that [NuPathe] has and so they add the new product onto their existing sales force’s portfolio and get all of the sales without taking on much of the expense that typically would go along with it.”

But Krempa shares Goodman’s concerns about the viability of the migraine space and pain therapy in general. Endo needs to seek out business areas offering “less pricing pressure and better organic growth prospects,” he said, citing dermatology, ophthalmology, branded generics and over-the-counter products as possible targets. The Paladin acquisition gives Endo entrée into some of those spaces, he added.

Meanwhile, plenty of other companies, including Valeant of course, were negotiating their own deals during the final shopping days before Christmas. Read on as we present a red-and-green tinged edition of ....

Valeant/Solta Medical: Serial buyer Valeant moved to expand its aesthetics business this week with the addition of Solta Medical, the makers of medical device systems for aesthetic applications. Valeant announced Dec. 16 it will acquire Solta for $250 million in the latest in a string of acquisitions by the Canadian firm in recent years, including several that have expanded the company’s portfolio in medical devices and dermatology. Solta will complement Valeant’s portfolio on both fronts by augmenting its offerings to dermatologists and plastic surgeons. Its 2012 revenues were $145 million, coming from products like Thermage CPT radiofrequency skin-tightening system, Fraxel skin repair system and the Clear + Brilliant laser skin-resurfacing system. Solta has made a number of major acquisitions in recent years, including Sound Surgical Technologies in February 2013, and the LipoSonix business from Medicis Pharmaceutical in 2011. Valeant ultimately acquired Medicis in 2012 for $2.6 billion, building significantly on its dermatology and aesthetic offerings at the time. - Jessica Merrill

Merck/GlaxoSmithKline: Merck announced Dec. 18 that it is teaming up its highly anticipated early-stage cancer compound, MRK-3475, with GlaxoSmithKline’s kidney cancer drug Votrient (pazopanib), which was approved in October 2009. The two pharmas will test the protein kinase inhibitor with the anti-PD-1 immunotherapy in a Phase I/II clinical trial that will evaluate the safety and efficacy of the combo in treatment-naive patients with advanced renal cell carcinoma, they said in a statement. Financial details of the collaboration were not disclosed. But the dollar amount attached to the deal is almost irrelevant; for Merck, the anti-PD-1 immunotherapy is one of its few programs to garner much enthusiasm of late – both inside and outside the company – as the New Jersey pharma struggles to move drugs through its pipeline successfully. Merck is relying heavily on the cancer immunotherapy – which has shown a lot of promise but is still very early – to deliver its first blockbuster in several years; and the company intends to partner, partner and partner some more. “We look forward to initiating further collaborations to investigate MK-3475 in combination with other anti-cancer agents across a range of tumor types,” said Iain Dukes, SVP of Licensing and External Scientific Affairs at Merck Research Laboratories. So expect to see plenty more of these little tie-ups in 2014 – but don’t hold your breath for any financial terms to be revealed. - Lisa LaMotta

Pfizer/Siemens: Pfizer and Siemens Healthcare Diagnostics have entered into a master collaboration agreement to design, develop and commercialize diagnostic tests for therapeutic products across Pfizer’s pipeline. Siemens is providing in vitro diagnostic tests that Pfizer can use in its clinical trials and potentially as companion diagnostics for Pfizer drugs. Terms were not disclosed, nor were development priorities, but Trevor Hawkins, SVP, strategy & innovations, diagnostics division of Siemens Healthcare, said the deal is open-ended and could be applied to Pfizer’s entire portfolio, from early-stage development to commercialized drugs. The partners already have two active programs, one of which requires Siemens to identify a marker for a compound and the other of which requires Siemens to develop a test for a biomarker that Pfizer has identified already. The partners have set up a joint governance committee, which is meeting weekly. Both companies have partnerships with others around companion diagnostics, but those are mostly one-offs; Siemens, for example, in June, entered into a global agreement with Janssen Pharmaceutica to create a companion diagnostic for an early-stage heart failure therapeutic. Pfizer has at least three companion diagnostic deals, including one with Qiagen, which it signed in 2011 to develop a molecular test for dacomitinib, then in Phase III for non-small cell lung cancer. And in 2012, it signed a deal with Roche Diagnostics Corp. to develop an immunohistochemistry companion test for Xalkori (crizotinib), also for NSCLC. Pfizer isn’t the first pharma to enter into a master agreement around companion diagnostics; Eli Lilly has one with Qiagen. As the deal’s reach shows, pharma’s inherent skepticism about the value of companion diagnostics is gone, although many uncertainties remain, both technical and commercial, about the field. - Wendy Diller

Bristol-Myers Squibb/AstraZeneca: AstraZeneca announced Dec. 19 that it will acquire the entirety of Bristol-Myers Squibb’s interests in their diabetes alliance, including drug assets, staff and infrastructure, paying $2.7 billion on deal completion, $1.4 billion in regulatory and commercial milestones, and royalties up to 2025. The deal ends a seven-year diabetes alliance between the two parties that culminated in the 2012 co-purchase of Amylin Pharmaceuticals for $7 billion. With the dissolution of the alliance, AstraZeneca gets all patents and global rights to DPP-4 inhibitor Onglyza (saxagliptin) in all combinations and formulations, SGLT4 inhibitor dapagliflozin (Forxiga in Europe), metreleptin (recombinant leptin) for treatment of lipodystrophy, and Amylin’s GLP-1 assets Bydureon (exenatide, weekly injection) and Byetta (exenatide, twice-daily injection). The transaction illustrates the divergence in strategy between the two companies, as AstraZeneca believes its geographic reach and its scale in diabetes assets, infrastructure and capabilities position it to succeed. Bristol, on the other hand, will use the breakup to accelerate its transformation into a sharply focused specialty care company and to re-allocate its resources toward its PD1 program and its immuno-oncology franchise, said CEO Lamberto Andreotti on a same-day business update call. AstraZeneca’s focus in 2014 will be on its upcoming launch of dapagliflozin in the U.S., on building the Bydureon brand, and on life-cycle management of Onglyza. - Mike Goodman

Bayer/Algeta: Everyone likes to see a billion-dollar acquisition or two quickening the markets a bit going into the annual industry festival that is the JPMorgan Healthcare Conference. Obligingly, Algeta and its partner Bayer are providing one; the biotech said on Dec. 19 that it has agreed to be acquired by the pharma for $2.9 billion. Algeta originally disclosed an offer from Bayer on Nov. 26. In the intervening weeks, it got the pharma to sweeten the pot a bit to NOK 362 per share from NOK 336. That increase raised the offer from the original price of about $2.65 billion. The price is a 37% premium to the closing price on Nov. 25, the day before it disclosed the original Bayer offer. The pair partnered on prostate cancer therapy Xofigo (radium-223 dichloride), which was approved and launched in the U.S. in May. It subsequently was approved in the EU in November. In a market crowded with new and expensive entrants, the therapeutic offers a new mechanism of action and is aimed specifically at the treatment of castration-resistant prostate cancer in patients with symptomatic bone metastases, a critically ill subset. In Xofigo’s first full quarter of sales, it had $17 million in revenue during the third quarter. Administration sites have to be licensed to sell the product because of its radioactivity; as of Oct. 18, Algeta said there were 626 facilities licensed to treat patients with Xofigo in the U.S. That number had progressed faster than expected. Algeta received €100 million ($137 million) in Xofigo milestones during the first three quarters of 2013. Half of this amount came due on the FDA submission for Xofigo, with the other half tied to the first sale of the product. Under the terms of the 2009 partnership, Bayer paid €42.5 million up front. Then in 2012, Algeta exercised its option to co-promote Xofigo in the U.S., which entitled it to a 50/50 split with Bayer of profits and commercialization costs. Bayer owns sole rights ex-U.S., paying Algeta a tiered double-digit royalty on product sales. Analysts estimate Xofigo will be a blockbuster. Bayer clearly was unwilling to share any upside with its biotech partner and, with enough cash, it didn’t have to. - Stacy Lawrence

