Financings of the Fortnight Says It's Not Ova Til It's Ova

A two-year-old biotech trying to get listed on the over-the-counter exchanges wouldn’t normally qualify for much notice. But OvaScience is different. First, its founders include Christoph Westphal, who has co-founded and either sold or taken public several companies. The OvaScience CEO is Michelle Dipp, also a co-founder, as well as a partner with Westphal in Longwood Fund. Working together, their biggest coup was the sale of Sirtris Pharmaceuticals to GlaxoSmithKline for $720 million in 2008, and they also raised a few eyebrows while still at GSK for their side project selling dietary supplements related to Sirtris’s compounds.

OvaScience, which aims to start a pivotal trial by the end of this year for its fertility enhancement product, Augment, has gone public via a route normally traveled by shell companies to attract reverse mergers, using the SEC’s Form 10. Touted by some as a new alternative to burdensome and uncertain IPOs, the route hasn’t attracted many operating companies to date. If approved via Form 10, a company has the same disclosure rules as those that undertake an initial public offering, but its shareholders don’t have anywhere to trade until it can get listed somewhere.

That’s OvaScience’s situation.  In its latest SEC filing, the company says it’s shooting for an over-the-counter listing, but makes no guarantee of attaining it. It’s contractually obligated to try; its shareholders signed on with the expectation of liquidity at some point in the not too distant future. The list of shareholders includes OvaScience’s largest institutional investors, Bessemer Venture Partners, Longwood Fund, Fidelity Investments, and General Catalyst Group, but also dozens of individuals, some of whom are biotech boldface names. For example, Skyline Ventures’ John Freund and his wife Linda Grais, a former InterWest partner and currently CEO of Ocera Therapeutics, hold more than 5,000 shares in a trust; Dicerna CEO Doug Fambrough, also a former VC, owns 1,000 shares; Alnylam Pharmaceuticals top dogs John Maraganore and Barry Greene each have 3,636 shares. (Alnylam is one Westphal’s babies, which he helped take public in 2004.) The full list is here.

Westphal and Dipp were among the cofounders of Verastem, which managed to go public in January in a risk-averse market despite its cutting-edge science targeting cancer stem cells and early-stage pipeline (nothing even in the clinic). This time, however, they’ve eschewed the IPO process for a route that proponents say makes a lot more sense. “The beauty of the Form 10 strategy is that you’re custom-building the public company in a more rational way,” says William Hicks, an attorney at Mintz Levin Cohn Ferris Glovsky and Popeo in New York. “You’re not going through the SEC review process hoping to raise the money. You’ve already raised it.”

One limitation of the Form 10 process is having enough crossover investors – those who usually invest in public companies but have the capacity to make private investments – to support a deal. One such crossover is RA Capital in Boston. “It’s nice for a company when it has enough support from investors willing to do a deal before the company has a stock symbol,” says Peter Kolchinsky, managing partner of RA Capital, which owns 3.1% of OvaScience stock. “They know it will file the paperwork and get liquid, but they don’t need to get liquid right away."

Given the friends-and-family flavor of the investor list, it's no surprise to see RA on it. It was founded by and sports the initials of Rich Aldrich, now one of Westphal and Dipp’s partners at the Longwood Fund. RA crossed over to buy into OvaScience’s $35 million Series B round, and bought again in a small private placement OvaScience offered in August 2012 after it had become public. The placement, which raised only $4 million, was mainly a way to build a shareholder base and reach toward the minimum requirement needed to list on a major exchange. For now, however, OvaScience hopes to list over the counter, which should afford its investors some measure of liquidity if they’re inclined to sell. Seeing how the investor base is handpicked, it’s unlikely shareholders will rush for the exits. The firm is gearing up to test its lead product and, because it uses autologous material -- a woman’s own mitochondria extracted from her egg precursor cells and inserted into her eggs during in vitro fertilization (IVF), to potentially boost the odds of conception -- the company claims it won’t need FDA approval. The same won’t be true of a second product OvaTure that hasn’t yet begun preclinical development.

It remains to be seen if the Form 10 route becomes fertile ground for biotechs seeking wider capital access. OvaScience looks like it's on its way, but how many others can scramble through the side door with the help of dozens of friends in high places?

Had your fill of bad puns? You'll only egg us on by reading the latest edition of...

StemCells Inc: The San Francisco Bay Area company has been awarded a second $20 million grant from the California Institute for Regenerative Medicine (CIRM) under its Disease Team Therapy Development Award program. As reported in “The Pink Sheet” DAILY, the money will support pre-IND development of adult neural stem cell technology for the treatment of Alzheimer’s disease. HuCNS-SC, which consists of purified neural stem cells derived from human brain cells, is an allogeneic treatment, administered as a direct transplant to the hippocampus, the spinal cord, or the eye during a single procedure. The grant, announced September 6, comes a few months after CIRM awarded StemCells $20 million to support the pre-IND activities of its HuCNS-SC cells in patients with cervical spinal cord injuries. Both grants are based on the expectation that StemCells will file INDs for both indications within four years. The grants will help the company move the programs forward; currently, StemCells has about $18 million in cash on hand and expects to burn cash at a rate of $18 million to $20 million annually. Data in Alzheimer’s were presented in mid-July at the Alzheimer’s Association International Conference in Vancouver, but the grant has been delayed as the company needed to prove to CIRM that the treatment does in fact migrate deep into the brain. Data showed that treated mice had significantly improved memory and recognition of their surroundings compared to untreated mice. According to StemCells, the money will start coming the next few months after its financials have been properly vetted by CIRM and terms of the grant have been negotiated. – Lisa LaMotta

Sanofi: When Sanofi bought Genzyme in early 2011 for $74 per share after a long pursuit, the book wasn’t quite closed. Part of the deal value included contingent value rights – one of a multitude of recent biotech buyouts that featured earn-outs – tied to the commercial prospects of Genzyme’s not-yet-approved multiple sclerosis therapy Lemtrada. Today, Sanofi is clearly less skeptical about that drug’s prospects than when it originally signed its $20 billion acquisition, and it said September 4 it wanted to buy back some of those CVRs while they’re still relatively cheap. The Genzyme CVRs were floated on the Nasdaq in late March 2011, and they trade under the words-with-friends friendly GCVRZ symbol. Sanofi wants to buy 86,766,040, or about 30% of them in a modified Dutch auction process that would value the biobucks somewhere between $1.50 and $1.75 per share.  A modified what? Essentially Sanofi will let holders tender their shares at any price in that 25-cent window. It will buy up to 86,766,040 of them, and price the offering at the lowest possible price that allows them to pull in that number of shares. (Once the process is complete, Sanofi will pay the same amount for each CVR, the price at which the 86,766,040th cheapest share was tendered.) Buying some of the CVRs now – there’s potentially $13 per CVR left to be paid out, but only a dollar of that is attached to pre-commercial Lemtrada milestones – could cost the French pharma from $130 million to $152 million, a 7% to 25% premium to the shares’ pre-announcement value. But the offer allows Sanofi to save a little cash in the longer term should Lemtrada win FDA approval and begin to rack up sales. Prior to the Sanofi announcement, the GCVRZ shares were trading at $1.40. They quickly shot up in value and are trading at $1.72 as of the end of September 6. The tender offer expires at 5pm Eastern on October 5. Dutch auctions in biotech sound familiar? Not too long ago WR Hambrecht & Co. was marketing its own version of the process under its OpenIPO brand, a path followed by companies like New River Pharmaceuticals and Avalon Pharmaceuticals. – Chris Morrison

