Deals Of The Week: Moving On

Finally. The months of waiting are over. (No, we aren’t talking about the Phillies’ attempt to dominate in the National League (it's a long season); or, in the AL, the rise of the Cleveland Indians.) We are referring instead to the resolution of one of the major overhangs to the 2009 Merck/Schering Plough reverse merger: ownership of distribution rights to the juggernaut rheumatoid arthritis franchise Remicade/Simponi.

Just in time for the quarterly earnings show (it’s nice to have something positive to talk about, isn’t it?), Merck and J&J settled their ongoing dispute. The terms of the agreement require Merck to relinquish marketing rights in three territories comprising 30% of total Remicade/Simponi sales: Canada; Central and South America; and the Middle East, Africa, and APAC. The resolution, which also requires Merck to make a one-time $500 million payment to J&J, means the Whitehouse Station, NJ-based drug maker will forgo an estimated $900 million in ongoing sales in these regions. In territories where Merck retains marketing rights—EU, Turkey, and Russia—its profit share of the drug drops from 58% to 50% this July, instead of the more gradual decrease outlined under the original Schering/J&J alliance.

Analysts covering both Merck and J&J reacted positively to the news, albeit for different reasons. For Merck, the settlement takes off the table a bothersome question that has routinely cropped up on quarterly calls and lets Merck begin to spin a more positive story. Analysts anticipate that narrative to include a dividend hike to offset some of the recent negative clinical trials results and potentially, a spin-off of the consumer biz, which includes the Coppertone and Dr. Scholl’s brands. (Hey, it’s hip these days to copy BMS and shed business units outside the innovative core.)

For J&J, the 50/50 profit split in the territories retained by Merck is a bonus, and you can’t deny the allure of cold hard cash. Morgan Stanley analysts predict the resolution will be roughly 2 to 2.5% accretive to 2014 earnings per share. (Don't forget, though, about other tailwinds affecting J&J, including the dilution it took to acquire 100% of Crucell.)

With J&J and Merck moving on to more important matters (Merck: Pipeline! J&J: Quality Control and a Synthes acquisition(?)), it’s time for IN VIVO Blog to get going with another edition of…

Axcan Pharma/Mpex Pharmaceuticals: Privately-held specialty pharma Axcan will buy Mpex for an undisclosed amount, the firms announced April 14. The deal, which contains an unspecified upfront and milestone payments, gives Montreal-based Axcan full rights to Aeroquin, Mpex's lead product, a proprietary aerosol formulation of the antibiotic levofloxacin in Phase III trials for the treatment of pulmonary infections in patients with cystic fibrosis. It's one of several antimicrobials currently in the late-stage pipeline for CF patients; as a group, these anti-infectives have been the subject of recent regulatory debate over endpoints. The companies said Axcan would spin out all Mpex assets not associated with Aeroquin into a new company that will remain in San Diego, Mpex's hometown. Mpex's investors include Investor Growth Capital, which led the firm's $40 million Series D round in 2009, SV Life Sciences, RiverVest Venture Partners, and others. The deal comes two months after Axcan completed its $583 million takeover of Eurand, a Belgian specialty firm that last year celebrated the approval of its lead product, an enzyme replacement treatment of exocrine pancreatic insufficiency. -- Alex Lash

BiogenIdec/Amunix: Any doubts about Biogen’s ongoing commitment to the hemophilia space, look no further than this week’s research collaboration with Mountain View, Ca.-based start-up Amunix. Founded by serial entrepreneur William “Pim” Stemmer, Amunix uses its proprietary protein engineering technology to create longer-acting versions of clinically validated molecules. Biogen, of course, has been talking up its “focused diversification” strategy, bolting on capabilities in neurology outside its MS warhorses Tysabri and Avonex, even as it sheds its oncology assets. But Biogen’s nearest opportunity to diversify is via its recombinant protein therapies to treat hemophilia A and B, respectively in Phase II and III trials. Biogen’s molecules have significantly longer half-lives than competing marketed products and offer a significant dosing advantage over current standard-of-care that’s likely to be well received by patients, physicians, and payors. But that also means the big biotech must make sure its late-stage products aren’t obsolete when a new technology allows for the creation of even longer-acting molecules. Hence the tie-up with Amunix. No financial deets were disclosed, but the two firms are jointly conducting preclinical research, with Biogen paying an upfront plus R&D funding in exchange for clinical development, manufacturing, and commercialization rights of any therapeutic candidates. Amunix also stands to receive future milestones and royalty payments. -- EFL

Debiopharm Group/Aurigene Discovery Technology: A long-running research collaboration between the Lausanne, Switzerland-based developer Debiopharm and India’s Aurigene has yielded a promising approach to an undisclosed target in oncology. This week Debiopharm licensed worldwide development and commercialization rights to the lead compound, named Debio 1142, with plans to take it through clinical development and registration before outlicensing to an interested drug maker. Financial details were not disclosed, but Aurigene will receive milestone payments as the compound progresses. The stated plan is right in line with Debiopharm's usual business model. For example, it in-licensed oxaliplatin from Japan’s Nagoya City University, relicensing the product to Sanofi-Aventis for sale as Eloxatin. It’s also a variation on the European specialty pharma model that seems to be working well for Debiopharm. (See the April IN VIVO for more on various models in play.) -- John Davis

Daiichi/Pieris: Privately-held Pieris announced Tuesday, April 12 a two-target partnership with Tokyo-based Daiichi Sankyo. It is the latest in a string of alliances the German firm has inked to demonstrate the utility of its proprietary anticalin scaffolding technology. As part of the deal, Daiichi agreed to pay more than €7 million ($10 million) upfront for worldwide rights to two undisclosed targets, as well as dedicated research funding and milestones that could reach €200 million if both products reach the market. The Japanese pharma will also pay tiered “mid- to mid-high” single digit royalties on sales of any compounds that result. While the structure and limited scope of the Daiichi deal hews closely to Pieris' previous deals, the biotech’s CEO Stephen Yoder told “The Pink Sheet” DAILY that these alliances are designed to showcase the wide potential of the platform. Alliances are important, of course, but they don't provide Pieris' backers with an exit. Next-generation protein players such as Domantis, GlycArt, and GlycoFi were gobbled up during 2006 and 2007 thanks to a wave of biotech M&A as big drug firms attempted to strengthen their biologics capabilities. Since then, however, licensing deals have become the preferred transaction type, making an exit by acquisition more difficult. Since its inception in 2001, Pieris has raised €45 million in cash from a syndicate that includes OrbiMed Advisors, Novo Nordisk Biotech Fund, Global Life Science Ventures, Gilde Healthcare Partners, and Forbion Capital Partners. -- EFL

