Could a bidding war for Brazil’s privately held Ache Laboratorios do for Latin America what Abbott Laboratories’ gargantuan purchase of part of India’s Piramal Healthcare did for biopharma M&A in India?
Call it the “Piramal effect,” if you will. Abbott reset expectations among India’s domestic pharma world with its $3.72 billion purchase in 2010 of Piramal’s branded generics business. Brazil hasn’t yet seen the kind of blockbuster deal that would raise prices across the board; the highest value deal in that market to date is Sanofi’s $662 million buyout of Brazilian generics firm Medley Pharmaceuticals in 2009.
Sanofi got in early – staking its claim before big pharma’s buying spree in emerging markets generated significant deal inflation – but the deal hardly lifted the value of Brazilian companies across the board. That transaction was followed by smaller deals, such as Takeda’s $251.5 million (BRL 500 million) buyout of Brazilian branded generics specialist Multilab Indústria e Comércio de Produtos Farma about one year ago, which also included potential for up to BRL 40 million in earn-outs.
But, now comes word that could blow all previous Brazilian deals out of the water – Abbott and two of its big pharma competitors, Pfizer and Novartis, are preparing a second round of bids to buy Ache, Brazil’s leader in the sale of prescription drugs. The rumored price tag for Ache, fourth overall domestically in drug sales when over-the-counter products are included, ranges between $4 billion and $5 billion, a matter complicated by talk that at least one of three ownership families does not wish to sell. Ache’s public stance is that it is not up for acquisition.
Ache reported net earnings of $270 million for the 12 months ending Sept. 30, 2012. Nonetheless, a source familiar with the company told Deals of the Week that Ache remains an appealing investment for big pharma due to higher gross margins than its domestic competition, high top-line growth and strong relationships with distributors. In an emerging-markets competition where it is difficult to acquire worthy assets without overpaying, the three pharmas are facing a reality that a price tag above $5 billion – about 20 times EBITDA (earnings before interest, taxes, depreciation and amortization) – may be required just to get a foot in the door.
One pharma executive who asked not to be named told DOTW that his company is so discouraged by prices for assets in the primary emerging markets that it already is looking to next-generation possibilities such as Nigeria and Colombia.
As an article in The Atlantic notes, for overall business climate, Brazil recently has been viewed as the shining jewel of the so-called BRICS nations (Brazil, Russia, India, China, South Africa), with an average real gross domestic product growth rate of 4% between 2004 and 2010, including an eye-opening 7.5% in 2010. Add in low unemployment and a fairly industry-friendly regulatory environment, and Brazil perhaps was positioned to join China as the top emerging market for biopharma.
An early 2013 Business Monitor International report states that total pharmaceutical expenditure in Brazil in 2011 was more than $28.7 billion, and that total was expected to grow by 7.6% in local currency terms in 2012 (while declining in U.S. dollar spending due to exchange-rate fluctuations.) However, the biopharma opportunity in Brazil is being diminished by drug rebates, which are increasing both in total numbers and in size.
Meanwhile, GDP declined 0.9% in Brazil last year, combining with a 6% inflation rate to tarnish the South American giant’s emergence. Outside investment hoping to tap Brazil’s huge population, highlighted by a rising consumer class, faces what is known as “the Brazil cost” – a combination of high tariffs, poor infrastructure and red tape that increase the cost of doing business, the Atlantic reported.
But industry interest in tapping the Brazilian market cannot be denied. A review of Elsevier Business Intelligence’s Strategic Transactions database reveals six major equity investments in Brazilian biopharma holdings this decade. Beside last May’s Takeda/Multilab transaction, these include:
- Valeant Pharmaceuticals paying $28 million in May 2010 for Instituto Terapeutico Delta, a private branded generics and OTC company focused largely on dermatology;
- Pfizer anteing $240 million plus performance-based earn-outs to acquire 40% of generics firm Laboratorio Teuto Brasileiro in October 2010;
- Amgen ponying up $215 million in cash for Bergamo, a hospital-focused company with an emphasis on oncology, in April 2011;
- Merck investing an undisclosed amount in February 2012 to create and own a 51% stake in a Brazilian joint venture with Supera Farma Laboratorios, Cristalia Produtos Quimicos Farmaceuticos and Eurofarma Laboratorios; and
- UCB Group paying an undisclosed sum with potential for performance-based earn-outs to acquire 51% of specialty pharma Meizler Biopharma. The May 2012 deal included an option for UCB to buy out the remainder of the company.