Avalon Ventures: San Diego-based hybrid venture firm Avalon is attempting once again to close a fund $50 million larger than its previous vehicle. The firm disclosed in an August 30 SEC filing that it has raised the first $202 million of Avalon Ventures X, a proposed $250 million fund which would be its largest yet. It’s been just 20 months since Avalon closed its $200 million ninth fund in January 2011. That exceeded the firm’s $150 million goal, which would have matched its 2008-vintage eighth fund. The firm has enjoyed some lucrative exits lately: It had stakes in vaccine developer BioVex, sold to Amgen in 2011 for $425 million up-front, as well as Amira Pharmaceuticals, for which Bristol-Myers Squibb paid $325 million up-front later the same year. Avalon traditionally splits its funds 50-50 between life sciences and tech; the firm’s biggest recent exit arrived from the IPO of online game developer Zynga. The firm has been a holdout among hybrid firms as some other VCs have split their teams or funds in order to focus on either tech or life sciences individually. Avalon is also known for taking early stakes in life sciences start-ups and running them itself as virtual companies for a couple of years before bringing in senior management, a strategy we explored last year in START-UP’s Capital Matters column. Key partners Kevin Kinsella and Jay Lichter didn’t respond to a request for comment, so we’ll have to wait and see when the firm tops off the tank. – Paul Bonanos

Aerpio Therapeutics: This Cincinnati-based spinout of a spinout said August 30 it has raised $27 million in a Series A round to push forward a drug for diabetic macular edema, a disease characterized by leakage of blood proteins into tissues behind the macula of the eye, causing a thickening of that tissue. DME is the leading cause of vision loss in diabetics. The round was led by Novartis BioVentures and joined by Venture Investors LLC, Triathlon Medical Ventures, Kearny Venture Partners, Athenian Venture Partners and AgeChem Venture Fund LP. All were previously investors in Akebia Therapeutics, itself spun out from Procter & Gamble five years ago. Both companies are run virtually and share a CEO, Joseph Gardner, who told “The Pink Sheet” DAILY that the money will fund a Phase Ib/IIa trial of AKB-9778, a Tie-2 activator that works by inhibiting human protein tyrosine phosphatase beta, an enzyme which counteracts vascular leakage to restore Tie-2 signaling. The 28-day dose-escalation study will begin in September and will test the safety and tolerability of ‘9778 in 30 patients with DME. Gardner said the company also is hoping to see strong signs of efficacy including decreases in retinal thickness and improvements in visual acuity. Results from that study are expected next spring. Once the Phase Ib/IIa study has been concluded, the remainder of the funds raised will be used to fund a second Phase II study with 100 patients “that will get the attention of partners and make future financings a bit easier in this dry funding environment,” said Gardner. Results from this trial are expected in 2014. – L.L.

Eggcellent photo courtesy of flickr user Ecstatic Mark.

Deals Of The Week: Tolero Introduces Itself In "Double-Jointed" Deal With MannKind

In a deal structure that perhaps could best be described as “double-jointed,” new company Tolero Pharmaceuticals has licensed exclusive worldwide rights to MannKind Corp.’s preclinical Bruton’s tyrosine kinase (BTK) inhibitor program, which Tolero believes could yield novel therapies for hematological cancers and inflammatory diseases.

MannKind, of course, is focused almost exclusively on its perennially troubled effort to develop a recombinant inhaled insulin product, Afrezza. The deal with Tolero puts development of the BTK compounds in the hands of the privately held, Utah-based biotech, but allows MannKind the ability to opt back in after Phase I if it likes what Tolero has uncovered. In the case that MannKind opts back, “bio-bucks” slated to go to MannKind under the deal would flow instead to Tolero.

“It’s a different model that we proposed and one that I think MannKind really liked,” Tolero Chairman and CEO Dallin Anderson said in an interview. “It aligned incentives and made our negotiation progress very smooth. I think us proposing a structure that de-risked the opportunity for MannKind and gave them a chance to still be involved down the road helped us with not only terms but also to get to an agreement that makes sense for both parties.”

Tolero will pay an upfront amount with the potential for development, approval and commercialization milestones going to MannKind, along with tiered royalties on any product sales. The parties did not disclose precise deal terms, but Tolero said the upfront and milestones could total $130 million. However, MannKind also retains the right to re-acquire the BTK assets at pre-specified terms up to 60 days after the conclusion of Tolero’s first Phase I study. If MannKind elects this option, it would assume all development and commercialization responsibilities and costs, with Tolero entitled to the potential earn-outs specified in the April 30 deal.

“BTK currently represents one of the most exciting therapeutic targets in oncology, and we feel that our collaborative approach to targeting BTK may uncover some novel utilities not yet fully realized,” Anderson said. Pressed for details on what those additional “utilities” might be, however, the CEO remained mum.

Much about Tolero remains unknown – founded in 2011 and based in Salt Lake City, the firm is not backed by venture capital or institutional investors. Anderson, who noted his background as having co-founded Montigen Pharmaceuticals in 2003 and then selling to SuperGen in 2006 at a significant multiple, would say only that his company is funded by a number of private investors. Its own programs, including two compounds – TP-0413 for cancer-related anemia and TP-0829 for B-cell malignancies – are slated to enter clinical development in the next year and derive from a discovery approach based upon single genetic alterations that drive cellular signaling pathway abnormalities.

Tolero also is not disclosing the specific source of its technology, although Anderson alluded to some research relationships with the academic community in Utah, specifically the University of Utah and Brigham Young University. The company’s website says it “seeks to target diseases from a pathway-centric approach by identifying and developing pathway-specific inhibitors and then identifying specific diseases (i.e., cancer subtype) and genetic backgrounds where these pathway inhibitors exhibit enhanced efficacy.”

TP-0413, which targets signaling involved in the regulation of serum iron levels, a pathway implicated in rheumatoid arthritis as well as cancer, is in advanced preclinical and IND-enabling studies, with a goal of beginning clinical development in the second half of this year. Tolero also hopes TP-0829 will move into the clinic early next year, with potential activity in non-Hodgkin lymphoma, chronic lymphocytic leukemia and multiple myeloma.

Elsewhere, it was a typically busy week on the biopharma deal-making front – let’s get caught up with the latest round-up of:

Sandoz/Fougera: Novartis' generics unit, Sandoz, announced May 2 that it will be acquiring Melville, N.Y.-based Fougera Pharmaceuticals in an all-cash transaction worth $1.53 billion that is expected to close some time in the second half of 2012. Fougera, which produced sales of about $430 million in 2011 and has about 700 employees, will make Sandoz the largest manufacturer of generic dermatology products in the world. For Sandoz, the acquisition was “a strategic bolt-on with synergy potential,” said Jeff George, global group head, in an interview. According to Sandoz, once the acquisition is complete, the generic dermatology unit will take in about $620 million in sales globally, with most of that coming from the U.S. On the worldwide market, the company will compete with the likes of Watson Pharmaceuticals, Mylan, Sanofi and Teva Pharmaceutical Industries. Fougera, previously Nycomed US Inc., was the dermatology business of Swiss-based Nycomed Pharma AS before it was acquired by Takeda Pharmaceutical for $13.6 billion in 2011. Takeda decided to pass on the U.S.-based part of the business because it lacked expertise in dermatology and was uninterested in building out the assets. Since the Takeda takeover, Fougera has remained the asset of private investors – Nordic Capital, DLJ Merchant Banking (a Credit Suisse Group affiliate) and Avista Capital Partners. The acquisition by Sandoz gives those investors a good return with a multiple of about 8.8 times the company’s 2011 earnings before interest, taxes, depreciation and amortization (EBITDA) of $173 million. – Lisa LaMotta

