DOTW Looks At How 2013 Biotech Deal Stats Stack Up After Amgen/Onyx

Quick! What's large and vanilla and a late summer treat?

It’s the last week of summer, and while one might expect business development pros would have turned on their out-of-office auto-replies, the drug industry’s execs were too busy closing deals to be bothered with the beach or other lazy summer pursuits.

We should have known biopharma’s summer had ended early the moment Amgen Inc. and Onyx Pharmaceuticals Inc. announced they had finally negotiated a takeover Aug. 25, before the market even had a chance to wake up Monday morning. The deal left us wanting in some regards: no cliff hangers, juicy tidbits or surprise white knights emerged. But while nothing about Amgen’s acquisition of Onyx astonished (not the buyer, the seller, the rationale or even the final $125 per share purchase price, which ultimately landed squarely in the middle of where most industry watchers thought it would), biotech mega-deals just don’t happen every day.

We couldn’t help but get excited about it, especially wondering how significantly the addition of Onyx will impact Amgen's ambition of becoming a leading oncology player.

The acquisition price of $10.4 billion makes Onyx Amgen’s largest acquisition in over a decade. The amount is $800 million less than the staggering $11.2 billion Gilead Sciences Inc. paid for Pharmasset Inc., a deal that had everyone talking in 2011.

Unlike Onyx, Pharmasset had no commercial products, but presented an opportunity to transform Gilead with its potential best-in-class hepatitis C drug. Onyx may not end up being as transformative to Amgen’s top-line over the long-term as Pharmasset could be to Gilead, but the merger is still a notable moment in biotech and it will go a long way toward raising the industry’s 2013 merger stats, which were stark before high summer kicked into gear.

In addition to Amgen/Onyx, the busy summer deal sweep included two biotech acquisitions by Cubist Pharmaceuticals Inc. in the antibiotic space and Perrigo Co.’s takeover of Elan Corp. PLC. Those four deals gave a significant boost to the 2013 tally of U.S. public biotech acquisitions, which was in a drought for the first six months of the year. All-in-all, six U.S. public biotech acquisitions with a value over $100 million have been announced in 2013; four of those took place in July and August, according to Elsevier’s Strategic Transactions database. In comparison, there were a total of seven U.S. public biotech take outs announced in 2012 and six in 2011.

The hefty values of Amgen/Onyx and Perrigo/Elan lifted the average deal value in 2013 to $3.51 billion, well above the average deal value of $2.07 billion seen in 2012. Excluding those two mega-deals, however, the average deal value through August would be a comparatively meager $592.5 million. The four remaining biotechs that have been acquired play in niche commercial markets like antibiotics (Trius and Optimer) or fish oil (Omthera).

In comparison, of the seven acquisitions announced in 2012, five were valued at over $1 billion, reflecting more acquisitions in broader commercial markets like cancer, diabetes and autoimmune disease.

The summer may be winding down, but the last few months of the year are always a busy time for deal-making. There is sure to be more industry consolidation on the way, perhaps even Bristol-Myers Squibb Co. will buy Shire PLC. Just wait until after Labor Day weekend, okay? -- Jessica Merrill

Lilly/Zealand: Zealand Pharma AS has entered into a research and development agreement with Eli Lilly & Co. to design and develop potentially novel therapeutic peptides for Type 2 diabetes and obesity that the U.S. drug maker has discovered. The Danish group and says the collaboration could last more than 15 years and may eventually expand to other disease areas. Under the multi-target collaboration, announced Aug. 29, 2013, the duo will share in the funding, risk and reward of the program. No clinical details were given nor financial terms disclosed. But Zealand’s CEO David Solomon said the peptide therapeutics the two will be exploring are not glucagon-like peptide-1 (GLP-1) agonists, nor sodium glucose co-transporter 2 (SGLT-2) inhibitors, nor a dipeptidyl peptidase-4 (DPP-4) inhibitors, but rather a potentially whole new class of diabetes treatments. It’s the latest in a number of partnerships that the Copenhagen-based biotech has with Big Pharma. Eli Lilly said their project will revolve around a novel peptide hormone-based approach that its scientists discovered and which has the potential to lower blood glucose as well as body weight. -- Sten Stovall

