Deals Of The Week Brings It All Back Home

As a great man once said, there’s no success like failure, and failure’s no success at all. For Infinity Pharmaceuticals, the failure of one drug means it will have to seek success with another lead candidate – and it’s planning to do that alone, rather than with a longtime partner.

Infinity announced July 18 that it had taken back global rights to a key cancer drug by restructuring an existing alliance with Purdue Pharma LP and its European affiliate Mundipharma International Ltd., which had previously obtained rights to all of Infinity’s early-stage oncology programs in a 2008 arrangement. The renewed focus on that drug comes a month after Infinity said it would suspend a Phase II trial on saridegib, a cancer drug that was apparently performing no better than placebo, according to interim data. Saridegib was also covered under the same partnership.

Infinity now takes full control of a phosphoinositide-3-kinase (PI3K) inhibitor known as IPI-145, which has been through a Phase I study and is slated to enter an expansion cohort, as well as mid-stage trials for asthma and rheumatoid arthritis. Also transferred were rights to a fatty acid amide hydrolase program and other early discovery projects. Initially, Purdue and Mundipharma had sought greater control over the oncology compounds, according to Infinity CEO Adelene Perkins. But Infinity was unwilling to part with additional rights, and instead took back worldwide rights to the programs.

Perkins said the company will attempt to build value on its own, using cash from the restructured deal, before it considers partnering the programs again. But now that it’s less encumbered by alliances, Infinity could become a takeout target too. (As we’ve noted before, a clean target can be especially ripe for picking. Speculation arose last fall that Amylin would soon be bought, shortly after it recovered full rights to exenatide from Lilly. Within months, Bristol-Myers Squibb and AstraZeneca paid $7 billion to acquire Amylin, valuing it far higher than its trading price before the partnership dissolved.)

Under the newly rearranged agreement, Purdue and Mundipharma will take a larger equity stake in Infinity. Purdue will buy 1.8 million shares of its common stock for $14.50 a share, or $27.5 million. Infinity also will issue another 3.5 million shares at the same per share price to Purdue to pay off the remainder of a $50 million line of credit that Purdue issued in 2009. The investment will give Purdue a 28% stake in the company, up from its previous 22.5% share. The original contract stipulates that Purdue cannot own more than 33.3% of the company. Infinity also will pay Mundipharma a royalty on sales of any future products that were once part of the agreement ranging from 1% to 4%.

Who's in the basement, mixing up the medicine? Why, it's...

Express Scripts/ Walgreens: Walgreens will rejoin Express Script's pharmacy networks beginning Sept. 15 under the terms of a “multi-year” contract announced July 19. Although the companies did not disclose contract specifics, the announcement states that Walgreens’ 7,900 stores will participate in the “broadest” Express Scripts retail pharmacy network available to new and existing clients. With Walgreens, that network includes more than 64,000 pharmacies nationwide. The resolution must be reassuring to drug companies concerned about broad access to their drugs, even though it is unlikely that they lost much in sales because of the dispute, since competitors were ready to fill Walgreen’s shoes.

Walgreens withdrew from Express Scripts’ retail pharmacy network in January. In financial presentations preceding Walgreens’ exit, Express Scripts and rival PBM CVS Caremark both predicted the development would lead to a greater acceptance of narrower pharmacy networks among payers. Payers have typically opted for broad pharmacy networks as a convenience to members even though they are more expensive. It remains to be seen whether payers will actively choose a more restrictive network in the interest of controlling costs once Walgreens has rejoined the Express Scripts mix. Addressing the question in an email, an Express Scripts spokesman said, “we wouldn’t speculate on any future transitions, but we have had strong interest from clients” in narrower networks.

