Deals Of The Week: Icahn And Co. Traverse The Forest Again

Late spring has meant another foray by activist investor Carl Icahn into the forest of biotech board manipulation - literally this time, as Icahn's High River Limited Partnership filed a 13D with the SEC on May 30 announcing an intent to propose a minority slate of new members to the board of Forest Laboratories.

Last year, Icahn unsuccessfully nominated a slate of new board members for the specialty pharma, which staved off the attack and instead obtained enough votes to add three new independent board members of its own liking to the board.

But now, despite Forest's claims that business is going well in the face of patent-cliff woes, Icahn is back for another round. Once again, Icahn is proposing that his associate, Dr. Eric Ende, join Forest's board. Otherwise, his SEC filing does not state how many new board members he wants to nominate, other than clarifying that his would be a minority slate.

Forest CEO and Chairman Howard Solomon, in a May 30 release, said he always welcomes "constructive input" from shareholders but added that he was "puzzled and disappointed" that Icahn chose the threat of a proxy contest for the second consecutive year. Despite the loss this year of patent protection for antidepressant Lexapro (escitalopram oxalate) and the anticipated LOE for Alzheimer's disease drug Namenda (memantine HCl) in 2015, Forest has been offsetting expected revenue losses with new product launches.

“Forest Laboratories is strong and performing well," Solomon asserted. "We are executing on the plan outlined last year. We have continued to advance our late stage R&D pipeline through the FDA, successfully launched Daliresp and Viibryd – our two most recent primary care products – and reported solid financial performance for fiscal 2012 as we managed expected patent expirations. We are optimistic about our future prospects and believe we are well positioned to build on our strong track record of success, while continuing to deliver groundbreaking therapies to the patients and communities we serve.”

During its most recent quarterly earnings call April 17, Forest reported net sales had declined 8.7% to $997 million, which might play into Icahn's pitch to shareholders to back his board slate. With the March 14, 2012, patent expiry of Lexapro, sales of the SSRI already were in steep decline, down to $356 million from $595 million in the quarter one year earlier. Meanwhile, chronic obstructive pulmonary disease drug Daliresp (roflumilast) had posted quarterly sales of $13.1 million, the new SSRI Viibryd (vilazodone HCl) brought in $24.9 million, and another recent launch, broad-spectrum antibiotic Teflaro (ceftaroline fosamil) tallied $7.9 million in net sales.

To offset Icahn's potential arguments about earnings potential and management and board governance issues, Solomon also talked up the value of the three new board members elected last year – Christopher Coughlin, a former CFO at Tyco International and Pharmacia, Gerald Lieberman, the former chief operating officer at Alliance Bernstein, and Brenton Saunders, president and CEO of Bausch & Lomb. "These additions have enhanced our board through their operational skills, financial acumen, investor perspective, compliance expertise, and corporate governance experience," he said.

Whatever his rationale, though, it seems likely that Solomon and his team will have to familiarize themselves with Icahn's relentless brand of activism. Icahn apparently believes in the bromide "try, try again," as former Genzyme CEO Henri Termeer and once and former big names across the biotechnology landscape could well tell him.

In the meantime, Forest is continuing with its own business development strategy, looking to enhance its existing portfolio of hospital-based antibiotics through a June 1 option agreement with Austria's Nabriva Therapeutics. Forest is paying Nabriva $25 million upfront and will co-fund and co-develop the novel antibiotic candidate BC-3781, a pleuromutilin, that produced positive Phase IIb data in acute bacterial skin and skin structure infections in 2011. A pivotal Phase III program is planned for next year. Over the next 12 months as the two companies advance '3781, Forest will hold an option, not just on the antibiotic, but to acquire all of Nabriva, dependent on certain (but of course unspecified) contingences.

Well, as the Icahn/Forest and Forest/Nabriva stories heat up, along with the weather as we head into June, get ready for a seasonally steamy edition of ...

Stiefel/Welichem – With novel dermatitis candidates a rarity, GlaxoSmithKline's Stiefel Laboratories division has agreed to in-license a mid-stage, non-steroidal, anti-inflammatory compound from low-profile Canadian firm Welichem Biotech. Announced May 30, Stiefel will pay Welichem C$35 million ($33.9 million) for worldwide development and commercialization rights to WBI-1001, a topical compound currently in Phase II studies in psoriasis and atopic dermatitis. The agreement, subject to approval by Welichem’s board, excludes rights to the compound in China, Taiwan, Macao and Hong Kong, although Stiefel also can obtain a license those rights at a future date if certain undisclosed conditions are met. Those rights would carry an additional price tag of C$15 million. The deal structure also positions Welichem to collect milestones for clinical development and commercial accomplishments related to WBI-1001. Little is known publicly about the compound, called a potential first-line topical therapy for psoriasis and atopic dermatitis by the companies. Welichem discovered ‘1001 using its proprietary Symbiochem technology platform and has run the compound through four clinical trials total in the two indications. Welichem’s website says the compound inhibits the expression of pro-inflammatory cytokines, and that creams at 0.5% and 1.0% strength have proven safe and well-tolerated in psoriasis and atopic dermatitis patients. – Joseph Haas