Endo/American Medical Systems: Valeant’s dogged pursuit of Cephalon is just one example of the anti-R&D movement at work within the biopharma industry. This week comes news of another deal exemplifying the trend: Endo’s $2.9 billion acquisition of urology device specialist American Medical Systems. The proposed deal represents a 34% premium over AMS' April 8 closing price, and it's three times the device maker’s 2010 sales of $538 million. Once dependent on Lidoderm (lidocaine 5% patch) for revenues, Endo has undergone a makeover under CEO David Holveck. Since he took the helm of Endo in 2008, the company has completed four acquisitions, all to position the company as a diversified healthcare solutions provider focused on pelvic disorders and pain: Qualitest Pharmaceuticals ($1.2 billion); Penwest Pharmaceuticals ($168 million); HealthTronics ($223 million); and Indevus Pharmaceuticals ($370 million). The acquisition of AMS is Endo's largest yet, and it substantially alters the company's portfolio and reinforces its commitment to devices, which sets Endo apart from other specialty players of a similar size who haven’t sought this kind of diversification. More and more, drug makers have been talking about moving into the device space as the traditional pharmaceutical R&D model has come under increasing pressure, in part because devices, at least historically, have shorter, less expensive product development time lines, as well as favorable pricing and reimbursement. The grass is always greener. -- Wendy Diller & Jessica Merrill

Takeda/Heptares: Takeda, which has targeted new central nervous system drugs as a core therapeutic research area, entered into a back-end loaded research collaboration April 11 with U.K. biotech Heptares Therapeutics to characterize a G-protein coupled receptor (GPCR) believed to play a role in CNS disorders. Takeda will pay $7.4 million in upfront cash and equity to Heptares, and milestone payments of up to $100 million, plus royalties on product sales. The tie-up is Takeda's second research collaboration in CNS this year. In March, the Japanese pharma agreed with New York-based Intra-Cellular Therapies to co-develop phosphodiesterase type 1 inhibitors for cognitive impairment associated with schizophrenia, in a $500 million-plus deal. In October 2010, Takeda signed a deal with Jupiter, Fla.-based Envoy Therapeutics to research new schizophrenia therapies. In the current two-year deal, Heptares' technology will be used to stabilize and characterize an unnamed GPCR thought to be important in CNS disorders but intractable to approaches to make it “druggable." Takeda researchers then will collaborate with Heptares researchers on generating leads, and the Japanese company will assume responsibility for preclinical and clinical development of any new drug candidates. The Takeda collaboration is Heptares’ second big pharma partnership, showing that its ability to go after difficult targets –- the so-called high hanging fruit –- is a strategy that can pay off. -- JD

Image courtesy of flickrer themonnie used with permission through a creative commons license

Deals Of The Week: The Sushi Edition

The biggest deal of the week, Daiichi’s purchase of the California biotech Plexxikon for $805 million upfront, prompted headlines elsewhere about the rise of Japanese dealmakers. Faithful readers of IN VIVO Blog won't be surprised by such pronouncements. It’s a trend that has been gathering steam since Eisai’s take-out of MGI Pharma and Takeda’s land-grab of Millennium Pharmaceuticals. (And yes, that's about 3.5 years longer than Kyowa Hakko's bid for ProStrakan.)

Indeed, as we wrote in a May 2010 IN VIVO feature, Japanese pharmas are now serious contenders for partnerships outside their home country as domestic factors –including consolidation in the home market, slowing growth, and a strong yen – have become powerful forces of change.

And as the Plexxikon deal shows (see below) that’s very good news for biotechs of a certain profile –especially neurology and oncology players close to commercialization. Given the merger mania of the past several years, the pool of potential acquirers for biotech assets has diminished, meaning any new buyers willing to pay top dollar are welcome news. In addition, Japanese players like Takeda( or Astellas or Daiichi) seem amenable to terms that allow the smaller party a great deal of autonomy, whether it’s running a biotech as a stand-alone within the parent pharma or establishing co-promotion/co-development options as part of an alliance.

The continued activity of players like Daiichi means biotech execs should brush up on their Japanese and learn to love sushi. (What’s not to love about sushi?) As always, domo arigato for reading…

Daiichi Sankyo/Plexxikon: Kaaa-ching! Bidding by multiple companies and strong data for a late-stage, targeted melanoma drug helped drive Daiichi Sankyo’s eye-popping acquisition of privately-held Plexxikon this week. The deal is one of the priciest acquisitions of a private biotech since 2006, according to Elsevier's Strategic Transactions and in-line with J&J's take-out of abiraterone developer Cougar Biotechnology. Equally notable is Daiichi's down-payment. At a time when bigger and smaller pharmaceutical players are trying to hedge their risk by structuring earn-out heavy deals, the Japanese pharma is shelling out $805 million, a deposit that approximates 86% of the deal's potential value. Even without the additional milestones, this sum provides an impressive return for the nine venture capital firms who have staked 10-year-old Plexxikon, which has made a name for itself with its targeted melanoma drug PLX4032. But the deal's price tag is only a piece of the story; the advent of a dark horse buyer is another important consideration. Back in 2006, Plexxikon partnered the drug to Roche for $40 million upfront, retaining an option to co-promote the product in the U.S. market. In early January 2011, Plexxikon exercised this option, agreeing to reimburse Genentech, which is responsible for ongoing development of the medicine, for certain marketing and promotion costs. With the planned acquisition, this option - and the resulting enhanced royalties on product sales owed to Plexxikon - now transfers to Daiichi. That the Japanese pharma would spend so much to obtain only a piece of a potentially lucrative molecule illustrates both the scarcity of late-stage oncology assets and just how much Big Pharmas are willing to pay to get drugs with validated mechanisms of action in this competitive therapeutic area. (For more, see our 2006 feature "The $100 Million IND.") It also brings Daiichi in line with the other big three Japanese pharmas - Astellas, Takeda Pharmaceutical and Eisai - all of whom have used acquisition to bolster their U.S. oncology offerings. --EFL

Takeda/Intra-Cellular Therapies: Daiichi wasn’t the only Japanese pharma wheeling and dealing this week. Takeda also announced its decision to license Intra-Cellular Therapies’ preclinical, orally available phosphodiesterase type 1 (PDE1) inhibitors for treatment of the cognitive impairment associated with schizophrenia in what appears to be a heavily back-end loaded deal. Disclosed terms were pretty vanilla: Takeda makes an undisclosed upfront in exchange for exclusive worldwide rights, and will pay development milestones of up to $500 million, with another $250 million owed if the product(s) hit certain sales objectives. Takeda will be solely responsible for the development, manufacturing, and commercialization of the compounds. In addition to schizophrenia, Takeda also has rights to develop the inhibitors for other neurological indications, potentially including dementia, Parkinson’s disease, and Alzheimer’s disease. Privately-held ITI is built around scientific findings discovered in the lab of Rockefeller University’s Paul Greengard; in 2005 it also inlicensed a basket of preclinical compounds from Bristol-Myers Squibb. According to sister publication “The Pink Sheet” Daily, ITI hadn’t planned on partnering its PDE1 program quite so soon, but pharma’s level of interest in the compounds, which are very selective for the PDE1 subfamily and thus, presumably, won’t cause off target side-effects, was so high the company changed its mind. Neither company would discuss timelines or details on the clinical development program, but ITI's CEO Sharon Mates did say there were clearly defined endpoints for positive symptoms associated with schizophrenia, as well as standard cognition measurements. –EFL

