Deals Of The Week Sings Of An Icelandic Saga And The Path Forward

Our knee-jerk reaction to Monday’s announcement that Amgen is buying deCODE Genetics for $415 million in cash was “Say what?” It’s hard to get past the unlikely mix of cultures between Amgen, the most button-down of biotechs, and deCODE, whose irascible founder and CEO, Kari Stefansson, is anything but.

On second thought, though, the combination makes sense.  For Amgen, it’s a buy-versus-build way to install a broad-based, genetics-oriented discovery and target validation engine.  For deCODE’s investors Polaris Ventures and ARCH Venture Partners, it’s a timely and profitable exit: they put down roughly $14 million to bring the Icelandic genomics specialist out of bankruptcy in November 2009 and have been carrying it since.  And for deCODE’s scientists, it’s an opportunity to continue discovery research using population genetics and armed with blood samples from Icelanders and the country’s conserved genealogical and health care records.

As Polaris’ Terry McGuire blogged the day the deal broke: “Almost all of the other companies that started in this space gave up and moved to safer ground – developing drugs.  Kari Stefansson never lost sight of what was truly important, which is pioneering the genome.”

Equally true is that Stefansson’s broad vision caused his reach to exceed his grasp. As we wrote three years ago, the fundamental issue was one of business strategy – an overly optimistic view of the rate at which discoveries made with its genomics platform could convert into tangible drug and diagnostic assets, including IP, and justify the infrastructure investments the company had made.

deCODE's troubles stemmed from a combination of factors including a fragmented set of operations ranging across gene-based drug and diagnostics discovery and development as well as a foray into consumer genomics. As an Iceland-based company, it also had been especially sensitive to the impact of the global financial downturn in the latter half of the 2000s, which hit that country's banking industry very hard. Plus, an arrangement with Lehman Brothers to manage its money had left deCODE with essentially worthless paper.

Stefansson’s unwavering faith in deCODE’s expansive – and expensive – approach to discovery finally has paid off. “This was a 16-year saga,” says McGuire. "But true to the saga, Kari’s has been one of finding the path forward.” Polaris and ARCH together (via the aptly named Saga Investments, organized for the deCODE recapitalization) owned about 65%, roughly one-third each, of deCODE.  They’d put in around $50 million all told (plus some noncash obligations to turn the firm around), netting what appears to be more than a 5x return.

The business model for the recapitalized deCODE focused on establishing corporate partnerships, which is where Amgen came in.  The companies were discussing ideas for partnerships when, as sometimes happens, “there was a moment where they could see the breadth of this engine,” says McGuire.  Some of deCODE’s insights will directly relate to Amgen’s therapeutic areas of interest, he says, but as important will be deCODE’s long-term contribution to R&D.

Becoming part of Amgen presumably puts an end to deCODE’s aspirations as a developer of clinical diagnostics, an area very much in its sights when the firm relaunched.  In that respect, the deal speaks to the relative value of genomics in drug discovery versus clinical diagnostics development. – Mark Ratner

Teva/Xenon – In an effort to streamline its business, Teva Pharmaceuticals has decided to take a more focused approach to R&D, with an emphasis on respiratory diseases and central nervous system disorders (including pain and neurodegenerative disorders). A deal announced with Xenon Pharmaceuticals on Dec. 11 will fit snugly into the Israeli company’s new strategy. In exchange for the global rights to Xenon’s pain drug XEN 402, Teva will pay the Vancouver-based company $41 million upfront, as well as development, regulatory and sales milestones of up to $335 million. Xenon also will be entitled to royalty payments and have the chance to participate in U.S. commercialization, although details of the commercialization split were not disclosed. XEN 402, a Nav1.7 inhibitor, blocks sodium channels that are found in abundance at nerve endings and contribute to chronic pain conditions. Xenon has taken it through the start of Phase II for both inflammatory and neuropathic pain and in topical and oral formulations. Teva, which now has rights to both versions of the drug, plans to begin a full Phase IIb development program immediately. Xenon hasn’t been the only company working on Nav 1.7 inhibitors – a space that has drawn interest because its potential to be an alternative to opioid-based pain drugs. – Lisa Lamotta

