Deals of the Week Takes Stock in M&A

Here at Deals of the Week, we don’t often take note explicitly of buyouts outside the biopharma sphere. But one well-publicized tech deal last month piqued our interest – and it parallels another recent pharma deal in a way we found curious.

As you may have heard, social networking giant Facebook wowed the tech field with its February takeout of smartphone communications app developer WhatsApp for a jaw-dropping $16 billion plus an additional $3 billion in employee-retention bonuses, reportedly the largest-ever acquisition price for a private, venture-backed company. (We’ll note in passing that one of the deal’s biggest winners, venture firm Sequoia Capital, is also a life sciences investor.)

Now, $19 billion is a lot of scratch – it’s a bigger pile of cash than the gross domestic product of Jamaica, and it’s in the ballpark of the price Sanofi paid for Genzyme in 2011. But a closer look at the WhatsApp deal’s terms reveals that Facebook paid just $4 billion in cash – a quarter of the deal’s baseline value – and the balance, including the retention bonuses, in its somewhat volatile stock. It’s a common formula in tech, a sector in which speculative value far outpaces revenue in many cases.

In the biopharma world, such arrangements traditionally are unheard of – but that might be changing. While many pharma mega-deals include both cash and stock components, most feature bigger cash portions than paper value. Just over a third of the $68 billion Pfizer spent to acquire Wyeth in 2009 was in stock, with the rest coming in cash; Johnson & Johnson’s $21.7 billion deal for Synthes in 2011 was in the same league, weighted roughly 65%-35% in favor of cash.

That’s why Actavis’ pending $25 billion deal to acquire Forest Laboratories last month was so unusual. Actavis paid just $26.04 per share, or 29% of the total $89.48-per-share purchase price, in cash, and swapped its stock for the rest. So there’s financial risk involved: If Actavis shares fluctuate, the deal’s total value could go up or down rapidly, perhaps before it even closes. (We note that the Facebook/WhatsApp deal technically gained more than $600 million in value before it was even announced, since its stock component was based on an already-outdated five-day average of Facebook’s share price.)

It’s not the first mega-buyout to favor equity over the hard stuff; Merck’s $42 billion buyout of Schering-Plough was tilted slightly in favor of stock over cash, with 56% of the price paid in equity. But rarely are large pharma deals ever consummated with paper value vastly outweighing cash money; it’s even less likely with smaller deals. A search of our Strategic Transactions database of reveals that only about one in 10 biopharma deals since 2008 falling into the “bolt-on” range – those ranging from a few hundred million dollars to a few billion – had a stock component.

Some life sciences companies, particularly those living off their sunny growth prospects rather than established, dividend-paying, cash-rich ones, soon could find that their stock is becoming a valuable deal-making currency. And with biotechs soaring in the public markets, some of them look like good candidates for stock-heavy deals. Like Actavis’ stock price, the Nasdaq Biotechnology Index has doubled since November 2012. Emilio Ragosa, a partner with Morgan Lewis & Bockius’ mergers-and-acquisitions practice, said mid-cap biotechs – those valued around $1 billion – are in the sweet-spot. “They tend to have less cash, but their stock is appreciating more rapidly,” he said.

Big biotechs and specialty pharmas, responsible for most of the M&A deal-making action in 2013, are enjoying exceptionally high valuations, but don’t always have big pharma-like cash flow. They’re good candidates to use their strong stock prices to beef up their businesses without denting their cash piles severely.

It’s unlikely that big pharmas will change this aspect of their deal-making strategies much; as Ragosa notes, “They have enough cash on their balance sheets.” Ever sensitive to their quarterly earnings, most large pharmas will continue to avoid using stock to take out biotechs. Seven of the top 50 cash holdings among U.S. companies belonged to pharmas, according to a 2013 Moody’s report; six were sitting on double-digit billions, led by Pfizer. - Paul Bonanos

Transactional activity has been as slow as a snowy Interstate lately, but we’re still taking stock of the latest alliances in...

Biogen/Eisai: Biogen Idec teamed up with Japanese pharma Eisai on March 5 to potentially co-develop and co-commercialize four compounds for the treatment of Alzheimer’s disease. While specific financial details weren’t released, Biogen will pay Eisai an upfront payment of undisclosed size, as well as a fixed number of milestones based on development, regulatory and commercial events. The team also will split worldwide profits on the drugs should they reach the market. Eisai will take the lead on the first two compounds, which it will provide. The first is a beta-site amyloid precursor protein cleaving enzyme (BACE) inhibitor dubbed E2609; Eisai discovered the compound in-house, and is about to begin its Phase II trials. The second monoclonal antibody, BAN-2401, is already in Phase II trials; it’s an immunotherapy designed to break down beta amyloid plaques after they develop. Eisai also has the option to jointly develop and commercialize Biogen’s two in-house Alzheimer’s candidates, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody, both of which are in very early stages. The BACE inhibitor space has been heating up as Merck pushes its candidate into Phase III and AstraZeneca follows closely on its heels. Both Roche and Lilly have ended programs in the space after safety signals cropped up in clinical trials. There hasn’t been any proof so far that the safety issues are class-wide, but the industry is keeping a close watch for any signs. - Lisa LaMotta

Genocea/Harvard/Dana-Farber: Fresh from its initial public offering last month, vaccine specialist Genocea Biosciences struck a research deal with Dana-Farber Cancer Institute and Harvard Medical School to study cancer immunology. Under the March 5 alliance, researchers will use Genocea’s proprietary T cell antigen discovery platform to find antigens that correlate with an anti-tumor immune response in melanoma patients. Charitable scientific network Ludwig Trust will sponsor the research; terms weren’t released. The research will play off existing work by Dana-Farber’s Stephen Hodi and Glenn Dranoff in anti-CTLA-4 therapies such as Bristol-Myers Squibb’s Yervoy (ipilimumab). Harvard microbiology and immunobiology professor Darren Higgins will lead the development of a cancer antigen protein library, which will be screened against patient-derived cells using Genocea’s platform in order to seek a correlative immune response. After an initial lukewarm reception, Cambridge, Mass.-based Genocea shares have rebounded, rising more than 50% since the company’s February 5 debut. The company is best known for its clinical pipeline of anti-infective vaccines, including therapies and preventive treatments for herpes simplex virus-2, pneumococcus, chlamydia and malaria. Its most advanced program is GEN-003, a Phase II therapy for HSV-2. - P.B.