While we await the outcome of the multi-company pursuit of Ache – GlaxoSmithKline reportedly dropped out of the bidding a while back – other biopharma deal-making was completed in the past week as we tally up …
AstraZeneca/AlphaCore: Following through on CEO Pascal Soriot’s promise to rebuild the company’s cardiovascular pipeline, AstraZeneca announced its third cardiovascular deal in two weeks. In the latest tie up, announced April 3, AstraZeneca’s biologics unit MedImmune acquired private biotech AlphaCore Pharma for an undisclosed sum. The big pharma gains ACP-501, a recombinant human lecithin-cholesterol acyltransferase (LCAT) enzyme that is believed to play a major role in removing cholesterol from the body and also may increase levels of high-density lipoprotein (HDL) cholesterol, better known as “good cholesterol.” A Phase I trial testing the drug met its primary safety and tolerability endpoint and also showed that ACP-501 raised HDL cholesterol in patients taking it. The cholesterol space is a high-risk, high-reward area of drug development, given the growing regulatory and commercial hurdles. But Soriot vowed AstraZeneca would embrace risk as a key to unlocking success in the drug-development process during an overview March 21 in which he unveiled his turnaround plan for the company. Cardiovascular disease is one of three core therapeutic areas the company has committed to. In March, the company signed two deals in the field: an option agreement with messenger RNA developer Moderna Therapeutics for up to 40 programs in exchange for $240 million upfront and a research partnership with Sweden’s Karolinska Institute. - Jessica Merrill
Bind Therapeutics/Pfizer: Nanotech company Bind Therapeutics has inked its second deal with a major player this year, signing a collaboration with Pfizer on April 3. Pfizer will pay Bind to combine its Accurins technology with small molecules provided by the big pharma. Pfizer will pay $50 million in upfront and near-term development expenses per molecule and Bind is eligible for $160 million in regulatory and commercial milestones for each product that reaches the market. Bind did not retain any commercialization rights, but will receive tiered royalties on worldwide sales. The company would not reveal the number or kinds of molecules covered by the deal or the therapeutic area of focus, but did say the agreement covers more than one molecule. The Accurins technology has been explored in the areas of oncology, inflammatory diseases like arthritis and cardiovascular indications. In January, Bind announced a similarly sized agreement with Amgen to develop and commercialize kinase inhibitor nanomedicines to treat solid tumors. - Lisa LaMotta
Ra Pharma/Merck: Less than a year after exiting stealth mode, Ra Pharmaceuticals has landed its first partnership, aligning with Merck to help the pharma discover and develop drugs for difficult-to-hit protein targets. Under the agreement announced April 1, Ra will use its proprietary Extreme Diversity platform to find and develop cyclomimetic candidates that can address intracellular protein-protein reactions in multiple undisclosed therapeutic areas. Ra will receive an undisclosed upfront payment and research funding; discovery, development, regulatory and commercialization milestones could bring its full remuneration to $200 million. While the deal stemmed from early conversations between Ra executives and Reid Leonard, head of Merck Research Ventures Fund, it does not include an equity component for the pharma, Ra President and CEO Doug Treco said. It also includes no risk-sharing, such as a co-promotion option down the road. Ra is developing what it terms a new class of drugs, peptide-like molecules offering the diversity and specificity of antibodies along with the attributes of small molecules, such as oral bioavailability. Cyclomimetics, the cyclic polymer drug candidates produced with Ra’s technology, are characterized by their cyclic structure and backbone as well as side-chain modifications that can provide beneficial properties not offered by natural peptides, the company says. It claims that Ra’s platform produces molecules that are highly specific and stable, offering improved cell permeability and potential for increased bioavailability as well as longer half-lives. - Joseph Haas
Astellas/Ambrx: In its latest tie-up with a major pharmaceutical player, Ambrx announced April 5 that it will collaborate with Japanese pharma Astellas Pharma on a series of antibody-drug conjugates (ADCs) in the oncology setting. Astellas will pay the biotech $15 million upfront, as well as $285 million in potential development, regulatory and sales-based milestones to discover and develop an undisclosed number of molecules that use its site-specific ADC technology. Last June, Ambrx inked a deal with almost identical financials with Merck. While details of the targets the companies intended to focus on were not disclosed, it was revealed that they would focus on areas “beyond oncology.” Ambrx also has tie-ups with Eli Lilly and Bristol-Myers Squibb. Previously it had arrangements with Wyeth, Roche and Merck Serono. ADC technology, which allows drugs to be targeted to a specific site carrying a therapeutic payload, have become a hot space since Seattle Genetics got approval of its ADC lymphoma drug Adcetris (brentuximab vedotin) in August 2011. - L.L.
