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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo credit: Wikimedia Commons

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

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

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

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

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

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



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

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

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

Artillery photo via flickr/Paul Campy // cc

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

Deals of the Week: Liberté, égalité, fraternité

Sacre bleu! For oncology drug developer Exelixis, le quatorze juillet brought the wrong kind of liberation. In a regulatory filing, Exelixis revealed that longtime partner Bristol-Myers Squibb has terminated the companies’ licensing agreement around XL281, freeing up rights to the Phase I RAF kinase inhibitor studied in patients with solid tumors. BMS’s decision spells the end of the companies’ December 2008 alliance that covered two drugs, for which BMS paid $240 million in up-front and near-term fees. Left unpaid will be a lot of biobucks: $315 million in development and regulatory milestones, $150 million in sales milestones, and double-digit royalties. The partnership officially ends in October.

Hewing to its chosen strategy, Exelixis won’t enjoy XL281’s newfound liberty. But if there's a silver lining for Exelixis, it's that the company will receive the remaining unpaid $120 million of the up-front component by October, rather than on a deferred schedule that would have drawn out payments until April 2014. That gives the company a little more cash to put behind primary program cabozantinib, the compound formerly known as XL184, which interestingly was also part of the bitoech's mammoth 2008 alliance with BMS.

Exelixis also recovers full control of XL281, which its well-heeled business development team could partner away again. After all, BRAF remains a hot target, and nearly every pharma has identified oncology as a core pursuit.

Cabozantinib still has its risks, of course. BMS walked away from the drug last June, becoming the second Big Pharma to do so: GlaxoSmithKline lost interest in it in 2008 as well, effectively ending its six-year partnership with Exelixis. Cabozantinib has shown strong promise in prostate cancer, where it’s thought to be a potential blockbuster. The candidate is farthest along in medullary thyroid cancer, although Exelixis said last week that results of a Phase III study in MTC would be delayed for three months.

BMS and Exelixis have been moving apart in oncology for some time. Last fall, BMS waived its option on the last compound of a three-drug oncology agreement, after one of the others failed. Exelixis also opted out of a collaborative agreement on BMS-833923, formerly XL139, leaving further development to BMS. The two companies still have tie-ups covering diabetes and inflammatory diseases, based on new agreements forged in October that brought Exelixis $60 million in up-front payments.

From those of us in the Fourth Estate to the rest of you, we hope you’ve got a free moment for this week’s installment of…Valeant/Dermik and Valeant/Ortho Dermatologics: Canadian specialty pharma Valeant Pharmaceuticals may not have been able to take out Cephalon in a hostile bid this spring, but the company hasn’t lost its appetite for acquisitions. The company made two major moves in dermatology this week, snapping up both Sanofi-Aventis’ Dermik unit for $425 million and Janssen Pharmaceuticals’ Ortho Dermatologics subsidiary for $345 million. Dermik markets a small portfolio of creams and lotions as well as the injectable Sculptra Aesthetic, for correcting facial wrinkles and folds, and comes with its own manufacturing and packaging facility in Laval, Quebec. The facility produces 70 formulations and more than 200 presentations of tablets, capsules, non-sterile liquids, ointments and creams, for itself and for other companies. Sanofi was magnanimous about selling the unit, waving it off with glad tidings: "Dermik will benefit from being part of a larger dermatology business," it commented. Ortho manufactures Retin-A-Micro and Renova, two formulations of tretinoin for acne, as well as Ertaczo (sertaconazole) for athlete’s foot. Dermik brought in $240 million in sales in 2010, while the J&J unit took in $150 million. Valeant also acquired North American rights to dermatitis cream Elidel (pimecrolimus) from Sweden's Meda AB in late June. - John Davis and Paul Bonanos

Micromet/Amgen: Rockville, Md., and Munich-based oncology drug developer Micromet has teamed up with Amgen on the development of three solid tumor targets using Micromet’s BiTE (Bispecific T-Cell Engager) antibody technology platform that mobilizes T-cells to cause apoptosis. Amgen will pay €10 million ($14 million) upfront, plus Micromet is eligible to receive €342 million ($479 million) in clinical and commercial milestones for the first product that is developed under the collaboration. The terms are similar to other deals that Micromet has struck with other Big Pharma. Amgen has the right to pursue development of two of the three targets. Micromet will receive another €25 million ($35.1 million) payment should the antibodies be advanced to IND. Amgen will pay a comparable amount in milestones for the second product. Amgen will also cover all research and development costs. Micromet has four other deals in place with large pharmaceutical companies for its BiTE antibodies, including Sanofi and AstraZeneca. - Lisa LaMotta