NeoStem/Massachusetts Eye & Ear/Schepens: Cell therapy developer NeoStem also inked a deal with some of Harvard Medical School’s tentacles, entering a research collaboration March 6 with Massachusetts Eye & Ear and the Schepens Eye Research Institute. The publicly traded, New York-based stem cell company will sponsor research by Michael Young, director of Mass. Eye & Ear’s ocular regenerative medicine institute, into various eye disorders; financial terms were not revealed. The deal will fund Young’s research using NeoStem’s proprietary very small embryonic-like stem cells, or VSELs. The scientist will perform preclinical work to find uses of NeoStem’s VSEL products to combat degenerative disorders such as retinitis pigmentosa and macular degeneration. Both Mass. Eye & Ear and Schepens are Harvard Medical School affiliates. NeoStem previously has used its VSELs clinically as wound-healing therapy and to treat periodontitis; the company also has targeted cardiovascular diseases and autoimmune disorders. The eye also has been a popular target for gene therapies, thanks to its closed system and immune-privileged status. That has led to several recent fundings of companies with preclinical and clinical-stage programs. - P.B.

Thanks to Flickr user ProAeroPhoto for his photo of a different way to trade cash for stock, reproduced here under Creative Commons license.

What Is the Buoyant Biotech IPO Scene Doing to Private Biotech M&A Trends? FOTF Says: Not Much

Despite a slight slowdown, there's considerable cash already sloshing around the biotech IPO space. There's (still!) plenty more stacked up in investor suitcases from California to the New York Island just waiting to back anything with a pulse. The momentum is here! This land grab is your land grab!

All of which should mean that biotech boards weighing exit options the past year or so have had choices that didn't exist for most companies in the preceding four or five years. Remember the lean times? The doldrums? You don't?

That revived optionality should translate into fewer companies agreeing to pharma takeovers. For the ones that do opt for the warm embrace of a bigger drug company, it should also translate into leverage. Those biopharma start-ups that choose to pull the M&A exit cord should be driving better bargains. But data we compiled from Strategic Transactions suggests neither is true. At least not yet.

It's worth remembering that even during the coldest days of the Biotech Winter, when asset prices were at their most depressed, pharma companies flush with cash didn't really go on a shopping spree. Volume of private biotech M&A never really spiked. We reported that in 2009, and it pretty much held true the next few years. Why? Assets were cheap, but pharma was picky. Prices slackened a bit, and it won't be surprising if they tick up now as biotech booms (despite this week's hiccup among the larger issues). But volume has stayed fairly constant.

In fact, the roughly two dozen private biotech M&A deals from 2013, compared with the past five years or so decade of data, slots in at just about average. Part of this might be due to company building strategies, born or embraced in the lean years, that emphasized capital efficiency, single-asset structures and baked-in-buyouts. Those were good ideas for the lean years, and they're still good ideas for these times-o-plenty.

Now, what about prices? Data is of course limited; not every acquired company discloses a price tag, and absolute values tend to be worthless unless you know how much money went into the target prior to a deal. Instead, we looked at step-up multiples, and by-and-large, those haven't changed much either.

Instead, up-front deal values on average have bounced around the 3x line for quite a while, and that's roughly in line with, and perhaps a a bit better than, the average pre-money to post-money step-ups we've seen in the biotech IPO space. But acquisition multiples are where we've heard, anecdotally, that things may be changing. So long as biotechs have the kind of optionality that public investors provide - i.e. not just getting onto the market but raising enough cash to have a credible alternative to a pharma partnering deal or outright acquisition - those upfronts might start sliding up. Or perhaps, instead, biobucks that are locked-up in earn-out payments will become easier to attain.

Speaking of optionality we know you've got choices for your every-other-week biopharma financing wrap-up. Thanks for sticking with ...

Acadia Pharmaceuticals: Just a week after reporting in its fiscal 2013 results that its cash on hand at year end totaled $185.8M, thanks mostly to a $108M secondary offering in May 2013, Acadia increased its cash position again on March 4, netting $171M in a FOPO of 6.4M shares for $28.50. The company, which could realize an additional $27M if underwriters buy up to 960k shares in the overallotment, is preparing to file an NDA in late 2014 for pimavanserin in psychosis associated with Parkinson’s disease and is working on pre-launch activities.  Acadia presented pivotal Phase III data at the March 2013 meeting of the American Academy of Neurology. Studies showed the serotonin 5HT2A antagonist/inverse agonist significantly reduced psychosis over placebo (the primary endpoint) and helped maintain patients’ motor control. There were also clinically meaningful benefits in measures of nighttime sleep, daytime wakefulness, and caregiver burden. At the end of 2013, Acadia began testing pimavanserin in Phase II for Alzheimer’s-related psychosis. The company also recently advanced into preclinical studies a muscarinic agonist for glaucoma through its deal with Allergan. --Amanda Micklus

Neurocrine Biosciences: The San Diego biotech focused on neurological and endocrine-based diseases priced a follow-on public offering February 26 to sell 8 million shares at $17.75 each, with net proceeds of $133.5 million. Neurocrine said it would use the proceeds to fund its R&D.  Primary among its programs is NBI-98854, a wholly owned vesicular monoamine transporter 2 (VMAT2) inhibitor in Phase II for tardive dyskinesia. In 2012, the biotech reported mixed results from a Phase IIa study of ‘98854 in which patients at one of eight sites fared better on placebo than study drug. Neurocrine has said it plans to keep that program for itself as it attempts to evolve into a fully integrated pharmaceutical company. If successful, it would be quite a turnaround story. In 2006, the firm was rocked by the FDA's refusal to approve its insomnia drug indiplon, then partnered with Pfizer. Its comeback began in earnest with strong clinical data from its gonadotropin-releasing hormone (GnRH) antagonist elagolix, which is now partnered with AbbVie and in Phase III for endometriosis and Phase II for uterine fibroids. This is the second large FOPO by Neurocrine in slightly over two years – it raised $83.2 million in January 2012 by selling 10.9 million shares at $8.10 apiece. This time around, it granted underwriters Jefferies and J.P. Morgan a 30-day option to buy up to 1.2 million additional shares. The stock closed trading March 5 at $17.84 per share, with a 52-week high of $20.29 and a low of $8.57. – Joseph Haas

