Deals of the Week Takes Stock in M&A

Here at Deals of the Week, we don’t often take note explicitly of buyouts outside the biopharma sphere. But one well-publicized tech deal last month piqued our interest – and it parallels another recent pharma deal in a way we found curious.

As you may have heard, social networking giant Facebook wowed the tech field with its February takeout of smartphone communications app developer WhatsApp for a jaw-dropping $16 billion plus an additional $3 billion in employee-retention bonuses, reportedly the largest-ever acquisition price for a private, venture-backed company. (We’ll note in passing that one of the deal’s biggest winners, venture firm Sequoia Capital, is also a life sciences investor.)

Now, $19 billion is a lot of scratch – it’s a bigger pile of cash than the gross domestic product of Jamaica, and it’s in the ballpark of the price Sanofi paid for Genzyme in 2011. But a closer look at the WhatsApp deal’s terms reveals that Facebook paid just $4 billion in cash – a quarter of the deal’s baseline value – and the balance, including the retention bonuses, in its somewhat volatile stock. It’s a common formula in tech, a sector in which speculative value far outpaces revenue in many cases.

In the biopharma world, such arrangements traditionally are unheard of – but that might be changing. While many pharma mega-deals include both cash and stock components, most feature bigger cash portions than paper value. Just over a third of the $68 billion Pfizer spent to acquire Wyeth in 2009 was in stock, with the rest coming in cash; Johnson & Johnson’s $21.7 billion deal for Synthes in 2011 was in the same league, weighted roughly 65%-35% in favor of cash.

That’s why Actavis’ pending $25 billion deal to acquire Forest Laboratories last month was so unusual. Actavis paid just $26.04 per share, or 29% of the total $89.48-per-share purchase price, in cash, and swapped its stock for the rest. So there’s financial risk involved: If Actavis shares fluctuate, the deal’s total value could go up or down rapidly, perhaps before it even closes. (We note that the Facebook/WhatsApp deal technically gained more than $600 million in value before it was even announced, since its stock component was based on an already-outdated five-day average of Facebook’s share price.)

It’s not the first mega-buyout to favor equity over the hard stuff; Merck’s $42 billion buyout of Schering-Plough was tilted slightly in favor of stock over cash, with 56% of the price paid in equity. But rarely are large pharma deals ever consummated with paper value vastly outweighing cash money; it’s even less likely with smaller deals. A search of our Strategic Transactions database of reveals that only about one in 10 biopharma deals since 2008 falling into the “bolt-on” range – those ranging from a few hundred million dollars to a few billion – had a stock component.

Some life sciences companies, particularly those living off their sunny growth prospects rather than established, dividend-paying, cash-rich ones, soon could find that their stock is becoming a valuable deal-making currency. And with biotechs soaring in the public markets, some of them look like good candidates for stock-heavy deals. Like Actavis’ stock price, the Nasdaq Biotechnology Index has doubled since November 2012. Emilio Ragosa, a partner with Morgan Lewis & Bockius’ mergers-and-acquisitions practice, said mid-cap biotechs – those valued around $1 billion – are in the sweet-spot. “They tend to have less cash, but their stock is appreciating more rapidly,” he said.

Big biotechs and specialty pharmas, responsible for most of the M&A deal-making action in 2013, are enjoying exceptionally high valuations, but don’t always have big pharma-like cash flow. They’re good candidates to use their strong stock prices to beef up their businesses without denting their cash piles severely.

It’s unlikely that big pharmas will change this aspect of their deal-making strategies much; as Ragosa notes, “They have enough cash on their balance sheets.” Ever sensitive to their quarterly earnings, most large pharmas will continue to avoid using stock to take out biotechs. Seven of the top 50 cash holdings among U.S. companies belonged to pharmas, according to a 2013 Moody’s report; six were sitting on double-digit billions, led by Pfizer. - Paul Bonanos

Transactional activity has been as slow as a snowy Interstate lately, but we’re still taking stock of the latest alliances in...