Jazz/Gentium: Recently re-domiciled in Ireland, as Endo now is planning to do, Jazz Pharmaceuticals signed an agreement Dec. 19 to purchase Italy’s Gentium for $57 a share, a bid that would total out to about $1 billion. Key to the deal is Defitelio (defibrotide), approved by the EU this past October to treat veno-occlusive disease in adult and pediatric patients undergoing hematopoietic stem-cell transplantation. The sale is structured as a tender offer – both companies’ boards of directors have approved the transaction. Based on a single-stranded oligodioxyribonucleotide extracted from DNA in pig intestines, defibrotide had been filed for approval in the U.S. but Gentium withdrew its NDA in August 2011 after learning that FDA would refuse to file the application over questions of data quality and the conduct and monitoring of clinical trials. “Incorporating Gentium into Jazz Pharmaceuticals is a strong strategic fit, as Defitelio would diversify our development and commercial portfolio and complement our clinical experience in hematology/oncology and our expertise in reaching targeted physicians who treat serious medical conditions,” Jazz Chairman and CEO Bruce Cozadd said in a release. “Because Defitelio is already approved in the EU, the acquisition would add a new orphan product that has potential for short- and long-term revenue generation, high growth and expansion of our multinational commercial platform.” In a Dec. 20 note, Brean Capital analyst Gene Mack said the acquisition should be immediately accretive for Jazz, with defibrotide bringing in a projected $71 million in sales in 2014, crossing the $200 million annual sales threshold in 2018 and nearing $500 million in 2023. - Joseph Haas

Photo credit: Wikimedia Commons

Deals Of The Week Wonders: Will Pharma Ever Pay More For Companion Diagnostics?

 

Two deals this past week between pharmas and diagnostics developers put a spotlight on the ever-growing focus on the importance of companion diagnostics in drug development.

Eli Lilly & Co. and Qiagen NV announced a deal Nov. 18 to develop and commercialize a companion diagnostic for a novel undisclosed Lilly lung cancer compound. BioMarin Pharmaceutical Inc. announced a collaboration with Myriad Genetics Inc. Nov. 20 to use Myriad’s Homologous Recombination Deficiency test to identify tumors that might be sensitive to its investigational PARP inhibitor BMN 673.

In the last five years, pharma’s acceptance of companion diagnostics has gone from a lukewarm handshake to full embrace, with pharma acknowledging that the tests are useful tools that can help speed drug development, increase the chance of getting a new drug to market and support commercial reimbursement. As a result, deal-making in the space is moving earlier-stage and increasingly into therapeutic areas outside of oncology, areas such as autoimmune disease, neurological conditions and anti-infectives.

But there is still little in the way of hard evidence to show pharma’s softer side is showing up at the deal-making table. Given the increasing importance of a companion diagnostics to the success of a drug, it would seem intuitive that pharma might need to share more risk or give up more of the long-term financial reward or so its friends on the diagnostic side might argue. But, so far, that doesn’t seem to be the case, in part because it can be difficult for diagnostics companies to demonstrate they’re providing something unique to a pharma partner.

It’s hard to know for certain because the economics of companion diagnostic deals are rarely disclosed, but most if not all diagnostic companies are being paid by their pharma partners to develop the test in a fee-for-service style arrangement or through fixed milestone payments. Diagnostic companies also would like to receive royalties on sales of the drug or sales-based milestones as a way to share some of the long-term value of the product.

Qiagen appears to have established a valuable partnership with Lilly, through what it deems a “master agreement,” under which Qiagen will develop companion diagnostics for multiple drugs across all of the pharma’s therapeutic areas. The two previously were partnered on the KRAS test for Erbitux (cetuximab), which was approved in 2012, and partnered in 2011 to develop a test for a clinical-stage Janus kinase 2 inhibitor for blood cancer. They broadened their partnership to include the master agreement in February, and the Nov. 18 collaboration was the first to come out of that framework.

But during an investor meeting the same day, CEO Peer Schatz acknowledged the company depends on securing strong pricing and reimbursement for companion diagnostics to get a return on its investment.

“We make money off the development process, but not really a lot,” he said. “We are more focused on the kit coming forward.” The hope is that FDA-approved companion diagnostics will be able to secure better reimbursement than those that don’t go through the rigorous process, important because tests are easily reproduced and often have limited intellectual property protection.

In an interview, Myriad’s Mark Capone, president of Myriad Genetics Laboratories, said most companion diagnostics deals include development milestones and require the diagnostic company to obtain reimbursement once the product is commercialized to receive a return.

“We know there are discussions of pharmaceutical companies compensating diagnostic companies in the commercial phase, and that could come either in the form of royalties or direct reimbursement in the case that the pharmaceutical company wants to distribute the diagnostic, but I think most of those discussions are theoretical in nature,” he said.

He declined to discuss the financials of any deals Myriad has to develop companion diagnostics. It has several non-exclusive deals, primarily for its BRACAnalysis test to identify patients with BRCA-mutated breast and ovarian cancer, with partners including BioMarin, AstraZeneca PLC and AbbVie Inc.

“We have seen some baby steps,” diagnostics consultant Kristen Pothier said during a panel at IN VIVO’s very own PSA: The Pharmaceutical Strategy Conference in September. That includes some instances in which pharma companies have agreed to foot the bill for a voucher program to cover the cost of the test once it is on the market to alleviate some of the risk if the test does not get reimbursed at a high price.

But as for royalties, she said that remains a “dream” of diagnostic firms. What, we wonder, will it take to make that wish come true?

Clovis/EOS: Boulder, Colo.-based Clovis Oncology Inc. enjoyed a June bump in its share price, after it received positive data on two compounds. Now, the company is putting its Street strength to work by making an acquisition. The company agreed to buy Italian cancer drug developer EOS SPA for $200 million upfront, netting Clovis territorial rights to lucitanib, a Phase IIa inhibitor of fibroblast growth factor and vascular endothelial growth factor tyrosine kinases that has shown promise in breast cancer and other cancers. Most of the purchase price was paid in stock, as EOS shareholders received $190 million worth of Clovis shares and $10 million in cash. If lucitanib is approved in the U.S., Clovis will pay an additional $65 million in cash; EOS shareholders will also receive an additional €115 million ($155 million) in cash based on further milestones, under an existing agreement with Servier SA. Clovis shares have kept most of their recent gains, and the company has been planning to make moves for some time. EOS licensed lucitanib’s rights in Europe and most of the world to Servier in a 2012 deal; the acquisition gives Clovis full rights in the U.S. and Japan, and Clovis plans to collaborate with Servier on development and commercialization in other territories. Servier is obligated to pay for the first €80 million in lucitanib’s clinical development costs, and the two will share further costs. Clovis also stands to receive €350 million plus royalties from Servier if the drug achieves downstream milestones. -- Paul Bonanos

Versant/Celgene/Bayer: Two deals announced this past week demonstrate Versant’s willingness to develop drug assets, instead of full-blown companies, with single buyers holding options to acquire each one. On Nov. 19, Versant unveiled plans for a biotech incubator in downtown Toronto to draw from the neighboring medical research community. If all goes well, the incubator, which Versant has named Blueline Bioscience, will spin out at least two single-asset companies by the end of 2014. And if all goes really well, those companies will be bought by Celgene Corp., which already has agreed to fund the incubator in exchange for option rights. Versant and Celgene are familiar partners. In 2011, the two firms launched genomic analysis firm Quanticel Pharmaceuticals Inc., with Celgene holding a series of time-based options to acquire the company outright. Celgene will invest an undisclosed amount, but will not receive equity in Blueline or, initially, in the companies it incubates. The second deal Versant announced this week is the spin-out of a new single-asset company from Versant’s wholly owned drug-discovery group, Inception Sciences Inc. The spin-out is simply named Inception 4 Inc., and it houses an ophthalmology program; Bayer AG has an exclusive option to acquire it down the road at undisclosed milestones. Inception Sciences is a hybrid of a drug-discovery firm and holding company. The company discovers drugs with a team of scientists and spins each program into a separate corporate entity, typically with $5 million to $10 million in initial funding. The numbered spin-outs are positioned for eventual sale, while the discovery engine remains housed within Inception Sciences. -- Alex Lash

