2013 M&A of the Year Nominee: The Ibrutinib Royalty

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™.

Royalty deals have long been the provenance of more conservative private-equity vehicles. Then came... The Ibrutinib Royalty, soon to be a major motion picture starring Matt Damon.

But seriously, 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 for a tiny slice of sales royalties from ibrutinib, a cancer drug that hadn't been approved yet.

It's approved now; the FDA granted accelerated approval for mantle cell lymphoma (MCL) to its sponsor Pharmacyclics in November, and it goes by the name Imbruvica. (The Imbruvica Approval, starring Daniel Craig as Richard Pazdur!)

Please, would you pay attention, 007: The PDUFA date for a much larger indication, chronic lymphocytic leukemia, comes in late February 2014. Ibrutinib could be a best-seller. If it isn't, Aisling and Clarus will have trouble recouping their cash. Certainly it’s a less risky investment than they and their brethren are accustomed to. But even if ibrutinib can garner multi-billion dollar sales at its peak, will it bring venture-like returns to Clarus and Aisling?

Here’s some math: in an interview in “The Pink Sheet” DAILY, Royalty Pharma officials pegged the royalty stream in the mid-single digits as a percentage of total ibrutinib sales. We don’t know the exact number, so let’s call it 5%. Clarus and Aisling have each bought 10% of that stream; let’s call it 0.5% of total sales apiece. Under that scenario, it will require nearly $10 billion in ibrutinib sales for each firm to recapture its investment; more than $19 billion to double it, and $29 billion to capture a “venture-like” 3x return.

Even by optimistic projections – this summer, Barclays Capital estimated peak annual sales between $2 billion and $3.6 billion, while others have gone higher – it will take ibrutinib years to reach those figures. Venture firms like Aisling and Clarus investing from the tail ends of their funds need extremely patient limited partners to wait years, but the ibrutinib scenario could play out – and pay out – in two different ways.

First, the VCs will have a steady stream of returns to pass through to LPs as soon as sales begin. Such near-term returns, however incremental, would be far less likely if the VCs had spread the $50 million among a few earlier-stage biotech companies or other investments.

Second, now that ibrutinib is approved, the value of the royalty stream will probably jump. Other investors, including other royalty funds, don’t take pre-commercial risks the way Aisling, Clarus, and Royalty Pharma, the lead investor in the deal, did. With those risks all but eliminated, perhaps Clarus and Aisling could flip their royalty rights to new buyers. Aisling’s Dennis Purcell and Clarus’ Nick Simon acknowledged as much earlier this year, before the drug's approval.

The firms joined Royalty Pharma, the 800-pound gorilla of royalty funds, to buy the ibrutinib royalty rights from Quest Diagnostics for $485 million, a deal first announced in mid-July without disclosure of the VCs’ names or financial details.  (Quest obtained the rights in 2011 when it bought Celera Corp. for its diagnostics business.)

Royalty funds – firms that pay up-front cash to scientists, institutions, biotechs, and pharmas for royalty rights that they collect over time – don’t typically risk regulatory failure on top of commercial uncertainty. But Royalty Pharma has been more creative of late, even making an acquisition play for Elan Corp PLC that was ultimately unsuccessful.

Meanwhile, Clarus and Aisling have looked for deals that emphasize shorter timelines to potential returns as they invest from the tail ends of their current funds. In July, an Aisling-backed start-up, Loxo Oncology, in-licensed an undisclosed preclinical oncology candidate from Array BioPharma, with trials to start in 2014.  Clarus has invested in a series of clinical development companies – mini-CROs, of a type – that run late-stage trials of drugs owned by Pfizer and other big drugmakers, with milestone and royalty payments on offer if the drugs succeed.

It’s all part of a scramble within life sciences venture to woo back limited partners turned off by poor returns the past decade. The 2013 IPO boom might help bolster venture returns, but with the fickle window, life science VCs aren’t likely to abandon the pursuit of deals that shorten the time to exit and shore up lower risk, lower reward returns.

flickr image courtesy Deb Roby, creative commons

2013 M&A Of The Year Nominee: Biogen Idec/Elan's Tysabri Royalties

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™.

Elan’s move to sell its share of the Tysabri (natalizumab) royalty to long-time partner Biogen Idec was the ball that set the Rube Goldberg device in motion, precipitating its endgame 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.

The sanity of Elan management has come into question on a number of occasions over the last year; industry, analysts, shareholders and media all wondered at some point what Elan CEO Kelly Martin could possibly be thinking when he began selling off the company’s most valuable assets and starting inking deals for royalty streams. What didn’t become entirely apparent until the former spec pharma darling was bought out by Perrigo for $8.6 billion in late-July was that Martin was (on purpose, probably) turning Elan into a shell company with lots of cash and an incredibly desirable tax rate.

Elan’s transformation into the pile of cash in Ireland that Perrigo eventually bought was driven by the previous year's clinical failure. In 2012, its highly-anticipated Alzheimer’s drug bapineuzumab failed spectacularly in Phase III – showing no signs of efficacy over placebo. After the bombshell, Elan had little in any of its other programs that would make it worthwhile to an acquirer; reimagining the company would be the only way to return value to shareholders. (Had that drug succeeded, perhaps we'd be writing about another deal -- the acquisition of the company by one of its Big Pharma partners, Pfizer or -- 2009 DOTY nominee --  Johnson & Johnson?)

So Martin set out to make Elan worth something to anyone by selling off its tangible assets for lots of cash. The company quickly divested its 25% stake in Alkermes for $550 million and spun-out its drug discovery unit into an independent biotech, dubbed Prothena. But it was the Tysabri deal with Biogen that really gave Elan its flexibility.

In early-February, Elan announced that it was selling the majority piece of its 50% stake in the blockbuster multiple sclerosis drug, which brought in $1.6 billion in 2012 and is expected by the companies to grow by 15% in 2013. Biogen agreed to pay Elan $3.25 billion upfront, as well as royalties on all future sales of Tysabri – effectively ending the decade-long partnership.

The Irish company (now Perrigo) will receive 12% of sales for the first year; then, its royalty rate jumps to 18% on all sales under $2 billion and 25% on sales over $2 billion. Royalties will continue for the life of the product and will include all indications – the drug is currently approved in relapsing/remitting MS, but it is also being studied in secondary-progressive MS, and Biogen has indicated it may look into the drug as a treatment for stroke. The SPMS trial is expected to report out in 2015.

Some people questioned the wisdom of selling off the bulk of the Tysabri royalty, but for Elan to reach its goal of getting acquired it made the most sense. While the Tysabri royalty is lucrative, the 50% ownership of the drug meant that Elan played a major part in how the lifecycle of the drug was managed; this could be particularly unappealing to any company that doesn’t have a stake in the MS space, therefore limiting the number of companies that would be interested in acquiring Elan. Once Tysabri became simply a big chunk of cash and potential for more cash in the future with no strings attached, it became appealing to any company, whether they were a player in the MS market or not.

For Biogen, this deal was a no-brainer – the company has long been hoping to be the majority owner of one of its best-selling products. Tysabri fits right into the biotech’s sweet spot; it also owns the MS drugs Avonex (interferon beta-1a) and Tecfidera (dimethyl fumerate), which all together represent about 40% of the total MS market.

Financings of the Fortnight Explores the Alternatives

With all the noise this year about IPOs in our little corner of the world, it’s been easy to forget that most biotechs out there are scrambling for any source of cash they can lay hands on. Assurances aside that traditional biotech VC is making relative bank, the overall pool of traditional venture capital available to invest will continue to dwindle, as respondents in START-UP’s 3rd annual life science VC survey were quite adamant about.

(The survey is now available, by the way.)

This week we got a taste of the post-VC world; or at least, a reminder of the various types of alternative funding out there for health care and biotech that, in a few years, could replace a significant chunk of traditional venture and interrupt for good the boom-and-bust cycle.

First, the elephant in the room: Google announced it would fund a new health care company, Calico, dedicated to anti-aging. The search-and-so-much-more giant is clearly obsessed with health, and doing something about the drastic – dare we say “tragic” – flaws in the care system. Our correspondent Paul Bonanos did a great job delving into Google Ventures’ health care investment strategy in this feature earlier this year, and we recommend reading it (non-subscribers can sign up for a free trial) as background to what might be going on with Calico.

Fly-on-wall fantasy: Page: How do we increase Google searches over a person's lifetime? Brin: What if we just increased the lifetime?
— Josh Berlin (@BioPharmaJosh) September 18, 2013

Paul also reminds us that the Googlers aren’t the only tech-heads with health-care ambitions: Peter Thiel, Yuri Milner and others are shifting their fortunes in small measures. And bully for them; we could certainly use fresh minds and tech-savvy strategies (Tech Tonics?), what with the data-intensive nature of health care these days.

But Silicon Valley’s libertarian streak is often at odds philosophically with another important source of biotech funding that we were reminded of this week. The National Institutes of Health announced the recipients of $45 million from the funds dedicated in 2012 to Alzheimer’s research. Those funds aren’t going directly to biotech companies, but the trials and other efforts they’re backing are much needed in an area that seems practically abandoned by industry – at least in proportion to the level of the dire medical need Alzheimer’s represents. So, indirectly, one can only hope the NIH funding can move the needle enough for biopharma, big and small, to see clearer pathways that deserve cash outlays from the private sector, as well.