Endo/Boca: It’s not a big surprise that Endo Pharmaceuticals Inc.’s first business development play under its new leadership was on the generics side. New CEO Rajiv de Silva has been talking up the company’s existing generics business Qualitest as an important growth driver as its branded business confronts generic competition. The company announced plans Aug. 28 to acquire mid-sized generic manufacturer Boca Pharmacal for $225 million. Qualitest is known for its strong capabilities in controlled substances. It leads the U.S. market in liquids manufacturing and was the sixth largest generics company in the country at the end of 2012, according to IMS Health. Florida-based Boca will add to the portfolio with generic forms of products like low-strength generic form of the hydrocodone drug Xodol. The company also produces generics of the inflammatory pain reducer Disalcid (salsalate) and the anti-anxiety medication Xanax (alprazolam). Endo will need to deliver more business development deals if it is to make up the revenues that will be lost from sales of its best-seller, the pain patch Lidoderm (lidocaine), in September. -- Lisa LaMotta

Akorn/Hi-Tech Pharmacal: Continuing the theme of generic consolidation, ophthalmology-focused Akorn Inc. announced plans Aug. 27 to increase its portfolio, pipeline and manufacturing capabilities by purchasing Hi-Tech Pharmacal Co. Inc. for $650 million. The deal will bring a broad range of generic, prescription and over-the-counter products, including eye drops, and render Akorn the third-largest generic ophthalmology drug firm in the U.S. CEO Raj Rai predicted the acquisition would increase the specialty pharma’s annual revenues to above $500 million, be immediately accretive and yield run-rate synergies of between $15 million and $20 million within 12 months of closing. Akorn reported sales of nearly $151 million for the first six months of 2013. The purchase price amounts to $43.50 per share for Hi-Tech, a 23.5% premium over its closing price on Aug. 26. Akorn says it will fund the purchase with cash and about $600 million in borrowing. The deal is small compared to some recent ophthalmology transactions. Most recently, Valeant Pharmaceuticals International Inc. grabbed headlines in late May with an $8.7 billion debt-and-equity deal to purchase ophthalmology giant Bausch & Lomb Inc. -- Joseph Haas

MedImmune/Amplimmune: Integrating Amplimmune Inc. into AstraZeneca PLC’s MedImmune LLC subsidiary shouldn’t be too much of a headache. The companies are neighbors in a Gaithersburg, Md., office park. Maybe it was only a matter of time before this deal got done. AstraZeneca, vaulting for a business turnaround, has been on a quest to fix its problems through business development. Its acquisition of Amplimmune for $225 million, announced Aug. 26, will bring the company an anti-PD-1 antibody for cancer nearly ready for the clinic. Privately held Amplimmune’s shareholders also could earn up to $275 million in development milestones as part of the transaction, expected to close during the third quarter. The milestones mainly will be tied to AMP-514, which should be ready for an IND filing in October. The acquisition offers a healthy return on investment for Amplimmune’s shareholders. The company was founded in 2007 with a $20 million Series A round from InterWest Partners LLC and the Wellcome Trust. Since then it has financed its operations with a pair of deals. In 2010, it got $23 million upfront from GlaxoSmithKline PLC for exclusive worldwide rights to AMP-224, an Fc-fusion protein of the B7-DC ligand now in Phase I/II study in cancer. Earlier this year, the biotech licensed the Phase I-ready B7-H4 fusion protein AMP-110 for autoimmune indications to Japan’s Daiichi Sankyo Co. Ltd. for an undisclosed option fee and research funding. AMP-514 is the key to the transaction, but MedImmune also values Amplimmune’s preclinical molecules targeting the B7 pathways. -- J.H.

