Deals Of The Week Wonders: Who Will Buy Onyx?

When was the last time biotech had a really juicy, successful, high-stakes bidding war? Likely the $10.2 billion Pharmasset acquisition by Gilead Sciences announced in late 2011, which since has played out quite nicely for the latter. Not only did that deal help drive Gilead shares up by about 150% since the deal announcement, but it also tipped off the start of a very long bull-run for the sector.

If Onyx Pharmaceuticals attracts a bevy of bidders, garners a tidy premium for shareholders, and proves a strong asset for an acquirer, its activities could help bolster a flagging biotech stock market. Mostly in June, the NASDAQ Biotechnology Index has shed almost all of a tidy 9% it gained in the first few weeks of May.

If a competitive Onyx acquisition plays out, a deal could come in the fall. That would coincide perfectly with a roster of large-cap clinical and regulatory milestones – which together might breathe life back into a biotech rally that’s getting very long-in-the-tooth.

For now, Wall Street seems certain that the biotech will attract a flock of suitors, culminating in a deal. In fact, Onyx shares are trading well above Amgen’s $120 per share bid, which Onyx publicly confirmed on June 30 that it had rejected. It hired Centerview Partners to contact other potential acquirers, but said it already had interest from undisclosed third parties. Onyx shares closed at $133.52 on July 3, giving the biotech a $9.7 billion market cap.

Potential bidders could include a number of pharmas with existing oncology franchises that need to bolster their bottom lines, such as Pfizer and Merck & Co. Also in line could be established players in the multiple myeloma (MM) market including Celgene and Takeda, in addition to likely pharma players betting on MM monoclonal antibodies such as Bristol-Myers Squibb and Johnson & Johnson. J&J is partnered with Takeda on MM treatment Velcade (bortezomib).

Onyx investor Oliver Marti of Columbus Circle Investors expects to see more than a half-dozen potential suitors emerge, with an acquisition taking about three months to play out. He expects other companies ultimately will prove more aggressive than Amgen, although he does expect Amgen to raise its bid. Marti thinks $140 per share would be an acceptable price.

Amgen has done only a handful of billion-dollar deals. In 2001, Amgen acquired inflammation company Immunex for $17.9 billion in cash and stock. That’s its only deal for more than a couple billion dollars. Since then, it’s done four deals in the roughly $1 billion to $2 billion range including $2.2 billion for antibody play Abgenix  in 2005, $1.3 billion in a stock swap for gene expression regulation company Tularik  in 2004, up to $1 billion in cash and milestones for cancer vaccine company BioVex  in 2011 and $1 billion in cash for antibody company Micromet in 2012, according to Elsevier’s Strategic Transactions database.

“Pfizer and Bayer are natural candidates, Takeda could be a player as well,” added Dallas Webb of BB Biotech, also an Onyx investor. He anticipates the next round of bids will start at $130 and “depending on the number of bidders should go north of that.” He expects more clarity within the next month on the acquisition process.

Various analysts have pegged a likely Onyx per-share sale price in the roughly $135 to $148 range. On top of that, there could be a contingent value right, particularly for oral MM proteasome inhibitor oprozomib. Gene Mack of Brean Capital proposed a $135 buyout share price, with a CVR of about $30 tied to oprozomib approvals in relapsed/refractory and newly diagnosed MM patients, as well as sales milestones based on up to $2 billion.

Pfizer and Bayer are major Onyx partners. Kidney and liver cancer drug Nexavar (sorafenib) as well as colorectal cancer and gastrointestinal stromal tumor treatment Stivarga (regorafenib) both resulted from the Bayer partnership. Bayer evenly splits Nexavar profits globally with Onyx, excluding Japan, and pays Onyx a 20% net royalty on Stivarga global net sales. The partners recently submitted in the U.S. and EU for Nexavar to treat thyroid cancer.

Onyx co-promotes Stivarga under a fee-for-service arrangement, Bayer has the right to terminate the Stivarga co-promote under a change-of-control agreement. But the Nexavar and Stivarga royalties would survive a change-of-control. Onyx was savvy enough to add that to an October 2011 renegotiation of its Bayer partnership, likely in preparation for a clean acquisition down the road.