For Walgreens, the financial impact of its dispute with Express Scripts has been significant. Express Scripts processed approximately 88 million prescriptions filled by Walgreens in fiscal 2011, representing approximately $5.3 billion of the drug chain’s net sales. In a financial report filed July 12, Walgreens estimated that since it left the Express Scripts network, it has retained, on an annualized basis, only 15% of the 2011 prescriptions processed by the PBM.Adding even more pressure on Walgreens to reach an agreement was the prospect of losing its network relationship with Medco Health Solutions, which Express Scripts acquired in April. A Walgreens spokesman said in an email “there are no changes in pharmacy access for Medco clients and members” under the new agreement with Express Scripts, and that “Medco retail networks that included Walgreens will continue to do so.” Walgreens pharmacies filled approximately 125 million Medco prescriptions in 2011, representing approximately $7.1 billion of the drug chain’s net sales.--Cathy Kelly

Par Pharmaceuticals/ TPG Capital: Generic drug maker Par Pharmaceuticals agreed to be acquired by private equity firm TPG Capital in a deal that is worth as much as $1.9 billion. Par, which had sales of roughly $900 million, announced July 16 that TPG will pay $50 per share to acquire the company. Based on the July 13 closing price of $36.58, the last trading day before the deal was announced, the offer represents a 37% premium. The generic pharmaceutical company’s stock jumped more than 36% to trade at $50 the day the deal was announced. Par has until Aug. 24 to seek a better offer, the company said, noting it will “actively solicit acquisition proposals.” Should no other offers materialize, the deal is expected to close this year. Consolidation activity in the generics market has been high over the last few years, but much of it involves U.S. companies looking for ex-U.S. properties and/ or differentiated subsectors such as injectables, and hard-to-manufacture formulations, so few suitors may be interested in Par’s largely U.S.-focused business. The deal with TPG comes shortly after Relational Investors LLC, which owns 9.9% of Par, urged the company to put itself up for sale citing the continued low valuation for the stock despite Par’s effort to make operational improvements. Par added Indian generics manufacturer Edict Pharmaceuticals for $20.5 million in cash, as well as repayment of $4.4 million in debt and up to $12 million in cash earn-outs. It also bought Anchen Pharmaceuticals, for $410 million in May 2011 and a portfolio of ANDA filings, from Teva, in the wake of the Israeli company’s acquisition of Cephalon. The purchase price is below what other generic pharmaceutical companies have been bought out for recently. -- Lisa LaMotta

Amicus Therapeutics/GlaxoSmithKline: GSK increased its equity stake in Amicus Therapeutics Inc. when the two companies expanded their collaboration regarding jointly developed migalastat HCl for Fabry disease. The July 19 collaboration gives Amicus all U.S. rights to Fabry programs developed under the agreement and GSK the commercialization rights to the rest of the world. The British pharma is increasing its stake in the Cranbury, N.J.-based company to 19.9%, with a $18.6 million investment of stock priced at $6.30 per share. Migalastat HCl is being developed as a monotherapy and currently is in Phase III; data are expected in the third quarter of 2012. The drug also is in Phase II as a combination with enzyme replacement therapy. Amicus and GSK, in collaboration with Japan-based JCR Pharmaceuticals Co. Ltd., are developing migalastat HCl as a co-formulation with a proprietary recombinant human alpha-Gal A enzyme (JR-051). The formulation is expected to enter the clinic in 2013. Amicus and GSK will continue to share research and development costs for all formulations of migalastat HCl, with Amicus funding 25% and GSK funding 75% of these costs for monotherapy and co-administration during the remainder of 2012. The companies have agreed to split costs 40%/60%, respectively, for the co-formulation and for all formulations in 2013 and beyond. -- L.L.

Accera/ Nestle Health Sciences: Accera has struck a deal with Nestle Health Science SA to gain clinical development and commercialization for its medical food Axona, which is meant to help manage metabolic processes associated with moderate Alzheimer’s disease. Terms of the July 18 deal were not disclosed. People with Alzheimer's and other neurodegenerative conditions typically suffer from a condition called neuronal hypometabolism, meaning neurons are unable to process glucose. Axona, formerly called Ketasyn (AC-1202), is an orally available form of caprilyc triglyceride that is metabolized by the liver into betahydroxybuterate, a ketone body, which then crosses the blood-brain barrier for use by neurons as fuel. Accera has completed clinical trials elderly volunteers and in patients with memory impairment or mild-to-moderate AD. Results showed that Axona helped improve cognition when compared with placebo.