Array/ASLAN: When it raised a $12 million Series A round of funding in April, Singapore-based ASLAN Pharmaceuticals said its business model would involve in-licensing early-stage drug candidates, developing them to the proof-of-concept stage, and out-licensing them to larger pharma partners. Now the young start-up has found its first candidate in Array BioPharma’s ARRY-543, a molecule being studied for gastric cancer with potential elsewhere in oncology. ASLAN will conduct Phase II trials in Asia, then seek a partner for the drug, an HER2/EGFR inhibitor with potential to augment or supersede Roche’s Herceptin (trastuzumab) in HER-2 positive gastric cancer patients. The somewhat unusual licensing deal did not include an up-front component; rather, the two companies will “split the back end economics,” Array CEO Robert Conway said in an interview with PharmAsia News, adding that Array will still receive “a significant portion” of the proceeds if Aslan completes an out-licensing deal after Phase II trials are complete. The arrangement between the two companies also includes an option for ASLAN to negotiate a license for a second Array compound. Singapore’s BV Healthcare II, a fund managed by BioVeda Capital, led ASLAN’s Series A round, investing alongside Sagamore Ventures and other backers. – Tamra Sami and P.B.

Durect/Zogenix: Durect is the latest company to partner its extended release technology to turn an old staple into a new product. Zogenix will use Durect’s Saber technology to create a once-monthly formulation of risperidone, an antipsychotic that went off patent in 2003. The drug is expected to start clinical trials in 2012, but will face plenty of competition once it hits the market. Johnson & Johnson already makes a twice monthly injectible risperidone called Risperdal Consta that had sales of more than $1.5 billion in 2010. Zogenix will pay Durect $2.25 million upfront, as well as $103 million in future clinical, regulatory and commercial milestones. Durect will also be eligible for royalty payments should the product reach the market. The deal was a relatively small one, but will help the company move forward the rest of its pipeline, which is largely pain medications.- L.L.

Public domain image from Wikimedia Commons.

Deals Of The Week: Moving On

Finally. The months of waiting are over. (No, we aren’t talking about the Phillies’ attempt to dominate in the National League (it's a long season); or, in the AL, the rise of the Cleveland Indians.) We are referring instead to the resolution of one of the major overhangs to the 2009 Merck/Schering Plough reverse merger: ownership of distribution rights to the juggernaut rheumatoid arthritis franchise Remicade/Simponi.

Just in time for the quarterly earnings show (it’s nice to have something positive to talk about, isn’t it?), Merck and J&J settled their ongoing dispute. The terms of the agreement require Merck to relinquish marketing rights in three territories comprising 30% of total Remicade/Simponi sales: Canada; Central and South America; and the Middle East, Africa, and APAC. The resolution, which also requires Merck to make a one-time $500 million payment to J&J, means the Whitehouse Station, NJ-based drug maker will forgo an estimated $900 million in ongoing sales in these regions. In territories where Merck retains marketing rights—EU, Turkey, and Russia—its profit share of the drug drops from 58% to 50% this July, instead of the more gradual decrease outlined under the original Schering/J&J alliance.

Analysts covering both Merck and J&J reacted positively to the news, albeit for different reasons. For Merck, the settlement takes off the table a bothersome question that has routinely cropped up on quarterly calls and lets Merck begin to spin a more positive story. Analysts anticipate that narrative to include a dividend hike to offset some of the recent negative clinical trials results and potentially, a spin-off of the consumer biz, which includes the Coppertone and Dr. Scholl’s brands. (Hey, it’s hip these days to copy BMS and shed business units outside the innovative core.)

For J&J, the 50/50 profit split in the territories retained by Merck is a bonus, and you can’t deny the allure of cold hard cash. Morgan Stanley analysts predict the resolution will be roughly 2 to 2.5% accretive to 2014 earnings per share. (Don't forget, though, about other tailwinds affecting J&J, including the dilution it took to acquire 100% of Crucell.)