Wall Street is skeptical that Bayer would buy Onyx in its entirety, although it may seek to fully capture Nexavar and Stivarga rights. Analyst Tim Race of Deutsche Bank, who covers Bayer, noted in a June 28 call that Bayer long has maintained that buying its biotech partners usually is too expensive and that, given its full pipeline, it doesn't need a major new product at this time. He added that Bayer is very hard-nosed about price and likely to walk away from a high valuation. In addition, Bayer would need to raise debt, a move that would damage its credit rating – something Race sees Bayer as unlikely to do.

Onyx partner Pfizer may be a more likely bidder, as the big pharma has made building an oncology franchise a top priority. Onyx and Pfizer have a partnership dating back to 1995 for high-profile Phase III breast cancer candidate palbociclib (formerly PD-991), which recently received breakthrough therapy designation from FDA.

Onyx stands to earn an 8% royalty on palbociclib should the compound get to market. That revenue stream could amount to almost a half-billion in 2026, when analysts expect the drug could generate around $6 billion in sales. If Pfizer really believes in this product, it might be motivated to capture all the palbociclib upside and also add likely blockbuster multiple myeloma drug Kyprolis (carfilzomib).

Existing MM competitors also are likely Onyx acquirers. Celgene's revenue is underpinned largely by MM immunomodulator Revlimid (lenalidomide), which increasingly is being used and tested in combination with Onyx’s Kyprolis. Takeda and J&J market MM proteasome inhibitor Velcade (bortezomib), which Takeda gained when it bought Millennium Pharmaceuticals Ltd.. With the same mechanism of action as Kyprolis and a 2017 patent expiry, Takeda likely needs a replacement. For now, it’s focused on developing its own oral MM proteasome inhibitor, MLN9708.

BMS and J&J also have bets on MM monoclonal antibodies, which are expected to bear fruit in the next few years. AbbVie and Bristol are partnered on Phase III elotuzumab, while Genmab and Janssen Biotech, a unit of J&J, have Phase I/II daratumumab. Daratumumab has Fast Track and Breakthrough Designations for fourth-line MM. These are likely to be used sequentially or in combination with Kyprolis, making Onyx a potentially good fit.

Speculation already has started about which biotech with potential oncology blockbuster companies could be next for a potential take-out. Mark Schoenebaum of ISI Group suggested Ariad Pharmaceuticals, Seattle Genetics and Medivation.

A long Onyx sale saga is likely just at the beginning of unfolding. While DOTW waits for the next shoe to drop, take a look at some actual deals in this week's edition of …

Pfizer/Bioventus: Pfizer will license worldwide rights to its bone morphogenic protein (BMP) portfolio to orthopedic biologics specialist Bioventus. In return, Pfizer will receive an upfront payment, milestones and royalties. Financial terms were not disclosed. The products include a BMP in development and an rhBMP-2 in unspecified indications. The rh-BMP-2 product appears to have entered Pfizer’s portfolio with its acquisition of Wyeth; Wyeth’s pipeline as of May 2009 described a BMP-2 program with indications in fracture repair and hip osteoporosis. Pfizer has agreed to undertake certain early development work for the BMP asset in soft-tissue indications and will manufacture the rhBMP-2 for Bioventus. Bioventus was spun out of U.K. device firm Smith & Nephew with funding from Essex Woodlands in 2012. The company recently has retained the services of BMP experts John Wozney and Howard Seeherman. It plans to soon open a research laboratory in Boston to develop and commercialize the BMP assets. With this deal, Pfizer continues to cull and prioritize its portfolio. The BMP agreement follows a spate of out-licensing in the wake of the Wyeth acquisition, including the CTLA-4 monoclonal antibody tremelimumab to AstraZeneca PLC and the irreversible TKI neratinib to newly formed Puma Biotechnology, both in October 2011. -- Mike Goodman

Merck/Xencor: Xencor already has a string of big pharma partners, but the small California-based biotech is hoping to get the financial flexibility to bring its own internal programs forward. Its latest deal brings the company one step closer to its goals.Xencor announced on July 2 that it has granted Merck a license to a Xencor Fc engineering patent for a monoclonal antibody for use in an undisclosed product that Merck is already working on. The New Jersey pharma also has an option to license the same intellectual property for future products. Merck paid an undisclosed upfront and agreed to pay annual maintenance fees, as well as milestone payments and sales royalties on any products that result. “Merck found an antibody that they needed that we had already patented,” said Xencor CEO Bassil Dahiyat. “They needed it for a use that we hadn’t thought of until they called us,” he added. The companies did not disclose what product the patent applies to or how it would be used. -- Lisa LaMotta