Aquinox Pharmaceuticals: IPO activity slowed the past couple weeks, but Aquinox debuted March 6 by selling 4.2 million shares at $11 each. It hit the midpoint of its proposed range, but it ended up selling 14% more shares than it originally intended. Its lead compound, AQX-1125, is in Phase II for two indications, chronic obstructive pulmonary disease and bladder pain syndrome. Both trials started in 2013 after the firm pulled in an $18 million Series C round led by Johnson & Johnson Development Corp. and with participation from new investor Augment Investments and returnees Pfizer Venture Investments, Ventures West Capital and Baker Brothers Investment. AQX-1125 is an activator of the enzyme SHIP1, a modulator of the PI3 kinase pathway and, the company says, particularly important in preventing abnormal inflammation at mucosal surfaces. The founders of the Vancouver, BC firm discovered SHIP1 while at the University of British Columbia and created a mouse model whose immune system lacks SHIP1. The asset that became AQX-1125 came from Aquinox's 2009 deal for one of Swedish firm Biolipox's compound libraries. Lead underwriters Jefferies and Cowen, along with Canaccord Genuity, have the option to buy up to 555,000 additional shares.  – Alex Lash

Human Longevity: Pioneering biologist Craig Venter’s newest project will aim to compile a vast amount of genomic data to treat disorders associated with aging, with an eye on adding decades to the human lifespan. The former genome-mapping CEO of Celera Corp. and founder of the J. Craig Venter Institute unveiled the project March 4, revealing an initial funding round of $70 million. HLI didn’t name the full list of investors, but it includes lead backer KT Lim, a Malaysian billionaire whose holdings include a long list of casinos and resorts. Another investor, Illumina Inc., supplied HLI with two systems that can sequence a genome for $1,000, and normally list for $10 million apiece. The remainder of the roster includes an assortment of high net worth individuals, Venter said. HLI says it will initially create 40,000 genomic sequences annually, and may soon obtain 100,000. At first, most will come from consenting patients in University of California, San Diego research programs. HLI plans to unite genomic, microbiome and metabolome data to create profiles of healthy and unhealthy patients from all ages, including infants and supercentenarians. It will also investigate the associations between depleted stem cells and aging-related diseases, and will first address cancer before moving on to neurological, cardiovascular and liver disorders. – Paul Bonanos

Best Of The Rest (Highlights Of Other Activity This Fortnight): Novel dermatology drug developer Thesan Pharmaceuticals has now raised close to $66M, thanks to a $49M Novo Ventures-led Series B round that closed on February 24…days after Endo completed its $1.5B buy of Paladin, Paladin spin-off Knight Therapeutics, which will own rights to the rare disease drug Impavido for leishmaniasis, grossed $Cdn71M by selling warrants to GMP Securities, Cormark Securities, and other investors…Pain treatment maker Recro Pharma priced its IPO, selling 3.8 milion shares at $8 each to raise $30 million...Ampio Pharma netted $64M in a follow-on public offering to complete clinical trials of Ampion and Optina (for osteoarthritis of the knee and diabetic macular edema, respectively) and submit regulatory filings…using momentum from its recently filed NDA for Alzheimer’s combination memantine ER/donepezil (partnered with Forest), Adamas Pharmaceuticals filed for its IPO…and Abingworth closed its tenth life sciences fund, worth $375M. --Amanda Micklus

Deals Of The Week: Novartis Places Bid To Dominate In Cancer

While the largest deal of the week, and certainly the one receiving the most attention, has been Actavis' expansion of its branded portfolio via its $25 billion purchase of Forest Laboratories, the deal that could have major implications for a hot target space in cancer is Novartis' pick-up of a small Massachusetts biotech.

Novartis nabbed young start-up CoStim Pharmaceuticals at the beginning of the week for an undisclosed amount – a move that could make it a major force in the red hot area of cancer immunotherapy.

The closely held biotech was founded in 2012 by MPM Capital and led by MPM managing directors Luke Evnin and Robert Millman. Atlas Ventures joined MPM in early 2013 to fund the company’s $10 million Series A round. While terms of the deal were not disclosed, Atlas partner Bruce Booth wrote in a recent blog post that “if the contingent milestones are paid, this deal will return a significant portion of the entire Life Science allocation in Atlas Fund VIII.”

The Swiss pharma knows a thing or two about oncology – it’s been marketing Gleevec (imatinib), one of the earliest targeted cancer treatments and a multi-billion dollar drug annually, since 2003. And it boasts one of the richest oncology pipelines in the industry, spanning numerous solid- and liquid-tumor indications and many of the hottest biological targets. Its latest R&D foray into chimeric antigen receptor technology (CART) – and the programs it’s acquired from CoStim – has enriched the pharma’s immunotherapy platform and upped its commitment to being a dominant player in oncology.

While Novartis has been cagey about revealing what CoStim actually has to offer, Bill Sellers, its global head of oncology, says the Cambridge biotech brings four to five late-stage programs to the table – programs the industry could start hearing about in early 2015.

“One of our strengths is attacking cancer from its genetic base,” said Sellers. “But we have not done a lot of work in immunotherapy until two years ago,” he admitted.

That’s when Novartis inked its deal with the University of Pennsylvania for its CART research. The deal is based on the work of Carl June, whose lab created T-cells that express the receptor CART 19, a synthetic fusion protein consisting of antibodies that attach to the CD-19 protein, commonly expressed in chronic lymphocytic (CLL) and other B-cell mediated leukemias. The genetically engineered T-cells are injected back into the patients, where they find their way to CD-19-expressing leukemia cells and kill them.

Since pairing up with Penn, Novartis has been “building expertise internally,” said Sellers, as well as opening a large-scale manufacturing facility in Morristown, NJ. “CART has shown dramatic efficacy, but it doesn’t work in everybody,” said Sellers. “So there is room to augment that.”

