DOTW: Biogen Puts Offshore Cash to Work

When it comes to corporate tax planning, biopharmas as a group aren’t spectacularly sophisticated. (A few exceptions come to mind, most notably specialty pharma Valeant and Bristol Myers-Squibb, the latter of which upped its game and expects to drop its tax rate to 16% in 2013. That's down from 26% in 2011.)

It’s particularly hard for U.S. biopharmas to do much with offshore cash. That’s unless they buy something outside the U.S. or pay a high tax rate to bring cash into the U.S. Or they can opt to keep stockpiling cash ex-U.S. in hopes a cash- repatriation tax holiday is on the horizon, an unlikely scenario anytime soon given the ongoing fiscal standoff.

This week, Biogen Idec made a bold move by using offshore cash to acquire full rights to multiple sclerosis drug Tysabri (natalizumab) from its previously 50/50 partner Elan. The deal manages to turn cash sitting on its balance sheet, much of it offshore, almost immediately into a bump for EPS and cash flow - a neat trick. Deutsche Bank analyst Robyn Karnauskas upped her 2013 EPS estimate to $7.76 from $7.15 and her 2013 revenue estimate to $6.6 billion from $6.1 billion. She expects the new structure to be in place in the second quarter.

The deal includes a $3.25 billion upfront payment from Biogen to Ireland-based Elan. Most of this will come from offshore cash, Biogen CFO and EVP Paul Clancy said on a Feb. 6 call. Biogen Idec had $3.7 billion in cash at Dec. 31. In addition, Elan will receive 12% of Tysabri sales in the first year and then after that 18% on sales under $2 billion and 25% on sales over $2 billion. Tysabri had 2012 sales of $1.6 billion, with some analysts modelling peak annual sales well above $2 billion.

Biogen CEO George Scangos made reviving Tysabri revenue growth a priority when he began his tenure in June 2010. After a 2004 approval, Tysabri was withdrawn from the market in 2006 due to reports of the fatal brain disease, progressive multifocal leukoencephalopathy (PML). It re-entered the market in 2006 with a label for second-line use and a boxed warning. Scangos pushed for the development and approval of a test for JCV antibodies to assess PML risk. In January 2012, FDA updated the Tysabri label on include information quantifying the risks of developing PML according to JCV antibody status. Last month, the partners submitted applications to FDA and EMA for first-line use of Tysabri in patients who test negative for antibodies to the JC virus.

Wall Street initially was wildly enthusiastic about Biogen’s move, spiking shares up 6% in early trading Feb. 6. But since then, the Street has become a bit more cautious, with the gain retreating to about 2% by market close on Feb. 7. Skeptics worry Tysabri won’t live up to revenue expectations or that Biogen’s execution of this deal just ahead of the March 28 PDUFA date for the oral MS drug formerly known as BG-12, now called Tecfidera (dimethyl fumarate), indicates reduced optimism for the new treatment. On the Elan side, buysiders worry about whether President and CEO Kelly Martin will use that mountain of cash to make useful deals. The company doesn’t have the best track record when it comes to strategic transactions. Elan shares were off 6% by the end of Feb. 7 on the deal.

Biogen Idec is hardly alone among biopharmas in having stacks of offshore cash. At the end of 2011, biopharma companies had a  total of $183 billion in cash most of which was offshore, according to a March report from Moody’s. To put that in some context, that is roughly equal to the combined market caps of Amgen, Gilead Sciences and Bristol. Biopharma is second only to the technology industry when it comes to the sheer amount of cash on the books. Last week, the IT sector also offered an instructive example with the privatization of Dell, which itself could be a partial end-run around offshore cash and corporate taxation issues.

The top biopharma cash hoarders in 2011 were Pfizer ($35.3 billion); Johnson & Johnson ($32.3 billion); Amgen ($20.6 billion); Merck ($18 billion) and Bristol ($11.6 billion). Now that the immediate panic of patent cliffs is behind many of them, perhaps biopharmas will take a breather, look around and think of more creative, tax-efficient ways to deploy all that cash.

For a look the rest of the money that was spent in this week's biopharma deal activity, you need go no further than this week's edition of . . .

Alnylam/The Medicines Co. Hospital specialist The Medicines Co. is jumping into the PCSK9 race for the treatment of high cholesterol in a partnership with RNAi therapeutics developer Alnylam Pharmaceuticals, announced Feb. 4. But the program is far behind other PCSK9 drugs in development at Sanofi/Regeneron and Amgen, which are both in Phase III development. The product, which has completed Phase I testing, will have to prove itself to be differentiated from the leaders if it is to become an eventual commercial success. Alnylam and TMC don’t think that’s a problem because as an RNAi therapeutic ALN-PCS works through a different mechanism of action than the leading drugs in development, which are monoclonal antibodies. That could yield a best-in-class drug, the companies predict, although the results will have to bear out in clinical studies. Alnylam will be responsible for developing the programs further for an estimated one to two years to complete preclinical and Phase I clinical studies of the subcutaneous formulation, and TMC will be responsible for leading and funding development from Phase II forward and for commercializing the program if successful. TMC will pay $25 million upfront and Alnylam stands to receive potential development and commercial milestone payments of up to $180 million and could earn scaled double-digit royalties on sales of the resulting products. It’s not an enormous value for an asset that hits such a hot target. Alnylam Chief Business Officer Laurence Reid admitted the upfront portion of the deal reflects the competitive dynamics in the PCSK9 field and the fact that there are several drugs in later stages of development. - Jessica Merrill

