Deals of the Week Plays Moneyball

Sometimes picking a winner is easy. But if you ask a baseball general manager, a moviegoer, or a private equity investor, it's the hidden gems, the fixer-uppers, and the unexpected turnarounds that can be the most satisfying. Such salvage cases lie at the heart of Michael Lewis's 2003 book Moneyball, now a major motion picture, a baseball movie that isn't just that. The story of the Oakland Athletics' shoestring-budget team that enjoyed an amazing 20-game winning streak in 2002, it's described by Roger Ebert today as "a brainy baseball movie about cost-benefit analysis," an underdog story that incorporates business savvy, an understanding of human nature, and the relationship between analysis and instinct. (And if Hollywood can turn a book written by a business journalist about football into an Oscar-winning Sandra Bullock star turn, maybe Moneyball itself will be an unlikely success.)

For some drug makers, finding value in compounds where others don't see it is their own game of moneyball. As we'll discuss in an uncoming IN VIVO feature, central nervous system drug maker Jazz Pharmaceuticals went from trading under $1 in 2009 to a 52-week high of $47.88 this week, on the strength of several critical decisions that maximized value of underappreciated assets. It shuffled its priorities multiple times, eventually focusing on narcolepsy treatment Xyrem (sodium oxybate) -- at one point considered a backup plan, now a fast-growing, $200-million-plus-per-year drug -- while pulling additional value out of Luvox CR (fluvoxamine), a controlled-release version of an SSRI that had fallen out of favor in prior years and was withdrawn from the market by Solvay Pharmaceuticals. It's resulted in a windfall for Jazz as well as its PE stakeholders, including Kohlberg Kravis Roberts and Longitude Capital.

This week, Jazz hopes to have found another Scott Hatteberg, one of Moneyball's hidden talents, in Azur Pharma Ltd., an Irish specialty pharma with which it shares several traits in common. California-based Jazz used its strong equity position to merger with Azur in a stock transaction, giving its shareholders about 80 percent of the combined company. The deal will also allow Jazz to move its headquarters to Dublin, potentially resulting in a massive tax savings. Though many of Azur's strengths lie in CNS drugs, the deal also gives Jazz a beachhead in women's health. Analyst Gene Mack of Mizuho Securities USA wrote in a research note that the newly combined entity, Jazz Pharmaceuticals PLC, could even exceed its projection of $475 million in its first 12 months of existence.

If only the Oakland Athletics could relocate somewhere close to home that would allow them to generate more revenue. (Somewhere very close to the computer on which these words are being written, an Athletics season ticket holder sighs.) As they look up at the teams headed for the playoffs, we invite you to have a look at...

Bristol-Myers Squibb/Ono Pharmaceuticals: In a transaction that involves no cash moving in either direction, Bristol-Myers Squibb has expanded its territorial rights to an oncology antibody acquired in its 2009 purchase of Medarex, while Ono Pharmaceutical gets co-development and co-commercialization rights to rheumatoid arthritis drug Orencia (abatacept) in Japan. Ono can earn unspecified royalties if the antibody, BMS-936558/Ono-4538, an anti-programmed cell death (PD-1) antibody in clinical development in multiple types of cancer, reaches market. Bristol Senior VP-Strategy, Alliances and Transactions Jeremy Levin cautions not to consider this deal merely an asset swap. “It’s less a swap than it is an understanding that we have different strategic imperatives,” Levin said. “So we trade the value of an existing product that we like a lot, Orencia, for a product that we think helps build a tremendously important part of the immuno-oncology franchise.” Under the Sept. 20 agreement, Bristol’s rights to BMS-936558 expand to the entire world other than Japan, Korea and Taiwan; Ono will retain rights to the antibody in those markets (In the original Medarex/Ono deal, Medarex received North American rights to the antibody.) In the U.S., ’558 is in Phase I and Phase II trials in a variety of tumor types and treatment settings, Bristol says, including renal cell carcinoma and melanoma. Ono has advanced the compound to Phase II in melanoma in Japan.—Joseph Haas

