DOTW's 12 Deals Of Christmas

On the first day of Christmas, IN VIVO gives to you an earn-out in a pear tree
On the second day of Christmas, IN VIVO gives to you two consumer deals
On the third day of Christmas, IN VIVO gives to you regional alliances
On the fourth day of Christmas, IN VIVO gives to you hostile deals now friendly
On the fifth day of Christmas, IN VIVO gives to you ON-CO-LO-GY
On the sixth day of Christmas, IN VIVO gives to you biotech spin-offs
On the seventh day of Christmas, IN VIVO gives to you biobucks a plenty
On the eighth day of Christmas, IN VIVO gives to you eight pharma partners
On the ninth day of Christmas, IN VIVO gives to you platform biologics
On the tenth day of Christmas, IN VIVO gives to you billion dollar skin care
On the eleventh day of Christmas, IN VIVO gives to you a new eye care unit

On the twelfth day of Christmas, IN VIVO...needs a break. Please read (instead)...

MedImmune/Evotec: Big pharma’s love affair with primary care is on the wane, making cardiovascular deals as rare as partridges in pear trees. But it’s a different story for metabolic disease, where drug makers see large opportunity in growing waistlines. Think Merck’s take-out of SmartCells or Sanofi’s spate of alliances to build itself into an end-to-end solutions provider. Now comes news that AstraZeneca's biologics group MedImmune is aligning with Evotec in a broad R&D deal centering on regeneration of insulin-producing beta cells. As with most early stage alliances, the deal is heavy on the back-end payments, with the German biotech due €5 million upfront and up to €254 million in milestones down the road. But should Evotec deliver the goods, it would prove a nifty return on the biotech's acquisition of DeveloGen, a deal completed less than three months ago for up to €14 million in cash and stock, plus potential earn-outs. It's DeveloGen's metabolic target discovery platform that MedImmune is tapping into, and it adds a third alliance to the subsidiary's portfolio. Meanwhile, MedImmune and parent AstraZeneca are looking to fill a hole in their pipeline. -- Alex Lash

Reckitt Benckiser/Para Pharmaceuticals: Reckitt Benckiser Group pushed further into the consumer health business and India on Dec. 14 when the household cleaning products maker announced its £460 million ($727.3 million) acquisition of India’s Para Pharmaceuticals from private equity group Actis and minority shareholders. The acquisition, which is 31 times Para’s EBITDA, gives Reckitt access to one of India’s most popula cold-and flu-remedies, D’Cold. Still that’s a steep price to pay to boost exposure in an emerging market, where Reckitt already sells Dettol, Durex and Disprin. (At that price, IN VIVO blog thinks Para should throw in at least two turtle doves.) The company’s consumer healthcare unit now accounts for one-quarter of sales and will become increasingly more important since its household cleaning division faces pressure from competition like Procter & Gamble.—Lisa LaMotta

GlaxoSmithKline/Maxinutrition: As part of its pre-Christmas shopping spree, Glaxo says no to French Hens, but yes to muscle shakes, acquiring U.K. sports nutrition firm Maxinutrition Group Holdings for £162 million. The deal diversifies Glaxo’s Nutritional Healthcare business, adding the smaller player’s line of protein-rich body building, weight management, and endurance products onto the big drug maker’s carbohydrate business Lucozade and Horlicks (also known internally as a @calcium micronutrients business"). GSK's Nutritional Healthcare sales were already on a tear climbing 12% to $408.6 million for the third quarter of 2010. But with this new triumvirate, the pharma sees a recipe for growth. It can leverage the selling power of Horlicks while tapping into the sports nutrition business, a sector still growing strong in established markets that, globally, could be worth nearly $5 billion. – Dan Schiff

Ramius/Cypress: It took four calling birds, but Cypress Bioscience finally got a buyout offer from Ramius that was music to its ears. On Dec. 15, the San Diego biotech announced it had accepted a $255 million takeover offer from Ramius. The deal values Cypress at $6.50 per share, 63% more than Ramius’ $4-per-share offer in July. When Ramius launched its pursuit, it ripped Cypress management in an open letter, blasting the company’s decision to license a schizophrenia drug from Israel’s BioLineRx and declaring its 2008 acquisition of diagnostics company Proprius a failure. Since then, Ramius has incrementally increased its offer, including a $6.00 per share deal that Cypress’s board rejected. The parties finally agreed on the $6.50-a-share price, and agreed to extend the tender offer in order to complete the deal. Cypress garners most of its revenue from fibromyalgia drug Savella (milnacipran), and completed small-money deals in August to acquire rights to an autism drug from Marina Biotech and a smoking cessation product from Alexza Pharmaceuticals.—Paul Bonanos

Sanofi-Aventis/Merck Serono: ON-CO-LO-GY! In the drug world, viable cancer drugs are definitely as valuable as five golden rings. But as the recent U.S. regulatory decision around Avastin in metastatic breast cancer shows, incremental efficacy against an unmet medical need ain’t enough any more. Some companies are trying to overcome wily tumor cells by combining targeted therapies that work via different mechanisms into a single agent. And as the Dec. 17 alliance between Sanofi-Aventis and Merck Serono shows, they are willing to forge ties with competitors (excuse me, external parties) if that’s what it takes. According to the deal’s terms, Sanofi contributes two novel small molecule kinase inhibitors (both incidentally inlicensed from Exelixis in 2009): a PI3 kinase/ mTOR inhibitor SAR245409, and a class I PI3K inhibitor, SAR245408. Merck Serono, meanwhile, supplies its MEK inhibitor, MSC1936369B. (All three molecules are currently being studied in independent Phase I trials.) Here’s how the sharing works: Sanofi will conduct trials combining Merck’s MEK with its PI3K/mTOR inhibitor, while Merck will study the other PI3K blocker in combination with its medicine, and both drug companies will fund their own studies. Beyond breathy prose about “personalizing and stratifying cancer care” and maximizing the portfolio, details about the collaboration were vague, meaning what happens after Phase I, and importantly how the financials will be sorted, remain mysteries. Structurally – and therapeutically – the deal is almost an exact duplicate of the 2009 tie-up between Merck & Co. Inc. and AstraZeneca. (No word if an overly long airport security queue also played a role in this most recent alliance, however.) -- EFL

