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Tuesday, November 30, 2010

Merck CEO-Designate Frazier and the Importance of Washington to Pharma

The announcement that Merck's global pharmaceutical head Ken Frazier will ascend to the CEO slot in January is hardly a shocker: he was viewed as the front-runner in a one-man race to succeed Richard Clark next year.

But this stable, planned succession is still an important marker about the climate for Big Pharma. Much will be made of Frazier background as chief counsel at Merck (he will join Jeff Kindler at Pfizer as the Lawyer-in-Chief CEO model), but we wanted to highlight Frazier's hands-on role in shaping Merck's public policy efforts throughout his career.

While Clark personally represented Merck in some of the critical events involving the health care reform debate, Frazier was very much on board with the plan -- and gave a thoughtful and compelling explanation for why Merck decided to take the risk of engaging in the reform debate during a keynote address during Elsevier Business Intelligence's FDA/CMS Summit for Biopharma Executives in December 2008.

We reprinted the full address in The RPM Report, here. But we thought Frazier's analysis of the risk of inaction was particularly compelling, and may be newly relevant as he takes over the top spot at Merck heading into the uncertain waters of a newly Republican Congress in 2011. So we've excerpted that section below.

Oh, and by the way, today is the last day to qualify for the "early bird" discount for this year's FDA/CMS Summit. In all modesty, we can't promise you will see tomorrow's CEOs today if you come to the Summit, but, as Frazier's address shows, you just might. What we can promise is that what happens in Washington continues to matter to the Big Pharma business, so you won't want to miss out on the chance to deepen your understanding of the rapidly changing public policy climate. (Click here for more on the Summit.)

Here is what Frazier said two years ago about the risk of inaction, if Merck chose not to support reform:

We understand clearly that we are entering this debate at a time when the pharmaceutical industry’s standing is low and we face challenges from many directions.

For years now, politicians, the media, and industry critics have disparaged our prices, our allegedly excessive profits, and our purportedly wasteful marketing expenditures. Most unfortunately, we have also seen critics challenge the integrity of the scientific research that is at the core of our value to patients and society.

These challenges have led to legislative proposals, here and around the world that could have serious negative impacts on our industry and on our ability to continue to innovate in the interests of patient health. In my new role overseeing the marketing of Merck medicines and vaccines around the world, I’ve seen first-hand the negative impact that some of these ideas have had.

Certainly, major health care reform action in the United States could provide a vehicle for the consideration of several harmful proposals, such as drug importation, price negotiation in Medicare Part D, and changes to the patent protection that is a necessary prerequisite to pharmaceutical innovation.

We’re also seeing these proposals at a time when Merck and other companies are facing unprecedented business challenges. The rapid and appropriate uptake of generic medicines, challenges to our patents, and setbacks in our pipelines are translating into layoffs as well as difficult research investment choices.

This is arguably the worst time for punitive government actions of the type some are proposing.

While the risks of action to us are clear, so are the risks of inaction. First and foremost, people without health insurance coverage have poorer health and, of course, reduced access to our medicines and vaccines. Those without coverage live with a day-to-day fear that most of us in this room can only imagine. It is a fear that... they are only one illness or one accident away from financial ruin or permanent disability.

If that were not enough in itself, as an industry we need to understand that until the nation reforms our health care system, including providing affordable access to quality care, the issues of access to medicines and the price of medicines will remain flashpoints in political and economic discourse. Further, more time without action will only embolden those who advocate anti-competitive approaches such as universal government delivered health care.

Friday, November 26, 2010

Termeer Touts Campath-Linked CVRs

While the US digests its Thanksgiving turkeys, life, work and...yes, pre-takeover posturing continues on this side of the pond. We're talking Sanofi-Aventis' attempt -- thus far too cheap -- to buy Genzyme, naturellement.


Speaking to French national daily Le Figaro (in his first interview with the French press), Genzyme chief Henri Termeer confirmed a report in the Wall Street Journal a couple of weeks ago that he's willing to explore Campath-linked contingent value rights (CVRs) in any future negotiations with Sanofi-Aventis. (We say 'future' coz they haven't started yet; "we have nothing on which to base a discussion," as Termeer insists).

Having CVRs pop up is not much of a surprise, though, is it. They're becoming part of the deal-making landscape, after all; soon enough they'll be as unremarkable as option-based structures. And wind-turbines.

You see, Termeer isn't opposed to selling Genzyme (shareholder value 'n all that). He's just opposed to selling it at $69/share (shareholder value 'n all that). It's all about price, he confirmed to the French newspaper.

The fact that Termeer is the one suggesting Campath-linked ways out of this stalemate hints that he's keen to squeeze more money out of his predator and get things sorted (so do the recent sales of the genetic testing and diagostics units); after all, he doesn't want his shareholders (particularly the newer ones) getting fed up and just turning over. He may say (he did say) that "we have time on our side, because our production issues are resolving themselves." But perhaps not that much time. Not more than Sanofi does, anyway.

So while Termeer sketches down his list of poison pills to buy time while the company rights itself, the valuation battle-ground may shift to Campath, and just what that drug could be worth.

There's a huge difference (surprise!) between what Sanofi thinks ($700m) and what Genzmye thinks ($3.5 billion). In Termeer's view, "this will be the most effective, cheapest and most convenient treatment for MS patients."

The Phase III trials, due next June and next autumn, may show who's right. They may also be the trigger-points for Campath-linked contingent value notes/rights/widgets to ex-Genzyme shareholders....if Genzyme is to become "a Sanofi-Aventis Rare Disease Company" by next Thanksgiving...

image by flikrer Chuck Coker, with permission

Thursday, November 25, 2010

Bleak Winter for Servier

Winter is coming early to Europe this year, particularly for one company situated in the suburbs of Paris. Servier faces its first court case, filed yesterday by two patients at Nanterre, France, in connection with its diabetes drug Mediator (benfluorex).

An investigation by the French medicines regulator (Afssaps) led to claims earlier this month that Mediator, and its generic equivalents – manufactured by Myland and Qalimed – may have caused 500 deaths since 1976.

Servier is being charged with “serious deception, based on the nature, substantial quality and composition of the product”, “placing the lives of others in danger”, “administration of a noxious substance” and “involuntary homicide”.
Harsh accusations, indeed (even by pharmaceutical industry standards). However, the actual number of deaths associated with Servier's drug is derived from two separate studies assessed by Afssaps and the association is, for the most part, hypothetical. At Afssaps' request, three expert epidemiologists examined the study results and suggested that on the basis that some 7 million people were exposed to the drug between 1979 and 2009, the number of deaths was likely to be in the region of 500.

Put in that context, 500 deaths doesn't sound too unusual. But use of benfluorex also significantly increased the risk of hospitalisation as a result of thickening of the heart valve (valvulopathies), according to the pharmacovigilance studies that Afssaps pulled together.
Faced with this first case, Servier has a number of factors running in its favor. Firstly, it voluntarily withdrew Mediator from the French market in November 2009, following several reports of cardiac valvulopathy and pulmonary arterial hypertension. The European Medicines Agency followed suit in December 2009.

Next, Servier may be deemed to have a point when it retorts that the “inflated” number of deaths was the result of an “extrapolation” and therefore did not represent actual Mediator-caused deaths. Moreover, the company revealed that, even if this morbidity were proven, it would only correspond to a risk of 0.005%.

The Nanterre court will have to examine the question as to whether this represents an acceptable level of risk. It certainly may do, particularly as regulators frequently stress to the public that “no drug is risk free”.

Still, Servier would do well to use this as a test case for what may yet be to come. Success for the appellants could spell trouble, not just for Servier but also, potentially, for Myland and Qalimed too.

If this first snowflake in Nanterre turns into a snowstorm, France could be prompted to re-examine the case for class actions – which the country hasn't, until now, allowed, and which health minister Xavier Bertrand is keen to avoid. That said, given the inordinate length of the legal process in France, Servier may do well to go into hibernation until winter is over.
--Faraz Kermani
image by flikrer taivasalla used under a creative commons license

Wednesday, November 24, 2010

Deals of the Week's Thanksgiving Day Massacre (In 4-Part Harmony, Of Course)

This post is called Deals of the Week, and it's about deals, and the week, but Deals of the Week is not the name of the blog, that's just the name of the post. And that's why I called the post Deals of the Week.

Now it all started four Thanksgivings ago; it was four years ago on Thanksgiving, when Chris Morrison and I started writin' a blog about deals, but not every day, just once a week. And writin' about deals once a week, you know it's a lot of work. (Hint. Hint.)

And there's a lot of garbage you gotta sift through, but we decided it would be a friendly gesture on behalf of readers. So we trolled around the Internet with our shovels and rakes and other implements of destruction (a.k.a. EBI's Strategic Transactions database) looking for deals to analyze. But then a big bad editor (also known as Officer Roger) said why are you doin' that? We are closed on Thanksgiving.