Vertex/Janssen: It’s not a new deal but the end of a long-existing one. Vertex Pharmaceuticals Inc. announced Nov. 20 it had sold its royalty rights for sales of protease inhibitor telaprevir outside of North America to Janssen Inc., the company that holds marketing rights to the hepatitis C drug, branded as Incivo, in Europe, South America, the Middle East, Africa and Australia. Janssen acquired those rights in a 2006 co-development agreement under which it paid Vertex $165 million upfront along with annual royalties in the mid-20% range. Under the revised arrangement, Janssen will pay Vertex $152 million during the fourth quarter of 2013, then cease paying any further royalties on Incivo sales beginning in 2014. Vertex’s decision is in line with planning outlined on its Oct. 29 third quarter earnings call as the Cambridge, Mass., firm, which markets telaprevir as Incivek in North America, decreases its emphasis on the HCV space to focus more on its cystic fibrosis franchise and other pipeline projects. In a Nov. 20 note, analyst Geoff Meacham of J.P. Morgan said the move made sense for Vertex and should help bolster the company’s finances. He forecast royalty revenue of $115 million this year for ex-North American sales of telaprevir, falling to $25 million in 2014 and $11 million in 2015. -- Joseph Haas

Pfizer/GSK: Pfizer Inc. and GlaxoSmithKline PLC are making good on industry promises to test cancer drugs in combination, even across big pharma’s research halls, with a research collaboration announced Nov. 21. The companies have agreed to test GSK’s MEK1 and MEK2 inhibitor trametinib, approved in the U.S. as Mekinist for melanoma, in combination with Pfizer’s investigational palbociclib, an inhibitor of cyclin dependent kinases 4 and 6 in a Phase I/II study in patients with BRAFV600 wild type advanced metastatic melanoma. The open-label trial is designed to determine a recommended combination regimen and also will study the effect of the combination on tumor biomarkers and anti-cancer activity and safety. GSK will run the study and the terms of the deal were not disclosed. Palbociclib is a cornerstone of Pfizer’s cancer pipeline and is being developed for the treatment of breast cancer after demonstrating significant improvement in progression-free survival in patients with ER+, HER2- breast cancer.

Patheon/DSM Pharmaceutical Products: Consolidation is afoot in the CRO market, with news that Canada’s Patheon Inc. is merging with Royal DSM NV’s pharmaceutical division, DSM Pharmaceutical Products (DPP), to create a whole new company that will aim to product full-service outsourcing for the pharma industry. “Our customers have indicated a strong desire to streamline their outsourcing network, at the same time, increasing their outsourcing,” said Jim Mullen, current CEO of Patheon. “They want to work with fewer companies with broader capabilities and capacity.” The new company, which will be based in Durham, N.C., will have a global footprint of 23 sites across North America, Europe, Latin America and Australia. Mullen, who held the top slot at Biogen Idec Inc. for seven years prior to joining Patheon, will be CEO. Patheon shareholders will receive $9.32 per share in an all-cash transaction that is expected to close within three to four months. The deal is subject to approval of various regulatory authorities in several countries, including the U.S., Canada, Turkey and Mexico. The per-share price values the deal at $2.6 billion and is a 64% premium to Patheon’s closing price on the Toronto Stock Exchange on Nov. 18, the day before the deal was announced. Private equity firm JLL Partners will own a 51% stake in the new company and DSM will own the remainder. JLL currently is the largest shareholder of Patheon with a 66% stake in the company. The deal requires the majority approval of Patheon’s minority shareholders to proceed. -- Lisa LaMotta

Unilife/Hikma: Unilife Corp. which specializes in the production and sale of injectable drug-delivery systems, announced a 15-year commercial supply contract with Jordan-based Hikma Pharmaceuticals PLC Nov. 20. Under the agreement, Unilife will supply Hikma with customized prefillable delivery systems from its Unifill platform. Hikma, focused on the production and sale of a range of branded and non-branded generic products principally in the Middle East and North Africa, as well as in the U.S. and Europe, will use the syringes with a range of generic injectable drugs, beginning with an initial list of 20 generic injectables. The deal reflects the growing market preference for prefilled syringes over vials. Unilife CEO Alan Shortall sees the deal with Hikma as an entrée for his products into the fast-growing market for generic injectables. Unilife will begin product sales to Hikma in early 2014, and going forward, will supply Hikma with a minimum volume of 175 million units/year following a rapid, high volume ramp up period. In addition to an undisclosed share of product sales, Hikma will pay Unilife $40 million in staggered upfront payments beginning with $5 million immediately and $15 million during 2014; the final $20 million will be paid in milestone-based installments in 2015. In return, Hikma gets exclusive global rights to Unifill’s prefilled syringes. Unilife can use the payments: It has been in the red for the past 11 years. In fiscal 2013, the York, Pa.-based company made $2.74 million in sales and reported a net loss of $63.2 million. -- Mike Goodman

Amicus/Callidus: In what it is calling a “highly synergistic strategic combination,” rare-disease focused Amicus Therapeutics Inc. has acquired privately held Callidus Biopharma Inc. for $15 million in Amicus common stock plus earn-outs pegged to Phase II development of Callidus’ enzyme-replacement therapy for Pompe disease and to late-stage development, regulatory and approval milestones related to three products. Shareholders in Callidus, which raised a $4.6 million Series A round from undisclosed investors in May, can earn up to $10 million for the Pompe disease Phase II work and up to $105 million related to that program and two others being added to the Amicus pipeline. The deal was announced on the same day that Amicus said GlaxoSmithKline PLC would give back rights to its lead drug candidate (see below); the biotech also simultaneously announced a $15 million private placement, a planned $25 million debt financing and a staff cut down to 91 employees that is expected to save the biotech $4 million next year. -- JAH

Amicus/GSK: Amicus and partner GSK are parting ways, kind of, but the biotech didn’t describe its new relationship with GSK as a “highly synergistic strategic no-deal.” We’ve done that for them. Instead, also on Nov. 21, New Jersey-based Amicus described the handover as a “revision” of its partnership with GSK around the pharmacological chaperone program migalastat (monotherapy and co-administered with enzyme replacement therapy), which was focused on Fabry disease. During a same-day conference call with analysts, Amicus CEO John Crowley noted a $3 million equity investment by GSK in Amicus (it had made two prior equity purchases, giving it a 19.9% ownership stake) and called the company a “passive partner” in migalastat. So GSK isn’t entirely gone – for now, it remains an Amicus shareholder. But it’s a shareholder that clearly sees its own future in the rare diseases space a lot differently than it did only a couple years ago, a view that should have other GSK partners on alert. Nevertheless, the big pharma retains some upside potential around migalastat: GSK is entitled to a mix of royalties and commercial milestone payments on monotherapy and combination products in certain territories. Crowley described the family of transactions as a culmination of events that will re-make the biotech into a “better resourced” firm focused more sharply on biologic therapies for rare disorders. -- JAH

image via flickr user Jordan Colley Visuals used under creative commons license

Deals Of The Week: Living With The Constancy Of Change In HCV Drug Development

One of the frequent thematic tropes found in the music of Canadian prog-rock trio Rush is the constancy of change, that change is constant, and constantly changing, etc. Anyone trying to follow hepatitis C drug development probably understands that message.

Just when it appeared that nucleoside polymerase inhibitors were the way to go in the effort to develop a paradigm-changing combination of all-oral, direct-acting antiviral drugs for the virus, a pair of recent setbacks in the “nuc” arena have made other classes of drugs and the companies developing them more relevant, and potentially more valuable.

Hence, the reported increased interest in Achillion Pharmaceuticals, which expects to produce early data for a proprietary combination of a protease inhibitor and an NS5A inhibitor during the first quarter of 2013. Once thought in danger of being left behind as the M&A mavens at big pharma circled Pharmasset, then Inhibitex, and continued to kick the tires on Idenix Pharmaceuticals, Achillion now is considered by many Wall Street analysts to be on the radar screen of HCV players such as Merck & Co., Bristol-Myers Squibb, Roche and possibly others.