Xention/Provesica: Rather than divide its focus between two largely unrelated programs, UK-based Xention and its investors have elected to divide and conquer, spinning out the biotech's overactive bladder program into a new, separate company called Provesica. Two of Xention’s stakeholders, Forbion Capital Partners and Seroba Kernal, have supplied not six geese-a-laying but something much more important: cold hard cash to the tune of £4 million ($6.2 million). Beyond setting up an independent Provesica, the money will support Phase II trials of its lead compound, a vanilloid TRP (transient receptor potential) receptor antagonist, which affects the detrusor muscle in the bladder. Xention, which recently raised £8 million in Series D funding, will continue to advance its atrial fibrillation program, aimed at developing inhibitors to selectively block ion channels in the heart’s atria but not its ventricles. In conjunction with the spin-off, Xention has restructured, with holding company Xention Pharma Ltd. operating an R&D subsidiary.—PB

GlaxoSmithKline/Impax: GlaxoSmithKline, which now faces generic competition for its only Parkinson’s disease drug, Requip, swam back into that space Dec. 16, inking a co-development and commercialization deal with Impax Pharmaceuticals for the smaller firm’s lead program, IPX066. (Seven swans were apparently optional.) GSK will pay $11.5 million upfront along with up to $175 million in potential milestones and tiered, double-digit royalties on sales of IPX066, an extended-release combination of levodopa and carbidopa now in Phase III, in exchange for worldwide rights outside the U.S. and Taiwan. Impax, the CNS-focused, branded drugs division of generic player Impax Laboratories, will continue to make and supply the medicine to GSK. Impax completed a Phase III trial (APEX-PD) in early-stage Parkinson’s earlier this year with strong results and expects data from a second Phase III study (ADVANCE-PD) in patients with advanced Parkinson’s in the second quarter of next year. An NDA filing could come as soon as end of 2011.—Joseph Haas

Adimab/Lilly, Adimab/Genentech, Adimab/HGSI: On the eighth day of Christmas Adimab dispensed with the 8 maids-a-milking (and drug development too) and focused on the cream of the crop: its platform. At a time when most biotechs can’t monetize their platforms through discovery stage deals, privately-held, yeast-based antibody discovery biotech Adimab (alongside DOTY nominee Ablexis) remains the rare bird. Adimab watchers shouldn’t be surprised the company has inked more deals – three of them actually, with the likes of Lilly, Genentech and Human Genome Sciences. Nor do these recent deals stray far from the company’s previous single-target antibody discovery alliances, which emphasize non-exclusivity around a target and pay the biotech undisclosed financials that include an upfront, plus milestones and royalty payments. Why is Adimab the belle of the antibody discovery ball? “Our technology platform is not only faster than conventional antibody technology but it yields more relevant therapeutic leads with a higher probability of success,” CEO Tillman Gerngross, PhD, told us for a piece we did earlier this week in “The Pink Sheet” DAILY. The upshot of all Adimab’s dealmaking is that the cash-flow positive biotech (it announced two milestone payments to go along with the three deals this week) is restructuring to an LLC to return cash to shareholders in a tax-efficient way. – Chris Morrison

Mitsubishi Tanabe/Anaphore: At least one lady (if not nine) is surely dancing on the news of Mitsubishi’s R&D tie-up with Anaphore, a San Diego-based biotech developing trimeric proteins called Atrimers. Anaphore’s CEO Katherine Bowdish tells sister publication “The Pink Sheet” DAILY, “this first partnership does a great job of validating our technology platform.” It’s certainly a nice first and Mitsubishi’s willingness to contribute research funding is a decided plus, but Anaphore isn’t going to win any DOTY nominations based on the deal terms – a $5 million upfront, $110 million in milestones, and tiered royalties on sales of any products resulting from the option-style collaboration, which could be expanded to up to three targets. Still the tie-up, focused in auto-immune disease, is a reminder that drug makers remain interested in accessing novel technologies, especially if said platforms can create medicines against intractable drug targets or are inaccessible because of preexisting IP. Anaphore is especially interested in creating novel proteins that bind receptors in the so-called TNF super-family. The biotech’s most advanced candidate, the still preclinical ATX3105, antagonizes the interleukin-23 receptor, which plays a role in autoimmune disorders. -- Shirley Haley & EFL

Galderma/Q-Med: Lords a leaping! Leading Swiss dermatology company Galderma’s $967 million bid for medical implant manufacturer Q-Med will roughly double the acquirer’s sales and substantially increase its presence in aesthetic dermatology, a sub-segment of dermatology that is growing worldwide. Galderma, a joint venture of Nestle and L’Oreal, sells prescription and non-prescription dermatology products worldwide and is the largest manufacturer of topical dermatology therapies in the U.S. Q-Med makes dermal fillers including Restylane, which competes against Allergan’s successful Botox. The deal is non-traditional in that it offers different terms for the majority shareholder, Lyftet, which owns 47.5% of Q-Med, and the remaining shareholders. Bengt Agerup, Lyftet’s CEO, has already agreed to accept an irrevocable offer of 58.94 SEK in upfront cash, with up to 16.02 SEK in additional payments if certain development and business milestones are met. The remaining Q-Med shareholders would receive a flat cash payment of 75 SEK per share. Q-Med investors will have between Jan. 4, 2011 and Jan. 25, 2011 to tender their shares.—Wendy Diller

Novartis/Alcon: On Dec. 15, Novartis AG finally acquired the remaining 23% of eye care company Alcon Inc. that the Swiss-pharma giant didn’t already own. Alas, the announcement, which requires Novartis to pay independent shareholders the same average share price it doled out to Nestle, came without much fanfare. (In what was surely an oversight given the months it took to finalize the transaction, there were no pipers piping or drummers drumming.) The deal, which is a stock swap, will cost Novartis another $12.9 billion, driving the total price of the Alcon acquisition to $51.6 billion. In dollar terms, that rivals the mega-mergers of Pfizer/ Wyeth, Merck/Schering and Roche/Genentech. Is an ophtho company worth that much? The beauty of a deal is always in the eye of its beholder, but this particular therapeutic sector is enjoying a renaissance. Ophthalmologists are a technically savvy bunch, so having a strong device presence will likely help Novartis leverage its existing ophthalmics medicine business, which along with consumer-focused CIBA Vision and Alcon will be folded into a new eye care unit run by Alcon CEO Kevin Buehler. – Lisa LaMotta & EFL

Alcon Outrage at Novartis' Bullying

Far from achieving "clarity" in its Alcon takeover by bidding for the minority shareholders' 23% stake as well as buying up Nestlé's majority ownership, Novartis has apparently whipped up a storm of anger among Alcon's independent directors and shareholders. That may turn into a legal battle unless the Swiss group ups its offer.