With J&J and Merck moving on to more important matters (Merck: Pipeline! J&J: Quality Control and a Synthes acquisition(?)), it’s time for IN VIVO Blog to get going with another edition of…

Axcan Pharma/Mpex Pharmaceuticals: Privately-held specialty pharma Axcan will buy Mpex for an undisclosed amount, the firms announced April 14. The deal, which contains an unspecified upfront and milestone payments, gives Montreal-based Axcan full rights to Aeroquin, Mpex's lead product, a proprietary aerosol formulation of the antibiotic levofloxacin in Phase III trials for the treatment of pulmonary infections in patients with cystic fibrosis. It's one of several antimicrobials currently in the late-stage pipeline for CF patients; as a group, these anti-infectives have been the subject of recent regulatory debate over endpoints. The companies said Axcan would spin out all Mpex assets not associated with Aeroquin into a new company that will remain in San Diego, Mpex's hometown. Mpex's investors include Investor Growth Capital, which led the firm's $40 million Series D round in 2009, SV Life Sciences, RiverVest Venture Partners, and others. The deal comes two months after Axcan completed its $583 million takeover of Eurand, a Belgian specialty firm that last year celebrated the approval of its lead product, an enzyme replacement treatment of exocrine pancreatic insufficiency. -- Alex Lash

BiogenIdec/Amunix: Any doubts about Biogen’s ongoing commitment to the hemophilia space, look no further than this week’s research collaboration with Mountain View, Ca.-based start-up Amunix. Founded by serial entrepreneur William “Pim” Stemmer, Amunix uses its proprietary protein engineering technology to create longer-acting versions of clinically validated molecules. Biogen, of course, has been talking up its “focused diversification” strategy, bolting on capabilities in neurology outside its MS warhorses Tysabri and Avonex, even as it sheds its oncology assets. But Biogen’s nearest opportunity to diversify is via its recombinant protein therapies to treat hemophilia A and B, respectively in Phase II and III trials. Biogen’s molecules have significantly longer half-lives than competing marketed products and offer a significant dosing advantage over current standard-of-care that’s likely to be well received by patients, physicians, and payors. But that also means the big biotech must make sure its late-stage products aren’t obsolete when a new technology allows for the creation of even longer-acting molecules. Hence the tie-up with Amunix. No financial deets were disclosed, but the two firms are jointly conducting preclinical research, with Biogen paying an upfront plus R&D funding in exchange for clinical development, manufacturing, and commercialization rights of any therapeutic candidates. Amunix also stands to receive future milestones and royalty payments. -- EFL

Debiopharm Group/Aurigene Discovery Technology: A long-running research collaboration between the Lausanne, Switzerland-based developer Debiopharm and India’s Aurigene has yielded a promising approach to an undisclosed target in oncology. This week Debiopharm licensed worldwide development and commercialization rights to the lead compound, named Debio 1142, with plans to take it through clinical development and registration before outlicensing to an interested drug maker. Financial details were not disclosed, but Aurigene will receive milestone payments as the compound progresses. The stated plan is right in line with Debiopharm's usual business model. For example, it in-licensed oxaliplatin from Japan’s Nagoya City University, relicensing the product to Sanofi-Aventis for sale as Eloxatin. It’s also a variation on the European specialty pharma model that seems to be working well for Debiopharm. (See the April IN VIVO for more on various models in play.) -- John Davis

Daiichi/Pieris: Privately-held Pieris announced Tuesday, April 12 a two-target partnership with Tokyo-based Daiichi Sankyo. It is the latest in a string of alliances the German firm has inked to demonstrate the utility of its proprietary anticalin scaffolding technology. As part of the deal, Daiichi agreed to pay more than €7 million ($10 million) upfront for worldwide rights to two undisclosed targets, as well as dedicated research funding and milestones that could reach €200 million if both products reach the market. The Japanese pharma will also pay tiered “mid- to mid-high” single digit royalties on sales of any compounds that result. While the structure and limited scope of the Daiichi deal hews closely to Pieris' previous deals, the biotech’s CEO Stephen Yoder told “The Pink Sheet” DAILY that these alliances are designed to showcase the wide potential of the platform. Alliances are important, of course, but they don't provide Pieris' backers with an exit. Next-generation protein players such as Domantis, GlycArt, and GlycoFi were gobbled up during 2006 and 2007 thanks to a wave of biotech M&A as big drug firms attempted to strengthen their biologics capabilities. Since then, however, licensing deals have become the preferred transaction type, making an exit by acquisition more difficult. Since its inception in 2001, Pieris has raised €45 million in cash from a syndicate that includes OrbiMed Advisors, Novo Nordisk Biotech Fund, Global Life Science Ventures, Gilde Healthcare Partners, and Forbion Capital Partners. -- EFL

