Friday, September 17, 2010

DotW Contemplates the Beginning of the End for Genzyme

The biggest deal of the week wasn't a chart-topper just because of its size. It was also likely the tip of a much larger iceberg.

We're talking about Genzyme's sale of its genetic testing unit to Lab Corp. for $925 million. Combined with 1,000 layoffs at the big bio, the spinout of the unit -- at a price 30% to 40% higher than at least one analyst expected -- could be a big step toward getting Genzyme ready for a sale. It comes a year and a half after serious manufacturing problems at a Boston-area plant were first disclosed in early 2009, an event that opened top executives to criticism from tub-thumping shareholders.

Now, our chilly choice of metaphor a few sentences ago might lead you to think that anyone steaming toward a rendez-vous with Genzymic destiny could be making a mistake of Titanic proportions. You, dear reader, must let your powers of speculation be your guide. We're certainly not ones to scream at Chris Viehbacher to pull hard alee, or astern, or throttle the jibbers, or whatever you're supposed to say to a ship's captain who needs a course correction, fast. Sanofi has offered $69-a-share, but it could take an offer of $75-a-share to bring Genzyme to the negotiating table, analysts told our Pink Sheet colleagues this week.

Viebacher doesn't seem ready to rush headlong into anything, let alone a $18.5 billion disaster. After all, Genzyme is less an iceberg -- although you have to wonder if other manufacturing nightmares still lurk beneath the surface -- than a collection of islands, which like the Galapagos, have inhabitants that have evolved quite separately, and in some cases, more successfully than others. (We leave it to you to sort out the finches from the tortoises and figure out what the hell to do with the feral goats.)

The sale of the genetics business, combined with the planned sale of the diagnostics and pharmaceutical intermediaries units, don't automatically point Genzyme toward M&A. Nor do the layoffs. The Cambridge, Mass. biotech has plenty of reasons to shift resources around, whether it's hiring more in manufacturing to shore up quality control or amassing cash for a share buyback. The firm raised debt this summer to fund the first tranche of the buyback, and the Genetics unit sale will pay for the second tranche, Genzyme said. But CEO Henri Termeer has publicly said there's a "high probability" of a deal with Sanofi, so every move Genzyme makes from now on must be viewed in that context.

For Sanofi, the sell-off of Genetics and the other two businesses would make for a cleaner eventual acquisition of Genzyme, but otherwise shouldn't make much difference, as they're tangential to the French pharma's interests. Sanofi is willing to wait. Viehbacher said as much at a conference this week: "I don't think they are in a hurry and neither are we in hurry. I don't see anybody else coming into the deal, so that's not pushing anybody in terms of speed."

The wild cards, of course, are the shareholders. Viehbacher spent last week meeting with Genzyme's. Termeer has said his board, which includes dissident investors who agitated their way into the boardroom, is adamantly opposed to the current offer at $69 a share. And don't forget Sanofi's shareholders, which include French corporate titans L'Oreal, the cosmetics company, and the oil firm Total. They haven't revolted, but it seems they're casting a wary eye on the proceedings.

Viehbacher has already served notice early in his term that he'll only appease shareholders so much -- dividends yes, buybacks no -- so how he handles the Genzyme situation, given his previous pledges of no purchases over $20 billion, could be the defining moment of his tenure.

Same goes for Termeer, who was on the buying end of many acquisitions as he built Genzyme over twenty five years into the powerful but hodgy-podgy (or, if you prefer, "diversified") business it is today. He may well come to the end of his term as the big biotech's mastermind, even if Sanofi bows out. Should a deal not transpire (we'll keep the "NO DEAL!" JPEG warm), Genzyme's share price will likely sink back to the pre bear-hug level of the low $50s. With the activist shareholder presence on Genzyme's board, does anyone really believe Termeer can keep his post if the deal doesn't get done?

AstraZeneca/University College London and Cancer Research Technology: AstraZeneca this week revealed a pair of new arrangements to advance its stem-cell research targeting blindness related to diabetes and, separately, its oncology program. The Big Pharma said it will collaborate with researchers at University College London, led by Dr. Marcus Fruttiger, in a three-year partnership to explore uses of regenerative medicine to address diabetic retinopathy, a leading cause of blindness which afflicts about a quarter of Type I and more than half of Type II diabetes patients. The collaboration echoes Pfizer’s ophthalmological research deal with UCL, in which the two are searching for new therapies for age-related macular degeneration. AstraZeneca also said UK-based charity Cancer Research UK and its partner Cancer Research Technology would perform a Phase I/IIb clinical trial on oncology candidate AZD-3965, an inhibitor of the monocarboxylate transporter 1 (MCT1) that is crucial for cell metabolism. Once the trial is completed, AstraZeneca will retain a right to further develop the drug, or offer it to CRT to seek a different partner; the charity will receive a royalty on the drug’s revenues if it’s ever approved, regardless of which company develops it further. -- Paul Bonanos