Earlier this week Alcon's Independent Directors' Committee launched a new website dedicated to explaining why, in their view, Novartis' offer of about $150/share for their stake is "grossly inadequate". (Don't forget they paid about $180/share in cash to Nestlé for the latest, 52% tranche of the food-group's stake.) Not only that, but the Swiss Big Pharma's "coercive" tactics, they go on to declare angrily, are "offensive".

The bit we liked best on the IDC call Wednesday was Chairman Thomas Plaskett's likening Novartis to "a playground bully who takes half your lunch money then splits it with his best buddy."

This is more than lunch money, mind. Even at the current offer level, Novartis will be forking out an additional $11.2 billion for the minority stake in Alcon, on top of the $38.5 billion it's already paying Nestlé. Creating a global eye-care leader is pricey, notwithstanding the strategic benefits of this white hot specialist space.

But Alcon's worth more still--"dramatically" more, cry the minority shareholders. They declare Novartis' valuation of the business as "fundamentally flawed", dismissing the Big Pharma's $137 estimate of Alcon's 'unaffected' share price (had there not been months of deal-related speculation). (Read the minority's financial analysis here.)

What hasn't helped relations is that Novartis' management claim they can simply force the shareholders to accept their offer, according to Swiss merger law (that's the playground bully bit). "We will have 77% of shares on closing the deal with Nestlé, which gives us a majority on the board, so we can vote in favor of our further proposal," argued Chairman and CEO Dan Vasella on a Jan 4 conference call announcing the deal. The only recourse open to minority shareholders would be an appeal to a Swiss court post-completion, he later clarified.

Not so, say the shareholders, and we'll direct you to that highly informative website for the legal small print.

So, posturing aside, how much are these shareholders after? Plaskett wouldn't give a number during the call (he doesn't want to scupper their negotiating position). But your blogger persuaded another shareholder to stick his neck out. "Between $175 and $180 is probably the lowest I'd be willing to accept."

That's probably optimistic; don't forget the blended per-share price Nestlé's getting is $168 (taking into account both price of the original 25% stake plus that of the more recent 52% stake). But the message it sends is clear: come up with a better offer, or we'll drag this out as long as we can, through the law courts.

Novartis may be the Goliath in this story, but it's got lots to lose from a protracted legal battle, whatever the final outcome. Many of Alcon's minority shareholders are its employees, which Novartis won't want to lose (it's probably already annoyed a fair few of them). Indeed, the idea is to have Alcon's management run a new, larger ophthalmology company comprising Alcon and Novartis' eye-related assets. Nor will a long court-room fight help Novartis extract its estimated (some say under-estimated) $300 million in cost-synergies or provide the focus that such an integration will require.

Novartis wouldn't comment yesterday on the IDC's reaction to its offer. But we reckon there's a better-than-average chance that they'll try to resolve this in a friendly, non-bullying fashion. Or at least an average chance (given that Novartis has doubtless tied up the best law firms).

We'll certainly be listening with interest to Jan 26's results call; you never know.

image by flikrer trixOr used under a creative commons license

DOTW: Smells Like '10 Spirit!

Whew. That was rough, but we made it through 2009. Well, some of us. Put down your knapsacks, scouts, and let's do a head count. Kindler? Present! Maraganore? Yo! Termeer? Uh, Henri, why are you hiding behind that tree? Mullen? Mullen? Funny, I just saw him a minute ago.

Let's keep going. Levinson? Anyone seen Art? No? Hassan? Poussot? Stylli? Hollis?... [Four hours and tens of thousands of researchers and sales reps later...] Excuse me, but where the hell is everyone?

All right. We'll have to move on into 2010 without them, though no doubt many will be back. Risking accusation of being an industry cheerleader, IVB would like to propose a marching song to keep things upbeat. How about "Smells Like '10 Spirit"? It's the smell, if not of victory, then at least the hope that a little biotech with big dreams can actually scratch up the cash (we found it hard, it's hard to find) for a worthwhile program, maybe even two, without a vulture sitting on its shoulder. Or that this time around, a giant merger will actually work. (The denial! The denial!) Or that the final health care reform bill that emerges from the Congressional meat grinder doesn't leave us all saying well, whatever, never mind.

We don't mean to be curt, but we've come back from the holidays with a ton of work. So load up on guns, bring your friends, it's time for the year's first edition of...

Novartis/Alcon: We've just finished The Deals of The Year, but it's not too early to create a new category: Quietest $50 Billion Merger. Novartis said Jan. 4 it would exercise its option to purchase Nestle's remaining 52 percent stake in eye-care group Alcon for $28.1 billion. Novartis has had the option since April 2008 when it bought the first 25 percent stake from Nestle for $10.4 billion.