Inspiration/Cangene: French company Ipsen is finally free of U.S. partner Inspiration Biopharmaceuticals. Cangene has agreed to buy rights to IB1001, a recombinant factor IX (rFIX) for the treatment of hemophilia B, which FDA put on clinical hold in 2012. The deal, announced Feb. 6, completes the sale process of all Ipsen and Inspiration hemophilia assets and follows the Jan. 24 news that Baxter would buy the troubled biotech’s flagship hemophilia drug OBI-1 and related Boston manufacturing facility. Inspiration entered Chapter 11 protection at the end of October 2012 to restructure and find a buyer for its two main hemophilia products: OBI-1, a recombinant porcine factor VIII (rpFVIII) for treating hemophilia A with inhibitors, and IB1001. In return for global rights to IB1001, Cangene agreed to pay $5.9 million upfront and up to $50 million in potential additional commercial milestones, as well as net sales payments equivalent to a tiered double-digit percentage of IB1001 annual net sales. Meanwhile Baxter, in its transaction pact for OBI-1, will pay $50 million upfront, up to $135 million in potential additional development and commercial milestones as well as tiered net sales payments ranging from 12.5% to 17.5% of OBI-1 annual net sales. As Inspiration's only senior secured creditor and as the owner of non-Inspiration assets that will be included in the sale of both OBI-1 and IB1001, Ipsen will get some 60% of the overall upfront payments. Ipsen is clearly relieved to have found a buyer for IB1001 given the medicine’s shaky regulatory prospects after the FDA-imposed clinical hold on IB1001 impacted two ongoing phase III trials. Since Inspiration filed for bankruptcy protection, Ipsen has backed the biotech with $23.6 million in debtor-in-possession (DIP) financing to keep it going amid efforts to sell its assets. Ipsen expects to cover the DIP amount with its share of upfront payments from the two asset sales with Baxter and Cangene. The French biotech may take a €100 million impairment charge for the hemophilia assets such as convertible bonds used to finance the collaboration and its investment in the Milford, MA plant. A fuller picture should come on Feb. 27 when Ipsen reports 2012 earnings. - Sten Stovall

Pfizer/OxOnc: Drug-development group OxOnc, which is funded by health care hedge fund OrbiMed Advisors, signed a deal with Pfizer to co-develop Xalkori (crizotinib) in a pivotal clinical trial intended to enable the approval of the drug in Asian countries in a new indication. Xalkori is already approved in the U.S., EU, Japan and other countries to treat patients with ALK-positive advanced non-small cell lung cancer (NSCLC). This trial would be in ROS1-positive advanced NSCLC patients. The trial will be at multiple sites in Japan, China, Taiwan and South Korea. OxOnc will be eligible to receive undisclosed milestones if Xalkori is approved in this indication. No further details were disclosed. - Stacy Lawrence

Isotechnika /Aurinia: Isotechnika licensed out exclusive rights a year ago to its lead drug in a couple of indications and now it’s planning a merger to get it back. Last January, the Canadian company licensed rights to voclosporin to treat lupus and proteinuric nephrology indications to Vifor Pharma. Swiss specialty pharma Vifor subsequently spun out Aurinia with the asset. Isotechnika and Aurinia now are planning to merge under undisclosed terms with post-merger ownership of 60/40, respectively. The merged company will trade on the Toronto Stock Exchange and be known as Aurinia. Management will come from both companies. Aurinia’s management is primarily from Aspreva Pharmaceuticals, which was acquired by the Galenica Group for C$915 million in 2008. Vifor is also part of the Galenica Group. The merger is expected to complete by March 15, pending approval from Isotechnika shareholders and the Toronto Stock Exchange as well as the raising of C$3 million by Isotechnika. The new company plans to start a Phase IIb study this year of voclosporin, in addition to standard of care, to treat lupus nephritis. - S.L.

Stacks of Euros photo courtesy of flickr user aranjuez1404. 

Deals Of The Week: Has BioCryst Struck Out?

As baseball executives gathered at the Opryland Hotel in Nashville during the week of Dec. 3 for the trade and free agency frenzy known as the winter meetings, the deal-making also continued in the biopharma corner. But just as executives from many major league teams were waiting for the strategies of big spenders like the Texas Rangers and Los Angeles Dodgers to materialize so they could make their corresponding moves, it was a week of frustration at BioCryst and Presidio as a planned merger that might have created a new significant player in the hepatitis C space crumbled under the weight of three rapid clinical setbacks.

In the aftermath of a third setback, FDA placing a clinical hold on oral hereditary angioedema compound BCX4161 the week of Nov. 26, the two companies announced Nov. 30 that they mutually had decided against a planned all-stock merger announced on Oct. 18 that would have created a new company with a wholly owned portfolio of three oral antiviral candidates for hepatitis C.

During an investor call Dec. 7, BioCryst announced that it will cut its staff by 50% while reducing planned cash-burn for 2013 by as much as 45% while it narrows its focus on the HAE and HCV programs, as well as preclinical broad-spectrum antiviral BCX4430. CEO Jon Stonehouse explained that the three clinical setbacks - the delay of a clinical trial for NS5B inhibitor BCX5191 in HCV because of toxicity concerns and the likely clinical failure of flu candidate peramivir - had eroded the North Carolina biotech's stock price.

"Despite these setbacks, we have a path forward for BioCryst to rebuild shareholder value because of our promising compounds," the exec said. "Following the review of BioCryst's assets, resources and cost structure, we concluded that restructuring and a highly focused approach to our development programs was required. This will preserve cash and enable BioCryst to reach near-term milestones that will give us greater insight regarding the opportunity and risk associated with our three core programs."

The planned merger with privately held Presidio not only would have combined HCV assets, but also would have brought BioCryst a needed injection of cash. The deal valued Presidio at $101 million and would have involved 24.5 million new shares in BioCryst being issued to Presidio's investors. At the same time, Presidio shareholders would commit to providing $25 million of a planned $60 capital raise for the new company.