Merck/Lycera: Privately held, autoimmune-focused Lycera signed a collaboration with Merck March 3 under which the two companies will discover, develop and commercialize small molecule candidates that orchestrate the differentiation of T-helper 17 cells. Diseases targeted by the partnership may include rheumatoid arthritis, psoriasis, inflammatory bowel disease and multiple sclerosis. The deal calls for Merck to pay Michigan-based Lycera a $12 million upfront payment, undisclosed research funding, as well as research, development and regulatory milestones of up to $295 million. (There are also potential low-double-digit tiered royalties on any products that reach the market.) The companies will collaborate on discovery and preclinical work, with Merck responsible for clinical development of any resulting candidates. The pharma also will hold worldwide marketing and commercialization rights to such candidates. Lycera, profiled in this 2009 Start-Up article, is backed by InterWest Partners, ARCH Venture Partners, Clarus Ventures and EDF Ventures. It brought in $11 million last April in the second tranche of a Series A financing announced in April 2009.—Joseph Haas

GlaxoSmithKline/Targacept: In a “No-Deal” that was not unexpected, GlaxoSmithKline, which announced plans to exit the central nervous system arena a year ago, terminated its partnership with Targacept March 3 to co-develop neuronal nicotinic receptor modulators in five therapeutic areas – pain, smoking cessation, addiction, obesity and Parkinson’s disease. GSK paid $35 million upfront to initiate the partnership in 2007, including a $15 million equity investment in the North Carolina biotech. Its resulting exit leaves Targacept in full control of all programs subject to the alliance, each of which is still in preclinical stages. Targacept, which still has a potential $1.2 billion, multi-program collaboration in place with AstraZeneca, said it made $45 million over the life of its deal with GSK. In a March 4 note, analyst Robyn Karnauskas of Deutsche Bank said AstraZeneca is Targacept’s key partner, as the companies await Phase III data for TC-5214 in adjuvant treatment of refractory depression in the fourth quarter of this year. Targacept, which had about $252 million in cash on hand at the end of 2010, also is awaiting AstraZeneca’s decision on whether it will opt in on the Phase II schizophrenia and ADHD candidate TC-5619 – top-line data in ADHD are expected by the end of this quarter, with AstraZeneca expected to makes its call by mid-year.--JAH

Ipsen/GTx: GTx can’t seem to catch a break. When its Ostarine-focused alliance with Merck blew up last year, GTx at least had the committed support of Ipsen. The two have been partners since 2006 when they aligned to develop the biotech’s selective estrogen receptor modulator (SERM) toremifene to treat the side-effects of androgen deprivation therapy in prostate cancer patients. And Ipsen remained true even though toremifene’s clinical development path has been strewn with obstacles, including a 2009 complete response letter requiring an additional Phase III clinical trial. That’s not to say the alliance didn’t change; after the CRL, the two parties revised their 2006 deal, releasing Ipsen from milestone payments in exchange for in bankrolling up to $58 million to support the additional clinical trial. This week comes news that Ipsen is calling it quits on toremifene after all. Apparently the projected costs associated with the needed clinical trial exceed the $58 million sum the two brokered in 2010. “We spent significant time analyzing the business case for toremifene 80 mg and have concluded that the most appropriate course is to terminate our collaboration,” GTx’s CEO Mitchell Steiner said in a statement. Ouch. Investors hammered GTx’s stock, which slid 9% on the news to $2.35. The troubles with toremifene could mean some hard choices for GTx, which ended 2010 with $58.6 million in cash and cash equivalents. The company will likely need to find another partner for at least one of its Phase III programs, whether it is toremifene or Ostarine, currently in development for the treatment of muscle wasting in patients with non-small cell lung cancer. --EFL

Image courtesy of flickrer lotusutol, used with permission through a creative commons license.

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.

Plavix Pharmacogenomics: To Test or Not to Test?

By now you've noticed that we are fascinated by the potential for a pharmacogenomic marker--variability in the CYP2C19 genotype--to play a pivotal role in reshaping a blockbuster market: the antiplatelet class currently dominated by Sanofi and Bristol-Myers Squibb's Plavix, but where Lilly and Daichii Sankyo hope make an impact with the newly approved Effient.

We've written about this extensively in "The Pink Sheet" (start here) and debated it during a podcast (available here, or via iTunes).

Two new developments this week have us thinking about it some more. First is the publication of arguably the most compelling data yet about the importance of the biomarker, a study by University of Maryland researcher Alan Shuldiner and colleagues that is the lead article in the Journal of the American Medical Association this week.

To recap, it seems that people with one of the variants of the CYP2C19 polymorphism are poor metabolizers of Plavix; clopidogrel is inactive as ingested, and so poor metabolizers may in effect be taking a placebo rather than antiplatelet therapy. Prasugrel (the active ingredient in Effient) is not metabolized by that pathway, and so should be effective in all patients regardless of genotype.

Given that the faulty genotype is present in something like 30% of the population (though the percentage varies by race)--and especially given that Plavix will soon be generic, while Effient is a key product for Lilly's future--the commercial implications are huge.

Now, the study itself isn't new per se. Indeed, it was Shuldiner's presentation of the data during an Institute of Medicine workshop in March (coupled with the reaction of Food & Drug Administration officials and other IoM panelists to the study) that first convinced us this could be a milestone in the evolution of personalized medicine.

As we point out in "The Pink Sheet" DAILY, publication of the study in JAMA (which is making the full article available for free) certainly ensures greater attention from the medical community. But will it change medical practice? That is the question raised in an accompanying editorial.

Which brings us to the second new development: the public release of FDA's approval letter for a labeling change for Plavix made back in May. That label change (done with no fanfare) added information about the biomarker to labeling for Plavix first time.

Two things in the letter are news to us:

(1) The label change was initiated at the request of FDA, using its new authorities under the FDA Amendments Act.

(2) FDA's initial request included a statement that PKG screening is recommended for all Plavix patients, but that was dropped after discussions with Sanofi.

FDA declined to comment on what prompted the change of heart on an explicit recommendation for the screening--but since the new FDAAA authorities give FDA for the first time the ability to mandate exactly the labeling it wants, Sanofi must have made some strong arguments along the way.

We suspect they pointed out some of the things included in the JAMA editorial, like the perceived lack of ready access to the test and (probably more importantly) the lack of evidence to guide any specific treatment decision following screening. That is, while the hypothesis that prasugrel will work better in patients who don't metabolize clopidogrel is appealing, that hasn't been tested in prospective clinical trials.

And then there are the inevitable questions about whether FDA can or should use labeling to drive change in practice, or instead make sure labeling best supports practice as it evolves.