Abbott/Action Pharma/Zealand: Abbott Laboratories boosted the renal pipeline of its soon-to-be-separate pharma division AbbVie by acquiring worldwide rights to Action Pharma’s AP214, a Phase IIb drug designed to treat acute kidney injury that can occur during cardiac surgery. Unlike most licensing deals for pipeline assets, Abbott obtained rights to the drug for a single payment, a $110 million cash transaction that won’t be followed by milestone or royalty payments. (Abbott has made this type of bet at least once before, paying PanGenetics $170 million upfront for a Phase II anti-NGF asset in 2009. Yet there’s one complicating factor: Denmark-based Action had developed the drug using structural peptide technology licensed from Zealand Pharma, another Danish company. In the new arrangement, Action rather than Abbott will pay Zealand DKK 62 million ($11 million), and Zealand is due a royalty in the low single digits if Abbott commercializes the drug. The old agreement between Action and Zealand has been terminated. Abbott will begin a second Phase IIb study on the drug this fall. No treatment has yet been approved for acute kidney injury in patients who have undergone cardiac surgery. Abbott already holds ex-U.S. rights to Phase III chronic kidney disease candidate bardoxolone, licensed in September 2010 from Reata Pharmaceuticals, as well as atrasentan, an internally developed Phase II endothelin-receptor antagonist in diabetic kidney disease. – Paul Bonanos


AstraZeneca/Axerion: AstraZeneca’s new virtual neuroscience drug discovery and development unit reached its first partnership agreement May 1, with a licensing and co-development pact centered on preclinical antibodies for Alzheimer’s disease discovered by Axerion Therapeutics. No financial terms were revealed, but Axerion will receive an upfront payment and research and development funding and be eligible to earn milestones and sales royalties if any compound reaches market. The New Haven, Conn., biotech will work with MedImmune, the biologics subsidiary of AstraZeneca, to optimize and develop antibodies that block the binding of amyloid-beta oligomer to cellular prion protein (PrP-C) in the brain. MedImmune has bought into Axerion’s program, in-licensed from Yale, in the hope that this approach could yield a disease-modifying therapy for one of the most challenging indications currently targeted in drug development. The Axerion partnership is AstraZeneca’s first since it announced plans during a quarterly earnings call Feb. 2 to streamline much of its R&D function, including going to a virtual model in neuroscience. At the time, R&D President Martin Mackay said the pharma’s goal was a “leaner, simpler, more innovative organization with a lower and more flexible cost base.” – Joseph Haas

Merck/Trevena: Pennsylvania-based Trevena announced May 2 that Merck & Co. will be the latest company to utilize its G-protein coupled receptor (GPCR) biased ligand platform. The company hopes to identify ligands that turn on only some biological responses, instead of a whole variety of biological responses, by using what it terms "biased ligands.” The company said that Merck, through a subsidiary, has signed on to use the technology to research biased ligands against an undisclosed receptor. Financial details of the transaction were not disclosed. Trevena, which raised a $35 million Series B round in 2010, has other research under way, including its mid-stage lead compound, a drug meant to treat acute heart failure called TRV120027. GPCRs are protein structures that wind across the cell wall, crossing the cell membrane seven times, and common drug targets. When a ligand binds to a GPCR's extracellular part, it triggers a response inside the cell. – LL

Gilead/AnaptysBio: On the heels of inking a partnership with Celgene in April, AnaptysBio has signed a fifth major pharma partner for its antibody discovery platform. This time, it is Gilead Sciences that wants access to AnaptysBio’s SHM-XEL platform for antibody discovery. The companies announced a partnership to develop novel antibody therapeutics May 1. Gilead will pay an undisclosed upfront fee and pay development milestones and royalties on sales of any drugs that emerge from the partnership. AnaptysBio’s technology platform uses the natural biological process by which antibodies are generated, somatic hypermutation (SHM); the company claims its technology can create antibodies with different antigen-binding regions and better binding affinities. Its other pharma partners include Merck, Roche and Novartis. – Jessica Merrill

Hologic/Gen-Probe: Women’s health-focused Hologic, a developer and supplier of diagnostics, imaging and surgical products, is buying molecular diagnostics provider Gen-Probe for $3.7 billion in cash, to be paid for largely by taking on debt. Adding Gen-Probe’s automated instrument platforms gives Hologic critical mass in the molecular diagnostics market. Hologic already owns a molecular diagnostics platform: the Invader technology it acquired when it bought Third Wave Technologies for $580 million in 2008. That gave Hologic an entrée into the molecular testing space, including its own HPV test – a broadening of Hologic’s core focus in women’s health, which includes mammography and, via its merger with Cytyc Corp. in 2007, cervical and breast cancer diagnostics. Gen-Probe gives the company the automation and menu to grow the diagnostics market more quickly – by implication, something that the Third Wave acquisition failed to do. A buyout of Gen-Probe has been in the air since April 2011, when the company reportedly retained Morgan Stanley seeking a buyer. What’s unclear is why Hologic made its move now. There’s speculation that the deal foreshadows a weakness in Hologic’s business. “Based on their forward-looking diligence [statements], that does not appear to be the case,” says Piper Jaffray analyst Bill Quirk. Clinical adoption of new Hologic’s tomosynthesis breast-imaging platform appears to be keeping pace with expectations. It brought on the Gen-Probe business as “one of the elements in building diagnostics so that it performs like [the] breast health [business], not so that it makes up for [it],” Hologic CEO Robert Cascella told investors. Post-acquisition, 50% of Hologic’s revenues will be in diagnostics, 38% in women’s imaging and 12% in surgical. – Mark Ratner

Royalty Pharma/Fumapharm – Royalty Pharma announced May 2 that it acquired an interest in the earn-outs payable to former shareholders of Fumapharm, which includes an interest in Biogen Idec’s multiple sclerosis candidate BG-12, for $761 million in cash. Based in New York, Royalty Pharma says it is the industry leader in acquiring royalty interests in approved and late-stage pharmaceuticals, including interests in Abbott’s Humira (adalimumab), Pfizer’s Lyrica (pregabalin) and Genentech’s Rituxan (rituximab). Biogen bought out Fumapharm in 2006 for $215.5 million and with it the German company’s lead product, psoriasis drug Fumaderm (fumaric acid esters) as well as BG-12. In April, Biogen announced positive data from the Phase III CONFIRM trial, its second pivotal study in relapsing-remitting MS. The compound was filed for approval in RRMS at FDA in February and with the European Medicines Agency in March. – JAH

Image courtesy of Wikimedia Commons

2011 M&A of the Year Nominee: Sanofi/Genzyme

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're 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 (half a 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™.

Sanofi’s drawn-out and complicated acquisition of Genzyme was the story that had it all – a hostile takeover attempt (which eventually morphed into friendly merger talks); more than a year’s news flow with well-timed leaks and opportunities to interpret cryptic “he said, he said” commentary from the two companies’ principals – Chris Viehbacher and Henri Termeer (neither a shrinking violet); a huge price tag ($20.1 billion); a relatively novel deal add-on in the form of a contingent value right pegged to sales performance of Lemtrada and manufacturing of Cerezyme and Fabrazyme; and, oh yes, regulatory controversy.

When Sanofi began “kicking the tires” of the Boston big biotech, Genzyme was digging out from a summer 2009 plant shutdown due to viral contamination in a bioreactor, a six-week interruption in production that plagues the availability of top-selling enzyme replacement therapies Cerezyme and Fabrazyme to this day. By the time Viehbacher and Co. completed their quest for diversification into biologics and ultra-rare diseases, Genzyme was operating under an FDA consent decree and constantly fielding complaints from patient advocacy groups about rationing of Cerezyme and Fabrazyme.

But Sanofi had good reason to go ahead with the acquisition – it was facing near-term loss of patent exclusivity for blockbusters like Plavix, Lovenox and Taxotere. Despite its manufacturing woes, Genzyme could add $4.05 billion in product sales to Sanofi’s top line and $422 million in profits to the bottom line. In addition, Genzyme’s portfolio of drugs for rare diseases offered Sanofi another growth platform, like the consumer health products and expertise it gained in its 2009 purchase of Chattem.