Agios/Foundation Medicine: Agios Pharmaceuticals and Foundation Medicine signed a pact April 4 to use the latter’s clinical assay, FoundationOne, to create diagnostics which could identify ideal patients for Agios’ compounds aimed at cancer metabolism. No financial terms were disclosed. The diagnostic-discovery collaboration will focus on Agios candidates intended to inhibit tumors that carry mutations in the IDH1 and IDH2 metabolic enzymes. The work will seek to identify tumor genomic alterations that would be most likely to respond to Agios’ candidates, and to potentially develop and commercialize companion diagnostics for Agios compounds. Foundation, which developed the FoundationOne genome analysis profiling system for personalized cancer treatment decision-making, raised a $42.5 million Series B financing in 2012 with a syndicate of venture capital and corporate venture outfits. The round was topped off with an additional $13.5 million this past January from individual investors including Bill Gates, Yuri Millner and new board member Evan Jones. Agios, partnered since 2010 with Celgene on cancer metabolism R&D efforts, raised a $78 million Series C round in 2011 and announced plans to branch out therapeutically into rare genetic disorders. - J.A.H.
Novartis/ImmunoGen: ImmunoGen on April 4 updated the status of its 2010 licensing agreement with Novartis to apply the biotech’s Targeted Antibody Payload (TAP) technology platform to create cancer-fighting antibodies for undisclosed targets chosen by the multinational pharma. Under an amendment to the agreement, Novartis has exclusively licensed one compound against a still-undisclosed target, while taking a non-exclusive license to a second compound which can be converted later to an exclusive license. ImmunoGen will receive $4.5 million upfront under the amendment and could earn between $200 million and $238 million in milestones pegged to the two compounds, plus potential sales royalties. Of the upfront money, $1 million is an option exercise fee, while the remaining $3.5 million, which could be credited against future milestone payments, will be paid if Novartis terminates development of one or both compounds. In a same-day note, Cowen & Company analyst Simos Simeonidis called the developments “an incremental positive for ImmunoGen” that helps to validate the TAP platform. In October 2010, Novartis paid $45 million upfront for the license, intended to help it create antibody-drug conjugate (ADC) therapeutics for cancer. The deal offered the potential for up to $200.5 million in milestones for each target leading to development of an ADC, as well as sales royalties on any products reaching market. - J.A.H.
ArQule/Daiichi Sankyo: In our “No-Deal” of the week, collaborators ArQule and Daiichi Sankyo have decided to terminate an early-stage collaboration around Phase I oncology compound ARQ-092. The news comes just months after a Phase III setback of the companies’ later-stage oncology compound tivantinib, which the two companies will continue developing together. Daiichi opted to license ARQ-092 in November 2011 and paid $10 million upfront at the time, as well as Phase I development expenses. ArQule stood to gain $255 million in milestone payments and the deal included development of multiple compounds; the program now has been returned to the Woburn, Mass.-based company. Meanwhile, tivantinib failed to show overall survival in a late-stage trial in non-small cell lung cancer. The drug’s development focus now has been shifted to liver cancer. The partners signed their initial agreement for tivantinib (known then as ARQ-197) in November 2008. Daiichi agreed to pay $60 million upfront, as well as $560 million in milestones to license the c-Met receptor tyrosine kinase inhibitor. - L.L.
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