Friday, October 04, 2013

Deals of the Week: For Astex Shareholders, Will 8 1/2 Do?

A month after Otsuka Pharmaceutical agreed to buy cancer drug developer Astex Pharmaceuticals for $886 million, a top shareholder is challenging the deal. Sarissa Capital Management issued an open letter Oct. 2 to announce its opposition, lamenting a price it found underwhelming, an auction process it found flawed, and an executive team whose motivations it believes to be suspect. A separate shareholder class action is already pending, alleging that the deal won’t deliver fair value as proposed.

Sarissa is a life science-focused hedge fund operated by Alex Denner and Richard Mulligan, onetime associates of activist investor Carl Icahn. The fund’s operators believe its 5% stake in Astex is worth more than the $8.50 per share Otsuka agreed to pay in the Sept. 4 deal, and the firm is not planning to tender its shares. Moreover, the firm expressed surprise at the deal’s timing, saying it was “inexplicable and disturbing” that Astex would sell before it reveals key Phase I/II clincal data from oncology candidate SGI110 in December, with more data to come in 2014. The drug has shown promise in acute myeloid leukemia and myelodysplastic syndromes.

The letter also alleged that Astex failed to engage all potential bidders, and favored terms that would keep existing structures intact while rewarding top executives with individual long-term compensation incentives. Sarissa’s co-founders called the executive-retention terms “extraordinarily upsetting,” said the executives’ intentions were compromised, and accused management of trying to “hide important issues about [their] motivations."

Astex fired back with its own open letter Oct. 2. The Dublin, Calif.-based company described a sale process in which 33 potential suitors were engaged and five showed serious interest, but only Otsuka submitted a final proposal. Astex says it negotiated the $8.50 price up from $7.75, and received interest from another buyer in the $6 to $7 range. (Shares hovered between $5 and $6 for most of July and August.) Astex claims it hasn’t received any competing buyout offers since the Otsuka deal was revealed last month, and denied that it had discussed specific employee retention arrangements with the Japanese buyer.

Most of Astex’s speculative value is tied up in pipeline drugs SGI110, a DNA hypomethylating agent that reactivates gene expression, suppressing tumor cell growth; and AT13387, an HSP90 inhibitor targeting multiple cancers. The company also reaps royalties on sales of Dacogen (decitabine) for myelodysplastic syndromes, sold by Eisai in North America and Janssen Cilag elsewhere.

Could a solution come in the form of a contingent value right that could add a further payout to a deal long after it’s consummated? Astex’s SGI110 data presentation at December’s American Society of Hematology conference represents a near-term milestone that could tempt both sides to settle for a contingency, but SGI110 and AT13387 still have a long way to go. The two sides would have to settle soon; Otsuka’s offer is set to expire Oct. 10. Stalling might work, too. If the current deal falls apart but the December data are encouraging, additional suitors could line up as potential buyers or partners. Astex could then command a much higher price, with a somewhat de-risked asset in its pipeline. And even in the short term, the suggestion that Astex could be worth more might compel more shareholders to get on board with Sarissa’s demands. - Paul Bonanos

Even if your life isn't just like a Fellini film, we hope you enjoy la dolce vita this weekend. And please enjoy...

Johnson & Johnson/Effimune/Merus/CureVac/DCPrime: J&J's London Innovation Center announced deals between the Big Pharma and four European biotech companies on Oct. 3, timed to coincide with a meeting between J&J researchers and UK political and research movers-and-shakers at the six-month-old center. The center is one of four ICs around the world, set up to invest or collaborate with academics, entrepreneurs and early-stage companies. All four deals were concluded with help from the IC. In the first, J&J's Janssen Biotech Inc. entered into a global option and license agreement with French company Effimune concerning a preclinical pegylated anti-CD28 antibody fragment, FR104, which has potential in immune-mediated disorders. If the option is exercised, Janssen will make milestone payments and pre-specified royalty payments on worldwide net sales of the product. In the second deal, Utrecht, Netherlands-based Merus has received an equity investment from J&J Development Corporation as part of a €31 million ($42 million) extension to a Series B financing round that now totals €47.6 million. Existing investors include two other corporate investors, the Novartis Venture Fund and Pfizer Venture Investments, as well as Bay City Capital, Life Science Partners and Aglaia Oncology Fund. Merus is building a pipeline of single cell-derived human bispecific antibodies for use in cancer therapy. In the third deal, Germany's CureVac will collaborate with Janssen Pharmaceutica Inc.'s Crucell Holland to develop an influenza vaccine based on CureVac's RNActive technology. And lastly, the Leiden, Netherlands-based DCPrime BV has entered into a research collaboration and optional license agreement with Janssen Pharmaceuticals Inc. on a potential dendritic cell-based vaccine; one candidate has completed a Phase I/IIa trial in acute myeloid leukemia. - John Davis