Biogen/Eisai: Biogen Idec teamed up with Japanese pharma Eisai on March 5 to potentially co-develop and co-commercialize four compounds for the treatment of Alzheimer’s disease. While specific financial details weren’t released, Biogen will pay Eisai an upfront payment of undisclosed size, as well as a fixed number of milestones based on development, regulatory and commercial events. The team also will split worldwide profits on the drugs should they reach the market. Eisai will take the lead on the first two compounds, which it will provide. The first is a beta-site amyloid precursor protein cleaving enzyme (BACE) inhibitor dubbed E2609; Eisai discovered the compound in-house, and is about to begin its Phase II trials. The second monoclonal antibody, BAN-2401, is already in Phase II trials; it’s an immunotherapy designed to break down beta amyloid plaques after they develop. Eisai also has the option to jointly develop and commercialize Biogen’s two in-house Alzheimer’s candidates, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody, both of which are in very early stages. The BACE inhibitor space has been heating up as Merck pushes its candidate into Phase III and AstraZeneca follows closely on its heels. Both Roche and Lilly have ended programs in the space after safety signals cropped up in clinical trials. There hasn’t been any proof so far that the safety issues are class-wide, but the industry is keeping a close watch for any signs. - Lisa LaMotta

Genocea/Harvard/Dana-Farber: Fresh from its initial public offering last month, vaccine specialist Genocea Biosciences struck a research deal with Dana-Farber Cancer Institute and Harvard Medical School to study cancer immunology. Under the March 5 alliance, researchers will use Genocea’s proprietary T cell antigen discovery platform to find antigens that correlate with an anti-tumor immune response in melanoma patients. Charitable scientific network Ludwig Trust will sponsor the research; terms weren’t released. The research will play off existing work by Dana-Farber’s Stephen Hodi and Glenn Dranoff in anti-CTLA-4 therapies such as Bristol-Myers Squibb’s Yervoy (ipilimumab). Harvard microbiology and immunobiology professor Darren Higgins will lead the development of a cancer antigen protein library, which will be screened against patient-derived cells using Genocea’s platform in order to seek a correlative immune response. After an initial lukewarm reception, Cambridge, Mass.-based Genocea shares have rebounded, rising more than 50% since the company’s February 5 debut. The company is best known for its clinical pipeline of anti-infective vaccines, including therapies and preventive treatments for herpes simplex virus-2, pneumococcus, chlamydia and malaria. Its most advanced program is GEN-003, a Phase II therapy for HSV-2. - P.B.

NeoStem/Massachusetts Eye & Ear/Schepens: Cell therapy developer NeoStem also inked a deal with some of Harvard Medical School’s tentacles, entering a research collaboration March 6 with Massachusetts Eye & Ear and the Schepens Eye Research Institute. The publicly traded, New York-based stem cell company will sponsor research by Michael Young, director of Mass. Eye & Ear’s ocular regenerative medicine institute, into various eye disorders; financial terms were not revealed. The deal will fund Young’s research using NeoStem’s proprietary very small embryonic-like stem cells, or VSELs. The scientist will perform preclinical work to find uses of NeoStem’s VSEL products to combat degenerative disorders such as retinitis pigmentosa and macular degeneration. Both Mass. Eye & Ear and Schepens are Harvard Medical School affiliates. NeoStem previously has used its VSELs clinically as wound-healing therapy and to treat periodontitis; the company also has targeted cardiovascular diseases and autoimmune disorders. The eye also has been a popular target for gene therapies, thanks to its closed system and immune-privileged status. That has led to several recent fundings of companies with preclinical and clinical-stage programs. - P.B.

Thanks to Flickr user ProAeroPhoto for his photo of a different way to trade cash for stock, reproduced here under Creative Commons license.

Deals Of The Week: New Remedies Sought From Nature And Old Technologies

To help calm many a frazzled J. P. Morgan attendee trying to get to grips with new ideas, technologies and market entrants announced each year at that key U.S. conference, there’s nothing like a return to tried and tested modalities, particularly in drug discovery.

Two deals announced this week in Europe appear to herald just such a return to basics, although on closer inspection these older drug discovery methods – searching through natural product libraries for active substances -- and the use of high throughput screening -- have never really gone away.

The first Europe-centered agreement, between France’s Sanofi and Germany’s applied research institute, the Fraunhofer Institute for Molecular Biology and Applied Ecology, involves  identifying potential therapeutic substances from natural sources, mainly micro-organisms, to boost the number of antibiotics in development.