Finally, we’re about to see a small but significant step toward equity crowdfunding. Title II of the JOBS Act, which loosens the rules for general solicitation of accredited investors, takes effect next week. It’s not quite crowdfunding nirvana – or the apocalypse, depending on your viewpoint – because we’re still a ways away from Mom and Pop, Joe Sixpack, and the Joneses being able to participate.  (That’s Title III.) But all manner of folks are lined up, ready to provide investment platforms for those with an eye on biotech, as our colleagues have written about here.

If you happen to be at PSA: The Pharmaceutical Strategy Conference in New York next week, you can ask Greg Simon, who’s running the equity crowdfunding site Polliwogg, all about the latest developments. (Or you can catch him on the panel “Funding Biotech: New Ways To Create Value.”)

Or, if you hate going anywhere near New York because you’re convinced it’s about to be overrun by giant drooling sea-dragon spiders, well, the people we write about have products that can help you. Until then, relax in the safety of your home or office, avoid the crowds (and their funds), and enjoy the latest edition of….



Civitas Therapeutics: From the ashes of the inhaled insulin efforts of the previous decade comes Civitas, which said September 11 it has raised a $38 million Series B financing to fund late-stage development of the company’s lead program, CVT-301, an inhaled formulation of levodopa (L-dopa) to treat debilitating motor fluctuations – known as “off episodes” -- associated with Parkinson’s disease. Civitas spun out of Alkermes' pulmonary business in 2010, then the latest casualty in Big Pharma’s complete retreat from several efforts to create inhaled insulin products. But Longitude Capital and Canaan Partners raised $20 million for a Series A, and in early 2011 new CEO Glenn Batchelder told FOTF he hoped to bring a Parkinson’s-related treatment to clinical proof of concept by the end of 2012. (Why an inhaled L-dopa for Parkinson’s? During acute “off periods,” characterized by halting or frozen movement, the Civitas technology aims to deliver drug even when it might be difficult for patients to draw a sustained breath.) CVT-301 is being positioned as an adjunct therapy to oral L-dopa. Bay City Capital led the round and was joined by crossover hedge fund RA Capital, an undisclosed blue chip public investment firm, and all returning shareholders including Alkermes, Canaan Partners, Fountain Healthcare Partners, and Longitude Capital. Partners from Bay City and RA Capital joined the company’s board. Civitas will also explore pipeline expansion with its ARCUS delivery platform for other diseases where what the company defines as a “large, precise” dose delivered from an inhalation device “would provide a significant clinical advantage.” – A.L.

DRI Capital: The Toronto health care royalty investor said September 9 it has raised a new $1.45 billion fund, its third following $240 million and $926 million vehicles, raised in 2006 and 2010 respectively. Investments under the first two funds followed a fairly straightforward set of criteria: drugs with FDA or EMA approval that offer strong efficacy and an attractive pharmacoeconomic profile and that are used to treat very serious, chronic conditions, DRI President and CEO Behzad Khosrowshahi told our “Pink Sheet” colleagues. For the third fund, however, DRI also plans to consider investments in Phase III assets and the higher returns that might come from higher-risk investments. It’s part of a larger but still subtle trend of royalty firms dipping toes into pre-commercial assets, even as traditional venture firms cross the other way and dabble in royalty investments. Khosrowshahi said that DRI has “a decent level of internal expertise” to evaluate pre-commercial risks. The drug royalty business has certainly attracted the capital to lure health care specialists, with DRI joined by competitors such as Capital Royalty L.P., Orbimed Advisors LLC and Healthcare Royalty Partners. Earlier this year, Capital Royalty raised more than $1 billion for its second fund, announcing a revised strategy under which it would emphasize debt instrument financing that would offer its deal partners a more concrete sense of the cost of capital. -- Joseph Haas

Five Prime Therapeutics: The protein therapeutic company notched on September 18 the first biotech IPO of the fall season. More than a dozen are waiting in registration, and an unknown number are also still under wraps with confidential filings. Five Prime raised $62 million by selling 4.8 million shares at $13 each, right within its projected range of $12 to $14 a share. Insiders bought about 408,000 shares. Five Prime was founded in 2001 and built at a time when VCs were more willing to wait for long-term payoffs for platforms. Five Prime’s platform consists in part of a library of 5,600 extracellular proteins to yield novel targets, and biotech or pharma partners have signed on with more than $220 million in partnership or licensing money. Its most advanced candidate FP-1039 is a selective FGF inhibitor that Five Prime and its partner GlaxoSmithKline put into a Phase Ib trial in July.  “If you were to tell a VC, ‘Give me four or five years and a chunk of money to develop this kind of platform,’ it might be a tough sell these days,” Five Prime VP of Biology Brian Wong told our sister publication START-UP earlier this year. Befitting a company that’s taken 12 years to reach the public markets, the pre-IPO ownership was spread rather widely. Only Pfizer had more than a 10% stake, with 13.7%. Venture or priate equity groups Advanced Technology Ventures, Domain Associates, Kleiner Perkins Caufield & Byers, HealthCap, Versant Ventures – from the firm’s very first fund -- and Texas Pacific Group all owned 9%. Founder and CEO Rusty Williams owned 6.8%. Jefferies led the underwriting team, which has the option to sell an additional 720,000 shares. – Alex Lash

Cubist Pharmaceuticals: The antibiotic maker said September 16 it bought $25 million in Series A preferred stock from Optimer Pharmaceuticals, a sale that was negotiated this summer as part of Cubist’s agreement to buy Optimer. That acquisition, not yet consummated, hasn’t gone over well with Optimer shareholders, who have filed suit to stop it because Optimer shares have actually been climbing since the company dumped its CEO and put itself up for sale in February. The $10.75-per-share offer, or $535 million, was at a 19% discount to Optimer’s July 30 closing price. Shareholders could earn more post-acquisition if Cubist hits sales milestones with Optimer’s Clostridium difficile treatment Dificid (fidaxomicin), a product it has been selling in the U.S. since 2011, when it signed an exclusive co-promotion deal with Optimer. The $25 million stock sale is essentially a bridge to help Optimer pay the bills – or as a Cubist spokeswoman told FOTF, “to address Optimer’s near-term cash needs” -- until the merger takes effect. The purchase repeats quarterly, so if the deal hasn’t closed in three months, Cubist will pay another $25 million, and another $25 million three months after that. As of June 30, Optimer had $73 million in cash on hand, down from $119 million at the end of 2012. Seeing how the deal was unusual for its discounted price, there certainly is a chance that the lawsuit will have legs and hold matters up for some time. The Cubist spokeswoman declined to comment on the suit. – A.L. and Jessica Merrill 

All The Rest: myoscience, developing Focused Cold Therapy devices for peripheral nerve conditions, closed on a $25M Series E round…Index Ventures is initially investing $10M into Egalet to support work on abuse-deterring pain meds, with the option for another $10M…Emmaus Life Sciences raised $7.5M to complete Phase III studies for its sickle cell candidate…to pay for its acquisition of CNS assets from Merck, Cerecor got $6.8M in Series A-1 financing…Taglich Brothers led a $3.2M round for screening and assay development services company Caldera Pharmaceuticals…Sanofi was an investor on Hadasit Bio-Holdings-portfolio company KAHR Medical’s $2.5M fundraise…BioMotiv and the NYU Innovation Fund launched autoimmune start-up Orca Pharmaceuticals…KV Pharmaceutical emerged from Chapter 11 bankruptcy, simultaneously closing on a $100M credit facility and $275M rights offering…Cell Therapeutics sold $15M in 15k Series 18 convertible preferred shares…Taiwanese biotech Amaran provided half of the $10M private investment in Stellar Biotechnologies…A $10M PIPE by NanoViricides gives the company a total of $22M in cash for the next two years to fund its FluCide and DengueCide candidates…A day after revealing positive outcomes in its Phase II glioblastoma multiforme vaccine study, Agenus raised $6.5M in an at-the-market registered direct offering…injectables developer Sagent Pharmaceuticals closed on a $75M FOPO…to continue work on ZFP Therapeutic candidates, Sangamo BioSciences completed a $64.5M secondary offering…Galena Biopharma’s $35M FOPO will help to commercialize its first product, Abstral…electroporation drug delivery company OncoSec publicly raised $12M…protein therapeutics company Acceleron priced its IPO at the top end of its range to gross $83.7M...glaucoma drug developer Aerie Pharmaceuticals filed for its IPO, while Bind Therapeutics, Ophthotech, and Enzymotec set terms for their offerings…Cubist offered $800M in two series of convertible senior unsecured notes…therapeutic protein maker Protalix BioTherapeutics closed on $69M in 4.5% convertible notes due in 2018…ProMetic Life Sciences’ $Cdn10M debt financing will help put its plasma purification facility into operations for manufacturing plasma-derived orphan drugs…Benu BioPharma established Benu BioVentures for investments in preclinical to proof-of-concept candidates…and Daiichi Sankyo teamed up with Mitsubishi UFJ Capital to launch a new fund for start-up creation; Daiichi gets rights to buy the companies and IP. -- Amanda Micklus 

Image courtesy of flickr use Kitschweb through a Creative Commons license. 