Endo/American Medical Systems: Valeant’s dogged pursuit of Cephalon is just one example of the anti-R&D movement at work within the biopharma industry. This week comes news of another deal exemplifying the trend: Endo’s $2.9 billion acquisition of urology device specialist American Medical Systems. The proposed deal represents a 34% premium over AMS' April 8 closing price, and it's three times the device maker’s 2010 sales of $538 million. Once dependent on Lidoderm (lidocaine 5% patch) for revenues, Endo has undergone a makeover under CEO David Holveck. Since he took the helm of Endo in 2008, the company has completed four acquisitions, all to position the company as a diversified healthcare solutions provider focused on pelvic disorders and pain: Qualitest Pharmaceuticals ($1.2 billion); Penwest Pharmaceuticals ($168 million); HealthTronics ($223 million); and Indevus Pharmaceuticals ($370 million). The acquisition of AMS is Endo's largest yet, and it substantially alters the company's portfolio and reinforces its commitment to devices, which sets Endo apart from other specialty players of a similar size who haven’t sought this kind of diversification. More and more, drug makers have been talking about moving into the device space as the traditional pharmaceutical R&D model has come under increasing pressure, in part because devices, at least historically, have shorter, less expensive product development time lines, as well as favorable pricing and reimbursement. The grass is always greener. -- Wendy Diller & Jessica Merrill

Takeda/Heptares: Takeda, which has targeted new central nervous system drugs as a core therapeutic research area, entered into a back-end loaded research collaboration April 11 with U.K. biotech Heptares Therapeutics to characterize a G-protein coupled receptor (GPCR) believed to play a role in CNS disorders. Takeda will pay $7.4 million in upfront cash and equity to Heptares, and milestone payments of up to $100 million, plus royalties on product sales. The tie-up is Takeda's second research collaboration in CNS this year. In March, the Japanese pharma agreed with New York-based Intra-Cellular Therapies to co-develop phosphodiesterase type 1 inhibitors for cognitive impairment associated with schizophrenia, in a $500 million-plus deal. In October 2010, Takeda signed a deal with Jupiter, Fla.-based Envoy Therapeutics to research new schizophrenia therapies. In the current two-year deal, Heptares' technology will be used to stabilize and characterize an unnamed GPCR thought to be important in CNS disorders but intractable to approaches to make it “druggable." Takeda researchers then will collaborate with Heptares researchers on generating leads, and the Japanese company will assume responsibility for preclinical and clinical development of any new drug candidates. The Takeda collaboration is Heptares’ second big pharma partnership, showing that its ability to go after difficult targets –- the so-called high hanging fruit –- is a strategy that can pay off. -- JD

Image courtesy of flickrer themonnie used with permission through a creative commons license

Deals Of The Week Goes To The Oscars

It's that time of year. The science of bracketology has yet to enliven talk around the water cooler, the official start to the 2011 baseball season is still a month away (no, spring training doesn't count), and all the backchecks, forechecks, and stick-checks are about as meaningless as the top shelf or the five hole. (Yes, this blogger admits she's a philistine.)

Which leaves us with Oscar drama. The Black Swan or The King's Speech? Sorry, not The Social Network. An Oscar nod to a film about a 26-year-old and a company that stands to raise a gazillion dollar IPO is a little like giving a 40-something president in his first term the Nobel Peace Prize. (Oh, wait a minute.)

Far from Hollywood's glitterati, there's been plenty of drama in the biotech industry this week and a couple of Oscar- (er, Roger?) worthy performances. Roche's Genentech continues to challenge FDA, trying to position itself as David against a regulatory Goliath in the ongoing brouhaha surrounding Avastin's use in breast cancer and the FDA Oncology Drugs Advisory Committee's decision to rescind accelerated approval.

On Feb. 24 Genentech said a hearing to review the decision will go forward, but within ODAC itself. That's not what the drugmaker wanted; it was pressing for "an objective advisory committee with substantial breast cancer expertise," arguing that the recent ODAC session was underpowered in this indication. But FDA will use its ODAC to make the decision, with Commissioner Margaret Hamburg's designee Karen Midthun arguing the rules don't allow FDA to substitute a different advisory committee. (Recall Avastin use in this indication was shot down 12-1 in the December meeting.)

Moreover, FDA won't be adding additional consultants to the current ODAC panel, arguing that the controversial nature of Avastin's breast cancer approval makes it difficult to find additional unbiased panelists. "We must face the reality that many experts in this area have already expressed a view on this issue and/or might be considered as having conflicts of interest because of their association with one of the parties to the hearing or competitors to Genentech," said Midthun.