Add to that Novartis' intent to buy out the minority shareholders for $11.2 billion at a price lower than what it's offering Nestle -- $153-per-share instead of $180 -- et voila! a pas-de-trois $50 billion takeover, second only in recent years to the Pfi-Wy tie-up. The attempt to squeeze out minority owners also marks the end of Novartis's promise to keep Alcon at arm's length. And Novartis CEO Dan Vasella had more hard cheese for Alcon's minority owners. He said under Swiss law they won't have recourse, but given the legal tangles we wonder how much of Novartis's posture is a scare tactic to get minority holders to sell quickly. Perhaps it won't be so quiet, after all. On the product side, Novartis is buying a huge ophthamalogic portfolio that has little overlap with its own. Novartis has contact-lens business Ciba Vision and pharmaceuticals such as age-related macular degeneration drug Lucentis. Meanwhile most of Alcon's $6.3 billion 2008 sales came from surgical products and devices such as artificial intra-ocular lenses. -- Melanie Senior

Genzyme/Hospira: Just when Genzyme finds the aspirin to relieve its self-inflicted headaches (hint: go to the four-minute mark) at its Allston Landing, Mass., manufacturing plant, Carl Icahn goes bang-bang-bang with his silver hammer on the company's head. First, the aspirin: Genzyme said Jan. 5 it would outsource fill and finish responsibilities for four drugs, including its cash cows Cerezyme and Fabrazyme, to Hospira. Genzyme said the deal was more about creating redundant capacity than about problems in Allston. OK, sure, but let's review the problems: A six-week shutdown last summer to clean viral contamination in one of its bioreactors led to shortages of Cerezyme and Fabrazyme. Then a five-week FDA inspection last fall resulted in 49 observations and a two-year corrective plan. (Early-stage production of the two drugs will continue at Allston, and some fill/finish work is being transferred to Genzyme’s facility in Ireland.) But the Hospira deal is unlikely to make any immediate difference, as the fill/finish work cannot begin until approved by FDA, a process expected to take six to eight months. And here comes the hammer: An anonymous source told Reuters Jan. 7 that Icahn is gearing up for a proxy battle more than two years after he took his first tiny stake in the firm. Genzyme is lining up defenses, however, by cutting a friendly deal with Ralph Whitworth of Relational Investors. Whitworth can join the board in return for his public support for Genzyme's nominees at shareholder meetings. -- Joseph Haas and Alex Lash

Kyowa Hakko Kirin/Dicerna: The $4 million upfront might be small beer for Kyowa Hakko Kirin, but the deal announced Jan. 4 gives the Japanese brew crew-slash-biopharma access to Dicerna's dicer substrate platform. It's a method of building RNA interference-based therapeutics with longer strands of oligonucleotides dubbed DsiRNAs that engage the RNAi cellular machinery earlier in the process. Dicerna says the longer molecules are more potent and bioavailable, and they skirt the considerable patent position of the field's leaders. But no one really knows how the IP will play out in the space until a drug comes to market, which is years away. KHK takes a license to develop drugs against an undisclosed solid-tumor target, with $120 million in milestones down the road. The companies can expand the alliance to 10 or more targets and beyond oncology, with the financial structure for each target about the same as the first. Dicerna is gearing up for a second round of venture funding, with its three A-round investors all signed on, said CEO Jim Jenson. -- A.L.

Kyowa Hakko Kirin/Reata: It's double duty for KHK this week. The firm spent $35 million for Asian rights to Reata's Phase 2 chronic kidney disease treatment bardoxolone methyl, with $237 million more in milestones to come as KHK takes the drug through the clinic in Japan. Reata first tested the anti-inflammatory bardoxolone, a once-daily pill, in an oncology setting but pivoted to CKD when the patients showed improving renal function, according to Reata CEO Warren Huff. Reata has raised a total of $117 million in venture funding since its inception in 2002. Its latest round was led by CPMG and Novo, which has been an investor since 2006, and includes a $63 million tranche contingent upon positive Phase 2b data in June. Reata hopes to use some of the cash to move two additional molecules into first-in-man studies. -- A.L.

Pfizer/Debiopharm: Swiss specialty pharma Debiopharm will put Pfizer’s cancer immunotherapy tremelimumab through a Phase III trial of melanoma patients who are identified as treatment responders by a biomarker. According to the deal, announced Jan. 7, Debiopharm will run the trial in Stage IV melanoma, and Pfizer will handle worldwide commercialization. Financial terms were not disclosed, but the deal is worth noting for Pfizer's "split the middle" approach. In the run-up to the Wyeth merger, Pfizer decided to stop R&D and divest non-core areas. Oncology remained onboard, but with tremelimumab, a fully human anti-CTLA4 monoclonal antibody, Pfizer is taking a modified out-sourcing approach to spread the risk. Last year, Pfizer discontinued a Phase III trial evaluating the drug as a single agent in patients with advanced melanoma after an interim review showed it performed no better than standard chemotherapy. But retrospective analyses showed the treatment worked better in some patients, paving the way for the development of a biomarker to identify responders. -- Emily Hayes

Creative commons image courtesy of flickr user davetoaster. Rock on, Dave.

DotW: Same As The Old Boss

Whiners, do-gooders and underdogs, go back to bed. Make yourselves some herbal tea. Go write in your journal or do a little scrapbooking. Maybe you’ll feel better.

This was not your week, in which we saw nothing less than the restoration of the natural order of the universe. Here’s to the golden rule: Those with the gold make the rules! To celebrate, In Vivo Blog is leaning back in its buttery leather armchair, warming its feet by the fire, and puffing an obscenely large stogie. You don’t like it? Go complain to the Parent-Teacher Association or Toby Flenderson.

First of all, nothing says “Them’s That Got It Should Flaunt It” quite like the New York Yankees steamrolling their way through the playoffs. They didn't quite clinch the American League pennant last night, but it’s a matter of time. Inhale, my friends. You catch that? It’s called ruthless dynastic victory, and it smells like a mysterious blend of exotic saffron, blood orange and dark woods. It also smells like the $425 million the Yankees guaranteed to three free agents last winter.

But the Pinstripers got nothing on Pfizer, whose $65 billion-ish takeover of Wyeth just closed, even though along the way the biggest and baddest needed a little help from its big, bad friends, some of whom nearly brought down the global economy. (Naughty little doggies!) In January Pfizer scraped together $22.5 billion in loans -- you know, those things financial institutions theoretically give to businesses to keep the world from grinding to a halt -- from a bank consortium led by some of the biggest bailout recipients, including Citigroup and Bank of America. And they did so back when it was easier to sneak a rich man into heaven than to squeeze a loan through the eye of a banker.

Further adding to the warm plutocratic glow this week, some of Pfizer’s lenders are back in the money themselves -- because God knows they’ve earned it -- with bonuses ready to flow like champagne, or even better, in addition to champagne. Nothing like a few Benjamins soaked in Perignon and tossed onto a baccarat table to get everyone’s attention. Party on! This is what America was meant to be!