Aisling, Clarus Crown Old Funds With Huge Royalty Deal

When was the last time a life sciences venture firm spent $50 million all in one go? It doesn't happen often. But in the past week, two firms did exactly that. Aisling Capital and Clarus Ventures announced Monday that they've each put up $48.5 million for a tiny slice of sales royalties from ibrutinib, a promising cancer drug that could receive FDA approval this calendar year or early next.

The firms joined Royalty Pharma to buy the ibrutinib royalty rights from Quest Diagnostics for $485 million, a deal first announced in mid-July without details of the VCs' involvement. (Quest obtained the rights when it bought Celera in 2011 for its diagnostics business.)

Royalty deals are happening more often, as we noted on this blog earlier this year, but this was an unusual deal for Royalty Pharma – and would be for any royalty fund – because the drug is not yet approved. Royalty investors, firms which pay up-front cash to scientists, institutions, biotechs and pharmas for royalty rights that they collect over time, don’t typically risk regulatory failure on top of commercial uncertainty. But Royalty Pharma has been more creative of late, even making an acquisition play for Elan Corp that was ultimately unsuccessful.

Royalty Pharma brought in the VCs to share the risk and to help assess regulatory and commercial uncertainties in the hematology-oncology space. (Clarus has people, including managing directors Nick Simon and Dennis Henner, PhD, who were executives at Genentech in the Rituxan era.)

For the VCs, investing from the end of their current funds with an eye toward new fundraising, it’s a less risky investment than they and their brethren are accustomed to. Sponsored by Pharmacyclics and Johnson & Johnson, ibrutinib has received “breakthrough” status from the U.S. Food and Drug Administration in three patient settings: chronic lymphocytic leukemia with a deletion of the chromosome 17, relapsed/refractory mantle cell lymphoma and Waldenstrom’s macroglobulinemia.

Even if ibrutinib garners multi-billion dollar sales at its peak, will it bring venture-like returns to Clarus and Aisling? Royalty Pharma officials recently told "The Pink Sheet" DAILY that the royalty stream they bought from Quest is in the mid-single digits as a percentage of total ibrutinib sales. We don’t know the exact number, so let’s call it 5%. Clarus and Aisling have each bought 10% of that stream; let’s call it 0.5% of total sales apiece.

Under that scenario, it will require nearly $10 billion in ibrutinib sales for each firm to recapture its investment; more than $19 billion to double it, and $29 billion to capture a “venture-like” 3x return.
Even by optimistic projections – last month, Barclays Capital estimated peak annual sales for ibrutinib between $2 billion and $3.6 billion, others have gone higher -- it will take years to reach those totals.

But the ibrutinib scenario could play out – and pay out – in two different ways. First, if ibrutinib is approved, the VCs will at least have a steady stream of returns to pass through to their LPs as soon as sales begin. Such near-term returns, however incremental, would be far less likely if each VC spread its $50 million among a few earlier-stage biotech companies or other investments.

Second, if ibrutinib is approved, the value of the royalty stream could jump. There are other investors, including other royalty funds, that don’t take pre-commercial risks. Eliminate those risks, and perhaps Clarus and Aisling could flip their royalty rights to new buyers. Aisling senior managing partner Dennis Purcell and Clarus’s Simon acknowledge both scenarios. “It certainly factored into our thinking,” says Simon. “We can hold for the entire the royalty period, and we also have the option to sell at some point once adoption of the drug establishes real commercial value.”

Seeing how Clarus and Aisling both are investing from the tail end of funds closed in 2008 and 2009, respectively, we'll speculate that there's a good chance this deal becomes, well, royalty speculation. We don't know the internal goals for the funds, but if ibrutinib is approved and buyers emerge, we wouldn't be surprised to see a flip of the rights for something less than a "venture-like" 3x return. As  Purcell notes, a big part of the venture equation these days is shortening the time from investment to liquidity.

Even with their big ibrutinib outlays, Clarus and Aisling say there's a little gas left in the tank for their current funds. Purcell says his group hasn't yet begun talking to LPs about raising a fourth fund, while Simon says Clarus is "actively contemplating" a third fund.

- Paul Bonanos contributed to this report. For more analysis of this deal and other avenues VCs are taking to find lower-risk returns, see our upcoming issue of START-UP.

Photo courtesy of flickr user Jodimu.

Deals Of The Week: Kicking The Tires

Apparently, virtually by the time it became “news,” it transformed into “non-news.” News reports of Roche’s interest in acquiring ultra-rare disease focused Alexion Pharmaceuticals surfaced suddenly July 12 and just as rapidly evaporated the following week, as Wall Street analysts noted the prohibitive premium price and lack of cost-saving synergies.

That doesn’t mean that “tire-kicking” season is over in biopharma, if indeed it ever ends. During a steamy summer season highlighted by the running of the bulls in Spain, the jockeying for position of the bikers in France, and world-class tennis being followed quickly by world-class golf in the U.K., renewed speculation about the fate of cancer specialist Onyx Pharmaceuticals after it it put itself up for sale in in late June surfaced just as the Roche/Alexion story sputtered to an end.

Recall that Amgen got the ball rolling on Onyx speculation with a $120-per-share bid confirmed by Onyx on June 30. Onyx declined the offer but also put itself on the auction block, hoping to attract an even greater price tag. Now, perhaps four or more companies are interested in the oncology firm, possibly including its long-time partner Bayer and competitors in the multiple myeloma space such as Celgene and Takeda.

Media reports also cited Bristol-Myers Squibb and Gilead Sciences as possible suitors, while Pfizer was mentioned as a player, then backed off due reportedly to the price premium. Also not in the running, according to speculation, are Sanofi, GlaxoSmithKline, Novartisand Biogen Idec.

Roche’s reputed interest in Alexion, while understandable because of the Connecticut biotech’s all-out success with Soliris (eculizumab), the highest-priced drug in the world, also is puzzling because of questions about how the Swiss pharma would derive value from such a pricey acquisition. The company has only one commercial product – for a pair of ultra-orphan diseases – albeit a rapidly growing, billion-dollar product, bolstered by an up-and-coming robust pipeline. Reports – unconfirmed – had Roche looking over financing vehicles in order to make a purchase in the range of $25 billion for Alexion.

Deutsche Bank analyst Robyn Karnauskas wrote July 15 that while many European large pharma companies might be able to afford Alexion, they would balk at the price. Roche likely would be better off pursuing “a product/company with more strategic fit or transformational potential,” she said. Projecting Alexion total revenues of $1.7 billion in 2014 and $2.6 billion in 2015, the reported Roche bid would translate into multiples of 15x next year and 10x in 2015, she estimated.

An analyst at UBS Investment Research, Matthew Roden, who covers Alexion, wrote July 15 that the company is an attractive and likely take-out target but would offer few points of potential synergy with Roche. It would be more of a “bolt-on” transaction than a “fold-in” acquisition, he suggested.

“Since the Alexion business model requires a high degree of patient touch and very specialized sales force to reach idiosyncratic PNH (paroxysmal nocturnal hemoglobinuria) and aHUS (atypical hemolytic uremic syndrome) markets, we see limited capability for SG&A cost savings through a deal beyond regulatory structure,” Roden said.

His U.K.-based colleague Andrew Whitney, who covers Roche, noted July 15 that an offer of about $130-per-share for Alexion would represent 35 times the UBS projections for 2014 earnings by the biotech.
So, while Roche/Alexion apparently is not happening and Onyx could end up in the hands of a big pharma, a big biotech or some business model in between, DOTW can offer these transactions that reached the point of signatures along the dotted line …

Spectrum/Talon: Spectrum Pharmaceuticals acquired Talon Therapeutics in the hopes of expanding the indications for Marqibo. The liposomal form of vincristine received accelerated approval from FDA in August 2012 to treat third-line patients with Philadelphia chromosome-negative acute lymphoblastic leukemia (ALL). Spectrum hopes Phase III data to treat newly diagnosed, elderly non-Hodgkin’s lymphoma patients will pan out and lead to an approval in NHL, thereby significantly expanding the potential market for Marqibo. A Phase III trial of Marquibo in newly diagnosed ALL patients also is ongoing. This trial is intended to serve as a confirmatory trial for the accelerated approval. Disclosed on July 17, the deal was slated to close a day later. Spectrum paid $11.3 million in cash, in addition to 3 million of its shares. Spectrum shares closed at $8.77 on July 17. At that price, Spectrum paid $37.6 million in cash and stock, plus contingent value rights (CVRs) worth up to $195 million. CVRs are tied to Marqibo sales milestones and an approval for Menadione, a Phase II topical lotion for the treatment of the skin toxicity associated with epidermal growth factor receptor anti-cancer (anti-EGFR) agents. Spectrum plans to launch Marqibo before early December, with a price point similar to other improved formulations of oncology treatments, like Abraxane, a long-acting, nanotech formulation of paclitaxel, or Doxil, a liposome-encapsulated doxorubicin. Private equity firm Warburg Pincus and hedge fund Deerfield Management recapitalized Talon in 2010, buying at least $69 million in equity in the last three years. - Stacy Lawrence