Now, the retrenched BioCryst will cut down from 75 positions to a headcount of 37, which Stonehouse said reflected reductions evenly spread throughout the organization. Instead of spending $40 million in R&D and associated costs in 2013, the company now anticipates a cash-burn of $22 million to $25 million, excluding deal-related and restructuring costs. BioCryst will record a restructuring charge of between $2 million and $4 million during fourth quarter 2012.

The revised R&D plan is to study low doses of '5191 in HCV-infected chimpanzees in an attempt to demonstrate meaningful antiviral activity at lower doses than previously used in clinical trials. In November, BioCryst withdrew an IND for '5191 due to safety concerns regarding renal toxicity at the dosage thought needed to benefit human patients. BioCryst expects go-or-no-go data from the chimpanzee studies in early 2013, Stonehouse told the investor call.

The company also hopes to begin a Phase I study of '4161 in January 2013 to demonstrate the safety, level of drug exposure with oral administration and pharmacodynamic effects of the kallikrein inhibitor. BioCryst, which hopes to position '4161 as an oral prophylactic against HAE attacks, thinks such a product would be a game-changer in the rare disorder space. For now, however, the drug is stalled as FDA implemented a clinical hold on '4161 due to concerns about compounding of the drug at trial sites.

BioCryst also plans to seek medical journal publication of a manuscript describing the activity of '4430 in certain filoviruses. That candidate's prospects loom crucially because peramivir is considered virtually dead after a Phase III trial was ended due to poor efficacy findings.

While BioCryst and Presidio were mired in a "No-Deal," however, other biopharma companies were proactive just like the executives in the baseball world during the past week. Now, it is time to "play ball" with ...

Baxter/Gambro: In an effort to extend its global footprint to areas like Latin America, Europe and the Asia Pacific, Baxter International has agreed to pay $4 billion including the assumption of debt to acquire Swedish dialysis company Gambro, which reported revenues of $1.6 billion annually. Baxter is using its cash held overseas to pay for the transaction and the deal is expected to close in the first half of 2013. “With Baxter generating more than two-thirds of its cash overseas, we view the Gambro acquisition as a smart way to put that money to work,” wrote Leerink Swann analyst Danielle Antalffy in a note to investors. The acquisition rounds out Baxter’s kidney dialysis business, adding Gambro’s suite of hemodialysis products to its own peritoneal dialysis offerings. Gambro’s products typically are used in the hospital setting, while Baxter’s products usually are used in the home. Baxter expects to see $300 million in cost synergies by 2017 and add approximately 7% to sales over the next five years. The company currently brings in revenues of $13.8 billion. “Over the last three years, Gambro’s growth has been roughly flat, and Baxter's renal business has grown about 4%,” wrote Morgan Stanley analyst David Lewis. “Pro forma for the deal, Baxter believes it can accelerate growth to [about] 6% by investing to relieve Gambro capacity constraints, leveraging Baxter’s global selling infrastructure, using Gambro to accelerate the home HD launch, and using the new breadth of the business to pursue public/private partnerships.” - Lisa LaMotta

Optimer Pharmaceuticals/AstraZeneca: Building on its regional partnering strategy for Dificid (fidaxomicin), Optimer Pharmaceuticals has signed AstraZeneca to market the antibiotic in South America, including in Brazil, Central America, Mexico and the Caribbean in a deal announced Dec. 3. AstraZeneca has a “major market position in three key Latin American markets, Brazil, Mexico and Columbia, according to Optimer CEO Pedro Litchtinger. AstraZeneca will pay Optimer $1 million upfront, up to $3 million in milestones upon first commercial sale in certain countries, and up to $19 million in other milestones contingent on the achievement of sales-related targets in the region. In a related supply agreement, Optimer also stands to receive payments from AstraZeneca that amount to a double-digit percentage of net sales in the territory. One of a few big pharmas still investing in antibiotic drug development, AstraZeneca is Optimer’s fourth commercial partner. The company already has signed a co-commercialization deal with Cubist Pharmaceuticals in the U.S., and deals with Astellas Pharma in Japan and Europe and Specialised Therapeutics in Australia. It’s all part of a strategy Optimer says is focused on finding commercial leaders in key regions of the world while focusing its own attention and resources on North America, where it is building a commercial organization. The company still expects to sign at least one more partner to bring its Clostridium difficile infection treatment to China. - Jessica Merrill

Ironwood/Protagonist: Constipation drug seller Ironwood Pharmaceuticals and peptide discovery platform company Protagonist Therapeutics said Dec. 6 that they have expanded an existing partnership. The parties did not disclose terms or specifically differentiate the expanded partnership from its two-year-old predecessor, but expressed that both sides are pleased with the progress of the existing deal to discover new therapeutics addressing unmet needs, based on Protagonist’s Disulfide Rich Peptide (DRP) platform. Like the January 2011 deal, the new arrangement includes an upfront payment by Ironwood, along with milestones and royalties if a product advances through the clinic and is approved and marketed; Ironwood will continue to fund full-time staff within Ironwood’s walls in order to evaluate and develop potential products. The companies did not identify which therapeutic areas are covered under the existing or new partnership, and they have not announced any product candidates from the original collaboration yet. Ironwood says it has discovered most of its pipeline on its own thus far; it currently markets Linzess (linaclotide) for irritable bowel syndrome with constipation and chronic idiopathic constipation. Protagonist established a separate discovery collaboration with Zealand Pharma in June 2012. - Paul Bonanos

MD Anderson Cancer Center/GlaxoSmithKline – University of Texas’ MD Anderson Cancer Center has tapped GlaxoSmithKline to help it develop and commercialize an antibody discovered by scientists at the center. Anderson will handle preclinical activities, while GSK will be responsible for clinical development and commercialization. Under the deal announced Dec. 7, the cancer center will receive an undisclosed upfront payment as well as research funding and development milestones. Anderson indicated that the deal could result in $335 million in payments for the center, as well as royalties on any commercial products that are developed. The antibodies activate OX40, a protein that stimulates the immune response in T-cells against cancer. "This agreement is not only a testament to the vision shared by GSK and MD Anderson that successful clinical development of oncology drugs requires seamless integration of drug development expertise and deep biological knowledge," said Giulio Draetta, director of the Institute of Applied Cancer Science at Anderson, in a statement. - L.L.