Achillion raised $41.7 million in a registered direct offering just before Labor Day, placing 6.4 million new shares with QVT Financial LP at $6.57 per unit, its closing price on Aug. 31. That marked the New Haven, Conn.-based biotech’s third significant fund raise since August 2010, as it brought in $60.9 million through a follow-on public offering in June 2011, and $49.1 million under a PIPE (private investment in public equity) deal in August 2010.

But Wall Street widely expects that Achillion will have some big pharma R&D machinery behind its HCV efforts soon, maybe even before the Phase II combo data for protease inhibitor ACH-1625 (sovaprevir) and NS5A inhibitor ACH-3102 are unveiled.  (The firm also will disclose Phase I proof-of-concept data for ‘3102 this fall.)

Dismissed as barely relevant in the combo race as recently as earlier this year, Achillion may get a second chance thanks to the disastrous safety issues encountered by Bristol’s expensive nuc prospect, BMS-986094. The pharma paid $2.5 billion to buy that drug’s developer, Inhibitex, only months before shutting development of the drug down entirely in mid-August due to cardiotoxicity that killed one patient and hospitalized eight others.

The news then got worse or better, depending on your perspective, when FDA placed Idenix’s nuc, IDX184, and second-generation compound, IDX19368, on clinical hold because of concerns about their similarity in chemical structure to the Bristol nuc. It’s important to note that the “nuc” class is by no means dead – Gilead Sciences is still viewed as the leader in the HCV combo race thanks to the eye-opening data its nuc, GS-7977, is producing. And Vertex Pharmaceuticals is bringing a nuc licensed last year from Alios BioPharma into the clinic, as well.

Achillion has an analyst day presentation slated for Sept. 27, and with the expectation for POC data with ‘3102 and drug-drug interaction data for the ‘1625/‘3102 combination expected this quarter, Robert W. Baird & Co. analyst Thomas Russo thinks a partnership prior to the combo trial would make sense. “While lack of visibility makes this timing impossible to predict, generally speaking we’d view [a] non-exclusive collaboration positively because it would add shots on goal, external validation, and perhaps regimens that would augment investor excitement and conviction,” he wrote in an Aug. 8 note.

He added that Bristol and Abbott Laboratories have been demonstrating in the lab that high sustained virologic response (SVR) rates can be attained by antiviral combos not including a nuc. “Achillion’s pipeline features PIs and NS5A inhibitors that look best-in-class, complementary, and reasonably likely to succeed in interferon-free combos – all under its roof and/or via external collaboration,” Russo said. “We believe big players will fight on for some period longer, with some looking to fill gaps in their HCV pipelines and others perhaps looking for a complete solution.”

Sovaprevir, in triple-combination testing with existing standards ribavirin and pegylated interferon, has demonstrated effective inhibition of viral replication without generating “meaningful resistance,” an unending concern in the protease inhibitor class, wrote Brean Murray Carret & Co. analyst Brian Skorney on Aug. 9. “Although not a clear home run … [this is] a characteristic we believe is unique to only handful of antivirals in development for hep C,” he added.

Now, on to our weekly roundup of:

Merck KGaA/Symphogen – Danish biotech Symphogen AS has licensed its lead oncology product, Sym004, a mixture combining two antibodies targeting the epidermal growth factor receptor (EGFR) on tumor cells, to Merck KGaA for an upfront payment of €20 million ($25 million). Symphogen was evaluating Sym004 in two Phase I/II studies, which have shown initial signs of the drug’s clinical benefit and have been transferred into Merck’s control. The deal underlines the growing interest in combination therapies for cancer, as well as Merck’s desire to build on its marketed EGFR-targeted anticancer, Erbitux (cetuximab), which is its second largest-selling product, garnering sales of €855 million ($1.13 billion) in 2011. Merck receives exclusive development and commercialization rights for Sym004 worldwide, and now will fund all further development of the compound. In return, Symphogen receives the upfront and potentially could earn €225 million in clinical development and regulatory milestones, as well as €250 million in combined sales performance milestones and royalties on net worldwide sales, bringing the total potential value of the deal to €495 million. Merck is much in need of clinical-stage products that it can advance quickly following a string of late-stage product failures, which have prompted a management reorganization and the start of a cost-saving program including job losses at its R&D facilities in Switzerland, and across functions in Germany. – John Davis

Valeant/Medicis – In a move to become a leader in dermatology, Valeant Pharmaceuticals announced Sept. 3 that it has agreed to pay $44 per share, or $2.6 billion, for Scottsdale, Ariz.-based Medicis Pharmaceutical – representing a 39% premium to Medicis’ closing price of $31.56 on Aug. 31, the last trading day before the deal was announced. The Medicis acquisition, which will be funded entirely with debt, adding to the company’s $7.6 billion debt (as of the end of 2011), will make Valeant the largest dermatology player in the U.S. and second only to Galderma SA in the rest of the world. While Valeant has interests in several specialty pharma areas including dentistry and branded generics, the largest part of the business belongs to dermatologics with a focus on acne, eczema, and topical antivirals. Medicis brings a handful of products that will be complementary to Valeant’s current portfolio including the oral acne product Solodyne (minocycline oral), which will fit in with the company’s topical acne offerings. The company also makes aesthetic injectables like Restylane, Perlane and Dysport – which fit in with Valeant’s collagen stimulator Sculptra. Valeant expects $225 million in synergies – an estimate the company considers conservative and does not take into account any revenue upside or further upside from anything that may come out of the Medicis pipeline. According to Wells Fargo analyst Michael Tong, the deal will nearly double Valeant’s dermatology business, which was expected to produce revenues of $958.7 million in 2012 (analysts estimated Medicis would bring in approximately $820 million in revenues in 2012). – Lisa LaMotta

Medivir/Novadex – Achillion is not the only player in the HCV space looking to take advantage of recent stumbles by Bristol and Idenix. Medivir AB, which is developing Phase III protease inhibitor simprevir (TMC435) in tandem with Johnson & Johnson unit Janssen Pharmaceuticals for hepatitis C, announced a deal with Novadex Pharmaceuticals Sept. 6 in which it acquired a package of preclinical HCV assets, including novel nucleoside polymerase inhibitors. A release said the deal will include an upfront payment and potential milestones, but did not disclose specific terms. Medivir said the deal will include intellectual property and prodrug technologies that will further strengthen its HCV platform and know-how. The prodrug technologies could be applied to both protease inhibitors and nucleoside analogues to enhance their overall pharmacokinetic profiles, the company added. TMC435 also is being tested in combination with Bristol’s NS5A inhibitor daclatasvir (BMS790052) under a collaboration between Janssen and Bristol that was extended in April. – Joseph Haas

ImaginAb/MacroGenics – Two privately held companies in the antibody development space agreed Sept. 5 to collaborate on a pair of imaging products that could support ongoing development of new therapies. Los Angeles-based imaging specialist ImaginAb said it would develop a clinical imaging product for inhibition of the CD3 T-cell receptor based on an anti-CD3 therapy belonging to MacroGenics of Rockville, Md. The companies did not specifically name teplizumab as the therapy, but that is MacroGenics’ most advanced anti-CD3 program.ImaginAb also will develop a companion imaging agent for an immune-regulating B7-H3 target; MacroGenics’ Phase I clinical candidate, MGA271, addresses B7-H3. ImaginAb’s agents typically are used by partners to select patients and monitor responses to clinical treatments. The two companies share at least one investor, the oncology-focused Nextech Venture of Zurich. MacroGenics has raised more than $125 million from a long roster of venture investors since it was founded in 2000; five-year-old ImaginAb announced its $12.5 million Series A round in March 2012, and already has forged partnerships with drug companies such as Astellas Pharma and Oxford BioMedica, as well as a variety of cancer research organizations. Last month, ImaginAb named Eleven Biotherapeutics CEO Abbie Celniker as chair of its board of directors. – Paul Bonanos

Pfizer/SFJ Pharmaceuticals – Pfizer and SFJ Pharmaceuticals announced a collaborative development agreement Sept. 7 to conduct a Phase III trial for dacomitinib (PF-00299804), a pan-human epidermal growth factor receptor (pan-HER) inhibitor in advanced lung cancer. To be conducted at multiple sites in Asia and Europe, the Phase III trial will test the agent in patients with locally advanced or metastatic non-small cell lung cancer with activating mutations of epidermal growth factor receptor. SFJ will fund the trial and provide clinical development supervision as needed to prepare dacomitinib, an oral, once-daily, small molecule inhibitor of the HER-1, HER-2 and HER-4 tyrosine kinases, for regulatory filings as a first-line treatment in advanced NSCLC. If the compound obtains regulatory approval, SFJ will be in line to earn milestone and other earn-out payments. No other financial details were disclosed. This is the second collaboration between the world’s largest pharma and San Francisco-based SFJ, founded in 2009 a co-development partner for pharma and biotech. Earlier this year, the two partnered to run a Phase III trial in Asia of Inlyta (axitinib) for adjuvant treatment of patients at high risk of recurrent renal cell carcinoma following nephrectomy. – JAH

Photo credit: Wikimedia Commons

Deals Of The Week: Whose Mind Is On Deals Anyway?