Pfizer/Sequella: Anti-infective drug specialist Sequella has licensed a mid-stage tuberculosis antibiotic from Pfizer. The privately held Rockville, MD, company acquired worldwide rights to sutezolid, previously known as PNU-100480, for an undisclosed amount. Pfizer previously investigated the oxazolidinone antibiotic in both drug-sensitive and multi-drug resistant tuberculosis, conducting Phase II and pivotal trials in Africa and Russia respectively. Sutezolid complements the Phase II drug SQ109, Sequella’s lead program in Mycobacterium tuberculosis; the company plans to investigate pairing the two in a combination therapy. The 16-year-old company has another TB drug, SQ609, as well as programs in Helicobacter pylori, Clostridium difficile and M. avium paratuberculosis. Sequella traditionally has supported itself by raising capital from hedge funds and other private investors as well as government grants. It also completed a partnership with Maxwell Biotech Venture Fund in 2011, giving the Russian investor territorial rights to SQ109. Pfizer said it is shifting its anti-infective focus from treatment to prevention, and has been seeking to partner drug candidates such as sutezolid. The drug also could be studied in Gram-positive infections such as methicillin-resistant Staphylococcus aureus and vancomycin-resistant Enterococcus, as well as other forms of tuberculosis. – Paul Bonanos

Medtronic/Amgen: Medtronic reps who sell the firm’s interventional spine devices will need to expand their skill set to include drug sales beginning this month. Under a three-year strategic partnership with Amgen, announced July 15, Medtronic will start promoting the biotech's Prolia (denuosumab) to U.S. spine specialists by July 31. Prolia is an FDA-approved biologic for the treatment of postmenopausal women with osteoporosis at high risk for fracture. For Amgen, the deal offers access to Medtronic’s expansive customer base of spine physicians, “who are at the forefront of evaluating and treating women with fractures caused by [postmenopausal osteoporosis],” said Marion McCourt, a VP with Amgen, in a July 15 press release. “This partnership allows us to intervene shortly after an osteoporosis-related fracture has occurred, and encourage therapeutic interventional to help reduce the risk of a subsequent fracture.” The upshot for Medtronic is not as clear cut. Financial terms of the agreement were not disclosed. “This new agreement increases awareness and access to our current base of orthopedic and spine physicians already treating patients with osteoporotic vertebral compression fractures,” said Doug King, president of Medtronic Spine. “Identifying successful treatment options and access to care at the site of service for the growing number of women with osteoporosis at high risk for fracture is our primary objective.” - David Filmore

Royalty/Quest: Quest Diagnostics has divested its stake in the highly-anticipated cancer drug ibrutinib as it continues to refocus its business on information services and simplify its operations. Quest sold the single-digit royalty stream to Royalty Pharma for $485 million, the companies announced July 18. Ibrutinib, an oral Bruton’s tyrosine kinase inhibitor (BTK), is being developed by Pharmacyclics and Johnson & Johnson for the treatment of chronic lymphocytic leukemia, small lymphocytic lymphoma and mantle cell lymphoma. Pharmacyclics submitted an NDA for the drug to FDA on July 10. Earlier this year, the regulatory agency granted the drug its new breakthrough designation, a means of pushing highly-effective drugs through regulatory approval more quickly. The drug is expected to receive a fast track review and could be on the market by early next year. Analysts estimate worldwide peak sales between $2 billion and $3.5 billion. Royalty Pharma buys up royalty streams from other companies – the investment firm has stakes in several of the largest drugs on the market, including AbbVie’s blockbuster rheumatoid arthritis drug Humira (adalimumab), Pfizer’s fibromyalgia pill Lyrica (preagbalin), J&J’s RA drug Remicade (infliximab), Biogen Idec’s recently approved multiple sclerosis pill Tecfidera (dimethyl fumarate), and Merck’s diabetes blockbuster Januvia (sitagliptin). - Lisa LaMotta

Auxilium/Sobi: Auxilium Pharmaceuticals has found a new partner to take over commercialization of its treatment for Dupuytren’s contracture and Peyronie’s disease, Xiapex (collagenase clostridium histolyticum), in Europe after its prior partnership fell through due to slow sales of the drug. Swedish Orphan Biovitrum (Sobi) will take over where Pfizer left off, taking on commercialization of the drug in the 28 EU member countries, Switzerland, Norway, Iceland, 18 Central Eastern Europe/Commonwealth of Independent countries, including Russia and Turkey, and 22 Middle Eastern & North African countries. In exchange for the commercialization rights, Auxilium will receive tiered double-digit royalties on all sales and will be eligible for up to $40 million in milestone payments that are tied to undisclosed sales benchmarks. Pfizer originally signed on to commercialize Xiapex in Europe in 2009. At the time, Pfizer paid Auxilium $75 million upfront, and agreed to pay $150 million in regulatory milestones and $260 million based on undisclosed sales milestones. In addition, Auxilium was to receive increasing tiered royalties based on sales in Pfizer's territories. Pfizer to pull out of the partnership in November 2012, but did not stop promoting the product until the end of March. It will continue supplying the product to physicians until mid-October. - L.L.

Rexahn/University of Maryland, Baltimore: Rexahn Pharmaceuticals has in-licensed a novel drug delivery platform, Nano-Polymer-Drug Conjugate Systems (NPDCS), from the University of Maryland, Baltimore, the company announced July 17. The technology delivers chemotherapeutics directly into tumors, potentially increasing efficacy and reducing toxicity. Rexahn plans to use the technology to develop RX-21101, a preclinical-stage polymer conjugated form of docetaxel. By minimizing the circulating concentration of docetaxel in the blood and maximizing the concentration in the cancer tumor, RX-21101 may increase anti-tumor activity while lowering adverse events. The financials were not disclosed. Rexahn, based in Rockville, Md., has three oncology candidates in clinical development, the lead of which is Archexin, an akt1 inhibitor partnered with Teva Pharmaceutical Industries. - Jessica Merrill

Bausch & Lomb/Mimetogen: Eye-care company Bausch & Lomb has acquired the option to license a Phase II compound for dry eye syndrome from Mimetogen Pharmaceuticals. The compound, MIM-D3, stimulates the production of mucin, which is essential for lubrication of the eye. The drug was shown to be effective and safe in Phase II studies and a late-stage trial is expected to begin before the end of the year. B&L paid Mimetogen an undisclosed option fee and will have the opportunity to pursue development upon Phase III results. At that time, B&L will assume all development costs and will pay Mimetogen development and sales milestones, as well as royalties. Dry eye affects 25 million people in the U.S. alone and tends to affect more people as they age. The global market is currently worth $2.5 billion and is growing at a rate of 10% annually. - L.L.

Alexion/Ensemble: Bringing to a close a week highlighted by Roche’s apparent buyout interest, Alexion signed a drug-discovery collaboration July 18 with Ensemble Therapeutics. Financial terms were not disclosed, but Ensemble gets an upfront payment and research funding, along with potential for development and commercial milestones under the agreement. Ensemble, whose Ensemblin technology platform can produce novel small-molecule candidates to address targets normally addressed by biologic therapies, will screen more than 10 million macrocyles against undisclosed disease drug targets specified by Alexion. Alexion, which focuses on life-threatening, ultra-rare disorders, will have exclusive worldwide rights to develop and commercialize any candidates emerging from the collaboration. Recently hired Executive VP and Head of Global R&D Martin Mackay said this transaction is meant to expand Alexion’s product portfolio. “We seek to broaden the number of pathways toward developing potentially transformative first-in-class drug candidates for patients with selected severe and life-threatening ultra-rare disorders,” he said in a release. - Joseph Haas

Ocera/Tranzyme: Ocera Therapeutics has made its way to the public markets through a reverse merger with the publicly-traded biotech Tranzyme. The new company will focus on developing Ocera’s lead drug, an ammonia scavenger OCR-002 in development for hyperammonemia, the ammonia build-up in the blood when the liver is no longer able to remove toxic substances from the blood. That build-up can cause hepatic encephalopathy, marked by worsening brain function, which eventually can lead to brain swelling, coma and death. Ocera’s investors also committed $20 million in a private placement financing, cash that will see the company through most of a Phase IIb trial testing OCR-002. Becoming a publicly-traded company wasn’t the impetus for the transaction, however, CEO Linda Grais said. “The strategic rationale was really the strength of the combined management team, particularly bringing the clinical development team from Tranzyme together with the program from Ocera,” said Grais. “We realized that this was a team that would take us a long time to build from scratch.” Though Tranzyme’s research was focused in gastrointestinal disease, its Research Triangle Park, NC, team led by Chief Medical Officer Franck Rousseau has extensive experience in liver disease. Before joining Tranzyme, he worked at Gilead asTherapeutic Area Head, Hepatic Diseases and VP Clinical Development. Tranzyme ran into trouble in 2012 when a Phaes III trial in postoperative ileus on lead drug TZP102 failed to meet its primary and secondary endpoints. It began reviewing strategic options early this year. - J.M.