It might seem old hat: the venerable old-timer penicillin was isolated from natural sources, for example.  Still, the collaborators are introducing a couple of new twists. They are going to work together, as one team in shared labs on analyzing the genetics of micro-organisms, stimulating them to produce new active substances, and identifying those substances with therapeutic potential. It’s part of Sanofi’s drive to get  closer to cutting-edge science and external collaborators.

A new facility will be built on the Institute’s campus to house the researchers. Cross-pollination between this collaboration and Sanofi’s on-going alliance with venture-backed biotech Warp Drive Bio, which is scouring the genome of soil samples for examples of natural products with therapeutic potential could be possible. Under that 2012 deal the French pharma gets right-of-first-refusal for all candidates stemming from the target area of the biotech’s first genomic search.

The German researchers have a secret weapon: access to Sanofi’s huge (150,000-plus samples) collection of micro-organisms built up by predecessor companies like Hoechst and Synthelabo, as well as by its own labs.  The Fraunhofer Institute, a network or more than 60 research centers mainly based in Germany, with 30% of its funding from the German government and 70% from  industry partners, gains from the deal by being able to exploit Sanofi’s collection for non-medical uses with its own partners. In the crop protection area, for instance, Sanofi could develop compounds that have potential as human or animal medicines.

The lack of new classes of anti-infectives nearing the market has horrified many public health experts, who are concerned by the emergence of bacterial resistance to commonly used agents. Thereis  not a lot left in the locker to treat life-threatening infections. So it’s good news that other companies, such as Roche, have re-energized their research efforts in the field.

The week’s second European deal involves the setting up of a European joint venture called Hit Discovery Constance GmbH to conduct high-throughput screening (HTS) for biotech and academic partners, and to act as a storage and management facility for compound libraries.

HTS has been a disappointment to some; nonetheless it is now commonplace throughout industry and is often used to narrow down the choice of compounds likely to bind to targets, which are then refined through computer-based analysis and other processes.

Hit Discovery Constance is based in facilities in Constance, Germany, that have had a long line of previous owners – most recently Takeda Pharmaceutical Co. Ltd., and before that Nycomed SPA and Altana Pharma GmbH. Three European companies – Germany’s Lead Discovery Center, Italy’s Axxam SRL and Belgium’s Centre for Drug Design and Discovery - have set up the joint venture to run a fully-automated robotic screening system using a library of compounds assembled by the partners. Combined with other novel biochemical, bioassay and HTS technologies developed by the three partners, Hit Discovery Constance will be one of the largest screening hubs worldwide.

The revival of technology previously thought to be a disappointment was also featured in the standout deal that kicked off the J. P. Morgan meeting, between RNAi developer Alnylam Pharmaceuticals Inc. of the U.S. and Sanofi’s biotech unit Genzyme.--John Davis

Now, time to get on with deals on other fronts. In a week that saw far more than its fair share of activities, we've culled some of the highlights, below:

Moderna/Alexion: A number of deals were made and broken within the RNA space during the J.P. Morgan gathering, including Moderna Therapeutics Inc.’s news it landed another major partner for its preclinical messenger RNA technology. Rare disease specialist Alexion Pharmaceuticals Inc. will pay $100 million upfront to purchase 10 product options and is taking a $25 million equity stake in the company. Moderna will use its mRNA platform to discover molecules for rare diseases and then transfer all rights to Alexion, which will handle preclinical and clinical work on the molecules. Moderna will be eligible for clinical-stage and regulatory milestones as well as high-single-digit royalties on any resulting products.

This deal is similar to one Moderna struck with AstraZeneca PLC in March 2013 for the rights to more than 40 cardiovascular assets. The British pharma paid $240 million for the options. In both deals, Moderna will be eligible for undisclosed clinical and regulatory milestones, as well as royalties on any products that result. Moderna’s technology is designed to use messenger RNA to spur the production of therapeutic proteins. A day later, Moderna also announced that it was spinning out a satellite company, Onkaido Therapeutics to focus exclusively on oncology. Moderna is providing Onkaido’s first $20 million in capital.--Lisa Lamotta
Regeneron/Geisinger: Cash-rich Regeneron Pharmaceuticals Inc.’s collaboration with Geisinger Health System on studying genetic determinants of human disease is one of the most ambitious efforts to date by a drug company to systematically apply genomic sequencing to the discovery of new drugs.

