DOTW: Wall Street Hopes AstraZeneca is the Next Sanofi

Wall Street is hoping AstraZeneca will buy its way out of its current conundrum. The pharma jumped off the proverbial patent cliff last year and is expected to slide for the foreseeable future. Analysts' model for a turnaround of the beleaguered British pharma is Sanofi, with its aggressive acquisition strategy executed by CEO Chris Viehbacher starting in 2009.

This week, AZ's new CEO Pascal Soriot made his first major executive changes, letting go of R&D and commercial heads and replacing them with several new executives in reconfigured positions. Soriot started in October, and what’s missing thus far is insight into AstraZeneca’s business development strategy. An appointment of an EVP of Global Portfolio & Product Strategy is still pending.

It’s not that AstraZeneca hasn’t been active; it did at least 21 deals last year according to Elsevier's Strategic Transactions database. But many of those partnerships are either very early or regional deals for marketed products. And none of them have convinced Wall Street that AstraZeneca can turn around its disintegrating sales. Consensus estimates are that sales will decline 16.4% in 2012 on the loss of patent exclusivity for antipsychotic Seroquel IR (immediate-release quetiapine fumarate) in the U.S. and for at least four other drugs in Western Europe or Canada. That’s followed by expectations of low-single digit annual declines in sales through at least 2016.

The pharma’s track record on big deals isn’t great. It acquired vaccine play MedImmune in 2007 for $15.6 billion but, despite the high price tag, that deal hasn’t given AstraZeneca a top-selling product or promising late-stage candidates. The recently dismissed global commercial EVP, Tony Zook, was from MedImmune. Still, last week Soriot offered a vote of confidence in the business unit by selecting MedImmune’s Bahija Jallal to oversee discovery and early-stage development in biologics.

More recently, AstraZeneca did a pair of sizable acquisitions last year. The highest profile was for $3.5 billion in a 50/50 June acquisition of Amylin alongside its existing diabetes partner Bristol-Myers Squibb. It’s unclear yet whether this will aid AstraZeneca’s bottom line, but Amylin had been struggling for years to successfully commercialize its portfolio. Amylin’s Bydureon (long-acting exenatide) to treat type II diabetes is expected to have $1.5 billion in peak sales; the combined BMS/AstraZeneca sales forces started marketing it in the U.S. in early October and expect to roll out the drug elsewhere by mid-2013. The other billion-dollar 2012 acquisition for AstraZeneca was of Ardea Biosciences for $1.3 billion in April; that deal brought in the Phase III oral chronic gout candidate lesinurad.

Rumors of a mega acquisition by AstraZeneca started to fly when Soriot’s first action as CEO was to halt the pharma’s share buyback program. A total of $4.5 billion in share repurchases was slated for 2012, but only $2.3 billion was carried out. At the time, Soriot said the move allowed him to “maintain flexibility” going into a strategic review.

Soroit will undoubtedly continue to fill in the blanks on the year-end earnings call on Jan. 31, as well as at the annual meeting and first quarter call on April 25. But until then, we’ve got details below on a new early-stage AstraZeneca partnership, as well as a few other deals. It's always quiet the week immediately after the J.P. Morgan conference, but that won't stop us from bringing you yet another edition of....

AstraZeneca/Vanderbilt: In the latest tie-up between a pharma and Vanderbilt University Medical Center, AstraZeneca reached a deal giving it rights to existing and future research into a group of CNS compounds with implications in psychosis, Alzheimer’s disease and schizophrenia. In a partnership announced Jan. 14, AZ teamed with the Vanderbilt Center for Neuroscience Drug Discovery to research drugs acting on the M4 muscarinic acetylcholine receptor, specifically allosteric modulators that amplify neurotransmitter activity. Few deal terms were announced, but AZ will provide two years’ worth of research funding as part of the arrangement, along with an up-front installment and additional cash payments tied to milestones and royalties. AZ will receive rights to some in-process research funded by the National Institute of Mental Health as part of the National Cooperative Drug Discovery and Development Group, as well as new compounds discovered under the deal. Six-year-old VCNDD recently formed a similar alliance with Bristol-Myers Squibb in Parkinson’s disease, and had a 2008 deal with J&J’s Janssen subsidiary in schizophrenia as well. It’s also the latest academic deal for AstraZeneca, following last year’s so-called A5 alliance with multiple academics studying Alzheimer’s, and a now-expired 2010 deal with the University of Pennsylvania concerning the same disease. - Paul Bonanos