Photo credit: Wikimedia Commons

Deals Of The Week Is Keeping Score – Valeant Wants Actavis, Which Covets Warner Chilcott …

Whether the pastime is baseball, Broadway or the daytime soaps, the old adage is that you can’t keep track of the players without a scorecard. The M&A front involving specialty pharma and generic drug makers has become similarly frenzied, as Canada’s acquisition-driven Valeant Pharmaceuticals sought after the newly minted Actavis, with Actavis then turning to a pursuit of Warner Chilcott once negotiations with Valeant broke down.

What, exactly, is going on here? And just as vitally, why?

Recall that the dust only recently settled on Actavis, the re-branded Watson Pharma, following the merger of those two firms last year. At an investor day presentation Jan. 25, CEO Paul Bisaro proclaimed that the new Actavis could boast a widened geographic footprint and a diversified portfolio comprising regular and branded generics, brand-name pharmaceuticals and over-the-counter products.

With the Watson/Actavis combination, the resulting company merely was trying to keep pace in a consolidating generics industry that had seen sector-leader Teva continually branching out into branded drugs and perhaps biosimilars and Mylan increasing its capabilities and geographic reach via a run of targeted deal-making.

In late April, reports surfaced that talks of a merger between Valeant and Actavis had collapsed, apparently due to Actavis shareholder concerns over valuation. Actavis has been a centerpiece of Wall Street discussion in recent months, due to a consistently rising share price. (Or has the conversation lifted the share price? A chicken vs. egg conundrum, to be sure.) The stock opened trading March 1 at $85.17, and rose to $92.33 on April 1 and to $105.24 on May 1. At the close of trading on May 16, Actavis’ stock price stood at $123.61.

Meanwhile, it was not necessarily clear who was the suitor in the Valeant/Actavis talks, although the safer bet seemed to be Valeant, helmed by acquisition-hungry CEO Michael Pearson. A Wall Street investment analyst said that the Valeant/Actavis talks seemed to be the catalyst for the resulting Actavis/Warner Chilcott rumors as well as possibly emerging interest in buying out Actavis from Mylan and from Novartis.

“We know that Valeant is an aggressive negotiator in terms of valuation,” the analyst said. “Going by their track record, they’re not going to pay some kind of excessive premium. The question we had was if nothing happened, did Valeant learn something really negative about Actavis during its due diligence?”
The analyst opined that the talks might have been a power-play by Bisaro himself, with the Actavis CEO picturing himself as the leader of a combined company with Valeant. “If Bisaro is talking with Pearson and trying to sell the business for $120 a share, isn’t he sending a signal that the game is up?,” asked our source. “Now, Bisaro might be saying Actavis is undervalued and going to do all these things, but his wallet is doing the talking. Actions speak louder than words, and they’re saying now is the time to pull the ripcord on the parachute.”

But if Valeant was the pursuer, Actavis’ current gambit for Warner Chilcott might have a “poison pill” element, an effort to make Actavis too rich for the Canadian specialty pharma to swallow. “It seems too coincidental that this happened so quickly after the Valeant story,” the analyst said.

In any event, the analyst perceives an Actavis/Warner Chilcott merger as highly likely, given how much the Irish firm has to lose if it puts itself up for sale and fails for a second year in a row. It would broaden Actavis’ portfolio in women’s health and dermatology and a strong sales force that could bolster Actavis’ commercial capabilities. What’s more, a reverse merger would domicile the resulting business in Ireland, providing tax advantages.

More elements were added to the story mid-week: Pittsburgh-based Mylan was reported to have made a roughly $15 billion offer to acquire Actavis, and then multinational pharma Novartis was said to be weighing its own bid. Novartis later publicly denied interest in Actavis, however. - Joseph Haas

The final chapters of that story remain to be written, but other biopharma deal-making has come to fruition in the latest installment of …

Elan/Theravance: In one of the more interesting deals of the past week, or for that matter the year, Elan announced a deal May 13 in which it agreed to pay Theravance $1 billion upfront in exchange for a portion of the potential future royalty payments it will receive from four respiratory programs partnered with Theravance. It’s a hefty up-front that many analysts believe exceeds the value of the interest Elan would acquire. The deal is the first of several Elan plans to make as it looks to reinvent the company through licensing and acquisitions. The announcement also comes as Elan looks to push back a hostile takeover bid from Royalty Pharma. Under Irish takeover law, the Theravance deal will require approval from investors, who already are considering an $11.25 per share buyout offer from Royalty. Elan would gain a 21% interest in potential future royalty payments to Theravance from GSK on four partnered respiratory drugs, including Breo Ellipta, which was approved by FDA May 10 for the treatment of chronic obstructive pulmonary disease. It also includes Anoro Ellipta, a combination of vilanterol with the LAMA umeclidinium, which is pending at FDA with a Dec. 18 user fee date, as well as in a bifunctional muscarinic antagonist-beta1 agonist (MABA) monotherapy and vilanterol monotherapy, both in development. For Theravance, the deal would have been hard to refuse given the rich terms, even though the company recently announced a separation to form one entity to manage the royalty revenue stream from Breo. Management said the arrangement will complement the company’s previously announced plan to separate into two companies. The firm said April 25 it will split into two entities, a royalty company called Royalty Management. Co. with a focus on near-term profitability and returning capital to shareholders, and Theravance Biopharma, a research-focused biopharmaceutical company. - Jessica Merrill

Alvine/AbbVie: On May 14, AbbVie signed its second deal since spinning out from parent company Abbott Laboratories in January, this time with San Carlos, Calif.-based biotech Alvine Pharmaceuticals. AbbVie agreed to pay $70 million upfront for an option to either acquire Alvine outright or license all of the assets related to its lead compound ALV003 for the treatment of celiac disease. The disease, which is characterized by gastrointestinal inflammation due to the ingestion of gluten-containing foods, affects about 3 million Americans and currently has no treatment options other than limiting gluten intake. ALV003 has completed a Phase IIa study and Alvine is prepared to take the drug through a 500-patient Phase IIb study, slated to read out in late 2014. Should AbbVie opt into the program, it will pay a “substantial” option fee, as well as further near-term milestone payments. The amount of those payments was not disclosed. The relationship between Alvine and AbbVie has a rich history; AbbVie’s venture arm (then Abbott Biotech Ventures) backed the biotech in May 2010 when it invested an undisclosed amount. AbbVie’s funds were an extension of Alvine’s Series A – the initial tranche was $21 million in 2006 led by Sofinnova Ventures with additional participation from Prospect Venture Partners, InterWest Partners, Cargill Ventures and Flagship Ventures. Another $21.5 million was raised when Panorama Capital and Black River Asset Management joined the syndicate in 2009. - Lisa LaMotta

RuiYi/Genor/CMC Biologics: China-U.S. hybrid RuiYi announced May 16 a series of partnerships to develop RYI-008, a novel anti-interleukin-6 monoclonal antibody in China to treat autoimmune disease and cancer. Formerly Anaphore, the hybrid is 90% a Chinese company, and about 10% U.S.-based, CEO Paul Grayson said. RuiYi conducts research at a facility in the Zhangjiang Hi-Tech Park in Pudong Shanghai, China, with only its executive management team based in offices in La Jolla, Calif. The antibody, in preclinical development now, will be developed first in China, and the company has forged a partnership with three other companies to get it there. China has said it would make biotech innovation a priority, but few companies have been bold enough to develop innovative biologics in the country, choosing instead to focus on biosimilars and generics for China, Grayson said. RYI-008, formerly ARGX-109, was in-licensed from Belgian/Dutch biotech arGEN-X in October 2012. RuiYi inked an exclusive licensing and co-development agreement with Shanghai-based Genor Biopharma to develop RYI-008 in China. Financial details of the deal were not disclosed. The company was chosen partly due to its close relationship with China FDA and its deep knowledge of China’s regulatory environment. Founded in 2007, Genor is focused on development and commercialization of therapeutic mAbs and Fc-fusion proteins. The company has more than 10 products in its pipeline, three of which are at IND and clinical stages. Danish contract manufacturer CMC Biologics will develop a cell line for RYI-008 for global manufacturing in all markets. Specific terms of the agreement were not disclosed. - Tamra Sami
Roche/Curie-Cancer: France’s Curie-Cancer and Roche announced May 15 that they are building upon a four-year partnership to expand their translational research programs and hasten development of new cancer treatments. In 2009, they agreed to partner around a preclinical research program which gave Roche access to a platform of preclinical models developed by the research teams at the Institut Curie. Curie-Cancer develops Institut Curie’s industry partnership activities. The Roche Institute for Research and Translational Medicine is the Swiss group’s arm there which aims to identify leading French academic research teams and build partnerships with them in areas of shared interest. The initial partnership gave Roche access to preclinical models that are highly representative of the tumors observed in patients. Using the platform, Roche determined in which sub-type of breast cancer an antibody was most effective. The Institut Curie also owns the Reverse Phase Protein Analysis platform, which gives researchers better understanding of how a Roche antibody works on the cancer cells at the molecular level, and also helps to identify predictive response markers. Curie-Cancer and Roche currently are working on a number of translational research programs involving Roche molecules that make use of the same technology. For example, a team of Curie-Cancer clinicians, anatomopathologists and researchers are working on developing a new Roche molecule targeting tumors. No financial details of the partnership were disclosed. - Sten Stovall