To rehash The Event of this week: the Supreme Court ruled 5-to-4 to uphold the constitutionality of the Patient Protection and Affordable Care Act June 28, including the mandate requiring individuals to have health insurance.

The decision seems favorable to the pharmaceutical industry, and may have surprised a few who already were scheming of ways to get back the billions spent on that excise tax to the federal government in 2011. We look forward to sorting out the implications for the pharmaceutical and biotech industries in the weeks and months ahead. Our sister publication, “The Pink Sheet,” DAILY did an initial review here, making the point that many changes already were set in motion by the passage of the act itself. And we'll have much more to say in the days and weeks ahead.

The pharma industry stands to benefit from the expected increase in insured patients. The Centers for Medicare & Medicaid Services project about 22 million newly insured patients, and that spending on prescription drugs by public and private payers will increase 8.8% in 2014 over 2013 – the year major coverage expansions under the ACA are scheduled to begin – compared to 4.1% growth if it had not passed.

Still, there’s no guarantee of the volume trends newly insured patients will deliver when it comes to pharmaceuticals. “The actual volume upside may be lower and more modest then some expect,” noted Barclays Capital analyst Anthony Butler in a same-day note. A significant portion of the uninsured are believed to be young people who may not use health care services or pharmaceuticals. “The addition of these segments into the coverage pool through the individual mandate may be a smaller net positive from the volume perspective for the pharma sector than some have expected,” Butler said.

There will be plenty of uncertainties as we navigate through health care reform, but for now isn’t it about time to celebrate the federal government’s executive, legislative and judicial branches in action, by heading to the beach for July 4? – Jessica Merrill

Merck Serono/Compugen – The corporate venture arm of Germany’s Merck Serono is collaborating with Compugen to establish a new company, Neviah Genomics, to discover, develop and market novel biomarkers for drug toxicity, with the aim of bringing a product to market within a few years. The Neviah collaboration, announced June 25, is the first investment under Merck Serono Ventures’ Israel Bioincubator program, established by Merck Serono in 2011 with initial funding of €10 million over seven years. Compugen, a Tel Aviv-based biotech with a pipeline of preclinical protein therapeutics and monoclonal antibodies, will bring its predictive discovery technologies to the partnership. The deal is structured so both Merck Serono Ventures and Compugen will be shareholders in Neviah, which will have its own board that will determine how any product profits will be distributed. Compugen also will earn royalties from product sales. Further financial details were not disclosed, including the amount of Merck Serono’s initial investment. The companies have worked together as part of a 2008 partnership to co-develop CGEN855, a GCPR peptide investigated in inflammatory disease. – Joseph Haas

Lilly/PrimeraDx – Massachusetts-based PrimeraDx has entered into a multi-year collaboration with Eli Lilly to develop companion diagnostics for several unspecified clinical candidates, initially focusing on oncology. Neither terms nor timelines were disclosed. PrimeraDx, will develop multiplexed assays using its proprietary ICEPlex system, which is capable of simultaneous detection and quantification of numerous target types such as mRNA, miRNA, SNPs and DNA. Founded in 2004 and formerly known as Primera Biosystems, Inc., the company sells instrumentation, software, assays and consumables. Primary customers are clinical labs at large academic research centers and reference laboratories and biopharmaceutical companies. PrimeraDx is backed by venture investors including Abingworth, InterWest, CHL Medical, MPM Capital, Burrill & Co., and the Malaysian Technology Development Corporation. It last raised a $20 million series C in September 2009. – Mike Goodman

Celgene/Inhibrx – Drug-discovery firm Inhibrx has signed a notable partner, announcing June 27 that Celgene has licensed a preclinical antibody program. The target of the program was not disclosed. The potential value of the deal is $500 million, including upfront, clinical and regulatory milestones. Inhibrx, based in La Jolla, Calif., is focused on the discovery and development of novel drugs for cancer and inflammatory disease. – J.M.

Merck/AstraZeneca – Merck and AstraZeneca announced an agreement to extend their longstanding partnership June 27 after coming to terms that could benefit both parties. The original partnership dates back to 1982 when Sweden’s Astra AB tapped Merck to market its proton pump inhibitor drugs in the US. Nexium (esomeprazole), which is expected to post dwindling sales once losing patent protection in 2014, and Prilosec (omeprazole), which is now sold as an over-the-counter medication, remain the only drugs still under the agreement. AstraZeneca now will have the option to buy the remainder of Merck’s stake in the drugs in the first quarter of 2014 for $347 million plus an amount equal to 10 times Merck's average 1% annual profit allocation in the partnership, which AstraZeneca estimates to be about $80 million. The price paid by AstraZeneca also could include the net present value of up to 5% of future U.S. sales of the painkiller Vimovo (naproxen/esomeprazole). While the extension of the deal will have no immediate effect on AstraZeneca’s earnings, it will help Merck deal with the patent expiration of the blockbuster allergy drug Singulair (monteklast) by adding $200 million in revenues to the 2012 top line. – Lisa LaMotta

Biogen Idec/Isis – Antisense drug-discovery platform operator Isis Pharmaceuticals has partnered prolifically over the years. Its latest deal with Biogen Idec is the second collaboration between the two companies, an arrangement to develop and commercialize a treatment for myotonic dystrophy type 1. The disorder, also known as Steinert disease, is a form of muscular dystrophy that afflicts adults. Biogen Idec will pay $12 million up front to enter the collaboration, but could pay much more over time if it licenses the drug at the end of Phase II. The deal includes $59 million in milestone payments prior to licensing, as well as up to $200 million for a licensing fee and and further clinical milestones. The companies will attempt to develop a drug that repairs a repeating defect in the coding of the dystrophia myotonia-protein kinase gene that results in abnormally long strands of RNA, leading to buildup in cells. Isis and Biogen already have an alliance in spinal muscular atrophy, revealed in January. – Paul Bonanos

Sanofi/Oxford – The UK's Oxford BioMedica announced June 29 that it has earned a $3 million option exercise payment from Sanofi, which has decided to acquire worldwide license to a pair of Phase I/II gene-based treatments discovered by Oxford. Under terms of an agreement signed in 2009, Sanofi has acquired rights to develop, manufacture and commercialize StarGen for Stargardt disease and UshStat for Usher syndrome type 1B. Oxford discovered and developed both candidates using its proprietary LentiVector platform technology. – Joseph Haas

Photo credit: Wikimedia Commons

PSA Update: Dealing with Diagnostics

Last week, we added Mike Pellini, CEO of the cancer genomics start-up Foundation Medicine, to our Pharmaceutical Strategic Alliances Conference panel that will be discussing strategies for sharing risk in relationships between pharma companies and diagnostics developers. Mike was president and COO of Clarient Labs until its sale to GE Healthcare last year – one of several notable M&A transactions involving CLIA lab-oriented assets.

