Friday, May 16, 2008

Deals of the Week: Not Quite Exits, But OK Given the Circumstances

It’s hardly news that most biotechs can’t buy an investor. So it’s nice to see a few signs of progress.

Take pharma-ignored cell therapy. The stem cell world got a boost as two smart guys from biotech – Paul Grayson from Sanderling and John Mendlein, most recently CEO at biological-platform play Adnexus (sold for $500 million to Bristol-Myers Squibb) -- joined a bunch of scientists at Fate Therapeutics.

Elsewhere in the cell-therapy world: we’ve been wondering (in this post, for example) why big biotech deals so often cause biotech shares to drop. But not at Cell Genesys, whose Takeda deal started the company’s stock up a satisfyingly steep incline, virtually doubling as investors absorbed the news that somebody in Pharma, finally, had seen the value of cell therapy (albeit a pretty pharmaceuticalized version). Now it’s done the smart thing – raising $30 million from shares and warrants in a one-investor PIPE. It probably still feels the financing came at a pretty dilutive rate (something like $330 million pre-money) but hardly the dismal barely-above-cash-value price it was trading at a few months ago.

Now with that ringing endorsement we bring you ...

Intercell/Iomai: And as for exits – or quasi-exits: from the outside, things looked pretty bleak for vaccine-play Iomai, which had less than a year of cash when the Austrian Intercell said on Tuesday that it was buying the patch-tastic drug and vaccine delivery company for $6.60 per share, valuing the company at $189 million. Intercell gets a few mid-to-late-stage patch-vaccine programs from Iomai, including one for travelers’ diarrhea that may enter pivotal trials as soon as the first half of next year, as well as a second deal with Merck & Co. around Iomai’s patch with an undisclosed vaccine. Deal doesn’t do much immediately for the major investors, presumably the VCs like New Enterprise Associates and Essex Woodlands who have been stuck in the stock since taking it public in 2006 at $7/share at about an $85 million pre-money. They’ve got to take Intercell shares for their stake (which are at least far more liquid than Iomai’s were). We noted the predicament of these VCs and others who have found themselves ‘marooned in the public markets’ only last month in START-UP.

Antisoma/Xanthus: Similar issue for backers of Xanthus. Antisoma, the UK cancer-focused biotech, is acquiring the Boston-based start-up for ₤26.8 million in stock. Antisoma seems to have gotten a great deal. On a total of about $90 million invested from its VCs, Xanthus has managed to create a real pipeline, largely through in-licensing. It’s put four drugs into clinicals, with two leading the way: Xanafide is starting a Phase III trial in secondary acute myeloid leukemia under an SPA; and FDA has accepted Xanthus’ filing for oral oral fludarabine, to which its got US rights (the product is marketed in Europe and elsewhere). Most of Xanthus’ pipeline was spun out of Schering AG in a series of deals as that firm was integrating into Bayer, a deal we chronicled here in 2006. (Interestingly, before that, Xanthus had managed to grab another, earlier stage asset (P2045), a peptide coupled to a radioisotope which had originally come from biotech Diatide—which had been run by Xanthus CEO Richard Dean, PhD, and VP of development John Lister-James, PhD.) Xanthus’ backers won’t get free of Xanthus immediately: they’re putting about a third of the $42 million or so in new money Antisoma is raising simultaneously with the deal.

Merck/Ranbaxy: Now for something completely different. On Monday, Merck announced a partnership with Indian drug giant Ranbaxy in the anti-infective space. For an undisclosed up-front fee and milestones potentially totaling more than $100 million, Ranbaxy will search for anti-bacterial and anti-fungal compounds, taking compounds through Phase IIa before handing them back to Merck for additional human studies and commercialization. Merck won’t release details but Mervyn Turner, PhD, SVP for world-wide licensing and external research at Merck assures IN VIVO Blog that the proper incentives to keep both sides motivated have been built in. Still, it’s anybody’s guess what happens if Ranbaxy’s compounds don’t pan out. Does Ranbaxy get them back? Is the company still eligible for monetary compensation? “It’s all covered under the agreement,” says Turner.

This most recent deal comes on the heels of two other similarly structured deals Merck has inked in India: a November 2007 agreement with NPIL Research and Development (formerly part of Nicholas Piramal) in the oncology space and a 2006 partnership with Advinus Therapeutics in the metabolic disease arena. For Merck, the deals are all about expanding pipeline and pipeline capacity. Merck doesn’t have to fund much development, so doesn’t take a big P&L hit, but still has the right to step back in if something interesting results. We’re likely to see more such deals in the future. Increasingly Big Pharma is thinking virtual: companies once proud of their FIPCO status are openly discussing their desire to transform themselves into FIPNets (fully integrated pharmaceutical networks). Lilly, in particular, is a big proponent, and we have more on their strategy in a story in the May IN VIVO along with another piece in the same issue on Pfizer’s ideas for externalizing its pipeline.

BMS/KAI: We’ve already noted here the tie-up between Bristol-Myers Squibb and Kai Pharmaceuticals on an acute-care IV-delivery heart attack drug, KAI-9803. KAI had reformulated the compound from the original intra-coronary version it had licensed and gotten back from Sankyo, following that company’s merger with Daiichi, but the deal is also the second in Bristol’s so-called string-of-pearls strategy (after its Adnexus acquisition in 2007). No longer as big a Cahuna in the drug world as it once was, Bristol has been transforming itself into a specialist player, looking to layer in externally sourced next-generation R&D programs. If they’re good, they’ll come at a Big Cahuna cost, however -- pretty much just as Plavix is losing patent protection and with it a huge chunk of Bristol’s current operating cash flow. That’s why the company is trying to raise money now to fund its strategy, selling off Convatec ($4.1 billion) to a couple of private equity groups and IPO’ing Mead Johnson, keeping 10-20% and reaping maybe $900 million - $1.7 billion (with the possibility of selling off more over time).

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