Quintiles/Merck Serono: Merck-Serono and newly public CRO Quintiles Transnational announced May 15 a five-year strategic collaboration that appears to go beyond the typical consolidation which the provider services industry’s larger pharmaceutical companies have pursued over the past few years. The deal, which the companies described as “first of its kind,” will create a drug-development engine by combining “expertise and experience” from the two organizations. Merck-Serono will lead strategically while Quintiles will handle the nuts and bolts of clinical trial planning and execution. In short, this is about more than saving money for Merck-Serono, a company that apparently is saving quite a bit these days. The mid-sized pharma’s parent company Merck KGAA reported May 14 during its quarterly earnings call that it was ahead of schedule in executing on its restructuring – which involved the closure of Merck-Serono’s Geneva headquarters – and that it would move forward its financial targets from 2014 to this year. Merck-Serono Executive VP and Global Head of Development and Medicine Annalisa Jenkins said that the partnership transcends the typical preferred-partnership outsourcing model. The deal moves beyond trading volume for “a better rate card,” she said. Quintiles has the benefit of seeing across different companies throughout industry, she said, and of integrating that knowledge, adding, “it’s remarkable that we don’t make a greater attempt to embrace and integrate that knowledge in how industry plans and executes studies.” The Merck-Serono/Quintiles tie-up does just that, she said, and “financially the incentives are set up to drive to more efficient decision making.” Specifics of the financials weren’t disclosed. The deal is Quintiles’ first since its public market debut May 8. The industry’s largest CRO and its existing investors sold more than 27 million shares combined at $40 apiece, raising about $950 million (Quintiles netted about $500 million). - Chris Morrison

AbbVie/Galapagos: AbbVie made further news May 17 when it and partner Galapagos announced that they will extend their 2012 collaboration centered on GLPG0634, a Phase II Janus kinase inhibitor, to development in Crohn’s disease. Under the revised agreement, the Belgian biotech will fund and complete a Phase II trial in Crohn’s, which should facilitate rapid progression into Phase III. AbbVie will pay Galapagos $50 million upon completion of the study, expected in mid-2015. Galapagos will initiate what is planned as a 20-week, Phase IIa/b study of ‘0634 in Crohn’s patients in early 2014, investigating for both disease remission and early maintenance of the drug’s beneficial effects. The study will be performed in parallel with a Phase IIb study in rheumatoid arthritis, pursuant to the agreement Galapagos signed with then Abbott Laboratories in February 2012. At the time, Abbott paid $150 million upfront with a commitment for $200 million more if the JAK inhibitor met pre-determined criteria in Phase II study in RA. - J.A.H.
Photo Credit: Wikimedia Commons

Uneasy Lies The Head That Wears a Financings of the Fortnight Crown

Compared to other types of financing, royalty-based deals in the biopharma world are rare. That’s because a company needs products with future revenue to parlay into a near-term lump sum, and the relative few companies that have such products often don’t need the immediate cash or can get it other ways.

So when a royalty deal – or a debt deal using product royalties as collateral – crops up, we take notice. And they seem to be cropping up more often. Just our imaginations? Not according to Elsevier’s Strategic Transactions database, which offered up ten deals in 2012, the most in any of the past ten years. 2011 was a close second with 9 deals, and with three more this year, 22 of the 47 we found in the past ten years are of recent vintage. (These numbers reflect only the publicly disclosed deals; there are certainly more, as investors in this space often keep activities out of the spotlight.)

In dollar terms, the total since the start of 2003 is $5.7 billion. The last two years and change have seen $2.7 billion worth of deals, a proportion akin to the deal flow.

The richest deal in recent years is Royalty Pharma’s $761 million purchase of the earn-out rights from the shareholders of Fumapharm, the German firm that sold to Biogen Idec in 2006. The deal could end up extra sweet for Royalty, now that the Food and Drug Administration has approved the main product in the Fumapharm dossier, the oral multiple sclerosis treatment BG-12, renamed Tecfidera.

Another near-blockbuster was Royalty’s $609 million purchase of DPP-IV rights from Astellas Pharma’s Prosidion division. A bit farther down the pay scale, but still significant, were Dendreon’s sale of Victrelis royalties to CPPIB Credit Investments for $125 million, and Nektar Therapeutics’ $124 million deal with an offshoot of Royalty Pharma for its royalties to Mircera and Cimzia, both of which were formulated with Nektar’s pegylation technology.

Now add one more to the list. This fortnight, weight-loss drug maker Vivus used royalties of its Qsymia, weighed down so far by slow sales, as collateral to borrow up to $110 million. (We describe the deal below in our roundup.) And of course, in what could be the ne plus ultra of all royalty deals, Royalty Pharma (who else?) is dangling $6.6 billion to buy Elan, which after its major divestments is basically a holding company for royalties from multiple sclerosis treatment Tysabri. Elan has resisted so far, instead promising shareholders it will pay out a dividend based on the Tysabri stream. This week an Irish regulatory panel gave Royalty a May deadline to firm up its offer.

The dance began in late February soon after Biogen Idec bought out Elan’s share of the drug, paying Elan $3.2 billion plus the promise of tiered sales royalties. Whether Royalty Pharma succeeds in its hostile buyout is more a matter for our Deals of the Week compatriots, but it’s our duty to note that Royalty and its brethren have plenty more to spend. Royalty raised $600 million in debt in 2012 to put toward investments. Its previous debt raise included $850 million to give back to shareholders. Healthcare Royalty Partners, which dropped the "Cowen" from its name in December, raised a $1 billion fund in early 2012.

Royalty funds are to venture capital what bonds are to stocks: a lower-risk, lower-return investment, and often built with complex structures that purposely limit both parties' risk. They're certainly not going to replace a big chunk of venture capital, because they can't fund companies without current or near-future revenue streams. But as the numbers show, they're providing billions of dollars of capital to an industry that can always use a few extra pennies.

It's no jest. Whether you’re biotech royalty or an indentured serf, you’re always welcome in the biweekly court of…

Vivus: Initial sales of the Vivus weight-loss drug Qsymia (phentermine/topiramate) have been slow, so the company fortified its balance sheet with $50 million in new debt. The "synthetic capped royalty financing" from Pharmakon Advisors, announced March 26, allows Vivus to raise another $60 million in debt before the end of 2013, at a time of Vivus’ choosing. Under the terms of the arrangement, Vivus is obligated to repay the Pharmakon fund according to a schedule of pre-set payments between 2014 and 2018, or 25% of Qsymia royalties, whichever is valued lower. Analysts expect that Vivus would make quarterly payments between $7 million and $10.3 million during most of the four-year schedule, if it opts to raise the other $60 million later this year. The total repaid is likely to be about $162 million, according to analysts. Sales of Qsymia were just $2 million during the fourth quarter of 2012, its first full quarter on the market since FDA approved the drug in July 2012. Vivus had $213 million in cash and equivalents on Dec. 31, and spent $58 million on its operations during the fourth quarter. The company is seeking to modify its current Risk Evaluation & Mitigation Strategy for Qsymia, which limits sales of the drug to mail-order pharmacies; an FDA decision allowing it to sell via traditional pharmacies could come in late April or early May. – Paul Bonanos

Novira Therapeutics: The antiviral startup said March 26 it has topped off last year’s Series A with $7.5 million from Versant Ventures, matching the earlier co-lead investors and bringing the round’s total to $25 million. Novira is one of the few startups around working on treatments for Hepatitis B, its lead program, and for HIV. That, plus its pursuit of a relatively new mechanism of action – capsid assembly inhibition -- was enough to put Novira on our sister publication Start-Up’s annual A-List, which highlights the year’s most intriguing recipients of Series A money. 5am Ventures and Canaan Partners led the initial Series A investment, which came after the company spent years subsisting on angel and nonprofit funding and casting about for a way forward. The angels who nurtured the firm through its pre-Series A years also participated in the A round. Only after Lalo Flores, former head of antiviral research at Merck & Co. took over did Novira steer toward capsid assembly. It aims to file an IND for its lead HBV program by year’s end. The company's oral therapeutic candidates could potentially be used as both a monotherapy or in combination with currently used drugs. The company says the Series A money should be enough to move that initial program into Phase Ib or Phase IIa. For Versant’s contribution, the firm will place one of its new European team members, Gianni Gromo, in a board seat. Gromo is one of three Versant partners based in Basel, Switzerland and has ties to Versant’s top biopharma managing director Brad Bolzon from their days at Roche. – Alex Lash

Theraclone Sciences: Another antiviral add-on this week, with Seattle-based Theraclone bringing its Series B total to $50 million with contributions from a host of existing investors including Arch Venture Partners, Canaan Partners, MPM Capital, and Healthcare Ventures. In addition to the extra $8 million from investors, the antibody platform company also secured $6 million in debt from MidCap Financial and Silicon Valley Bank. The firm’s lead programs in the clinic are aimed at pandemic and seasonal flu, partnered with Zenyaku Kogyo, and human cytomegalovirus (HCMV). It has a discovery-phase antibody partnership with Pfizer, as well, and it has worked with Scripps scientists and the International AIDS Vaccine Institute on research to identify more than a dozen “broadly neutralizing” antibodies that might eventually lead to a vaccine for HIV. Theraclone’s platform screens for antibodies from the B cells of the lucky humans who demonstrate natural resistance to particular diseases. Once called Spaltudaq, Theraclone is one of a handful of biotechs to emerge from the Seattle incubator Accelerator and has had its share of tribulations, the worst of which was the sudden death of its CEO David Fanning in 2010. – A.L.