Ultimately, the French pharma closed the deal in February 2011, buying out Genzyme for $74 a share, a decent premium and a bit up from its initial bid of $69 a share, but not in the range of the $87 a share or so that Termeer lobbied for in the press and behind the scenes. The uncertain future of Cerezyme and Fabrazyme, complicated by competition from new drugs from Shire and Pfizer partner Protalix, hamstrung Genzyme’s bargaining power, and ultimately one of the most-celebrated U.S. biotech success stories ended up just a subsidiary to a multinational Big Pharma.

The CVR continues to intrigue nearly a year after the deal closed – it brought shareholders the potential for up $14 per each Genzyme share tendered to Sanofi. Of that, $13 will be tied to future sales performance of Lemtrada, a pipeline candidate for multiple sclerosis. It’s anyone’s guess at this point how much, if any, of that return will be realized – Lemtrada remains in clinical development, but Genzyme announced promising data from the Phase III CARE-MS II trial in mid-November. The remainder, dependent on Genzyme meeting 2011 guidance for production of Cerezyme and Fabrazyme, already is a lost cause, as Fabrazyme in particular has met one production snag after another since the 2009 shutdown.

Other DOTY candidates in the M&A category may beg for votes – the oft-delayed Sanofi/Genzyme marriage simply does not need to. It was the story of the year in biopharmaceutical M&A.—Joseph Haas

image from flickr user f-oxymoron used under creative commons license

2010 M&A DOTY Nominee: Celgene/Abraxis Bioscience

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're 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 (four or five 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™.


As we noted a week ago, Celgene hasn't been shy about striking creative deals. The $2.9 billion cash and stock acquisition of Abraxis Bioscience fits the mold, for reasons we'll explain in a minute, but the creativity isn't what makes this deal worthy of a DOTY nomination.

It's actually Celgene's bet itself that intrigues us: after building its bona fides in liquid tumors with Thalomid (thalidomide) and the now-blockbuster Revlimid (lenalidomide), the New Jersey firm is spending nearly $3 billion to expand into solid tumors, an aggressive move at a time when retrenchment (Biogen Idec), reorganization (Genentech, via its parent Roche), desperate defense (Genzyme) and urgent reinvention (Amgen) are the main trends for big biotechs. In late 2007, Celgene's dealmakers high-stepped into the spotlight after years of relative silence, and they haven't relinquished the stage. The Abraxis deal, dollar-wise, is Celgene's largest yet.

For what, exactly? Abraxis' only marketed product is Abraxane, a reformulation of the generic chemotherapy paclitaxel using albumin nanoparticles that's been approved for metastatic breast cancer. It's a modest seller so far -- $360 million in 2009 revenue -- but Celgene sees promise in other solid tumor indications, including a potential submission for use in non-small cell lung cancer in the first half of 2011. Abraxis owns the "nab" nanoparticle delivery technology; whether Celgene puts it to use to reformulate other drugs remains to be seen. Investors at first were befuddled at the June 30 deal announcement, driving Celgene's stock below $50 from a high of $56.58, but they've since come round. Celgene ended trading Thursday, Dec. 16 at $58.79.

Terms of the acquisition were complicated and suggest this was a product Celgene had to have. In the end, Celgene paid $2.5 billion in cash and issued 10.7 million shares of common stock worth $58.21 each, or about $620 million, on Octo. 15, the day the acquisition finally closed.

In addition, Celgene has promised significant earn-outs, or contingent value rights (CVRs), to Abraxis shareholders -- most especially founder Patrick Soon-Shiong (pictured, right). The CVRs include a $250 million cash payment upon approval of Abraxane by FDA for NSCLC with a progression-free survival claim; either a $300 million or $400 million cash payment upon approval of Abraxane by FDA for pancreatic cancer with an overall survival claim; and potential cash royalty payments if Abraxane and certain pipeline drugs reach established sales thresholds.

It's hard to say CVRs are creative deal-making when so many acquisitions these days require them, though in the public markets, unlike the private side, they're still the exception, not the rule. There was an added twist, as well. To get the deal past the finish line, Celgene agreed to make the CVRs tradeable -- in essence, a tracking stock that follows the value of one product, Abraxane. Very few CVRs have ever been converted into tradeable securities, and Soon-Shiong has been involved in two of the most prominent examples as we discuss here.

Industry pundits continue to opine about the wisdom of spending billions for a single asset, but this diversification into solid tumors makes sense for Celgene. Data released at ASH suggests Revlimid may face headwinds in the maintenance setting for multiple myeloma. That could stymie the product's growth, a worrisome fact since it now accounts for 70% of Celgene's total revenue. Celgene wants to be one of the leaders in the increasingly competitive oncology space and it's not afraid to spend money or meet the deal requirements of the companies its courting. That chutzpah deserves your vote for DOTY, if nothing else.

Photo courtesy flickr user health2con.

Deals Of The Week Ponders The Darkening Days

The Festival of Lights officially began Wednesday night, and the halls of malls across the country have been swathed in equal parts blue and white and green and red for weeks in an effort to sway consumers to what used to be our national past time. But Adam Sandler aside, there's a pall in the air. The Senate's show down on tax reform. The bleak employment picture. The deepening conflict between North and South Korea. LeBron's return to Cleveland. No wonder President Obama made an unannounced visit to Afghanistan--at least there's some hope he can escape the relentless 24-hour news cycle.

To quote old Will "What freezings have I felt, what dark days seen. What old December's bareness everywhere."

In biopharma land, many are also channeling Richard III--or maybe Ethan Allan Hawley. It's hardly surprising. Words describing the IPO probably shouldn't be printed here (we are a family publication after all), and restructurings continue apace as firms accept it may be better to do less with less. The latest high flier to reach this conclusion: Exelixis, which used its annual R&D to announce a massive restructuring and a doubling down on its small molecule cancer med, XL-184.

If any company is eager to see the backside of 2010, it's got to be Exelixis. There's no denying it's been a turbulent year for the biotech, which saw the abrupt departure of long-time CEO George Scangos and the end to a key development agreement with long-time partner Bristol-Myers Squibb for XL184.

The good news: XL184, in Phase III trials after having reported "unprecedented results" at a recent cancer meeting, is now wholly owned by Exelixis. The bad news, of course, is that the drug is wholly owned by Exelixis, meaning it is picking up full development costs for the program.

Given the need to shoulder those expenses--especially in settings like prostate cancer, where the drug will go up against Amgen's newly approved Xgeva, Exelixis's decision to downsize and halt internal development of all non-partnered programs is imminently sensible. But that's likely cold comfort for the 40% of staff being laid off starting this month. Indeed, come some time in 2011, headcount at the firm will fall to around 240 from 670 the year before--and future cuts could trim employee numbers even further to just 140 personnel.

It's another reminder that as much as we like to talk about broad portfolios and multiple shots on goal, many biotechs--even very well capitalized ones like Exelixis (or Biogen for that matter)-- are ultimately forced to double-down on their best shot at commercial success. Yep, the more things change... (Kind of like the continuing Genzyme/Sanofi saga.)

In December's darkened days, are you tempted to snuggle into your pjs--and eat hot soup? Reading once, reading twice, reading chicken soup with rice...