Mediolanum/Genovax: Eporgen Venture, one of Italy’s first suppliers of seed capital to life science companies from a network of private, non-institutional Italian investors, reported on Dec. 4 the first major transaction by one of its portfolio companies, Genovax, which has sold its Phase II-ready potential therapeutic cancer vaccine, GX-301, to the Italian pharma company Mediolanum Farmaceutici. Eporgen President Konstantinos Efthymiopoulos expects several other transactions involving Eporgen-supported companies to complete in the next few months, and is aiming to raise up to €10 million ($13 million) in additional financing to develop other assets to proof-of-concept in its portfolio companies, which ideally but not necessarily would be clinical proof-of-concept. Italian research and science is as good as in other European countries, Efthymiopoulos said, although he acknowledged that life science entrepreneurship and the network of academic technology transfer offices is not as highly developed. It is only a question of time before the country catches up with its neighbors, he asserted. GX301 will boost its research interests in oncology, Mediolanum said; it will take over all future development and commercialization activities for GX301. A Phase II study in patients with prostate cancer is expected to start in the first half of 2013. - John Davis

StemBANCC: One of the largest European “open innovation” projects to date will see Switzerland’s Roche and the U.K.’s Oxford University coordinate the work of nine other pharmaceutical companies and 22 other academic institutions in Europe on creating more than 1,500 human-induced pluripotent stem cell lines to use as disease models to discover new therapies. This and other new EU projects announced Dec. 5 echo themes for TransCelerate BioPharma, an initiative announced Sept. 18 involving 10 international drug companies which also seeks to identify and solve common drug-development challenges, although focused more on regulatory than research issues. The EU’s StemBANCC project, a public-private partnership formed as part of the EU’s Innovative Medicines Initiative (IMI) will have a budget of €55.6 million ($73 million). The funding will include €26 million from IMI’s EU funds and “in-kind” funding of €21 million from the participating drug companies. The in-kind funding includes company employees and their costs, access to research equipment, facilities and database access. The cell lines, of which 500 will be derived from patients, will be used to set up models of disease, like diabetes or dementia, in order to accelerate the drug-development process. - J.D.

Photo credit: Wikimedia Commons

Deals Of The Week Battens Down The Hatches

Mother Nature, you've been busy this week. The entire East Coast population remains glued to Wunderground or The Weather Channel as it tracks the path of the lumbering hurricane Irene. The good news? After the strongest earthquake in nearly seven decades struck outside Washington DC, everyone should have already stocked up on batteries and bread. Just in case, you know, there's an after shock.

Yes, residents of the bankrupt but beautiful California mocked the twitter outcry that ensued after the 5.8 temblor. Consider it pay back for the repeated digs about our obsessions with tree-hugging, organic grass-fed lamb, Steve Jobs, and the Facebook IPO. Maybe the daily lack of humidity just makes us mean. Based on this blogger's perspective, the only truism that matters is that residents of neither coast know how to drive in the snow -- or rain.

If it's been quiet in biopharma land on the deal front, companies like Seattle Genetics are finding ways to make noise. Lots of noise. Hundreds of thousands of dollars per patient worth of noise. Yes, hard on the heels of the Friday August 19 approval of Adcetris came the Monday August 22 unveiling of SeaGen's pricing strategy for the new conjugated antibody. And it's ambitious: depending on the course of treatment, the biologic, which is approved for late-stage Hodgkin lymphoma and systemic anaplastic large cell lymphoma, could cost as $121,500 based on the clinical trial experience.

We applaud the company's chutzpah; the company's CEO, Clay Siegall has come out swinging as to why this hefty price will pass the ever higher bar payers set on "value". Indeed, this is the first drug for Hodgkin lymphoma in 30 years and boasts a strong objective response rate. And we understand that the two approved indications in the drug's label are not the most prevalent cancers, meaning insurers likely won't balk at paying the price tag, given the total dollars won't quickly run into the billions.

All of which is not so subtle messaging from Seattle Genetics execs that they think Adcetris won't suffer from what is now widely being termed the "Provenge Problem" (and before that "the Folotyn Foible") -- essentially the lackluster launch of a new oncologic in part because of the drug's high price tag. Still, given the lack of traction for Dendreon's Provenge in the marketplace, it's not surprising that investors reacted to SeaGen's pricing news with all the enthusiasm of Cleveland welcoming home its prodigal son, LeBron James.

Siegall and his commercial team are confident they won't repeat Provenge's mistakes. As we write in this week's "The Pink Sheet", the biotech has a plan -- an extended payment plan to be exact -- to overcome the reluctance of physicians, who may hesitate to front the cost of the drug before there is clarity on its reimbursement. That has apparently been a major issue for urologists when choosing between Provenge and other alternatives, like the significantly cheaper Zytiga from Johnson & Johnson.

But the twinning of Adcetris and Provenge may not ultimately prove the best comparison. What Seattle Genetics really wants to avoid is the Avastin issue. You see, while payers may not balk at shelling out $120K (or whatever the drug ultimately costs, since labeling permits administration of up to 16 cycles of the drug, which potentially raises the price tag north of $200,000) for a few thousand patients, eyebrows could rise as the biotech and its partner, Takeda Pharmaceuticals, look to expand the drug's label into more prevalent cancers like non-Hodgkin lymphoma. Especially if there aren't overall survival data and/or quality of life measures to support Adcetris's use in a particular indication.

