Deals of the Week: GSK's Stealth Move To The Coasts

GlaxoSmithKline is following some of its big pharma peers to key innovation hubs in the U.S. by opening satellite R&D centers in San Diego and Cambridge, MA.

When Johnson & Johnson opened its innovation center in Boston earlier this year, the company made a big to-do about the move and announced plans to fund two startups there. Pfizer, meanwhile, announced a significant $100 million investment through a collaboration with local hospitals and academic institutions when it anointed the Boston area the headquarters for its academic deal engine, the Centers for Therapeutic Innovation.

GSK, on the other hand, went in a different direction with its announcement, unveiling the move … via blog post. We couldn’t help but notice the difference in tactics and wonder if GSK’s decision to downplay the announcement reflects its ambitions for the satellite offices.  Whatever the reason, GSK clearly views the expansion as an evolution of its business development strategy, not a seismic shift in the way it approaches R&D.

GSK’s Damien McDevitt, VP Business Development, R&D Therapy Areas, will run the California center. He confirmed details in an interview Dec. 10. "These are both small virtual offices,” he said. “They are not large R&D centers by any stretch of the imagination.” The San Diego office will host about five to 10 scientists and the Boston office will have about 10 to 12, with a heavy emphasis on business development, he said.

"We have always had collaboration activities in these two locations, but what we haven’t had, at least on the West Coast, is a satellite office to be able to work more closely with all the groups we work with, including academia, venture and biotech,” he said. The company’s main U.S. R&D offices are located in Research Triangle Park, NC, and Philadelphia. GSK’s venture group, SR One, has offices in San Francisco and Boston. And its most recent venture effort, Action Potential Venture Capital, is headed by Imran Eba, who recently relocated to Cambridge to open up that shop.

GSK views its California and Boston R&D outposts as bridges to strengthen its existing relationships and forge new ones. A big focus, at least for the West Coast, will be on its partnership with VC firm Avalon Ventures. Earlier this year, the partners announced plans to fund 10 new single-molecule drug companies. Their first biotech, celiac disease drug developer Sitari Pharmaceuticals, was hatched with a $10 million Series A in November.

McDevitt said GSK and Avalon are aiming to establish at least three or four new companies by the end of 2014. But the new R&D centers won’t be solely focused on venture funding opportunities. They will be scouting new partnerships with academia and biotech, while also strengthening ties to existing partners. GSK has collaborations with some 22 West Coast partners, McDevitt pointed out.

GSK will be agnostic about therapy areas when it comes to new projects, and will consider both platform technologies and new products, with an emphasis on preclinical programs. Mostly, he said, the point is “keeping an open mind” and looking for breakthrough science. - Jessica Merrill

Our minds are always open, but we’re here to tell you when the deals are closed. With that in mind, here’s this week’s edition of...

Roche/Prothena: Prothena's new deal with Roche, worth $45 million in upfront payments and near-term clinical milestones and potentially up to $600 million to the biotech in the long run, gives it a major pharma partner that recently cited central nervous system diseases as a core R&D priority. In turn, Roche gets access to a synuclein antibody program that is ready for the clinic and has been guided by scientists who are world-class drug developers. The Dec. 10 deal revolves around PRX002, a Phase I-ready antibody that targets alpha-synuclein, believed to play a role in Parkinson’s and other neurodegenerative diseases. But it also gives the partners opportunities to collaborate on related conditions. Prothena is receiving most of the first tranche of $45 million from Roche up front, but a small portion of that amount will be a milestone payment when Prothena moves the drug into Phase I, an event that it expects will happen in the first half of 2014, said CEO Dale Schenk.  Prothena also has a no-cost option, which it can exercise prior to approval, to co-promote PRX002 in the U.S. Costs, revenues and profits will be divided 70-30 between the partners, with Roche assuming the larger burden and reaping the larger bounty. Prothena has been looking to out-license PRX002 in order to concentrate on some of the compounds it is targeting for diseases in smaller populations. Roche traditionally has been strong in central nervous system diseases, but, as with other parts of its business, it has moved away from large-population conditions treated largely by primary care doctors, such as depression, to more complex CNS disorders, treated by specialists.- Wendy Diller