GE Healthcare/Janssen: GE and specialist drug developer Janssen are joining forces to develop a biomarker signature for detecting Alzheimer’s disease prior to the onset of clinical symptoms. The research collaboration will draw upon the resources of GE’s Medical Diagnostics division, which has an amyloid PET imaging agent, Flutemetamol, in Phase III, and Janssen’s neurology-related clinical, biomarker, and informatics expertise. At first blush, the arrangement may not seem remarkable for DOTW, but it is indicative of GE’s gravitation towards IVD businesses. (Remember, in early 2007, GE bid for Abbott’s immunoassay, clinical chemistry, hematology, and point-of-care businesses, but the deal fell apart.) For the most part, both before and after the Abbott near-miss, GE has focused on the development of new imaging agents, owing to its acquisition of Amersham--and that firm's contrast agent and medical isotopes business--in late 2003. While this isn't a division that historically has made acquisitions, recent signs suggest change could be afoot. In October 2010, GE paid just over a half-billion dollars for molecular oncology testing services provider Clarient (4), its first major external investment for molecular diagnostic content. “We are clearly seeing personalized medicine gaining in importance, and GE Healthcare is in a great position, with the diagnostics solutions we have in vivo,” says current president and CEO of Medical Diagnostics, Pascale Witz. Clarient “can be an engine to develop new tests that could come from a different horizon, from GE Healthcare, or other research institutions or companies,” she adds. The arrangement with Janssen aligns with that goal. – Mark Ratner

Axcan/Eurand: The board of Belgium-based specialty pharma company Eurand and its majority shareholder have approved the sale of the company to Axcan Holdings for $583 million in cash, the companies announced on Dec. 1. At $12 a share, the offer is a 9% premium to Eurand's closing share price as of Nov. 30 and gives Eurand a market cap of roughly $574 million. That figure seems low compared to analysts' estimates of Eurand's value, but the deal appears likely to succeed since key shareholders Warburg Pincus, (which owns roughly 55% of the company's equity) and Eurand Chairman and CEO Gearoid Faherty (who owns another 3.7%) have already agreed to the terms. Eurand belongs to a cadre of small to mid-cap European specialty pharma companies that have struggled to transform their business models in the face of increased competition for assets and a difficult pricing environment. Eurand has adapted better than some of its peers, capitalizing on the success of its lead product, Zenpep (delayed release pancrelipase), which is an improved form of an enzyme replacement therapy for treatment of exocrine pancreatic insufficiency, or EPI. Axcan, a Canadian firm taken private by TPG Capital in 2007, competes in this so-called PEP market, but has been stymied by new regulatory requirements and two complete response letters for its version, called Ultrase (also known as Viokase). That's important because Axcan has become increasingly dependent on Ultrase/Viokase sales, with the drugs contributing 19% of Axcan's total revenues for the fiscal year ending September 2009.--Wendy Diller

GlaxoSmithKline/Theravance: GlaxoSmithKline hitched its wagon even tighter to long-time partner Theravance this week, increasing its stake in the company to 19% via a $129.4 million investment. The move isn't terribly surprising, coming after the companies announced positive Phase II data on their partnered asset Relovair in September. The once-daily, long-acting beta2 agonist/corticosteroid combination is in Phase III development to replace GSK's blockbuster Advair and the increased investment suggests GSK is confident in the companies' respiratory collaboration. GSK and Theravance have been allies in the respiratory space since 2002 thanks to an early-stage LABA deal. In 2004, that arrangement morphed into a broader strategic alliance in which GSK paid $129 million upfront and increased its stake in Theravance from 6% to 19% in exchange for an exclusive option to license new medicines from all of the company's development programs through 2007. Theravance took advantage of the IPO window that same year and over time, through public offerings, GSK's stake was reduced to around 12.8% of Theravance's capital stock. With the latest private placement, GSK will purchase 5.75 million shares of Theravance common stock at $22.50 per share. For Theravance, the deal extends the biopharma's cash runway and could see the company beyond the Phase III Relovair data release, expected in mid- to late-2011. CEO Rick Winningham told sister publication "The Pink Sheet" DAILY the investment should give Theravance enough cash to run the company out two years beyond the Phase III data release.--Jessica Merrill

Merck/SmartCells: In the wake of Phenomix's flame-out, VCs are understandably gun shy about investing in diabetes players. And yet this is clearly an area of interest to big pharma acquirers, who see the explosion in obesity and Type 2 diabetes as one way to fatten the bottom line. The latest proof that big pharma is on the prowl for diabetes assets? Merck's take-out Dec. 2 of privately-held SmartCells for an undisclosed upfront plus development and regulatory milestones that could drive the deal price above $500 million. (What? At this point in the year, an earn-out heavy deal can't still be surprising?) The acquisition gives Merck access to a preclinical insulin technology called SmartInsulin, a once-daily insulin injection for the treatment of type 1 and type 2 diabetes that is meant to automatically adjust to fluctuating levels of blood glucose. In doing so, the medicine presumably overcomes some of the stigmas associated with insulin therapy--the potential risks of either hyper- or hypoglycemia and the frequent daily monitoring required to maintain appropriate blood glucose levels. In its seven-year lifespan, SmartCells (read this Start-Up profile for more) has raised less than $20 million, relying heavily on grants from the Juvenile Diabetes Research Association, National Institutes of Health, and angels. (Hint: without traditional VCs in the picture, the company's founders seem likely to make a pretty penny even if the upfront is in the tens of millions.) The acquisition moves Merck into a new area of research since it doesn't currently offer insulin therapy. While some have speculated Merck is interested in building smart insulin for the Type 1 market, Merck's interest is likely in solidifying its stance in the all important (and much bigger) Type 2 population. This is an arena where Merck already has significant share of voice thanks to its juggernaut DPP IV inhibitor Januvia, and SmartCells' insulin seems uniquely positioned to take on long acting insulins like Sanofi's Lantus or Novo's late stage Degludec. Being preclinical, the company will have to show the compound has the commercial chops to survive the rise of long-acting GLP-1s, another reason an earn-out deal was a smart move on the part of the Merckies.--EL

Image courtesy of flickrer marcusjroberts via a creative commons license.

Deals Of The Week Looks For Quarters Under The Couch Cushions

In today’s cash-constrained environment, drug markers are doing everything possible to limit the burn, while finding new sources of innovation. Hence this week’s news that Pfizer is teaming up with UCSF in an $85 million research collaboration (see below), as well as the respective emphasis at Roche and Novartis on “operational excellence” and “focused diversification”.

This desire to wrest as much value out of available resources is also the driving force behind various big pharmas’ decisions to outlicense deprioritized assets, whether they are single-asset focused arrangements or spin-outs of actual whole departments.

In the good old days, pharma didn’t have to think too hard about such measures. With abundant free cash flow and blockbuster projects these activities were a distraction deemed not worth the time and effort required.
But like graduate students searching for additional cash underneath their sofa cushions, big pharmas can no longer afford not to monetize, monetize, monetize.

Thus, AstraZeneca’s desire to sell off its medical device subsidiary Astra Tech, which manufactures dental implants and medical devices for surgery and urology, is hardly surprising given the drug maker’s patent cliff. (What is surprising is that it took this long for AZ to see the wisdom of the strategy.)

Astra Tech is forecasted to pull in roughly $533 million in 2010 according to analysts; that’s just 1.6 percent of AZ’s overall sales. Given the biz is entirely separate from the drug maker’s pharma initiatives – Astra Tech’s areas of expertise don’t even give AZ’s sales and marketing team an extra call point – the proposed divestiture makes a ton of sense (provided AZ can get a decent price for the subsidiary).

And therein lies the rub. Over a year ago, Elan tried – and failed – to spin-out its drug delivery business, which arguably could have closer ties to its overall strategic plans than dental implants and urology devices do to AZ’s. But the biotech has shelved its efforts because it can’t find a buyer that values the company as richly as it does.

One other option: tap the public markets, which while still chilly, are finally thawing, especially for companies with products and revenues. (And yes we know device IPOs remain a rare beast, but they do happen.) This is what Bristol-Myers Squibb, which faces its own steep cliff with Plavix and Avapro, did so brilliantly a year ago with its divestiture of Mead Johnson in two acts, first via an IPO that sold a small percentage of the company and then via a stock swap that increased BMS’s earnings-per-share. (It also won a DOTY nomination for its efforts.)

Such creative deal making can yield a lot of spare change – the Mead Johnson IPO alone pulled in 2.88 billion quarters, proving that more banal assets like baby food provide a very big cushion in the post-patent cliff world.

It's time to get out from under the couch cushions and read...