Biogen Idec/Isis – Biogen Idec continues to demonstrate faith in antisense technology, announcing a third deal with Isis Pharmaceuticals Dec. 10. Much like the two previous deals between the companies, the recent tie-up focuses on neuromuscular targets. In exchange for access to three early-stage targets, Biogen will pay Isis $30 million upfront. The work is currently in the discovery phase. Once Phase II has begun, Biogen will have the right to option each of the three programs and continue development and commercialization activities. Isis is eligible to receive $200 million in total milestones per program, as well as double-digit royalties should any products be commercialized. In January, Biogen signed its first deal with Isis, agreeing to pay $29 million upfront as well as $45 million in potential milestones for the option to license Isis' Phase I spinal muscular atrophy compound. In late June, Biogen agreed to pay $12 million upfront for the right to a treatment for myotonic dystrophy type (DM1). Early-stage milestone payments could total $59 million. At the end of Phase II, Biogen has the option to license the drug; subsequent payments for meeting certain regulatory milestones could add up to $200 million. – L.L.

AstraZeneca/Isis – Antisense drug-discovery company Isis Pharmaceuticals also landed a second partnership on Dec. 11, an oncology deal with AstraZeneca that will address five targets including one program upon which clinical trials are already underway. For $25 million upfront, plus a $6 million near-term payment due in the second quarter of 2013 if research is ongoing, AstraZeneca gets rights to the Phase I/II clinical compound ISIS-STAT3Rx, as well as one preclinical program and options on other programs. AstraZeneca will fund ongoing research on the programs covered under the partnership, save for a small Phase II trial Isis is still conducting on ISIS-STAT3Rx for lymphoma. Isis also is eligible for $75 million in milestone payments over the next two years, including a $50 million payment if the ongoing study is completed; Isis would receive additional clinical and approval-related milestone payments, licensing fees and royalties on marketed drugs, but the companies didn’t provide further financial information. The partnership covers drugs that use Isis’ proprietary antisense technology, which destroys RNA that creates disease-causing proteins, as well as its Generation 2.5 technology that strengthens the potency of drugs. – Paul Bonanos

Bristol-Myers Squibb/The Medicines Company – In an example of a big pharma out-licensing deal, The Medicines Company has agreed to pay $115 million upfront to Bristol-Myers Squibb for the global rights to Bristol’s already-marketed topical recombinant thrombin product, Recothrom, which is used to stop non-arterial bleeding during surgical procedures. Approved in the U.S. in January 2008, Recothrom brought in $65 million in revenues in 2011. The Medicines Company plans to drive growth by seeking  approval of the drug in other countries. Bristol, which will be responsible for manufacturing, will receive royalties on the product during the two-year collaboration period. After that time, The Medicines Company will have the option to acquire Recothrom. Bristol said its decision to outlicense the drug is part of its effort to streamline operations and improve efficiency. For The Medicines Company, the deal bolsters its offerings in the hospital settings. The company also announced the same day that it has agreed to pay $115 million to acquire Incline Therapeutics, the maker of a needleless, patient-controlled analgesia device used in the hospital setting. – L.L.