Avanir/OptiNose: CNS-focused Avanir Pharmaceuticals is licensing a proprietary intranasal delivery system from OptiNose for use in developing and commercializing a fast-acting, dry-powder inhaled form of sumatriptan for acute migraine. In the deal announced July 2, Avanir is paying $20 million upfront to license OptiNose’s Breath Powered delivery system; Avanir said it should be ready to file an NDA by early 2014 for AVP-825, the resulting drug/device combination product. The two companies will share development costs and work together on putting together the NDA submission. Avanir will assume responsibility for regulatory, manufacturing, supply-chain and commercialization activities for the product. OptiNose could earn up to $90 million in clinical, regulatory and commercial milestones related to ‘825, as well as tiered royalties on North American sales. Avanir says ‘825, if approved, would the first and only fast-acting, dry-powder inhalable version of sumatriptan for migraine. In a Phase III clinical trial, the OptiNose device demonstrated rapid absorption and provided relief using approximately 80% less drug than is contained in the most commonly prescribed oral sumatriptan product, the company added. -- Joseph Haas

Deals of the Year Nominee: Takeda/Millennium

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.

Takeda's $8.8 billion bid for Millennium Pharmaceuticals--the largest deal in its storied two century history--deserves a nod as deal of the year for a number of reasons.

Along with Eisai's 2007 acquisition of MGI Pharma and Daiichi Sankyo's $4.6 billion buy-out of a controlling interest in Ranbaxy (another 2008 deal of the year), Takeda's purchase of Millennium shows the determination of Japanese pharmaceutical companies to morph into global players on the biopharmaceutical industry stage. Indeed, as a group, Japanese pharmas were one of the top acquirers of private biotech from 2003 through August 2008, according to a recent START-UP article.

And their penchant for ex-Japan acquisitions is likely to continue, fueled in large part by a demanding domestic market where yearly price cuts on drugs are mandated by the government, stagnating growth, and a slower regulatory approval process. Add in pipeline pressures, large war chests of cash, and the relative strength of the yen to other currencies (a condition that gives the Japanese the upper hand in bidding wars), and its not unreasonable to believe that in 2009 Japan pharma companies will continue to be some of the industry's most active--and important--dealmakers.

But the Takeda/Milllennium deal doesn't just illustrate the prowess of Japanese deal-making. The transaction underscores another major theme at work in the industry: Big Pharma's apparently insatiable appetite for oncology products.

Think about it. In the past six months, we've seen Pfizer restructure with an eye to a more flexible future--a move that included eliminating early stage R&D in Big Pharma standbys like cardiovascular and obesity, and a greater emphasis on oncology, through the creation of its oncology business unit. Then there was Eli Lilly's October surprise--the $6.5 billion purchase of ImClone, a move that gives the Indianaoplis-based drug maker partial ownership of Erbitux plus a pipeline of targeted, but primarily early stage oncology products.

Indeed, Lilly's rationale for the ImClone deal sounded a lot like the reasoning Takeda offered up for its own bid for Millennium back in April: a need to bulk up in biologics, particularly in an indication with high unmet medical need and a smoother regulatory approval path.

Certainly, from a deal-making perspective Takeda has become the new deep-pockets of the cancer world. In 2008 alone, it inked handsome—some might argue excessive--agreements with Amgen, Cell Genesys, Millennium, and Alnylam to boost its abilities in oncology.

In its two-part monster deal with Amgen in February, for instance, Takeda spent $300 million up-front to gain Japanese rights to 13 compounds, including Vectibix, a humanized antibody to treat metastatic colorectal cancer, and purchased world-wide rights to motesanib, Amgen's Phase III angiogenesis inhibitor for various cancers. As part of the deal, Takeda agreed to purchase Amgen KK, Amgen's Japanese subsidiary, for an undisclosed price, in a bid to bulk up its large molecule offerings.

In May, the company announced one of its biggest research tie-ups yet: a deal with Alnylam worth $150 million up front for a nonexclusive license to develop drugs against oncology and metabolic disease targets using that company's RNA interference technology (another deal of the year nominee.)

But as we wrote in this feature, the acquisition of Millennium, which gives Takeda a potentially important marketed product in Velcade plus 10 other molecules in early-stage clinical trials, has to be considered the most significant--and perhaps strategically transformative--deal in Takeda's history.