You can bet the topic will be front and center at this year's 21st annual Pharmaceutical Strategic Alliances meeting (tune in September 22 for a discussion officially titled "The Changing Oncology Landscape and watch for #PSA11 tweets).

We know. You haven't had time to check out the agenda because you've mistakenly been crooning "Come On, Irene" all week. By now, you've bought the candles and the water. You've unearthed the hand-crank radio. Take a break from battening down the hatches and tune into another Category 5 edition of...

Baxter/Baxa: Publicly traded Baxter International made a move to expand its medication delivery business by acquiring Baxa, a closely held maker of pharmacy products used to prepare and administer fluid drugs. Baxter will pay $380 million in cash to acquire Englewood, Colo.-based Baxa, which posted $157 million in 2010 sales. Founded in 1975, Baxa still sells its first product, an oral syringe, but also manufactures automated compounding devices used in pharmacies, as well as dose preparation systems for intravenous and oral drug delivery. Baxa is thought to have about a 65% share of the automated compounding device market, placing it ahead of the larger but more diversified Baxter, which also has a bioscience division and significant sales from renal health products. Baxter’s medication delivery division, which includes a variety of pre-mixed drugs, syringes, drug reconstitution systems, infusion pumps, and nutrition products, brought in $4.8 billion in 2010 sales, about three-eighths of its $12.8 billion in overall sales. Baxter has since merged its medication delivery and renal businesses into a single unit; the company also bought irregular heartbeat drug developer Prism Pharmaceuticals for $170 million up-front, plus contingent payments worth up to $168 million, earlier this year. Analysts regarded the Baxa deal as sensibly-priced and low-risk. – Paul Bonanos and Zach Miners

Par Pharmaceuticals/Anchen: The earthquake and impending storm didn't stop Par from making s.its second acquisition this year: the $410 million purchase of privately-held generic drug maker Anchen Pharmaceutical. The latest acquisition, announced August 24, is significantly larger -- and thus, more important -- than the company's May purchase of Edict Pharmaceuticals for $37.6 million. Chairman and CEO Patrick LePore said during a same-day conference call that the Anchen buy would be immediately accretive to earnings, expand the Woodcliff Lake, N.J., company's R&D capacity and nearly double its pipeline of ANDAs awaiting FDA approval. The company, which has both a generics and a proprietary drug business unit, called Strativa, has been focused on topping up its generics portfolio, which generates 80% of its total sales. Through the deal, Par acquires 218 Anchen employees, including about 70 R&D staff, greater expertise in extended release technology, and manufacturing capabilities in southern California. Anchen also brings with it five marketed products that are expected to generate about $125 million in gross revenues this year, including generic versions of GlaxoSmithKline's antidepressant Wellbutrin XL and Bayer's Cipro. Par had $307 million in cash as of June 30, 2011, and plans to finance the acquisition with cash and a $350 million loan.--Joseph Haas

Sanofi/Universal Medicare: After rumors started to circulate early in the week that Sanofi was eyeing acquisitions in India, came Wednesday's news that the French pharma's subsidiary, Aventis Pharma Ltd., will purchase the over-the-counter drug biz of Mumbai-based Universal Medicare. The final purchase price was undisclosed but The Indian Express reports the take-out could cost around $110 million based on discussions with undisclosed sources. The deal gives Sanofi, which has been a nominal player in the Indian OTC space, around 30 brands with estimated annual sales of around one billion rupees. It's no secret big pharmas have been moving aggressively into high growth emerging markets, especially India and China, as sales of key drugs in emerged arenas like Europe and the U.S. stall due to patent expiries. Even as companies eventually look to sell their expensive, on patent medicines in these markets, much of the initial effort has been on creating a presence via a stable of more affordable products aimed directly at consumers. Sanofi has been among the most aggressive of the big drug makers in its pursuit of local EM players (it's recent hunt for Genzyme not withstanding). This latest bid doesn't eclipse its 2009 take-out of the Indian vaccine player Shanta Biotechnics, which cost the French pharma an estimated $784 million. But hopefully the revenue pay back will be better. Shanta hasn't turned out to be such a great deal for Sanofi, given the vaccine company's manufacturing woes.--EL

Image courtesy of www.nasa.gov.

DOTW: Variations On A Theme

2008 is drawing to a close. Today marks the year's final "Deals of the Week" post. As this blogger takes time to reflect on the pre-holiday deal-making activity, it's no surprise that all of the deals in today's recap reflect broader themes at work in the biopharma industry. From Big Pharma's penchant for specialty products to highly structured alliances that allow both parties to share the financial risk (and gain), these deals mirror past DOTW discussions, as well as the larger themes highlighted in our various Deals Of The Year posts. DOTY voting commences on Monday. Remember to vote early and often. Until then, we hope you enjoy this week's variations on a theme. (Bach is optional.)