To add to the excitement, the biopharma community won't just be watching, it will actually be in town when the ODAC convenes. The meeting coincides with BIO's national wheeling and dealing event in DC in late June. No word on whether FDA will roll out a red carpet in advance of the event, but we're guessing it's not in the regulatory body's budget.

Other biopharma events worth a call-out this week? For best stoic performance, the leading candidate has to be David Bredt, Eli Lilly's beleaguered head of neuroscience, who unexpectedly resigned this week. And for best comedy of errors, in a sequel to the Bad News Bears, Johnson & Johnson is clearly the leading nominee. The big pharma continues to hamstring its own R&D advances with manufacturing slip-ups. This week came news of problems with its Simponi injector and a recall of more than 660,000 Sudafed packages due to a 'not'-ty typo in the label that reminds consumers the following: "do not not divide, crush, chew, or dissolve the tablet." That's got to be a nomination for worst proofreading in a major consumer product label, not to mention an affrontery to the King's English.

We don't have the envelope yet, but odds are the winner for most insightful deal analysis is going to be...


Gilead Sciences/Calistoga: For the DOTW Oscar for best performance in a competitive space, with a nod to a separate category -- risk-sharing -- look no further than this week's tie-up between Gilead and privately-held Calistoga. Gilead announced February 25 it would pay $375 million in upfront cash, plus another $225 million in potential milestones, to take out Calistoga, one of the most closely watched entities in the PI3K inhibitor space. The on-the-table dollars represent a 4.6x increase over the $81 million the four-year-old start-up has raised from its venture investors, which include Frazier Healthcare, Alta Partners, and Three Arch. It's also one of the richest deals yet in the PI3K space, an arena big pharmas are eager to enter because the signaling pathway involved is implicated not only in oncology, but also inflammatory disease, cardiovascular disorders, and neuro-degenerative conditions. The acquisition gives Gilead a Phase II asset and a basket of interesting, highly specific but early-stage PI3K blockers. It also deepens the big biotech's commitment to oncology, building on its 2010 acquisition of CGI Pharmaceuticals and that firm's kinase discovery engine. Gilead's decision to make Calistoga its base of oncology expertise via the creation of a stand-alone Seattle division is probably smart but could be tricky to execute. Recall Gilead's commercial strength remains squarely in the anti-infective space and the strategy to acquire oncology capabilities is one other biotechs have tried and failed to replicate in the past. Biogen (via the Idec merger), for example, never grew into the dominant oncology player it planned to be and has since jettisoned that half of its business, betting that focus not diversification will be the greatest path to shareholder value. The onus on Gilead is to ensure the Calistoga team, especially its R&D and early clinical development execs, stay on board; the earn-out structure may help in that regard. -- EFL

TiGenix/Cellerix: Belgium-based regenerative medicine player TiGenix and Spanish cell therapy firm Cellerix propose to combine forces via a share exchange to create “a new European leader in cell therapy." The enlarged company will have two marketed products in Europe (including the first ever cell-therapy product to be approved by the European Medicines Agency, TiGenix’s ChondroCelect), two stem cell platforms (TiGenix’s allogeneic one, and Cellerix’s autologous one), and at least €33 million in cash that will last two years minimum. Indeed, both sides have concurrently secured additional financing from their shareholders, signaling investors’ general support for the deal. TiGenix has secured €10 million of a planned public rights offering, while Cellerix’s investors have committed the final €18 million of a €28 million round that began in late 2009. The hope is the newly enlarged group will provide investors a better shot at getting a return. Since its inception Cellerix has raised about €60 million as one of Spain’s first biotechs, and this deal values the Barcelona-based group at about the same. In the short term, the combined group may be better placed to lock in an interested big pharma partner. Importantly, Cellerix’s platform, based on expanded adult stem cells extracted from adipose tissue, creates off-the-shelf products that are less complex and expensive to create and administer than TiGenix’s ChondroCelect, which requires harvesting a patient’s own cells. Signs that big pharma is no longer running away from cell therapies? Think Cephalon’s December 2010 deal with Australia’s Mesoblast, GlaxoSmithKline’s toe-dipping with Harvard Stem Cell Institute, and Sanofi-Aventis’ tie-up with the Salk Institute. -- Melanie Senior