Sellers said Novartis has been looking for a way to get into checkpoint inhibitors and other immunotherapies for a couple of years, knowing it doesn’t have the expertise in-house. That’s where CoStim comes in – one of its late-stage assets targets the PD-1 pathway. The smokin’ hot PD-1 pathway – if you’ve paid any attention to, or even just glanced at, companies like Merck or Bristol-Myers Squibb in recent months, then you’ve heard about their anti-PD-1 drugs. Combination therapies with these checkpoint inhibitors are going to be huge - $35 billion huge, if some analysts are to be trusted.

Merck already is jumping on the combo bandwagon – it’s inked three deals with Pfizer, Incyte and Amgen just this month to combine its anti-PD-1 checkpoint inhibitor MK-3475 with assets in their respective pipelines.

Novartis is employing a different strategy – it’s hoping to move forward with a CART/PD-1 combo. “We are just starting to explore CART in solid tumors, which are thought to be more immunosuppressant,” said Sellers.

CART programs may be just as revolutionary as PD-1. On Feb. 19, Memorial Sloan-Kettering Cancer Center announced results from a trial of adult B cell acute lymphoblastic leukemia that showed 88% of patients achieved complete remission after receiving the modified T-cells. (The technology is the basis for the founding of high-profile start-up Juno Therapeutics, which currently is locked in a patent dispute over the CAR technology with Novartis.)

French biotech Servier also is getting in on the action, as you can read below in ...

Actavis/Forest – Actavis is nearly unrecognizable from the little Icelandic company it was just three years ago. The company has merged with both Warner Chilcott PLC and Watson Pharmaceuticals during that time to become a generics behemoth with multinational presence. Now, it is continuing down the road of transformation with its $25 billion acquisition of Forest Laboratories. The stock-and-cash deal will turn Actavis into a developer of specialty brand name drugs, boosting specialty products to represent about 50% of combined company revenue. North American specialty pharmaceuticals currently comprise about 30% of Actavis’ standalone revenue. Forest shareholders will get $26.04 in cash and a portion of an Actavis share for each Forest share. The total, per-share price of $89.48 represents a premium of about 25% over Forest's closing price on Feb. 14, the last trading day before the deal was announced, of $71.39. For Forest this is an ideal exit for its shareholders; activist investor Carl Icahn has said in news reports that this acquisition is a good example of when activist measures work. Forest CEO Brent Saunders has been touted as having the magic touch – he flipped Forest in less than six months after taking over and was the architect behind the sale of Bausch + Lomb to Valeant Pharmaceuticals for $8.7 billion before that. - Lisa LaMotta

Servier/Cellectis – Servier wants a piece of the CART action; the French biotech inked a collaboration with cell therapy company Cellectis on Feb. 17 for $10 million upfront and $840 million in potential milestones tied to the development, regulatory and commercial success of six potential products. The deal includes the development of UCART19, Cellectis’ lead product, a CD19-targeting compound that is in early stages, but could be a potential rival to Novartis’ lead CART program – which also targets the CD19 T-cells. “These original cell-based therapies will well complement Servier's innovative clinical oncology pipeline, which currently includes immunotherapeutic monoclonal antibodies, an HDAC inhibitor, kinase inhibitors, antiangiogenic and proapoptotic small molecules,” said Jean Pierre Abastado, head of oncology at Servier. The deal initially will focus on leukemias and lymphomas, with Servier having the option to license the products and take over development after Phase I has been completed. - L.L.

Gilead/CURx - Gilead Sciences has had its hands full, what with plotting the domination of the market for all-oral HCV treatment. So busy, in fact, that the biotech has signed only one R&D deal in almost the last two years – a preclinical partnership with antibody company MacroGenics last January, according to the Strategic Transactions database. On Feb. 19, Gilead announced its latest R&D deal, but this time it has flipped the usual script and out-licensed a late-stage candidate for development. It’s calling upon CURx Pharmaceuticals develop non-core asset inhaled fosfomycin/tobramycin to treat Pseudomonas aeruginosa lung infection in cystic fibrosis (CF) patients. The candidate met the primary endpoint in a Phase II trial in 2010 in this indication, but Gilead subsequently discontinued development. There already are two treatments for this indication approved in the U.S.: Gilead’s own Cayston (inhaled aztreonam) and Novartis' Tobi (inhaled tobramycin). In preclinical studies, inhaled fosfomycin/tobramycin has shown activity against several other pathogenic bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). About half of all CF patients become infected with Pseudomonas aeruginosa and about a quarter are infected with MRSA, according to CURx. The financial details of the transaction were not disclosed. - Stacy Lawrence

Pfizer/ MIT’s Synthetic Biology Center - Pfizer and the Massachusetts Institute of Technology are collaborating on the use of novel synthetic biology tools to enhance drug discovery and development. The three-year deal, announced on Feb. 20, covers multiple therapeutic areas at Pfizer and involves several core investigators at MIT’s Synthetic Biology Center, according to the MIT press release. Scientists have different definitions for synthetic biology, but, essentially, it involves integrating current and new biotech tools, systems biology and bioinformatics to enable engineering of new biological parts, in short, making new genetic codes from scratch. The ultimate goal of using such techniques is to make design and construction of novel biological systems into a professional engineering discipline. Synthetic biology as an area of scientific focus has taken off in the past decade, with support from the National Science Foundation, which funded creation of the first synthetic biotech research center, Synberc, in 2006. Participants in Synberc were the University of California at Berkeley and University of California, San Francisco, Stanford University and MIT. Since then, NSF has awarded millions of dollars more to other academic organizations to set up centers of synthetic biology research, including the J. Craig Ventor Institute and New York University. Start-up activity also is climbing, with one of the most visible practitioners, Intrexon, netting $171 million in an initial public offering last year. The ability to use synthetic biology parts as “programmable entities” presents the opportunity to create new biological processes. The partners plan to use cellular genome engineering to support development of next-generation protein expression systems. Pfizer didn’t provide more details, except for comments by Jose Carlos Gutierrez-Ramos, the company’s group  senior VP and head of Biotherapeutics R&D. He noted in a press release that “We are reaching a key inflection point where advances in synthetic biology have the potential to rapidly accelerate and improve biotherapeutic drug discovery and development, from early-stage candidate discovery through product supply.” - Wendy Diller

Photo credit: Wikimedia Commons

Deals Of The Week: UCSF Catalyzes R&D Tech-Transfer Deals With Private Sector

Neither MedImmune, the biologics arm of AstraZeneca, nor the University of California, San Francisco, is a stranger to R&D collaboration between private industry and academia, but the agreement they signed on Feb. 11 is somewhat unique in that it will take advantage of a UCSF program that was intended to provide external expertise that might help to move basic research into more advanced stages.

