Washing Away Post-Deal Blues With A De-Sanofizer

There's nothing like a gathering of insiders to generate some candid chat about the latest doings, and that's what you can hear at the BioWindhover Pharmaceutical Strategic Outlook conference this week at the Grand Hyatt Hotel in New York. Despite threatening forecasts of snow and more snow (and it's falling heavily right now), some 300 or so people have gathered to swap tales and insights into the latest dealmaking trends.

On the topic of back-end loaded deals, Shelagh Wilson, a GlaxoSmithKline vice president who heads the European arm of the drugmaker’s Center of Excellence for External Drug Discovery, said Glaxo is making a point of adding milestones for achieving reimbursement, not just for achieving regulatory or sales goals. "What is driving all of this is the pressure from the payers for us to produce differentiated medicines, and the risk associated with that,” she said. “We’ve got to be innovative, not just in the drugs we bring forward, we’ve got to be innovative in the early stages of drug discovery, and that means taking more risk."

Of course, a perennial wild card for investors is gauging the FDA's next move, not only as a result of safety scandals - can you spell Vioxx or Avandia? - but with the hiring last year of FDA commish Margaret Hamburg, who continues to insist the agency will become more responsive to such problems. "The biggest issue with us for our in-licensing deals (for our portfolio companies) is misprojecting where FDA is going with regards to safety or efficacy," said Brian Atwood, managing director of Versant Ventures, explaining why his firm doesn't make investments in cardiovascular or metabolic opportunities.

Hoyoung Huh, meanwhile, garnered the day's biggest laugh. The chairman of BiPar Sciences, which Sanofi-Aventis acquired last year for $500 million and now operates as a wholly owned, independent subsidiary, confessed that retaining BiPar's culture can be challenging. So what did some employees do to underscore the point? "If you walk into the BiPar offices, the first thing you do is walk up to a hand sanitizer and it's called 'de-sanofizer,'" he said with a big grin. "It's not that we're trying to be rambunctious or nasty, though." And who was sitting two seats away? Sanofi's Philippe Goupit, vice president of corporate licenses.

Dispatch from BIO-Windhover: When Licensing Bleeds Value from Biotech

Biotechs have always relied on four sources of financing: venture capital, public equity, M&A and alliances. When one or the other of these chair legs has weakened, biotechs have been able to lean on the others. But VC isn't enough; public equity has disappeared; and while there's certainly more M&A than there ever has been in biotech, with roughly 10 private acquisitions of any significance per year, and a third the number of public acquisitions, investors can hardly count on such purchases to give them the minimal returns they require.

Which means alliances are more important than ever. And it's difficult to argue with the fact that they're increasing in value, as the chart above -- part of Roger Longman's introduction to a panel discussion today at BIO-Windhover -- suggests. Not shown on this slide but also according to the data, average upfront payments are increasing as well.

In equity terms, alliances are great sources of non-dilutive capital given the stinginess (or perhaps outright disappearance) of the public equity markets.

The problem is that alliances too often inflict dilution of overall corporate value.

For private biotechs being steered toward an exit by venture backers, alliances are only a net positive if they don't overcomplicate the buyout math and undermine what might be a lucrative acqusition later on. In some cases a license can precipitate a takeout; in the case of Shire's deal-then-acquisition of New River, and Amgen's deal-then-acquisition of Abgenix, the original deals struck by the acquirers amounted to "buying an option to be first in line" at the M&A table, pointed out Campbell Alliance's Ben Bonifant.

For platform technology companies the balance is slightly different, pointed out Alnylam president and CEO John Maraganore, who noted that Alnylam "would do more deals like the Roche transaction," though that lucrative deal (which we wrote about here) would only be replicable perhaps "a few more times" before the value of doing a deal was outweighed by the resultant dilution of the technology rights to Alnylam's RNAi platform. To reduce that risk, he said, in future deals Alnylam may choose to retain certain additional rights to resulting drug candidates.

But granted that financial or strategic necessity dictates a product licensing deal, does retaining some important segment of commercial rights keep enough value for investors, particularly public investors, to remain interested?