Forest Labs/Clinical Data: Much of the buzz around this week’s merger agreement between Forest and Clinical Data was around valuation. Forest is paying $30 per share, or $1.2 billion, plus up to $6 per share in contingent milestones to get ClinData’s antidepressant vilazodone, which was approved in January in the US for major depressive disorder. The price was less than ClinData’s prior Friday closing price of $33.90 and only a 6.6% premium over the volume-weighted average trading price since the vilazodone approval. But there’s considerable risk attached to vilazodone; hence the contingent payout to shareholders, which begins to kick in at $1 per share if trailing four-quarter sales exceed $800 million within five years. The drug label looks “clinically undifferentiated to us,” Leerink Swann noted, adding that the lack of an active comparator in trials “makes it difficult to tease out any meaningful benefits.” That said, it also believes Forest can get solid formulary coverage for the drug based on its track record with payors with its existing medicines -- Celexa and Lexapro -- and the strength of the new brand in a category that’s become genericized. (Lexapro, for example, goes generic next year. ) Vilazodone’s development is a true success story for ClinData, which got the drug via its 2005 acquisition of Genaissance Pharmaceuticals for $55 million, and ultimately for the Genaissance team, which had licensed vilazodone from Merck KGAA in one of its early pharmacogenetics programs. But like Vanda and its schizophrenia drug iloperidone, ClinData did not fully execute on the original premise for the development of vilazodone: i.e. its initial evaluation using pharmacogenetics would lead to a drug approval in parallel with a biomarker that would direct the drug to an enriched patient population for which it would show a more favorable risk/benefit profile. Indeed, for psychiatric drugs, that kind of targeting still seems a long way off. -- Mark Ratner

Kyowa Hakko/ProStrakan Group: Best foreign drama has to be the evolving Prostrakan/Kyowa Hakko tie-up. Three months after putting itself up for sale, U.K.-based specialty pharma ProStrakan might be teaming up with Japan's Kyowa Hakko Kirin. The 130 pence-per-share deal, announced Feb. 21, values the company at about £292 million ($475 million). If finalized, ProStrakan would provide Kyowa a commercial presence and regulatory expertise in Europe and the U.S. that would be useful as it looks to commercialize its pipeline assets outside of Japan. The two companies are already familiar biz cronies: Kyowa is a licensee for two of ProStrakan's products in Japan and other Asian countries. The price represents a 41% premium to ProStrakan's share price one day before its offer period began in November 2010, and it's supported by more than 47% of the specialty pharma's shareholders. But most analysts believe it undervalues the U.K. group. ProStrakan suffered a series of regulatory and manufacturing setbacks in 2010, sending its shares to an all-time low of barely 40 pence in September. That led to an unsolicited offer from privately held pan-European Norgine (which, when rejected, went on to buy a 12.6% shareholding), and, subsequently, ProStrakan's decision to put itself up for sale. The logic behind the move: fix ProStrakan's internal commercial and regulatory issues and then secure a reasonable sale price. The first has happened, but the second hasn't, according to some. "A fair price would have been 160 pence per share," Nomura Code analyst Samir Devani told sister publication "The Pink Sheet" DAILY. The current deal values ProStrakan at about 2.7 times revenues, less than the 3.5 times revenues paid by Meda for U.S.-based specialty pharma Alavan Pharmaceuticals in August 2010, and well below the (admittedly punchy) 4.5 times revenues paid by Biovitrum for orphan-diseases focused, pan-European player Swedish Orphan in November 2009. -- Melanie Senior

Roche/Transgene: And finally, the DOTW Oscar for best performance in the face of adversity goes to Transgene, which this week announced its big pharma partner Roche was pulling out of a collaboration to develop the smaller company's TG4001, a Phase 2b therapeutic vaccine for lesions caused by Human Papilloma Virus infection. The good news (also known as the spin): Roche's decision won't have a significant impact on Transgene's financial situation, at least in the short term. Also, the termination won't slow down the ongoing Phase IIb trial, which is structured to test the vaccine in over 200 patients. Transgene already has 195 patients enrolled in its mid-stage study, and anticipates interim data by the end of the year or early in 2012. In addition, Transgene "regains full and unencumbered development and commercialization rights to the product" according to the press release announcing the news. That means when the licensing deal officially concludes this summer, Transgene can look for another deep-pocketed partner to help prepare a registrational trial. Will another pharma bite? Specialty products and especially vaccines are all the rage these days, and Trangene emphasized in its press release that the "no deal" was the result of a strategic decision by Roche, and "is not data driven." The question is who might have greater strategic interest in HPV than the Swiss pharma, which via its diagnostic business is developing its cobas HPV test to individually detect HPV-16 and HPV-18, the two HPV genotypes causing 70% of cervical cancer cases. (Interestingly, the Swiss pharma published new positive data about the test this week in the American Journal Of Clinical Pathology.) -- EFL