At UCSF’s Clinical and Translational Science Institute, the Catalyst Awards program benefits from the input of industry and academic advisors who review burgeoning science and help select which projects should advance further and be given increased resources. CTSI oversees UCSF researchers working on therapeutics, devices, diagnostics and digital health applications, explained June Lee, director of early translational research at CTSI.

The Catalyst program started with about 120 advisors, and now has about 140 and is growing in numbers. “These folks are from all different disciplines, mostly from industry, and represent various different sectors and areas of expertise for product development in the life sciences,” Lee said. According to her, it’s more of a happy coincidence than a plan that the Catalyst Awards program spurred a broad-based partnership – considering both small- and large-molecule projects in cardiovascular and metabolic disease, oncology, respiratory, inflammation and autoimmune disorders, neuroscience and infectious disease – with MedImmune.

The collaboration could end up bringing early-stage assets to MedImmune (or AstraZeneca) in any of those areas, Lee added, since UCSF has 2,400 faculty, of whom about 1,300 are doing research primarily. “Our people are working in all areas of research, and that’s not accounting for post-docs or graduate students,” she said.

“Our primary goal was to enable and support of early-stage technology projects at UCSF,” she said. “For things that have product potential, we bring in the necessary expertise to help the faculty move projects along. Even though spurring deal-making may not have been our primary purpose, the program really is a very appropriate portal for people on the outside to look through to determine which university technologies are most ready to be licensed out.”

Terms have not been disclosed for the MedImmune/UCSF tie-up but Senior VP and Head of the Respiratory, Inflammation and Autoimmune Innovative Medicines Unit (iMED) Bing Yao said that unlike the Johns Hopkins and University of Maryland, Baltimore arrangements signed last year, which feature an overall R&D funding allocation, funding for this partnership will be determined on a case-by-case basis.

“Some of the programs, we will want to bring to the next stage – they could be preclinical or [we could want to move them] further into clinical development,” Yao noted. “This way, we can give a lot of input. As a company developing products for multiple therapeutic areas, we can bring our expertise to facilitate [the projects] but each program will be unique.”

The agreement extends for three years, with an option to extend it. MedImmune and AstraZeneca personnel will join with the Catalyst Awards advisors and UCSF staff to determine which products move forward with MedImmune/AstraZeneca backing. And the company will have exclusive options rights to the programs it backs, Yao said.

In the six months, Gaithersburg, Md.-based MedImmune has shored up its local base by signing a five-year, $6.5 million, broad-based R&D partnership with Johns Hopkins University in December and a five-year, $6 million pact with University of Maryland, Baltimore in September. It also has R&D relationships with academia in the U.K. and, now, with the UCSF partnership, gets better access to technological advances stemming from the biotechnology hub in the San Francisco bay area, Yao told Deals of the Week.

UCSF, meanwhile, is one of five founding members of the Academic Drug Discovery Consortium, founded in 2012 to serve as a clearinghouse for both academia and industry on research underway within U.S. and international drug research programs. Since 2010, UCSF has negotiated research collaborations with Genentech, Pfizer, Sanofi and Bayer, while licensing a preclinical antibody for organ failure to Stromedix and genetic encoding intellectual property for Parkinson’s disease to uniQure.

While that agreement was signed, other M&A and licensing activity was heating up the cold and snowy winter. Read on for the rest of ....

Mallinckrodt/Cadence: Mallinckrodt will have a lot of work to do to make good on the $1.3 billion it’s paying for Cadence Pharmaceuticals, a price more than 10 times the projected 2013 sales for Cadence’s sole product, Ofirmev (intravenous acetaminophen). Mallinckrodt says the acquisition gives it a third therapeutics platform, in the hospital setting, in addition to its existing focus on generic drugs and pain medications. The specialty drug company plans to keep Cadence’s sales and marketing capabilities and acquire additional hospital products to sell through them. Mallinckrodt announced the acquisition Feb. 11, its first major transaction since it was spun-out from medical device and supply company Covidien in July. Ofirmev launched in January 2011 and is approved to treat mild-to-moderate pain, for the management of moderate-to-severe pain with adjunctive opioid analgesics, and for the reduction of fever. It has expected net product revenues of $110.5 million for 2013. That’s more than twice the $50.1 million posted in 2012, its first full year of sales. As of Sept. 30, Cadence shareholders included Fidelity Management (7.6 million shares), T. Rowe Price Associates (7.2 million), Capital Research (7.1 million), Wellington Management (6 million), The Vanguard Group (3.4 million), NEA (2.1 million) and BlackRock (1.9 million). Mallinckrodt will pay $14 per share for Cadence, a 32% premium to the trailing 30-trading-day volume weighted average price; in 2006, the company completed an IPO at $9 per share with a valuation of about $250 million. That gives shareholders who bought and held IPO shares a roughly 1.5x return. - Stacy Lawrence and Jessica Merrill

Pierre Fabre/Aurigene: Pierre Fabre Group, the French pharmaceuticals and cosmetics firm whose sales are split almost equally between drugs and skincare cosmetics, has acquired worldwide development and commercialization rights (excluding India) to a novel immune checkpoint modulator, AUNP-12, from the Indian drug-discovery firm Aurigene Discovery Technologies. AUNP-12 is the only peptide under development as a PD-1 immune modulator, the companies say. The candidate could be associated with greater efficacy and fewer side effects when used as part of combination therapies, they announced Feb. 12. The peptide achieves effective levels in vivo after subcutaneous dosing, and has inhibited tumor growth and metastasis in preclinical models of cancer. Aurigene, the Bangalore-based biotech that has collaborated with six of the top 10 pharmaceutical companies since its inception in 2002, will receive an undisclosed upfront payment from Pierre Fabre, and milestone payments based on development, regulatory and commercial progress. The deal terms are in line with others in this space, the companies said. It’s also the first major deal the French company has signed since the death of its founder, Pierre Fabre, in the middle of last year. Pierre Fabre specializes in the development of anti-cancer drugs, either alone or with partners; with marketed drugs that include Javlor (vinflunine) and Navelbine (vinorelbine), while Aurigene is a profitable Indian biotech that generates lead compounds and progresses them to preclinical development in concert with collaborators, particularly in oncology and inflammation. - John Davis