Not as important as keeping development rights, argued Bill Slattery of Deerfield Partners. But that's usually not practical, argued Lisa Ricciardi (former licensing SVP at Pfizer and now an adjunct partner at VC Essex Woodlands). Drug companies would rather their biotech alliance partners stick to their knitting: research-based start-ups require different skillsets than development stage companies which are again different beasts than commercial ones. "Most larger companies would argue that they have all the capabilities necessary to do development themselves, and they'd prefer a straight license," she said. Sharing development is only something pharma does if it absolutely has to, she said. The risk of coming up with contradictory or confusing data from different trials by different organizations is simply too great.

"I don't totally disagree with you," chimed in Atlas Venture's Jean-Francois Formela, "but in order to be sustainable a biotech has to grow up and migrate from one stage of organization to the next." Though there is value in generating IND candidates for pharma (as firms like Plexxikon have shown), "you can't remain an IND generator forever," he said.

More important from his point of view, said Deerfield's Slattery: pharma frequently chases the big indications for a biotech's programs, too often missing or simply disregarding the indications for which they might be better suited -- as GlaxoSmithKline pursued the big markets of solid tumors for Cytokinetics' kinesin program instead of smaller-market leukemias. The result: the licensing deal ultimately bleeds value.

In short, even a lucrative co-commercialization right won't preserve a biotech's value if the development program is built to suit the Big Pharma's commercial ambitions, not the molecule itself.

Deals of the Week: March Madness

It's that time of year again. The nip in the air is almost gone; the birds have returned from their southern haunts, and madness grips the nation as men, women, and children suddenly grapple with one of spring's deepest mysteries: NCAA brackets.

But before you place your bets in the office pool, take a moment to review the madness that has gripped pharma land this week. 2007 may have been a tough year for J&J, but CEO Bill Weldon isn't taking it on the chin--his executive pay package increased 10% to $31.9 million. Merck's CEO, Dick Clark, also earned a hefty 80% raise. Meantime heparin continued to dominate the news (no pictures please), while an FDA advisory committee recommended placing new restrictions on the anemia drugs Epogen, Aranesp, and Procrit. And Pharma's vultures began circling Wyeth after the company and its partner Progenics Pharmaceuticals announced that their intravenous bowel drug, methylnaltrexone, failed in Phase III to improve GI function after surgery. Moreover, Wyeth withdrew its European application for the approval of Pristiq for menopausal hot flashes, citing the need for more data. Thank goodness the FDA approved that same medicine for depression last month; frustrated Wyeth execs might need it. (Alternatively maybe they should indulge in a glass of New Jersey's finest tap water. It could be just as potent.)

Here's a look at this week's mad, mad deals:


EUSA/Cytogen: Two-year old spec pharma EUSA Pharma continued pursuit of its rapid product- and infrastructure-build-up this week with the $22.6 million cash acquisition of US oncology and pain control group Cytogen Corp. EUSA—whose ambition is to become the next Shire—spotted a good moment to buy the ailing US group, whose shares have fallen steadily since early 2007, in part due to poorly-focused management. (See this IN VIVO Blog post for more.) Unlike most other spec pharma, EUSA’s goal has been to establish from the outset a business in Europe and in the US (as its name suggests). A tall order for a start-up, perhaps, but one that allows it to access a wider pool of product opportunities, larger growth potential, and to avoid the trap that many other European spec pharma hopefuls have fallen into: lack of focus. (See this IN VIVO feature for more background.)

AZ/Silence: Whatsamatta, our haiku wasn’t enough? Perhaps we were being unfair to Silence Therapeutics and AstraZeneca, who signed a deal in RNAi delivery yesterday. The financial details remain undisclosed and they probably don’t amount to much up-front anyway, and that’s just fine—the story here is the application of Silence’s proprietary Atuplex RNAi delivery system to the molecules AZ is developing against targets in the two firms’ earlier collaboration, which will probably net Silence some additional cash down the road. In addition, AZ and Silence are combining forces to develop novel delivery technologies in the RNAi space; the resulting delivery tech can then be used independently by either firm.