The deal is broad and long-ranging, initially signed for five years, but with a horizon that could go out 10 years. Announced on Jan. 13 at the start of the J.P. Morgan meeting, it calls for Regeneron to perform the heavy lifting on sequencing and genotyping and for Geisinger to provide samples collected from its patient volunteers.  From Regeneron’s perspective, correlating genetic variations and human diseases could yield insights about disease and biomarkers leading to development of better drugs. Geisinger, at the same time, is looking for funding for its own research programs and to incorporate genetic advances into clinical care of its patients. Regeneron separately but simultaneously said it was creating a subsidiary, the Regeneron Genetics Center LLC, based at its Tarrytown campus, to pursue both large-scale and family-specific genomics studies.

The research collaboration will seek to sequence a minimum of 100,000 patients who are part of Geisinger, which treats three million people a year.  During the initial five-year collaboration term, the Regeneron Genetics Center will perform sequencing and genotyping to generate de-identified genomic data. The size and scope of the study are meant to allow great precision in identifying and validating the associations between genes and human disease. No money changed hands, but Regeneron will pay Geisinger for its services. Down the road, if drugs or diagnostics come to market, Geisinger will receive small royalties on sales of products.--Wendy Diller

Prosensa/GlaxoSmithKline: For our top “No-Deal of the Week,” GlaxoSmithKline has exited its 2009 collaboration in Duchenne muscular dystrophy (DMD) with Prosensa Holding BV, but the Dutch biotech is determined to continue advancing a portfolio of DMD candidates on its own, at least for now.

Few observers were surprised when GSK decided to terminate the partnership Jan. 13, but Prosensa says it hopes to continue developing drisapersen, a Phase III RNA antisense oligonucleotide exon-skipping compound which failed a Phase III trial last September.

In theory, drisapersen and Prosensa’s other candidates, three of which have reached mid-stage clinical development, address the underlying cause of DMD with exon-skipping technology that restores the expression of dystrophin protein. GSK paid $25 million upfront, with the potential for up to $665 million in milestones, in October 2009 for exclusive worldwide rights to drisapersen, as well as options on three other exon-skipping candidates. Although drisapersen demonstrated efficacy, as measured by improvement in the six-minute walk test (6MWT) in two other placebo-controlled trials, the companies announced Sept. 20 that it failed to meet its primary efficacy endpoint in the Phase III DEMAND III study.

Prosensa CEO Hans Schikan did not specify whether Prosensa paid GSK anything to re-acquire its intellectual property rights, including the options GSK had held, but said the multinational pharma holds no downstream rights for any of the DMD candidates. Prosensa earned at least $28 million in milestones under the collaboration with GSK, but Schikan said that cash was secondary in importance to the role GSK played in advancing drisapersen. “After this collaboration with GSK, and thanks to their commitment, we now have the largest database in DMD,” he said. He noted Prosensa probably never would have been in a position to develop this compound in this way. More than 300 patients have been treated in various clinical trials.

Schikan would not be pinned down on whether Prosensa will seek another co-development partner for drisapersen. The first order of business is to meet with stakeholders to see if there is a regulatory path forward for the compound, he said.--Joseph Haas

McKesson/Celesio: Our other notable “No-Deal” was McKesson Corp.’s announcement Jan. 13 that it had failed to complete the acquisition of Germany-based drug wholesaler Celesio AG because it did not attain the necessary 75% share position through its tender offer, despite raising its bid to €23.50 per share from the original €23. The acquisition was an effort to expand McKesson’s global reach, but the outcome was contingent on acquiring a minimum of 75% of shares on a fully diluted basis. The bid was announced in October.

McKesson CEO John Hammergren raised the topic during the company’s presentation to the J.P. Morgan Healthcare Conference, also on Jan. 13, and said redoing the tender offer was not a possibility. As a result, the failed offer “clearly puts us back to the drawing board in some respects.”