Retrophin/Manchester: Retrophin, which netted $37.4 million in an initial public offering in January, has arranged to purchase privately held Manchester Pharmaceuticals for $62.5 million, including $29.5 million upfront. Announced Feb. 12, the transaction is expected to close on March 1, Retrophin said. Like Retrophin, Manchester focuses on rare diseases. The Ft. Collins, Colo.-based firm has two FDA-approved drugs in its portfolio – Chenodal (chenodeoxycholic acid), which is indicated for patients suffering from gallstones in whom surgery poses an unacceptable health risk due to disease or advanced age, and Vecamyl (mecamylamine HCI tablets), indicated for the management of moderately severe to severe essential hypertension and uncomplicated cases of malignant hypertension. Retrophin said it also will seek quick FDA approval for Chenodal, the only FDA-approved chenodeoxycholic acid, for cerebrotendinous xanthomatosis (CTX), a rare metabolic disorder that can cause severe intellectual disability or even prove fatal in young patients. The New York firm also guided that it anticipates revenue of between $10 million and $12 million this year overall, and $19 million to $21 million in 2015. - Joseph Haas

Debiopharm/Affinium: Swiss biopharma Debiopharm Group broadened its antibiotic portfolio by acquiring key assets from Toronto-based Affinium Pharmaceuticals on Feb. 11. The deal includes two narrow-spectrum anti-bacterial candidates, the Phase IIa FabI inhibitor AFN-1252 and its Phase I prodrug, AFN-1720. Debiopharm also acquired Affinium’s technology platform with which it created the two drugs. Terms of the arrangement weren’t disclosed. Affinium says its drugs represent a new class of antibiotics that inhibit the type-II fatty acid synthesis pathway, known as FAS-II, essential for bacterial growth. Its compounds have shown promise in combating staphylococcus infections, including methicillin-resistant Staphylococcus aureus and vancomycin-intermedia Staphylococcus aureus infections, while allowing intravenous-to-oral switching for patients leaving hospital care. Debiopharm expects to develop a companion diagnostic to select appropriate patients as AFN-1720 progresses through the clinic. Debiopharm entered the anti-bacterial field last fall, when it struck a deal with India’s TCG Life Sciences to develop new antibiotics. The company is aiming to develop drugs that preserve existing gut flora while overcoming resistance to broad-spectrum drugs. Affinium raised $33 million in two rounds of funding in 2007 and 2011, from investors including SV Life Sciences, Genesys Capital Partners, Forward Ventures, Oxford Bioscience Partners and Ontario Emerging Technologies Fund.  - Paul Bonanos

Aveo/Astellas: In our “No-Deal of the Week,” Aveo Pharmaceuticals and Astellas announced Feb. 14 that they have terminated a partnership around renal cell carcinoma candidate tivozanib. The Japanese pharma paid $125 million upfront, with $50 million pegged to cover Aveo’s R&D expenses, in 2011 for worldwide rights, except for Asia, to develop, manufacture and market the compound, a tyrosine kinase inhibitor of all vascular endothelial growth factor receptors. An NDA was filed in November 2012, but an FDA “complete response” letter and unenthusiastic reception at an advisory committee left the companies not expecting approval in advanced RCC. They terminated the trial program for that indication and decided to re-focus on developing tivozanib for breast and colorectal cancers. Now, Astellas has decided to exit the collaboration for what it calls “strategic” reasons, and the two companies are terminating a Phase II program studying the compound in CRC. All rights to tivozanib will return to Aveo as of Aug. 11. - J.A.H.

Photo credit: Wikimedia Commons

Return to Seller: GlycoFi Next Tech to Exit Merck?

As the J.P. Morgan conference began to clog the San Francisco streets and restaurants on Sunday night, Alnylam Pharmaceuticals got the party started with a bang. In industry's first major deal of the year, Alnylam signed a broad agreement with Sanofi’s Genzyme Corp. and, separately and perhaps more dramatically, bought Merck & Co.’s RNA interference assets (essentially the remnants of Sirna Therapeutics) for $175 million ($25 million was cash and $150 million in Alnylam stock).

The latter deal unleashed the schadenfreude. Merck paid $1.1 billion for Sirna, then Alnylam’s biggest RNAi rival, back in 2006. It had been predictably if annoyingly tight lipped about any progress (or lack thereof) it was making with RNAi therapeutics ever since. And with 200 people within Merck working to surmount the therapeutic modality’s famous delivery challenges and more or less build an RNAi franchise for most of the past seven years, $1.1 billion was likely just the tip of the iceberg.

Why Alnylam wanted Sirna goes beyond (figuratively of course) putting the stuffed head of its former rival on the wall in the Cambridge company’s boardroom (but sure, on some level, that’s gotta be part of it?). Merck apparently did make some progress on sub-q delivery of RNAi and it had some IP that Alnylam likely wanted to tie up.

The broader point is that technologies once coveted by pharma but now seen as dead-end cost centers or just gathering dust may have utility – and potentially a lot of value – back out in the broader world. That’s been true for drug candidates for a long time – and we’ve seen plenty of deals where a company has acquired valuable drug compounds and eventually sold them off, even back to the VCs and executives that offloaded them in the first place (think Esperion, Vicuron, etc.).

Those originators are often the best placed to understand the compounds or technology and make another go at driving value. And Merck’s decision to part ways with Sirna and RNAi (and the ongoing reorganization the company’s R&D group) got us thinking about what other technologies the pharma may offload. One that comes to mind was another high-profile 2006 acquisition: the yeast-based antibody manufacturing play GlycoFi.