And we had never heard of a blog closed on Thanksgiving before (we don't get out much) so with tears in our eyes we drove off into the sunset looking for another place to dump our garbage -- I mean our deals.

We didn't find one. So we wrote our post anyway, went back and had a Thanksgiving Day that couldn't be beat, went to sleep, and didn't get up until the next morning when we got a call from Officer Roger... And it's been a recurring feature here at IVB ever since.

But fortunately, not another case of American blind justice since we always arrive at the truth of the matter and it doesn't even require 27 eight-by-ten color glossy pictures with circles and arrows and a paragraph on the back of each one.

In honor of the day, we hope you consider joining the IN VIVO Blog Movement. All you've got to do is walk into the office wherever you are, just walk in and say ,"You can get anything you want at IN VIVO Blog." And walk out.

You know if one person, just one person does it, they might think he's really sick and they won't take him... And can you, can you imagine fifty people a day, I said fifty people a day (okay, we'd really like 1000) walking in, quoting a line from IN VIVO Blog and walking out?

And friends, they might think its a movement. And that's what it is, the IN VIVO Blog Movement.

Remember Deals of the Week? (This is a post about Deals of the Week.)

Without further ado, we bring you this week's installment. Feel free to sing along in four-part harmony. With feeling. Cuz'...

You can get anything you want at IN VIVO Blog.
You can get anything you want at IN VIVO Blog.
Log right in, it's a click away.
Just a finger tap. You don't have to pay.
You can get anything you want at IN VIVO Blog. (Excepting Roger.)

Convergence/Selcia: Barely more than a month after it was spun out of GlaxoSmithKline, CNS-focused Convergence Pharmaceutical bagged its first drug discovery collaboration, with Essex, UK-based CRO Selcia Ltd. No financials were disclosed, but Convergence isn’t short of cash, having raised $35.4 million on inception in one of Europe’s largest A rounds. Run by CEO Clive Dix, of PowderMed fame, Convergence already has two clinical-stage assets and six earlier-stage programs targeting ion-channels involved in chronic pain. In this deal, the partners will hunt further molecules for chronic pain, with Convergence applying the ion channel biology, medicinal chemistry and preclinical development expertise it inherited from GSK, and Selcia contributing synthetic chemistry and chemistry support services. The collaboration shows that Convergence, like its parent GSK (and indeed many other Big Pharma), is willing to embrace others’ drug discovery approaches, and to tap into drug discovery resources and technology on a flexible basis.--Melanie Senior

Medtronic/Ardian: Back in the summer of 2008, Ardian sought out corporate investors to participate in the company’s targeted $30 million Series C financing, thinking some corporate oomph and expertise would help drive clinical testing of its Symplicity Catheter System, used for treating hypertension and related conditions. The following spring Medtronic led a $47 million round, acquiring 11% of the company in what was – and still is - a rare up round. Now, Medtronic is going all in, announcing that it will acquire the rest of Ardian for $800 million up front, setting a record purchase price for a medical device company that doesn’t have an FDA-approved device. (Medtronic topped the mark it set in 2009 with the $700 million of CoreValve Inc., a percutaneous heart valve company.) Medtronic also agreed to pay commercial milestones equal to the annual revenue growth through the end of Medtronic’s fiscal year 2015. Ardian’s system allows doctors to deliver radiofrequency energy to the renal sympathetic nerves surrounding the renal arteries. Decreasing conduction of these nerves is seen as a way of triggering the body’s own regulation mechanisms to lower blood pressure. For the past six months, Ardian has been releasing positive results from its ongoing clinical trials with the most recent bit of good news at the American Heart Association meeting this month.--Tom Salemi

Boehringer Ingelheim/f-star: Boehringer's R&D collaboration with f-star this week is yet more proof that the privately-held German drug maker is ramping up its large molecule capabilities. This is the fourth antibody deal Boehringer has done this year alone according to Elsevier's Strategic Transactions, building on collaborations with 4-Antibody, Micromet, and most recently MacroGenics. Financial terms of the latest transaction weren't disclosed, but f-star, a former Series A-list all-star that has pulled in more than $25 million in venture dollars, will receive an initial technology access fee, research-based funding, and of course the potential for downstream regulatory and commercial milestones. In return, f-star will use its modular antibody technology to develop novel therapeutics against up to seven targets nominated by Boehringer that span multiple therapeutic areas. Biobucks for each of the seven targets, to which BI of course holds worldwide rights, could total up to €180mm ($247mm), excluding royalties. (Prompting unintentionally hilarious headlines about the "$1.7 billion" deal.) f-star's technology allows it to introduce additional binding sites into antibodies or antibody fragments, engineering large molecules that can target multiple proteins in a single molecule. Note this isn't the first time BI has signed an alliance focused on antibody fragments (that honor goes to Ablynx back in 2007) or bi-specific antibodies (MacroGenics' DART technology competes with f-star). Such second-generation approaches are a means of circumventing established IP claims for successful traditional antibody therapeutics and may advantages over Mother Nature's molecules, as they are potentially easier to manufacture and can have greater tissue penetration.--EFL

GlaxoSmithKline/Dr. Reddy's: GlaxoSmithKline's deal with Dr. Reddy's for the big pharma's United States oral penicillin facility and product portfolio is an interesting spin on regional deal making. Under the terms of the agreement, GSK transfers ownership of its penicillin manufacturing site in Tennessee and U.S. rights to Augmentin and Amoxil brands to Dr. Reddy's for an undisclosed sum. That GSK would opt to sell out of the US penicillin market isn't too surprising. Back in 2008 the drug maker announced plans to lay off the 200+ workers employed at the 400,00-square-foot manufacturing site by fall 2009 in preparation for sale of the plant because of declining sales of Augmentin stateside as a result of generic competition. Thus, the deal makes everyone happy, allowing GSK to downsize in a market no longer deemed valuable, while still allowing the drug maker to preserve ownership RoW, where GSK sees the potential for growth via its branded generics strategy. Dr. Reddy's, meanwhile, has been angling to scale up its generics business in North America. Thus, this deal gives the India-based giant entree into the US penicillin-containing antibacterial segment and a physical footprint to boot.--EFL

Roche/Ligand: Around the same time Roche decided to close out its R&D work in RNA interference, the Swiss pharma also notified Ligand Pharmaceuticals that it was ending a partnership to develop RG7348 (formerly MB11362) for hepatitis C. This no-deal officially ends the circuitous relationship between La Jolla, Calif.-based Ligand and the Swiss pharma. The tie-up began in August 2008, when Roche paid $10 million upfront to initiate a two-year collaboration with Metabasis Therapeutics to apply the latter firm’s HepDirect platform to Roche’s lead nucleoside candidates for HCV. In June 2009, the two companies chose ‘7348, which had since advanced to Phase I, as their lead candidate, with Roche paying a $2 million milestone to the biotech. Fast-forward to October 2009, when Ligand bought out Metabasis, inheriting the HCV deal. Since Ligand/Metabasis, Roche has paid up another $6.5 million in milestones; for the bean counters in the audience, $2.7 million of that went to Metabasis shareholders who had received contingent value rights in the original sale. Ligand, which says it learned of Roche’s decision on Nov. 19, also completed a one-for-six reverse stock split that same day, reducing current outstanding shares of common stock from 117.7 million to 19.6 million. Despite the no-deal, Ligand still boasts partnerships a plenty, boasting of ongoing alliances with Pfizer, GlaxoSmithKline, Merck, and Bristol-Myers Squibb, among other.—Joseph Haas

HAPPY THANKSGIVING FROM IVB!

Friday, November 19, 2010

Deals Of The Week Looks For Quarters Under The Couch Cushions

In today’s cash-constrained environment, drug markers are doing everything possible to limit the burn, while finding new sources of innovation. Hence this week’s news that Pfizer is teaming up with UCSF in an $85 million research collaboration (see below), as well as the respective emphasis at Roche and Novartis on “operational excellence” and “focused diversification”.

This desire to wrest as much value out of available resources is also the driving force behind various big pharmas’ decisions to outlicense deprioritized assets, whether they are single-asset focused arrangements or spin-outs of actual whole departments.

In the good old days, pharma didn’t have to think too hard about such measures. With abundant free cash flow and blockbuster projects these activities were a distraction deemed not worth the time and effort required.
But like graduate students searching for additional cash underneath their sofa cushions, big pharmas can no longer afford not to monetize, monetize, monetize.

Thus, AstraZeneca’s desire to sell off its medical device subsidiary Astra Tech, which manufactures dental implants and medical devices for surgery and urology, is hardly surprising given the drug maker’s patent cliff. (What is surprising is that it took this long for AZ to see the wisdom of the strategy.)

Astra Tech is forecasted to pull in roughly $533 million in 2010 according to analysts; that’s just 1.6 percent of AZ’s overall sales. Given the biz is entirely separate from the drug maker’s pharma initiatives – Astra Tech’s areas of expertise don’t even give AZ’s sales and marketing team an extra call point – the proposed divestiture makes a ton of sense (provided AZ can get a decent price for the subsidiary).