GSK/Dynavax: It was a good news, bad news kind of week for Dynavax. The biotech announced that it's partnership with Merck concerning the troubled Hepatitis B vaccine Heplisav was officially over (see below). Despite the bad news, Dynavax can at least take comfort in its recent deal with GlaxoSmithKline: an option-style tie-up that gives Dynavax $10 million up-front in exchange for a worldwide strategic alliance involving endosomal toll-like receptor drug candidates in four autoimmune and inflammatory disease areas, including Dynavax's preclinical TLR7/TLR9 inhibitor, DV1079. Under the deal's terms, Berkeley, Calif.-based Dynavax will conduct research and early clinical development using its proprietary technology, and GSK has the exclusive option to license each program at proof-of-concept, or earlier if certain circumstances occur. Should GSK exercise the option, it will take over development and commercialization activities, with Dynavax getting tiered royalties up to double digits, the two firms said Dec. 17. Dynavax, which could realize milestones up to $200 million apiece in each of the four programs, also retains the option to co-develop and co-market one pre-specified product. During a same-day investor call announcing the collaboration, Dynavax CEO Dino Dina called the partnership with GSK "a transformational event" for his biotech. "The alliance will allow us to diversify and advance a very valuable pipeline of products that target significant unmet needs," he said. According to "The Pink Sheet" DAILY, that's likely to be the case even if GSK ultimately declines the option on Dynavax's drug. Certainly, given the pipeline pressures of Big Pharma companies, it's unlikely there will be the stigma of "tainted product" attached to the program if GSK ultimately declines the option--assuming no adverse side-effects and positive clinical data with DV1079. Case in point: Exelixis. In October, GSK declined its option on Exelixis' small molecule oncologic XL184, ending a six-year R&D partnership that brought the latter firm an estimated $260 million in funding, including an $85 million loan. Exelixis regained all rights to XL184 and quickly partnered the molecule, along with an earlier-stage compound, with Bristol-Myers Squibb for $240 million in assured payments plus a major co-development and marketing role. For GSK , the deal marks the continuation of a business strategy heavily weighted toward option-based deals, which involve a relatively minimal upfront commitment for the global pharma, allowing it to hedge its financial exposure until the R&D risks are known more fully. In addition to its 2002 deal with Exelixis, GSK has also inked option arrangements with Cellzome, Affiris, Anacor, NeuroSearch, Regulus Therapeutics and OncoMed, according to FDC-Windhover's Strategic Transactions database.

Wyeth/Thiakis: This deal, which sees Wyeth acquiring London-based Thiakis’ obesity candidates, could best be described by a made-up word: alli-quisition (hey, you want real words, read a book). Wyeth pays $30 million up-front for Thiakis and its portfolio of synthetic gastrointestinal peptides and up to $120 million in earnouts tagged to downstream milestones. Our Pink Sheet DAILY in-depth coverage of the deal is here. Thiakis’ backers secure an exit—the biotech had raised about $19 million from private investors Novo and Advent Venture Partners—but without some of those milestone payments it’s not a particularly good one. Expect these kind of earn-out based deals to become more prominent as we move into 2009. With Big Pharma content to sit on the sidelines and wait while prices for biotech companies fall, most investors surveyed recently by FDC-Windhover believe future M&A activity is likely to place a premium on hedging risk. Earn-outs haven’t featured in a ton of deals lately—in fact thus far in 2008, just 20 percent of all private acquisitions have included earn-outs, down from a high in 2006 of nearly 43 percent of all private deals. (Read all about it in our next issue of START-UP.) Back to Wyeth: the pharma gets Thiakis' lead project, TKS1225, a potent, long-acting analogue of oxyntomodulin, which is a naturally occurring peptide hormone involved in regulating food intake. The hormone is released by the gut following food ingestion, sending satiety signals to the brain. It is thought to work through the GLP-1 receptor and does not cross the blood brain barrier, an important consideration given the suicidality risks associated with another class of obesity treatments, the CB-1 antagonists--Christopher Morrison.

Pfizer/Auxilium: As Big Pharmas continue to have more negotiating leverage, there’s a clear preference these days for tightly structured alliances rather than the outright biotech purchases. And given the regulatory hurdles associated with many big primary care drugs, Big Pharma is much more interested in specialty care products. Pfizer's tie-up this week with Auxilium illustrates both those trends. The two companies announced this week that Pfizer would pay $75 million upfront for the European rights to Xiaflex, a biological enzyme in Phase III for Dupuytren’s contracture and Phase IIb for Peyronie’s disease. Malvern, Pa.-based Auxilium stands to earn $150 million in regulatory milestones, $260 in sales-based milestones and increasing tiered royalties on Xiaflex if all goes well. Pfizer, meanwhile, has the right to negotiate commercial rights for additional indications within its territories, including frozen shoulder syndrome, where the drug is currently in Phase II trials. It sounds as though there was stiff competition for the biologic. In a conference call discussing the news, Auxilium CEO Armando Anido said the biotech chose Pfizer as its partner over several other global pharmas, because of the larger company's success marketing drugs such as Lipitor and Viagra. As might be expected, Pfizer's newly created specialty care business unit will have the commercialization honors. The Pfizer deal likely occurs at an ideal time for Auxilium, which faces a patent fight with Upsher-Smith Laboratories over intellectual property related to Testim, the biotech's testosterone gel for hypogonadism. Upsher-Smith notified Auxilium in October that it plans to file an Abbreviated NDA with the FDA for its own testosterone gel that it believes does not infringe on Testim's patent, which runs until January 2025.