Biogen Idec/Proteostasis: Already no stranger to Alzheimer’s disease treatments, Biogen Idec has licensed another program showing promise in neurodegenerative diseases including Alzheimer’s and Parkinson’s. In a Dec. 9 deal, the biopharma disclosed a new partnership with Proteostasis Therapeutics to study and develop therapeutics inhibiting the enzyme ubiquitin specific peptidase 14, or Usp14. It’s believed that blocking Usp14 modulates proteasome activity and thereby speeds up degradation of toxic proteins such as alpha-synuclein in Parkinson’s and tau in Alzheimer’s, potentially spelling a disease-modifying approach. The deal includes research funding and potential development and commercial milestones totaling $200 million, as well as tiered royalties. The partners will jointly pay for and conduct preclinical research to identify lead compounds for clinical development. At undisclosed, pre-specified development points, Proteostasis will have the option to receive milestones or exercise an option for global co-development and co-commercialization rights. In addition, Biogen Idec is making an equity investment in Protestasis of undisclosed size. Biogen Idec already has Phase Ib anti-beta amyloid antibody candidate BIIB037, which could be moved directly to Phase III as soon as 2015 if trial data are strong enough, SVP of Neurology Al Sandrock said at Deutsche Bank’s BioFEST Conference in early December.  Cambridge, MA-based, privately held Proteostasis is backed by HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund and Genzyme Ventures. - Stacy Lawrence

Retrophin/Kyalin/Novartis: Retrophin is making good on its plan to expand beyond its initial focus on ultra-rare diseases. On Dec. 12, it announced an agreement to acquire San Diego-based Kyalin Biosciences for an undisclosed sum. Kyalin’s lead asset carbetocin, a synthetic, nasally administered formulation of the hormone oxytocin, is in Phase I for symptoms of autism. On the same day, Retrophin made good on an August announcement that it would license in a drug to treat autism and schizophrenia from an unnamed major pharmaceutical company. The mystery licensor is Novartis, and the asset is Syntocinon (oxytocin), another synthetic, nasally delivered form of the same drug. Retrophin paid $5 million upfront plus undisclosed milestones and royalties for an exclusive U.S. license. Novartis had marketed the drug in the U.S. to assist with initial postpartum milk ejection, but discontinued it in 1997 for commercial reasons. The proceeds from a $25 million PIPE financing in August helped pay for the transactions. The licensing of Syntocinon also gives Retrophin a market-ready prescription treatment addressing a lactation deficiency for which there are no current therapies. Retrophin plans to re-launch it for that indication in the second quarter of 2014, providing an immediate, if likely small, revenue stream. As for the decision to double down on oxytocin, CEO Martin Shkreli said while Syntocinon is FDA approved, carbetocin is far behind in the clinic. “It might never be approved,” he said, “but it has superior qualities [to Syntocinon]. For instance, it’s longer-acting. So, there is a rationale to replace one with the other over time.” He added that there is a considerable amount of applied research and clinical experience behind the use of oxytocin in autism and schizophrenia. - Michael Goodman

GlaxoSmithKline/Inserm Transfert: Continuing a busy year of collaborations, the French National Institute for Health (INSERM) signed a worldwide licensing agreement Dec. 11 with GlaxoSmithKline to investigate the use of immune-checkpoint molecules in cancer treatment. GSK will pay Inserm Transfert, the tech-transfer subsidiary of INSERM, an undisclosed upfront fee with the possibility of development milestones and sales royalties. The pharma gets rights to develop and commercialize monoclonal antibodies that modulate the inducible T-cell costimulator (ICOS) protein, which offers the potential to enhance anti-tumor immune response. The agreement is part of a larger, long-term strategic alliance between INSERM and GSK. The collaboration “is making progress and illustrates a shared vision by GSK and Inserm Transfert that successful development of new drugs requires proactive action and alignment from both sides,” Inserm Transfert Executive VP, Head of Business Unit Open Innovation Augustin Godard said in a release. - Joseph Haas