We recruited Mike after Iain Miller, head of theranostics strategy and business development at BioMerieux, told us he was taking a new position as global head of personalized medicine at GE Healthcare, where he started this week. Iain will still be at PSA to talk about Biomerieux’s deals with Ipsen and GSK around predictive cancer biomarkers and now, also a bit about his new role at GE, which includes the challenge of leveraging the value of Clarient and bringing additional assets in around it. With Iain’s move and Mike’s addition, we maintain a balance on the panel between larger and smaller company perspectives. Rounding out the session are Nic Dracopoli of J&J and Risa Stack of Kleiner Perkins Caufield & Byers, an early and frequent investor in companies developing complex, high-value diagnostics, the vast majority of which are performed in the CLIA setting.

The potential value a CLIA lab brings to pharma as well as other players like GE is a subject we’ve discussed in several IN VIVO features this year, including in the current (Sept.) issue, where we ask the question “Is Diagnostics the New Biotech…and Will Pharma Embrace It?”

The two fields share obvious historical parallels including common starting points, first with the use of antibodies as targeting agents and probes, and later with genomics. In both cases, the same core assumptions existed around using those tools to unlock the power of the biological perspective. And there was a need for physicians, potential development partners, and regulators to get their arms on a unique and innovative set of promising technologies.

Pharma’s interest in the new wave of complex diagnostics is two-fold. It clearly needs to be able to ensure the development and distribution of companion diagnostics for its targeted therapies – why some argue risk sharing is inevitable, if not yet in evidence. For some, diagnostics also appears to have regained its appeal as a way to diversify: think Novartis with Genoptix or Eli Lilly with Avid Radiopharmaceuticals.

Unlike big box diagnostics companies, which are primarily interested in running as many tests as possible on their platforms, the developers of complex diagnostics tend to be vertically oriented. They feature the kind of narrow and deep focus on a specific disease state that is required for adoption and payment of high-value offerings. Those capabilities fit well with – and some would argue are essential to – the biomarker discovery efforts now woven into virtually all of new drug development. On the commercial side, they also offer the potential to leverage the value of a specialized sales force.

Pharma has danced with diagnostics but also maintained its distance, much as it did with biotech in its early days, keeping in touch via alliances until the emergence of product franchises it could acquire. But unlike biotech, where products and franchises are basically additive to a portfolio, there’s a co-dependency with diagnostics, at minimum in the area of companion diagnostics and potentially more broadly, as an increasing number of diagnostics and related services emerge that help direct the choice and management of therapy over all.

The question is: What business models best address this evolution. Is collaboration and risk-sharing the way to go? Are diagnostics franchises now becoming investible assets for pharma such that they will be swallowed lock, stock, and barrel (and if so, which underlying tools and technologies will be most sought after)? Let’s see what the experts at PSA have to say.

Join us September 23.

Deals Of The Week's Tale of Two Drugs

It was the best of times (Vacation!). It was the worst of times (Market turmoil, London's riots, and unemployment; the Middle East.) It was the age of wisdom (Drug reprofiling! Warren Buffett. A new Muppets album); it was the age of foolishness (2012 Presidential election! Phone hacking scandals!).

We had everything before us -- with the waning of summer, the impending season of investor meetings ought to mean renewed opportunities for deal making, after all. Or maybe not. Big Pharma's aversion to take risk could well mean that for biotechs of a certain ilk, we had nothing before us.

Meantime, if regulators weren't exactly channeling a tale of two drugs this week, news of the extension of Eylea's PDUFA and the months-earlier than expected approval of Zelboraf, announced within 18 hours of each other, sure set up an interesting comparison. (The Friday announcement of an early nod for Seattle Genetics and Takeda's Adcetris means we could have written a tale of three drugs. Alas, it messes with my metaphor.)

On the one hand you have Eylea, a VEGF-inhibitor developed by Regeneron to treat the wet form of age-related macular degeneration, whose primary commercial advantage isn't improved efficacy but a more patient-friendly dosing regimen. Its new PDUFA data has been delayed three months from August 20 until mid-November. On the other hand, you have the small molecule BRAF inhibitor Zelboraf, a targeted therapy that is being co-launched with a companion diagnostic and becomes just the second new drug in decades to treat deadly metastatic melanoma. It's original regulatory action date was October 28.

Two different medicines both treating areas of high unmet medical need. But one is first-in-class and one is a essentially a convenience play, albeit an important one given the importance of sight and the potential to avoid onerous monthly eye injections. Still, it's tempting to wonder if stealth comparative effectiveness is at work by U.S. regulators.

That seems unlikely. No new safety or efficacy concerns are behind Eylea's regulatory extension; in a call with investors Wednesday August 17, the biotech's execs emphasized questions tied to the chemistry, manufacturing and controls portion of the drug's biologics license application were responsible for the postponement of the drug's approval. And if the recent advisory committee meeting vote is any guide -- the committee voted 10-0 in favor of the drug's approval -- there's no reason to think the drug won't make it to market later this year.

Still for Regeneron, which is leaning heavily on Eylea to catapult itself into the realm of commercially-focused biotechs, the news undoubtedly came as a psychic blow. The biotech is now in hurry-up-and-wait mode, having lined up a commercial team approximately 70-people strong to launch the product, according to this story in "The Pink Sheet" DAILY. On the August 17 conference call, the biotech revealed it will take a third quarter SG&A charge in part because of the estimated $70 million to $80 million associated with Eylea's launch. Unsurprisingly, investors reacted negatively, sending the company's stock price down about 8% as of the market's close August 18. (Though it could have been worse given the general market turmoil and the massive sell-off late in the week.)

Plexxikon, the biotech which originated Zelboraf, is in a completely different position entirely. Having exercised an option to co-promote the drug in the US, the VC-backed start-up was snatched up by Daiichi, which like so many other pharmas, is looking to double down in oncology. Roche's Genentech is leading the commercial efforts, and as our colleagues at "The Pink Sheet" DAILY report, has identified a crafty plan that puts the targeted therapy's value front-and center. At an estimated $60k for a course of therapy, the drug, which can only be prescribed for patients with a specific mutation, is significantly cheaper than Bristol-Myers Squibb's competitor Yervoy.

The dichotomy between the forces now steering Regeneron and the insulation Plexxikon now enjoys as a division of Daiichi show that for biotechs, the more things change, the more they stay the same. Or in the words of Charles Dickens,

in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

On one of the last Fridays of summer, perhaps it is a far, far better thing that I bring you another edition of...

General Dynamics/Vangent: Government contractor General Dynamics shored up its health care information technology division this week with the $960 million cash purchase of Vangent. The deal brings an exit to private equity fund operator Veritas Capital, which owned 90% of publicly traded Vangent prior to the sale. Veritas acquired Vangent’s predecessor, Pearson Government Solutions, for $600 million in 2007; Vangent has since expanded by acquiring two other companies, FDA and Medicare contractor Buccaneer Computer Systems and Service ($65 million) and the health care IT unit of Aptiv Technology Partners ($4 million). Vangent derives about 90% of its business from U.S. government agencies, including the Departments of Health & Human Services, Defense, State, Education and Labor. It provides IT services including electronic health records to military personnel and Federal employees, as well as informing Medicare recipients of health care options. Vangent will be integrated with Falls Church, Va.-based General Dynamics’ information technology division, which also recently grew by acquiring cloud computing company Network Connectivity Solutions. Arlington, Va.-based Vangent posted net income of $40 million on revenues of $762 million during 2010, and had $27 million in cash and equivalents at the end of the year. The deal comes as many government agencies seek to cut costs in anticipation of reduced budgets and buy-out firms as well as traditional venture groups see opportunity in the relatively nascent healthcare IT space. – Paul Bonanos

Paladin/Labopharm: Canadian drug formulator Labopharm had sought a suitor pour longtemps, and finally found one in acquisitive specialty pharma Paladin Labs. This week Montreal-based Paladin agreed to buy struggling Labopharm for CN 28.57 cents per share in cash, valuing the company at about CN$20 million ($20.4 million). Paladin, which markets a variety of drugs including pain relievers, contraceptives and injectable emergency treatments for hypoglycemia and allergic reactions, is already attempting to acquire cold remedy developer Afexa Life Sciences of Edmonton in a hostile bid. The offer for Labopharm is friendlier, however, and has already been accepted by its board. Labopharm, which brought in new management in March as part of a restructuring, develops drugs using its controlled-release and nano-delivery systems; in its earnings report earlier this month, Labopharm said its expenses and obligations would likely exceed its revenue and cash reserves in the coming months, and its ability to survive as a going concern was in question. While the deal seems likely to close without incident by the fall, Paladin has cause for concern elsewhere: Hours after the acquisition was announced on Aug. 17, Paladin CEO Jonathan Goodman was in a bicycle accident, and is currently hospitalized with what the company calls “serious injuries.”--PB

