Friday, January 28, 2011

Deals Of The Week: The Sputnik Edition

Outside the deal making arena, the word garnering significant air time this week was “innovation.” During this week’s bipartisan date night, also known as the State of The Union address, President Obama mentioned the word at least nine separate times, as he channeled Survivor’s Jeff Probst. “We need to out-innovate, out-educate, and out-build the rest of the world.” He called on the country to “get behind innovation”, exhorting “this is our generation’s Sputnik moment.”

One could well ask if this is Big Pharma’s Sputnik moment as well. The biopharma industry is well aware of the need for innovation. Indeed, the stricter pricing environment in Europe and the US (where payers are pushing back on multiple classes of drugs even if NICE-like decision making isn't yet a reality), has already forced a wholesale shift, with a greater emphasis on devising drugs for unmet medical need and actually demonstrating said value.

As the industry wrestles with its innovation gap, there are a number of puzzles to solve. The first, and potentially easiest, to come to grips with is access to new products and new ways of thinking. It’s one of the primary reasons biopharma companies are cutting deals with academia and not-for-profits with such regularity, none more so than Pfizer, which rolled out its New York-based Center for Therapeutic Innovation(CTI) just hours before the Prez made his way to Capitol Hill.

A thornier question is what actually constitutes innovation these days. Ask a completely random group of industry execs and the answer almost certainly would be new drugs (or devices) to address some unmet medical need: lupus, major depressive disorder, Alzheimer’s. Undoubtedly those are areas deserving investment; so too, however, are improvements in care delivery in high cost arenas like diabetes or hypertension, where the problem isn’t lack of therapy, but actual compliance. There’s a growing opportunity on the service side, and some companies – Sanofi in diabetes, Novartis via its collaboration with Proteus Biomedical – are taking important, albeit early steps, in this direction.

For pharmas to “win the future”, maybe they, too, need to reinvent themselves, like the Michigan-based mom and pop roofing company run by the Allen brothers, which Obama highlighted in his SOTU challenge. One way to do so is by embracing new definitions of innovation beyond the canonical: a new drug hitting a novel target that historically garners a premium price tag. We remain an industry where “better” might mean “faster” (or more convenient) but it almost never means “cheaper”. Why not?

It's a question worth pondering for big drug makers; as Obama rightly reminds us, "Our destiny is our choice." Meanwhile it's time to take a spin through another weekly deal-making wrap up...

Novartis/Genoptix: This week Novartis launched a $470 million cash tender offer for cancer specialty testing lab Genoptix, which offers personalized diagnostics services related to hematological malignancies – and to a lesser extent solid tumors – to community-based oncologists. The acquisition will add more muscle to the Swiss pharma’s two-and-a-half-year-old Molecular Diagnostics unit. As the pharma’s division head of pharmaceuticals, David Epstein, told investors on the company’s quarterly earnings call on Jan. 27, the move ensures companion diagnostics would be “readily available as we launch our new pharmaceuticals.” Indeed, the acquisition gives Novartis infrastructure and also know-how not normally found in pharma-based R&D that should smooth the transition from biomarker identification to actual companion diagnostic test development, which could range from home brew tests run at Genoptix’s lab to more broadly distributed test kits. As such, the deal is another indication of the confidence the pharma has in its pipeline of targeted cancer drugs, largely for hematological malignancies, and their belief in biomarkers – a marching order unaltered since the formation of the Novartis Institutes for Biomedical Research, whose resources directly fuel much of the effort of the Molecular Diagnostics unit. (To learn more check out this issue of IN VIVO.) Even as the industry has turned more and more towards outsourcing R&D, Novartis continues to drive translational research from within via NIBR. By taking on the risk of bringing in and supporting a diagnostics development infrastructure, it’s making a similar statement in the testing realm. – Mark Ratner