Stromedix/UCSF: Privately held Stromedix in-licensed exclusive, worldwide rights to a preclinical monoclonal antibody to integrin alpha-v-beta-5 Nov. 18 from the University of California, San Francisco. Deal terms were not disclosed. Stromedix, a Cambridge, Mass., biotech backed by several venture capital firms and Biogen Idec, is focused on developing new therapies for fibrosis and resulting organ failure. Its lead program, in-licensed from Biogen in 2007, is STX100, a monoclonal antibody that inhibits the activation of transforming growth factor by targeting integrin alpha-v-beta-6, a cell-surface adhesion molecule and TGF activator. STX100 has completed Phase I studies, with Phase II trials in idiopathic pulmonary fibrosis and chronic allograft neuropathy in planning, Stromedix says. Noting that preclinical research suggests alpha-v-beta-5 plays a key role in a variety of acute and chronic organ failure settings, Stromedix believes the monoclonal, which regulates endothelial barrier function, could be a second candidate for treating fibrotic disease, particularly conditions associated with vascular leakage. CEO Michael Gilman said Stromedix would apply its proprietary biomarker database to the antibody to discover a biologically active dose for the purpose of investigating anti-fibrotic activity in a small trial.—Joseph Haas

Pfizer/UCSF: The Stromedix deal was only one of two deals inked by UCSF this week. On November 16, the university announced a sweeping arrangement with Pfizer that goes well beyond the transfer of intellectual property around an interesting target. It’s no secret that big pharmas are increasingly looking to tap the innovative science contained within academia’s ivory towers. It’s one way drug makers can revitalize their early stage R&D organizations that is also cost-effective (to put it bluntly, we mean cheap). Even though the $85 million Pfizer is pledging to UCSF over a five year period is significantly more than its ever put to work in its previous academic deals, the dollars are still a drop in the bucket for a company its size. Moreover, based on a conversation with Anthony Cole, who heads a new division within the drug maker called Global Centers for Therapeutic Innovation (GCTI) responsible for spearheading such collaborations, it seems likely more of these partnerships are in the offing. In exchange for funding that broadly supports biotech research at UCSF, Pfizer receives joint ownership of early-stage drugs and exclusive options to develop them once they complete Phase I studies, with additional milestone and royalty payments due back to the university if an option is exercised. Any compounds that Pfizer elects not to develop further will be returned to UCSF, which will be free to negotiate with other potential partners, although royalties may still be due to Pfizer. The Big Pharma will also open a private laboratory, which will focus on multiple therapeutic areas of interest, with at least 20 staffers at UCSF’s Mission Bay Campus in San Francisco; approximately the same number of UCSF researchers will work jointly with the local Pfizer staff. – Paul Bonanos

Sekisui/Genzyme: It's two down, one to go for Genzyme, which announced Nov. 18 that it will sell its diagnostics products business to the Japanese chemical manufacturer Sekisui Chemical Co. for $265 million in cash. It is not as lucrative a deal as the $925 million agreement Genzyme announced for the sale of its genetic testing unit to Lab Corporation of America back in September. But it is one more item Genzyme can check of its to-do list as the Cambridge, Mass.-based biotech cleans up its business, potentially ahead of a sale. Genzyme announced in May plans to divest the diagnostics and genetic testing businesses, as well as its pharmaceutical intermediaries unit, as part of a strategic plan to increase shareholder value, mainly by sharpening its focus on core areas like rare diseases. Sekisui will employ the diagnostic unit’s 575 employees and maintain operations in all current locations, according to Genzyme. The business sells raw materials, enzymes, clinical chemistry reagents and rapid tests to manufacturers and clinical laboratories. You may not have heard, but Genzyme is in the midst of an attempted hostile takeover by Sanofi-Aventis. Despite recent rumors that Takeda – the largest Japanese pharma – may be interested in bidding for Genzyme, no white knight has officially materialized. Takeda seems an unlikely buyer for Genzyme anyway, given the awkward strategic fit and the fact that Takeda would have to finance about half of the $20 billion or so acquisition.—Jessica Merrill

BTG/Biocompatibles: News of BTG's planned acquisition of UK drug-device group Biocompatibles seems unremarkable at first glance. It's worth £177 million ($282 million) in cash and shares, meets BTG's well-documented aim of adding specialist products to its pipeline, and is earnings-enhancing for BTG in its first full year. But drill down and there’s an interesting financial component to the transaction worth noting. Rare is the acquisition that comes without an earn-out element these days; lo and behold, BTG's proposed deal includes a "Partial CVN Alternative" -- referring to Contingent Value Notes, which are essentially Contingent Value Rights (CVR), better known as earn-outs. The deal sees Biocompatibles shareholders receiving 1.6733 new BTG shares and 10p in cash, valuing Biocompatibles at a premium of about 28% to its closing price prior to the announcement. But Biocompatibles shareholders can, if they like, forego the 10p cash element in exchange for a CVN, worth €0.56/share (about 48p), linked to whether or not AstraZeneca exercises its near-term option to license Biocompatibles' GLP-1 analog compound. It appears, then, as if Biocompatibles' shareholders are being offered a choice to forfeit their 10p/share today in exchange for rights to the possibility of 48p/share tomorrow. That's interesting since most previous examples of CVRs or CVNs don't involve a price, as such. BTG doesn't quite see it that way, though. This wrinkle in the deal resulted, they say, from Biocompatibles' (quite reasonable) demand that their shareholders, and they alone, be given the opportunity to share in the significant (€25 million) milestone payable by AstraZeneca if it options-in the program.—Melanie Senior

Eisai/Forma: How much are platform technology deals worth these days? This week’s tie-up between Japanese pharma Eisai and privately-held FORMA Therapeutics provides one benchmark. On November 16, the two parties announced a strategic drug discovery collaboration that gives Eisai non-exclusive access to FORMA’s proprietary Diversity Oriented Synthesis (DOS) chemistry-generated library and cell-based screening platform. For access to the technology FORMA gets an undisclosed upfront payment and committed funding of $20 million over three years. That’s a far cry from the economics Alnlyam was able to wring via its series of non-exclusive alliances with Roche, Novartis, and Takeda in past years. But for companies not named Agios or Regeneron, the value of platform technology deals has been trending steadily downward in recent years. FORMA has no desire to hitch its wagon to any one drug maker – and as such is trading off value for the ability to play the field. The Cambridge, MA-based biotech has raised approximately $50 million from its venture backers since its founding in early 2009 and inked numerous deals with a variety of partners, including Novartis, Cubist, and the Leukemia and Lymphoma Society. At this stage of the game, when there’s little appetite in the public markets for a high risk but interesting technology, the biotech needs multiple relationships with potential acquirers in order to set itself up for a robust M&A process. –Ellen Foster Licking

Image courtesy of flickrer MarkelConnors used with permission via a creative commons license.

BTG/Biocompatibles: 10p Now, or 48p Later?

At first glance this morning, news of BTG's planned acquisition of UK drug-device group Biocompatibles looked unremarkable, if sensible. It's worth £177 million ($282 million) in cash and shares, progresses BTG's well-documented aim of adding specialist pipeline and specialist hospital products (Biocompatibles sells chemotherapy-eluting beads, among other things), and is earnings-enhancing for BTG in its first full year. Cue those stock-phrases from the CEO; "high complementarity", "faster growth", "acceleration of our path to create a self-sustaining health care company".

Now, we know that these days, rare is the acquisition that comes without an earn-out element. It's still a buyers' market, and buyers like to reduce risk. So lo and behold, BTG's proposed deal includes a "Partial CVN Alternative" -- referring to Contingent Value Notes.

The deal sees Biocompatibles shareholders receiving 1.6733 new BTG shares and 10p in cash, valuing Biocompatibles at a premium of about 28% to its closing price prior to the announcement. But Biocompatibles shareholders can, if they like, forego the 10p cash element in exchange for a Contingent Value Note, worth €0.56/share (about 48p), linked to whether or not AstraZeneca exercises its option to license Biocompatibles' GLP-1 analog compound.