Use of pharmacogenomic testing in the real world, LabCorp SVP Marcia Eisenberg points out, is really about "the comfortableness of physicians using molecular testing to change the pattern of their behavior.”

So, while infectious disease specialists have made HIV viral typing a routine part of therapeutic diseases, and oncologists are increasingly comfortable with testing for markers like HER2 and now KRAS, those are still very much the outliers. LabCorp alone offers dozens of potentially useful pharmacogenomic screening tests, but--with those few exceptions--most are not routinely ordered.

LabCorp (and other diagnostic firms) have made 2C19 screening available since 2005, and (in their view at least) there is no barrier to routine use. Awareness of the test is low, Eisenberg acknowledges; indeed, Shuldiner himself said during the IoM meeting in March that the test was not readily available outside of academic centers.

FDA, in Eisenberg's view, is helping to bring the overall science of personalized medicine to the forefront, but its regulatory actions inevitably lag behind actual practice. That was certainly the case with KRAS, where oncologists embraced the utility of the biomarker well before FDA approved new labeling for Amgen's Vectibix outlining the data in support of the test.

Will cardiologists do the same with Plavix? It doesn't seem likely right now. After all, the one group with a proven track record of changing behavior in cardiology is the pharmaceutical industry and its marketing prowess. But, as far as we can tell, none of the sponsors involved will be pushing for routine testing. Bristol and Sanofi made clear that they do not want to recommend the testing (indeed, they successfully prevented FDA from directing it in labeling), while Lilly and Daichii would rather not limit prasugrel to the roughly one-third of the population who don't properly metabolize clopidogrel.

That leaves the payors--but even there, the cost-benefit calculation will be complex, since routine screening would limit the population who would be eligible for generic clopidogrel, and may not be sufficient to stop prescribing of prasugrel by physicians who view it as the superior therapy.

The one thing we do know: this won't be the end of the discussion. There is plenty more data to come on the utility of the 2C19 marker in the class, and the looming patent expiration of Plavix means there are billions of dollars at stake. Anyone interested in the future of personalized medicine and blockbuster markets will want to keep paying attention.

Deals of the Year Nominee: Daiichi/Ranbaxy

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.

Your next IVBDOTY nominee is Daiichi's bid to buy a big old $4 billion stake in the Indian generic drugmaker Ranbaxy Laboratories. And what a bumpy ride it has been.

Lets start at the beginning. Ranbaxy announced in June the Japanese Pharma's bid for a controlling interest in the company, which it would buy in large part from the founding Singh family. The bid valued the company at about $8.5 billion based on currency values at the time.

The word on the street was that Daiichi's move, to be financed with cash and debt, was "bold and entirely out of character." But as we said then, it should not have been surprising that Daiichi was going to do something with its $6 billion cash reserves. To remain competitive with its Japanese brethren, particularly Takeda and Eisai which have been particularly acquisitive, the firm needed to ink a major transaction that would extend its reach beyond the stagnant home market, where annual government-mandated price-cuts on drugs and a slower regulatory approvals process make for a tough business climate. (For more on the pressures facing Japanese pharmas, check out this story from our January 2007 IN VIVO.)

And like Takeda and Eisai, which are facing patent exipirations on crucial drugs such as Prevacid, Actos, and Aricept, Daiichi has its own pipeline worries to think about: the company's website lists just three Phase III compounds, including the oft-discussed and risky prasugrel it has partnered with Eli Lilly (we later chimed in with some big news about when that drug might meet an FDA advisory committee). In May it acquired the German antibody developer U3 Pharma, presumably to increase its large molecule capabilities.

What is surprising about the Daiichi/Ranbaxy deal is that Daiichi chose to invest in a company focused primarily on generics and geographically situated in an emerging market. While India is undoubtedly an important arena, companies such as Takeda, Astellas, and Eisai have focused their efforts on building a US presence, especially in oncology.

So: We've got Daiichi betting big on both a massive emerging market and generics. And not to go all Arlo Guthrie on you two weeks in a row, but one deal like this might be odd (and we're paraphrasing here) but three deals where large pharmas start putting bets down on generics players in emerging markets, well that might be considered a movement.

And guess what: Sanofi-Aventis did after all buy a stake in Zentiva this year and GSK acquired the South African generics play Aspen Pharmaceuticals. Maybe it's not a movement, but it's certainly a trend to watch.

Not that it has been easy for Daiichi in the months between its initial bid and closing the deal. First there is the small matter of a US Department of Justice probe into Ranbaxy related to "systemic fraudulent conduct" by the generics maker, plus complications from India's Securities and Exchange Board (as detailed here by our cousin publication PharmAsiaNews), and doubtful investors.

By mid-October Daiichi had secured about 20% of Ranbaxy and the deal was expected to close by the end of the year. So why vote for Daiichi/Ranbaxy? For the brand-generic yin and yang? For the emerging market strategy? For the drama and the intrigue? At Deals of the Year we've got a bit of everything.

DotW: Change We Believe In

President-elect Barack Obama and his wife Michelle visited the White House this week: an event so closely tracked by the press that it was possible to immortalize the license plate numbers of the SUVs in the motorcade. (Could it be that even FOX news believes change is good?)

Meanwhile, the Dow Jones industrial average came roaring back yesterday, jumping 550 points after buyers swarmed back into the Standard & Poor's 500 index, the indicator most watched by traders. (Okay, we confess: descriptives such as "roaring" and "muscular" still seem a misnomer when the wide-scale sell-off earlier in the week wiped out roughly $1 trillion in shareholder value.) Still if Wall Street believes the market has finally priced in enough bad news, that's a change this blogger will accept--if not believe in.

Just don't ask Detroit. Or a number of biotechs, for that matter. Anecdotal evidence continues to amass illustrating just how tough it is for smaller companies in the biopharma industry. (See below.) Stem cell play MicroIslet joined AtheroGenics in filing for Chapter 11 this week (At least it wasn't Chapter 7.)

Pain play Anesiva announced its second, painful restructuring since September, reducing head-count and cutting the company burn-rate after its novel formulation of capsaicin, Adlea, narrowly missed a clinical endpoint. Other companies with restructuring news include Neurogen and Javelin Pharmaceuticals. Meanwhile, Pharmos revealed it's in non-compliance with NASDAQ listing requirements and Targeted Genetics has big changes at the top: after disclosing last week that the company is running out of cash, CEO H. Stewart Parker and CSO Barrie Carter announced their resignations.

Even larger biotechs are not immune. Concerned about the slower growth of its GLP-1 franchise Byetta, Amylin announced cost-cutting moves designed to reduce 2009 expenses, including the termination of 340 San Diego-based employees.

But before the whining commences, perhaps companies should adopt some of the changes put in place at BMS, which yesterday at the Credit Suisse Healthcare conference in Phoenix outlined steps to improve its cash flow by $750 million to $1 billion by 2011. And the measures are far from rocket science. Newly installed CFO Jean-Marc Huet is going back to basics, strengthening the company's cash position by better managing inventory, receivables, and payables.