Wait a second. Who let the party pooper in?

Stay vigilant, my friends, lest the wet-blanket malaise spread to our little corner of the world. To wit, we noted a disturbing lack of dance-on-your-grave, eat-or-be-eaten M&A this week. All we got were collaborations. Alliances. Partnerships. Oh, and an option-to-acquire. It’s practically socialist. We might as well hold hands, give everyone a pat on the head and a gold star, and sing “This Land is Your Land.”

But if that’s how you like it, then slice up your tofu, lightly steam your kale, and sprinkle on your low-sodium tamari as you enjoy another edition of...

Morphosys/Daiichi Sankyo: Were we expecting Morphosys to sign the kind of antibody discovery and development alliance it inked with Daiichi Sankyo this week around its HuCAL Platinum antibody library? Not really. Because Morphosys’ ten-year discovery and development deal signed in late 2007 with Novartis—one of our favorite deals for several reasons—is designed to eventually replace Morphosys’ existing discovery deals as those alliances expire. Eventually Novartis will become Morphosys’ exclusive discovery partner in nearly all therapeutic areas, so we thought new discovery deals were off the menu. However, that lucrative Novartis pact specifically excludes infectious diseases, and on Oct. 20 Morphosys announced it would team up with Daiichi to tackle hospital-acquired infections. In addition to the technology license fees and R&D funding that Morphosys typically extracts from a development partner, Daiichi will also fund development of certain infectious disease-specific technologies inside Morphosys. The biotech didn't disclose deal terms but says they're in line with its other discovery agreements, which have included roughly €9 to 12 million in milestone payments from discovery to market (per program), followed by mid-single digit royalties on future product sales. — Chris Morrison

Cubist/Hydra: Cubist Pharmaceuticals took another step beyond nasty bugs by tapping Boston-area neighbor Hydra Biosciences in a small, two-year deal for pain-killing compounds drawn from Hydra’s ion channel program. Cubist is paying $5 million upfront and $5 million a year in R&D funding for two years, with an option to renew. The firm is best known for the antibiotic Cubicin (daptomycin), which is on track for half a billion dollars in revenue this year as methicillin-resistant staphylococcus aureus (MRSA) continues its spread. But Cubist is pushing hard to diversify beyond antibiotics and also has phase-2 candidate ecallantide, in-licensed from Dyax, to treat blood loss during on-pump cardiac surgery.

Alcon/Potentia: No ophthalmologic indication has caught VCs’ eyes more than age-related macular degeneration, with more than $600 million in funding committed in the last decade. (For more on AMD, peep this recent Start-Up feature.) Much of the interest stems directly from Genentech/Roche’s success with Lucentis, an anti-VEGF therapy. Beyond anti-VEGF, the mechanism of greatest interest is interfering with the highly conserved complement pathway, which plays a crucial but ill-understood role in triggering the inflammatory aspects of AMD. At least eight companies are aiming to develop complement inhibitors, and we finally have our first deal in the space. On Friday, Oct. 23 came news that Alcon locked up licensing rights to Potentia Pharmaceutical’s POT-4, a complement inhibitor poised to begin Phase II clinical trials in AMD. The agreement allows Alcon to investigate POT-4 in other ophthalmic disorders and gives the specialty player the right to purchase Potentia outright if specific development milestones are reached. No financial details were disclosed, so we don’t yet know the possible return to Potentia’s backers, Healthcare Ventures and MASA Life Science Ventures. But the two firms have put $17 million into the company since 2007, when Potentia raised an initial $5 million Series A. It’s the second milestone-driven acquisition Alcon has signed in the past 6 weeks. In mid-September the specialty eye company acquired large molecule player ESBATech for $150 million upfront and another $439 million in earn-outs. – Ellen Foster Licking

Human Genome Sciences/Novartis: Perhaps the biggest deal number of the week stemmed from a 2006 alliance. On Oct. 21 HGS reported it rang up a $75 million milestone from partner Novartis as it ushered hepatitis-C treatment albinterferon alfa-2b toward a filing for market approval in the U.S. and Europe, where the drug will be known as Zalbin and Joulferon, respectively. The firms will share profits stateside as well as development and marketing costs, and Novartis takes the reins in Europe. HGS has already earned $132 million under the deal, including a $45 million upfront. The deal called for a potential total of $507.5 million, so the latest milestone puts HGS about 40% there. Not bad for biobucks.

And just when all these partnerships had you ready to sing Kumbaya...



Biogen Idec/Facet Biotech: Perhaps more accurately, it’s no deal yet. Facet informed us Oct. 19 that a measly 0.1% of its stockholders had tendered shares in Biogen Idec’s hostile bid at $14.50 a share. Biogen launched the bid in September. Considering Biogen co-owns two of Facet’s key pipeline programs, it’s hard to see this ending up as no deal. The only question is how high will Biogen go.

Photo courtesy of flickr user Paul Simpson.

Deals of the Year Nominee: Novartis/Alcon

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

The more legs you’ve got, the more stable you are when you’re standing still. But how do you get all those legs moving in synch?

Attitudes vary towards just how much diversification is worthwhile, but – with just a few holdouts -- drug companies agree that basing a business on novel small-molecule research is way too risky.

But as with multi-legged creatures, the problem with diversification is how managers good at (or at least familiar with) running one kind of business – R&D-intensive prescription drugs – do with another kind. Which is why the more conservative of the diversifiers aren’t actually getting out of the drug business per se – by going into branded generics or OTC medicine they’re still staying close, theoretically, to home. Take the most recent convert to diversification – Merck: its recent announcement that it would be going into follow-on biologics edges it toward a kind of generics but without the full-blown commitment to just-in-time product development and manufacturing and rock-bottom prices that the small-molecule end of that business requires.

Novartis, too, certainly recognizes the managerial challenge of diversification. Among the most aggressive of the industry’s diversifiers with extensive consumer and generics businesses, it moved this year even further afield through its play for Alcon (see our transaction summary here and a longer analysis here) – another nominee for deal of the year. Alcon’s largest and fastest growing business is in largely self-pay surgical products, which make up 45% of its total revenues. The consumer side of ophthalmology makes up another 15% -- the rest is specialty eye drugs.

