Friday, October 25, 2013

DOTW Wonders: Where Have the Private Biotech Take-Outs Gone?

We do like a nice, frothy biotech IPO market. But is it coming at the expense of stellar acquisitions of private biotechs? We miss the kind of M&A that got VCs boasting about multiples and sent ripples of excitement through the industry.

So, being the data geeks that we are, that sent us rifling through recent deals. Turns out that there have indeed been fewer decent-sized acquisition of private biotechs. This year there were only 16 worth more than $50 million, down from 26 at this time last year, according to Elsevier’s Strategic Transactions database.

And the really eye-popping deals are largely absent. Only three of this year’s private biotech acquisitions even had the biobuck-aided potential to be worth more than $500 million. Through October 2012, there were at least 10 take-outs that fit that description – although to be fair, a couple of those were of big, private specialty pharmas that were long-past any venture investment. And among this year’s biotech IPO class, 12 out of the 38 already have a market cap of more than $500 million.

Perhaps the longstanding truism that the best biotechs get bought and the rest go public has been turned on its head for a bit. Maybe IPO valuations are so rich that they’re driving up private company comps, giving potential strategic buyers pause.

There is one big biopharma buyer who’s been relentlessly active this year: AstraZeneca . It’s bought three private biotechs so far; all of them among the largest private acquisitions in 2013. Not that this comes as a huge surprise. DOTW wondered in January if then-new AstraZeneca CEO Pascal Soriot would go on a buying spree and expand into earlier stage deals.

Earlier this month, AstraZeneca bought antibody-drug conjugate oncology company Spirogen, which was in Phase II with its lead candidate, for $200 million upfront and up to $240 million in milestones. In August, it bought immune-stimulatory cancer company Amplimmune for $225 million upfront and up to $275 million in milestones.

In June, the big pharma made its biggest buy and the only private biotech acquisition this year potentially worth more than a billion when it acquired Pearl Therapeutics. Terms included $560 million upfront and up to $450 million in clinical and regulatory milestones, with an additional up to $140 million in sales-based milestones. (In total that’s up to $1.15 billion for those of you keeping score at home.) Pearl was a Phase III respiratory disease company.

While AstraZeneca is alone in its level of activity right now, recently industry’s larger companies have whole-heartedly embraced a deal structure that locks up promising early-stage assets at a reasonable price. This, of course, is the “exclusive option to acquire.” One big biopharma in particular has warmed to this approach – doing at least five of this kind of deal with private biotechs in the last couple of years. (Celgene, you know we’re talking about you.)

Celgene’s most recent option to acquire a private biotech was divulged earlier this month when it did a deal alongside a Series A round for PharmAkea Therapeutics, a small molecule cancer and fibrotic disease company that the biopharma seeded with funding last year. This time, Celgene paid $35 million for a three year discovery and development deal, and it also bought an undisclosed equity stake, alongside Bay City Capital, which invested $10 million. Celgene has an exclusive option to buy PharmAkea, which was founded by three execs from fibrotic disease play Amira Pharmaceuticals, which sold to Bristol-Myers Squibb for up to $475 million in 2011.

This week, a similar option-to-acquire deal together with a Series A came along. Sideris Pharmaceuticals garnered a partnership with Novartis worth up to $300 million, which includes the exclusive option to acquire the biotech. It also landed a $32 million Series A round from MPM Capital, Hatteras Venture Partners and Osage University Partners. Sideris is focused on developing drugs to treat transfusion-related iron overload; the partnership and the financing are intended to get its lead candidate through Phase II.

Novartis did another option-to-acquire deal alongside a Series A round with inflammatory and thrombotic diseases company Selexys Pharmaceuticals last year.

We see how an option-to-acquire deal alongside a Series A financing would be attractive. For big biopharmas, it sews up good-looking assets without fully committing, thereby providing more time to wait and see without risking losing out. For VCs, it lines-up a strong potential buyer and helps defray R&D costs from the outset in exchange for a known, possible outcome.  For biotechs, it greatly lessens financing risk, ties it close and early to a partner that can help define how it conducts its trials and gives it a built-in potential exit.

Plus, it takes the vagaries of the IPO and the M&A markets almost entirely out of the equation.  While companies and VCs risk losing out on the tantalizingly highest highs, they also can follow a known path to an exit. And while froth may be fun, it’s not at all stable.

What is entirely reliable is your DOTW team, who has yet again brought you a delightful sampling of this week’s heartiest deals. Quaff deeply of this week’s edition of  . . . .