Medicago: The vaccine company got a $15 million loan from an undisclosed major pharmaceutical company with which it is negotiating a partnership. The deal would include co-promotion rights to Medicago vaccines in certain markets. If the deal goes through, the loan will be applied as part of an upfront payment. In that case, Medicago will not pay any interest on the loan. The biotech plans to start a Phase IIa trial of its quadrivalent seasonal flu vaccine with interim data expected in mid-2013. Medicago has an existing alliance with Mitsubishi Tanabe Pharma to develop a rotavirus vaccine and at least two additional vaccine candidates. - Stacy Lawrence

OcellO/Merus: The deal between the Dutch companies gives Merus access to OcellO’s 3D cell culture-based screening platform to profile Merus’ bispecific antibodies to treat cancer. Details of the deal remained undisclosed. Merus is a preclinical company; its lead candidate is partnered with Novartis. It’s been around since 2004 and has brought in more than $30 million in venture financing and corporate deals. OcellO was founded in 2011 and is based on 3D screening technology developed at Leiden University. - S.L.

"Big Fish Eat Little Fish" engraving courtesy of Wikimedia Commons.

Deals Of The Week: What Will Soriot's Genentech/Roche Experience Mean For AstraZeneca?

Like Bristol-Myers Squibb, AstraZeneca has maintained a “pure-play” pharma approach to business in recent years as well as a preference for smaller, targeted “bolt-on” acquisitions, rather than the large-scale M&A pursued in recent years by Pfizer, Merck and Roche.

Some Wall Street analysts suggest that may be about to change, as the U.K. multinational announced Aug. 28 that Pascal Soriot, a chief architect of Roche’s successful absorption of Genentech, will take over as its new CEO on Oct. 1, replacing acting CEO Simon Lowth and succeeding David Brennan, who stepped down in April.

With AstraZeneca struggling through a severe patent cliff – Seroquel (quetiapine) lost U.S. patent protection earlier this year, with Nexium (esomeprazole) slated to follow in 2014 and Crestor (rosuvastatin) in 2016 – full-year worldwide pharmaceutical sales are projected to decline by 16% this year. Bernstein Research analyst Tim Anderson wrote following the Soriot announcement that AstraZeneca’s five-year financial outlook is “uninspiring,” due to a thin late-stage pipeline and a mixed track record of R&D success.

“Doing small bolt-ons, like AstraZeneca has previously described, probably won’t be enough for the company to change its trajectory quick[ly] enough,” Anderson opined in an Aug. 29 note. “Doing a larger acquisition (>$20B in size) would more immediately accomplish this goal, in our view, and AstraZeneca would likely be able to borrow an amount of this size such that its dividend would remain secure and its share buybacks might even continue.”

Bolt-on transactions have been the order of the day recently at AstraZeneca. The firm has been active in acquiring companies with late-stage or marketed products to bolster its flagging R&D pipeline, the most recent being the joint acquisition with Bristol of Amylin Pharmaceuticals. With the purchase, AstraZeneca, which will incur a cost of around $3.5 billion, and Bristol obtained two marketed anti-diabetic GLP-1 agonists, Byetta (exenatide) and Bydureon (exenatide extended-release).

AstraZeneca also announced the $1.27 billion acquisition of Ardea Biosciences to gain access to the Phase III gout drug lesinurad, on June 23. Along with bolt-ons, the company’s business strategy has focused heavily on returning cash to shareholders through share buybacks. Brennan, who announced he was stepping down on April 26, after the company reported an 11% decline in revenues year-on-year in the first quarter of 2012, was an advocate of the buybacks strategy.

But Anderson believes Soriot will be emboldened by his experience in merging Roche with Genentech, a process in which insiders say the exec successfully managed both the process and the people. “He knows both the science and the commercial side of the pharmaceutical business, and he proved himself to be a leader when folding in Genentech,” Anderson wrote. “The Roche/Genentech tie-up continues to function well, all things considered. With this experience in hand, could he be tempted to do a bigger deal at his new company?”