And therein lies the rub. Over a year ago, Elan tried – and failed – to spin-out its drug delivery business, which arguably could have closer ties to its overall strategic plans than dental implants and urology devices do to AZ’s. But the biotech has shelved its efforts because it can’t find a buyer that values the company as richly as it does.

One other option: tap the public markets, which while still chilly, are finally thawing, especially for companies with products and revenues. (And yes we know device IPOs remain a rare beast, but they do happen.) This is what Bristol-Myers Squibb, which faces its own steep cliff with Plavix and Avapro, did so brilliantly a year ago with its divestiture of Mead Johnson in two acts, first via an IPO that sold a small percentage of the company and then via a stock swap that increased BMS’s earnings-per-share. (It also won a DOTY nomination for its efforts.)

Such creative deal making can yield a lot of spare change – the Mead Johnson IPO alone pulled in 2.88 billion quarters, proving that more banal assets like baby food provide a very big cushion in the post-patent cliff world.

It's time to get out from under the couch cushions and read...

Stromedix/UCSF: Privately held Stromedix in-licensed exclusive, worldwide rights to a preclinical monoclonal antibody to integrin alpha-v-beta-5 Nov. 18 from the University of California, San Francisco. Deal terms were not disclosed. Stromedix, a Cambridge, Mass., biotech backed by several venture capital firms and Biogen Idec, is focused on developing new therapies for fibrosis and resulting organ failure. Its lead program, in-licensed from Biogen in 2007, is STX100, a monoclonal antibody that inhibits the activation of transforming growth factor by targeting integrin alpha-v-beta-6, a cell-surface adhesion molecule and TGF activator. STX100 has completed Phase I studies, with Phase II trials in idiopathic pulmonary fibrosis and chronic allograft neuropathy in planning, Stromedix says. Noting that preclinical research suggests alpha-v-beta-5 plays a key role in a variety of acute and chronic organ failure settings, Stromedix believes the monoclonal, which regulates endothelial barrier function, could be a second candidate for treating fibrotic disease, particularly conditions associated with vascular leakage. CEO Michael Gilman said Stromedix would apply its proprietary biomarker database to the antibody to discover a biologically active dose for the purpose of investigating anti-fibrotic activity in a small trial.—Joseph Haas

Pfizer/UCSF: The Stromedix deal was only one of two deals inked by UCSF this week. On November 16, the university announced a sweeping arrangement with Pfizer that goes well beyond the transfer of intellectual property around an interesting target. It’s no secret that big pharmas are increasingly looking to tap the innovative science contained within academia’s ivory towers. It’s one way drug makers can revitalize their early stage R&D organizations that is also cost-effective (to put it bluntly, we mean cheap). Even though the $85 million Pfizer is pledging to UCSF over a five year period is significantly more than its ever put to work in its previous academic deals, the dollars are still a drop in the bucket for a company its size. Moreover, based on a conversation with Anthony Cole, who heads a new division within the drug maker called Global Centers for Therapeutic Innovation (GCTI) responsible for spearheading such collaborations, it seems likely more of these partnerships are in the offing. In exchange for funding that broadly supports biotech research at UCSF, Pfizer receives joint ownership of early-stage drugs and exclusive options to develop them once they complete Phase I studies, with additional milestone and royalty payments due back to the university if an option is exercised. Any compounds that Pfizer elects not to develop further will be returned to UCSF, which will be free to negotiate with other potential partners, although royalties may still be due to Pfizer. The Big Pharma will also open a private laboratory, which will focus on multiple therapeutic areas of interest, with at least 20 staffers at UCSF’s Mission Bay Campus in San Francisco; approximately the same number of UCSF researchers will work jointly with the local Pfizer staff. – Paul Bonanos

Sekisui/Genzyme: It's two down, one to go for Genzyme, which announced Nov. 18 that it will sell its diagnostics products business to the Japanese chemical manufacturer Sekisui Chemical Co. for $265 million in cash. It is not as lucrative a deal as the $925 million agreement Genzyme announced for the sale of its genetic testing unit to Lab Corporation of America back in September. But it is one more item Genzyme can check of its to-do list as the Cambridge, Mass.-based biotech cleans up its business, potentially ahead of a sale. Genzyme announced in May plans to divest the diagnostics and genetic testing businesses, as well as its pharmaceutical intermediaries unit, as part of a strategic plan to increase shareholder value, mainly by sharpening its focus on core areas like rare diseases. Sekisui will employ the diagnostic unit’s 575 employees and maintain operations in all current locations, according to Genzyme. The business sells raw materials, enzymes, clinical chemistry reagents and rapid tests to manufacturers and clinical laboratories. You may not have heard, but Genzyme is in the midst of an attempted hostile takeover by Sanofi-Aventis. Despite recent rumors that Takeda – the largest Japanese pharma – may be interested in bidding for Genzyme, no white knight has officially materialized. Takeda seems an unlikely buyer for Genzyme anyway, given the awkward strategic fit and the fact that Takeda would have to finance about half of the $20 billion or so acquisition.—Jessica Merrill

BTG/Biocompatibles: News of BTG's planned acquisition of UK drug-device group Biocompatibles seems unremarkable at first glance. It's worth £177 million ($282 million) in cash and shares, meets BTG's well-documented aim of adding specialist products to its pipeline, and is earnings-enhancing for BTG in its first full year. But drill down and there’s an interesting financial component to the transaction worth noting. Rare is the acquisition that comes without an earn-out element these days; lo and behold, BTG's proposed deal includes a "Partial CVN Alternative" -- referring to Contingent Value Notes, which are essentially Contingent Value Rights (CVR), better known as earn-outs. The deal sees Biocompatibles shareholders receiving 1.6733 new BTG shares and 10p in cash, valuing Biocompatibles at a premium of about 28% to its closing price prior to the announcement. But Biocompatibles shareholders can, if they like, forego the 10p cash element in exchange for a CVN, worth €0.56/share (about 48p), linked to whether or not AstraZeneca exercises its near-term option to license Biocompatibles' GLP-1 analog compound. It appears, then, as if Biocompatibles' shareholders are being offered a choice to forfeit their 10p/share today in exchange for rights to the possibility of 48p/share tomorrow. That's interesting since most previous examples of CVRs or CVNs don't involve a price, as such. BTG doesn't quite see it that way, though. This wrinkle in the deal resulted, they say, from Biocompatibles' (quite reasonable) demand that their shareholders, and they alone, be given the opportunity to share in the significant (€25 million) milestone payable by AstraZeneca if it options-in the program.—Melanie Senior

Eisai/Forma: How much are platform technology deals worth these days? This week’s tie-up between Japanese pharma Eisai and privately-held FORMA Therapeutics provides one benchmark. On November 16, the two parties announced a strategic drug discovery collaboration that gives Eisai non-exclusive access to FORMA’s proprietary Diversity Oriented Synthesis (DOS) chemistry-generated library and cell-based screening platform. For access to the technology FORMA gets an undisclosed upfront payment and committed funding of $20 million over three years. That’s a far cry from the economics Alnlyam was able to wring via its series of non-exclusive alliances with Roche, Novartis, and Takeda in past years. But for companies not named Agios or Regeneron, the value of platform technology deals has been trending steadily downward in recent years. FORMA has no desire to hitch its wagon to any one drug maker – and as such is trading off value for the ability to play the field. The Cambridge, MA-based biotech has raised approximately $50 million from its venture backers since its founding in early 2009 and inked numerous deals with a variety of partners, including Novartis, Cubist, and the Leukemia and Lymphoma Society. At this stage of the game, when there’s little appetite in the public markets for a high risk but interesting technology, the biotech needs multiple relationships with potential acquirers in order to set itself up for a robust M&A process. –Ellen Foster Licking

Image courtesy of flickrer MarkelConnors used with permission via a creative commons license.

BTG/Biocompatibles: 10p Now, or 48p Later?

At first glance this morning, news of BTG's planned acquisition of UK drug-device group Biocompatibles looked unremarkable, if sensible. It's worth £177 million ($282 million) in cash and shares, progresses BTG's well-documented aim of adding specialist pipeline and specialist hospital products (Biocompatibles sells chemotherapy-eluting beads, among other things), and is earnings-enhancing for BTG in its first full year. Cue those stock-phrases from the CEO; "high complementarity", "faster growth", "acceleration of our path to create a self-sustaining health care company".


Now, we know that these days, rare is the acquisition that comes without an earn-out element. It's still a buyers' market, and buyers like to reduce risk. So lo and behold, BTG's proposed deal includes a "Partial CVN Alternative" -- referring to Contingent Value Notes.

The deal sees Biocompatibles shareholders receiving 1.6733 new BTG shares and 10p in cash, valuing Biocompatibles at a premium of about 28% to its closing price prior to the announcement. But Biocompatibles shareholders can, if they like, forego the 10p cash element in exchange for a Contingent Value Note, worth €0.56/share (about 48p), linked to whether or not AstraZeneca exercises its option to license Biocompatibles' GLP-1 analog compound.