Lilly/Transition Therapeutics: Late in the week, Lilly announced it was teaming up with Transition Therapeutics to develop and commercialize the biotech's gastrin based therapies, including the lead compound TT-223, which is currently in early Phase II testing. Gastrin based therapies are an emerging class of drugs to treat Type 2 diabetes; preclinical and early human trials have shown they provide sustained improvement in glycemic control. Deal terms were very small, especially considering that TT-223 has already reach proof-of-concept: Transition receives just $7 million in an upfront payment and as much as $130 million in downstream sales and development milestones. No doubt the novelty of the class played some role in the low upfront. It's also possible that new draft guidelines issued in February by the FDA that recommend ratcheting up patient enrollment in Phase III trials of drugs tested for Type 2 diabetes may also have played a role. Many analysts believe those new guidelines were a key reason Lilly scrapped its partnership with Alkermes to develop the Phase III AIR Insulin program.

Reed-Elsevier/Windhover: On Monday, M&A got personal for the IN VIVO Blog. Reed Elsevier, publishers of Cell, Neuron, Lancet, and a host of other mags, acquired Windhover. Undoubtedly there will be synergies (sorry, we had to use the word) with another of Elsevier's offerings: FDC Reports, publishers of The Pink Sheet and The Gray Sheet. (Some mergers really do add value.) Meantime, we writers are muddling through the transition and speculating about the undisclosed deal terms. (Staffers are always the last to know.) If you've got information--or gossip--feel free to drop us a line.

Wyeth/Curis: In addition to dealing with the methylnaltrexone fall-out, Wyeth also announced Monday that it was ending its four-year collaboration with Cambridge biotech Curis Inc. to develop small-molecule treatments to treat stroke and cardiovascular conditions. The original collaboration gave Wyeth exclusive rights to Curis's hedgehog protein agonists for neurological disorders, while Curis kept the rights in other indications, including wound healing, hair growth, and bone disorders. (Hedgehog proteins play an important role in cell physiology and have been an important source of new pharmaceutical targets.) Deal terms at the time were small: Wyeth paid Curis a $3 million licensing fee and agreed to provide research funding for several years. Daniel Passeri, Curis's CEO, remained upbeat, saying "We remain hopeful about the future prospects of the Hedgehog agonist as a potential therapeutic for various diseases and we will seek a new partner to continue advancing this program." Meantime the company is focused on its cancer programs, and announced that collaborator Genentech was taking a hedgehog antagonist molecule into Phase II trials.

(Photo courtesy of Flickr user diz8882002 via a commons license.)

Self-Portrait in a Convex Mirror: Writing about Your Own Acquisition

Given how often acquisitions have been the meat of my articles, it feels not a little odd to be writing about the subject on such a personal level.

Last week, Windhover – the publisher of this blog -- was acquired by Reed Elsevier. We'll be merging with its FDC Reports division, which publishes The Pink Sheet, among other industry newsletters.

I’m aware of the potential for self-delusion about the strategic rightness of deals and also aware that awareness is not in itself an antidote.

But – caveat emptor -- the fact is that, even seen in the convex mirror of self-interest, this deal makes sense. It gives us a chance to provide readers with an information platform stretching from daily and weekly news reporting to serious monthly analysis, informed by lots of data, on the Windhover side, about transactions, and, on the FDC side, clinical development. Windhover has long contemplated how to get into the news business that FDC publications like The Pink Sheet and The Gray Sheet have got down pat; and FDC into the kind of analysis I think we do pretty well at Windhover.

I don’t know the vast majority of my new colleagues from FDC, though I have of course long known the publications. And I know the kind of quality I’ll be working with—having lured into Windhover, back in 2005, the former president, the former editor in chief, and two other stellar FDC journalists – all four of whom, in addition to creating and running for us The RPM Report, have been prolific contributors to this Blog and to Windhover in general.

That said, there’s also no overlap between us. Along with its analytical publications, Windhover runs conferences, publishes market-research reports in the medical-device business, and puts out, IMHO, the world’s best database of industry transactions. FDC doesn’t do any of that– but does publish news-oriented newsletters in pharmaceuticals, medical devices, and OTC and consumer products—along with a stunningly compatible database of compounds in development.


The opportunity to put all of that onto a single electronic platform, to provide readers a seamless source of intelligence capable of informing a variety of decisions from a variety of points of view – financial, regulatory, commercial and scientific – is too appetizing to turn down.

Watch this space.