Allow us to speculate:

In May 2006 Merck plunked down $400 million to buy the technology. On a Sirna-scale, that’d mean a $10 million (or less!) down payment might be enough to extricate the technology. And GlycoFi founder Tillman Gerngross and his venture backers are now at the center of myriad antibody discovery partnerships via the decidedly profitable Adimab and a small handful of drug development start-ups enabled by the Adimab technology. They would be a logical set of suitors (Gerngross wouldn’t comment).

GlycoFi’s glycoengineering and optimization technologies would surely complement Adimab’s yeast-based antibody discovery tech. The company was never fully integrated into Merck and is still based in Lebanon, NH, home to Adimab and Gerngross’s other ventures (if the two companies don’t share an address, they’re at least within walking distance to each other near Dartmouth). GlycoFi was meant to enable Merck’s follow-on biologics strategy, but the big company’s ambitions around what is now biosimilars have shifted over the past several years. Biosimilars leadership specifically and R&D leadership more generally has turned over. GlycoFi’s ‘internal champion’ at Merck is likely gone. Merck is, like other big companies, shrinking its R&D footprint.

Adimab has somewhat famously – famous for the set that converges around Union Square in San Francisco this time of year, anyway – advertised its technologies and successful partnerships on the Powell-Mason cable cars that roll up the hill out front of JPM’s epicenter St. Francis hotel. The current biotech boom feels very much like a throwback and so it’d be fitting: maybe next year we’ll see GlycoFi on those cars instead?

And The Roger Goes To ... Our Deals of the Year Winners!

To Claim Award: Ctrl-P, cut along border, tape to plaque (note: plaque not included).

M&A of the Year: Amgen/Onyx

Congratulations to Amgen and Onyx, who've won, with more than 62% of the vote, our M&A of the Year nod. The voters chose the biggest deal -- though there were other interesting nominees we aren't surprised -- and we'll all be watching Kyprolis to see whether the price was right.

Alliance of the Year: Celgene/Oncomed

This one was never in doubt. Celgene and Oncomed knew how to canvass, their Get Out The Vote strategy was clearly second to none (the alliance category tallied about 1000 more votes than the other categories). And even a late push from GSK/Community Care of North Carolina (no doubt helped by voters turning up to support GSK in its close race below) couldn't derail Celgene and Oncomed's cancer stem cell alliance from the top spot. It finished with about 63% of the vote.

Financing of the Year: GSK/Avalon

As of this morning the two leaders in this category -- Children's Hospital of Philadelphia funding Spark Therapeutics and GSK/Avalon -- were separated by only a few dozen votes out of thousands cast. Finally, a race worth watching 'til the end. Spark began to pull away, stretching its lead to a few percentage points with an hour to go. And then GSK/Avalon swung back, pipping them at the post in the waning moments of voting. GSK/Avalon 48%, Spark 47%. The achievement is even more impressive in light of the nature of the also-rans. Calico, Juno, and Editas were all noteworthy debuts in 2013. Ophthotech had possibly the best IPO in a crowded biotech IPO field. None of those four deals received more than a tiny sliver of the vote. 

As always our winners are welcome to make an acceptance speech in the form of a guest post here on In Vivo Blog. Winners, please reach out if you'd like to do so. Thanks everyone for voting again this year, and congratulations to our winners!

And the Nominees for IVB's 2013 M&A of the Year Are ...

We've nominated five 2013 Deals for M&A of the Year. It's time for you, esteemed readers of The In Vivo Blog, to decide the winner. It's an eclectic bunch this year -- we can't wait to see what you'll choose. Our polls will stay open through the New Year, until Noon ET on Tuesday, January 7. Good luck to the nominees! VOTE BELOW! IF YOU ARE VIEWING VIA EMAIL AND CAN'T SEE THE POLL, CLICK HERE.

Valeant/B&L: The May 2013 deal was a big win for private equity owners Warburg Pincus. It put some extra shine on the reputation of then-B&L CEO Brent Saunders, who has moved on to Forest to work his Hassanian brand of turnaround-magic in the world of primary care. And it again highlighted ophthalmology -- and B&L's diversified pharma/device/consumer approach to the field -- as an industry hotspot. But the main reason we've nominated Valeant/B&L for the M&A Roger this year is that it underscores the increased activity on the big deal front of specialty pharma over its supposedly deeper pocketed Big Pharma rivals. Read the full nomination here.

McKesson/Celesio: McKesson’s purchase of German drug wholesaler Celesio for $8.3 billion is one of the largest deals of 2013, but that is not what puts it on the In Vivo Blog Deal of the Year map. More to the point, and the reason it should be on the radar of everyone in the biopharma industry, is its likely impact on pharma and the drivers that led it to consolidate in the first place. Although the deal focuses on distribution and supply chain management, some of the duller aspects of an industry prone to flaunt its contribution to saving lives, it is every bit just as important to pharma’s health as the next big deal in cancer immunotherapy. Read the full nomination here.

Biogen/Elan's Half of Tysabri: Elan’s move to sell its share of Tysabri (natalizumab) to long-time partner Biogen Idec was the ball that set the Rube Goldberg device in motion, precipitating its endgame and eventual sale to Perrigo, and landing it on the 2013 shortlist for M&A deal of the year. Ultimately, this sale gave Elan the thing it needed to become appealing to virtually any acquirer – lots of cash. Tysabri fits right into Biogen’s sweet spot; alongside Avonex (interferon beta-1a) and Tecfidera (dimethyl fumerate) Biogen's locked down about 40% of the total MS market. Read the full nomination here.

Amgen/Onyx: Onyx serves as a leg up for Amgen as it looks to establish itself as a major oncology innovator and bring forward a pipeline of oncology drugs it has cobbled together partly through acquisitions. Despite the possibility of drama, the deal wound up as a straightforward acquisition that hedges risk for the buyer and still rewards the seller, one where the purchase price, at $125 per share, meets a middle ground. Read the full nomination here.

The Ibrutinib Royalty: Royalty deals have long been the provenance of more conservative private-equity vehicles. And so it was odd not just to see two venture firms join the royalty deal but also to hear how much each was putting up. Aisling Capital and Clarus Ventures said in August they had paid $48.5 million to acquire a tiny slice of sales royalties from ibrutinib, a cancer drug that hadn't been approved yet. Read the full nomination here.