Another analyst, Eric Le Berrigaud of Bryan Garnier & Co., does not see major philosophical changes in the near term, however. “Soriot comes from a company that drives a pure-play strategy in the pharmaceutical industry, which suggests a change in strategy from this perspective at AstraZeneca is unlikely, i.e., no diversification on the horizon.” Just the same, Le Berrigaud also predicts that smaller-scale business development activity will continue at AstraZeneca at its recent hectic pace.

So there you have it – either Pascal Soriot will be a change agent at AstraZeneca in favor of big M&A to turn around the pharma’s prospects … or he won’t.

Yet another perspective, from our sister publication PharmaAsia News, posits that Soriot will try to replicate at his new address the strong emerging markets performance enjoyed by Roche. Particularly in China, Roche has soared in emerging market sales growth, while AstraZeneca has underperformed the industry, and in a business segment it identifies as a priority, no less,

Roche has shunned branded generics in its emerging market strategy – a business pathway pursued vigorously by AstraZeneca – and instead focused on selling innovative specialty products such as high-priced biologics, despite the potential reimbursement hurdles. The strategy has paid off – Roche reported 37% year-over-year sales growth in China during the second quarter, while AstraZeneca sales grew by 12% in that country and only 1% worldwide on the quarter.

As always, your crack deal-watching team has labored to bring you the latest edition of:

Sunovion/Elevation – Sunovion Pharmaceuticals will pay $100 million upfront and up to $430 million total to buy out privately held Elevation Pharmaceuticals in a deal announced Aug. 30. Central to the deal is Elevation’s Phase IIb candidate for chronic obstructive pulmonary disease (COPD), EP-101, which combines an aerosolized formulation of glycopyrrolate with a proprietary inhaler device, the eFlow Nebulizer System. In addition to the upfront, Sunovion (the CNS/respiratory disease-focused company created by the merger of U.S. specialty pharma Sepracor and Japan’s Dainippon Sumitomo) will pay Elevation up to $90 million in development milestones, up to $210 million in commercial milestones and potentially another $30 million if other Elevation programs are developed successfully. Elevation claims that EP-101 is the only nebulized, long-acting muscarinic antagonist (LAMA) bronchodilator in development – the intended indication is for moderate to severe cases of COPD. Phase III trials are slated to begin in the second half of 2013. The buyout provides an exit for Elevation’s venture capital backers, including Canaan Partners, Novo Ventures, TPG Biotech, Care Capital and Mesa Verde Venture Partners. Founded in 2008, Elevation raised roughly $44 million over two financing rounds. Most recently, the biotech announced a $30 million Series B in early January, but had only drawn down a $12.4 million first tranche of that round at the time of the sale’s announcement. – Joseph Haas

Janssen/Genmab – Janssen Biotech has turned again to Genmab to boost its R&D pipeline, this time licensing worldwide development and commercialization rights to the Danish biotech's clinical-stage, CD38-targeted monoclonal antibody daratumumab, in a deal valued at a hefty $1.1 billion. For that sort of money, one would expect a lot of competition for rights to the molecule, and indeed that was the case – Genmab's CEO Jan van de Winkel claimed to be still receiving approaches from other companies the day before he sealed the deal with Janssen on Aug. 30. More than a dozen companies apparently expressed an interest in the asset. The agreement includes an upfront license fee of $55 million, an equity investment of $80 million and up to $1 billion in development, regulatory, and sales milestones, in addition to tiered double-digit royalties. Just weeks before, the two companies had concluded a much smaller deal, valued at $175 million, under which Janssen Biotech will evaluate Genmab's newer bispecific antibodies against a range of therapeutically relevant targets. Daratumumab targets CD38, found widely on the surface of multiple myeloma cells, and it has the potential to be a first-in-class drug for the treatment of multiple myeloma and other hematologic cancers. Initial data have shown it offers a potent and broad spectrum of anti-cancer activity. Janssen looks to be the ideal partner, as it already markets a multiple myeloma therapy, Velcade (bortezomib), in some countries. Genmab has executed a noted turnaround in fortune, after needing to slim down and restructure in 2009-2010. Now, all three of its active clinical-stage products have big pharma partners, and its cash runway extends out four years, at which point royalty and licensing revenues just might be large enough to sustain the company. – John Davis