Bristol-Myers Squibb/Ambrx: In the second deal under its “String of Pearls” strategy in two days, Bristol acquired worldwide rights Sept. 22 to two preclinical biologic candidates, one for type 2 diabetes and the other for heart failure. Ambrx will receive a $24 million upfront payment from Bristol in exchange for worldwide rights to research, develop and commercialize both ARX618, a fibroblast growth factor 21 (FGF 21) protein nearing the completion of preclinical development in type 2 diabetes, and an optimized version of relaxin hormone in earlier preclinical development for heart failure. The deal is Ambrx’s latest using its site-specific conjugation technology platforms to optimize molecules for big pharma partners, but also its first in two years. Ambrx optimized the two large molecule compounds for development using its ReCODE (Reconstituting Chemically Orthogonal Directed Engineering) technology platform. This technology allows the San Diego-based biotech to modify native proteins with amino acid building blocks beyond the common 20 amino acids known to nature to engineer enhanced candidates for therapeutic use. Beyond the $24 million upfront payment, Ambrx also is eligible for milestone and royalty payments on both programs. Of the two programs, ARX618 is said to be closer to entering clinical development. — JAH

Merck Serono/Peptimmune: Merck Serono, the pharmaceutical division of German conglomerate Merck KGaA, acquired the worldwide rights to PI-2301, a Phase II-ready candidate for multiple sclerosis, from cash-strapped Peptimmune on Sept. 19. While the official news release did not mention it, Merck Serono confirmed to DOTW that it paid $1.5 million up-front to Peptimmune for the rights to PI-2301, a second-generation peptide copolymer thought to offer the potential to enhance the immune system’s regulatory response. The compound has completed a Phase Ib study in MS, but Peptimmune, which is in the process liquidation after filing for bankruptcy earlier this year, no longer had the ability to advance the candidate further. PI-2301 which has a mechanism of action similar to Teva’s Copaxone (glatiramer), is believed to offer potential in a number of autoimmune indications, including Crohn’s disease, rheumatoid arthritis and uveitis. — JAH

Merck & Co./FKD Therapies Oy: Finland is considered by some to be a hotspot for gene therapy research, and is the location of a new company, FKD Therapies, set up to exploit a bunch of gene therapy assets found to be surplus to requirements at Merck. The Finnish company, led by gene therapy veteran Nigel Parker, formerly CEO of Ark Therapeutics, has licensed an alpha-interferon gene therapy from Merck, and has options on two other potential gene therapies. The alpha-interferon gene therapy is slated to go into Phase II trials for the treatment of bladder cancer next year. Along with other Big Pharmas, Merck has not been particularly prolific in licensing out technology and products that have fallen outside its tightened therapeutic focus, post-merger with Schering-Plough; the FKD Therapies deal is believed to be one of Merck's largest out-licensing deals in recent times in the pharmaceuticals arena. The U.S. company has taken an equity stake in FKD Therapies, which is also backed by the German investment bank, Wolbern Invest. FKD Therapies also has options on a recombinant adenoviral p21 gene to treat glaucoma surgery failure, and on a conditionally replicating adenoviral technology for the treatment of solid tumors. — John Davis

Deals of the Week Hopes Its Labors Aren’t Lost

When bidding for a union contract, it’s essential that one’s proposals wind up in the right hands. That’s one lesson that can be taken from Shakespeare’s Love’s Labour’s Lost, which draws much of its comedy from a series of letters whose private content ends up in more public hands. As the characters’ secrets are revealed in a sort of 16^th Century version of a botched reply-to-all, hilarity ensues. All’s well that ends well in this one, because everyone wants to get together as the curtain falls.

But unwanted and misdirected proposals are a lot less funny. In matters of love, they break hearts. In other realms, the results can be disastrous as well – like, say, the realm of biopharma deals. (Ham-fisted a transition as that may be, you knew I’d get there somehow, didn’t you?) For example, if you’re Canada’s Paladin Labs – last spotted in another recent literary-minded installment of this column, complete with dusty Brit – you’ve laid down a glove for cold medicine maker Afexa Life Sciences, only to witness the gallant entry of a white knight from stage left, Valeant Pharmaceuticals, ready to exeunt with its prize. (More on that later.)