Baxter/Avigen: Like so many other small biotech companies, Avigen, which focuses on neurological compounds, has had a tough year. The company has the dubious honor of posting one of the largest market cap losses among biotechs valued under $500 million in Q3 according to Rodman & Renshaw. Avigen's share price tanked in October when it announced negative news associated with AV650, its Phase IIb drug for the treatment of spasticity associated with multiple sclerosis. The biotech terminated its development partnership with Austria's Sanochemia Pharmazeutika and said it would focus on developing AV411, a novel glial activation inhibitor, for neuropathic pain and opioid withdrawal. But during its third-quarter financial call on Oct. 28, Avigen unveiled a massive restructuring plan that entailed discontinuing work on the glial activator and another preclinical product, AV513, unless a development partner could be found. CEO Kenneth Chahine said the new direction meant Avigen would have sufficient cash for four years of operations, given the $47.4 million the company had in cash, cash equivalents and securities at quarter's end. But the company's largest shareholder, Biotechnology Value Fund, which holds 29 percent of Avigen's stock and has provided capital directly to the biotech, clearly is troubled by the news. In a Dec. 11 letter to Avigen's board, BVF's Mark Lampert decried the steep decline in the company's share price, which has fallen 90 percent since 2004. He charged the company with threatening to destroy shareholder value by broadening "golden parachute" provisions for executives to one-fifth of Avigen's market cap and adopting a "poison pill" to prevent BVF from trying to intervene by purchasing a majority share. Lampert asserted that "Avigen has no real business at this time and has abandoned the development of all its products." Instead of looking for potential new partners and directions, the letter urged Avigen to return its excess cash to shareholders or at least offer a downside guarantee - an obligation to buy shares back at a specified price on a certain date. This week comes news that might appease Lampert and the crew at BVF. Avigen announced it was partnering its preclinical, oral blood coagulation product, AV513, to Baxter Healthcare in deal worth $7 million. "The sale of AV513 is an example of building value in a product that is differentiated from current therapies, and bringing it to a valuation point that generated a positive return on investment," said Avigen's Chahine in a press release announcing the news. Hmm, we can't wait for BVF's response.

GlaxoSmithKline/Genmab: Back in the days when licensors had clout, co-promote options featured in almost every deal. Biotechs figured they would keep their strategic options open just in case going commercial took their fancy, and Big Pharma were in no position to refuse. This week’s news that Genmab has sold back its co-promote option on CLL candidate ofatumumab to partner GlaxoSmithKline makes two things clear: first, many of these options are unlikely to ever be exercised given the logistical and financial commitments required (which is in large part why Big Pharma were so relaxed about granting them in the first place); second, in today's roiling financial markets, getting a guaranteed cash payment is a wiser course of action than holding out for theoretical money in the future. (A bird in the hand, as they say.) Genmab got just $4.5 million from GSK for the option, which covered a targeted oncology setting in the US and the Nordic region. Not a lot, particularly since GSK had granted Genmab the option to co-promote two of its own drugs , too—and agreed to reimburse some sales reps. But Genmab no longer has anything behind ofatumumab that could make a sales infrastructure cost-effective (one that Genmab estimates would have cost $7 million a year); it ended development of the potentially synergistic HuMax-CD4 for cutaneous T-cell lymphoma and its other program is in head and neck cancer. So if it wouldn’t have exercised the option anyway, why not take the money? And why not re-negotiate a lower share of the (currently 50/50) R&D costs, too, in exchange for a bit of royalty?--Melanie Senior.

AstraZeneca/MAP Pharmaceuticals: Another day, another deal heavily weighted on the back end. On Friday Dec. 18, AstraZeneca and MAP Pharmaceuticals announced a worldwide collaboration to develop and commercialize MAP's proprietary nebulized formulation of budesonide, currently in Phase III development, for treatment of pediatric asthma. While the biodollars sounded huge--"AZ, MAP ink $900 million asthma deal" read one write-up of the transaction--the reality is far less glorious. Under the terms of the agreement, AstraZeneca will pay MAP Pharmaceuticals an upfront cash payment of just $40 million (certainly not bad). True, the company owes MAP another $35 million if the ongoing Phase III trial reaches certain primary endpoints with the appropriate safety results. And, it's also true that at some point in the future, MAP could receive up to $240 million in potential development and regulatory milestones, as well as sales performace-related milestones of up to $585 million in the event the product is a considerable commercial success. Don't get me wrong--$40 million is a sizeable chunk of non-dilutive change and kudos to MAP for getting the deal signed at all. But the other $860 million? It may never well materialize--and MAP and its investors would do well to remember that. (NOTE: MAP wasn't the only potential winner in this deal: Elan Pharmaceuticals may also get a welcome boost. MAP's proprietary formulation of budesonide comes courtesy of Elan's nanocrystal technology. )


Merck/Dynavax: It's official. Merck and Dynavax announced Friday Dec. 18 that they were tabling their agreement concerning Heplisav, a Phase 3 hepatitis B virus (HBV) vaccine placed on clinical hold at the FDA earlier this year after a sgnificant adverse side-effect occurred. All rights to develop and commercialize Heplisav revert to Dynavax. According to the press release, Dynavax will continue to evaluate Heplisav's development options, especially as a treatment for adults outside the U.S. and for the global end-stage renal disease markets, which the company estimates represent approximately 70% of the total market opportunity for this vaccine. If the regulatory feedback is favorable, Dynavax plans to line up a new partner or financing arrangement to support necessary clinical work with the drug. It will be interesting to see how regulators outside the U.S. view the drug. Back in October, the FDA notified Merck and Dynavax that "the balance of risk versus potential benefit no longer favors continued clinical evaluation of Heplisav in healthy adults and children." Though Dynavax is putting on a brave face--it wins our award for the little biotech engine that could--there's no denying the company faces some tough choices in the months ahead. With limited cash resources--just $65 million including the recent up-front from GSK and '08 operating expenses for the first three quarters totalling over $50 million--it's hard to see how the company will be able to push Heplisav to the point where it is sufficiently derisked for potential future partners.

through the fingers by flickr user akash k courtesy of creative commons license.

Globalization and its Discontents: Finger-Pointing Over Heparin

The US Food & Drug Administration's investigation into adverse reactions associated with Baxter's now-recalled heparin products is a major public health priority and a growing political liability for the agency.

It may also become another strain on relations between the US and China.

FDA is now confident that the reactions were indeed caused by a contaminant introduced into the raw material used by Baxter and its suppliers to produce heparin, a contaminant that FDA suspects was introduced deliberately somewhere early in the supply chain in China. The agency convened the latest in a serious of media conference calls April 22 to outline its findings so far. (Click here to read coverage of the conference call in PharmAsia News.)