Alnylam/Monsanto – Alnylam Pharmaceuticals has inked an agreement with big agriculture firm Monsanto that puts Alnylam’s intellectual property in the service of developing next-wave pesticides and other agricultural products. The deal announced Aug. 28 brings Alnylam a $29.2 million upfront payment with the potential for downstream milestone payments and royalties, along with research funding. In exchange, the companies have an exclusive 10-year arrangement in which Monsanto will apply Alnylam’s RNA interference technologies to its BioDirect platform, which aims to bring innovative biological solutions to farmers. Alnylam in turn sent $1.4 million of the upfront to Isis Pharmaceuticals, under a 2004 arrangement in which Alnylam licensed IP for double-stranded oligonucleotide therapeutics that mediate RNAi. Isis also is in line to receive a portion of any milestones or royalties that Alnylam earns under its partnership with Monsanto. According to Alnylam Chief Business Officer Laurence Reid, the agreement with Monsanto is ideal because it gives his company a new source of non-dilutive funding from which it can finance its internal RNAi therapeutic development program, dubbed “5x15.” Alnylam staff will be involved somewhat in technology transfer efforts with Monsanto, but the agriculture firm will do most of the work and will provide research funding for whatever assistance it needs from Alnylam. Neither company would provide much in the way of specifics about how RNAi would be used to create next-wave agricultural products, with a Monsanto spokesperson saying it was still “early days” for determining what kinds of products might evolve from the partnership. “Our collaboration with Alnylam relates to work we have in discovery,” she said. Such products might be used to control devastating agricultural pests and diseases. Monsanto has calculated the annual worldwide market for agricultural biologics at about $1.7 billion. – JAH

Hospira/Orchid – For the second time, injectable generics seller Hospira struck a deal with India’s Orchid Chemicals & Pharmaceuticals to boost its antibiotic-manufacturing abilities. Hospira said Aug. 29 that it would pay about $200 million to acquire Orchid’s 12-year-old, 50,000-square-meter active pharmaceutical ingredient manufacturing facility in Aurangabad, India, which houses 640 chemists, engineers and technologists. The deal also includes a research and development facility in Chennai, home to 160 scientific professionals. Hospira says the acquisition will support manufacturing of key antibiotic products, including wide-spectrum beta-lactam antibiotics such as imipenem-cilastatin and injectable meropenem. The new deal is expected to close in the fourth quarter, and be break-even to slightly accretive to earnings in the first year following its close. In a deal that closed in March 2010, Hospira paid $381 million for another of Orchid’s antibiotic-manufacturing complexes and associated R&D facilities, where it manufactures finished-dosage-form injectable generics. Orchid plans to keep its cephalosporin manufacturing business, which supplies Hospira with that drug. – Paul Bonanos

Merz/Shionogi – Merz Inc., the U.S. affiliate of Merz Pharmaceuticals GMBH, announced Aug. 27 the acquisition of Cuvposa (glycopyrrolate, coincidentally the same active ingredient in Elevation’s COPD drug, EP-101, noted above) from Shionogi & Co. Financial terms were not disclosed. Cuvposa is an oral solution for sialorrhea, over-excretion of saliva, specifically for pediatric chronic severe drooling associated with neurological conditions such as cerebral palsy. Cuvposa indirectly reduces the rate of salivation by preventing stimulation of acetylcholine receptors located on peripheral tissues, including salivary glands. FDA approved Cuvposa as an orphan drug in 2010, and it has been available in the U.S. through specialty pharmacy since April 2011. It is the only FDA-approved treatment for this condition. Merz, Inc. CEO Bill Humphries said the acquisition of Cuvposa “is a promising addition to our neurology business and reflects our commitment to becoming a recognized leader in the treatment of movement disorders and related conditions.” Merz, Inc. develops and commercializes products in the U.S. for its German parent, and its portfolio comprises neurology, aesthetics and dermatology products. – Michael Goodman
Photo credit: Roche

While Awaiting New CEO, AstraZeneca Already Busy On The Business Development Front

Every player in big pharma is facing a patent cliff to some extent, but while some are dealing with their losses through diversification or a targeted approach to deal-making activity, it is unclear what direction AstraZeneca, the pure-play pharma among the giants, will take now that Seroquel IR (quetiapine) is off-patent, to be followed soon enough by Crestor (rosuvastatin).