Deals Of The Week Ponders The Darkening Days

The Festival of Lights officially began Wednesday night, and the halls of malls across the country have been swathed in equal parts blue and white and green and red for weeks in an effort to sway consumers to what used to be our national past time. But Adam Sandler aside, there's a pall in the air. The Senate's show down on tax reform. The bleak employment picture. The deepening conflict between North and South Korea. LeBron's return to Cleveland. No wonder President Obama made an unannounced visit to Afghanistan--at least there's some hope he can escape the relentless 24-hour news cycle.

To quote old Will "What freezings have I felt, what dark days seen. What old December's bareness everywhere."

In biopharma land, many are also channeling Richard III--or maybe Ethan Allan Hawley. It's hardly surprising. Words describing the IPO probably shouldn't be printed here (we are a family publication after all), and restructurings continue apace as firms accept it may be better to do less with less. The latest high flier to reach this conclusion: Exelixis, which used its annual R&D to announce a massive restructuring and a doubling down on its small molecule cancer med, XL-184.

If any company is eager to see the backside of 2010, it's got to be Exelixis. There's no denying it's been a turbulent year for the biotech, which saw the abrupt departure of long-time CEO George Scangos and the end to a key development agreement with long-time partner Bristol-Myers Squibb for XL184.

The good news: XL184, in Phase III trials after having reported "unprecedented results" at a recent cancer meeting, is now wholly owned by Exelixis. The bad news, of course, is that the drug is wholly owned by Exelixis, meaning it is picking up full development costs for the program.

Given the need to shoulder those expenses--especially in settings like prostate cancer, where the drug will go up against Amgen's newly approved Xgeva, Exelixis's decision to downsize and halt internal development of all non-partnered programs is imminently sensible. But that's likely cold comfort for the 40% of staff being laid off starting this month. Indeed, come some time in 2011, headcount at the firm will fall to around 240 from 670 the year before--and future cuts could trim employee numbers even further to just 140 personnel.

It's another reminder that as much as we like to talk about broad portfolios and multiple shots on goal, many biotechs--even very well capitalized ones like Exelixis (or Biogen for that matter)-- are ultimately forced to double-down on their best shot at commercial success. Yep, the more things change... (Kind of like the continuing Genzyme/Sanofi saga.)

In December's darkened days, are you tempted to snuggle into your pjs--and eat hot soup? Reading once, reading twice, reading chicken soup with rice...

GE Healthcare/Janssen: GE and specialist drug developer Janssen are joining forces to develop a biomarker signature for detecting Alzheimer’s disease prior to the onset of clinical symptoms. The research collaboration will draw upon the resources of GE’s Medical Diagnostics division, which has an amyloid PET imaging agent, Flutemetamol, in Phase III, and Janssen’s neurology-related clinical, biomarker, and informatics expertise. At first blush, the arrangement may not seem remarkable for DOTW, but it is indicative of GE’s gravitation towards IVD businesses. (Remember, in early 2007, GE bid for Abbott’s immunoassay, clinical chemistry, hematology, and point-of-care businesses, but the deal fell apart.) For the most part, both before and after the Abbott near-miss, GE has focused on the development of new imaging agents, owing to its acquisition of Amersham--and that firm's contrast agent and medical isotopes business--in late 2003. While this isn't a division that historically has made acquisitions, recent signs suggest change could be afoot. In October 2010, GE paid just over a half-billion dollars for molecular oncology testing services provider Clarient (4), its first major external investment for molecular diagnostic content. “We are clearly seeing personalized medicine gaining in importance, and GE Healthcare is in a great position, with the diagnostics solutions we have in vivo,” says current president and CEO of Medical Diagnostics, Pascale Witz. Clarient “can be an engine to develop new tests that could come from a different horizon, from GE Healthcare, or other research institutions or companies,” she adds. The arrangement with Janssen aligns with that goal. – Mark Ratner