Novartis is trying to minimize the problems of a pharmaceutical company managing a device business in part through the structure of its deal. Novartis is merely investing in the company (starting out with a 25% stake -- for $11 billion -- with a plan to increase it, sometime between 2010 and 2011, to 76%, for no more than an additional $28 billion). It theoretically won’t be managing Alcon any more than Alcon is managed by its current majority owner, Nestle. Instead -- once it owns a majority of Alcon’s shares -- it will be able to consolidate Alcon’s double-digit-growth-sales-and-earnings but without the executive headache of actually running the business. And with Alcon trading independently, investors should still be able to independently follow and profit from its progress, and with luck according it a bigger valuation than what it might receive hidden inside the much larger and slower-growing overall Novartis business.

The disadvantage: with Alcon as an independently trading company, Novartis can’t do the usual cost-cutting most acquisitions allow; nor will it be able to combine marketing efforts (e.g., between Novartis’ ophthalmic businesses in its Ciba Vision contact lens unit or its two eye drugs, in particular the macular degeneration drug Lucentis.

The closest recent comparator we know of to the Novartis/Alcon deal is what Bristol-Myers Squibb is trying to achieve in spinning off of its consumer nutritionals business, Mead Johnson (see our analysis, here). Bristol, too, wants to get the benefit of non-pharma growth without having to manage it. The company figured its pharma-oriented execs couldn’t pay quality attention to the much smaller and much different nutritionals unit; and that when they did pay attention to it, these earnest auslanders probably didn’t add significant value. Investors, too, ignored the group – Big Pharma analysts, hardly experts in the area, buried the Mead results in their spreadsheets.

By spinning off just 10-20% of Mead, Bristol opens up the company for investor examination, frees its own managers to focus 100% of their attention on the pharma business, and focuses Mead’s execs on the competition in nutritionals, rather than the competition for corporate resources. Meanwhile, Bristol still gets to consolidate Mead's top and bottom lines.

So far, quite similar. The big difference between the two deals is that Novartis is paying for its diversification (and had it waited six months, it could have saved 50% or so on its $11 billion down payment); Bristol wants to get paid (albeit the market meltdown will presumably lower the take it had hoped for).

And from an investor’s point of view, Novartis is therefore asking its shareholders to fund its attempt to do what investors might see as their job – buying stock. Since it’s leaving Alcon independent, Novartis can’t argue that its money will be adding much corporate value to the ophthalmic company. One could argue, on the other hand, that Novartis is limiting investor choices: because they could buy Alcon shares on their own, shouldn’t Novartis do something with their money that investors couldn’t (like buy pipeline)?

On the other hand, Bristol’s spinoff actually offers investors a new choice – if they prefer to unload pharma shares for stock in a nutritionals business, well, the menu of choices just got bigger (and theoretically Bristol wins either way). The real strategic equivalent: Novartis could spin off a minority of its generics business, Sandoz, which likewise has virtually no synergies with its parent and which might profit from some independence.

Or you could argue that Novartis is in fact offering investors a new set of choices. Those with a higher appetite for risk can put their money into Alcon; those who want the security of a big company, but now with a frisson of mid-size company excitement, can buy Novartis stock leavened with Alcon growth.

Image via Funny-Dog

DotW: Batten Down The Hatches

After the capital infusions of banks around the globe by their respective governments failed to restore investor confidence and reduce Wall Street's volatility, the m.o. at many companies is "batten down the hatches, mate. It's gonna be a rough ride."

And the industry is already starting to see the fall-out. Perhaps not surprisingly, hardest hit are the smaller biotech and specialty-focused companies who don't have the luxury of stock piles of cash. On the heels of AtheroGenics' decision last week to declare bankruptcy, come restructuring announcements from DeCode Genetics and Par Pharma.

But these days, even a healthy cash position won't prevent the need to explore "strategic alternatives." Case in point: Cell Genesys, which had roughly $150 million in the bank as of Sept. 30. On Thursday the company announced it was terminating the late-stage VITAL-1 trial of its risky GVAX prostate cancer vaccine--yes, the one it partnered to Takeda for $5o million up-front earlier this year--due to lack of efficacy. As we noted in an earlier post, this is the second major clinical set-back for the company this year--over the summer it suspended its other GVAX immunotherapy trial, VITAL-2, for similar reasons. As the biotech weighs options that include sale or liquidation of assets, it's doing its best to conserve what is now likely seen as its most valuable resource--its war chest--slashing the work force by 75%.

And its not just the smaller players that are suffering. Companies such as WuXi PharmaTech, which posted strong earnings growth for the third quarter, cautioned that the financial crisis sweeping the globe would cut into its 2008 profits, while renewed doubts about the completion of the Daiichi/Ranbaxy deal have surfaced. (Reuters notes today that Daiichi has managed to purchase a 20% stake in the generics maker thus far.) And the WSJ reports that privately-held Actavis Group, one of the world's biggest generic-drug makers, could also be up for sale. The reason? The firm is 80%-owned by private-equity firm Novator, the investment vehicle of Icelandic billionaire Thor Bjorgolfsson, who lost a big chunk of change in the Icelandic banking collapse.

If Big Pharma is relatively insulated (we have more on the impact of the credit crunch in the October IN VIVO), it's by no means smooth sailing for these companies either. Sure, most still have strong cash positions--but a new report issued this week by Moody's shows that a significant portion of that capital is trapped in off-shore accounts. And, at least for now, companies aren't willing to take the tax hit required to repatriate those earnings. As a result, they're taking on debt to bolster sagging pipelines despite the risk--and rising costs--associated with borrowing. But as Lechleiter, CEO of Lilly, told the Indy Star earlier this week, the bigger risk is to do nothing and watch as the patents on blockbusters like Zyprexa and Cymbalta expire--or wait for an approval of Effient.

Meantime ports in this market storm seem to be the companies whose pipelines are diversified beyond traditional pharmaceutical products. In its quarterly earnings call on Monday, for instance, J&J posted positive news, mostly on the strength of its consumer biz and the sales of allergy medicine Zyrtec. That push to diversify is one reason Pfizer created an established products business unit--we used to just call them generics--as part of its recent sweeping reorganization.