Receptos: The San Diego biotech filed April 4 its intent to go public, joining the growing queue of life science firms with hopes of breaking through to public markets. The firm is farther along in the IPO process than it might have been in previous times, as it actually filed its S-1 confidentially in February under new securities rules ushered in by last year's JOBS Act. Its lead compound is in Phase II testing against relapsing multiple sclerosis and inflammatory bowel disease. Its top four shareholders, each with slightly more than 15% ownership, are Flagship Ventures, Lilly Ventures, ARCH Venture Partners, and Venrock. An IPO would also benefit a much newer venture fund, Osage University Partners, which is trying to prove the worth of a new model based on schools’ participation rights that we describe in the March issue of Start-Up. Based on work that elucidates the structures of G-coupled protein receptors, Receptos spun out of the Scripps Research Institute, which has a partnership with Osage, which would send a slice of its carried interest back to Scripps if the fund succeeds. A Receptos IPO would certainly help. It has not yet set terms of the offer. Credit Suisse and Leerink Swann are leading the underwriting team. Other health care firms on file to go public include Bausch & Lomb, Chimerix, Omthera Pharmaceuticals, Harvard Apparatus Regenerative Technology, Ambit Biosciences, and Sophiris Bio. – A.L.

All The Rest: Raising $38mm from Invesco Asset Management in the biggest venture financing of the fortnight was infirst Healthcare, founded less than a year ago to launch new consumer cough and cold and pain medicines…Through a $33mm Series E financing (concurrent with the conversion of $71mm in debt into Series E preferred stock), Revance Therapeutics aims to complete Phase III trials for RT001, a topical botulinum toxin type A for crow’s feet wrinkles…Led by two China-focused venture funds, research and diagnostics MAb firm OriGene Technologies brought in $21.3mm in its Series D round…With participation from J&J Development and Pfizer Venture, Aquinox Pharma secured $18mm in Series C financing to help advance its Phase II AQX-1125 for COPD… To support development of spec pharma Taris Biomedical’s LiRIS (Lidocaine-Releasing Intravesical System) Phase II interstitial cystitis candidate, return backers added $12.5mm to the $37.3mm the company had previously raised…Schizophrenia drug firm Reviva Pharmaceuticals received $12mm in early-stage debt and equity funding from undisclosed investors… In a Series A round, Hurel Corp. (artificial tissue constructs and microfluidic cell-based assay platforms) snagged $9.2mm from Spring Mountain Capital… Genomic data analysis start-up Bina Technologies brought in $6.25mm of a planned $8mm Series B round…In the second close of initial financing secured in November 2012 when it spun-off from InDevR, rapid virus quantification firm ViroCyt has brought the total funding to $5mm…Undisclosed equity financing secured from the Innovation & Investment Fund Gelderland (managed by PPM Oost) along with several angel backers will enable InteRNA Technologies to progress its lead candidate miR-3157 for melanoma through preclinical studies…In a private placement, public Australian company Prana Biotech issued 35.9mm new fully paid ordinary shares at a price of A$0.195, for $7.3mm in proceeds to fund further development of PBT2, now in two concurrent Phase II trials in Huntington disease and Alzheimer's disease… Through a follow-on offering of up to 165.7mm new Hong Kong-listed shares at HK$24.60, Chinese CRO Sinopharm Group could reap $515.3mm in proceeds to expand its sales network and complete additional M&As… Arca Biopharma hopes to bring in $20mm in a FOPO to fund a Phase IIb trial of Gencaro (bucindolol hydrochloride) for atrial fibrillation… With proceeds from a public offering of units, public Toronto spec pharma Trimel Pharmaceuticals hopes to fund costs related to an NDA filing and further clinical trials for its CompleoTRT bioadhesive intranasal gel technology for male hypogonadism… Eye care giant Bausch & Lomb – owned by PE firm Warburg Pincus, which acquired it and took it private in a $3.67bn 2007 buy-out – filed for an initial public offering that could raise as much as $1.5bn… Two biotechs sent ranges for IPOS, but have yet to price: Chimerix (oral antivirals) plans to sell 6.1mm shares at $13-15, while dyslipidemia therapeutics company Omthera Pharmaceuticals said it hopes to get between $12-14 through the sale of 5.8mm shares… Cell Therapeutics, using proceeds from a $15mm senior secured term loan with Hercules Technology Growth Capital, hopes to advance Phase III pacritinib (for myelofibrosis) and promote recently EMA-approved non-Hodgkin lymphoma treatment Pixuvri (pixantrone) in Europe…In a second debt financing by Hercules, CNS stem cell therapeutics developer Neuralstem issued the finance company 649k warrants to purchase Neuralstem stock at an exercise price of $1.08…In exchange for up to $16mm, ophthalmologic drug developer InSite Vision will sell its future royalties on bacterial eye infection medicine Besivance (besifloxacin ophthalmic suspension) to SWK Funding LLC…Cancer-focused public Australian biotech Prima Biomed hopes to raise $15.6mm in a rights offering of up to 150mm new fully paid ordinary shares. - Maureen Riordan

Royally weird photo courtesy of flickrer simononly.

Deals Of The Week: Elan Takes It All Off, Attracts Suitors

Elan Corp. PLC has been engaged in a slow motion strip-tease over the past five years; it has now shed so many assets that it may soon disappear entirely. On Feb. 25, Royalty Pharma fielded an $11/share, $6.5 billion bid for the company. That was a 12.7% premium over the volume weighted average closing share price for Elan between Feb. 6 and Feb. 15. Elan’s directors, predictably, said the offer was too low. But the offer may be fitting in that it reflects the notion that Elan, once a CNS R&D focused biopharma, is now a royalty-generating cash shell.

In 2009 Elan peeled off its Alzheimer’s immunotherapy pipeline in a deal with Janssen Pharmaceuticals Inc. in 2009; followed by the removal of its drug delivery business to Alkermes PLC in 2011; capped by the spinning off of its Neotope Biosciences PLC drug discovery business in 2012. The drug discovery spin-out, renamed Prothena Biosciences Ltd., was announced days after Elan’s AD development partners Janssen and Pfizer Inc. discontinued further IV clinical development of bapineuzumab.

The purpose of the asset sales was to reduce Elan’s runaway debt so it could foray into new approaches to treating AD and other CNS disorders. On the eve of the Janssen deal, it was carrying $1.7 billion in debt. By the time of the Neotope spinout, the goal was to position the company as a takeout target for a buyer interested in Tysabri’s revenue stream.

Tysabri partner Biogen Idec Inc. struck on Feb. 6. Elan secured a $3.2 billion upfront payment and a graduated royalty on Tysabri sales beginning at 12% in the first year, rising to 18% on sales below $2 billion and 25% on sales over $2 billion. Moreover, Elan’s royalties include all future indications, both MS and non-MS. Tysabri is being studied in secondary-progressive MS, and Biogen has indicated it may look into the drug as a treatment for stroke.

Elan told analysts in its same-day year-end 2012 earnings call, that it would spend its windfall on acquiring “income-producing assets,” despite not having a sales and marketing organization.

Elan’s recent history is reminiscent of PDL BioPharma Inc. Both companies have shed operating assets over the past five years, essentially reducing themselves to financial plays that relied on significant product royalties. Both companies also told shareholders that they would morph into commercial product companies.
But PDL made the transition because the clock on its patent estate – which gave it a slice of revenue from some of the most lucrative antibody franchises of the past decade – was running out. It hired a couple of dealmaking veterans and told its shareholders that if it didn’t find any revenue-bearing assets by some point in 2014 it would wind up shop. A January 2013 corporate presentation on PDL’s web site indicates that in the second half of 2012 the company invested $115.8 million dollars in three life science companies.

It’s unclear why Elan wants to go back to being a product company, much less a non-neurology focused company. Unfortunately, the Street hasn’t bought into its latest plan for reinvention, giving Royalty Pharma its current opportunity. UPDATE: In an effort to fend off Royalty’s unwanted offer, on Monday March 4th Elan’s board approved a twice-yearly dividend to shareholders linked directly to Tysabri’s performance. Beginning in Q4 2013, shareholders would receive an initial 20% share of Elan’s Tysabri royalty.