Gilead/YM Biosciences – Gilead furthered its diversification strategy with expansion into oncology with the acquisition of Canadian cancer company YM BioSciences, announced  Dec. 12. Gilead will buy YM for $2.95 per share in cash, or about $510 million, with the transaction expected to close in the first quarter. YM had cash and equivalents of $125.5 million as of Sept. 30. The acquisition will give Gilead its sixth clinical-stage oncology compound, a Janus kinase (JAK) inhibitor, CYT387, which has shown promise in treating myelofibrosis. Gilead plans to initiate a Phase III study in the setting in the second half of 2013. The deal represents a solid exit for YM, which gained CYT387 when it merged with Australia’s Cytopia Ltd. in 2010 in a stock transaction that valued Cytopia at around $11 million. YM released results of a 166-patient Phase I/II clinical trial of the drug, its lead product, at the American Society of Hematology meeting Dec. 9, showing that treatment with CYT387, improved transfusion independence rates and spleen response in patients with myelofibrosis. But CYT387 will have to compete with a JAK1/JAK2 inhibitor already on the market for myelofibrosis. Incyte’s Jakafi (ruxolitinib) was approved by FDA for myelofibrosis in November 2011, and was the first JAK inhibitor approved for any indication. CYT387’s second-in-class status could dampen investor enthusiasm for the acquisition, but the fact the drug has been shown to increase hemoglobin and reduce the need for blood transfusions means it could offer a competitive advantage as the preferred treatment for the roughly 30% of myelofibrosis patients who have anemia. – Jessica Merrill

Somaxon/Pernix – Somaxon’s search for strategic alternatives has come to an end, but not exactly a lucrative one. Specialty pharma Pernix will acquire the sleep disorder company for $25 million in stock. That’s a small fraction of the at least $224 million that’s been invested in Somaxon since its 2003 inception. On Dec. 10, the day before the deal announcement, Somaxon’s market cap was a mere $10.5 million. It was trading just above its cash of $8.2 million at Sept. 30. During the third quarter, Deerfield Management initiated a position of 4.5 million shares in the company; that’s almost two-thirds of its shares outstanding. Somaxon shareholders still have to sign off on the deal. It’s been a steady slide for Somaxon. In September 2011, Procter & Gamble, the U.S. marketing partner for Somaxon insomnia drug Silenor (doxepin), terminated an August 2010 deal due to insufficient sales to support marketing expenses. Then in January, Somaxon said it was looking at strategic alternatives after a disappointing Silenor launch. The selling point for Silenor was supposed to be its approval for sleep maintenance, staying asleep into the seventh and eighth hours of sleep. But it’s proven difficult to gain a foothold in an insomnia market awash with generics, particularly of Ambien (zolpidem). Somaxon reported net product sales of $7.8 million in the first nine months of 2012. For its part, Pernix is adding a product to its ranks of generic, branded and OTC products. Until recently, the company has focused on pediatrics. But last month, it bought Cypress Pharmaceuticals for $101 million in cash and stock, thereby diversifying its product offerings. – Stacy Lawrence

Nuron/Pfizer – In another deal that has a big pharma unloading a non-priority asset, Pfizer sold its Meningitec vaccine to Exton, Pa.-based specialty biologic and immunotherapy developer Nuron Biotech. The vaccine is aimed at preventing bacterial diseases such as meningitis, sepsis and pneumonia caused by Neisseria meningitides serogroup C. The product is currently registered in 23 countries, and Nuron plans to expand its availability to markets with unvaccinated and under-vaccinated populations, the company said. N.meningitidis is estimated to cause 500,000 cases of disease annually worldwide with a 10%-20% fatality rate. The company previously acquired the HibTiter Haemophilus influenza Type b conjugate vaccine from Pfizer in April 2011 and is looking to relaunch the product, marketed in the 1990s by Wyeth, in the U.S. following discussions with FDA. Nuron has several vaccines and biologics in development. Terms of the deal were not disclosed. – J.M.

While Awaiting New CEO, AstraZeneca Already Busy On The Business Development Front

Every player in big pharma is facing a patent cliff to some extent, but while some are dealing with their losses through diversification or a targeted approach to deal-making activity, it is unclear what direction AstraZeneca, the pure-play pharma among the giants, will take now that Seroquel IR (quetiapine) is off-patent, to be followed soon enough by Crestor (rosuvastatin).