Crealta/Savient: Start-up Crealta Pharmaceuticals will buy the gout drug Krystexxa (pegloticase) and other assets of troubled Savient Pharmaceuticals following an auction in bankruptcy court, the firms announced Dec. 11. Crealta will pay $120.4 million for the assets, marking its first significant investment toward becoming a specialty pharmaceutical company. Private-equity firm GTCR formed Crealta in August in partnership with Crealta’s CEO, Ed Fiorentino, and said it would invest up to $200 million to support the company. It’s the second company launched by Fiorentino and the PE firm. The two established Actient Holdings LLC in March 2009 and developed it into a diversified specialty pharmaceutical company through a series of five acquisitions, with GTCR providing a similar initial $200 million investment. Urology specialist Auxilium Pharmaceuticals acquired Actient earlier this year for $585 million upfront plus contingency payments. Now GTCR appears to be following a similar playbook in hopes of another successful exit, though turning around Krystexxa will take some effort. The drug was approved in 2009, but never achieved its perceived potential, challenged by Savient’s poor commercial planning and a market dominated by low-cost generic allopurinol. Savient never regained its footing after failing to sign a marketing partner for Krystexxa, and despite several leadership changes and a cost-reduction program, sales of the drug never led Savient into the black.- J.M.

Thanks to Flickr user ah zut for the lovely shot of one of our favorite coastlines, reproduced under Creative Commons license.

Deals of the Week Listens to The Rumor

“Now when the rumor comes to your town, it grows and grows. Where it started, no one knows. Some of your neighbors will invite it right in. Or maybe it’s a lie; even if it’s a sin, they’ll repeat the rumor again.”

Who’s Bayer going to buy? If you believe the Reuters story that crossed the wire Wednesday, three unnamed sources seem confident that the German company is about to spend billions of euros on a healthcare company, possibly within the next few days. And while Reuters’ sources didn’t name any names, some investors seem to think they’ve divined the answer -- or answers.

First, shares in Onyx Pharmaceuticals gained value abruptly after Reuters’ story was published, indicating that many believe the longtime Bayer partner and sometime legal adversary would be a fine fit. It’s certainly in the right price range: At the close of Thursday’s trading, Onyx’s market cap sat just above $3 billion, up about 8 percent since the story appeared. Judging by other recent premiums, Bayer would likely have to bid closer to $5 billion to buy Onyx outright.

And then on Friday, The Times (UK) reported that it was Warner Chilcott that would be on the receiving end of a Bayer bid. With a market cap juiced to $4.7 billion on the rumor, the derm and women’s health specialist also fits within the reported deal size range. Most of the company’s heft comes from its $3.1 billion 2009 buyout of Procter & Gamble’s pharmaceuticals business, which tripled its size and added to the portfolio some nearly off-patent assets, like Actonel and Asacol. The success of that transformative deal is debatable, particularly since Actonel successor Atelvia has had difficulty capturing significant share of the genericized osteoporosis market. As Warner Chilcott's price spiked following publication of the Times story, Onyx shares lagged, losing about 2% of their value in early Friday trading.

Bayer and Onyx already have a deep history together. The companies forged a discovery partnership in 1994 that led to the development of renal and liver cancer treatment Nexavar (sorafenib), now a $1 billion drug. As mutually satisfying as the arrangement might have been, Bayer raised Onyx’s ire by developing a slightly modified version, regorafenib, that’s currently in Phase III. Onyx filed a lawsuit in 2009, accusing Bayer of developing the molecule in secret and violating an agreement to share research related to Nexavar. The companies settled last fall as Onyx dropped the suit, instead taking 20% of regorafenib sales and signing away rights to the drug in Japan for $160 million up-front in a revised co-promote agreement with Bayer.