As of this writing, no other buyers have come forward to bid up the price. Marko Kozul, biotech analyst at Leerink Swann, advised shareholders to accept the offer. Royalty Pharma is certainly a motivated buyer; in May 2012, it paid $761 million for part of the earn-out for the oral MS drug BG-12 payable to the former shareholders of Fumapharm AG, which Biogen acquired in 2006. Kozul calculates that BG-12 revenues will peak at around $4 billion in 2018 and the NPV for the total royalty stream, an undisclosed piece of which goes to Royalty Pharma each year, sums to $3.1 billion.

There isn’t a compelling reason for Elan shareholders to prefer management’s risky plan to simply cashing in at the modest premium that Royalty is offering. They are perfectly capable of investing the money themselves, and needn’t trust Elan to pick winning investments. Or to execute on its vision.

And talk about investment ideas, here’s a sampling of  . . .

Jazz/Concert: Jazz Pharmaceuticals PLC is singing a happy tune now that it has secured a follow-on for its lead revenue driver, the narcolepsy drug Xyrem (sodium oxybate). The company announced Feb. 26 that it has inked a deal with Concert Pharmaceuticals Inc. to develop and commercialize a portfolio of deuterium-modified sodium oxybate compounds, including C-10323 ([A#14130227004]). The deal included an undisclosed upfront, as well as the potential for $120 million in milestone payments to Concert, which will handle Phase I development of C-10323. Should a product reach the market, Concert will be eligible for tiered double-digit royalties on worldwide sales.

Xyrem, a treatment for sudden muscle weakness and daytime sleepiness in patients with narcolepsy, accounted for 65% of Jazz’s total 2012 revenues. The drug, which has to be tightly controlled due to its potential for abuse, is covered by 10 patents that expire from 2019 to 2024, with other patent applications pending. But Jazz is already facing patent challenges for the drug, and its deal with Concert is one way to shore up the franchise. C-10323 is expected to have a better dosing schedule, longer half-life, greater efficacy in cataplexy patients, and fewer side effects than its predecessor. Oh and by modifying the drug with deuterium, Jazz gets to reset the patent clock. - Lisa LaMotta

Mylan/Agila Specialities: Quelling months of speculation, Strides Arcolab Ltd. finally sold its highly profitable injectibles arm Agila Specialties Pvt. Ltd. to U.S. generics giant Mylan Inc. for $1.6 billion cash and $250 million in potential milestone payments. Mylan toppled several global contenders, reportedly Pfizer, Otsuka Holdings Co. Ltd., and Novartis AG, among others, to clinch the unit that multiplied in size in less than five years by seizing opportunities from a raft of injectable oncology drugs in the U.S. Mylan valued Agila at 18.7x EBITDA of $86 million. Agila had revenues of $255 million through the end of December 2012. Carved out of Strides Arcolab in November 2010, Bangalore-headquartered Agila has been consistently rolling out copies of hard-to-make cancer drugs. Its prospects brightened further by a series of manufacturing and compliance lapses that dogged its competitors, adding fuel to speculation last year of an impending sale by Strides.

Mylan expects to double its injectibles business in the first year after the acquisition, and believes its specialty segment will grow 30% in 2013, execs said during the company’s Feb. 27 earnings call. The deal strengthens Mylan’s global presence and gains it entry into high-growth emerging markets such as Brazil. Roughly 40% of Agila's revenue comes from the U.S., and one-fourth comes from Brazil, with the balance coming from Europe, Australia, and other established and developing markets.- Vikas Dandekar

UCB Group/Biotie Therapies: Finland's Biotie Therapies Corp. is having a good week, brightening up a traditionally gloomy time of the year for Europe's most northerly residents. Not only did the EU clear its lead product, Selincro (nalmefene) for marketing by partner Lundbeck Inc. on March 1, but another collaborator, Belgium's UCB SA, appears so pleased with a Phase II Parkinson's therapy that it has asked Biotie to conduct Phase III studies on the compound. UCB took out an option on Biotie's investigational Parkinson's therapy, tozadenant, in 2010. The company has now exercised the option after the completion of a Phase IIb clinical trial, earning Biotie a fee of $20 million, the companies announced Feb. 26. Biotie also remains eligible to receive a further $340 million in milestone payments. But with Biotie now conducting Phase III trials on tozadenant instead of UCB, as laid out in the original agreement, Biotie will also receive further payments, in the low triple digit millions, to fund that work.

In return, UCB has worldwide exclusive rights to tozadenant, and will be responsible for manufacturing and commercialization. Tozadenant is a selective inhibitor of the adenosine A2a receptor, expressed in high levels in parts of the CNS, particularly the striatum, involved in controlling movement. The binding of tozadenant blocks the effects of adenosine at its receptor, thereby increasing the effects of dopamine, and also inhibiting the effects of glutamine at the mGluR5 receptor. Dopaminergic processes are already targeted by numerous marketed Parkinson's disease therapies. - John Davis

Janssen Biotech/Araxes Pharma: The Johnson & Johnson division Janssen Inc. has paid an undisclosed amount for an option to license exclusively an oncology program being developed by Araxes Pharma LLC. The decision point to exercise the option for the program, which is focused on an undisclosed target, will come after Phase I, says Araxes CEO and president Troy Wilson. Araxes is the first announced spin-out from Wilson’s Wellspring Biosciences, a self-described “drug-discovery incubator” in San Diego that Wilson and his former colleagues at Intellikine Inc. have created as an umbrella organization for what they hope will be multiple drug programs. It’s the latest asset-centric biotech development plan, in which individual programs are housed separately from their discovery platform to simplify deal-making and create cleaner tax structures for investors. Others include Inception Sciences Inc., Forma Therapeutics LLC, and Nimbus Discovery LLC.

“There’s no one-size-fits-all structure,” says Wilson. Intellikine, which sold to Takeda Pharmaceutical Co. Ltd.’s Millennium Pharmaceuticals Inc. division for up to $310 million in late 2011, specialized in PI3 kinase inhibitors. Wellspring is, in effect, the employee agency for Araxes and affiliates that might follow; Wellspring employees will do the R&D but the affiliates will own the patents, the cash from partnerships, and the regulatory responsibility. In addition to an upfront fee, Janssen will also pay Araxes R&D funding and potential milestones and royalties. - Alex Lash

Takeda/Resolve: The Japanese pharma has inked an option agreement with three-year old Seattle biotech Resolve Therapeutics LLC that will give the larger company a new addition to its immunology pipeline. Takeda agreed to pay $8 million upfront to Resolve to develop RSLV-132 for the treatment of lupus. Resolve is expected to take the drug through Phase Ib with a readout of data at the end of 2014. Once data is available on the drug Takeda will have the right to option it for further development. Resolve will then be eligible for an undisclosed option fee and for $274 million in milestone payments, as well as royalties on the marketed product.

Takeda has been trying to bulk up its immunology business since acquiring several COPD drugs through its acquisition of Nycomed Pharma AS. The company expects immunology to account for 12% of its R&D budget during the 2012 -2014 timeframe. It spent about $3.5 billion on R&D in 2011. For Resolve, the option would serve as an exit for investors. The company is not developing any other drugs and never had any intention of pursing an exit through IPO or sale of the company The biotech has only used about $3 million (of a $7.8 million raised over two rounds) in cash since its founding in 2010.- Lisa LaMotta

Cubist/Adynxx: For an up front payment of $20 million, Cubist Pharmaceuticals Inc. has acquired an exclusive option to buy Adynxx Inc. following the data readout of Adynxx’s Phase II trial for its lead drug, AYX1, an oligonucleotide treatment for post-surgical pain. Should Cubist exercise its option, it will pay Adynxx $40 million, plus development, regulatory, and sales earn-outs. The deal, announced Feb. 25, would expand Cubist’s acute care pipeline beyond its portfolio of antibiotics, including key revenue driver Cubicin. (Cubist also has rights to Hydra Biosciences TRPA1 inhibitor CB625, in Phase I for acute pain.)  Administered once at the time of surgery, the Adynxx compound inhibits the early growth response protein 1 (EGR1), a transcription factor that triggers pain signals in the brain. This approach could reduce the need for pain medications and prevent acute pain from transitioning into chronic pain, said the company. The candidate is currently being tested in unilateral total knee arthroplasty to reduce movement evoked pain and to improve the rate and extent of functional recovery. Adynxx’ CEO Rick Orr was a co-founder of Cerexa Inc., which Forest Laboratories Inc. acquired in 2007 and more recently was COO of Corthera, which Novartis AG bought in 2010. - Wendy Diller

LEO Pharma/4SC Discovery: The psoriasis market has many drug makers just itching to get into it. The latest to move are Denmark-based Leo Pharma AS and German biotech company 4SC Discovery GmbH. The duo has entered a pact to jointly research, develop and commercialize a pill for treating inflammatory skin diseases like psoriasis. Leo Pharma will pay €1 million ($1.3 million) up-front to 4SC Discovery and additional funding for research and development. Leo Pharma will receive an exclusive option to license the worldwide marketing and commercialization rights of the compound. 4SC Discovery, a subsidiary of oncology and autoimmune specialist 4SC Group, will be eligible for a milestone payment of up to €3 million and further payments based on specific development milestones of up to €92 million along with double-digit royalties. - Sten Stovall


Russian dolls by London based artist Yana Elkassova