It appears, then, as if Biocompatibles' shareholders are being offered a choice to forfeit their 10p/share today in exchange for rights to the possibility of 48p/share tomorrow -- to pay for their CVN, in other words. That's interesting since most previous examples of CVRs or CVNs (it's all the same stuff, really), don't involve a price, as such.

BTG doesn't quite see it that way, though. This wrinkle in the deal (which is still, incidentally, only a board-recommended deal) resulted, they say, from Biocompatibles' (quite reasonable) demand that their shareholders, and they alone, be given the opportunity to share in the significant (€25 million) milestone payable by AstraZeneca if it options-in the program.

"We agreed a price for the business, but Biocompatibles felt that their shareholders -- and not those of the larger, combined group -- should benefit exclusively from the upside from this particular milestone, agreed in their deal with AstraZeneca ... because it's so near-term," explains a spokesman.

In other words, the CVNs in this deal are less about BTG's wish to push out its costs and mitigate risk, and more about offering Biocompatibles' stakeholders their deserved piece of the action down the line. 10p-today is an offer for the more risk-averse shareholders or those that want out, calculated "via risk-discounted NPV and a negotiation," says the spokesperson. (And these CVNs, unlike Celgene's Abraxane-linked ones in its deal with Abraxis, aren't tradeable.)

Per a Dec. 2008 deal, AZ can exercise its option on Biocompatibles' GLP-1 analog during a 90 day period after a fourth Phase I/IIa trial of the compound is complete, expected sometime around the end of 2011 or during the first half of 2012. If it does, it pays €25 million up front.

It might not, though. That's why the acquisition document includes five bullet points' worth of text as to why the payment may not occur, or what the downsides of accepting the CVNs could be. There are GLP-1s on the market, sure, and it promises to be a lucrative segment of the diabetes market. But other contenders have stumbled, and the program in development is a twice-daily GLP-1 that's not competitive in its current formulation.

Even those taking the 10p today will benefit if AZ does exercise its option, however: the Big Pharma will owe a further €37.5 million in pre-commercialization milestones, up to €256mm in sales milestones, plus royalties ranging from single digits up to the mid-teens.

Bayer Cuts Jobs in the Name of Growth

Spare a thought and perhaps an aspirin for Bayer AG employees this morning who found out first via the wires that their company is planning to cut 4,500 of their jobs worldwide by 2012. Apparently a leak forced the German health care and crop science conglomerate to issue its press release yesterday, a day earlier than planned.


Precisely where the axe is going to fall remains unclear (since German law requires Bayer to discuss first with its employees and employee representatives before divulging its plans to the public; fair enough.) But a letter to employees at pharma division Bayer Schering Pharma from chairman Andreas Fibig reveals that this division will see headcount cut by 900 globally by 2012, not just in admin and support functions at HQ and in marketing and sales, but also in R&D and product supply.

Fibig's message emphasized growth, though (he was hardly going to dwell on job-cuts). This 'resource re-direction' is about mobilizing the (financial) resources necessary to fully exploit the company's key late stage growth drivers, including blood-thinner Xarelto (rivaroxaban), he said.

The cuts will affect 1,700 jobs in Germany across the entire group, although Bayer Schering AG's Berlin HQ "will remain important", we're told. But about 2,500 new jobs will be created, mostly in emerging markets -- 1,000 of those will be in pharma. The group plans annual cost savings of €800 million, starting in 2013.

Does this need explaining? Not really. Bayer is joining a pharma bandwagon when it comes to head-count cuts and efficiency improvements. Roche announced it was slashing almost 5,000 jobs Nov. 17, following similar moves by Bristol, Pfizer and others.

Like its peers, Bayer's being hit by generic competition, not least to its oral contraceptive Yaz in the US. Meanwhile Bayer's flavor of diversification (perhaps unlike Novartis') isn't apparently helping it weather the global economic storm much: having a Material Science division dragged the group's numbers down in 2009.

So these structural changes are all about becoming "better and faster", as Bayer management board chairman Marijn Dekkers puts it in the release. For pharma specifically, they're about wringing out the funds necessary to fund expensive late-stage development programs. Xarelto (which has already cost €2 billion to develop) was shown recently to prevent strokes in afib patients better than standard therapy with warfarin, raising the prospect of its taking a good chunk of the $14 billion-sized market for new blood thinners (even though it's behind Boehringer's Pradaxa).

That's certainly a shot worth taking, but hitting the target ain't a certainty: the drug still has to get past the FDA (it's approved in Europe and Canada for VTE prevention in patients that have gone through hip or knee replacement surgery), and there are hints of possible safety issues, at least in the stroke-prevention context. Sure, Johnson & Johnson helps pay for development, per the companies' 2005 deal, but 14,000- patient trials still cost a fortune (the overall development program will enroll almost 50,000 patients) And who knows what more FDA may require.

But while FDA is J&J's problem, Bayer hopes to launch Xarelto in four new indications in Europe and has other near-term launch assets including Eylea, Alpharadin, Riociguat and Regorafenib to think about. Plus China. Resources need to be shifted to China, says Fibig in his letter; "this isn't a downsizing exercise for us, but a shift of resources, resulting in a net positive effect on our workforce."

Thursday, November 18, 2010

Financings of the Fortnight Stops Complaining And Learns To Love The Man

Back when FOTF was young, idealistic, and unshaven, the worst thing imaginable was going off to work for The Man, man. I mean, come on, man: What a drag. Wearing suits. Driving in traffic. Kissing middle-management butt. We wanted to be free to work on our start-ups, away from the corporate agenda and soul-sucking office parks. No bureaucracy, no joint steering committees, no bean counters in Basel or New York or New Brunswick telling us what to do!

Funny how a recession can realign one's ideology. The Man, it turns out, is a fairly hip guy, kind of like Don Draper when he sneaks off to party with his boho Village girlfriend. "Corporate venture" once felt like an ingredient in a Groucho Marx one-liner, but now, everybody knows the secret knock to the underground jazz club.
We've been noting the rising influence of corporate venture funds starting in May 2009 and continuing this summer, when we calculated that Series A and B rounds with corporate funds in the syndicate were richer than those without. We even asked a year ago whether corporate venture would remain a mainstay if the economy improved.
Well, the economy has improved. In fact, it's grown for five straight quarters, though most Americans apparently refuse to believe it. We don't know for sure the answer to our question from last year, but this fortnight's activity sure makes us think corporate venture is here to stay. (Then again, who ever figured Don and Betty Draper would divorce? Such a perfect couple!)
Of the nine biopharma-related venture rounds disclosed in the past two weeks, five have included one or more strategic investors. The most obvious strategic link goes to Aires' Pharmaceuticals Inc., whose $20 million B round was led by MPM Capital's Novartis-backed strategic fund. (Strategic indeed: Novartis also nabbed other perks, as our Duchess of Deals spelled out last week.)

We also saw strategics out front leading rounds: Lilly Ventures led the way on Cerulean Pharma Inc.'s $24 million C round, and Johnson & Johnson Development Corp. headed up the $22 million C round for consumer genetics maker 23andMe Inc. (OK, not quite biopharma. So sue us.)
Throw in the corporate participation in rounds from Syntaxin Ltd. and Sutro Biopharma, detailed below, and we count $131 million, including promised future tranches, in those five rounds alone. The four non-CVC rounds -- announced by RedHill BioPharma Ltd., Ceregene Inc., Delenex Therapeutics AG, and Verastem Inc. (which we also profile below) -- add up to $49 million.
Comparing those two numbers and drawing any conclusions would be an egregiously unscientific exercise, but you can be sure that even if private biotech firms rev it up and follow General Motors onto the public turnpike, strategic venture funding isn't ready to return to the backseat. After all, The Man drives with the top down, shades on, and the radio tuned to....