Established in January 2011, Nestle Health Sciences was formed to gain a stronger foothold in diagnosis and treatment of gastrointestinal diseases, an area Nestlé knows well from its medical nutrition business. The new subsidiary has bigger ambitions, however, and is hoping to create a continuum of offerings for metabolic ailments and neurodegenerative diseases like Alzheimer’s; Axona would be a strong addition to that. The medical nutrition industry is small, dominated by three companies – Abbott Laboratories, Mead Johnson Nutrition, and Nestlé. Nestlé launched the Health Science subsidiary in January, building it out of the technology from Nestlé’s existing health care nutrition business, which posted sales of $1.9 billion in 2010. The subsidiary since has purchased three companies – Vitaflo Scandinavia, CM&D Pharma, and Prometheus Laboratories– in an effort to make it more substantive than its previous medical nutrition business. - L.L.

Novavax/PATH: Novavax, a Rockville, MD-based vaccine specialist announced a collaboration on July 18^th with the international non-profit health organization PATH to develop its recombinant RSV fusion protein vaccine to protect infants in developing countries through maternal immunization. There is currently no approved RSV prophylactic vaccine available for the disease. RSV is the most common childhood respiratory infection, and has a global prevalence of 64 million cases, with 160,000 deaths annually. PATH will provide approximately $2 million toward Novavax’s Phase II dose-ranging trial planned for later this year. The partners may then progress the further development of Novavax’s vaccine with the goal of immunizing pregnant women such that high levels of maternal RSV antibodies will be transmitted to their offspring before birth. Thereafter, they can elect to continue the collaboration, with PATH potentially funding 50% of Novavax’s external clinical costs. Novavax would retain global rights to the product in the event it is approved, and has made a commitment to make the product affordable and available in low-resource countries. The RSV virus is also increasingly recognized as a significant pathogen in elderly populations. Novavax has stated that their goal is to collaborate with both private and public-sector partners “in all markets throughout the world,” says CEO Stanley Erck. Novavax puts the global commercial opportunity for a prophylactic RSV vaccine in excess of $5 billion. The biotech has partnerships with Cadila Pharmaceuticals (India), GE Healthcare, and LG Life Sciences (Korea), and was the recipient of a Department of Human Health BARDA grant  in March 2011. -- Michael Goodman

Life Technologies/ Navigenics: In what appears to be a straightforward buy-over-build decision, life sciences tools conglomerate Life Technologies is acquiring personal genomics firm Navigenics.  LifeTech calls the deal its “first step in executing a strategy to build out its molecular diagnostics business.”  It will employ Navigenics’ CLIA-certified lab to design and validate new assays, including both laboratory-developed tests and FDA approved diagnostics.  Navigenics’ CLIA lab will also support LifeTech’s partnering efforts with pharma for companion diagnostics.

Two years ago, LifeTech’s genomics’ efforts – it manufactures gene sequencers through its Applied Biosystems and Ion Torrent Systems divisions – were focused on the research and translational medicine markets, initiating programs like its collaboration with the Translational Genomics Research Institute, to find gene signatures that could better guide treatments and outcomes for triple negative breast cancer.  Since then, cancer genomics research has led to an increasing number of targeted gene tests – many that can be performed on next-generation sequencing platforms.  With diagnostics a much greater potential market opportunity for genomics than life sciences research, LifeTech, along with its major sequencing rival Illumina, has started to move downstream.  And its translational work appears to have sold the firm on the need for its own CLIA lab and on the opportunities that open up in cancer genomics by owning the clinical workflow, including data analysis and bioinformatics (which we wrote about recently here). The companies did not disclose the price of the acquisition, but it’s fair to assume that it was not much more than the bricks-and-mortar value of the lab, plus a dime or two for bioinformatics and the opportunity to hold onto some good people.