Chinese regulators disagree, and called their own press conference at the Chinese embassy in Washington to make their position clear. They believe the problem is more likely the result of impurities introduced in the final production processes in the US, and plan to inspect Baxter's facilities themselves. (Here is The Washington Post's coverage of the press conference.)

Baxter, understandably, agrees with FDA's interpretation of events thus far. Assuming FDA is correct, Baxter's own liability for the adverse events will be less obvious: the company itself is presumably a victim of whomever is responsible for introducing the contaminant. (Though, as we have noted previously, the US Food Drug & Cosmetic Act is a strict liability statute that at least in theory allows for the punishment of Baxter simple because it ultimately introduced a tainted a drug.)

But the issue is a double-edged sword for the biopharmaceutical industry. If indeed the contaminant turns out to be a case of economic fraud initiated by an unscrupulous business in China, that may help Baxter, but it will also fuel the misgivings of many US consumers and politicians about the globalization of trade--and especially concerns about the perceived dangers of outsourcing to China.

The Democratic Presidential campaign is increasingly sounding some protectionist themes, and the political anxiety about the rise of China as an economic rival to the US is palpable. Then there is the sensitivity of the Chinese government to its global reputation, including outrage at the protests surrounding the Olympic torch relay.

We ink-stained wretches at the IN VIVO Blog don't fancy ourselves experts on international relations, nor do we have a crystal ball to say what if any difference the heparin issue will make in the great game of global diplomacy.

But we do know this: global pharmaceutical corporations--and investors seeking opportunities in emerging markets--have to factor in the political dynamics of globalization into their planning. If protectionists on either side win out, plenty of players in the biopharma sectors will be among the losers.

Don't Blame China...At Least, Not This Time

Here’s some news: Baxter is discontinuing an injectable hospital product because of problems with a third-party contractor it relied on to supply the active pharmaceutical ingredient.

Heparin? Who said anything about heparin?

We are talking about the neuromuscular blocking reversal agents Enlon (edrophonium) and Enlon-Plus (edrophonium/atrophine).

The Food & Drug Administration announced the discontinuation of the drug February 29. The agency keeps track of product discontinuations and shortages to help alert providers to the need to find alternative agents. At a time when cost-cutting and consolidation are industry wide imperatives, these notices have become routine.

Still, you will forgive us for perking up when we saw the announcement about Baxter’s product the day after the company formally recalled all remaining supplies of its heparin product in the US.

It turns out that not all supply chain issues involve Chinese raw material manufacturers.

In this case, the third party supplier is Akorn Inc., which produces edrophonium for Baxter in Decatur, Illinois. Akorn has had some compliance problems of its own, receiving a Warning Letter from FDA last year—and then a follow-up inspection raised more concerns.

Enlon fell into short supply soon thereafter, with the American Society of Health-System Pharmacists alerting members to the issue in December. And on February 18, Baxter sent a terse letter to the trade announcing the discontinuation of the product.

The company notes that there is no relationship between this issue and the heparin investigation.

We can think of at least three critical differences. First, this is purely a supply issue; there have been no unusual adverse events or other issues associated with the product on the marketplace. Second, Enlon is not a widely used product (though, unlike with heparin, Baxter is the sole source provider of the drug). And third, this is a case where the supply chain issue followed an FDA inspection—not, as with heparin, the embarrassing discovery that FDA failed to inspect the right supplier.

But it is a timely reminder that the complexity of the pharmaceutical supply chain is not entirely a function of globalization. After all, Decatur is only about 200 miles from Baxter’s headquarters in Deerfield.

Heparin Investigation: "Unsettling" Indeed

"We at FDA understand how unsettling this whole situation with heparin is."

That is how FDA Office of New Drugs Deputy Director Sandra Kweder wrapped up FDA's latest media teleconference discussing the agency's investigation into adverse event reports associated with Baxter's heparin multi-dose vials in the US.

Unsettling indeed. We have written previously about the ugly turn the investigation has taken, and things keep getting uglier.

Apart from the adverse reactions and potential shortage of a critical hospital product, the heparin story seemingly confirms everyone's worst fears about globalization (though no one knows for sure, the suspicion is that the adverse events result from problems with the raw material sourced from China), FDA (the agency got confused and didn't inspect the Chinese plant in question), and the overall safety of the drug supply (if we see any more pictures of pig intestines in China we are going to be sick.)

In case you missed the latest news, Baxter has now recalled all remaining supplies of the product, having received assurance that the only other supplier, APP, can meet demand in the US. And FDA has completed its inspection of the Chinese facility. The agency determined that it is no longer manufacturing API and--surprise surprise--that there are some "objectionable" issues with its Good Manufacturing Practices compliance.

FDA is not ready to issue a formal regulatory pronouncement about the Chinese facility. However, it did post the standard inspection report (an FD-483--inset above) on its website.

They say a picture is worth a thousand words. The inspection report probably won't do as much to shake public confidence in the drug supply as images of pig intestines at the start of the heparin production process, but for quality control professionals in industry, it takes just 642 words (allowing for redactions) to paint a devastating portrait of the facility.

Our favorite section:

"The inside surface of large, 'cleaned' [Redacted] tanks ...were very scratched, with unidentified material adhering to the insides and the inverted handles held liquid, which spilled to the bottom of the tank when it was uprighted. There was no written procedure showing that the tanks were dedicated to a particular process step. There was no data collected to verify marker and tape volume markings on the outside of the tanks and, the cleaning method was not validated. It was noted that equipment cleaning tags were made of paper and taped to the piece of equipment unprotected from liquids used in the processing room environments."

One prediction: that will definitely not be the last word on the heparin investigation.