Verastem Inc.: The $16 million Series A financing of Boston's Verastem, a cancer stem cell company, is one of the few this fortnight not to include a strategic investor in its syndicate, but we were tempted to count it as such. That's because one of its investors and its chairman, Christoph Westphal, is president of GlaxoSmithKline's corporate venture group SR One. SR One wasn't part of Verastem's Series A, but Westphal's newly minted Longwood Founders Fund, which has raised at least $50 million thus far and is still in fund-raising mode, played a leading role. (Westphal cofounded LFF with longtime sidekick Michelle Dipp and Boston biotech veteran Richard earlier this year.) Indeed, Westphal’s ability to simultaneously wear two VC hats has caused consternation despite his insistence that Longwood and SR One have different strategic priorities. (He and Dipp were also, uh, triple-dipping, selling resveratrol supplements online through a nonprofit, but after Xconomy wrote about it, GSK forced them to stop.) Since his days at Polaris, Westphal’s investment philosophy has centered around great scientists and high-concept, potentially transformative technology. (Momenta Pharmaceuticals and Alnylam Pharmaceuticals are two others). Verastem doesn’t stray far from this recipe. The company is tackling one of the hottest areas in oncology: the eradication of cancer stem cells. Unlike most malignant cells, cancer stem cells are able to self renew and differentiate into multiple cell types, giving them a leading role in the recurrence of certain kinds of tumors. Verastem is apparently developing proprietary technology to identify drugs that specifically target these rare bad actors, building on research published in two Cell papers in 2008 and 2009. The brain trust working on the technology includes luminaries such as MIT’s Robert Weinberg and Eric Lander, who are also co-founders. In addition to Longwood, Bessemer Venture Partners, Cardinal Partners, and MPM Capital also participated in the financing round. -- Ellen Foster Licking
Sutro Biopharma Inc.: Protein platform firm Sutro said Nov. 17 it had raised a $20 million tranche of a $36.5 million Series C round, cash that will help it scale its protein synthesis platform to meet Good Manufacturing Practice standards. That's not just a side note; it's key to Sutro's business plan. The South San Francisco, Calif. startup is working on a cell-free protein synthesis system that can be scaled for commercial use. It's looking to open its platform to partners that want to make all manner of proteins faster and cheaper, and it says it wants to make its own biobetters and novel therapeutics. That's the pitch, at least, and it's worth noting that two corporate investors, Lilly Ventures and Amgen Ventures, two firms with an obvious strategic interest in Sutro's work, jumped into the C round. Sutro president and COO Daniel Gold told START-UP last year that founder Jim Swartz, a Stanford University professor and Genentech alumnus, figured out how to prepare an E. coli extract that contains transcription and translation machinery sufficient to produce protein from nearly any DNA message. Skyline Ventures led the round, with participation from existing investors SV Life Sciences and Alta Partners. If it nabs the second tranche of its C round Sutro will have raised nearly $60 million since its founding in 2003. -- Alex Lash

Cadence Pharmaceuticals Inc.
: One week after U.S. approval for Ofirmev, its intravenous formulation of acetaminophen to treat pain and fever in hospital settings, Cadence tapped the public markets for $86.2 million in a follow-on public offering. The transaction is Cadence’s second FOPO of 2010, following a February offering of $86.6 million; the company also obtained a $30 million secured loan facility in July, which included a $10 million tranche that kicked in upon Ofirmev’s approval. The new offering refills Cadence’s coffers, which showed $60.9 million in cash and short-term investments at the end of September, in advance of Ofirmev’s U.S. launch during the first quarter of 2011. The IV drug has been used in Europe to treat post-operative pain since 2002. Cadence has another reason to shore up its balance sheet: It has an option to acquire electronic fentanyl patch developer Incline Therapeutics Inc., a startup whose management team includes former Cadence executives, for up to $135 million by June 2011. It can also obtain a second option to buy the company for up to $285 million by the end of 2013. Cadence considered buying the patch outright from Johnson & Johnson but instead helped engineer a complicated venture-backed spin-out of the technology to create Incline (described in detail here), which could be a nominee for our humble blog's upcoming Deals of the Year competition. Ladies and gents, start your NPV calculations.-- Paul Bonanos

Mylan Laboratories
: One of the world's biggest generic drug makers, Mylan tapped the debt markets for $800 million for cash to prepay previous loans. It said Nov. 9 it had priced the 6% notes, which come due in 2018, at an issue price of 98.45%. Mylan president Heather Bresch told "The Pink Sheet" that the firm, which grabbed a 71% stake in Indian active pharmaceutical ingredients maker Matrix Laboratories Ltd. in 2007, would continue to be "opportunistic around the maturity schedule" of the firm's long-term debt, which hit $5.2 billion at the end of the third quarter. The refinance comes as Mylan is touting its version of a user fee structure even as FDA holds talks about the merits of a generic industry user fee (GDUFA). At first Mylan zagged while the rest of the industry zigged. It originally proposed fees on inspections, plants, and approved medicines, but not on applications, but it fell closer into line with its brethren in October by changing its proposal to include median review times and an upfront application fee. -- A.L.

Image and late '70s nostalgia courtesy of flickr user Vibracobra23.

Wednesday, November 17, 2010

No Room for RNAi in Roche's Operational Excellence Plans

Tucked inside Roche's months-awaited announcement today containing details on its restructuring program (and the loss of 4,800 jobs, mostly in the US and mostly in pharma) is a nugget that will make RNAi-watchers gulp. Three years on from its landmark deal with Alnylam in the field of RNA interference, Roche is shutting down all of the discovery for which it paid so dearly.

That deal with Alnylam included $331 million in up-front payments and -- in addition to non-exclusive rights to Alnylam's IP in four therapeutic areas -- bought Alnylam's European research site in Kulmbach, Germany. Roche now says it will shutter Kulmbach and all its other RNAi work:

Following a comprehensive portfolio review, Roche will discontinue certain activities in research and early development. These include RNA interference research in Kulmbach, Germany, and in Nutley, New Jersey, and Madison, Wisconsin, in the US. In addition, plans also include reorganising certain internal functions to free up resources for upcoming phase II studies of new molecular entities. Approximately 600 positions will be affected.
Adding to Roche's woes, the 5% stake it took in Alnylam in 2007 -- at $21.50 per share (a 40% premium at the time) -- was subject to a three-year lockup and is now way under water. If there's RNA interference activity in Roche's future, it's hard to divine where. Roche CEO Severin Schwan was clear on a call this morning with investors: "We plan to exit ... our siRNA efforts," he said. Nobody pressed him further during the Q&A. Case closed.

The news comes on the heels of Novartis' decision in late September to not exercise an option that would have given it Roche-like access to Alnylam's platform for the relatively low sum of $100 million. Novartis remains committed to RNAi drug development, the companies noted at the time, and is pursuing RNAi therapies against what it calls its "full and final" list of 31 targets. But the Novartis news prompted Alnylam's own restructuring. The RNAi pioneer said it was laying off 25-30% of its workforce.

So where do these Swiss stances leave Alnylam -- not to mention other RNAi hopefuls including Roche's other partner Tekmira? Alnylam was ready with a response, expressing disappointment and surprise at Roche's decision. At the very least, these moves suggest that signing new blockbuster deals will be difficult. But it has never been clearer that Alnylam will no longer live or die based on its ability to sign monster non-exclusive platform deals: it's now a drug developer. The real risk is that Roche's decision, and to some extent Novartis', reflect a broader belief in a bleak clinical future for RNAi therapeutics. With human proof-of-concept data not too far away, we won't necessarily have to wait long for a glimpse.

Meanwhile, Alnylam's market cap languishes below $500 million, and the company announced earlier this month that its still-impressive cash pile was $372 million. That's historically low value ascribed to the company's IP, dealmaking potential, future milestones and royalties, and clinical pipeline.

The field of RNAi needs a win, and badly. Merck, the other big pharma to take a big leap into the space with its $1.1 billion acquisition of Sirna back in 2006, says astonishingly little about its therapeutic progress there (and siRNAs are absent from its pipeline chart). Now and then a rumor that someone's going to pony up money to buy the UK's Silence Therapeutics bubbles to the surface, and just as surely recedes again. RXi is committed to delivering for its investors a deal by the end of 2010. Time is running out on that promise. The next generation RNAi play Dicerna has demonstrated that it can pull in investors, but it has yet to enter the clinic with its dicer-substrate molecules.

RNAi may not succeed as a therapeutic modality. More likely, it just needs time to mature, to solve its delivery problems, to gain traction in the clinic. Whether or not any Big Pharma or investors are willing to wait for that remains to be seen.

Tuesday, November 16, 2010

Genzyme: The Takeda Rare Disease Company ?!?


The Genzyme/Sanofi rumorville is awash yet again—but this time the rumors relate to the quality of sushi in Cambridge. The latest speculation Nov. 14 is that Genzyme had found a white knight bidder in Takeda, the largest Japanese pharma and a company with ambitions to be a bigger player on the world’s pharmaceutical stage.

It’s certainly true that Takeda, like Sanofi, is facing a pretty significant patent cliff as sales from Actos and Prevacid slide. It’s also true that its global ambitions mean Takeda might look to grow its U.S. presence via an acquisition. (As this IN VIVO feature from May spells out, Japanese pharma are one of the most promising buyers for US biotechs.)

And yes, we know the strength of the yen means Takeda can take advantage of the exchange rate, essentially paying a premium others might not be able to afford that still allows them to capture additional value even at an inflated price.

But taking a step back it’s hard to put a whole lot of faith in rumors that may, once again, be posturing. Oh, sure, the two drug makers probably talked. But talk is cheap. And since Genzyme began soliciting suitors several weeks ago, it’s entirely possible the biotech instigated the discussion. What IN VIVO blog wants to know is has a term sheet been submitted?

"I would be skeptical of one of the top Japanese pharmas emerging as a bidder," says George Montgomery, co-founder and managing director of the health care M&A advisory firm Marshall Healthcare Partners, who spoke to us before Takeda's name was officially linked to Genzyme’s in the blogosphere. “It would be their sole strategic initiative for the next few years, as opposed to being able to make multiple bets."