A good portion of this uncertainty stems from the vacancy in the chief executive’s office. CFO Simon Lowth has been serving as acting CEO since predecessor David Brennan stepped down June 1 under a plan announced during the Anglo/Swedish pharma’s first quarter earnings call in April. The second quarter review occurred July 26, but while the impacts of patent expiries to top-selling AstraZeneca products are becoming clear, with a new permanent CEO not selected yet, the company’s strategy going forward remains a source of much speculation.

AstraZeneca focused largely on recent launches and late-stage pipeline prospects during the call, while Brennan’s successor was not discussed and current executives did not offer much new in the way of corporate strategy for the near term. In talking up its pipeline, AstraZeneca said it has 90 candidates in clinical development, although it counts seven drugs in the approval and launch stage among that number – an instance of trying to have its cake and eat it too?

Still, an 83-candidate pipeline is nothing to sneeze at, although Wall Street generally does not enthuse about AstraZeneca’s internal R&D. Instead, citing Leerink Swann analyst Seamus Fernandez as an example, the call is for significant M&A to yield a new future for AstraZeneca. In his July 26 note reiterating a “market perform” rating for AstraZeneca’s shares despite an 18% year-over-year decline in revenues, Fernandez re-issued an earlier call for “aggressive” M&A activity.

“We continue to believe the most realistic path forward for AstraZeneca is a more aggressive M&A strategy … but if current trends continue, additional and likely substantial restructuring may be necessary to sustain profitability necessary to deliver on the company’s “balanced” capital allocation strategy,” he wrote.

On May 31, on the cusp of Brennan’s departure, Fernandez opined that an “increased reliance on international sales growth from Japan and the emerging markets” would not be sufficient to overcome a precipitous revenue decline in the U.S. Indeed, AstraZeneca reported emerging markets revenue growth of just 1% during the second quarter, the same growth as during the first quarter, but attributed the lackluster pace to supply-chain issues stemming from new IT snags at a manufacturing site in Sweden. But for those weak links, the chain would have produced 8% growth in emerging market sales during the quarter, AstraZeneca execs claimed.

Still, there has been a clamor for growth-by-acquisition. And in a year that has seen plenty of biopharma M&A already, AstraZeneca has contributed its share of deals.

It teamed up with Bristol-Myers Squibb earlier this month to buy Amylin Pharmaceuticals for a whopping $7 billion. While Bristol is the actual buyer, AstraZeneca will send Bristol $3.4 billion after the deal goes through, almost half the purchase price, and then the two pharmas will use Amylin’s Byetta (exenatide) and Bydureon (exenatide extended-release) to bolster their combined diabetes portfolio.

In fact, it seems only accurate to describe AstraZeneca’s business development approach as aggressive already, even if it let Bristol take the lead in the Amylin buyout. Just since April, AstraZeneca has participated in eight deals, highlighted by a $1.27 billion purchase of Ardea Biosciences centered around gout candidate lesinurad. During that period, the pharma also has signed partnerships and licensing agreements with Cellworks Group, Link Medicine, Axerion Therapeutics, Amgen and The Medicines Co.

During the July 26 call, Lowth and President, R&D, Martin Mackay indicated that those deals should be seen as part of an ongoing business development strategy the AstraZeneca will continue to pursue. While Mackay focused on open innovation and numerous R&D tie-ups with partners of all sizes, Lowth said the company is pleased with the three significant deals it has completed (Ardea, Amgen, Amylin) this year, adding “there’s a whole host business developments and collaborations going on across research and development.”