Bayer/Covance – Bayer and contract research organization Covance have had a business relationship for years, but the two now are formally partners. The German drug developer announced May 30 that Princeton, N.J.-based Covance will provide research and development services related to clinical studies of mid-to-late stage drugs in Phases II through IV in a “long-term” deal. Covance will work alongside Bayer’s HealthCare unit, a subgroup that includes its Consumer Care, Medical Care, Animal Health and Pharmaceuticals division. Specific details and financial terms of the arrangement weren’t disclosed, although Bayer’s announcement suggested that the deal will bring “significant financial benefits” to both organizations while “reducing the overall time and cost of drug development.” Bayer said in 2010 that it would cut 4,500 jobs worldwide, including some in R&D. Also on May 30, Eli Lilly said it had partnered with Covance to discover diabetes treatments at its Lilly China Research and Development Center. – Paul Bonanos
  
Ensemble/Genentech – Ensemble Therapeutics now has scored its third large partner in as many years; announcing May 29 that it is teaming up with Roche’s Genentech Inc. in what it deemed its most attractive deal yet, trumping earlier deals with Bristol-Myers Squibb and Pfizer. Ensemble and Genentech will work together to develop macrocyclic drugs against a variety of targets supplied by Genentech. Using its proprietary DNA-Programmed Chemistry platform, Ensemble produces thousands of what it has dubbed Ensemblins – oral, small molecule macrocyclic compounds that interact with substrates through difficult extended binding motifs to reach targets not adequately reached by small molecules or biologics. While Genentech and Ensemble would not disclose the financial terms of the deal, Ensemble CEO Michael Taylor said that it includes milestones both early and late in the partnership, as well as milestones related to multiple targets. The agreement has no set timeframe, but Taylor said that these collaborations typically last for a couple of years, depending on when the partner wants to internalize the research. Ensemble typically develops molecules against a target until preclinical development and then transfers the drug over to its partner for further development. In 2009, Ensemble received $5 million upfront plus $7.5 million in R&D funding from Bristol to develop Ensemblin candidates against eight undisclosed targets. The biotech can earn up to $29.5 million in clinical development and commercialization milestones plus global sales royalties for each of the eight programs. It also signed a deal with Pfizer in January 2010 to develop Ensemblins for an undisclosed number of targets. Financial details of the deal were not disclosed, but Pfizer provided an upfront payment, research funding and potentially could pay out development milestones and sales royalties. – Lisa LaMotta

The International Immuno-Onocology Network – Bristol-Myers Squibb has formed a collaboration with 10 of the leading cancer research centers in the world to help further research for their immune-oncology pipeline; the alliance has been dubbed the International Immuno-Oncology Network (II-ON). Memorial Sloan-Kettering in New York will be part of the collaboration, as well as Clinica Universidad Navarra in Pamplona, Spain; Dana-Farber Cancer Institute of Boston; Institut Gustave Roussey in Villejuif, France; The Earle A Chiles Research Institute of Portland, Oregon; Istituto Nazionale per lo Studio e la Cura dei Tumori “Fondazione G. Pascale” of Naples, Italy; Johns Hopkins Kimmel Cancer Center in Baltimore; The Royal Marsden NHS Foundation Trust and The Institute of Cancer Research of London; The Netherlands Cancer Institute; and University of Chicago Medical Center. The company is now looking into biomarkers that could indicate some sort of genetic profile that would tip off doctors to the patients who would benefit the most from the therapy. The II-ON will be looking at post-response data to determine a biomarker for Bristol’s recently approved Yervoy (ipilimumab), as well as biomarkers for other treatments that are studied from Bristol-Myers’ pipeline. – LL

Havas/Creative Lynx – No one in pharma needs to be reminded of the future potential of social media for all sorts of health education and digital marketing purposes, even if the initial performance of Facebook's shares post-IPO has disappointed investors. The Paris-based global advertising group, Havas, which includes the Euro RSCG global network of health care agencies, has boosted its resources in this area by acquiring Creative Lynx, one of the European leaders in creating digital and social media campaigns in the health and wellness sector. Creative Lynx is based in Manchester, U.K., has 50 staff and an annual turnover of more than £4 million ($6.2 million). Its digital offerings include producing e-detailing aids for sales reps and exhibition stands, and the design of websites. Clients have included Johnson & Johnson, Merck Serono, AstraZeneca and GlaxoSmithKline. Havas is a public company with a network of health care communication agencies around the world. It handles approximately 30 global brands, including Sanofi, Pfizer and Novartis. – John Davis

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