Sangamo/Ceregene: Gene therapy developer Sangamo BioSciences Inc. is strengthening its expertise in the field with the addition of Ceregene Inc.’s adeno-associated virus technology platform. The company announced plans to acquire Ceregene in a stock transaction Aug. 26; Sangamo will issue 100,000 shares to Ceregene shareholders. Sangamo has also agreed to pay milestone payments related to the two Phase II programs that Ceregene brings. The lead program, CERE-110, uses AAV technology to deliver nerve growth factor (NGF), a naturally occurring protein that maintains survival of nerve cells, to the region of the brain that contains the majority of cholinergic neurons. The goal is to restore and preserve nerve function in an area of the brain thought to play a significant role in cognitive function and memory in patients with Alzheimer’s disease. A Phase II study of the drug is expected to report out in 2014. -- L.L.

Chiesi/Zymenex: With the ambition of building a standalone rare disease business, Italy's mid-sized pharma Chiesi Farmaceutici SPA will acquire Danish biotech Zymenex AS, the firms announced Aug. 26http://www.sunstone.eu/wp-content/uploads/2013/08/Chiesi-Sunstone-press-release-2013-08-261.pdf. The Parma-based company already markets medicines for cystic fibrosis and neonatal lung disease, and last month became pioneers in the marketing of gene therapy products in Europe by licensing uniQure BV’s Glybera (alipogene tiparvovec). The company’s interest in Zymenex lies in its recombinant enzyme replacement therapy Lamazym (rhLAMAN), which is being studied in a 25-patient Phase III trial for the treatment of the ultra-rare lysosomal storage disease, alpha-mannosidosis. The experience of Zymenex's researchers in developing other rare disease drugs could be useful to Chiesi's continuing push into the sector. In 2008, Zymenex sold a Phase II enzyme replacement therapy, Metazym (arylsulfatase A), to Shire for $135 million. Although the financial terms of the current deal were not disclosed, Zymenex’s majority shareholder, Danish VC firm Sunstone Capital, undoubtedly welcomed the opportunity to make a further return on its investment. -- John Davis

Meda/Acton: Swedish specialty pharma Meda AB is buying Acton Pharmaceuticals Inc. to get the privately held group’s Aerospan inhaler for treating asthma, approved by FDA in September 2012 and poised – pending satisfying further manufacturing requirements – for a U.S. launch in early 2014. Meda, which describes itself as the world’s 50th largest drug company, is paying $135 million plus a potential milestone payment of $10 million and royalty based milestones to buy the Marlborough, MA-based company. The Swedish group has its own respiratory portfolio and views Aerospan, which contains the active substance Flunisolide, as a promising addition in its quest for share of the $2 billion U.S. market for inhaled mono-corticosteroid asthma products. Meda aims to close the takeover by the end of 2013, and predicts Aerospan under its guidance will generate at least SEK2 billion ($300 million) in revenue within five years. A respiratory-focused development company with no products yet on the market and only nine employees, Acton was founded in 2008 and is owned by private equity group Sequoia Capital and the group’s executive management. A perpetual licensing agreement with Forest gives Acton exclusive global rights to develop and market Aerospan. Acton also has exclusive U.S. rights to Sanofi’s FDA-approved aerosol nasal allergy treatment Nasacort HFA (triamcinolone acetonide). Neither Meda nor Acton would comment on what the takeover of Acton would mean for that arrangement. -- S.S.

Teva/Rexahn: It appears Rexahn Pharmaceuticals Inc.’s solid-tumor therapy RX-3117 is at least one casualty of new leadership and changing priorities at Israel’s Teva Pharmaceutical Industries Ltd. The two companies terminated a 2009 collaboration centered around the drug after Teva declined to exercise its option on the product. Rockville, Md.-based Rexahn now has all rights to the compound, which inhibits DNA and RNA synthesis and induces apoptosis. Teva submitted an IND for the drug last month, as dictated by the now-defunct partnership’s terms. Teva said RX-3117 no longer fits its oncology strategy, despite harboring some potential. The decision is in line with statements Teva’s new CEO Jeremy Levin has made about narrowing Teva’s focus in oncology. Teva made an up-front payment of $3.5 million to Rexahn in the form of an equity investment four years ago, then made multiple equity investments over the course of the partnership as RX-3117 advanced through pre-clinical trials. It had acquired an equity stake of 6.3% by July 2013. Teva also unwound a four-year-old biosimilars agreement with Lonza Group Ltd. last month. -- Paul Bonanos

flickr image courtesy Chiot's Run under creative commons license. Holy ice cream headache, batman.