Tri-Institutional Therapeutics Discovery Institute: With a personnel contribution from Takeda Pharmaceutical, three New York-based academic research institutions will team up to create the Tri-Institutional Therapeutics Discovery Institute (Tri-I TDI), a non-profit organization that will seek to expedite advancement of basic biomedical research into innovative therapies and treatments across a broad spectrum of therapeutic areas, including cancer. Initial work will focus on small molecules, but eventually the institute plans to branch out into monoclonal antibodies and molecular imaging agents. Announced Oct. 1 in New York City, the collaboration will bring together under one roof researchers from Memorial Sloan-Kettering Cancer Center, Rockefeller University and Cornell University’s Weill Cornell Medical College. This is hardly the first time these three institutions have come together for a joint research initiative. In 2011, each was among seven New York research institutes electing to partner with Pfizer in an initiative to apply open innovation toward the development of biologic therapies across all therapeutic areas. In addition, each institution has pursued its own tech-transfer deals with private industry over the years. The institute begins its work with $20 million in philanthropic funding. It has received a $15 million grant from Lewis and Ali Sanders and $5 million from Howard and Abby Milstein. In addition, the three institutions will make equal contributions to an operating budget, while Takeda’s initial investment will be in the form of medicinal chemists based at the institute. Carl Nathan, chairman of Weill Cornell’s department of microbiology and immunology, said Takeda’s participation will be unusual, in that the personnel it lends to the effort will perform medicinal chemistry and take those processes much farther along than would be possible at the academic level, but without any guarantee of an economic benefit to the Japanese pharma. - Joseph Haas

Intrexon/Sun: Fresh off an August initial public offering that raised $184 million, synthetic biology specialist Intrexon created a  joint venture with India’s Sun Pharmaceutical to discover and develop new drugs for eye disorders. The companies plan to unite Intrexon’s technology platform, including the proprietary RheoSwitch Therapeutic System to control protein expression, with Sun’s global specialty pharma development and manufacturing expertise, and target chronic disorders such as “dry” age-related macular degeneration, glaucoma, and retinitis pigmentosa. Intrexon’s business model is built on partnerships, typically providing novel in vivo and ex vivo biological engineering techniques to another company with a specialized area of focus. (It struck a separate deal with Oragenics this week, concerning new therapies for oral, throat, sinus and esophagus disorders.) Led by billionaire Randal J. Kirk, Germantown, Md.-based Intrexon has struck at least eleven deals since its formation in 2007 as GT Life Sciences. Financial details weren’t released, and neither Intrexon nor Sun would comment beyond a statement. It’s not clear whether the two parties are equal owners, nor whether they invested equal amounts. Although they will share in the profits, it’s also unclear how decisions guiding the JV will be made. - P.B.

Enteris/Nordic Bioscience: Enteris BioPharma inked its first-ever licensing deal, just three months after it was formed from the assets of defunct Unigene Laboratories. The Boonton, N.J.-based company licensed its proprietary oral formulation platform, Peptelligence, to Nordic Bioscience subsidiary KeyBioScience Sept. 30, in order to develop oral versions of peptide drugs targeting metabolic diseases. Terms weren’t released, although Enteris acknowledged that it will receive both fee-for-service payments and royalties on any products that result from the deal. Nordic previously formed a joint venture with Enteris’s predecessor in 2011, studying Unigene’s calcitonin analogs for type 2 diabetes, osteoarthritis and osteoporosis. Chicago hedge fund Victory Park Capital is the sole owner and funder of Enteris. The company was launched after Unigene, hobbled by debt and by negative regulatory decisions, was sold in pieces.  The company believed that Unigene had neglected technologies such as Peptelligence all along, and hopes potential partners will see its value in extending drug franchises with convenient formulations and renewed patent life. - Lisa LaMotta

Celgene/PharmAkea: Celgene is making a habit out of equity/option deals. The Summit, N.J. drugmaker’s latest arrangement gives it an opportunity to buy PharmAkea Therapeutics, a small-molecule discovery company created last year to develop drugs for fibroproliferative diseases. Celgene will invest $35 million over three years, take an equity stake in PharmAkea, and hold an exclusive option to acquire it.  The companies will explore three targets concerning connective tissue and the link between fibrotic disease and cancer. PharmAkea believes it can begin Phase I trials on two programs within three years; Celgene holds the option to extend the arrangement for 18 months or buy the company outright. The deal was announced simultaneously with PharmAkea’s $10 million Series A funding from Bay City Capital. It’s a now-familiar strategy for Celgene, a company that took a similar option to buy Quanticel Pharmaceuticals for $45 million after Versant Ventures incubated the company for several months in 2011. Celgene also paid $100 million for an exclusive option to acquire five-year-old epigenetics drug developer Acetylon Pharmaceuticals in July, after investing in the company’s Series B round previously. Celgene seeded PharmAkea last year, allowing it to recruit a management team that includes several executives from Amira Pharmaceuticals, sold to Bristol-Myers Squibb for $325 million upfront in 2011, and BrainCells Inc. - P.B.

No comments: