DOTW: It's Hot, Hot, Hot

There's nothing like a big deal to get the blood pumping, especially given the lassitude-inducing temperatures hitting most of the US. And just as journos were reminiscing about the good ol' days of hostile then friendly pharma-biotech tie-ups, Express Scripts and Medco deliver a deal with enough uncertainty to keep tongues wagging for months -- or at least until the FTC makes a ruling on whether the marriage merits its blessing.

Who knew pharmacy benefits could be so sexy?

As "The Pink Sheet", WSJ, Fortune, and other pubs have noted, anti-trust concerns are the primary question for investors. And given Medco's stock price mid-day July 22 -- shares were up 18% relative to the day before news of the tie-up broke but still well below Express Scripts' $71.36-a-share offer -- the market clearly believes this ain't a deal that will definitely get done.

Aside from the "Will they? Won't they?" questions tied to FTC, there are plenty of other uncertainties bubbling up (like apple pie fresh from the oven or hot asphalt on the Garden State Parkway). For starters, how will this deal impact drug companies and the kinds of rebates they need to offer to get their drugs covered by such a PBM behemoth? Ross Muken of Deutsche Bank estimates Express Scripts and Medco together process a whopping 35% of all US prescriptions and the WSJ's "Heard on the Street" column pegs the rebates both PBMs collected in 2010 at around $12 billion.

That's a lot of dough -- and could be a reason FTC will eye the merger sympathetically. Rebates after all get passed on to customers -- the employers and health plans who contract with the likes of Express Scripts and Medco to manage their pharmacy spend. Theoretically, the ability to negotiate better rebates means greater control over drug costs, one of the major factors tied to spiraling health care spend. Not surprisingly that was a message management from both PBMs played up in their joint conference call announcing the deal.

Of central interest to drug makers ought to be how a combined Express Scripts-Medco will negotiate rebates for specialty drugs like cancer medicines. Pharmas have doubled down on nichier areas because the high unmet medical need and grievous nature of diseases like cancer, lupus, and rheumatoid arthritis has -- at least historically -- offered tremendous pricing freedom. That's starting to change; the increasing number of oncologics for renal cell cancer, for instance, means payers can choose -- based on efficacy and cost -- which medicines to prioritize without being crucified for denying care. With so much profit stemming from specialty medicines, drug makers are sure to be wary about the negotiating power of an enlarged Express Scripts: more rebating to get coverage for their meds will definitely start to eat into profits.

We'll have more to say about the implications for specialty drug spend in the coming issue of "The Pink Sheet", even as we try to understand another key unknown: how will this merger impact personalized medicine initiatives already underway at both companies?

With integration plans likely focused on simply making this massive entity work logistically, how much energy will be devoted to the interesting (but admittedly not explicitly bottom-line focused) research efforts spearheaded by Felix Frueh and company at Medco Research Institute? Paradoxically any de-emphasis on those initiatives ought to give drug cos something to cheer about. Frueh's team after all has helped resurrect warfarin use and the group looks to be doing the same thing in RA with methotrexate.

With so many questions, it's no wonder debate about the deal has reached a fevered pitch. While we dig for answers, bide your time with a spin through biopharma's latest wheeling and dealing. It's ...

AMAG/Allos: Mergers of equals can be a hard sell to shareholders (remember Biogen and Idec?). Thus it's hardly surprising that Wall Street -- and pundits -- reacted quickly and skeptically to the proposed merger between AMAG and Allos, announced July 20. Execs from both companies argue the deal helps their one-product companies move into the black, and speeds growth, helping to overcome the disappointing launches of the iron deficiency therapy Feraheme (AMAG), and oncology drug Folotyn (Allos). The companies plan to combine their sales forces to sell both drugs, via a combined team of about 75 reps. In addition, the companies claim they can achieve cost synergies of between $55 million to $60 million, by cutting R&D and administrative overhead. Yet it's hard to see the synergies afforded by two very different products. Can the sames sales reps really detail both products given the lack of overlap? Folotyn, after all, is a high-priced drug aimed at specialist doctors and a small patient population, while Feraheme has a much broader patient population and prescriber base. Thus, analysts worry the proposed merger resulted because the companies lacked any better options. (It's a case of 1+1 not even equaling 2, let alone the 3 you'd want to get to justify the integration upheaval.) It will be interesting to see if shareholders get fired up about the merger in the coming weeks; it wouldn't be surprising if significant AMAG investors like Palo Alto Investors and Adage Capital Partners objected. These firms could just as easily argue a dividend is more likely to add value than the proposed merger. --Lisa LaMotta and EFL

Pfizer/Icagen: Pfizer announced July 20 plans to buy its partner Icagen, which develops sodium ion channel modifiers for pain, as part of efforts to bolster the big pharma's capabilities in this therapeutic area and expand its newly created Neusentis research unit. Under the terms of the deal, Pfizer will acquire the outstanding 8.3 million shares of Icagen it does not already own for $6 per share. The deal is valued at $56 million, including the 11% of Icagen Pfizer already owns, the firms said. Recall the two companies have been partners since 2007 when they entered into a collaboration for the discovery, development and commercialization of compounds that modify three sodium ion channels. Over the next two years, Pfizer invested $38 million upfront, including $15 million in equity and $11 million in R&D funding. Meantime, Pfizer clearly believes there is significant market potential in new pain meds; just months after CEO Ian Read announced a restructuring to refocus Pfizer around its innovative core, the drug maker established Neusentis in Cambridge, England to develop new therapies for pain, sensory disorders and regenerative medicines. Ruth McKernan, who heads the newly minted CNS group, told "The Pink Sheet" DAILY Pfizer was increasingly interested in potential new therapies targeting ion channels. Based on this, she claims a strategic partnership with Icagen "made more sense" than relegating the biotech to working on just one or two programs. --Jessica Merrill

Allergan/Vicept Therapeutics: Wasn't it only last week that J. Michael Pearson, CEO of Valeant, notched two acquisitions in his quest to build that specialty-focused, anti-R&D outfit into an dermatological power-house "bigger than anyone else's"? Looks like Allergan is going to give Valeant a run for its money. The maker of Botox has been building its medical dermatology portfolio, and the acquisition this week of privately-held Vicept Therapeutics aids this ambition, providing the bigger spec pharma with V-101, a Phase II daily topical cream to treat the redness associated with rosacea. Under the terms of the deal, Allergan has agreed to pay $75 million upfront plus another $200 million in regulatory and development milestones. Vicept investors are also eligible to receive undisclosed payments should certain sales milestones be reached. That's a tidy -- and quick -- exit for Vicept's backers, which include Sofinnova, Vivo Ventures, and Fidelity Biosciences. The VCs only staked Vicept two years ago with a $16 million Series A, meaning the upfront payment alone affords them a 4.6x step-up on their venture dollars. (Add in the known earn-outs and the theoretical return jumps to around 17x.) With the entrance of Valeant as a prime derm player, the number of potentially interested acquirers of products in this space continues to increase. Long-considered a pharmaceutical back water with innovation essentially meaning reformulation of existing medicines into topicals, dermatology is enjoying a renaissance. Who knows? With a few more exits like Vicept's, this particular TA could have VCs crooning "I've got you under my skin."--EFL

BMS/Amira: The latest addition to Bristol-Myers Squibb’s pipeline-refreshing “string of pearls” strategy is Amira Pharmaceuticals, which BMS acquired July 21 for $325 million up-front. The deal, which could bring in another $150 million in milestone payments, centers on Amira’s fibrotic disease holdings, including idiopathic pulmonary fibrosis and scleroderma treatment AM152. Scheduled to enter Phase II later this year, the drug is one of several racing to become the first approved IPF treatment in the US. BMS also gets Amira’s autotaxin program, which has shown preclinical promise in neuropathic pain and cancer metastases. The acquisition represents a strong exit for Amira stakeholders including Avalon Ventures, Prospect Venture Partners, Versant Ventures and Novo Ventures, which have supplied Amira with $28 million in two rounds since 2005. The deal doesn’t cover certain Amira assets which will be spun out, however; a new LLC shell company has been organized to collect ongoing revenues from an existing partnership with GSK around a Phase II asthma treatment, and another has been set up for its unpartnered asthma and COPD programs, which Avalon’s Kevin Kinsella said are likely to be sold. BMS will retain San Diego-based Amira’s key scientific staff following the deal. – Paul Bonanos

Image courtesy of flickrer Lori Greig via a creative commons license.

Deals of the Week's Summer Song

Why do so many summer songs include a twinge of regret? Take “Summer Wind,” made famous by Ol’ Blue Eyes, whose lazy August tempo belies its remembrance of a lost warm-weather love at least two seasons later. Or Chad & Jeremy’s lovely “A Summer Song,” which predicts autumn's sadness even as the lightning bugs still blink. Buffalo Tom’s poetic “Summer” is vague, but it's a past-tense tale of a wasted season of lost heroes and things left behind. And while Percy Faith’s “A Summer Place” is an instrumental that’s about as easy as listening gets, it’s also the theme from an entire movie about The One That Got Away.

(Perhaps it’s only natural that a songwriter would wrap up a story a few months onward. After all, if you start in summer and stay there, you get Seals & Crofts’ “Summer Breeze,” which has confounded us for decades. Did I have jasmine in my mind all along, and I just didn’t know it?)

At any rate, perhaps there’s something we can learn from these seasonal snapshots, particularly those that depict someone special slipping away like a handful of sand through your fingers. As VCs, execs and bankers steal away to places like Aspen and the south of France (after BIO of course), it’s easy to imagine them sleeping on a deal that could’ve been.

But with one healthy licensing arrangement, a reverse-merger that took another company public, a funding in the hotly contested epigenetics arena, and more action around the industry this week, it’s clear some are keeping their oars in the water, even as many of us dream of sticking our toes in the sand.

They say that all good things must end someday, but until then, stay cool and beat the heat with…
Abbott/Biotest: Already the owner of a strong rheumatoid arthritis franchise, Abbott Laboratories now hopes it’s found a new drug that will pick up where Humira (adalimumab) leaves off when it loses patent protection in 2016. Abbott paid $85 million up-front to license German biotech Biotest’s BT-061, a Phase II anti-CD4 antibody designed to act on a T-cell regulation pathway and combat inflammatory diseases such as RA and psoriasis. Milestone payments could add another $395 million to the deal, which also includes royalties if the drug is approved and marketed. For its cash, Abbott gets worldwide rights to the drug outside of five major European markets: U.K., Germany, France, Italy and Spain. In those countries, Abbott and Biotest will co-develop and co-promote BT-061. It’s the latest of Abbott’s moves to shore up its post-Humira pipeline. Last fall, the company paid $450 million upfront to license ex-US rights to Reata Pharmaceuticals’ bardoxolone, which announced positive data today; Abbott also bought Facet Biotech for $722 million in March 2010, giving it the multiple myeloma treatment elotuzumab, scheduled to enter Phase III later this year. Both products could be marketed before Humira’s expiry if all goes well. - P.B.

Allozyne/Poniard: The latest company to execute a reverse-merger transaction and emerge as a public company is Allozyne, a conjugated protein therapeutics specialist with a focus on autoimmune disorders. Allozyne revealed plans to merge with publicly traded Poniard Pharmaceuticals, whose stock has been trading at less than 25 cents since the beginning of June and hasn’t cracked the $1 mark for more than a year. Allozyne shareholders will receive 65% ownership of the surviving company, which will keep the Allozyne name, Seattle headquarters, and CEO, while Poniard’s stakeholders will get 35%. The combined company will seek a partner for Poniard’s primary asset, the Phase III oncology drug picoplatin, while focusing its attention on Allozyne’s portfolio. That includes AZ01, a multiple sclerosis drug set to enter Phase II, and AZ17, a preclinical antibody Allozyne says has broad potential in autoimmune and inflammatory diseases. The deal sets up a path to liquidity for Allozyne’s venture investors, who have poured at least $39 million into the company since 2005; they include MPM Capital, OVP Venture Partners, Arch Venture Partners and Amgen Ventures. Poniard shareholder Bay City Capital will loan the company $2.4 million as part of the transaction. Last month, Radius Health raised funding and concurrently reverse-merged with an as-yet-unlisted shell company, intending to go public by early next year. - P.B.

AstraZeneca/Dentsply: AstraZeneca’s pending sale of its dental supplies and medical devices business, AstraTech, to Dentsply International, the world’s largest maker of dental supplies, comes with a handsome valuation and a strategic challenge: now that it is entirely a pure-play pharma, AZ will have to deliver on growth through innovative medicines. The sale of AstraTech, announced June 22, removes AZ from a business it has been in since the 1950s. Still, with sales of roughly $535 million, that hasn't been enough buck for the required operational bang. But Dentslply's offer -- at a multiple of roughly three times sales and nearly 20 times EBITDA--gives AZ plenty of dry powder, adding substantial cash to a net cash position of just $1.5 billion based on the multi-national's first quarter filing. AZ will need that money to support strategies that bolster its top line as it enters into what analysts peg as one of the steepest patent cliffs in the industry, beginning in 2012 and lasting through 2016, with the expiration of the U.S. patent of Crestor. AZ ‘s emphasis on focus has met skepticism on Wall Street, but the recent success of pure-play Bristol Myers Squibb andequally lackluster results at diversified companies like Pfizer may change some analysts' minds. - Wendy Diller

Epizyme/LLS: Well-funded epigenetics startup Epizyme already has $54 million in VC money to play with, but that hasn’t stopped it from pursuing alternate sources of capital. The Cambridge, Mass.-based startup announced that it will receive $7.5 million in new money from the Leukemia & Lymphoma Society, intended to support preclinical and early-stage clinical development of a drug targeting Mixed Lineage Leukemia. The capital, which will be delivered in installments as certain milestones are reached, will support development through Phase I of a histone methyltransferase inhibitor targeting the gene DOT1L. In January, Epizyme struck a partnership with GSK covering a defined set of HMT inhibitors that brought in $20 million upfront, with milestone payments potentially yielding $630 million. Two months later, the biotech forged a pact with Eisai around the EZH2 enzyme worth $6 million up-front and $200 million in milestones. Enthusiasm for epigenetics has run high lately, as rival Constellation Pharmaceuticals added $15 million to a previously announced $22 million round earlier this month. - P.B.

Sanofi/Medco/UBC: Sanofi-Aventis became the second Big Pharma this year to form an alliance with a clinical outcomes research organization, tapping MedCo and its United BioSource Corp. unit to deliver payer perspective on drugs still under development. Sanofi will pay Medco and UBC an undisclosed amount for their expertise, particularly in identifying patient populations for drugs before they come to market. MedCo has pharmacy claims data for 65 million Americans, which Sanofi may find useful as it develops plans for late-stage compounds such as its Phase III dyslipidemia drug mipomerson and multiple sclerosis candidate Lemtrada (alemtuzumab). The deal follows AstraZeneca’s February agreement with health benefits provider WellPoint and its clinical outcomes unit HealthPoint, intended to provide it with “real-world” data concerning cost, clinical and comparative effectiveness as it negotiates with payers. - P.B.