“Although we remain optimistic that we will continue to find ways to add value to our company through capital deployment and continued scale, it's not clear to us that Celesio will be part of that,” he said. However, asked if a joint venture with Celesio might be an option, he observed, “We obviously have been talking to Celesio for some time about various alternatives. I think clearly there is an opportunity for us to venture with them and jointly buy. In the past, we had the view that an acquisition and the complete control of the asset would give us faster and better throughput than a joint venture would, but clearly a joint venture would be an alternative to consider.”--Scott Steinke













 

Deals of the Week Watches The Stakes Rise

The wide-open IPO window has given private companies more liquidity options, so maybe it’s no wonder that pharmas are willing to pay more than usual for closely-held start-ups. Judging by some recent acquisitions, pharmas are digging deep to buy assets they believe will become blockbuster cancer drugs. The mid-June buyout of Aragon Pharmaceuticals by Johnson & Johnson for $650 million up front is among the cancer sector’s largest takeouts of a privately-held, clinical-stage company ever – and comes despite a lingering lawsuit and a prominent competitor.

Among purchase prices for pure-play oncology start-ups, J&J’s down payment for Aragon is nearly peerless. Daiichi Sankyo's buyout of Plexxikon in 2011 leads the pack at $805 million up front; if Plexxikon wasn’t technically a pure-play, virtually all of its value was tied up in a key cancer asset. Like the Aragon deal, the Plexxikon deal was heavily front-loaded: Just $130 million was tied to milestones, while J&J will be on the hook for $350 million more if Aragon hits all its marks. And compared to other cancer deals in recent memory, such as Amgen Inc.’s 2011 purchase of cancer immunotherapy developer BioVex Inc. ($425 million up front) and Gilead Sciences Inc.’s 2011 deal for Calistoga Pharmaceuticals Inc. ($375 million up front), it’s a giant step richer. 

Catherine of Aragon, via Wikimedia commons

Aragon CFO Paul Cleveland declined to discuss specifics of Aragon’s earn-out, but the deal centers on Phase II program ARN-509, an androgen receptor inhibitor for castration-resistant prostate cancer. For its hefty purchase price, J&J gets an asset that’s already withstood one court challenge from rival Medivation Inc., and could face another. Medivation’s Xtandi (enzalutamide) shares lineage with ARN-509; both were discovered based on the research of University of California, Los Angeles professor Charles Sawyers, and Medivation alleged that the school hid ARN-509’s existence while out-licensing Xtandi. A judge affirmed that Aragon owns ARN-509 in January, but Medivation is appealing the ruling; a resolution might not come until next year.

Apparently the uncertainty wasn’t enough to spook J&J, but it’s possible that a different uncertainty spurred it to buy: Aragon’s choice regarding whether to conduct an IPO. The queue for new biotech listings is a long one, and it might be as easy as ever to go public. Even bluebird bio Inc., a mid-clinical-stage company in the once-untouchable gene therapy field, priced above expectations in mid-June, signifying that appetites are high for new offerings – even ones that carry a lot of risk. Indeed, Cleveland told “The Pink Sheet” that Aragon had a “very feasible go-it-alone strategy” that included a partnership and/or an IPO. (The strategy has apparently been in place for awhile, as CEO Richard Heyman told us last year.) Rather than risk letting Aragon brave the public markets, J&J moved to buy now.

In the end, J&J gets a drug that could succeed its existing prostate cancer therapy Zytiga (abiraterone), whose key patents expire in 2016. In the process, it extends a franchise that will compete with Xtandi, a drug S&P Capital IQ equity analyst Herman Saftlas said could deliver $2.5 billion in annual sales by 2015. And Aragon’s investors? Well, they get liquidity at a handsome multiple, but as part of the arrangement, they’ll also roll over some of their cash returns into a new company, Seragon, into which Aragon will spin out its Phase I selective estrogen receptor degrader ARN-810. -- Paul Bonanos

We know you have choices of your own, so thanks for choosing….