It appears, then, as if Biocompatibles' shareholders are being offered a choice to forfeit their 10p/share today in exchange for rights to the possibility of 48p/share tomorrow -- to pay for their CVN, in other words. That's interesting since most previous examples of CVRs or CVNs (it's all the same stuff, really), don't involve a price, as such.

BTG doesn't quite see it that way, though. This wrinkle in the deal (which is still, incidentally, only a board-recommended deal) resulted, they say, from Biocompatibles' (quite reasonable) demand that their shareholders, and they alone, be given the opportunity to share in the significant (€25 million) milestone payable by AstraZeneca if it options-in the program.

"We agreed a price for the business, but Biocompatibles felt that their shareholders -- and not those of the larger, combined group -- should benefit exclusively from the upside from this particular milestone, agreed in their deal with AstraZeneca ... because it's so near-term," explains a spokesman.

In other words, the CVNs in this deal are less about BTG's wish to push out its costs and mitigate risk, and more about offering Biocompatibles' stakeholders their deserved piece of the action down the line. 10p-today is an offer for the more risk-averse shareholders or those that want out, calculated "via risk-discounted NPV and a negotiation," says the spokesperson. (And these CVNs, unlike Celgene's Abraxane-linked ones in its deal with Abraxis, aren't tradeable.)

Per a Dec. 2008 deal, AZ can exercise its option on Biocompatibles' GLP-1 analog during a 90 day period after a fourth Phase I/IIa trial of the compound is complete, expected sometime around the end of 2011 or during the first half of 2012. If it does, it pays €25 million up front.

It might not, though. That's why the acquisition document includes five bullet points' worth of text as to why the payment may not occur, or what the downsides of accepting the CVNs could be. There are GLP-1s on the market, sure, and it promises to be a lucrative segment of the diabetes market. But other contenders have stumbled, and the program in development is a twice-daily GLP-1 that's not competitive in its current formulation.

Even those taking the 10p today will benefit if AZ does exercise its option, however: the Big Pharma will owe a further €37.5 million in pre-commercialization milestones, up to €256mm in sales milestones, plus royalties ranging from single digits up to the mid-teens.

DOTW: Fireworks

Ahead of the U.S.’s birthday celebration and the required playing of Stars and Stripes Forever and the 1812 Overture, biopharma dealmakers this week set off some fireworks of their own.
The biggest confirmed acquisition of the week was Celgene’s $2.9 billion take-out of Abraxis Biosciences, the developer of a novel nanoparticle-formulation of paclitaxel called Abraxane (see below).

Not to be outdone, Sanofi-Aventis may be getting ready for its own light show. On the eve of a long holiday weekend, Bloomberg reported the French drug maker was in discussions to acquire an unnamed U.S.biopharma company for $20 billion. Perhaps a Bastille Day announcement awaits? (Or maybe Viehbacher wants to ruin the holiday weekend for us hardworking stateside journos…)

IN VIVO Blog’s Magic 8-Ball rattled off a number of potential candidates, but none of them are perfect. Biogen Idec? Come on, why would Icahn Partners have gone to all that trouble to find a CEO it could work with? Vertex? Sanofi doesn’t have much of a presence in antivirals, but we suppose the Vertex offerings could be combined with the vaccines biz.

What about Allergan? Hmm...an intriguing possibility. It would bolster the company’s interest in ophthalmology and diversify Sanofi into devices. But with Allergan's $18 billion market cap, deal terms would need to be richer. It's unlikely to be Celgene for the same reason, though it would be a coup for Sanofi's recently created oncology business unit. Cephalon might be a fit but $20 billion or more would be an extremely generous premium. On the private side, what about Purdue Pharma, which has recently been presenting at investor conferences, perhaps as a prelude to an IPO or a sale?

With Sanofi’s aggressive diversification there are a host of consumer and generics players that could fetch a $15 billion to $20 billion price tag. And it’s not out of the realm of possibility that the drug maker is considering a diabetes device outfit, given its desire to become an end-to-end solutions provider.

We've all run enough things up the flagpole for today. Now it’s time to enjoy the stars and stripes with BBQs, fireworks, and IVB’s favorite beverage of choice, a cool Anchor Steam. As you enjoy the weekend’s pyrotechnics, here’s a review of this week’s firecrackers, sparklers, and rockets.


AstraZeneca/Medicines for Malaria Venture: Following recent Big Pharma deals with Pfizer and Merck to develop malaria vaccines, Medicines for Malaria Venture announced a tie-up with AstraZeneca June 28 under which the non-profit will get no-charge screening access to about 500,000 AZ proprietary compounds to see if they have potential as anti-malarials. The collaboration involves no upfront financials, but if MMV researchers identify compounds with promise, the two parties will negotiate terms for co-development, an AstraZeneca spokesman told "The Pink Sheet" DAILY. Not only does it want to help find therapies for malaria, but AstraZeneca also considers its work with MMV as a way to see compounds it has already discovered have potential outside of the clinical areas in which the pharma specializes, which is an echo of AZ's July 2009 tie-up with Alcon in ophthalmology. --Joseph Haas

Sanofi-Aventis/TargeGen: Sanofi has purchased privately-held TargeGen for $75 million upfront and another $485 million in milestones to gain access to the biotech’s Phase III myelofibrosis drug, TG101348. The upfront alone won’t provide an exit to TargeGen’s 10 venture capital backers, who invested a total of $110 million over four funding rounds. However, TargeGen CEO Peter Ulrich stressed in an interview with "The Pink Sheet" DAILY that none of the biobucks are pegged to post-approval achievements. For Sanofi, the June 30 transaction adds another promising asset to its oncology portfolio, which includes a Phase III PARP inhibitor for triple negative breast cancer developed by BiPar and the recently approved prostate cancer therapy Jevtana. In early January, the French pharma created an oncology business unit to streamline operations and allow the company to react more flexibly. It’s a move reminiscent of operational shifts undertaken by Pfizer, Novartis, and others. --JH

Arena/Eisai: Arena Pharmaceuticals won an early race against Vivus and Orexigen Therapeutics to find a commercial partner for its obesity drug candidate lorcaserin. All three companies are vying to bring the first new obesity drugs to the market in over a decade, with FDA action dates for the three drugs scheduled between October and January. Given uncertainties that range from benefit/risk balance to reimbursement challenges, Arena's ability to secure a partner ahead of its Oct. 22 PDUFA date is a coup. San Diego-based Arena announced a U.S. marketing and supply agreement with the Japanese pharma Eisai July 1, including an upfront payment of $50 million. Arena stands to earn another $90 million upon regulatory approval and the delivery of finished product for launch. In lieu of royalties, much of Arena’s potential downstream earnings from lorcaserin stem from supplying the drug to Eisai for a purchase price that will begin at 31.5% of annual net sales. In addition, Arena could receive a one-time purchase price adjustment of up to $1.16 billion based on annual net sales. The adjustment would kick in when sales reach $250 million and top out if revenues climb to $2.5 billion. -- JH

GlaxoSmithKline/Genmab: There are plenty of reasons for smaller biotech partners to keep co-development rights for their drug candidates, but saving cash in the near term just ain’t one of them. Genmab this week joined the list of biotechs that in retrospect -- and in the wake of clinical setbacks, management turmoil and restructuring -- bit off a bit more than they could contractually chew. On July 1, the biotech amended its co-development and commercialization deal with GSK around the anti-CD20 ofatumumab (Arzerra), an antibody in development for both autoimmune and oncology indications. GSK now takes over development and associated costs in autoimmune diseases, and Genmab will forfeit development milestones and its first two sales milestones in this therapeutic area. The two companies continue to plough ahead together in oncology, and the new deal terms call for GSK to pay £90 million up-front. Genmab’s financial contribution to the mAb’s oncology program will be capped at £145 million in total and £17 million per year for six years, starting in 2010. Considering the drug is being studied in upwards of 20 Phase II and Phase III trials, that cap is pretty low. As such, milestones due to Genmab on the candidate’s progress in oncology will be halved. The upshot: Genmab is sacrificing long-term upside for short-term financial considerations.--Chris Morrison