Navigenics’ founding model was challenged, as were those of other personal genomics start-ups, after the cautionary letters it and others received in June 2010 on the need for a premarket review of their products.  Nor did it appear to rejigger its model to create much know-how or IP since. That said, in announcing the deal, LifeTech also noted that it will be able to leverage Navigenics’ clinician and patient education and support capabilities as it builds a diagnostics business – particularly with community-based physicians.  One benefit of the personal genomics adventure has been recognition that when to comes to complex tests there’s a greater need for direct involvement with physicians, as opposed to a focus on marketing tests to labs.--Mark Ratner

Human Genome Sciences/GlaxoSmithKline: In a deal that was years in the making, GSK finally acquired its partner Human Genome Sciences for $3.6 billion, in a deal made up of cash and debt announced July 16. Now, GSK gets full ownership of darapladib, an inhibitor of lipoprotein-associated phospholipase A2 (Lp-PLA2) being investigated in acute coronary syndrome, and albiglutide, a once-weekly, injectable GLP-1 agonist for type 2 diabetes, as well as the already-marketed lupus drug Benlysta (belimumab) that the companies have been partnered on for more than a decade. The $14.25 per-share price represents a 99% premium over HGS’ closing price on April 18, the last trading day before GSK’s initial offer was disclosed publicly. That original bid was valued at about $2.6 billion, so HGS’ three months of delaying what many observers viewed as the inevitable brought its investors roughly another $400 million. Both companies’ boards have approved the transaction, in the form of a tender that will expire July 27. -- L.L.

Sanofi/Brigham & Women’s: For the next step on its continuing quest to establish itself as an end-to-end diabetes treatment provider, Sanofi has partnered with Brigham & Women’s Hospital to search for an immunological therapy for type 1 diabetes. Researchers from both organizations will unite to conduct “proof-of-concept, safety and functional studies” with a goal of finding an immunomodulatory drug target for the disorder, according to a July 18 statement. The parties did not release financial details of the arrangement, but said that Sanofi will receive an option to acquire an exclusive license to intellectual property generated by the partnership. Sanofi has marketed Lantus (insulin glargine) for more than a decade, and sells a variety of oral and injectable medications for both type 1 and type 2 diabetes; the company is currently waiting on regulatory approval for Lyxumia (lixisenatide), a glucagon-like peptide-1 antagonist. BWH researcher and Harvard professor Dr. Vijay Kuchroo specializes in immunology, and has studied the genetic basis of type 1 diabetes. – P.B.

Lisa LaMotta reported on the Infinity/Purdue deal. And thanks to flickr user mtarvainen for sharing under Creative Commons.

Deals of the Week: These Boots Are Made For Buying

Are you ready, Boots? Pharmacy chain Walgreen Co. may not have been ready to acquire international drugstore operator Alliance Boots outright, but it did acquire a 45% stake in the company for $6.7 billion in cash and stock this week. The deal includes an option for Walgreens to acquire Boots outright for an additional $9.5 billion, within a six-month window that will begin in 2015. Boots has been owned by private equity firm Kohlberg Kravis Roberts since 2007.

The deal gives Walgreens a vast international presence beyond its 7,890 U.S. stores. Boots currently operates 3,330 locations in 11 countries. The vast majority of its revenues from health and beauty products came from the UK; that amounted to £6.7 billion ($10.4 billion), compared with £965 million from Norway, Thailand, Ireland, the Netherlands and other territories. Headquartered in Zug, Switzerland, Boots also has wholesale pharmaceutical operations that delivered £16.8 billion in revenue last year, giving it a presence in 25 countries total.