Takeda's president, Yasuchika Hasegawa apparently played a critical role in pushing the deal through the company, convincing fellow executives and board members of its wisdom via a plethora of data that included financial simulations and pipeline studies. Key selling points in Millennium's favor: it offered Takeda geographic and pipeline synergies, dramatically expanding the company's commercial capabilities in the US, as well as strengthening its oncology franchise. In addition, Millennium already had in place a very capable management team, including president and CEO Deborah Dunsire, MD, a seasoned pharmaceutical veteran.

"Our typical approach when doing an acquisition is to select a target company with a proven track record where we don't need to implement major restructuring after the purchase," said Hasegawa in an interview with IN VIVO following the deal's announcement. But analysts have roundly criticized the deal for its expense, the lack of revenue generating products it provides, as well as the near-term quarterly hit on earning growth it will necessitate. Back in May, Takeda predicted that integrating Millennium would reduce the pharma's profit by 55% this year alone. In a November update, the company revealed just how much the acquisition cost its bottom line: ¥137.7 billion, reflecting in part the adverse impact of the U.S. economic slowdown.

Even so, six months later, it looks to have been a smart move. Velcade's approval in June as a first-line therapy for multiple myeloma has dramatically increased sales of the drug. In early December came news that worldwide sales of the product eclipsed $1 billion for the first-time. Moreover, a spate of positive news at the annual American Society for Hematology meeting suggest that the drug will remain a cornerstone of myeloma treatment for years to come.

And the truth is, Takeda' emerging cancer franchise, with Velcade as its cornerstone, is the company's lone bright spot. Recall that Takeda's two biggest money-makers, Actos and Prevacid, will go generic in 2013, at which time analysts expect profits from those drugs will drop 35% and 26% respectively. But thanks to late-stage clinical failures and missed PDUFA dates there's little beyond Velcade to make up the revenue gap.

Put another way: without eggs such as Velcade--and to a lesser extent Amgen's Vectibix--Takeda's basket of products would be decidedly empty.

Earlier this year the company announced it was shelving TAK-475, a novel cholesterol lowering drug in Phase III clinical trials, and matuzumab, a humanized antibody targeting the EGFR receptor under development with partner Merck KGAA. In late summer came news that the Phase III GVAX prostate cancer vaccine developed by Cell Genesys (for which Takeda paid $50 million upfront in a deal announced March 2008) failed to show efficacy in two different clinical trials. On October 17, Takeda officially pulled the plug on GVAX.

And the bad news kept coming. As October slid into November, the Japanese pharma announced the FDA has missed PDUFA dates for both its Prevacid follow-on TAK-390MR and its DPP-IV inhibitor, alogliptin. Both drugs fall squarely into the category of primary care drugs with high bars for regulatory approval.

TAK-390MR treats gastro-esophageal reflux disease, a non life-threatening condition well-treated by generic meds such as Zantac and Prilosec (and soon to be generic Prevacid). If regulators have any concerns about potential safety signals--Takeda attributes the delay to a backlog at FDA not something more sinister--they may be taking their time to evaluate the drug's application.

In the case of alogliptin, the drug's approval may be delayed due to shifting guidelines on diabetes meds. On Dec. 18, the agency put more stringent guidelines related to cardiovascular safety criteria into place for diabetes medicines. The new guidelines appy to all drugs in development or currently under agency review.

But to date, Takeda's oncology franchise is holding its own. Three out of six products in development registered advances. In addition to the dramatic uptick in Velcade sales, Takeda's TAP-144-SR for prostate cancer won marketing approval in Austria and Germany this year; and the colon cancer drug Vectibix recently completed Phase III trials and is pending approval in Japan.

No wonder its oncology all the time at Takeda these days.

beautiful basket of chicken eggs courtesy of flickr user woodleywonderworks through a creative commons license.

Currency Threats: Bioterrorism Defense

The U.S. biopharmaceutical industry may be trying to seal the borders again: this time the prime threat is not re-imports from low-price or price-controlled markets but corporate acquirers armed with high value currencies.

The battle over reimportation has gone on for the better part of a decade, and the industry hasn’t gotten a sympathetic response. But biopharmaceutical companies may get a more favorable hearing from a broader scope of politicians to a new form of protectionism.