Much of Onyx’s future value is tied to carfilzomib, a Phase III proteasome inhibitor being studied in relapsed and refractory multiple myeloma. The drug is under standard review from the FDA; Onyx said Thursday that the agency’s Oncology Drugs Advisory Committee will review the drug on June 20, prior to its PDUFA date of July 27.

Multiple bidders could also be lining up for Onyx. The company was said to be exploring a sale last fall, according to a Bloomberg report. (Again, the sources were unnamed. “Could there be someone, someone here among this crowd…?”) Bayer waived change-of-control provisions connected with Nexavar as part of the companies’ settlement, making Onyx a more valuable target. Now, it’s in the driver’s seat: If Bayer wants to regain full control of the sorafenib/regorafenib franchise as well as carfilzomib’s future potential, it will have to pay top dollar for its longtime partner.

For whether this rumor proves true or false, Deals of the Week will be celebrating the life of The Band’s late drummer, singer, mandolinist and spiritual anchor, Levon Helm. Take a load off, Levon, we’ll miss you. We hope that we’re writing about cancer treatments that could save people like you. And so, with that in mind, here’s…

AstraZeneca/Ardea and AstraZeneca/The Medicines Co.: It was an eventful week for AstraZeneca, whose two deals were overshadowed by the abrupt departure of chief executive David Brennan on April 26. As the company reported an 11% year-over-year decline in revenues in the first quarter of 2011, Brennan retired -- or, perhaps, was forced to resign. And although AZ has been cutting costs, it's still willing to spend: the company will pay $1.26 billion, or $1 billion net of cash, for gout treatment developer Ardea Biosciences. The British pharma said April 23 it would pay $32 per share for Ardea, representing a 54% premium over the previous session's closing price. The deal gives it Phase III candidate lesurinad, which is thought to harbor potential to improve on both Takeda's Uloric (febuxostat) and the generic drug allopurinol. Even on its tumultuous Thursday, AZ revealed yet another partnership: The company has a new four-year agreement with The Medicines Co. to co-promote coronary drug Brilinta (ticagrelor) in the U.S. TMC will market the drug to interventional coronary specialists, while AZ will continue selling it to hospitals. The arrangement will net $15 million annually for TMC. – Joe Haas and Paul Bonanos

Watson/Actavis - Watson Pharmaceuticals Inc. will become one of the world’s largest generics companies with its roughly $5.6 billion acquisition of Actavis Inc. The deal, announced late on April 25, gives Watson a broad international presence in a fragmented sector of the pharma industry that is gradually consolidating as market share and global operations become critical to success. Once it closes in the fourth quarter, 40% of the combined company’s revenues will come from outside of the U.S. – up from 16% currently. The companies have minimal geographic overlap, with both present only in six markets, including the U.S., UK, Australia, France, the Nordic countries, and China. As a result of this diversification, Watson will be one of the leading generics suppliers in the UK, where Actavis already is second in the market, with 13% share of the generics market. It also strengthens Watson’s foothold in the Middle East, Northern Africa and the Asia/Pacific, which generate 5% of Actavis current sales of $2.5 billion. Watson will be financing most of the transaction with a combination of different kinds of debt, in the process raising its debt load to $6.8 billion, up from the current $1.1 billion. Wall Street greeted the deal, which has been rumored for weeks, enthusiastically. Not least in their calculations has been the obviously heavy involvement of Watson’s EVP, global generics, Siggi Olafsson, who was previously CEO at Actavis. His insight into the privately held Actavis, which is backed by Deutsche Bank AG after the billionaire owner Bjorgolfur Thor Bjorgolfsson lost money in the financial crisis, likely helped with due diligence. – Lisa LaMotta