Human Genome Sciences/4-Antibody: Even as HGS's investors wonder what additional late-stage clinical assets the biotech will bring in to continue the revenue upsurge the biotech has enjoyed from the recent launch of its lupus biologic Benlysta, the Maryland-based biotech continues to ink early stage deals to ensure its continued access to innovative products. This week comes news that the firm is teaming up with the Switzerland-based 4-Antibody. Financial details of the tie-up weren't disclosed, but the licensing deal seems like a pretty standard early-stage R&D deal, giving HGS rights to use 4-Antibody's proprietary high through-put antibody discovery platform to produce two novel molecules. The technology is rooted in rapid flow cytometry and is designed to produce fully human antibodies that are "better behaved" (according to official 4-Antibody statements) than molecules produced via alternate methods. It's 4-Antibody's second deal; the start-up inked an alliance in 2010 with Boehringer Ingelheim worth more than $240 million in biobucks. (As with this week's HGS deal, the upfront in that collaboration was not disclosed.) HGS, meanwhile, continues to show its interest in large molecule therapeutics. Just one week after winning approval for Benlysta, it announced it would pay $50 million upfront for rights in the US, EU, and Canada to FivePrime Therapeutics' lead asset, a Phase II oncology medicine, FP1039. --EL

Pfizer/Qiagen: Is the biopharma industry finally getting real when it comes to companion diagnostics? It's hard to say given the economics of deals between biopharma and testing companies are rarely announced. But at least such tie-ups are happening with greater regularity, and this week we have another reminder (if Zelboraf's early approval wasn't already reminder enough) of the strategic importance of companion tests. On August 16, Qiagen and Pfizer revealed the two groups were teaming up to develop a molecular test to accompany the Big Pharma's Phase III dacomitinib, which works by blocking three related tyrosine kinases in the human epidermal growth factor receptor (HER) family. Details of the collaboration were undisclosed but it's a no brainer that Pfizer would align with Qiagen. The two have partnered before in the companion diagnostic realm and Qiagen has considerable expertise in developing FDA-approved tests to diagnose patients' KRAS genetic status. (Recall that mutations in the KRAS gene are commonly observed in human cancers and EGFR-inhibitors like dacomitinib are most effective in individuals who do not have these aberrations.) Indeed, Qiagen recently submitted a premarket approval application for KRAS companion tests associated with two separate drugs targeting metastatic colorectal cancer. While the Pfizer companion test is being adapted for specific use in lung cancer tissue, it uses the same core assay components as Qiagen's other KRAS diagnostics. Qiagen is a relative newcomer to the space of companion diagnostics, building its capabilities primarily through its 2009 acquisition of DxS; this additional Pfizer deal illustrates just how valuable that purchase has proved for a company whose historic strength has been as a purveyor of kits and reagents. That Pfizer is preemptively taking the step to pair dacomitinib with a companion test is a smart move; there are plenty of competing EGFR-inhibitors in development. Providing payers and physicians with a diagnostic that can help triage lung cancer patients helps provide an added level of differentiation.--EL

Bayer Healthcare/Pathway Medical: In the midst of the increased chatter about reviving the question of whether drug companies should also be in the medical device business, fueled by Endo Pharma’s recent $2.6 billion acquisition of American Medical Systems, at least one pharma company that is already in the device space appears to be quietly expanding its presence there. As reported by Xconomy, Bayer Healthcare’s Medrad device unit has reportedly reached an agreement to acquire atherectomy company Pathway Medical Technologies for $125 million, although the deal is not yet final.

Earlier this year, Medrad received CE Mark approval of its Cotavance drug-eluting balloon to treat peripheral artery disease and is selling that product in Europe, while also pursuing an IDE on the path to seeking US commercialization. Drug-eluting balloons hold great promise as the next major platform to treat vascular disease, particularly in areas where even drug-eluting stents have proven ineffective, with the peripheral vascular market representing the largest of those opportunities. Pathway’s atherectomy devices are also focused on clearing peripheral vessels. Medrad has long been a secondary player in this market, largely through its Angiojet thrombus removal system, which the company added in 2008 with its acquisition of Possis Medical. By adding atherectomy and drug-eluting balloons to their current product line, Medrad, which is located in the Pittsburgh suburb of Warrendale, PA, appears to be taking its cue from the hometown Pirates baseball team in looking to move up in the standings by assembling an armamentarium of endovascular devices for clinicians in the under-served and growing peripheral vascular market.

For Pathway, the deal appears to be a welcome exit, albeit one of uncertain return for its investors, for a company that has struggled for much of its 13 year history. The company was nearly out of business in 2004 but was able to revive its fortunes by switching its focus from the coronaries to the peripheral market. The reported $125 million acquisition price doesn’t quite match the $130 million that the company raised – and the Xconomy report suggested that only investors in the most recent Series D will see any benefit from the deal -- but $125 million is a strong acquisition price in the device space and in a glass-half-full kind of way represents something of victory for Pathway executives. --Steve Levin

Due to an editing error, the Anjojet device was inapprorpiately refered to as a drug eluting balloon. The post has been updated as of August 22, 9am ET.

DOTW: School's (Still) In For Pharma

School's out for summer here in California, but not forever. As this week's tie-up between Pfizer and prominent hospitals and unis in Boston reminds us, big pharma seems keen on continuing education.

The goal, as we told you in this February IN VIVO feature, is to increase access to innovative R&D, via externally-sourced partnerships with leading academics, generally around risky areas, where the unmet need is high and the biological understanding is nascent (think Alzheimer's, treatment-resistant depression, obesity).

Pfizer isn't the only big pharma doing these types of deals (J&J, AstraZeneca, GSK, Bayer, and Sanofi are all touting their prowess in linking with top minds) but it has been among the most aggressive in the industry, both in terms of the pace of its deal-making and the money it's willing to spend.

On June 8, the big pharma revealed the latest in its Centers for Therapeutic Innovation program, a $100 million, 5-year collaboration with 8 Boston-area unis and hospitals that follows just months after similar tie-ups in San Francisco and New York. In announcing the deal, Pfizer made it clear Boston will become its official CTI hub (with offices on the Longwood Medical Campus, within spitting distance of academic researchers), even as the group anticipates setting up 5 additional spokes in cities in the US and elsewhere around the globe.

According to "The Pink Sheet" Daily, with an estimated 40 staffers on the Longwood Campus, the new CTI will employ twice as many Pfizer professionals as the exploratory UCSF arrangement when it got started last fall, and more than the 25 now working diligently in NYC. These industry execs are supposed to establish direct relationships with specific scientists, in the same way that VCs often reach out to academics or docs -- to identify research that could lead to viable commercial products. A joint pharma/academia steering committee will ultimately choose the projects eligible for Pfizer's $20 million annually.

The question of course, is will these CTI deals provide Pfizer with the necessary innovation to revitalize its "innovative core", even as senior industry execs continue to define what that exactly means. At around $100 million a pop, these deals are real money, even if the company is hedging by limiting the amount it doles out in one go. Certainly the amount of people power devoted to managing the alliances --85 and rising-- ain't nothing.

Pfizer, of course, loses its Lipitor juggernaut later this year, and has been increasingly looking for ways to cut costs. Two weeks ago, it revealed it was streamlining its outsourcing, looking to Parexel and Icon, to become its preferred CRO providers. This week, WSJ broke the news that the big pharma was looking to cull another $1 billion, mostly via reducing administrative costs.