Takeda’s $8.8 billion cash purchase of Millennium (see here) dramatizes the power of the currency-enhanced foreign acquirers. If Takeda had made the same bid (in dollars) a year ago, it would have spent about 15% more in yen.

At least Millennium’s market cap in dollars rose over that time. A lot of other US based companies haven’t been so fortunate, meaning that they are now doubly vulnerable to an unwanted takeover bid from overseas: not only is their stock price down, but the declining value of the dollar in Yen or Euros compounds that impact.

The combined effect of the depressed dollar and a weak stock position is most evident in a company like Schering-Plough, where the total market capitalization is about 50% of what it was a year ago (currently at roughly $28 billion). With the yen up in value by 15% over a year ago and the Euro in similar position, if there ever were a bargain time for a company looking at Schering-Plough (Vytorin problems and all) it would be now.

Schering Plough CEO Fred Hassan declared last Friday that his management team would “power out” of the Vytorin decline, but the advantage offered to potential foreign purchasers suggests more of a power outage than a power-out.

Some parts of the US biopharma sector may be able to seek political protection from unwanted foreign purchase offers. When biotech was new, some start-up companies and research centers were able to elude offers by overseas entities by making politically potent arguments about the value to the nation of protecting the lead in a new science and new technology. The Scripps Clinic, for example, had to rework a 1993 agreement with Sandoz (Novartis) after members of Congress questioned what they saw as a transfer of taxpayer-supported research at Scripps to an overseas company.

Biotech is, obviously, no longer the exclusive province of US science, and protectionist sentiments haven’t stopped major infusions of foreign capital from coming to the rescue of the domestic banking system.

But that doesn’t mean there aren’t arguments to protect US biomedical research companies from foreign ownership. In recent years, there has been a renewed interest in protecting sectors that relate to responses to bioterrorism or reducing the vulnerability to attacks.

Concern about foreign purchases moved to the forefront of Congressional attention about two years ago when a Dubai company wanted to take over the operation of six major US ports. The resulting debate centered on creating procedural hurdles to discourage future purchase offers that affect companies deemed important to national security. (See here).

Managements who want to fend off ex-US offers may find a sympathetic Congressional ear if they have medical technologies in their research labs that serve as countermeasures or protections against bioterrorism events (such as vaccines or antidotes). It may behoove some US-based pharma firms to rekindle their efforts in biodefense.

UPDATE: Thanks to an alert reader for pointing out that we had garbled our facts a bit in describing the Sandoz/Scripps brouhaha 15 years ago. The point was correct--some in Congress objected to what they saw as a national interest threat from an agreement between a leading US research institution and a "foreign" firm.

Deals of the Week: Billions!

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

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

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

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

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

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

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

Takeda/Millennium: The Price is Right

Just one week ago, on a blustery early spring day, this IN VIVO blogger crossed the bridge into the PRC--that's the People's Republic of Cambridge--to speak to Deborah Dunsire, CEO of Millennium Pharmaceuticals, for an up-coming feature focused on the biotech's near-term stategy. Most of the discussion was about Velcade and the company's plans to build that drug into a multi-billion dollar cancer franchise through label expansion.

Millennium hit its billion dollar jack-pot a bit sooner than expected. On April 10, Takeda announced it had agreed to acquire the Cambridge-based biotech for $25-a-share in an all-cash tender worth roughly $8.8 billion. If the deal terms remain the same, Millennium will make its biotech exit with the 8th largest market value in that industry--roughly twice as much as the next ones in line, Cephalon, ImClone, and Vertex.

Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets.

From the day Dunsire arrived at Millennium from Novartis three years ago, pundits predicted that the biotech’s days as an independent entity were numbered. Many expected that Dunsire would off-load the company to Johnson & Johnson, whose Ortho Biotech division owns ex-US rights to Velcade. But apparently Takeda was the only serious bidder for Millennium.

Takeda is clearly the new deep pockets in the cancer world. (Remember its $640 million two-part, 13-compound, mostly Japanese deal with Amgen and its even more recent $320 million worldwide deal for Cell Genesys’ GVAX prostate cancer prostat program?) But it also has the tremendous advantage of the dollar’s low value relative to the yen. That’s why Takeda could afford to pay the 65% premium to Millennium’s Wednesday closing price, even without a share of those valuable ex-US Velcade rights owned by J&J. It's a deal that would have been impossible from any US player.

