Friday, February 17, 2012

Deals of the Week Takes Out The Last One Standing

Fifteen months ago, three well-funded startups were racing alongside a couple of more established companies to develop the first approved drug for idiopathic pulmonary fibrosis. Two, Arresto Biosciences and Amira Pharmaceuticals, were taken out in rich deals. That left Stromedix as the last one standing.

Biogen Idec knocked down the final pin in a Feb. 14 deal to acquire Stromedix, bringing the last of the three promising drugs into the hands of a publicly traded behemoth. Gilead acquired the Arresto asset for $225 million plus unspecified milestone payments in a December 2010 deal; Bristol-Myers Squibb paid $325 million for Amira in a relatively complex transaction last summer.

While the deal’s upfront payment of $75 million was modest compared to the others, the contingency payments actually exceed the Amira deal’s. If Stromedix’s drugs meet all the milestones built into the arrangement, its shareholders would receive a total of $562.5 million; the Amira deal was worth $475 million including milestones. Both Amira and Stromedix were planning to begin Phase II trials on their IPF drugs at the time of their acquisitions, while Arresto’s was in Phase I.

For Biogen, the acquisition brings back a compound the company licensed to Stromedix in 2007. Stromedix's primary asset was the antibody STX-100, a selective inhibitor of the TGF-beta pathway which Biogen originated but eventually de-prioritized. Former Biogen executive vice president of research Michael Gilman left the company in 2005 to join Atlas Venture, started Stromedix and acquired STX-100 with Atlas’ backing. Now, Biogen has them both back.

Effectively, Biogen offloaded the risk in developing STX-100 through Phase I to a VC syndicate that included Atlas, Bessemer Venture Partners, Red Abbey Venture Partners, New Leaf Venture Partners and Frazier Healthcare Ventures. Those firms stand to receive a healthy return after pouring $29.4 million into the company; the up-front payment alone represents a step-up valuation of more than 2.5 times their initial investment.

What's more, this is a validation of what one might call an 'if you love it, set it free' strategy that large pharmaceutical companies are increasingly pursuing with shelved assets. Biogen had no claw-back on the Stromedix crown jewel, a more palatable opportunity for any biotech's venture investors, and was still able to keep tabs on the compound via a 5-6% stake in Stromedix and a board-observer position.

Gilman describes the acquisition as "bittersweet,' noting that "getting acquired was always the end game," and of all places Biogen is a great place to land. He and the rest of the Stromedix team will function independently as a fibrosis project team within the bigger biotech, helping to build a broader pipeline of fibrosis drugs there.

As we settle into President’s Day weekend in the U.S., we at Deals of the Week hope you all get to enjoy a bit of leisure. Maybe you’ll even hit the lanes like Nixon did. Enjoy your beer frame with…

Valeant/Eyetech: Rebuffed last fall in its effort to buy ISTA Pharmaceuticals, acquisition-hungry Valeant Pharmaceuticals International beefed up its ophthalmics holdings Feb. 13 by taking out privately held Eyetech for an undisclosed amount up-front plus milestone payments. The deal gives Valeant U.S. rights to Eyetech’s Macugen (pegaptanib), which in 2004 became the first inhibitor of vascular endothelial growth factor to treat the “wet” form of age-related macular degeneration by slowing angiogenesis around the retina. The injectable drug has since lost ground to Genentech’s Lucentis (ranibizumab), as well as off-label prescriptions of Genentech’s Avastin (bevacizumab). Pfizer markets Macugen outside the U.S. Palm Beach Gardens, Fla.-based Eyetech has been privately owned since a 2008 management buyout; it was publicly traded until OSI Pharmaceuticals acquired it in 2005. Valeant acquired ophthalmics products Lacrisert (hydroxyproyl cellulose) for dry eye and the Ocudose formulation of glaucoma treatment Timoptic (timolol maleate) when it bought Aton Pharma for $318 million in 2010. Even if all the milestones in the Eyetech acquisition are reached, the deal’s value will be less than twice Eyetech’s 2011 sales; Valeant  vice president of investor relations Laurie Little said the deal is “small in the scheme of things” for the Canadian specialty pharma. – P.B.

NYGC/Illumina/Feinstein Institute: The recently opened New York Genome Center announced Feb. 16 that it has entered into a large-scale whole genome sequencing project with the Feinstein Institute for Medical Research, part of the North Shore-LIJ Health System, which is one of the founding members of the NYGC. The project, which is set to begin in March and estimated to last about four years, will sequence the genomes of 1,000 Alzheimer’s disease patients in hopes of finding a clear genetic link to the disease. NYGC will begin with samples from 130 patients this year. The project will leverage the collaboration already established between Illumina and the NYGC, with Illumina supplying the sequencing equipment. The data that results from the project will be made available to the public a year after the sequencing is completed. The NYGC, led by attorney Nancy Kelley, is an effort that comprises 11 of the city’s academic medical centers, as well as two industry partners – Roche and Illumina. Backed by more than $125 million in fees from sponsors, the NYGC is one of New York’s efforts to compete with the strong biopharma initiatives going on elsewhere in the country, particularly San Francisco and Boston. – Lisa LaMotta
Merck/Supera Farma: As it develops into one of the most fertile emerging markets for biopharmaceutical products, Merck is establishing a joint venture in Brazil with two local companies – Cristalia Labs and Eurofarma Laboratorios – to market roughly 30 drugs in that country, both innovative products and branded generics across a range of therapeutic areas. Merck announced Feb. 15 that it will team up in Brazil with Supera Farma Laboratorios, jointly owned by Cristalia, which specializes in psychiatry, anesthesia and pain relief, and Eurofarma, which boasts a broader therapeutic focus and the largest medical sales force in Brazil. Merck will own 51% of the joint venture, with the two Brazilian firms controlling the other 49%. The new entity will have its own dedicated sales force, while the parent firms’ infrastructures will be leveraged for tasks such as training. Merck’s investment in Brazil is just the latest in a string of such plays by other biopharmaceutical companies. Last April, Amgen bought out Brazil’s Bergamo for $215 million, while Sanofi paid about $662 million in 2009 to acquire Medley Pharmaceuticals and Pfizer spent $240 million upfront in 2010 to obtain 40% of Laboratorio Teuto Brasileiro.—Joseph Haas

Merck/Zhifei: Merck struck a second deal in an emerging market when it expanded an existing partnership with Chinese vaccine developer Chongqing Zhifei Biological Products. The two companies will jointly seek approval of vaccines for rotavirus and respiratory syncytial virus in China, building on an April 2011 agreement under which Zhifei markets Merck’s measles-mumps-rubella combo vaccine and a 23-valent pneumococcal prophylaxis in China. Merck’s RotaTeq for rotavirus is currently approved and available in 87 countries, and has been sold in the U.S. since 2006, but approval in China will require the completion of a Phase III trial. Only one other vaccine has been approved for rotavirus in the country, a single-valent therapy marketed by Sinopharm subsidiary Lanzhou Institute of Biological Products; there is no approved vaccine for RSV in China. Zhifei is now the sole distributor of Merck vaccines in China; the two companies are said to be aiming to further expand their partnership. – P.B.

Invaluable reporting on the Biogen/Stromedix deal was provided by Joe Haas. Image from Flickr user Andrew Ressa, reproduced under Creative Commons license.

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