Some have argued these CTI deals are a relatively low-cost way for Pfizer to get access to exciting R&D. And we certainly get the fact that individually these alliances are small money for a company with Pfizer's current cash flow. Thing is, with Lipitor going off patent that cash flow will dry up (at least a little). That means Pfizer's Jose-Carlos Gutierrez-Ramos and Anthony Coyle, who spearhead the CTI initiative, will have to justify why spending roughly $160 million of R&D money annually (assuming all 8 CTIs are up and running by year's end w/o making an attempt to incorporate management costs) is better than inking multiple development deals with biotechs --or even VCs. After all, why not take a page from Lilly's FIPNET playbook and try something like that group's mirror fund?

In other words, for the money Pfizer is ponying up, it's got to ensure it's getting more than a GED (aka generally excellent discovery) -- in the form of actual pipeline. And there's where the potential problem arises. As is true for the other CTI arrangements, the Boston deal is structured as an opt-in: there is no quid pro quo that mandates the unis participating will steer a certain number of researchers to accepting the Pfizer dollars.

As such, there is the risk that investigators with top-notch ideas may seek alternatives -- either venture capital or additional grants or heaven, forbid, competing big pharma -- to finance their early stage science. That of course would leave Pfizer with access to second-tier projects -- and really, what good does that do the big drug maker? Indeed, when reporting the IN VIVO feature, one industry source opined (off the record, of course) that in certain cases academic centers are placing an unrealistic premium on their IP, without putting enough of their own skin in the game.

Pfizer execs know the risks, telling IN VIVO "it's up to us" to create the conditions under which the CTIs can be successful; and with a majority of VCs pulling back from funding early new ideas to baby existing portfolio cos and a very limited supply of federal grant money, this may be as good a time as any to head back to school.

Whether the results ultimately create the next wave of Pfizer innovation...well that's an experiment that doesn't fit nicely into an academic calendar year. And one crucial element may be whether Pfizer execs --especially Coyle, Pfizer's CTI architect and head of R&D Mikael Dolsten have the stamina to see the program through the inevitable ups and downs.

As we wait for the next CTI deal and news of projects financed from the ongoing NY, SF, and Boston efforts, we've sharpened our pencils and cracked open our notebooks to bring you another installment of ...

Selecta/Juvenile Diabetes Research Foundation: Selecta Biosciences and the Juvenile Diabetes Research Foundation will collaborate to bring an experimental tolerogenic vaccine for type 1 diabetes through preclinical proof-of-concept. In an arrangement announced June 9, JDRF will provide undisclosed milestone-based financial support to Selecta’s efforts to produce a vaccine that specifically targets the antigen which causes type 1 diabetes. JDRF’s Industry and Development Partnership Program has provided roughly $75 million in funding for diabetes research at 32 companies since 2004. The Selecta collaboration involves staged objectives beginning with creation of a work plan for the identification of a clinical candidate, the biotech says. JDRF will also provide "insights and expertise", which could be extremely helpful given the high-risk nature of the endeavor. (Recall just last week J&J parted ways with the biotech Diamyd, which has a Phase III vaccine for Type 1 diabetes called GAD65.) Selecta's therapy aims to stop a patient’s autoimmune response to Type1 diabetes-causing antigens, thereby blocking disease progression. The vaccine actively eliminates or inactivates T cells that cause beta-cell destruction while at the same time increases the number and function of beneficial T cells. In addition to diabetes,the biotech also is working on vaccines for preventing and treating diseases in half a dozen other therapeutic areas, including infectious diseases (universal flu, pneumococcus bacterial infection, malaria), oncology (universal human papilloma virus and prostate cancer), and smoking cessation. —Joseph Haas

Lilly/Synthes: In an unusual venture, Eli Lilly and the orthopedics manufacturer Synthes have formed a long-term world-wide collaboration for the development and commercialization of bone-healing therapies. The companies will jointly develop new treatments for fractures and use in orthopedic trauma, spine, craniomaxillofacial and reconstructive procedures. The deal covers compounds ranging in stage from pre-clinical to clinical, which Lilly can license to Synthes as part of the arrangement. Lilly would not specify the compounds and financial details of the collaboration weren't disclosed. Drug-device development collaborations are common, but the extent and expected duration of this one appears to be unusual. While the companies wouldn’t specify a termination date, Lilly executives said it is designed to last at least 10 years, long enough for compounds in early-stage development to reach commercialization. More unusual is the worldwide co-promotion, in which Synthes, which is the world’s leading orthopedic trauma company, will promote to orthopedic surgeons Lilly’s Forteo, an $830 million in sales osteoporosis drug. Such drug-device commercial partnerships have a rocky history and are difficult to execute. The timing of the deal is also noteworthy, as Synthes is in the process of being acquired by Johnson & Johnson for $21.3 billion. Both Synthes and Lilly have pressing strategic reasons for pursuing the deal, though. Synthes has not been at the forefront of an orthopedic industry trend to incorporate biologics into the product mix; Lilly, for its part, has played a leadership role in its industry in exploring innovative partnerships to help fund its drug development, although it has not worked at this level before with a device company. --Wendy Diller

Merck/Roche: ASCO wasn't a huge focus for Merck this year beyond a presentation with long-time partner Ariad tied to Phase III data for the mTOR inhibitor ridaforolimus. However, as the meeting was winding down, the big pharma announced it had formed a collaboration with Roche focused on the development of companion diagnostics to accompany Merck's pipeline of investigational cancer therapies. It's the second non-traditional alliance Merck has struck with Roche in the past month: recall in May, just after winning approval for Victrelis, the big pharma signed on Roche as a marketing partner in an attempt to cut Vertex and it's Incivek out of the Hep C protease inhibitor horse race. The alliance announced this week is aimed at the other end of the spectrum: according to the June 7 press release, Roche Diagnostics will provide Merck access to validated standardized assays, as well as expanded use of the AmpliChip p53 test, to better identify patients suitable for inclusion in ongoing/planned clinical trials. Financial details of the collaboration weren't disclosed, nor did Merck give any indication of which products now under development would be candidates for companion test development. Including vaccines, Merck has a stable of roughly two dozen oncology products in its pipeline, according to Elsevier's Inteleos database. Beyond ridaforolimus, late stage assets include an insulin-like growth factor 1 inhibitor called dalotuzumab and a cyclin-dependent kinase inhibitor, dinaciclib. Earlier stage, the big pharma also has a PARP inhibitor, a MEK inhibitor, and an aurora kinase blocker, all of which are are targets of avid interest for biopharmas. (Last week, Pfizer outlicensed its PARP inhibitor, which like Merck's lags significantly behind Sanofi's Phase III iniparib.) Pharma companies are increasingly talking about the need to use companion tests in oncology --and in some cases they are walking the talk (think Pfizer's crizotinib or Plexxikon/Roche's BRAF inhibitor in melanoma). But even as they see greater need for accompanying diagnostics, with the exception of Roche, Abbott, and Novartis, biopharmas haven't seen a need to develop the testing capabilities in-house, with partnering the preferred way to access the myriad technologies now being developed. --EL

Merck/Intercell: Two long-time partners announced that they have terminated studies of a Staphylococcus aureus vaccine, as Merck elected to discontinue trials on Intercell’s late-stage prophylaxis V710. Merck’s decision followed a unanimous recommendation from an independent Data Monitoring Committee, which determined that the vaccine is unlikely to show statistically significant clinical benefits, based on interim results of a Phase II/III trial. Enrollment in the trial was suspended following the DMC’s initial recommendation in April. The DMC also flagged a safety concern, citing increased likelihood of mortality and organ failure compared to patients receiving placebo, although follow-up assessments indicated the safety risk was not statistically significant. Merck, which had committed to clinical development as well as manufacturing and marketing of V710, expects to present more detailed results of the study soon. Intercell would have been due milestone payments and royalties of unspecified size had the trial continued and the drug been approved. Merck and Intercell first announced in 2001 that they would collaborate to develop bacterial vaccines; the partnership was extended in 2004, and expanded to include a Group A Streptococcus vaccine in 2006. S. aureus is the most common hospital-acquired bacterial infection, and about 50 percent of cases are antibiotic-resistant. – Paul Bonanos

Image courtesy of flickrer MrPhilDog via a creative commons license.