Mesoblast/Intrexon/Ziopharm: Three partners – Mesoblast, Intrexon and Ziopharm Oncology – will be involved in an oncology drug discovery and development collaboration that could evolve into a joint venture, the firms announced Oct. 23. The initial deal is less of a commitment, however. Under the technology sharing arrangement, the partners will bring their respective expertise to the table to develop new treatments, with a first focus on lung cancer. The team will use Mesoblast’s Mesenchymal Lineage Cells and Intrexon’s RehoSwitch Therapeutic System (RTS) platform to co-develop complex transgene-enabled cell-based treatments. The resulting products should have both tumor targeting characteristics and controlled gene expression. Financial details were undisclosed. The deal is actually a 50/50 collaboration between Mesoblast and Ziopharm because Ziopharm is previously partnered with Intrexon on the technology to design and optimize therapeutic gene expression in the MLCS under a 2011 collaboration. - Jessica Merrill

deCODE/NextCODE: Like any classic Icelandic saga, the story of deCODE Genetics seems endless. The genetic diagnostics company has new life as NextCODE Health, with $15 million in Series A backing from Polaris Partners and ARCH Venture Partners. deCODE was a dot-com era high flier that aimed to mine blood samples from Iceland’s homogeneous population and meticulous record-keeping for clues to the genetic factors of disease. Following a $170 million IPO in 2000 deCODE spent a decade chasing the dream of developing its own drugs. It filed for bankruptcy in late 2009. A consortium of investors led by Polaris and ARCH, who were original deCODE investors and cashed out after the IPO, spent about $14 million to take deCODE private in 2010. Back at the helm, they did away with the drug-development ambitions and turned back to genetic research and diagnostics. They were rewarded when Amgen bought the recapitalized deCODE in 2012 for $415 million in cash up-front. Now, with Amgen focused on applying the deCODE technology to drug discovery, NextCODE has a five-year exclusive license to clinical diagnostics applications. The company says it already has contracts with clinical centers affiliated with Queensland Hospital in Australia, Boston Children’s Hospital in the U.S., Newcastle University in the UK, and Saitama University in Japan. Two top executives from the early days of deCODE, Hannes Smaranson and Jeff Gulcher, have returned to run the company as CEO and president/CSO, respectively. - Alex Lash

Amgen/Roche: As part of its international expansion and to shore up product revenues, Amgen reacquired rights from Roche to Neupogen (filgrastim) and Neulasta (pegfilgrastim) in about 100 markets for an undisclosed amount. Roche had held rights to the pair since 1989, under a license with Kirin-Amgen, a joint venture between Amgen and Kirin Holdings., in Eastern Europe, Latin America, Asia, the Middle East and Africa. Amgen is working toward building a presence in 75 countries and it will exceed that with this deal. In 2012, Neupogen and Neulasta generated about $200 million in sales in those territories. In the third quarter, Amgen reported $1.1 billion in Neulasta revenues and $466 million in Neupogen revenues. These were up 9% and 50%, respectively, from the same quarter during the prior year. (The big boost for Neupogen was entirely attributable to a $155 million order from the U.S. government during the quarter.) Both are used during chemotherapy to boost white blood cell count, thereby reducing the risk of infection for chemotherapy patients. The deal will become effective Jan.1, 2014. Amgen expects it will start to be accretive in 2014. In places where Amgen doesn’t have a presence, Roche or its distributors will continue to market products for an interim transition period. Kyowa Hakko Kirin will continue to market the drugs in some Asian territories, including China and Japan. - Stacy Lawrence

Alzheon/Bellus Health: A new neurodegenerative disease start-up is being built on the back of a failed Alzheimer’s disease compound. Start-up Alzheon has exclusively licensed a pro-drug of tramiprosate, ALZ-801, from Bellus Health, formerly Neurochem. Tramiprostate completed Phase III clinical testing in 2007 and the data were inconclusive. Alzheon plans to start a Phase II trial in Alzheimer’s disease patients, which it says will be aided by the clinical data and sub-population analyses from the more than 2,000 patients in Phase III studies of tramiprosate. The license includes rights to a family of analogs, along with an associated platform of chemotypes and clinical datasets. Alzheon expects this will provide the company with a drug development platform, as well as clinical and biomarker datasets in this patient population. Beyond ALZ-801, Alzheon expects to build a pipeline that includes additional prodrug candidates from this platform, as well as in-licensed programs.The idea is to take compounds that have demonstrated clinical proof-of-concept and apply improved clinical trial design, informed by existing patient sub-population data, more appropriate clinical endpoints and biomarkers. The newco will be led by Martin Tolar, who is its founder, president and CEO. He has previously headed biotechs including human genome interpretation system company Knome and cancer therapeutics play NormOxys Tolar was also chief business officer at Alzheimer’s-focused CoMentis, which licensed its lead beta-secretase inhibitor, then only in Phase I, to Astellas Pharma AS in 2008 $100 million up front. No financial details of the deal were disclosed; Alzheon hasn’t given any financing details yet. - S.L.

