Friday, February 10, 2012

DOTW Hears Pharma Leaders On Post-Patent Cliff Deal-Making

It’s been a lean week in the deal space, but that doesn’t mean Big Pharma isn’t talking deal strategy. As 2011 earnings report cards come in and 2012 gets off the ground,  pharma CEOs – Andrew Witty of GlaxoSmithKline Inc. and Christopher Viehbacher of Sanofi come to mind – are both expounding on the same issue: they’ve right-sized their business for a post-patent cliff world.

Both Viehbacher and Witty have sung the tune about right-sizing their businesses before – but now the plans these men have been making for the last three years are finally coming to fruition. As Viehbacher aptly put it during Sanofi’s fourth quarter call on Feb. 8: “2012, I’ve said on numerous occasions, is a year that I’ve had circled in red in my diary for three years.”

And a large part of that right sizing has been due not only to cost-cutting but to M&A and aggressive adoption of externalization as a core part of R&D, with results beginning to bear out in terms of pipelines and revenues, at least.  Having embarked on the biggest biopharma M&A transaction of 2011 – its $20+ billion acquisition of Genzyme -- along with several lesser, but still substantial purchases, Sanofi is now looking for focus – and what it calls “new models of externalization.”

For the French pharma this is the big year of revenues lost to patent expirations. “Last year we tackled the ‘R,’ and we’ve embarked upon an ambitious program, not only of restructuring, but when you look at things like the Warp Drive deal that we did in January, although a small deal in itself, is very much emblematic of where we see research and development going,” Viehbacher told analysts.

That deal, in which Sanofi received a non-exclusive option to acquire the biotech is emblematic of the pharma’s current thinking and Viehbacher and president of global R&D Elias Zerhouni highlighted it in their talks with analysts. It involves a start up that uses computational biology, synthetic biology and intelligent screening to read genomes of existing micro-organisms with the ultimate goal of producing new drugs, all while capitalizing on Sanofi’s internal expertise in building libraries. It’s structured like a call/put option, in that in addition to Sanofi's option, Warp Drive Bio’s shareholders can force a sale under pre-determined terms if certain milestones are reached. In short, said Zerhouni, it fits with Sanofi’s goal of “providing value” to an external innovator, to get a better, more precise understanding of the molecule.

But of course one of the most infamous deals of the decade came to a quiet conclusion, when court papers filed on Feb. 8 showed that Canadian generics company Apotex paid a $445 million settlement fee to Sanofi and Bristol-Myers Squibb over the former’s 2006 at-risk launch of the Big Pharma's anti thrombolytic Plavix.

Witty was quieter on the company’s business development plans going forward. But he issued a note of caution: In response to an analyst’s question, he pointed out that yes, more of the company’s R&D programs are partnered, which means they run the risk of lower margins. “There’s no doubt that the partnered programs obviously reduce the margin going forwards. It’s obviously how we’re going to pay for that R&D that was done on our behalf, or the risk that was taken on our behalf,” he said. “There’s a clear cost of goods sold hit that is going to come in as the portfolio mix changes.” The question, he asked, is whether manufacturing can keep driving enough savings to neutralize the impact.

But the European pharmas aren’t the only ones that issued 2012 marching orders on deal-making strategies. Last month, Pfizer’s top executives also talked about more strategic, focused deals going forward. Pfizer’s head of business development, Kristin Peck, talked with “The Pink Sheet” DAILY in January about Pfizer’s interest in risk-sharing deals with partners, be they biotechs or emerging markets acquisitions, and getting the proper balance between upfront payments and the staggered payouts. “If your asset is strategically important to you and you can be creative around a deal structure, it can be a win-win,” she said.

Plenty of companies are making the tough choices about how to share risks with partners while getting access to technologies that could be fruitful down the line - the new reality is that companies are making bolt-on acquisitions to add diversification, while making deals in technology platforms that share the risk through downstream milestone payments, options and earn outs. -- Lisa Lamotta 

Siemens/Viiv and Tocagen: Siemens Healthcare has joined the ranks of companies offering its services to pharma to develop companion diagnostics, with the announcement this week of deals with Viiv Healthcare (a Pfizer-GSK joint venture pooling their HIV franchises) and gene therapy specialist Tocagen.  The Viiv relationship began a year ago when it approached Siemens to develop a sequence-based assay to predict patient response to the approved HIV drug Selzentry: although there’s already an assay for this (a phenotypic measurement of the drug target, CCR5 co-receptor tropism), Viiv was seeking a more lab friendly test, aiming to increase use of the drug.  Siemens devised a sequence-based (genotypic) tropism test and Viiv has started a Phase III trial which, among other things, randomizes patients for screening with the phenotypic or genotypic test.  With this week’s announcement, the partners have decided to commercialize a genotypic test and seek FDA clearance for it.  Siemens emphasizes the breadth of the technologies it has to offer pharma including nucleic acid-based, immunoassay, and in vivo imaging.  The latter may come into play in the partnership with Tocagen, which is developing a glioma treatment based on delivering a viral gene selectively to cancer cells in the brain.  The gene, diffused throughout the tumor, can convert the antibiotic flucytosine (the prodrug) into the anti-cancer drug 5-FU.  Developing IT and workflow solutions around molecular assays is critical to the knowledge base Siemens is offering pharma.  It will be key to moving genotyping onto next-generation sequencing platforms and also, as with Tocagen, a core capability for introducing the convergent use of in vivo and in vitro techniques – a long-standing goal of in vivo capital equipment manufacturers like Siemens, GE Healthcare, and Philips. --Mark Ratner