So what is Takeda getting? In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium's fate--barring some kind of external business transaction--was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. In other words, at Millennium it was all Velcade all the time.

Roughly 55,000 patients in the US have multiple myeloma, and only half--those who have refractory cancers that haven't responded to other treatments--are currently eligible to receive Velcade. In December, Millennium submitted a supplemental new drug application for Velcade's use as a front-line agent based on strong clinical data presented at last year's American Society for Hematology meeting. A positive regulatory decision, widely expected by June 2o, would double the drug's market, sending already strong Velcade sales soaring.

Back in January, Howard Liang, an analyst with Leerink Swann, wrote in a research report that "the current Street consensus significantly underestimates Velcade's growth in the next two years," and predicted 2008 and 2009 Velcade sales of $379 million and $488 million respectively. (In a separate press release issued Thursday, Millennium noted that first quarter 2008 sales of Velcade were $83.5 million, a 13% increase over fourth quarter 2007 sales and a 42% increase over the first-quarter of last year.)

Add in potential label expansion into another form of cancer, follicular lymphoma, an event widely expected to happen in 2010, and one begins to see the product’s growth trajectory. “Velcade is enough to sustain the company. We feel confident we can deliver on the pipeline,” Dunsire insisted last week.

Or maybe not. Dunsire admitted that despite step-ups in Velcade's growth, in-licensing a late-stage cancer asset would go a long way to “evening out the bumps” as the company looked to shepherd its other products through clinical development. Still, she was adamant that the company was “under no pressure to do a deal” and it surely wouldn’t overpay for the privilege.

But it’s almost certainly the case that Millennium would have had to pay a pretty penny for any oncology product expecting near term approval. Such assets are rare, and with pharmaceutical companies eyeing such specialty markets with greater favor, the competition for rights to these products is intense. Recall that about 18 months ago, Millennium tried—and failed—to acquire the Canadian biotech AnorMed, which had Mozobil, a small-molecule CXCR4 chemokine antagonist in Phase III clinical trials for hematopoietic stem cell transplantation and non-Hodgkin’s lymphoma. Despite the obvious sales synergies with Velcade, Millennium refused to get caught in a bidding war, and bragging rights for Mozobil ultimately went to Genzyme for $584 million.

In today’s market, where deep-pocketed pharmaceutical companies are competing with mid-sized biotechs for valuable assets, prices are likely to go much higher. And cash-poor Millennium—the company had about $900 million in cash on its balance sheet at the end of 2007—probably doesn’t have the financial wherewithal to buy a product and simultaneously invest in its pipeline. (For those keeping track, Millennium hasn’t done a significant acquisition since it bought Cor Therapeutics in 2001.)

So the company was forced into its “All Velcade” strategy. Until Takeda entered stage right, that is.

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.

At February’s BIO CEO conference in NYC, Dunsire noted the company was anticipating the need to “aggressively manage its portfolio,” and was shopping around non-core assets, including atherosclerosis and inflammatory disease products. Without a sudden windfall, the company might have been forced to give up rights to products with more strategic value, such as the second generation, orally administered proteasome inhibitor MLN-2238, which is scheduled to begin Phase I trials later this year.

Thanks to Takeda, Millennium execs can delay such hard decisions.

Third Rock's a Charm

It’s one of the oldest stories out there. Successful management team, a few years removed from running their own successful biopharmaceutical company, decide to get back into the business by raising their own venture fund.

In the past, such an effort might elicit some snickers. But this is likely to be a story with a happy ending. Third Rock Ventures—a venture firm started by four former Millennium Pharmaceutical executives—is out raising $300 million for a first-time venture firm, an effort one institutional investor already has deemed a “hot commodity.”

The team includes former Millennium CEO Mark Levin, who actually is returning to his venture capital roots. Levin was a partner at Mayfield when he started Millennium and left in 1994 to run the company.

Levin joins Robert Tepper, Millennium’s former head of research and development at Millennium, Kevin Starr, Millennium’s former CFO, and Nick Leschly, who had been the project leader for Velcade. (Nick is the third Leschly to become a VC, joining father, Jan of Care Capital, and brother, Mark, who is with Rho Capital.)

No details yet on the strategy, but some expect Third Rock to look at early-stage, product-focused companies. "True venture capital," in the words of one IN VIVO Blog source.