Sometimes, though, all it takes a little persistence to be appreciated. Pfizer, for example, has been courting pain drug developer Icagen for years – their partnership was initiated in 2007 – but only recently expressed a desire to put a ring on it and acquire the company outright. But although its $6-per-share offer for the portion of the company it does not already own has garnered the support of Icagen’s board, it hasn’t yet won over all the necessary shareholders, some of whom are holding out for what they perceive as fair value for the company’s assets.

As of this writing on Friday morning, the deal is very close to being done, with just a few thousand shares standing between rejection and betrothal. Pfizer has extended its tender (trap) offer twice, with Icagen’s decision expected by late Friday afternoon.

With that in mind, perhaps we’ve got a rarity for this Labor Day weekend: a cliffhanger episode of…


Valeant/Afexa: With two highly acquisitive companies bidding for Afexa Life Sciences, the maker of Cold-FX flu medicines, only one could win its heart. Already in the midst of a buying spree, Canada’s Valeant Pharmaceuticals proposed a sweeter -- and friendlier -- deal than rival bidder Paladin Labs for Afexa, swooping in with a white-knight offer on Aug. 30. Valeant’s cash bid is worth 71 cents per share, or about $76 million, a 29% premium to Paladin’s hostile bid of 55 cents per share, or $56.7 million. The new offer from Valeant will give Afexa another 30 days to weigh any other better offers. Valeant has the option to match any higher offers or opt for a $3.75 million termination fee. Valeant has made several acquisitions this year, largely adding to its dermatology business. Afexa, however, is destined to be slotted in with Valeant's over-the-counter products portfolio, according to CEO Michael Pearson. Paladin, meanwhile, has been on a spree of its own, most recently acquiring drug formulator Labopharm last month; it hasn't yet decided whether it will improve its offer. – Lisa LaMotta

Merck/ZymeWorks: Privately-held ZymeWorks of Canada inked its first Big Pharma partnership this week, worth an undisclosed upfront plus research, development, and regulatory milestones totalling up to $187 million (that’s US dollars). As early stage research collaborations go, the Merk/ZymeWorks deal is pretty standard. There’s no yearly R&D support in addition to the upfront; the relationship is also target specific, meaning it doesn’t preclude the start-up from partnering its technology, which creates so-called bi-specific antibodies, with other interested parties. Because it raises the 8 year-old company’s profile far higher than the biotech’s prior deals (which in terms of industry have been limited to Xoma) and therefore could be the springboard to larger, more lucrative alliances, the Merck tie-up is an important landmark. That’s undoubtedly what CTI Life Sciences, ZymeWorks’ main backer is hoping. Whether an acquisition eventually transpires will likely depend on how well molecules derived from the biotech’s proprietary Azymetric platform perform in the clinic. Back in the 2006 to 2007 time frame, biopharma rushed to lock up next-generation antibody capabilities, as companies like Bristol-Myers Squibb (Adnexus), GlaxoSmithKline (Domantis) and Merck (GlycoFi) tried to bolster their in-house biologics expertise while accessing validated targets locked up by first generation technologies. That trend has largely switched to licensing – most next-gen antibody players are still so early that risk averse pharma doesn’t want to spend the money acquiring platforms that may only be useful in the creation of specific compounds. – Ellen Licking