Financings of the Fortnight Tries to Beat the Summer Heat

First, the good news. We had our favorite scrumptious local ice cream treat to finish off lunch today. You really should try one. (Not the one pictured above, but it's still good. Trust us.)

Wait, there's other good news: venture capitalists invested $1.24 billion in biotech in the second quarter of 2011, a 46% jump from the previous quarter. It's the highest quarter since... since....! Well, since the 2nd quarter last year ($1.37 billion). So, it "bounces back" from what, exactly? Even the dismal year of 2009 had a similar figure, $1.19 billion raised in the fourth quarter. It's a nice short-term bump, but not necessarily the breakthrough everyone's looking for.

[UPDATE: DowJones VentureWire released its VC numbers the day after this post went up. DJVW tallied $1.1 billion raised by biotech, up 36% from the first quarter. The different numbers are nothing new for the dueling data houses. FOTF tried to find an explanation last summer.]

Further clouding the picture (a.k.a. the bad news) is a second set of venture data released by the National Venture Capital Association: the previous quarter saw the lowest number of venture funds raising cash since 1995. Welcome to the shakeout. The number of venture dollars raised has decreased every year since 2007, down to last year's $13.3 billion, but larger inflows per firm this year have so far added up to $10.2 billion raised. The take-home lesson: VCs might be folding up shop, but those who remain are attracting more cash.

That's across all industries. NVCA and its survey partner Thomson Reuters don't break out fundraising by sector. For a little more color, though, we've got a treat for you. You can put it between oatmeal cookies and dip it in chocolate if you wish.

Our colleagues have recently updated what we call the "gas-tank" chart: Which life-science VCs are revving for a refill, and which are running on empty. It's coming soon to a START-UP magazine near you, but FOTF got a sneak peek. Since our last gas-tank update in July 2010, several firms have raised new funds (Advent Venture Partners, Avalon Ventures, Third Rock Ventures), while others listed as running low last summer are again pounding the hot pavement, stumping for cash. For example, Sofinnova Ventures is trying to match its vintage-2006 $375 million fund. Our European colleagues have noticed the stirrings, too.

But no matter how much we equate shoe leather with optimism, there's no getting around the shakeout. Everyone thinks the life-science VC sector will shrink in the next three years. Trust us, we've asked. (And you'll see the results in an upcoming issue of START-UP.)

As we love to remind you, not all venture capital is distributed equally. Call us bleeding-heart wasteful-spending underdogs, but we love to see the new ideas and emerging science get funded, so when we see a slight recovery in Series A rounds in the first half of 2011, as noted in our previous column, we think hey, maybe this time the good news outweighs the bad news. It might not be a massive hot fudge sundae, but it could be a little cherry on top. Or if you prefer, life is far from parfait, but once in a while you get your just desserts. Loosen your waistbands, everyone, it's time for a heaping helping of...


Essence Group: Healthcare services holding company Essence Group Holdings completed a $61 million round of funding that included contributions from private equity firm Camden Partners Holdings of Baltimore and blue-chip Silicon Valley VC Kleiner Perkins Caufield & Byers. It’s the latest large funding in the healthcare IT sector, an area that has attracted increased attention and investment since the passage of the Affordable Care Act last year. It also follows KPCB’s 2009 investment in employee health incentives start-up Red Brick Health. For Essence, it’s nominally a “Series 2” round, following a recapitalization of several previous rounds as a “Series 1." According to a company spokesman, the funding brings Essence’s private investment to more than $120 million. Previous rounds had included numerous individual investors, including KPCB partner John Doerr. Essence will use the funds largely to support marketing of its Lumeris subsidiary’s TackleBox software, a cloud-based collaborative communications system for accountable care organizations that includes clinical and financial outcomes management and decision support capabilities. St. Louis-based Essence also operates its own health plan, while a third subsidiary, ClearPractice, is a vendor of electronic medical records and revenue management software package for small physician groups. -- Paul Bonanos