IBM/Roche’s 454 Life Sciences: The so-called third generation sequencers are getting their deal-making ducks in a row. Two weeks ago, Gen-Probe aligned with Pacific Biosciences, with the former paying $50 million in exchange for equity and an exclusive development collaboration. [In the original post, we incorrectly named PacBio's partner as being Life Technologies -- MR]]] Now IBM is handing off its nanopore-based real-time single molecule sequencing platform to Roche Applied Science’s 454 Life Sciences, which will fund continued development of the technology within IBM and add its own sequencing resources. Roche will develop and market all products based on the “DNA Transistor” technology, designed to pass a single molecule of DNA through a nanopore and read the sequence as it’s going through without the need for any chemical synthesis for analysis. The move is in keeping with 454’s goal of moving its own technology from research into clinical applications, as it and other developers validate their technologies and continue to drive down sequencing costs. We’ll be tackling the when and how the impact of sequencing will be felt in clinical practice in the July/August issue of IN VIVO.--Mark Ratner

Celgene/Abraxis: Celgene is acquiring Abraxane developer Abraxis Biosciences and planning an aggressive development and marketing push for the novel nanoparticle formulation of paclitaxel, with the aim of driving the drug's sales to $1 billion by 2015. The $2.9 billion cash and stock deal could be sweetened by milestone payments based on future Abraxane approvals in new indications. The acquisition certainly isn't a steal for Celgene. The company is paying a 17% premium over Abraxis' closing share price June 29. And Abraxane, approved for second-line treatment of metastatic breast cancer, is Abraxis' only marketed drug, generating just $314.5 million in 2009. Celgene sees significant future potential in Abraxane, and plans to re-energize the marketing strategy around the drug in breast cancer, while expanding into additional indications like first-line breast cancer, lung cancer and pancreatic cancer. In addition, Abraxis has five other drugs in development based on its proprietary nanoparticle albumin-bound technology platform. Celgene has been building its portfolio in an effort to expand beyond the multiple myeloma blockbuster Revlimid as part of its transition to a diversified biotech. (Remember that alliance with Agios?) If the Abraxis deal is finalized, it will be the company's third large acquisition in the past three years, coming on the heels of its purchases of Pharmion for $2.6 billion in cash and stock and Gloucester Pharma for up to $640 million in upfront cash and earn-outs.--Jessica Merrill

Sanofi-Aventis/Juvenile Diabetes Research Foundation: AZ wasn’t the only Big Pharma to team up with a non-traditional partner this week. On July 1, Sanofi announced an early stage collaboration with JDRF to fund novel approaches to combat Type 1 diabetes. JDRF will tap its network of researchers to help identify exciting science developed at universities and non-profits, and Sanofi will add its drug development skills to speed up the translation into real therapies. Financial terms of the three-year commitment were not disclosed, but the two parties have created a joint steering committee that will allocate grants in a streamlined fashion, according to Sanofi’s head of External Innovations and Partnering Sridaran Natesan. The arrangement is proof again that Sanofi takes diabetes seriously. Until early January, when the French drug maker created its diabetes unit, efforts were largely confined to marketing its long-acting basal insulin Lantus. Since January, however, the company has inked partnerships with glucose-monitoring company AgaMatrix and beta-cell regenerative biotech CureDM, as well as revised the terms of its alliance with Zealand Pharma in order to create a combination GLP-1/Lantus combo.--EL

Eli Lilly/Marcadia: Eli Lilly broadened its diabetes portfolio by licensing an injectable glucagon pen technology from Carmel, Ind.-based Marcadia Biotech, a startup whose founding management team includes several Lilly veterans. Glucagon can be injected to stave off hypoglycemic episodes and is typically included in emergency kits carried by diabetics. Current kits require several preparation steps, including mixing a powdered form of glucagon with a diluent, but Marcadia’s kits keep the glucagon in liquid solution at room temperature for easier delivery, similar to the epinephrine pens carried by people with severe allergies to prevent anaphylactic shock. Financial terms of the June 25 alliance weren’t announced, but Marcadia said it retained U.S. development rights to its technology, which is still preclinical. Lilly will develop the products outside the U.S. and retain rights to worldwide commercialization. Lilly currently leads the U.S. market in glucagon kits, while Novo Nordisk dominates elsewhere. We're watching to see if the Marcadia deal sparks interest in Marcadia competitor, Enject, which is working on a pen in which the powder and diluent are mixed just before injection.--Paul Bonanos

2009 Exit/Financing DOTY Nominee: Lundbeck/Ovation and the March of the CVRs

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a 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™.
We think what we'll do for this one is give you about 60% of this nomination post now, and if all goes well with the rest of the nominations and we hit certain targets--X thousands of votes, clicks and whatnot, then you'll get another 20%. If the nomination of Lundbeck's acquisition of Ovation wins, then you'll see another 10%. Of course to get the full nomination, you'll need those guys to provide a killer acceptance speech.

We think you see where this is going. You want the full monty, you gotta EARN IT.

Ah, the earn-out. Not new, for sure (though it seems to have a new, flashy name: contingent value rights [CVR]), but earn-outs were so common earlier this year that it was fair to wonder if they were now a de facto part of every biotech acquisition.

Lundbeck's acquisition of Ovation--our first nominee in the 2009 Exit/Financing DOTY category--boasted a biobucks figure of $900 million. No doubt there was a large down-payment ($600mm) but a substantial sum rested on the regulatory progress of Ovation's epilepsy drug Sabril.

And that's one of the reasons we chose Lundbeck/Ovation over a raft of potential CVR-laden deals (see, among others, Sanofi/BiPar, Sanofi/Fovea, CombinatoRx/NeuroMed, The Medicines Co./Targanta, Onyx/Proteolix, Alcon/ESBATech). We've got no word on whether Ovation's shareholders have received all or only some of that $300 million (GTCR invested $150 million in the company in 2002), but it seems quite probable that they got a fair chunk.

Sabril was approved by FDA in August with a REMS to help mitigate the risk of peripheral blindness, a known side-effect of the drug. So: the CVR-boosted deal structure was established to allow Ovation and Lundbeck to share the risk associated with that approval. The REMS itself was well-anticipated given the rocky history of the drug (which Ovation licensed in from Aventis in 2004) and Sabril is now on the market--second line for epilepsy and first line for infantile spasms, a condition for which the drug has Orphan designation. Folks, we have a winner.

CVRs ought to flourish in tougher economic times, as pharma can place more pressure to share risk on investor syndicates eager for exits. But these aren't usually the typical biobucks figures we're used to seeing tacked onto alliances or in-licensing deals. As Ovation's deal demonstrates, CVRs can be used to bring parties together around binary risk events like drug approvals or clinical trial success. In other words, earn-outs help smooth out differing views of product development or regulatory risk, and help deals get signed that otherwise might languish.

Why vote for this deal? For starters, CVRs aren't going away, even should biotechs become increasingly buoyant if/when public investor dollars return to the IPO scene. And we do hear rumblings that pharma might rather NOT do earn-out heavy acquisitions thanks to some accounting factors that mean they'd have to report future payments as liabilities.

But acquisitions will remain the favored VC exit. And we'd bet our crafty pharma-friends will find a way around those accounting issues, if they exist. And so instead, we'd suggest, get to know CVRs. Embrace them, even. A vote for Lundbeck/Ovation is a vote for the dominant biotech-pharma acquisition structure of 2009, and very likely a vote for the future of biopharma acquisition structures, too.