It’s important to remember this basic but highly relevant point: an acquisition the size of Genzyme – north of the $18.5 billion Sanofi has already offered – would be hard for any of the Japanese pharmas to swallow, even Takeda, which only has $9.7 billion in cash on-hand as of Sept. 30. Thus, Takeda would need to borrow significant cash to finance the deal, something its dividend-conscious shareholders may not support.

"Genzyme is a growth play at a time when Takeda is not, but the concern, of course, is that the ensuing weaker balance sheet would put Takeda's sizeable dividend at risk," said analyst Pelham Smithers of Pelham Smithers Associates said in a Nov. 15 research note. "The general thinking is that Takeda won't go for it, but it is an interesting opportunity nonetheless.

In addition, Takeda still needs to make good on its 2008 $8.8 billion purchase of Millennium Pharmaceuticals, for which the Japanese pharma paid a dear premium– 53 percent on the stock price and 16 times revenues.
"I just can't see how Takeda should be able to manage Genzyme and Millennium under the same umbrella," said Credit Suisse analyst Fumyoshi Sakai in an email exchange.

Genzyme's broad business portfolio, with an emphasis on drugs to treat rare diseases as well as a presence in areas like renal disease and biosurgery, seems afield of Takeda’s stated areas of focus: metabolic disease and oncology.

Sanofi has stated its intention to maintain Genzyme's business in Cambridge, MA as a center of excellence for rare diseases, even as it plans to consolidate other parts of the business and reduce SG&A expenses. It’s hard to see how Takeda could make the same decision, since its Millennium division already operates independently in Cambridge with the tagline, "The Takeda Oncology Company."

For such reasons, does "Genzyme: The Takeda Rare Disease Company" have the right ring?

by Jessica Merrill

Friday, November 12, 2010

Deals Of The Week Gets Exclusive

Commitment is such a weighty decision, isn’t it? Whether it’s high schoolers obsessed about going steady or 30-somethings who stay over three nights a week but refuse to stash their extra underwear in an available drawer, making the choice to be exclusive is hard. What if things don’t work out? Gulp.

In biopharma land, exclusivity is no less thorny a subject, especially when it relates to options-to-acquire. This week news comes that Novartis, which alongside Cephalon remains one of the most active in inking this specific flavor of option-based deals, is at it again. On November 11, Novartis said it had taken an option either to buy San Diego-based Aires Pharmaceuticals outright or license the biotech’s mid-stage treatment for pulmonary arterial hypertension called Aironite.

Along with the option announcement, Aires said it reeled in a $20 million Series B financing, enough money to finish Phase II trials of Aironite, a nitric oxide prodrug that causes vasodilation and has anti-inflammatory properties. Novartis didn’t officially take part in the financing, but it has ties nonetheless. That’s because the new investor, MPM Capital, made the investment out of its MPM Bio IV NVS Strategic Fund (try saying that three times fast), a side-car fund backed by—you guessed it—Novartis. Existing Aires backer ProQuest Investments also participated in the round.

Details surrounding the option are murky. We know that Novartis paid a separate fee for the right to acquire Aires after it successfully completes Phase II studies of Aironite and, all-in, the deal price could reach $250 million. But the price of the option remains undisclosed, as do values for the initial acquisition payment and the regulatory and sales milestones.

Since its formation in 2007, the MPM/Novartis fund has signed at least eight option deals, including the recent Aires transaction, according to Elsevier’s Strategic Transactions. The Aires deal hews closely to a familiar formula designed to give Novartis an advantage at the deal-making table. Except for the overall buy-out price, the Aires news is reminiscent of Novartis’ March 2009 option-to-acquire Proteon Therapeutics for up to $550 million. That deal, contingent on Proteon’s ability to demonstrate proof-of-concept with its Phase I/ II recombinant human elastase, was also announced concurrently with the first tranche of Proteon's $50 million Series B financing.

Given the cash constraints privately-held start-ups face, option-type deal making has become more common. Such deals might cap investor upside, but the additional non-dilutive cash and greater certainty of an exit mean it’s an offer investors have a hard time refusing.

But as anyone who's watched a Mafia flick can tell you, "hard to refuse" isn't the same as "popular." Some VCs and biotech executives worry that the Novartises of the world will try and wiggle out of the pre-agreed upon terms that trigger an alliance or acquisition. Indeed, there is recent precedent.

In 2007, Radius optioned its mid-stage osteoporosis medicine, BA058, to Novartis for $10 million. According to the terms of the deal, once Radius announces Phase II data for BA058, the big pharma has 90 days to evaluate the information before making a go/no-go decision. At the end of the option period, Novartis can say “no” and walk away, leaving Radius to shop the product to anyone they want, or “yes” and trigger the pre-negotiated deal. The thing is, Radius announced its Phase II data in August 2009, and there’s been no nay or yeah about the option in the intervening period. Math may not be this blogger’s strongest suit, but even a nine-year old can calculate that a decision from Novartis is a year overdue.

Indeed, there’s little clarity on whether any of the options associated with the MPM/Novartis fund have actually been exercised, even though a number of them have undoubtedly reached critical decision points. Does Novartis’ decision regarding BA058say anything about the long-term viability of the option model?

Maybe yes. Maybe no. (Depending on the daisy--er, asset-- it's a little bit like playing effeuiller la marguerite.)Given current uncertainties in the marketplace, it’s a fair bet option-style deal making isn’t going away. And for the cynics in the readership, there are happy endings: Purdue Pharma and Cephalon recently exercised prior options associated with their respective tie-ups with Infinity Pharmaceuticals and BioAssets Development Corp.

Ultimately commitment is a leap of faith—or at least a flying leap. Here at IN VIVO Blog we’ve got your exclusive line-up of deal making news. It’s time for another edition of…


Clovis Oncology/Clavis Pharma: News flash! IN VIVO Blog has learned that several other firms were also involved in this deal: Cleavis, which is working on DNA repair mechanisms; Clyvis, an under-the-radar Scottish start-up; and Clivus, with the latest advances in phrenology! Of course we jest. The real deal here is just between Clovis and Clavis, announced Nov. 11, and it expands upon the November 2009 tie-up that saw Clovis pay Clavis $15 million upfront for partial rights to CP-4126, a reformulated gemcitabine currently in Phase II for pancreatic cancer. The reformulation with Clavis's Lipid Vector Technology aims to promote gemcitabine uptake in patients with low levels of the nucleoside transporter protein hENT1, which normally allows gemcitabine into cancer cells. Several studies suggest a significant percentage of pancreatic cancer patients, perhaps up to 67%, have low levels of hENT1, and the partners are working on a companion diagnostic to sort low- from high-hENT1 patients. With the expanded deal, Clovis pays $10 million immediately for full global rights, plus $30 million in Asian milestones and up to $165 million in sales milestones. Clovis is still on the hook for the $365 million in milestones attached to the development and commercial rights it originally bought for North America, South America and Europe. -- Alex Lash

GlaxoSmithKline/Xenoport: The partners on the restless-leg syndrome (RLS) treatment Horizant said Nov. 8 they had amended their February 2007 agreement to give the San Francisco Bay Area biotech the right to pursue development of the drug for diabetic peripheral neuropathy (DPN) and additional indications in the US. All ex-US rights previously granted to GSK have reverted back to Xenoport, as well, and the firms have made undisclosed financial adjustments in milestones and royalty rates to reflect the new responsibilities. GSK remains responsible for US approval of Horizant – formerly known as Solzira and burdened with a track record of clinical and regulatory misses – for restless-legs syndrome and post-herpetic neuralgia. The drug failed a Phase II trial for DPN in 2009, then FDA rejected Horizant for RLS in February 2010, issuing a complete response letter and prompting investors to bail on Xenoport. But FDA has accepted GSK's response and has issued a new PDUFA date of April 6, 2011. Under the original deal, GSK paid Xenoport £40 million upfront, promised up to £298 million in milestones, and sales royalties. -- A.L.

Eli Lilly/Avid Radiopharmaceuticals: Lilly announced a deal this week, but not the blockbuster M&A investors have been hankering for. Even as ratings agencies downgrade the Indianapolis pharma, Lilly is sticking to its strategic guns, replenishing its pipeline with bite-sized transactions centered on late-stage assets. The company’s decision Nov. 8 to purchase Avid Radiopharmaceuticals, a privately-held diagnostics company that specializes in the detection of chronic diseases through brain imaging, is further evidence of Lilly’s mindset. It also shows that despite the risks of Alzheimer’s drug development (semagacestat, anyone?), Lilly still believes in this therapeutic arena. Lilly will pay $300 million upfront to acquire all outstanding shares of Avid and another $500 million tied to regulatory and commercial milestones to get its hands on the biotech’s molecular imaging agent, florbetapir F18, which is pending FDA approval. While such a large sum isn't unusual for a biotech with a late-stage asset in a valuable therapeutic area like oncology, it's almost unprecedented in the diagnostics arena, where M&A targets generally have marketed assets and are acquired not by drug companies but by fellow diagnostics specialists. Given the risks associated with Alzheimer's, technologies that help prevent costly late-stage failures like semagacestat are worth a premium. And Lilly, determined to push forward its remaining Phase III Alzheimer's drug, the antibody solanezumab, certainly can’t afford to repeat its semagacestat outcome. But those peculiarities mean the startling deal price for Avid is likely the exception rather than the rule. Meantime, Avid’s backers, which include Safeguard Scientifics, Alta Partners, Pfizer Strategic Investment Group, and Lilly's own corporate venture group, can celebrate a tidy exit. Based on the deal’s upfront alone, investors stand to realize an estimated 4x return on their venture, having put in just under $70 million since Avid’s 2004 founding. -- Lisa Lamotta and E.L.