Coronado Biosciences: Forgive us the easy pun, but Coronado, based in New York City, hopes to worm its way onto the public markets via a Form 10 filed on July 15, which effectively registers its private shares as common stock. The firm's lead therapy, not yet in the clinic, is made of the microscopic eggs of the parasitic pig whipworm and meant to treat autoimmune disorders. If the FDA allows the IND, the first test will be in Crohn's disease patients. The treatment is based on the "hygiene hypothesis" that modern humans, especially in developed countries, have cleansed their environments too well. Parasites like Trichuris suis -- which only briefly colonize humans before being flushed out-- are in fact necessary immune-system triggers. Without them, Coronado believes, we don't have the proper T-cell regulation, leading to autoimmune diseases, in the gut and elsewhere. Coronado says it plans to file an IND in the third quarter and complete a Phase I dose-escalation study by end of year. Its second candidate, slated for the clinic next year to test against acute myeloid leukemia, is a lysate that activates natural killer (NK) cells. Founded in 2006, the firm has racked up $43 million in losses. The Form 10 is the first step to making its shares tradeable, but there's no guarantee Coronado will win a listing on a major exchange. It does not intend to hold an underwritten IPO, according to its Form 10 filing. Coronado acquired regional rights to the worm treatment earlier this year as part of its acquisition of Asphelia Pharmaceuticals. That came on the heels of a management overhaul, in which its CEO and CFO were let go, but not before collecting $860,000 and $700,000 in compensation for 2010. -- Alex Lash

Merrimack Pharmaceuticals: Oncology drug developer Merrimack hopes to become the latest pharma to reach the public markets. The Cambridge, Mass.-based company filed paperwork with the SEC for an IPO potentially worth $172.5 million in the coming months, which would bring liquidity to a large and diverse investor group that has supported the start-up since its inception in the 1990s. The offering’s proceeds would support ongoing development of a pipeline whose most advanced drug is just reaching Phase III, a reformulation of the chemotherapy agent irinotecan dubbed MM-398, intended for use in metastatic pancreatic and gastric cancer patients who did not respond to Eli Lilly’s Gemzar (gemcitabine), the standard of care. MM-398 is slated to enter Phase III trials in the fourth quarter and will be compared to fluoruoracil and leucovorin. Merrimack already reaps licensing revenue from a partnership with Sanofi around its antibody MM-121, for which the pharma paid $60 million upfront for worldwide rights in 2009. Merrimack has raised more than $250 million to date, much of it in recent years. It now counts large funds affiliated with Fidelity Investments, Credit Suisse First Boston, and TPG-Axon among its top investors. The firm has four compounds total either in the clinic or soon to enter, and says it's also developing companion diagnostics for each compound. Despite near-record activity in IPOs in the month of July, the only biopharma firm slated to go public soon is Horizon Pharma, which has one pain-killing drug recently approved and another nearly ready for marketing application.-- P.B.

SARcode Biosciences: The San Francisco Bay Area ophthalmology company hopes there's not a dry eye in the house after its latest cash infusion, a $44 million B round led by Sofinnova Ventures. The firm plans to use the money to push forward development of its lead compound, a nonsteroidal anti-inflammatory small-molecule antagonist of the integrin lymphocyte function-associated antigen-1 (LFA-1) to treat dry eye. Dry eye is caused by a number of factors, including age, menopause, environmental factors, medications, certain diseases like diabetes, and even prolonged staring at a computer screen. (Uh-oh.) SARcode plans to begin the first of two Phase III trials later this year and to report data in June 2012, and CEO Quinton Oswald told "The Pink Sheet" this week that his troops might bring it to market and sell it without a partner. He said 100 to 120 sales reps could market it to ophthalmologists. Oswald was previously an executive at Roche Holding's Genentech, where he helped launch Lucentis (ranibizumab), a commercially successful macular degeneration drug with sales of $2.9 billion in 2010. The new round included new investor Rho Ventures, as well as returning investors Alta Partners and Clarus Ventures. The round closed July 14 and should fund the company through 2012.-- Lisa LaMotta

Image courtesy of flickrer infowidget via a Creative Commons license. Mmm.