The agreement comes as Walgreens struggles to replace U.S. market share it lost over the past several months, particularly due to an ongoing dispute with pharmacy benefit manager Express Scripts. By allying with Boots, the pharmacy stands to gain purchasing power, particularly for generics; Walgreen says it will become the world’s largest buyer of prescription drugs upon completion of the deal. Cost savings from the alliance could reach $1 billion by 2016, the companies say.

Investors reacted to the deal with some consternation, as Walgreens was thought to be taking a risk by entering Europe at a time of economic uncertainty. (“You keep losing when you oughta not bet.”) The prescription drug business could also be rocked by the Supreme Court’s impending decision on the constitutionality of the Affordable Care Act, due as soon as early next week. Walgreens shares dipped to a 52-week low of $28.53 on Wednesday, after having traded above as $32 on Monday.

You keep saying you got something for me, and sure enough, we’ve got something for you in return. It’s…

Sanofi/Joslin Diabetes Center: Sanofi has teamed up (pdf) with Joslin Diabetes Center, a research arm of Harvard Medical School, to discover new biologics and small molecule drugs for the treatment of diabetes. The collaboration is expected to begin mid-summer and is currently set to last three years with the option for an extension; Sanofi VP of external innovation Sridar Nateson said that the French pharma intends to extend the contract at that time in an even bigger collaboration. The company would not reveal the current level of funding that it will be providing to Joslin. Sanofi and Joslin will be working to develop compounds that can treat both type 1 and type 2 diabetes, focusing on four areas. The first is treatments for diabetes complications, specifically nephropathy. Researchers will also be looking into tissue-specific insulin – the first being liver-specific. The next area of focus for the collaboration will be insulin sensitivity; Joslin already has targets that could address this issue. Other projects will delve into personalized medicine for diabetes, using Joslin’s significant efforts in genomics to try to pinpoint why certain patients develop complications when others do not and why other patients development them at different times. Sanofi has been pursuing other collaborations with academic institutions more avidly since 2009, knowing that most of these deals will not produce results until years later. – Lisa LaMotta

Merck/Ambrx: Interest in antibody-drug conjugates remains high, in the wake of Seattle Genetics' launch of Adcetris (brentuximab vedotin) and encouraging late-stage data for Genentech's T-DM1 compound. The latest pharma to strike a deal in the area is Merck, which paid $15 million up-front for access to Ambrx's medicinal chemistry technology in order to discover and develop new drugs. Milestone payments could add $288 million to the deal, and San Diego-based Ambrx could receive additional royalties if a drug is approved and marketed. The companies haven't yet said what therapeutic areas they'll pursue, but both made it clear that they'll seek mutually-selected targets beyond oncology, potentially including autoimmune disease, cardiovascular disorders, inflammation and metabolic disorders. Ambrx has previously partnered with Pfizer-owned Wyeth and Bristol-Myers Squibb to develop specially targeted therapies that carry a therapeutic payload to a specific target by binding antibodies to drugs. As with the other deals, Merck will discover antibodies, then send them to Ambrx for optimizing; the arrangement won't cover any of Merck's existing pipeline candidates. - Joe Haas and Paul Bonanos

Genentech/AC Immune: Genentech must like what it sees in the monoclonal antibodies of Swiss company AC Immune. In a June 18 announcement, Genentech, a division of Roche, says it has turned again to AC Immune to develop antibodies against a target implicated in Alzheimer's disease, this time zeroing in on abnormal Tau protein. In a deal valued at just over $400 million, the two companies will work together to produce anti-Tau monoclonal antibodies, with Genentech taking responsibility for preclinical and clinical development, manufacturing and commercialization. AC Immune will receive an undisclosed upfront payment, development milestones and royalties on sales. Genentech originally partnered with AC Immune back in 2006, to develop monoclonal antibodies against amyloid-beta, another protein thought to be involved in Alzheimer's disease. The Swiss company uses antigens expressed on liposomes to create its molecules, and its anti-amyloid-beta research has produced one antibody, crenezumab, which is in Phase II clinical studies. The so-far benign side effect profile of crenezumab was apparently key to it being selected by the U.S. National Institutes of Health and others for evaluation in a trial aimed at preventing the onset of Alzheimer's, which will take place in a family group in Colombia with an inherited disposition to develop the condition. - John Davis