Adimab/Novo Nordisk and Adimab/Biogen Idec: Adimab, a purveyor of yeast-based antibody discovery technology, this week announced separate two-program discovery deals with Novo Nordisk and Biogen Idec (pdf), and said it was on pace to double its number of partnered candidate programs for the second straight year. Adimab CEO Tillman Gerngross said the privately held company now has 24 partnered programs and is aiming to finish the year with 35 - five in 2009, 10 in 2010, and 20 this year. Two programs might not sound like a lot, but unless either of those companies -- or any of Adimab’s eight other biotech or Big Pharma partners – wants to ante up some serious cash to bring Adimab’s technology in-house, that’s all they’ll get. Currently, explained Gerngross, Adimab limits partners to two programs apiece. Biogen and Novo, for example, each have selected two undisclosed targets against which Adimab will deliver fully human antibodies. The big biotechs get options to commercialize antibodies generated through their collaborations and Adimab gets upfront payments and preclinical and clinical milestone payments and royalties. Those and other existing deals are structured as project-based research licenses and companies later can opt for a commercial license around a program (so far only Merrimack Pharmaceuticals has done so, around MM-151, a three- antibody cocktail designed to bind three distinct epitopes of the epidermal growth factor receptor). Gerngross says the company typically commands $10 million to $20 million in total pre-commercial milestones and a mid-single-digit royalty per program, a price he describes as "in-line with competing technologies." Adimab's involvement in the programs begins and ends with antibody discovery, a process that typically takes eight weeks. So far Adimab has built a successful business on discovery, on the cusp of positive cash flow and no need to raise additional cash. Time will tell if it can sign the kind of big-money partnerships that would give its venture investors a successful return. - Chris Morrison

Teva/Sinclair IS Pharma: As part of its gradual transformation from a generic drug company to a full-fledged pharma with its own branded products, Teva Pharmaceutical Industries Ltd. licensed commercialization rights in specified EU markets to oncology supportive product Episil from Sinclair IS Pharma on Aug. 31. Terms of the licensing deal were not disclosed. Teva obtains commercial rights to the drug in Germany, Spain, Poland, Switzerland and the Czech Republic, while Sinclair IS Pharma, a U.K. specialty firm formed by the April 2011 merger of Sinclair Pharma PLC and IS Pharma PCL, will retain rights to co-market the product in Spain and Germany, where it has an existing sales force. Episil is an oral spray to treat pain associated with oral mucositis, a side effect of chemotherapy and radiotherapy during cancer treatment. Sinclair IS Pharma was created through a stock-for-stock transaction valued at €53.2 million ($85.3 million) with the intention of establishing a specialty pharma with pan-European exposure. In a statement, the firm’s CEO Chris Spooner said the rationale behind the merger was to broaden the sales reach of IS’ portfolio through Sinclair’s commercialization operations. “This is the first in what we expect to be a number of marketing and co-marketing partnerships,” he said. — Joseph Haas



Merck/Addex: Addex Pharmaceuticals said on Sept. 2 that Merck was returning rights to the companies’ programs targeting metabotropic glutamate receptor 4 (mGluR4). Addex pledges to push forward with development of the small molecule positive allosteric modulators in CNS diseases, namely Parkinson’s disease. The companies have been working together on mGLuR4 programs since the research collaboration began in 2007. Merck took sole responsibility for the programs about a year ago, and now returns the rights just about the time it would be expected to pick a clinical candidate (Addex’s pipeline chart shows the programs nearing the end of the lead-optimization stage); not only would that likely trigger a milestone to Addex, but it also represents a point when development costs increase. The mGluR4 deal may be a delayed casualty of the Merck/Schering-Plough megamerger which added Schering’s now-Phase III preladenant (MK 3814, nee SCH420814) to the mix in 2009. That adenosine 2A receptor antagonist is jockeying with a similarly late-stage molecule from Kyowa Hakko for the lead in the class. But the mGluR4 space has seen its share of attention too – albeit earlier stage – with investments from the likes of the Michael J. Fox Foundation, Novartis and Merck-Serono, the last of which is teamed up with Domain Therapeutics. With CHF 50 million in the bank as of the last quarterly statement but later-stage fish to fry, Addex is likely to look for a new partner to fund development of the program, sooner rather than later. – C.M.