Pfizer/Nestlé: Pfizer’s price of $11.85 billion for selling its pediatric nutritionals business to Nestlé came in at the upper end of what most analysts expected, reflecting the fierce competition among global infant formula players for opportunities in emerging markets. Nestlé managed to keep Pfizer Nutrition out of the hands of its competitors with a deal announced April 23. Morningstar analysts projected a price tag in the $9 billion to $10 billion range and suggested Nestlé went high with its offer to fend off rival bidders Danone and Mead Johnson Nutrition. The sale is the second major divestiture for Pfizer since Ian Read assumed leadership of the New York-based drug company in December 2010 and, responding to investor discontent, vowed to remake the company. After a strategic review, Pfizer in July 2011 announced plans to shed its nutrition and animal health units, to devote more resources to biopharmaceuticals. The company also raised its dividend and vowed to be more proactive in buying back shares. These moves leave Pfizer more vulnerable to the high-risk high-reward nature of biopharma drug development. Still, in an era where Big Pharma divestitures and spinouts are greeted warmly on Wall Street, investors have met them with largely positive reactions, in some cases calling for a complete break up of the company to unlock its stagnant value. Even now, Pfizer could go further, argues Goldman Sachs analyst Jami Rubin, who wrote that Read said in a recent meeting that he would be open to more divestitures under the right circumstances. Presumably he would think about Pfizer’s relatively small generics business as one potential candidate. Pfizer likely will use the proceeds from Nestle to buy back stock – potentially 373 million shares, UBS analysts estimate. The repurchase could increase Pfizer’s 2013 earnings-per-share growth by three percentage points, the Morningstar analysts added. – Dan Schiff and Wendy Diller

Celgene/Epizyme: In a deal announced April 26 (pdf), Celgene has taken a three-year option for Epizyme's unpartnered pipeline of histone methyltransferase targets, granting Epizyme U.S. rights to any programs it selects while splitting development costs post-IND. Celgene can extend the option to a fourth year for an additional fee. The deal includes a $90 million upfront payment, of which part is a minority equity investment, plus more than $160 million in ex-U.S. milestones on any program Celgene selects, as well as double-digit tiered royalties on ex-U.S. sales. Celgene also purchased rights to Epizyme's lead program focused on DOT1L, an oncogenic HMT whose aberrant recruitment drives mixed lineage leukemia, a particularly lethal subtype of acute leukemias affecting as many as 5,000 patients annually in major markets. Celgene also has the right to appoint a voting member to Epizyme's board. It's the latest close collaboration between Celgene and a high science company, and caps a hectic 15 months of dealmaking for Cambridge, Mass.-based Epizyme that has included deals with GlaxoSmithKline and Eisai as well. It's also a sign of maturity in the epigenetics sector, as money and interest move away from the problematic histone deacetylase inhibitor drug class and toward HMTs, which are more biologically selective. HMTs also have applications in immune-inflammatory conditions, a primary therapeutic focus for Celgene. – Michael Goodman

Amgen/Mustafa Nevzat: On April 25, Amgen continued its push into emerging markets by spending $700 million for Turkish pharma and generics supplier Mustafa Nevzat Pharmaceuticals. Amgen acquired 95.6% of Mustafa Nevzat shares in the all-cash deal, giving it control of a company that had about $200 million in 2011 revenues. The California biotech already had established a Turkish affiliate in 2010. It currently markets two products there, and had stated a goal of selling more drugs from its pipeline in Turkey. Mustafa Nevzat was said to be entertaining proposals from multiple suitors over the past few months, although prior reports suggested that it was mulling the sale of a minority stake rather than a complete takeover. Though the deal is a rich one for Mustafa Nevzat, the price will have a relatively small impact on Amgen's balance sheet; the company had $19.4 million in cash and equivalents as of March 31. Amgen's sales in emerging markets were $250 million in 2010, and the company said it wants to reach $1 billion by 2015. – P.B.