2013 M&A of the Year Nominee: Valeant/B&L

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

Valeant Pharmaceuticals -- the seemingly insatiable embodiment of growth-by-acquisition in modern pharmaceutical times -- has been party to more than a dozen significant M&A deals since acquiring Biovail in 2011. Its biggest move in 2013, earning an M&A-of-the-year nod from us, is the $8.7 billion takeover of ophthalmology specialist Bausch & Lomb.

The May 2013 deal was a big win for private equity owners Warburg Pincus. It put some extra shine on the reputation of then-B&L CEO Brent Saunders, who has moved on to Forest to work his Hassanian brand of turnaround-magic in the world of primary care. And it again highlighted ophthalmology -- and B&L's diversified pharma/device/consumer approach to the field -- as an industry hotspot.

But the main reason we've nominated Valeant/B&L for the M&A Roger this year is that it underscores the increased activity on the big deal front of specialty pharma over its supposedly deeper pocketed Big Pharma rivals.  In fact a look at the top biopharma deals by dollar value this year suggests none of the 'big' deals -- the recent exception of BMS selling its stake in its diabetes JV to AZ notwithstanding -- were Big Pharma deals.

Warner Chilcott went to Actavis for $8.1 billion. Shire bought ViroPharma for $3.3 billion. Onyx went to Amgen (OK we're splitting hairs there, but we'll call Amgen a 'big biotech'). The remains of Elan went to Perrigo. Big Pharma --  its stated penchant for bolt-ons be damned -- bolted on very little of substance this year. On the other hand, Spec Pharma has the firepower, as our friends at Ernst & Young reminded us this year. And it is using it.



Valeant in particular has been using it to diversify. At the time of the deal, CEO Michael Pearson said Valeant has made no secret of its interest in durable specialty sectors with low R&D risk such as eye care and dermatology (last year's big buy was derm specialist Medicis, for $2.8 billion). Acquiring B&L will enable Valeant to balance its revenue mix from both a geographic and therapeutic perspective, he added. Post-B&L, about 50% of Valeant revenue stems from the U.S., with Eastern and Central Europe comprising 15%, Western Europe and Japan 13%, and Latin America, Canada, Australia, Southeast Asia and South Africa rounding out sales.

In terms of therapeutic areas, dermatology and aesthetics contributes about 34%, eye health about 32%, neurology and “other” about 12%, and consumer and oral health about 11%, the CEO said. (Consumer businesses are absolutely on Valeant's radar since adding B&L's consumer brands, the company has said more recently.)

So vote Valeant for its personification of specialty pharma's growth ambitions, particularly in comparison to Big Pharma's 'hey everybody let's get small' religion. For the way it represents the shifting firepower available for the big deals (buybacks and dividend hikes aren't free -- and that's where a lot Big Pharma's money has gone over the past few years). And for its kid-in-a-candy-store, shopping-spree approach to building a large, specialist pharma player: think of it as a vote not just for Valeant/B&L, but for Valeant/Solta, Valeant/Obagi, Valeant/Medicis, and all the rest and what's to come.

Artillery photo via flickr/Paul Campy // cc

2013 M&A Of The Year Nominee: McKesson/ Celesio

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) 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™.

McKesson’s purchase of German drug wholesaler Celesio for $8.3 billion is one of the largest deals of 2013, but that is not what puts it on the In Vivo Blog Deal of the Year map. More to the point, and the reason it should be on the radar of everyone in the biopharma industry, is its likely impact on pharma and the drivers that led it to consolidate in the first place.

Although the deal focuses on distribution and supply chain management, some of the duller aspects of an industry prone to flaunt its contribution to saving lives, it is every bit just as important to pharma’s health as the next big deal in cancer immunotherapy.

Logistics, scale and geographic reach are increasingly critical competitive advantages as unprecedented pressures put margins under the microscope, and R&D productivity  is too inconsistent to provide protection. In short, the onus is on industry to become more financially efficient. Germany-based Celesio is a leader in pharmaceutical wholesaling, with a presence in key markets in Europe and Brazil and an extensive network of several thousand retail pharmacies in those regions. McKesson is one of the world’s largest wholesalers, with a particularly strong presence in the United States, and $122 billion in annual sales. The combined company will have sales of more than $150 billion, and employ more than 81,500 workers worldwide. How's that for efficient positioning?

Quickly, the deets: McKesson is to acquire 50.01% of Celesio’s stock for €23 per share in cash from the Haneil group and acquire the rest of remaining publicly traded shares and convertible bonds through a parallel tender offer. Among other benefits, the deal will enable McKesson to recognize synergies of $275 million to $325 million by the fourth year. It will be accretive from Year One, which, because of certain German takeover laws, is likely to be fiscal year 2015, which begins April 1, 2014.

Upon completing the deal, McKesson should have the scale to provide its customers with a more efficient global supply chain and, as McKesson’s executives repeatedly have noted, global sourcing, as well as additional business services. The aim is to be a “one-stop shop for people to create global partnerships,” McKesson CEO John Hammergren told analysts on the day of the announcement in October. In pharma, the most obvious impact will therefore be on generic drug sourcing and distribution, since McKesson’s leverage over which generic version of a drug it distributes to customers will increase. Wholesalers do not have nearly as much control over brand pricing.

McKesson says it ranks number one in generic drug distribution in the U.S. The deal is the biggest and broadest of several initiated this year by drug wholesalers looking for more efficient ways of distributing and negotiating with generics suppliers. The trend started late last year, when the U.K’s Alliance Boots GMBH, Walgreen Co., and the U.S. wholesaler AmerisourceBergen Corp. struck a three-way partnership around cooperative purchasing of generic drugs. Walgreen already owns 45% of AllianceBoots and has an option to buy the rest of the company over the next three years; these two companies have an option to purchase up to 23% of AmerisourceBergen.

And the expanded network of retail pharmacies also is important in an era in which the pharmacy, both in the U.S. and abroad, is not just dispensing medicine, but also becoming more of a care provider as a lower-cost alternative to the emergency room or other providers. That may seem peripheral to business development priorities of innovative drug makers right now, but such an impression is misguided. Just ask vaccine producers and makers of diabetes drugs.

thanks to flickr user Jeremy Brooks for McKesson photo // cc