BioLineRx/GenoScience/RFS Pharma: In its second deal in about two weeks, both with France’s GenoScience Pharma, BioLineRx has acquired another preclinical candidate for hepatitis C, this time a Phase I-ready protease inhibitor, which GenoScience co-developed with Georgia biotech RFS Pharma LLC. Announced Feb. 6, the deal will require Israel’s BioLineRx to pay both GenoScience and RFS upfront cash, as well as potential downstream milestones and sales royalties. As with the Jan. 24 deal in which BioLineRx licensed Phase I-ready HCV candidate BL8020, designed to inhibit virally induced autophagy, the specific terms were not disclosed. BioLineRx says its latest acquisition, BL8030, is a potent and selective second-generation protease inhibitor which has shown activity in preclinical study against various genotypes of HCV as well as a strong resistance profile. This should lower the probability that the virus will develop resistance to treatment with ‘8030, the company says. The protease inhibitor also demonstrated a good toxicity profile in preclinical testing, including a clean profile versus human liver enzymes, which reduces the chance of drug/drug interactions. RFS, which co-developed ‘8030 after its discovery at GenoScience, was founded by Emory University professor Raymond Schinazi, also a founder of HCV-focused biotechs Pharmasset and Idenix. Pharmasset was recently bought out for nearly $11 billion by Gilead Sciences on the strength of its lead HCV candidate, GS-7977, while Idenix is thought to be a top M&A target for other companies involved in the HCV space.—Joseph Haas

Cytomedix/Aldagen: Cytomedix, a developer of regenerative therapies for wound care, has closed its acquisition of privately-held Aldagen. The all-stock transaction is valued at $16 million, with the opportunity for Aldagen investors to gain additional stock upon the successful completion. As part of the transaction, certain Aldagen investors purchased $5.0 million of Cytomedix common stock in a private placement concurrent with the closing of this acquisition. Cytomedix issued 135,398 newly designated Cytomedix Series E preferred shares to Aldagen shareholders, giving Aldagen shareholders a 17.3% stake in Cytomedix. Milestone payments totaling up to 20,309,723 shares will be issued to Aldagen shareholders upon the achievement of predetermined clinical milestones associated with an ongoing Aldagen Phase II trial in post-acute ischemic stroke. The costs of the trial will be funded by the $5 million investment made by Aldagen shareholders and $3 million in proceeds from completed warrant exercises by existing Cytomedix shareholders. The acquisition helps Cytomedix fulfill its intentions of becoming a broader regenerative medicine company. – LL 

Prismic/Scarista: Privately held start-up Prismic Pharmaceuticals revealed that it had acquired Scarista Ltd., specifically to obtain the license to a patent portfolio covering the use of omega-3 fatty acids in treating central nervous system disorders. Scarista had previously licensed the patents from Amarin Neuroscience, a division of publicly traded Amarin Corp. of Dublin, Ireland, in a 2010 deal. Founded in 2011, Prismic intends to commercialize drugs for psychiatric and neurodegenerative disorders, although it has yet to advance a drug to the clinic. It’s also looking to forge partnerships with one or more other pharmas to develop CNS drugs, as well as develop dietary products covered by the same patents that conform to the Orphan Drug Act’s medical food classification. To that end, Prismic says it already has technology partnerships in place intended to support non-conventional initiatives that would help market its drugs to certain physicians and other members of the healthcare community. Amarin is currently seeking approval of a late-stage omega-3 drug candidate, AMR101, which would treat high triglycerides in the bloodstream. – Paul Bonanos

Vernalis/Tris Pharma: U.K. biotech Vernalis PLC announced Feb. 10 it was to collaborate with private US drug delivery firm Tris Pharma on developing new long-acting prescription cough/cold preparations for the US market, supported by a just-closed share placing and open offer that raised£65.9 million ($104 million). Vernalis's CEO Ian Garland believes the moves will accelerate the company's evolution into a diversified self-sustaining pharmaceutical company, rather than continuing as a cash-burning biotech. Vernalis will pay a single upfront fee of $5 million and development milestones on up to six new long-acting prescription cough/cold drugs that Tris funds, develops and submits for approval to the FDA. On average Vernalis expects to pay Tris around $13 million for each NDA. On approval, Vernalis will acquire and then commercialize the products in the US, using a sales team that will be set up with the help of the fundraising. Garland has experience in the US marketplace, having run Celltech's (now UCB Pharma SA) US business in the 1990s, when it marketed one of the few long-acting prescription cough/cold preparations, Tussionex. Around 80% of the funds raised by the share placing will be used by Vernalis for the Tris products, including the building of a commercial infrastructure in the US. The remaining 20% will be used for other late-stage in-licensing opportunities, Garland said. The placing has been taken up by both existing investors and a number of new institutional investors.—John Davis

image by tarotastic via flickr under creative commons license

1 comment:

Mark Ratner said...

You can read much more on the Siemens deals in the February issue of In Vivo