GSK/Liquidia: GlaxoSmithKline forged a deal with privately-held Liquidia Technologies under which it will use the startup's nanotechnology platform to develop vaccines and inhalable product candidates. Terms weren't released in the June 20 announcement (pdf), but the companies revealed that the up-front payment included both cash and equity, as well as research and development funding. With additional components of the transaction, including milestone payments, licensing fees, and royalties, the deal's value could spiral into the hundreds of millions of dollars over several years, the companies said. Founded in 2004 and based in Research Triangle Park, N.C., Liquidia has created a platform it calls PRINT (particle replication in non-wetting templates), with which it engineers and fabricates nanoparticles, most often used in vaccines thus far. While it retains rights to its own programs, the company also has a 2009 partnership with Abbott to discover particles that deliver siRNA-based drugs. Investors in Liquidia include PPD, Canaan Ventures, New Enterprise Associates, Morningside Venture Investments, Pappas Ventures, and Firelake Capital. - P.B.

Roche/Seaside: Privately-held Seaside Therapeutics has made considerable progress in researching neurological disorders such as Fragile X syndrome and autism spectrum disorder. Now, Roche has partnered (pdf) with the start-up, licensing patents that are the basis for one key drug while taking an option on another. For an undisclosed amount, Roche took rights to patents on a glutamate receptor subtype 5 (mGluR5) antagonist, RG7090, currently entering Phase II for Fragile X; the patents are also of interest for ASD. Roche also obtained an option to license Seaside's GABA-B agonist, known as STX209 or arbaclofen, in Phase III for Fragile X and Phase IIb for autism. Seaside will continue to develop the latter drug with funds received in the deal, but Roche will be able to license it upon completion of certain milestones. Novartis has a competing mGluR5 drug, AFQ056, in late-stage development for Fragile X as well. - P.B.

We're indebted to Scott Steinke for his report on the Walgreens/Boots deal in "The Pink Sheet" DAILY, though he didn't mention Nancy Sinatra. As for Eileen, thanks to the Aquarium Drunkard.

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.

CVS/Caremark Loses a Big One

Sometimes history doesn’t repeat itself.

When the Blue Cross Blue Shield Association awarded the lucrative Federal Employee Program pharmacy benefit management services contract June 6, it made a surprising decision: splitting the contract into two parts, one to manage the retail pharmacy side of the network, and the other to provide mail service to the almost 4 million federal government employees, retirees and dependents covered by the BCBSA plan.

They let CVS Caremark keep the retail. But they gave the mail service back to Medco Health Solutions Inc. That is the arrangement that BCBSA had for most of the 1990s, until it decided three years ago to give Caremark the whole enchilada.

CVS Caremark says it is happy it will continue to provide retail services. Medco says it is happy to be back as the mail order provider. So everybody’s happy, right?

Hardly. The decision by BCBSA to split the contract again surprised most PBM analysts on Wall Street—and it definitely disappointed investors in CVS Caremark.

It also marks an ominous beginning for the newly merged CVS Caremark business. The big question surrounding the company is whether the marketplace will accept Caremark’s new status as a division of the retail chain giant CVS. (There is much more on the implications of the CVS/Caremark deal in the January issue of The RPM Report.)

And that’s where the historical parallels come in. The last time Caremark was involved in a big merger, it was the acquirer, buying the PBM Advance PCS. At the time of the deal, Caremark said it expected the acquisition would boost its bid for the FEP mail order business—and the company was awarded the contract soon after the deal closed.