AstraZeneca, meanwhile, is over the moon about the JUPITER trial results. Could this good news for AZ's Crestor spark the return of a bullish primary care market? That's change Big Pharma would like to believe in.

Here at IN VIVO Blog we know change can be hard. (Just look at the safe sartorial choices President-elect Obama has made in his transition from campaign mode to casual Friday.) And painful, as evidenced by the new look sported by Washington Wizard's point guard Gilbert Arenas.

That's why we're here for you week in and week out...

Affymetrix/Panomics: GeneChipper Affymetrix announced on Tuesday that it had acquired the private assay/consumables company Panomics (née Genospectra) for $73 million in cash. The deal brings Affymetrix a stronger position in “the high-growth validation and routine-testing market segments,” according to the Affy release. The deal unites two Alejandro Zaffaroni-related firms; the prolific investor and namer of biotechs was the founding investor of Genospectra, which acquired Panomics (and kept its name) in February 2006. The 8-year old Genospectra/Panomics has raised at least $56 million from VCs including Frazier Healthcare, Bay City Capital and Novartis BioVentures, among others, and as such this deal isn’t going to count among anyone’s top multiples--Chris Morrison.

Eisai/TorreyPines: Cash-hungry TorreyPines Therapeutics announced Monday that it had sold its Alzheimer’s disease research program to Eisai Co. for $1.5 million. The program—on which the two firms had collaborated since 2002—focuses on the discovery of targets using whole-genome family-based association screening. TorreyPines is sitting on less than a year’s worth of cash--approximately $14.3mm at the end of September compared with a burn rate of $5.4mm in the last quarter--with which to push forward its Phase II migraine project, tezampanel, and the rest of its development pipeline. The company also this week named a new chief executive, Evelyn Graham, the group’s former COO who became acting CEO in September when Neil Kurtz left the biotech to become CEO at the long-term care operator Golden Living. TorreyPines appears to be on its last legs: it has repositioned itself as a development-only firm but the market—which values the company at a mere $4.4 million—isn’t buying the turnaround. Earlier in October TorreyPines jettisoned some other research assets in a deal with Abraxis subsidiary Cenomed and we suspect further disposals can’t be far behind--Chris Morrison.

Daiichi/ArQule: Eisai wasn't the only Japanese pharma acting opportunistically this week. Daiichi-Sankyo signed a deal with ArQule Nov. 10 that gives the biotech important non-dilutive funding as well as validation for its kinase inhibitor discovery platform. In exchange for broad commercialization rights (worldwide excepting Japan, China, Taiwan and South Korea) to ArQule's lead compound, the Phase II oncologic ARQ 197, Daiichi will pay $75 million in up-front funding along with up to $560 million in potential milestones. In case you were wondering, ARQ 197 is a c-Met inhibitor currently in mid-stage clinical trials for the treatment of non-small cell lung cancer and microphthalmia transcription factor-associated tumors such as clear cell sarcoma. In addition, the two companies have established a broader research collaboration to identify novel kinase inhibitors using ArQule's proprietary AKIP platform. As "The Pink Sheet" DAILY reports, ArQule CEO Paulo Pucci called the deal "fundamentally transforming" and said it would make the biotech "a competitor in oncology." (Um, yeah.) There's no doubt, however, that the up-front adds to the biotech's $136.3 million cash cushion and helps off-load some expenses and developmental risk associated with ARQ 197. Some, but not all. Daiichi isn't willing to shoulder all of the clinical costs of the product--ArQule will share in Phase II and Phase III development costs, with ArQule's Phase III costs covered by milestone payments from Daiichi.

Novartis/Xoma: Joining the ranks of Torrey Pines, Targeted Genetics, and Amylin, Xoma also announced belt-tightening moves this weeks, including cashing in on programs partnered with Novartis and redoubling efforts to monetize its bacterial cell expression technology. “We are watching every dollar,” said Steve Engle, CEO of the Berkeley, Calif.-based antibody developer in an interview with "The Pink Sheet" DAILY. As Xoma refocuses its research dollars on XOMA-052, an interleukin-1b inhibitor for Type 2 diabetes, it's had to revise a research collaboration inked in 2004 with Chiron-- before that biotech’s acquisition by Novartis--around therapeutic antibodies for cancer. Initial terms of the deal required the two companies to share research and development costs 70-30, with Chiron (now Novartis) taking on the lion’s share of the expenses, especially related to HCD122, a fully human monoclonal that targets CD40 now in early clinical trials against lymphoma and multiple myeloma. But after a painful reality check, Xoma is relinquishing its 30 percent stake in the product to Novartis in exchange for a $7.5 million payment plus potential milestones of up to $14 million. Compared to other recent licensing agreements in the oncology space, that’s a paltry sum. But Xoma wasn’t in much of a position to bargain since Novartis already owned the majority of the product. To sweeten the deal, Novartis agreed to pay double-digit royalties for two ongoing programs, including HCD122. Also, it will provide Xoma with options to develop or receive royalties on four yet-to-be-selected additional programs.

Wacky World of Generics: Painful Historical Parallels Edition

New details about a pending Justice Department investigation of Ranbaxy recall some painful memories from veterans of the generic drug scandal in the US at the end of the 1980s.

It is amazing to think—at a time when generic drugs are the political golden child, everybody’s favorite starting point for reining in costs, and everybody’s hope for controlling spending on biologics—that it was just two decades ago that generic drugs were perceived as inherently suspect. Company after company was accused of fraud, and dozens of products were withdrawn from the market.

So no one in the generic sector wants to read that the government is alleging “systematic fraudulent conduct” on Ranbaxy’s part.

Ranbaxy, of course, wants to read that least of all—certainly not while a $4.6 billion merger with Daiichi Sankyo is pending. (PharmAsia News has all the details on what is known about the investigation, and the speculation that it might affect the pending merger of the two companies.)

The companies say the deal is not in jeopardy. The bottom line for proceeding: Ranbaxy says the scope of the investigation is fully understood by Daiichi and the risks to the business as a whole aren’t worth worrying too much about.

Daiichi better hope so.

The alternative is not pretty. The downside risk may best by captured by considering what happened to Fujisawa went it bought out Lyphomed in 1989. The transaction came after a Lyphomed faced a round of manufacturing compliance issues that had seemingly been resolved.

The deal was a disaster on every level for Fujisawa. It turned out that FDA wasn’t done with Lyphomed by a long shot, not as the full extent of issues related to fraud in the generic drug sector started to come to light.

How big a disaster? Well, Fujisawa paid about $1 billion to buy Lyphomed, and ended up writing off $575 million when it finally unloaded the business in 1998. (The buyer? APP, which is being acquired itself a decade later.) Fujisawa spent millions cleaning up the business along the way, including withdrawing many products it acquired because of questions about potential fraud in the applications. Worst of all, Fujisawa’s own products were held up as a result of FDA’s concerns, putting its relationship with Medco Research for Adenoscan in jeopardy.