Pfizer/Biovista: This week’s deal between Pfizer and Biovista illustrates yet again the thrifty mindset at work in the halls of the the biggest pharmas. To discover additional uses for existing compounds, Pfizer has inked a pilot research collaboration with privately-held Biovista that gives the big drug maker access to the service firm's proprietary datamining technology, which uncovers potential utility in various therapeutic areas, including oncology, ophthalmology, metabolic disease, and CNS disorders. Biovista will collaborate with Pfizer’s Indications Discovery Unit to identify up to three novel indications for each of the Pfizer candidates being evaluated. In return, Pfizer will pay Biovista an undisclosed upfront payment and success-based milestones. Biovista has inked numerous partnerships around its technology, including one earlier this year with the FDA to help regulators identify and understand the mechanisms resulting in adverse events. Biovista isn't content to remain a service play; in 2009, the firm started its own drug development program based on repositioned compounds in CNS diseases. Pfizer, meanwhile, continues to try to wring value from every compound in its research pipeline. This is the second repositioning deal the behemoth has inked in 2010 alone. In May, it announced it was teaming up with Washington University in a $22.5 million, five year collaboration designed to find new uses for a 500-compound Pfizer data set. -- E.L.

Image courtesy of flickrer dmixo6 under a creative commons license.

Is it Worth It?

The term that keeps coming up when you talk to Republican staffers in the House of Representatives about their 2011 agenda is: oversight.

“I think one of the lessons Republicans learned when they lost power in 2006 is they should have done more oversight of their own people,” says one Democrat on Capitol Hill who doesn’t think oversight of the Obama Administration would be such a bad idea.

If Republicans didn’t learn the lesson of conducting more oversight of their own, they sure are planning to teach a lesson to their colleagues on the other side of the aisle.

Unless you were living under a rock, you know that repealing health care reform was one of the top issues Republican candidates across the country ran on as they took over the majority in House and made major gains in the Senate.

The start of that process, according to many Republicans, is to haul up heads of key agencies in HHS—including the HHS Secretary Kathleen Sebelius—to start asking some hard questions about healthcare reform and its implementation going forward.
“Once he gets vaccinated, we look forward to seeing him” for oversight hearings, quips one Hill staffer of Acting CMS Administrator Don Berwick, who has yet to go before a House congressional committee but will testify before the Senate Finance Committee on November 17.

CMS is already a focal point of the soon-to-be incoming Congress with pending national coverage decisions for Dendreon’s prostate cancer cell-based immunotherapy Provenge, Amgen’s Aranesp and erythropoiesis-stimulating agents (ESAs), and the possibility of doing the same with Roche/Genentech’s Avastin for first-line treatment of breast cancer.

The House Oversight & Government Reform Committee, which will be chaired by Rep. Darrell Issa (R-Calif.) come January, has already sent a letter to FDA Commissioner Margaret Hamburg probing the agency’s oversight of pharmaceutical manufacturing plants in Puerto Rico. The letter promises more questions in the future, and we expect an in-person appearance before the committee will not be far off.
The question is: are Obama Administration officials ready and willing to face a hostile Congress for the two years?

There are already rumors in Washington that HHS Secretary Sebelius could be the next high-level official out the door. And FDA Commissioner Hamburg has a built-in successor in Deputy Joshua Sharfstein, who has previous Hill experience. And remember, Berwick is still only “acting” (he was a recess appointment) and has yet to be confirmed by the Senate.

Whether they stay or go may depend on their appetite for a good, long public fight. Do they think it’s worth it? We’ll know in the next 12 months.

Thursday, November 11, 2010

A Leaderless European Medicines Agency: Does it Matter?

Will it matter if Europe’s top medicines regulator, the European Medicines Agency (EMA), is without an Executive Director for the next six months or so?

A headless EMA is on the cards because of a translation mistake in a European Commission recruitment advertisement – the use of “Physiker” in German, meaning physicist, rather than the German word for physician.

This meant that the recruitment process, which started earlier this year, had to be repeated, and will not be finalized before Thomas Lonngren, the current Exec Director, bows out at the end of December.

The EMA is really only a co-ordinating center for the 27 national regulatory agencies in the EU, and it’s these agencies, and their employees, that do most of the actual work.

So, it is a totally different beast to a more politicized regulator like the U.S. FDA, where the top position is a political appointee and the agency itself makes the regulatory decisions.

And let’s face it, the FDA has been without a Commissioner in the recent past, and has not gone completely awry, so it should be relatively easy for EMA to do the same. EMA’s recently appointed Acting Executive Director, Andreas Pott should have no problem keeping everything ticking over, anyway; he has been EMA’s head of administration for 10 years.

Maybe there's more required than ticking over, though. Europe has a new Health Commissioner, John Dali, who is keen to make his mark, and there is draft EU legislation rumbling around on counterfeit drugs, patient information, pharmacovigilance and the like. All of this needs EMA's input.

Furthermore, the agency is halfway through deciding its work priorities for the next five years via its “roadmap for 2015”. And what would happen if the region had to confront another public health crisis, like the swine flu epidemic?

On the plus side, when the new (non-physicist?) Executive Director does show up, he or she will (hopefully) be well placed to reinvigorate the agency.

Despite new websites and rebranding initiatives (the infamous pestle-and-mortar logo) and a new, shortened acronym (EMEA is so passé), the agency and its Executive Director are still largely invisible to Europe’s general public.

What EMA really needs is an individual who is comfortable with having a high public profile, someone who is not only a highly skilled regulatory bureaucrat but who communicates effectively to the public, and becomes a publicly recognized figure.

Yes, the agency is excellent at putting “regulatory affairs” documents on its website, but is this what the public wants, or needs? As I write, the communication heading the “What’s New” category on the EMA website is titled: “Guidance on centrally authorised products requiring a notification of a change for update of annexes”. Not something that is likely to grip the attention of many of the EU’s population of half a billion souls.

Perhaps there is an opportunity here to move beyond considering national regulators for the post, and to consider academics, or even individuals with a more political background.

But one major regulatory stakeholder, the pharmaceutical industry, is sure to remain quiet during the recruitment process. Any indication that the industry backs or favours a particular candidate is not likely to enhance that candidate’s prospects. Expect nothing from the industry until the decision is made.

Potential candidates should hurry, however. The closing date for submitting applications is Nov. 24.

-- John Davis

image from flickr user sebr used under a creative commons license

Friday, November 05, 2010

DotW Considers Restructuring

As part of its announced restructuring this week, Biogen Idec decided to terminate or divest 11 programs in areas such as cardiovascular and oncology and instead focus on its historic strength in neurology and autoimmune disease, as well as promising hemophilia assets.

The ripples of that decision are already being felt, most immediately by Cardiokine, a privately-held biotech based in Philadelphia that has raised $87 million in venture dollars since its 2004 founding. Back in 2007 the start-up ,which counts Health Care Ventures and Care Capital among its backers, partnered its sole asset, a selective vasopressin receptor antagonist for hyponatremia called lixivaptan, to Biogen for $50 million upfront.

Amber Salzman, president and CEO of Cardiokine, did her best to spin the divestment news in a positive direction. "I am pleased we have regained exclusive global rights to lixivaptan, a potentially important advance in the treatment of hyponatremia," she said in a statement. "We are nearing the completion of the Phase 3 program and look forward to study results and confirming our registration plans in the near future.”

Biogen nabbed lixivaptan as it was rebuilding its late stage pipeline in the wake of a previous restructuring that began in 2005. At that time Biogen execs admitted they had neglected their pipeline to concentrate on the launch of Tysabri (natalizumab), a next-generation MS therapy that promised much greater efficacy than the interferon-based treatments dominating the market at the time. So they ramped up dramatically in several areas, including CV, buying rights to the pulmonary arterial hypertension drug Aviptadil from mondoBiotech and Adentri, an A1-adenosine receptor antagonist for heart failure, from CV Therapeutics. (Biogen dropped work on Adentri earlier this year. )

As a result of Biogen's new restructuring, Cardiokine loses out on a potential $170 million in milestones. At this point, it's got to hope Big Pharmas in need of late stage products (Lilly? Sanofi-Aventis?) could be drawn into a more lucrative partnership, or even an acquisition.