Feeling queasy? We don't blame you. We prescribe some chamomile tea and...(Definitely NOT a Red Sox game; though perhaps last night's result is a sign that miracles do happen.)

GSK/BMS: On Wednesday, GSK announced it will acquire Bristol's Egyptian mature products business for $210 million. The deal means GSK will become the leading pharmaceutical company in Egypt, with a market share of 9%. In addition, GSK will acquire 20 branded products including the antiobiotic Duricef and the ACE inhibitors Capozide and Capoten. In addition, GSK will take ownership of BMS's high quality manufacturing facility outside Cairo. The move isn't too surprising given the operational strategies now apparent at both companies. Since taking over as CEO earlier this year, Andrew Witty has signaled his belief in the need to diversify GSK's business beyond branded drugs, including luring Abbas Hussein away from Lilly to head the pharma's newly created emerging markets group. In July, the company licensed rights to South African Aspen Pharmacare JV Onco Therapies' portfolio in 95 emerging markets (excluding India and sub-Saharan Africa). BMS, meanwhile, continues to take a contrarian view, selling off what it considers non-core businesses in an effort to build its cash position for future in-licensing efforts. Since last December the mid-size pharma has reaped more than $4.6 billion by selling off both its medical imaging unit and its wound/ostomy company, ConvaTec. (The company also plans to spin-off 10% -20% of its nutritionals business, Mead Johnson. An S-1 has been filed, but who knows when the offering will occur given the current business climate.) As recently as FDC-Windhover's annual PSA confab, Jeremy Levin, SVP of external science, technology, and licensing, signaled that BMS's strategy won't shift, even given the market turmoil. "We are going to stick to our knitting. We will face the problems head on and continue to do what we are good at," he said.

Alcon/GSK & Alcon/Origenis: Alcon brokered two deals this week to expand its future drug portfolio, out-licensing from GSK its troubled PFE-IV inhibitor Ariflo, which has struggled for years to gain approval, and expanding its existing research collaboration with Origenis. Financial terms of neither deal were disclosed, but, in the case of Ariflo, do include an up-front payment and developmental milestones. (Translation: Alcon probably got a pretty good deal on the product.) The two deals appear to be a targeted attempt on Alcon's part to add both early and late stage products. Of Ariflow, Sabri Markabi, MD, SVP of R&D and Alcon's CMO, noted: "We believe the cilomilast compound has potential for treating dry eye as well as other ophthalmic conditions." Apparently GSK did not. With the recent appointment of Ellen Strahlman, MD, an ophthalmologist by training, as their CMO one would assume GSK would have developed the drug for the indication if they felt comfortable with its therapeutic profile. But it could also be a sign of GSK's attempt at more rationale development program--one that attempts to monetize under-performing assets and off-load the development risk, while retaining future rights should the product actually pan out. In this case, GSK has the option to co-promote the product with Alcon, and it also retains rights to Ariflow for non-ophthalmic conditions. The Alcon/Origenis deal is a bit more vanilla: Alcon's rights to products discovered through the partnership are for ophthalmic and nasal applications, while Origenis retains certain rights to all other uses. For its work, Origenis will receive research payments based on developmental milestones and royalties based on sales of any future products coming out of the partnership. Alcon has a similar early stage research agreement with Kalypsys.

Sanofi/TB Alliance: In certain circles, doing well by doing good is becoming de rigueur. Last week saw news of a tie-up between Summit and the Lilly TB Initiative. This week Sanofi-Aventis makes news of its own in the TB arena. The pharma has teamed up with the Global Alliance for TB Drug Development, a not-for-profit focused on this bacterial scourge, to accelerate the discovery, development and clinical use of drugs against TB. Under the terms of the agreement, the two organizations will share information on their respective projects and exchange insights on developments in TB drug research; they will also consult with each other on relevant regulatory strategies related to developing countries. "This collaboration with Sanofi-Aventis underscores the commitment of the TB Alliance to partner with leaders in science and business to achieve our goal of making faster, better and affordable TB drug regimens available as soon as possible," said Dr. Jerome Premmereur, President and Chief Executive of the TB Alliance. Sanofi is no stranger to developing TB drugs--it discovered rifampicin in the early 1960s and markets several other anti-infectives targeted at the microbe. But don't think this collaboration just benefits the not-for-profit TB Alliance. Thanks to legislation concerning priority review vouchers, a new incentive program created by the FDA Amendments Act of 2007 that rewards sponsors of drugs that treat "neglected tropical diseases" by giving them the right to receive a priority designation on any future new drug application, it's also likely that Sanofi will reap some kind of reward. And that suggests the voucher system may be working exactly as intended.

Ono/Progenics: Oh yes, Progenics has licensed Japanese rights to develop and commercialize the subcutaneous version of its methylnaltrexone (Relistor) opioid-induced constipation drug to Ono Pharmaceutical. The Japanese pharma will pay Progenics $15 million up-front and up to $20 million in potential development milestones. Should the drug get Japanese approval Ono will pay additional milestones on sales and an undisclosed royalty. In addition, Ono has the option to acquire rights to other future formulations of the product (including IV and oral versions). Progenics licensed worldwide rights to Relistor to Wyeth in 2005, and Wyeth later gave back the Japanese rights (and the onus to pay $7.5mm in milestones on the subq formulation in Japan). So far Wyeth has paid Progenics $60mm in up-front payments and $39 million in milestones related to methylnaltrexone; Progenics also receives a royalty on sales. Relistor has enjoyed somewhat of a resurgence this year. Widely written off as non-approvable, it's one of the few new molecular entities to squeak through FDA without additional trial mandates or a risk management plan.

(Photo courtesy of Flickr user rdaniel through a creative commons license.)

Deals of the Week: Billions!

Though we were treated to a few interesting deals, some of the week's news was kind of grim. Particularly so with the latest development in the ongoing inhaled insulin saga. Nektar and Pfizer said this week that there was an increased number of lung cancer cases in the Exubera arms of its clinical trials compared to placebo. The figures were small--6 patients on Exubera vs 1 placebo--but the news was enough to rattle investors in the remaining inhaled insulin player out there, Mannkind.