And strategically, it certainly didn’t help Fujisawa achieve its primary goal of building in the US. Fujisawa has since merged with Yamanouchi, and the new company—Astellas—is still working on that goal.

Painting by Renee Dixon

Did Pfizer Get A Wedding Favor From Ranbaxy And Daiichi?

By now, you’ve probably heard that Ranbaxy and Daiichi have fallen in love—or at least entered a mutually binding financial agreement to that effect.

So where does this leave others who had a relationship with Ranbaxy—like Pfizer, for example? The brand and generic giants were never romantically linked (although there were rumors) but they did have an involvement that touched each to the core: Ranbaxy was the first-to-file challenger for Pfizer’s mega-blockbuster Lipitor, and they’ve been in court ever since.

But now the fight seems to be over: A week after Ranbaxy and Daiichi announced they were tying the knot, Ranbaxy and Pfizer said they were cutting a deal to end their legal entanglement.

It gives Pfizer closure on its love affair with the blockbuster statin, but what does it do for Ranbaxy? Well, it provides a fair bit of certainty in terms of revenue projection—and that may be what a company looking to settle down wants—but we wondered whether Ranbaxy could have gotten a better deal if it didn’t have to worry about what another corporation would think about it.

Did Daiichi’s heft make Pfizer take the risk of an “at risk” launch more seriously, or did Daiichi tell Ranbaxy that once they moved in together it couldn’t stay out carousing all night in strange legal jurisdictions?

In the discussions we’ve had on the matter, people tend to be divided. Those who look at the world through a merger lens think that Daiichi acted as a sensible ball and chain, helping to wrap up a potentially damaging distraction before it got out of hand. Those who spend their time thinking about selling products and suing people, though, think that Daiichi may have offered a nice dowry that Pfizer was afraid could become a war chest.

Tell us what you think!



--M. Nielsen Hobbs

(Photo courtesy of Flickr user Pardesi via a creative commons license.)

DotW: The Heat Is On

The temperature has been hot--and so has the deal-making. We counted at least 273 deals in the past five days. Not really. We actually stopped counting on Tuesday because there were already too many to keep track of. And that was before the week's biggest deals: the Ranbaxy/ Daiichi Sankyo and Invitrogen/ Applied Biosystems tie-ups (see below).

It's an odd week for heavy deal flow, coming so quickly on the heels of the ASCO and ADA meetings and in advance of next week's shin-dig in San Diego. But perhaps the soaring temperatures provided various biz dev teams no incentive to leave their nicely air-conditioned offices. And maybe this was a way for Invitrogen execs to ensure that the masses came to their tacos and beer party next week. (BIO Nebraska's Omaha steak fete and Positively Minnesota's raffle for a universal electronic charger offer stiff competition, after all.) Alternatively, it's possible staffers were simply jonesing to play BioRad's shoot-em-in gene transfer video game.

Other news hot off the computer screen? AstraZeneca is burning up the competition when it comes to market share in China, according to this Wall Street Journal article. And employees at Jazz Pharmaceuticals, Schering Plough, Mylan, GlaxoSmithKline, and Sanofi-Aventis are on the hot seat: all firms announced lay-offs this week. Perhaps the job cuts include the people responsible for the name of Sanofi-Aventis's new injectable insulin, Apidra. Doug Farrago, MD, a hilarious, disruptive physician, lambasts the company in this YouTube send-up.

Need to cool off? By all means, dive in to another edition of ...

Genentech/Symphogen: Danish polyclonal antibody play Symphogen said on Tuesday that it was collaborating with Genentech in the infectious disease space. The three-undisclosed-target deal has a total potential value of $330 million inclusive of an upfront payment, equity investment and milestones, and grants Genentech worldwide exclusive license to any candidates. This is the first external demonstration of Genentech’s stated commitment to developing large molecules against infectious diseases and Symphogen’s third deal, but by far the biggest validation of its Symplex and Sympress technologies.

Janssen/Astex: Johnson & Johnson’s Janssen Pharmaceutica is taking a license to Astex Therapeutics’ novel fibroblast growth factor receptor (FGFR) inhibitor program and is starting new discovery programs on two additional drug targets. The deal, announced Monday, sees Janssen paying $37 million in upfront, cash and equity payments and research funding to Astex as well as potential milestones and royalties. Janssen’s Ortho Biotech arm is responsible for all preclinical and clinical development on all three programs. Astex retains an option to co-commercialize any FGFR projects in the US. Astex CEO Harren Jhoti, PhD, told IN VIVO’s sister publication “The Pink Sheet” Daily that the lead FGFR program is only at the lead optimization stage but given the strong interest in the program—which, he says, is highly specific and should therefore avoid side effects that have hindered other firms’ efforts—“we were able to command pretty significant financials.”

Daiichi Sankyo/ Ranbaxy: On Wednesday, Daiichi announced it had agreed to buy a 34.8% stake in Ranbaxy from the Indian company's founders, the Singh family. The company will finance the acquisition--priced at a handsome 31% premium to Ranbaxy's closing price Tuesday--with a combination of cash and financing. Analysts reckon the combined company will be worth about $30 billion and called the transaction "bold and entirely out of character." Unlike Japanese brethren Takeda and Eisai, which have inked their own multi-billion dollar transactions in recent months to increase R&D capabilities and a US presence, Daiichi chose to invest in a company focused primarily on generics and geographically situated in a very important emerging market. The deal could also give Daiichi an important leg-up in its home generics business. According to an article published on in-Pharma technologist's website, Alan Thomas, IMS Japan's global account director, compared with the rest of the world, Japan has an extremely high proportion of brands that have come off patent - 41 per cent - but an extremely low generic penetration on the market - at only 3.4 per cent. And Japan's generics industry is expanding at an annual rate of nearly 9%. That may seem like small pills (er, potatoes), but it's currently the fastest growing segment of that country's drug business. Seems like there are now two clear schools of thought in pharma, those pursuing a focused approach (Bristol-Myers Squibb and Takeda have both made important moves in this direction) and those pursuing a diversified strategy – Novartis and now Daiichi. Perhaps Pfizer is interested in jumping on the diversified bandwagon? The Business Standard reported late Thursday that Pfizer may bid for the 65 per cent non-promoter stake in Ranbaxy.

UCB/ Otsuka Pharmaceuticals: Daiichi wasn't the only Japanese pharma gunning for a deal this week. The smaller company Otsuka Pharmaceuticals teamed up with UCB to co-promote the Belgian firm's anti-epileptic drug Keppra and the anti-TNF alpha drug, Cimzia for the treatment of Crohn's Disease. UCB and Otsuka will also co-develop and co-promote both medicines in other indications, while UCB will join Otsuka in co-promoting the anti-platelet agent Pletaal to selected accounts for a limited period. Deal terms were definitely on the small side: UCB receives up-front and milestone payments of up to €113 million, as well as funding for clinical development. Contrast that with Takeda's February deal with Amgen, where the deep-pocketed pharma paid out $300 million up-front, or the company's early April deal with Cell Genesys worth $50 million up-front and likely a great deal more for a Phase III immunotherapy product.