Axcan/Eurand: The board of Belgium-based specialty pharma company Eurand and its majority shareholder have approved the sale of the company to Axcan Holdings for $583 million in cash, the companies announced on Dec. 1. At $12 a share, the offer is a 9% premium to Eurand's closing share price as of Nov. 30 and gives Eurand a market cap of roughly $574 million. That figure seems low compared to analysts' estimates of Eurand's value, but the deal appears likely to succeed since key shareholders Warburg Pincus, (which owns roughly 55% of the company's equity) and Eurand Chairman and CEO Gearoid Faherty (who owns another 3.7%) have already agreed to the terms. Eurand belongs to a cadre of small to mid-cap European specialty pharma companies that have struggled to transform their business models in the face of increased competition for assets and a difficult pricing environment. Eurand has adapted better than some of its peers, capitalizing on the success of its lead product, Zenpep (delayed release pancrelipase), which is an improved form of an enzyme replacement therapy for treatment of exocrine pancreatic insufficiency, or EPI. Axcan, a Canadian firm taken private by TPG Capital in 2007, competes in this so-called PEP market, but has been stymied by new regulatory requirements and two complete response letters for its version, called Ultrase (also known as Viokase). That's important because Axcan has become increasingly dependent on Ultrase/Viokase sales, with the drugs contributing 19% of Axcan's total revenues for the fiscal year ending September 2009.--Wendy Diller

GlaxoSmithKline/Theravance: GlaxoSmithKline hitched its wagon even tighter to long-time partner Theravance this week, increasing its stake in the company to 19% via a $129.4 million investment. The move isn't terribly surprising, coming after the companies announced positive Phase II data on their partnered asset Relovair in September. The once-daily, long-acting beta2 agonist/corticosteroid combination is in Phase III development to replace GSK's blockbuster Advair and the increased investment suggests GSK is confident in the companies' respiratory collaboration. GSK and Theravance have been allies in the respiratory space since 2002 thanks to an early-stage LABA deal. In 2004, that arrangement morphed into a broader strategic alliance in which GSK paid $129 million upfront and increased its stake in Theravance from 6% to 19% in exchange for an exclusive option to license new medicines from all of the company's development programs through 2007. Theravance took advantage of the IPO window that same year and over time, through public offerings, GSK's stake was reduced to around 12.8% of Theravance's capital stock. With the latest private placement, GSK will purchase 5.75 million shares of Theravance common stock at $22.50 per share. For Theravance, the deal extends the biopharma's cash runway and could see the company beyond the Phase III Relovair data release, expected in mid- to late-2011. CEO Rick Winningham told sister publication "The Pink Sheet" DAILY the investment should give Theravance enough cash to run the company out two years beyond the Phase III data release.--Jessica Merrill

Merck/SmartCells: In the wake of Phenomix's flame-out, VCs are understandably gun shy about investing in diabetes players. And yet this is clearly an area of interest to big pharma acquirers, who see the explosion in obesity and Type 2 diabetes as one way to fatten the bottom line. The latest proof that big pharma is on the prowl for diabetes assets? Merck's take-out Dec. 2 of privately-held SmartCells for an undisclosed upfront plus development and regulatory milestones that could drive the deal price above $500 million. (What? At this point in the year, an earn-out heavy deal can't still be surprising?) The acquisition gives Merck access to a preclinical insulin technology called SmartInsulin, a once-daily insulin injection for the treatment of type 1 and type 2 diabetes that is meant to automatically adjust to fluctuating levels of blood glucose. In doing so, the medicine presumably overcomes some of the stigmas associated with insulin therapy--the potential risks of either hyper- or hypoglycemia and the frequent daily monitoring required to maintain appropriate blood glucose levels. In its seven-year lifespan, SmartCells (read this Start-Up profile for more) has raised less than $20 million, relying heavily on grants from the Juvenile Diabetes Research Association, National Institutes of Health, and angels. (Hint: without traditional VCs in the picture, the company's founders seem likely to make a pretty penny even if the upfront is in the tens of millions.) The acquisition moves Merck into a new area of research since it doesn't currently offer insulin therapy. While some have speculated Merck is interested in building smart insulin for the Type 1 market, Merck's interest is likely in solidifying its stance in the all important (and much bigger) Type 2 population. This is an arena where Merck already has significant share of voice thanks to its juggernaut DPP IV inhibitor Januvia, and SmartCells' insulin seems uniquely positioned to take on long acting insulins like Sanofi's Lantus or Novo's late stage Degludec. Being preclinical, the company will have to show the compound has the commercial chops to survive the rise of long-acting GLP-1s, another reason an earn-out deal was a smart move on the part of the Merckies.--EL

Image courtesy of flickrer marcusjroberts via a creative commons license.