There was another factor that may have played a role in that decision three years ago: Medco had just settled a Department of Justice investigation into its mail order pharmacy practices, which included claims that the company had falsified some of its reports to BCBSA under the Federal Employees Program.

It sure is nice of BCBSA to let bygones be bygones. But it is also a clear indication that the stand-alone PBM giants (all two of them, including Express Scripts Inc.) still have life left in them.

Look for the Union Label

Did you see that big acquisition that could change everything about the US pharma business? No, I’m not talking about AstraZeneca buying MedImmune, though it will be fun to watch AZ try to make that one pay off. (Chris Morrison and the IN VIVO crew can help you make sense of that.) I’m not even talking about the on-again, off-again talk of a Bristol-Myers Squibb/Sanofi Aventis link up. (Look for that one to be on again in about a month.)

No, I’m talking about the purchase of Chrysler by the private equity firm Cerberus Capital Management.

That deal means more to Big Pharma than you might think. Sure, it may put Chrysler back on the list for company cars at firms with Buy American policies. (Are there any companies like that left?)

But it could also go a long way toward redefining the landscape for pharmacy benefits in the US.

Assuming Cerberus (named for the three-headed hound that guards the gates of hell) lives up to its reputation, you can bet there are big cuts coming at Chrysler. And, as Steven Pearlstein points out in the Washington Post, that means a time of reckoning for the United Auto Workers union.

This looks like a watershed moment for labor relations in the US—and that has big implications for Big Pharma. Why? Because the “Big Three” union contracts go a long way towards defining the national standard for pharmacy benefits.

Some of the effect is direct. The automaker each decided to carve out their pharmacy benefits in the 1980s to help control drug costs, and in the process helped the fledgling pharmacy benefit management business take off. Chrysler, interestingly, recently moved its big PBM contract out of the hands of one of the US giants and awarded it to CVS Corp.’s Pharmacare division. But that business will end up with Caremark Rx again now that CVS has acquired the largest PBM in the US.

That contract covers about 280,000 lives (employees, retirees and dependents). That in itself is a lot of buying power. And Chrysler is the smallest of the "Big Three," so those contracts together add up to a lot of clout.

But the impact of the union deals is bigger than that. There is a direct feedback loop between the contracts—and especially the pharmacy benefit component—and federal policies in healthcare.

Unions are not the political force they once were, but they remain a vital constituency for the Democratic Party. And the “Big Three” are not the unstoppable symbol of American industry they once were, but when the CEO of an automaker has an issue to raise, you can bet he can talk to anyone he wants in Washington. What’s good for General Motors may or may not be good for America, but what General Motors gives its employees in health benefits sets a standard that it is hard for the government to ignore.

For almost two decades now, state Medicaid directors have complained that overly generous pharmacy benefits packages included in union contracts have tied their hands in trying to rein in drug costs. If the UAW negotiates an open formulary, it is hard for Medicaid to insist on a closed one. On the other hand, if the UAW agrees to a mandatory mail service provision, other benefit managers will be sure to adopt them too.

The power of union contracts to frame the health care debate is undeniable. Even President Bush’s seemingly progressive proposal to tax employer health plans that exceed $7,500 in value has to be understood in that context. On paper, the proposal looks like a tax on high wage earners with gold-standard health benefits. In reality, union workers are about the only people in America with a health plan that rich.

So when Cerberus sits down with the UAW, the pharmaceutical industry has a lot at stake. Maybe it will be business as usual, with nothing more than tinkering at the margins on the pharmacy benefit. But the time could be ripe for radical surgery. Medicare now offers a prescription drug benefit. Will Cerberus push for a new contract that dumps its retirees on the new program? Will the union agree to more aggressively managed benefits, with tighter formularies and even stronger incentives to choose generics?

One thing is certain: in the current political climate, the union can and will turn to Congress if it feels too squeezed. That could put Big Pharma in an interesting position: unions are not naturally allies of the drug industry, but if unions are fighting to protect generous drug benefits, Big Pharma may start to preach solidarity.