Invitrogen/ Applied Biosystems: Invitrogen offered to acquire Applera Corp.'s Applied Biosystems Group for $6.7 billion, in a move that would unite major players in the life-sciences tools field to create an end-to-end outfit that can tap into the very hot personalized medicine market. Applied Biosystems produces advanced instrumentation, while Invitrogen makes chemical kits that help analyze DNA samples. The companies hope that combining their specialties will better serve their overlapping customer base. Invitrogen CEO Greg Lucier said the complementary product lines would create a company "unrivaled in the world" for the breadth and depth of its life-sciences capabilities, but investors didn't buy the heady language, sending Invitrogen shares down $4.62, or 11%, to $38.73 Thursday. The WSJ reports that Alastair Mackay, of Garp Research & Securities Co. in Baltimore, said it isn't clear how well the merged entity will fend off competition from rivals such as Roche's Molecular Diagnostics division and Illumina. It's an interesting twist in what has been a long and storied history for Applera, which also owns Celera, once hoped to be a premiere pharmaceutical player that has retrenched to focus on diagnostics. The merger of Invitrogen and Applied Bio is consistent with a trend we've been watching for some time--the migration of tools companies into the testing market. (For more, read here.) Still, the new entity won't be competitive with Celera in the short run. Invitrogen/ Applied Bio signed a non-compete agreement with Celera in the specific areas where Celera is on or near market with products. Still executives claimed on the conference call announcing the news that this “won’t constrain the company” in terms of its diagnostic ambitions.

(Photo courtesy of Flikr user Roger Smith via a creative commons license.)

Daiichi/Ranbaxy: Eating Big Pharma's Lunch

Could Japanese pharmas be the Godzillas of the drug industry? With the money these outfits have been throwing around, they are certainly putting pressure on Big Pharma to up their deal ante. Consider that in the last six months there have been three multi-billion dollar buy-outs by mid-sized Japanese companies: Eisai bought MGI Pharma for $3.3 billion in cash in December; Takeda purchased Millennium for nearly $9 billion; and now comes news that Daiichi Sankyo is taking a controlling interest in the Indian drug giant Ranbaxy for $4.6 billion.

On Wednesday, Daiichi announced it had agreed to buy a 34.8% stake in Ranbaxy from the Indian company's founders, the Singh family. The company will finance the acquisition--priced at a handsome 31% premium to Ranbaxy's closing price Tuesday--with a combination of cash and financing. Analysts reckon the combined company will be worth about $30 billion and called the transaction "bold and entirely out of character."

It should not come as a surprise that Daiichi, a company with a cash war chest of $6 billion, is doing a big deal. Last year the company reported consolidated net sales of ¥880.1 billion, a year-on-year decline of 5.3%. To remain competitive with its Japanese brethren, particularly Takeda and Eisai, the firm needed to ink a major transaction that would extend its reach beyond the stagnant home market, where annual government-mandated price-cuts on drugs and a slower regulatory approvals process make for a tough business climate. (For more on the pressures facing Japanese pharmas, check out this story from our January 2007 IN VIVO.)

And like Takeda and Eisai, which are facing patent exipirations on crucial drugs such as Prevacid, Actos, and Aricept, Daiichi has its own pipeline worries to think about: the company's website lists just three Phase III compounds, including the oft-discussed and risky prasugrel it has partnered with Eli Lilly. In May it acquired the German antibody developer U3 Pharma, presumably to increase its large molecule capabilities.

What is surprising about the Daiichi/Ranbaxy deal is that Daiichi chose to invest in a company focused primarily on generics and geographically situated in an emerging market. While India is undoubtedly an important arena, companies such as Takeda, Astellas, and Eisai have focused their efforts on building a US presence, especially in oncology.

Indeed, this recent tie-up has a very different flavor from the Eisai/MGI Pharma and Takeda/Millennium tie-ups. For the billions Eisai ponied up for MGI, it got several marketed oncology products, including Aloxi and Dacogen, as well commercial infrastructure and an increased presence in the US. Takeda, meanwhile, eschewed a specialty pharmaceutical play, preferring a company with its own internal R&D efforts, an interesting but early stage pipeline and a potenial blockbuster in Velcade, a first-in-class proteasome inhibitor approved to treat multiple myeloma and mantle cell lymphoma.

But instead of bulking up on R&D capabilities or marketed products, Ranbaxy swung the other way, spending a large chunk of its available cash to obtain access to what Takashi Shoda, president and CEO of Daiichi Sankyo called "a strong presence in the fast-growing business of non-proprietary pharmaceuticals."

While many analysts seem surprised by the deal, Kenji Masuzoe, of Deutsche Bank, thinks it's welcome news. "A pure, 100%-pharma based business is a tough model," he says. Still, despite the challenges, most pharmaceutical companies have not embraced such a diversified business model. (BMS anyone?) Indeed, only two of the top 20 drug companies have major generics businesses: Novartis with its Sandoz unit and Teva (which let's face it is mostly a generics company anyway).

The acquisition raises a critical question: How will a proprietary company effectively run a generics business with its vastly different culture and vastly different economics?

It's worth noting that this isn't the first non-pharma type acquisition Daiichi has done. Back in 2006 the company purchased Astellas's OTC business unit, Zepharma Inc., for about $200 million. Last year Daiichi reported that net sales of its healthcare products, which include the skin blemish product Transino and the pain-reliever, Felbinac, increased 4.9% to ¥50.3 billion in year-on-year terms for the period ending March 2008.

Perhaps purchasing a big generics play at a time when the Japanese government is extremely anxious about the cost of healthcare and looking for ways to boost generic sales has a modicum of sense?

Indeed, there's also a certain logic to having a major stakehold in what should prove to be an important market, India. Hirohisa Shimura, an analyst with BS pharmaceuticals, told The Times that Daiichi may have accepted that its future growth lies with the fast-growing middle classes of Asia's emerging markets. "Emerging markets are absolutely the sort of expansion that the Japanese pharmaceutical companies will be thinking about now that their international competitors are doing the same," he says.

(Photo courtesy of Flickr user tumatigre via a creative commons license.)

Deals of the Week: Signage

Another week, another big pharma reorganizes. This week comes news that Lilly's CEO John Lechleiter plans to reorganize several business units, including R&D, to "minimize bureacracy by reducing the layers of management." We wonder if that will impact Lilly's Chorus group, which is attempting to push drugs rapidly to proof-of-concept before investing significant dollars in development.

