Tuesday, January 08, 2008

“We’re a Buyer, not a Seller,” Says Genzyme With Isis Deal

Genzyme’s $325 million up-front deal with Isis Pharmaceuticals on Phase III cholesterol-lowering drug mipomersen achieves two goals for the Big Biotech. It plugs a worrying gap in the company’s otherwise healthy growth trajectory and makes a bold statement about Genzyme’s determination to remain independent.

After activist shareholder Carl Icahn took a small stake in the company at the back end of last year, Genzyme needed to do something to minimize takeover speculation. CEO and chairman Henri Termeer--although always clear in his desire to drive an independent ship--took the trouble to go on the road and make his case, as reported in the Wall Street Journal.

Fortunately, as we now know, Termeer was also busy bidding for mipomersen. The product went up for auction last summer, according to Isis' CEO Stanley Crooke, and the timing of Genzyme's victory is opportune. The deal's size and structure--$150 million for about 5% of Isis’ equity, plus $175 million in cash upfront, a headline-grabbing potential $825 million in development and regulatory milestones, plus up to $750 million in commercial milestones—sends a strong message that Genzyme is out to buy and build, not to sell.

The deal also reinforces elements of Genzyme’s diversified-yet-specialist strategy, whose advantages, as we argued in a recent IN VIVO feature, are becoming increasingly clear. Mipomersen, a lipid-lowering compound that targets apolipoprotein B-100, is a weekly injectable being investigated, in the first instance, for familial hypercholesterolemia (FH). That’s a relatively rare, inherited disorder, suitable for a specialist sales force—bang in Genzyme’s bailiwick. Termeer describes the asset in the press release as a “very Genzyme-like product.”

Not that cardiovascular is exactly a Genzyme-like TA; not yet, anyway. For now in this area it sells only Cholestagel, a tablet for high cholesterol patients who can’t tolerate statins or who need additional help lowering LDL. But that’s the diversification bit: CV may now become one of Genzyme's emerging franchises as the company continues to broaden out beyond lysosomal storage disorders, where top-selling Gaucher’s treatment Cerezyme accounts for about 30% of total revenues.

Mipomersen, on paper at least, fits beautifully into Genzyme’s tried-and-tested strategy of broadening out assets beyond an initial niche indication and picking up lucrative corners left un-served by larger, sometimes primary care drugs. Thus mipomersen, due for filing in FH next year, will also be tested in patients with high cholesterol and at high risk of cardiovascular events—those for whom statins don’t work or aren’t suitable. (The drug, a second-generation anti-sense product, likewise confirms Genzyme's willingness to embrace novel, often risky technologies.)

Given the fit, the timing, and the drug's late-stage, it’s no surprise to see the smaller biotech win above-average up front fees, lucrative milestones--although, as Bear Stearns analyst Mark Schoenebaum points out, it’s unclear how these are distributed--and also at least 30% of profits without lifting a finger on the commercialization front.

That detail—commercialization--is perhaps more surprising: until recently, most biotechs have tended to go for a co-promotion option on their drugs at a minimum (although that trend has been waning, as we reported here). If the drug reaches $2 billion or more in sales (unlikely; Bear Stearns is forecasting a conservative $750 million) Isis would be eligible for 50% of profits, with a linear sliding scale in between.

Genzyme also has preferred access to future Isis drugs in CNS and certain rare diseases; that, courtesy of the $150 million equity purchase, at more than double Isis’ pre-announcement share price. Isis’ shares rose almost 50% in after-hours trading on Monday, according to Reuters.


Anonymous said...

The 300 homozygous patients targeted in the initial indication at $50,000/year generate $15MM a year.... Make it $100,000/year - it is Genzyme after all! so it is $30MM a year. This is definitely not what Henri is after.... is there data to justify expansion into the heterozygous population?

Melanie Senior said...

Not yet--more work to be done there. But homozygous FH, even FH as a whole, is just the tip of the pyramid, we're told, with high risk cholesterol patients, those unable to tolerate statins and even diabetics at the base. Sure, all this is a way off, & may not happen at all, but given that we now know how back-end weighted all those milestones were (see the 8k; only $200m of the devlpmt milestones are associated with FH) it's a reasonable-sized bet. Henri isn't after a $30m drug, sure, he's after something that can be built out, just like Renagel was, into a big deal.
You imply that this isn't enough for Henri; it probably isn't. But the splash was welcome.