Genzyme/PTC Therapeutics – As part of its portfolio review following its acquisition earlier this year by Sanofi SA, Genzyme has decided to restructure its partnership with PTC Therapeutics around ataluren, a small molecule in development for genetic disorders caused by nonsense mutations. In 2008, Genzyme paid $100 million upfront, with potential for as much as $337 million in development, approval and sales milestones, for commercial rights to the protein restoration therapy in all territories outside the U.S. and Canada. In 2010, however, ataluren failed to demonstrate a statistically significant effect, as measured by distance improvement in the six-minute walk test, in nonsense mutation Duchenne/Becker muscular dystrophy. On Sept. 2, PTC announced that Genzyme had returned its commercial rights to ataluren in that indication, but would retain an option to commercialize the drug outside the U.S. and Canada in other indications. PTC said it would continue development of the compound in both nmDBMD and nonsense mutation cystic fibrosis. Citing its portfolio assessment, Genzyme Chief Operating Officer David Meeker said, “our option to reengage the collaboration reflects our belief in the potential of this approach for the treatment of nonsense mutation genetic disorders.—J.H.

Image courtesy of Flickr user UMTAD, the University of Minnesota's Theatre Arts & Dance program, reproduced under Creative Commons license.

2010 Alliance DOTY Nominee: Pfizer/UCSF

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

O the wild charge they made! Pfizer's five-year, $85 million commitment to fund academic research at UCSF is the company's latest and largest push into the so-called Valley of Death that lies between the university laboratory and the commercial sector. We at the IN VIVO Blog hope this endeavor is more productive than Lord Cardigan's brave but ill-fated press forward in the Crimea, although we also admit that we may fall short of Tennyson's eloquence in chronicling the occasion. We'll do our best.

If not quite all the world has wonder'd how to turn academics' novel research into viable, life-saving medicines, it's a question that's captured the imagination of many in Big Pharma. In a trend that started in 2009 and gained traction in 2010, drug makers are increasingly looking to partner with academia in hopes of injecting Innovation (yes, with a capital "I") into their pipelines. Think Sanofi/Harvard, AstraZeneca/University College of London, or Genentech/UCSF. But those tie-ups pale in comparison with Pfizer's alliance with UCSF, a potential game-changer that surely merits your vote for Deal of the Year. Will you honor the charge Kindler's (er, Read's) team has made?

Like other Big Pharmas, Pfizer has inked deals with universities before, and even established a presence on UCSF's campus when it launched its Biotherapeutics & Bioinnovation Center in 2008. Still, the UCSF deal is a more expensive, closer-knit arrangement. For Pfizer, the agreement offers access to research at the point of creation, joint ownership of drug candidates (thought to be split 50-50 with UCSF), and options to develop compounds internally after Phase I trials are completed. The university will receive royalties or other payments as the drugs march bravely toward commercialization, while also receiving a view into Pfizer's library of antibodies, reagents and other compounds.

In conjunction with the deal, announced November 16, Pfizer appointed former AstraZeneca exec Anthony Coyle to lead its newly created Global Centers for Therapeutic Innovation, which will marshal troops into various academic centers around the world. Coyle promised more on-campus deals, including collaborations in Europe and Asia over the next couple of years.

Into the Valley of Death will ride about twenty Pfizer employees, who will set up shop in a private office on the UCSF campus. The school, in turn, will hire additional management to oversee the collaboration and bring in postdocs and other researchers as needed. A steering committee comprising four members each from Pfizer and UCSF will distribute funds and resources, to make reply and to reason why.

While it may focus primarily on large molecules, the collaboration isn't limited to any therapeutic area, nor is UCSF obligated to steer clear of additional agreements that could create competition among pharma partners for projects within its halls, like foreign armies trying to capture the port of Sevastopol. (Cannon to the right of them, cannon to the left of them....) Researchers can still opt out of Pfizer's grasp, and if the company declines its option on a drug, UCSF is free to negotiate with others.

But Pfizer's influence will be high on campus, and if the partnership succeeds -- which it will if it produces a single marketable compound -- other pharmas will surely follow. Half a league, half a league, half a league onward!