Meanwhile, GSK was rapped on the knuckles by FDA over some faulty Avandia record keeping. And we learned why Big Pharma management is hanging onto strategies left over from Nirvana's heyday.

At least for the first time in a while, the big industry news for the week involved some creative M&A, with Novartis and Takeda pulling the trigger on multi-billion dollar deals, and we're here to add our $0.02. Of course those of you who are all hopped up on cognition enhancers are excused from today's lesson--go figure out what's reflected in Dick Cheney's sunglasses; the rest of us slow witted folks will carry on to ...

Takeda/Millennium: $8.8 billion is a serious chunk of change for Takeda to pay for the one-time genomics pioneer and current Velcade-driven biotech, as we pointed out yesterday. But the $25/share offer, at lofty premium to Millennium's recent share price reflects the ongoing demand for new products by Big and mid-sized pharma in general and Takeda's drive to be a world-class oncology play in particular. We leave it to you, dear reader, to click here to read yesterday's more extensive summary (or, if you're reading this via our free email subscription, scroll down).

Novartis/Alcon/Nestle: The biggest deal of the year so far belongs to Novartis and Nestle. Unlike last year's big-bucks transactions (AstraZeneca's acquisition of MedImmune and Schering-Plough's acquisition of Organon) this deal isn’t about biologics or specialty medicine; nor, indeed, is it about pharma, as traditionally defined. It’s not an acquisition, either (yet). The $11 billion (half of which will come from cash, half from short-term debt) buys Novartis a non-controlling share in Alcon, no more. Or, should we say, no more for now: in an 18-month window a couple years down the road Novartis will have the option to buy (and Nestle will have the option to put) another 52% stake in the ophthalmology play at a predetermined price of $28 billion. The deal presents a very different solution to the industry’s growth issues then yesterday’s consolidation schemes. It’s about increasing exposure to consumer health care and private-pay markets in a high-growth, specialist area. Alcon, whose surgical and consumer health businesses make up over half of its $5.6 billion in annual revenues, reduces Novartis’ overall exposure to Medicare and payor-driven price pressure. Alcon represents a very new kind of pharma deal: with pharma re-defined to include consumer care and surgery as well as branded drugs; and, for the first few years at least, with the buyer remaining an arm’s length investor. But for Novartis’ own investors, there remains another question: if Novartis can’t – at least in the describable medium term – define how the two companies are going to add strategic value to each other, isn’t it in effect accumulating an investment portfolio that investors themselves might prefer to manage? (Excerpted from Melanie Senior's forthcoming IN VIVO article.)

Paion/Cenes: Yet another example of the woes that have befallen UK biotech, Germany's Paion AG has taken out the pain-focused Cenes Pharmaceuticals for a mere ₤10.9 million--incredibly a 32% premium to the firm's value at market close the day before the deal. Cenes is one of a handful of beleaguered UK biotechs that are either up for sale or in the process of getting dismantled and sold for parts. The company's lead project, M6G for post-operative pain, is in Phase III; a second project, CNS5161 for neuropathic and cancer-related pain, is in Phase II. Paion's recent past hasn't been trouble free--it's lead compound desmoteplase for stroke hit a snag in Phase III and US partner Forest abandoned ship last year--and analysts may be asking themselves what the addition of a few tough-to-license-been-around-the-block compounds will do for the German group's prospects, despite the low price. (Fun M6G Fact: the compound was once the subject of a Cenes/Elan 80%/20% JV, the structurally-creative and ultimately dismantled off-balance-sheet entities known inside the Irish drugmaker as "Green Rabbits.")

PDL BioPharma: Finally, chalk something up to activist shareholders after all. PDL BioPharma yesterday declared a $500 million special cash dividend--$4.25 per share--and said it would spin out its biotech R&D operations from the royalty stream from its antibody humanization IP. We noted the company's pyrrhic victory over vocal investors calling for the company's sale just last month when PDL took itself off the market and restructured--though it seems those investors that stuck around are seeing some cash for their efforts in the end. PDL says the newco will be capitalized with about $375 million, enough to run for roughly three years given existing cash burn. The antibody royalties--expected to be $240 to $260 million this year--may be monetized if not distributed to shareholders on an ongoing basis.

While You Were Snowed Under

Nothing like a little early April snow to get the airport tied up in knots. If you, like us, were traveling into or out of Heathrow on Sunday morning, you have our sympathies. Find us at the BIO-Europe Spring conference in Madrid (eventually the skies cleared and BA got its act together) if you want to commisserate over a glass of Rioja... and before we get to the weekend's news we would be remiss if we didn't mention that both the Flyers and the Sixers each made the playoffs. The playoffs!--who wouldda bet on that?

• Novartis has taken a huge stake in Alcon, the world's largest ophthalmology company. The Big Pharma spent about $11 billion buying 25% of the firm from majority owner Nestle, and has the option to increase that stake to 77% by buying Nestle's remaining interest in the company for $181 per share, or about $28 billion, between January 2010 and July 2011. (Nestle can also require that Novartis buy this remaining stake.) The Alcon portfolio allegedly complements Novartis' existing contact lens and ophthalmology drug businesses and it certainly adds specialty focus and some more diversity to the drugmaker's commercial offerings and pipeline. We'll have more on this deal later.


• Amicus CEO John Crowley was reportedly running for the Republican nomination in New Jersey's upcoming Senate race, and now he's reportedly not running. From the Politico story: “John was deeply impressed with the outpouring of support for his potential candidacy for the U.S.Senate," Crowley friend and advisor Bill Spadea said. "Many people both locally here in New Jersey and nationally had been encouraging him to run over the past week, but given his tremendous level of responsibility to his family, his company and to the U.S. Navy, he’s decided not to enter the U.S. Senate race this year."


• The New York Times reports that drug companies are getting nearer to securing 'pre-emption' of lawsuits against companies when patients are harmed by FDA approved products, as the Johnson & Johnson Ortho Evra patch case reaches the Supreme Court. The Supremes already granted a similar legal shield to medical device makers earlier this year.

Photo from flickr user leejordan used under a creative commons license