Amgen/BioVex: Amgen's Jan. 24 earnings call promised a plan to invest more heavily in research & development. On the same day, the company put its money where its mouth is.
Amgen deepened its commitment to oncology, revealing plans to acquire biologic vaccine developer BioVex for a $425 million cash upfront payment as well as milestone payments totaling as much as $575 million. Cash-rich (the big biotech has around $18 billion in its coffers), Amgen's massive upfront commitment - the largest for any privately held biotech in at least two years, according to Elsevier's Strategic Transactions database - is a powerful vote of confidence in cancer vaccines, the area in which BioVex has concentrated most of its efforts. The agreement is also easily the largest deal in the sector since April 2010, when Dendreon received approval for Provenge. The deal represents a payday for the well-funded BioVex, which has raised $175 million from at least 15 firms since its spinout from University College London in 1999. For BioVex, the sale to Amgen – especially at this price tag – makes obvious strategic sense. With two Phase III trials underway on its OncoVex product, an immunotherapy for both metastatic melanoma and head and neck cancers, the company faced increasing commercial costs that would require an alternate source of funding. "Getting to the public markets is hard in the current circumstances," Coffin told sister publication "The Pink Sheet" DAILY. "Amgen has amazing resources, and we felt that on balance, this was the best overall opportunity." – Paul Bonanos

Ligand/Cydex: For biotechs, the truism “it’s good to have a revenue stream” has never been more important than in today’s capitally constrained environment. The logic of regular income underpins Ligand Pharmaceutical’s purchase this week of privately-held Cydex Pharmaceuticals for $36 million, nearly all of which – $31.2 million – was paid upfront. The move diversifies Ligand, a classic drug development play founded in 1987 that has been moving away from that paradigm to a model described on the company’s website as “developing or acquiring royalty revenue generating assets and coupling them to an efficiently lean corporate cost structure.” Not including new licensing revenue or accelerated growth of the San Diego biotech’s Promacta, the deal is expected to double Ligand’s projected 2011 revenue relative to what it stood to pull in as a stand-alone and moves the firm forward in its goal of becoming a profitable entity. In 2010 Cydex chalked up $16.3 million in revenue thanks to its proprietary drug reformulation Captisol technology, which works by surrounding drugs with specially modified cyclodextrin molecules to allow tighter control of a medicine’s delivery. The Kansas-based Cydex, which will continue to operate as an independent subsidiary of Ligand following the close of the acquisition, already has numerous partnerships with industry players, including Onyx Pharmaceuticals and Prism Pharmaceuticals for the creation of Captisol-enabled IV formulations of carfilzomib and amidarone respectively. And in terms of regulatory risk, the formulation technology is something FDA seems comfortable with – it’s already included in five marketed medications. If Ligand believes it can earn a pretty penny from the Captisol franchise, Cydex’s investors, which include among others SR One, Eastman Ventures, and Techno Venture Management, have barely achieved an exit. Since its inception in 1993, Cydex has raised around $27 million in financing; like so many other private companies, it tried – and failed – to go public in 2008. – EFL

Teva/Corporacion Infarmasa: Teva Pharmaceuticals has conspicuously shied away from the sometimes frenzied investment in China, India and other emerging markets, noting the high valuations and intense competition. It is targeting Latin America for growth, however, as it progresses with plans to increase revenues from $14 billion in 2009 to $31 billion in 2015. Thanks in part to its 2006 acquisition of rival Ivax, it now has operations in Venezuela, Mexico, Argentina, Chile, Brazil and Peru. With this week’s acquisition of Corporacion Infarmasa, one of Peru’s top ten pharma companies, it makes additional in-roads into this Latin American market. Terms weren't disclosed, but Corporacion Infarmasa is owned by two American investment groups: The Rohatyn Group and Altra Investments. Infarmasa manufactures and sells a portfolio of more than 600 branded and non-branded generics, focused largely on antibiotics, antihistamines, analgesics and corticosteroids. By combining Infarmasa with its existing Peruvian organization, Corporacion Medco, Teva will be the number two player in a market that had a CAGR of 12% between 2005 and 2010 and could reach $1.8 billion by 2015. Expenditure per capita on pharmaceuticals in Peru is one of the lowest in Latin America, leaving ample opportunity for future increases, Teva said. – Wendy Diller

Image courtesy of flickrer dad1_ used with permission through a creative commons license.

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