A good portion of this uncertainty stems from the vacancy in the chief executive’s office. CFO Simon Lowth has been serving as acting CEO since predecessor David Brennan stepped down June 1 under a plan announced during the Anglo/Swedish pharma’s first quarter earnings call in April. The second quarter review occurred July 26, but while the impacts of patent expiries to top-selling AstraZeneca products are becoming clear, with a new permanent CEO not selected yet, the company’s strategy going forward remains a source of much speculation.

AstraZeneca focused largely on recent launches and late-stage pipeline prospects during the call, while Brennan’s successor was not discussed and current executives did not offer much new in the way of corporate strategy for the near term. In talking up its pipeline, AstraZeneca said it has 90 candidates in clinical development, although it counts seven drugs in the approval and launch stage among that number – an instance of trying to have its cake and eat it too?

Still, an 83-candidate pipeline is nothing to sneeze at, although Wall Street generally does not enthuse about AstraZeneca’s internal R&D. Instead, citing Leerink Swann analyst Seamus Fernandez as an example, the call is for significant M&A to yield a new future for AstraZeneca. In his July 26 note reiterating a “market perform” rating for AstraZeneca’s shares despite an 18% year-over-year decline in revenues, Fernandez re-issued an earlier call for “aggressive” M&A activity.

“We continue to believe the most realistic path forward for AstraZeneca is a more aggressive M&A strategy … but if current trends continue, additional and likely substantial restructuring may be necessary to sustain profitability necessary to deliver on the company’s “balanced” capital allocation strategy,” he wrote.

On May 31, on the cusp of Brennan’s departure, Fernandez opined that an “increased reliance on international sales growth from Japan and the emerging markets” would not be sufficient to overcome a precipitous revenue decline in the U.S. Indeed, AstraZeneca reported emerging markets revenue growth of just 1% during the second quarter, the same growth as during the first quarter, but attributed the lackluster pace to supply-chain issues stemming from new IT snags at a manufacturing site in Sweden. But for those weak links, the chain would have produced 8% growth in emerging market sales during the quarter, AstraZeneca execs claimed.

Still, there has been a clamor for growth-by-acquisition. And in a year that has seen plenty of biopharma M&A already, AstraZeneca has contributed its share of deals.

It teamed up with Bristol-Myers Squibb earlier this month to buy Amylin Pharmaceuticals for a whopping $7 billion. While Bristol is the actual buyer, AstraZeneca will send Bristol $3.4 billion after the deal goes through, almost half the purchase price, and then the two pharmas will use Amylin’s Byetta (exenatide) and Bydureon (exenatide extended-release) to bolster their combined diabetes portfolio.

In fact, it seems only accurate to describe AstraZeneca’s business development approach as aggressive already, even if it let Bristol take the lead in the Amylin buyout. Just since April, AstraZeneca has participated in eight deals, highlighted by a $1.27 billion purchase of Ardea Biosciences centered around gout candidate lesinurad. During that period, the pharma also has signed partnerships and licensing agreements with Cellworks Group, Link Medicine, Axerion Therapeutics, Amgen and The Medicines Co.

During the July 26 call, Lowth and President, R&D, Martin Mackay indicated that those deals should be seen as part of an ongoing business development strategy the AstraZeneca will continue to pursue. While Mackay focused on open innovation and numerous R&D tie-ups with partners of all sizes, Lowth said the company is pleased with the three significant deals it has completed (Ardea, Amgen, Amylin) this year, adding “there’s a whole host business developments and collaborations going on across research and development.”