Merck/Beijing Genomics Institute: With the president of Merck Research Laboratories Peter Kim in attendance, the Beijing Genomics Institute this week announced the signing of a statement of intent to form a working relationship with Merck. The organizations aim to utilize BGI’s high-throughput DNA sequencing and analysis capabilities in a research collaboration, primarily to analyze genomic and epigenetic data generated using Merck samples. “The key is epigenetics,” said one person familiar with the discussions. The deal comes at a time when several US-based next-generation sequencing companies are trying to establish a foothold in drug discovery, including current IPO hopefuls Complete Genomics and Pacific Biosciences, while also aiming at the more lucrative clinical diagnostics market down the road. At the same time, academic genome sequencing centers are operating more frequently as businesses, competing with commercial entities in terms of cost, throughput, and accuracy. For its part, BGI currently boasts a combined sequencing and bioinformatics staff of just under 4000, including 1500 bioinformaticians, and it expects to boost the overall number to 5000 by year-end. Given the scale and complexity of genetic information and the speed at which it is being obtained, a relationship with BGI could offer significant advantages, including on the regulatory front. “From the patient standpoint, we risk getting scooped by others outside this country, whether we are then sending the results to BGI in China to be interpreted or some other offshore thing,” cautions one CSO. -- Mark Ratner

GenMab/Seattle Genetics: The Danish firm GenMab has licensed Seattle Genetic's antibody-drug conjugate (ADC) platform to use with its own HuMax-TF antibody technology to develop drugs that target the Tissue Factor antigen. GenMab is responsible for all research, manufacturing, preclinical development and Phase I trials of ADCs that combine the two technologies. At the end of Phase I, Seattle Genetics has the right to opt into co-development and share all costs and profits fifty-fifty. If Seattle Genetics does not opt into a compound, GenMab would pay fees, milestones, and single-digit royalties on worldwide net sales. GenMab is paying Seattle Genetics an undisclosed upfront fee. The Seattle, WA-based biotech's ADC technology links cell-killing agents to antibodies to deliver precise payloads to tumor cells while leaving, in theory, healthy cells undisturbed. Its molecules have yet to reach FDA approval, but its lead, brentuximab vedotin, is in Phase III for Hodgkin lymphoma. The collaboration comes as GenMab shifts development focus on its flagship anti-CD20 product Arzerra (ofatumumab) to subcutaneous autoimmune indications. More accurately, GenMab's partner GlaxoSmithKline will make the shift, as it holds development rights to the compound. The partners amended in July their long-running collaboration to give GSK the autoimmune rights, a move that paid GenMab £90 M at the forfeit of development milestones. GenMab still helps pay for oncology development, but its contribution is capped at £145 M total. -- Alex Lash

Santarus/Pharming Group: Faced with a cash squeeze, Dutch protein therapeutics developer Pharming Group inked a deal with San Diego-based Santarus to license Pharming’s late-stage orphan drug Rhucin (conestat alfa) in North America. Santarus will obtain rights to Rhucin, a recombinant human C1 inhibitor which alleviates swelling related to hereditary angioedema, for $15 million up front, plus $5 million if and when the FDA grants approval of the drug’s biologic license application. Further milestones, including ones based on sales goals, are also built into the agreement. Pharming will still be in charge of obtaining approval of the BLA in the U.S., while Santarus will address regulatory hurdles in Canada and Mexico. In April, Pharming dealt away Rhucin’s distribution rights in 24 European countries to Swedish Orphan Biovitrum for an undisclosed amount. The upfront payment will help Pharming deal with a cash flow crunch due to a bond debt payment owed in the fall. Separately, Santarus said it had obtained Covella Pharmaceuticals and its anti-VLA-1 antibody program for $1.8 million plus royalties, future considerations and other expenses; that deal also includes an amended agreement with Biogen Idec, from which Covella licensed the program in January 2009. -- Paul Bonanos

Johnson & Johnson/Crucell: The far-flung Johnson & Johnson health care empire may be adding a vaccines unit as J&J bid €1.75 billion (about $2.3 billion) to buy Crucell NV on Sept. 17. The pharma giant said that if the deal goes through, Crucell would continue to operate as a subsidiary, retaining its facilities, ongoing programs, senior management and its “entrepreneurial culture that has fostered innovation and growth.” J&J’s bid works out to roughly €24.75 per outstanding share of the Netherlands-based vaccine maker, nearly a 58% premium over the closing price of €15.70-a-share on Sept. 17. Recall that in September 2009, J&J acquired a 17.9% stake in Crucell for €301.8 million, a 28% premium, in a transaction that also partners the two companies on an effort to develop a universal monoclonal antibody against all types of influenza A. That deal included a standstill agreement specifying that J&J would not attempt to increase its holding in Crucell for at least three years, but the acquisition bid is going forward as a mutual effort between the two companies. In a joint release, the companies indicated J&J’s board of directors and Crucell’s supervisory board have authorized the negotiations to proceed. This is not the first time a big pharma company has tried to acquire Crucell--Wyeth made a bid estimated at €1.35 billion in early 2009 but dropped the effort when it was bought out by Pfizer.--Joseph Haas

Photo courtesy of Flickr user Rob Lee.

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