Whether a new, permanent CEO – be it Lowth, Mackay or someone from outside the organization – will bring a new direction is unknown, but it is fair to say that AstraZeneca already is pursuing an active and hectic business development course. – Joseph Haas

Now, here is our weekly look at other developments in the world of biopharma deal-making …

Merck/Chimerix and Merck/Yamasa: The marketer of billion-dollar HIV drug Isentress (raltegravir), Merck & Co., struck two July 24 deals to bolster its pipeline of compounds that fight the same virus. Merck paid $17.5 million upfront to privately held Chimerix for worldwide rights to the Phase I drug CMX157, a lipid-antiviral conjugate designed to deliver the antiviral compound tenofovir to cells in high concentrations with reduced systemic effects. Milestones could add $151 million to the deal’s value, and Merck would pay Chimerix royalties if the drug is approved. CMX157 also is thought to hold promise in treating hepatitis B virus. Research Triangle Park, N.C.-based Chimerix, which has raised $101 million from venture investors, expects to put the funds toward trials on CMX101, a broad-spectrum antiviral soon to enter a Phase III study for cytomegalovirus. Separately, Merck partnered with Japan’s Yamasa Corp. in a deal of undisclosed size that gives it global rights to EFdA (4-ethynyl-2-fluoro-2-deoxyadenosine), a nucleoside reverse transcriptase inhibitor that has shown efficacy against highly resistant strains of HIV. Merck also said it would begin a Phase IIb trial on one of its own HIV pipeline drugs, MK-1439. – Paul Bonanos

Boehringer Ingelheim/Funxional: Boehringer Ingelheim is expanding its respiratory drug pipeline with the acquisition of a novel oral small molecule anti-inflammatory drug developed by Funxional Therapeutics. The companies announced a deal July 23 in which BI will acquire Funxional’s lead candidate, FX125L, a potential first-in-class somatotaxin and back up compounds for an undisclosed amount. Respiratory disease is one of BI’s core therapeutic areas; the company markets the inhaled blockbuster Spiriva (tiotropium bromide) for chronic obstructive pulmonary disease and has several respiratory drugs in late-stage development, including tiotropium for asthma and nintedanib for idiopathic pulmonary fibrosis. The addition of FX125L will give BI a first-in-class asset in a novel pathway that acts through the type-2 somatotaxin receptor (sstr2). As an oral drug, the market opportunity for FX125L could be significant given that inhaled drugs dominate the respiratory landscape. But few details are known about the drug’s clinical safety and efficacy so far. Funxional’s CEO Geoff Race said that in addition to offering the best terms, BI also had the pedigree and track record in respiratory disease that Funxional’s investors were looking for. “It is not just the initial payment that is important. It is the probability of getting the product to market that is also important,” he said. “We were pleased to have a partner like BI who we felt had the financial resources as well as the technical resources to take this product to the market.” Since its somatotaxin portfolio was essentially Funxional’s only program, the deal provides an exit for the biotech’s backers Index Ventures, Novo AS and Ventech. But Funxional may not vanish; it’s already evaluating its other earlier-stage technologies. “We are thinking about which one goes into the pipe,” Race said.” “We will take a little bit of time to think about that and start research programs later in the year.” – Jessica Merrill

Roche/AREVA: Roche and AREVA Med, a French biopharma specializing in the development of radioactive isotopes for therapeutic use, announced on July 27 that they will collaborate on a novel alpha radio-immunotherapeutic platform to focus on high-unmet need cancers. No terms were disclosed. Together, they will assess the efficacy of combining Roche’s engineered antibodies with AREVA Med’s radionuclide, Lead-212, a compound that shows promise in treating some types of cancer. Alpha radiation consists of fast-moving, high-energy helium atoms which, because of their large size, are easily stopped by a light, relatively insubstantial barrier such as a few inches of air or a piece of paper. Therefore, alpha radiation travels only short distances in human tissue. This mean that its energy is absorbed in a smaller area for improved cell death with little damage to healthy tissue. By targeting cancer cells with highly specific antibodies combined with Lead-212, there is an opportunity to more precisely irradiate and kill cancerous cells. In 2011, AREVA Med acquired Macrocyclics, a leader in metal chelators, which also will  participate in the collaboration with Roche. AREVA Med is associated with the National Cancer Institute (NCI), the University of Alabama at Birmingham (UAB) and the French National Institute of Health and Medical Research (Inserm). – Michael Goodman

Photo credit: (AZN's R&D location, Molndal, Sweden) Wikimedia Commons