Whether a new, permanent CEO – be it Lowth, Mackay or someone from outside the organization – will bring a new direction is unknown, but it is fair to say that AstraZeneca already is pursuing an active and hectic business development course. – Joseph Haas

Now, here is our weekly look at other developments in the world of biopharma deal-making …

Merck/Chimerix and Merck/Yamasa: The marketer of billion-dollar HIV drug Isentress (raltegravir), Merck & Co., struck two July 24 deals to bolster its pipeline of compounds that fight the same virus. Merck paid $17.5 million upfront to privately held Chimerix for worldwide rights to the Phase I drug CMX157, a lipid-antiviral conjugate designed to deliver the antiviral compound tenofovir to cells in high concentrations with reduced systemic effects. Milestones could add $151 million to the deal’s value, and Merck would pay Chimerix royalties if the drug is approved. CMX157 also is thought to hold promise in treating hepatitis B virus. Research Triangle Park, N.C.-based Chimerix, which has raised $101 million from venture investors, expects to put the funds toward trials on CMX101, a broad-spectrum antiviral soon to enter a Phase III study for cytomegalovirus. Separately, Merck partnered with Japan’s Yamasa Corp. in a deal of undisclosed size that gives it global rights to EFdA (4-ethynyl-2-fluoro-2-deoxyadenosine), a nucleoside reverse transcriptase inhibitor that has shown efficacy against highly resistant strains of HIV. Merck also said it would begin a Phase IIb trial on one of its own HIV pipeline drugs, MK-1439. – Paul Bonanos

Boehringer Ingelheim/Funxional: Boehringer Ingelheim is expanding its respiratory drug pipeline with the acquisition of a novel oral small molecule anti-inflammatory drug developed by Funxional Therapeutics. The companies announced a deal July 23 in which BI will acquire Funxional’s lead candidate, FX125L, a potential first-in-class somatotaxin and back up compounds for an undisclosed amount. Respiratory disease is one of BI’s core therapeutic areas; the company markets the inhaled blockbuster Spiriva (tiotropium bromide) for chronic obstructive pulmonary disease and has several respiratory drugs in late-stage development, including tiotropium for asthma and nintedanib for idiopathic pulmonary fibrosis. The addition of FX125L will give BI a first-in-class asset in a novel pathway that acts through the type-2 somatotaxin receptor (sstr2). As an oral drug, the market opportunity for FX125L could be significant given that inhaled drugs dominate the respiratory landscape. But few details are known about the drug’s clinical safety and efficacy so far. Funxional’s CEO Geoff Race said that in addition to offering the best terms, BI also had the pedigree and track record in respiratory disease that Funxional’s investors were looking for. “It is not just the initial payment that is important. It is the probability of getting the product to market that is also important,” he said. “We were pleased to have a partner like BI who we felt had the financial resources as well as the technical resources to take this product to the market.” Since its somatotaxin portfolio was essentially Funxional’s only program, the deal provides an exit for the biotech’s backers Index Ventures, Novo AS and Ventech. But Funxional may not vanish; it’s already evaluating its other earlier-stage technologies. “We are thinking about which one goes into the pipe,” Race said.” “We will take a little bit of time to think about that and start research programs later in the year.” – Jessica Merrill

Roche/AREVA: Roche and AREVA Med, a French biopharma specializing in the development of radioactive isotopes for therapeutic use, announced on July 27 that they will collaborate on a novel alpha radio-immunotherapeutic platform to focus on high-unmet need cancers. No terms were disclosed. Together, they will assess the efficacy of combining Roche’s engineered antibodies with AREVA Med’s radionuclide, Lead-212, a compound that shows promise in treating some types of cancer. Alpha radiation consists of fast-moving, high-energy helium atoms which, because of their large size, are easily stopped by a light, relatively insubstantial barrier such as a few inches of air or a piece of paper. Therefore, alpha radiation travels only short distances in human tissue. This mean that its energy is absorbed in a smaller area for improved cell death with little damage to healthy tissue. By targeting cancer cells with highly specific antibodies combined with Lead-212, there is an opportunity to more precisely irradiate and kill cancerous cells. In 2011, AREVA Med acquired Macrocyclics, a leader in metal chelators, which also will  participate in the collaboration with Roche. AREVA Med is associated with the National Cancer Institute (NCI), the University of Alabama at Birmingham (UAB) and the French National Institute of Health and Medical Research (Inserm). – Michael Goodman

Photo credit: (AZN's R&D location, Molndal, Sweden) Wikimedia Commons