AstraZeneca/Evotec: AstraZeneca and the German drug discovery services company Evotec entered into an agreement Oct. 21 to discover novel targets and compounds with disease-modifying activity for the treatment of chronic renal disease, one of the key research areas for the restructured R&D efforts at the UK multinational. AstraZeneca will fund research on a series of molecules identified by Evotec in a program designed to explore a key mechanism of chronic kidney disease. In return, Evotec has received an undisclosed upfront payment and will receive clinical and regulatory milestones, and additional payments if products are commercialized. Renal diseases such as diabetic nephropathy, end-stage and chronic kidney disease are key targets within AstraZeneca's research effort into cardiovascular and metabolic diseases, one of three core areas for the company and based at its facilities in Molndal, Sweden. The agreement with Evotec comes just three months after AstraZeneca entered into a strategic collaboration with the private U.S. company FibroGen to develop and commercialize that company's FG-4592, a late-stage potential oral therapy for anemia in chronic kidney disease and end-stage renal disease in selected markets including China and the U.S. Evotec has a number of other big pharma collaborators for its drug discovery services, including with Roche and Boehringer Ingelheim, and a 2010 diabetes collaboration with AstraZeneca's biologics division, MedImmune, extended by the two companies at the start of 2013. - John Davis

Depomed/PDL: As it transforms from a research-oriented company to a product-focused one, Newark, Calif.-based Depomed is planning additional acquisitions to fortify its pain and neurology portfolio. Thanks to the $240.5 million sale of its type 2 diabetes royalties to PDL BioPharma, it will have plenty of cash to spend. Depomed sold milestone and royalty streams for marketed products and pre-approval compounds in the Oct. 21 deal. Most of the value currently lies in escalating royalties from Santarus’s sales of Glumetza (metformin HCL extended-release tablets), which generated $42.8 million in royalties during 2012 and $27.5 million during the first half of 2013. It also includes royalties from Merck’s sales of Janumet XR (sitagliptin and metformin), potential streams from investigational programs in the hands of Boehringer Ingelheim and Janssen Pharmaceuticals, and geographic royalties from LG Life Sciences in Korea and Valeant Pharmaceuticals  in Canada. Depomed built its own sales force to market Gralise (gabapentin) for shingles pain after it reacquired rights to the compound from Abbott Laboratories in 2011, and has since added pain drugs Zipsor (diclofenac potassium) and Lazanda (fentanyl) via acquisition. CEO Jim Schoeneck told conference call participants it would look to buy products already on the market or “those that are beyond clinical risk” at the registration stage. PDL once discovered antibodies, but now reaps royalties from license agreements based on its patents. The last of a key set of patents expires in 2014. If royalties from the new deal reach a total of $481 million, or twice the sale price, PCL and Depomed will split further royalties 50/50. - Paul Bonanos

Roche/Samsung: Samsung Group and Quintiles may have created their Samsung BioLogics joint venture primarily to develop and manufacture biosimilar drugs, but the Incheon, Korea-based drug factory operator is now striking new partnerships as a contract manufacturer for pharmas. An Oct. 22 deal with Roche calls for a long-term manufacturing partnership covering proprietary commercial biologics, which Samsung BioLogics will craft at two local facilities, one of which is still under construction. Financial terms weren’t disclosed and Roche didn’t reveal which medicines Samsung BioLogics will manufacture. It’s the second CMO deal since the summer for Samsung BioLogics, following a 10-year agreement with Bristol-Myers Squibb announced in July, covering an unnamed cancer antibody. Since the creation of Samsung BioLogics, Samsung forged a second JV with Biogen Idec in February 2012, creating Samsung Bioepis to develop biosimilars; it has since clarified that Samsung BioLogics will operate a CMO business while Samsung Bioepis will focus on biosimilars. - P.B.

(Thanks to Vault Brewing in Yardley, Penn. for use of their photo of a draft of Rye Pale Ale. It’s a favorite of EBI’s Chris Morrison – who hopes this mention will get him a free pint this weekend.)

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