Shareholder activism reared it head again this week too. More than one third of Glaxo investors refused to endorse the consolation package--a stock bonus estimated between $4 and $5 million--of Chris Viehbacher, who lost out to Andrew Witty for GSK's top spot. (Perhaps they actually want the company to invest in something important, like pipeline? Nah, probably just share buy-backs.)

And Enzon shareholders are itching for that company to explore all strategic options for its remaining commercial operations, according to documents filed with the SEC. Apparently, the recently announced spin-off of the company's biotechnology businesses doesn't go far enough. The twist? DellaCamera Capital, which holds a 5.9% stake in the company, earns this week's award for stirring the pot--not Carl Icahn. (But for you Icahn watchers, fear not. Carl may be up to his old tricks. He's increased his shares in Byetta maker Amylin Pharmaceuticals and is reportedly in discussions with management about ways to maximize product sales and development.)

Meantime, the Institute for Safe Medication Practices published its list of most dangerous drugs and--surprise--Pfizer's Chantix took top billing. As we wrote here, Chantix has been steadily climbing to the top spot on ISMP’s list, based in large part on an increased incidence of psychiatric adverse events. Now comes news, published in Drug & Therapeutics Bulletin, that the Pfizer pill may cause--among other things--serious accidents and falls, potentially lethal cardiac rhythm disturbances, severe skin reactions, acute myocardial infarction, seizures, and diabetes. (Aren't you glad it's for healthy people?) The findings prompted the Federal Aviation Adminstration to ban pilots and air traffic controllers from using the drug. (That makes you feel much better, doesn't it?)

Another "top" list made headlines this week: World Pharmaceutical Frontiers published its annual top 40 most influential people in our industry. Sadly, our own Roger Longman was passed over yet again (hey, I need my job). Still the list was informative and indicative of the changes roiling the industry. In 2007, execs from Pfizer, Novartis, and Bayer all took top billing, but this year no single big pharma exec made the top ten. (Andrew Witty, at number 6, was the one exception, but he hasn't held his position long enough to really screw up.)

Interestingly, the group placed an emphasis on innovation (really!) and regulation, with Genentech's Arthur Levinson taking the number two spot, and NICE chairman Sir Michael Rawlins at Number 5. And guess who took the number 10 spot? Shlomo Yanai, CEO of TEVA, a company that's making a name for itself in follow-on biologics as well as generics. But lest you think Big Pharma has forgotten about innovation, you'll be happy to learn this nugget of truthiness: Joe Jimenez, who recently took charge of Novartis’s pharmaceutical division, told the WSJ that selling drugs is a lot like selling ketchup. It depends on "key account management," code for building better relationships with insurance companies. If that's not a sign of the times, I don't know what is.

Unless, of course, its my own personal favorite:

Myriad/Lundbeck: Myriad Genetics announced a critical tie-up for its Phase III Alzheimer's drug, Flurizan, with the Danish pharmaceutical company H. Lundbeck A/S on Thursday May 22. In exchange for merely European commercialization rights, Lundbeck has agreed to pay Myriad a generous $100 million up-front, plus an additional $250 million in regulatory milestones as well as escalating sales royalties in the 20-39% range. Undoubtedly, the deal terms for Myriad's so-called selective amyloid beta-42 lowering agent are rich, but the real upside seems likely to come later, when the Utah-based biotech looks to ink a revenue-sharing arrangement for the product in the US market. We've written extensively about the potential for alliances to bleed value, but in the case of Myriad's Flurizan, this is a deal that's likely to be validating. Lundbeck, after all, has both the largest CNS sales force in Europe and experience selling Alzheimer's meds. Moreover, Myriad can now afford to partner Flurizan in the US for a dear but not prohibitive price. That's a situation likely to interest partners who might be interested in a biggish deal but who couldn't otherwise afford world-wide rights. Potential interested parties? Forest Labs, which markets Alzheimer's medicine Namenda, comes to mind, as does Takeda, which needs to fill the hole left by the pending patent expiry of its blockbuster Actos. (For an update on the risks and rewards of investing in Alzheimer's drugs, see this recent START-UP piece.)

Medivir/Tibotec: HCV polymerase inhibition gets a boost as Medivir inked an R&D pact with J&J's Tibotec subsidiary. Medivir sees €5 million in cash now, potentially much more later if two compounds reach the market and are approved in two indications. Joining up with J&J keeps Medivir's NS5B polymerase activity in the family as it were, given the two groups' previous deal in the area of protease inhibition (TMC435350 is in Phase IIa trials). HCV polymerase inhibition has had a tough ride lately, with Wyeth/Viropharma and Novartis/Idenix each dropping mid-stage programs in the past ten months. Medivir has pretty extensive R&D experience in the polymerase area--it's developing compounds against herpes virus, shingles, HBV, CMV and HIV polymerases, and even has a five-year old deal with Roche in HCV polymerase (terms of which are/were undisclosed). As in it's 2003 deal with Roche, Medivir has hung onto Nordic commercialization rights in its deal with Tibotec.

Pfizer/FivePrime: Pfizer announced a research tie-up with next generation protein developer FivePrime this week. The collaboration will focus on the discovery of antibody targets and novel protein drugs to treat cancer and diabetes according to the press release. Specific deal terms weren't disclosed, but FivePrime will receive an up-front payment and three years of research funding for its efforts. In addition, Pfizer is taking an equity stake in the company. This deal highlights two major trends we've been watching for some time: the importance of bringing in biologics capablities and the flight to specialist markets. Pfizer has been slow to the biologics party, but has been attempting to make up ground with torrid deal-making, including the recent acquisitions of Coley Pharmaceuticals, CovX, and Biorexis. In addition, the at least partial focus of this deal on oncology represents a shifting attitude among Big Pharma away from the risky primary care markets to a focus on specialty, where there is still great unmedical need but also a less onerous regulatory path. Recently Pfizer CEO Jeff Kindler says he is putting "Pfizer's full scope and scale" behind a push into the cancer market. As part of that effort, he's hired Garry Nicholson, a 30-year veteran of Lilly, to oversee Pfizer's newly created oncology business from clinical trials through marketing.

Daiichi Sankyo/ U3: Another week, another Japanese pharma making noise. Takeda has taken top honors lately, with its big cancer deals with Cell Genesys and Amgen and its acquisition of Velcade developer Millennium. But the other Japanese pharmas aren't giving up on either oncology or their ability to become international powerhouses. Take this week's news that Daiichi Sankyo is buying German biotech U3 Pharma for $235 million in cash. Among the drugs in U3's pipeline: a fully-human anti-HER3 monoclonal antibody due to begin clinical trials this year that is partnered with Amgen. Daiichi is no stranger to the Thousand Oaks biotech. It has Japanese rights to market Amgen's denosumab, currently in Phase III trials for osteoporosis and bone metastases in patients with advanced breast cancer. In addition, Daiichi also has several other cancer products in development, including the Phase II CS-1008 to combat malignant neoplasms.

Photo courtesy of Flickr user ramson via a Creative Commons license.