The safety-first mentality at FDA has resulted in a full-fledged flight away from anything that might be classified with a "C"and a "V," but lixivaptan has a few things going for it, not least that its in Phase III trials. Its use in hyponatremia, an electrolyte disorder characterized by an imbalance of sodium and water, is also a plus. There are currently no approved therapeutic treatments for the condition, which frequently goes undiagnosed. Thus, potential interested acquirers can check the "unmet medical need" box that is now de rigueur in any biopharma transaction. In all likelihood, no deal will emerge until potential acquirers have a gander at top-line data from the ongoing three pivotal trials, especially a 650-patient study in congestive heart failure.

Cardiokine wasn't the only entity to suffer the fall-out from revised priorities this week. The American people also decided to divest more than 60 Democrats from their Congressional pipeline, but for now we'll let others weigh in on the effects of the new portfolio, especially on health care reform. Meanwhile, it's time for this blogger to revisit her own priorities and call it a weekend...


McKesson/US Oncology: The big-ticket acquisition this week was health care services and IT player McKesson's $2.16 billion all-cash take-out of US Oncology, a physician practice management company for cancer physicians. McKesson will pay cash for the outstanding shares of privately-held US Oncology and assume its $1.6 billion in debt. The deal builds on McKesson's aspirations to expand in the oncology specialty services arena, helped out by its 2007 purchase of Oncology Therapeutics Network for $575 million. It also comes as demand for oncology products is on the rise, and drug makers both big and small are doing their best to develop differentiated medicines to tackle the disease, an event that will only increase the need for purveyors of oncology services. (That is until there is pushback from payors about the distribution of pricy cancer meds.) Bringing US Oncology in-house expands the number of oncologists to whom McKesson has access to 3000, according to executives on a November 1 investor call. Currently, The Woodlands, Tex.-based US Oncology supports about 1300 community-based physicians in 38 states. Analysts have reacted positively to the deal, which is expected to close by the end of 2010, because of the complementarity of the two businesses. In a note to investors, Tom Gallucci of Lazard Capital Markets says it gives McKesson “a meaningful land grab within the fast-growth oncology space, lending further scale to its distribution business.” -- Greg Twachtman & E.L.

Bristol-Myers Squibb/Simcere: Behold the rise of regional deal-making. As drug makers look to push into important emerging economies like China and India, they face important decisions related to the development and commercialization of products. Is it better to invest in costly infrastructure and distribution networks, building capacity from the ground up, or leverage the capabilities of an in-country firm that is more familiar with the "hows" and "whos" -- particularly the government regulators and KOLs -- of the local market? BMS chose the latter route in its tie-up with Simcere, a Chinese pharma with a diverse portfolio that includes branded generics and the proprietary medicine Endu, a recombinant human endostatin, for non-small lung cancer. Financial terms of the BMS/Simcere deal weren't disclosed, but as part of the agreement, Simcere receives exclusive rights in China to develop and commercialize BMS-817378, a preclinical MET/VEGFR2 inhibitor. BMS retains rights in all other markets, and the two firms will jointly determine development. Interestingly, it appears the early work will be carried out by Simcere, in what may be an attempt by BMS to leverage two critical advantages offered by China: 1) the still -- for now -- cheaper labor market keeps the R&D burn rate low; 2) with greater access to treatment naive patients, it can be much faster to run oncology trials in a place like China than the US or Europe, where competition for patients is greater. In 2009, Simcere inked a similar deal with OSI Pharmaceuticals for the development of OSI930, a small molecule oncologic in Phase I that targets multiple tyrosine kinases, including one of the same targets hit by BMS's drug, the VEGF2 receptor. -- E.L.

Gedeon Richter/Grunenthal: The European women’s health market is in significant flux with the third major deal in a month, and the second involving Budapest, Hungary-based Gedeon Richter. On November 3, Richter purchased Grunenthal’s oral contraceptive business for €236.5 million (about $331 million), roughly one month after Richter bought out Switzerland’s PregLem for CHF150 million ($156 million). Meanwhile on October 28 Teva purchased Merck Serono’s Théramex division for €265 million to deepen its geographic reach in women’s health and particularly in the contraceptive space. Like Teva/Théramex, Richter is eyeing both geographic expansion and growth of its oral contraceptive portfolio with the purchase of Germany’s Grunenthal. The small family-owned firm adds seven contraceptives including Belara to Richter’s portfolio, with sales largely based in Germany, Spain and Italy. The deal covers commercial rights in all markets where Grunenthal’s products are approved, except for Latin America. Richter said the transaction will provide a platform upon which it can establish a sales and marketing base in key Western European countries; currently, Richter’s primary commercial base is central eastern Europe and the Commonwealth of Independent States. -- Joseph Haas

Kadmon/Valeant: Just one week after Kadmon Pharmaceuticals, Sam Waksal's post-ImClone reprise, emerged from stealth mode with the acquisition of Three Rivers Pharmaceuticals, the biotech is back in the limelight. On November 1, the biotech announced a pair of strategic agreements with Valeant Pharmaceuticals that allows the start-up to hit the ground running with a mid-stage HCV candidate. In part one of the two-part alliance, New York-based Kadmon licensed worldwide development and commercialization rights (excluding Japan) to taribavirin, an analog of ribavirin that has completed Phase IIb studies for HCV, for $5 million upfront. Toronto-based Valeant, which said continuing development of taribavirin no longer fit its specialty pharma business model, stands to earn development milestones and sales royalties between 8% and 12% of future net sales related to taribavirin. That doesn't mean Valeant is getting out of selling hep C medicines altogether, however. The deal's second part calls for Valeant to pay Kadmon $7.5 million for rights to distribute in six Eastern European nations the start-up's Ribasphere and RibaPak, formulations of ribavirin that Kadmon acquired via the Three Rivers' deal. Kadmon will serve as the supplier of the two drugs. For Kadmon, a still stealthy company that has released little information about its financial backers, the complicated deal means the company nets $2.5 million and gains a mid-stage asset simultaneously. For Valeant, the outlicensing is consistent with its streamlining after the Biovail merger, as it looks to divest programs that require sizeable R&D dollars to get to market. -- J.H. & E.L.


Swedish Orphan Biovitrum/Amgen: Stockholm-based Swedish Orphan Biovitrum, which wants to be known as “Sobi” -- a decision IN VIVO Blog supports because it sounds like a tasty buckwheat noodle -- is selling back to Amgen its co-promotion rights in Nordic countries to hyperthyroidism compound Mimpara (cinacalcet). "Strategic business reasons" were a driving factor in the "mutual agreement," according to the press release announcing the split. Unfortunately, the two companies declined to say more about why the seven-year deal was ending, or how much Amgen will pay Sobi to wind down the deal. It can't be much. Sobi's revenues from Mimpara were a scant 26.2 million Swedish Krona ($3.9 millon) in 2009. Could this be the converse to the regional dealmaking brouhaha in India and China (see above)? Certainly it's well known that co-promotion deals limited to a handful of smaller markets are time-consuming and complex to manage, which may make the return for both parties de minimus. For its part, Sobi, which has developed its marketing capabilities throughout Europe, is to reallocate resources to its newer products, such as Yondelis, Multiferon and Ruconest. -- John Davis

Johnson & Johnson/Arena: On November 5, J&J's Ortho-Macneil-Janssen Pharmaceuticals division officially called it quits on the development of ADP597, a GPR119 agonist for type 2 diabetes it in-licensed from Arena as part of a two-compound 2004 deal worth $17.5 million upfront. The news marks the end of the six-year collaboration between the two parties; in 2008, J&J discontinued work on another GPR119 called APD668 in order to devote more resources to ADP597, which was believed to be the more potent compound. As of December 28, 2010, all rights to ADP597 officially revert to Arena, which has a portfolio of internally discovered GPR119 agonists, including follow-on versions of APD597 that weren't part of the original J&J deal. It's not clear why Janssen returned rights to the drug, which had just finished Phase I and demonstrated no obvious safety signals, according to company reports. Preliminary data suggest the oral molecule may have utility both alone and in combination with DPP-IV inhibitors like Januvia or Onglyza. It's possible the competitive landscape was one reason the deal came to an end. An interesting new class of small molecule drugs for type 2 diabetes, GPR119 agonists are a hot target in the type 2 diabetes landscape, with players such as Boehringer Ingelheim and GlaxoSmithKline vying to be first to market. The drugs target a protein expressed on the surface of pancreatic beta cells and endocrine cells in the gastrointestinal tract. In preclinical and clinical studies, GPR119 activation has been show to stimulate the relase of GLP-1 and other incretins that play an important role in insulin regulation. All told, Arena netted $32 million from the six-year collaboration with J&J, according to Elsevier's Strategic Transactions database. The return of the asset is another piece of negative news for Arena, which in late October received a complete response letter for its obesity drug lorcaserin. -- E.L.

Image courtesy of
flickrer jasoneppink.