MedImmune/NGM: MedImmune, the biologics arm of AstraZeneca, signed on with privately held NGM Biopharmaceuticals June 17 to collaborate on the discovery and development of novel peptide or antibody therapeutics for type 2 diabetes and obesity. No financial terms were disclosed, but NGM will receive an up-front payment and research funding with the potential to earn development, regulatory and commercial milestones, as well as worldwide royalties on any products resulting from the partnership. The deal is the latest by MedImmune’s Innovative Medicines Unit for cardiovascular and metabolic diseases. Currently, bariatric surgery, which bypasses part of the patient’s intestines, is not reversible, and presents an array of gastrointestinal side effects, is reserved mainly for morbidly obese patients, who sometimes also suffer from out-of-control type 2 diabetes. “It’s not for every individual,” Christina Rondinone, chief of MedImmune’s cardiovascular and metabolic disease IMED said. “What we plan to do is develop a product that will mimic the benefits of surgery, avoid the side effects, and that every individual with diabetes can use. Our goal is not to treat the disease but reverse it with a drug.” Founded in 2008, South San Francisco, Calif.-based NGM now has signed three partnerships around its technology for understanding the roles that hormones play in certain diseases. In 2012, it partnered with Daiichi Sankyo to discover and develop drugs for type 1 and type 2 diabetes that modulate beta cell regeneration. Then, in January, NGM agreed to an exclusive collaboration with Janssen Pharmaceuticals Inc. to discover and develop novel therapeutics for type 2 diabetes. - Joseph Haas  

Teva/MicroDose: The Israeli firm Teva Pharmaceutical Industries Ltd. said June 17 it would acquire privately held MicroDose Therapeutx Inc. for $40 million up front and up to $125 million more in post-acquisition milestones. The New Jersey company’s two unpartnered clinical candidates are MDT-637, a treatment for respiratory syncytial virus, and a nerve agent antidote, both delivered via the company’s own inhalation technology platform. It acquired the anti-RSV candidate from ViroPharma Inc. in 2009. The firm has other delivery platforms, but Teva highlighted MicroDose’s respiratory technology and pipeline, saying the acquisition would strengthen its respiratory franchise. Underscoring Teva’s focus, the firm said it would also pay sales-based milestones and royalties upon commercialization of MDT-637 and an earlier stage asthma/COPD compound. Teva has expanded its generic empire as well as the branded side of its business through acquisition, although it has kept a fairly low profile since its $6.8 billion takeover of Cephalon Inc. in 2011. The firm has three branded respiratory products: QVAR for asthma, ProAir HFA for bronchospasm, and QNASL, a nasal spray for allergies. - Alex Lash  

Perrigo/Fera: Michigan-based Perrigo Co. said June 17 it would add to its smorgasbord of generic, over-the-counter, and animal health products by licensing a portfolio of nine generic ophthalmic offerings from specialty firm Fera Pharmaceuticals LLC of New York. Perrigo will pay $93 million, with $36 million more in contingent payments if more products are licensed. The portfolio includes sterile ointments and solutions and brought in more than $30 million in net revenue in 2012, according to Perrigo. Fera launched in 2009 with an ophthalmic portfolio that it acquired from Fougera Pharmaceuticals Inc., then the US arm of Nycomeduntil Takeda Pharmaceutical Co. Ltd. bought Nycomed in 2011. Fougera was owned by a private equity group until 2012, when Sandoz, the generics division of Novartis AG, bought it. Fera CEO Frank DellaFera and other top management were formerly with Sandoz. Perrigo claims to be the largest manufacturer of over-the-counter pharmaceuticals for the private label or “store brand” market. - A.L.  

Sanofi/Curie: A research collaboration between Sanofi and Institut Curie will revisit the basic biology that leads to ovarian cancer, according to the two entities’ joint statement issued June 19. Financial terms weren’t disclosed. The companies plan to identify targets that lead to cancer by revisiting a library of tumor samples that the Institute has preserved. Sanofi’s oncology division will work with Curie-Cancer, the Institute’s partnership organization, to address ovarian cancer using a translational approach. Sanofi plans to select targets based on tumor genome sequences, which are compared with healthy tissues to identify molecular alterations. It’s the second partnership Paris-based Curie-Cancer has formed with a major pharma this year. Roche and Curie-Cancer said in May that they would expand an existing four-year research deal reached in 2009, which had given Roche access to Curie’s pre-clinical research models. - P.B.  

DARA Biosciences/T3D Therapeutics: As it aims to focus wholly on oncology support therapeutics, North Carolina-based DARA BioSciences Inc. has spun out the last of its unrelated assets. DARA announced June 18 that T3D Therapeutics has licensed the worldwide rights to DB959, an oral, dual nuclear receptor agonist whose primary target is peroxisome proliferator activated receptor delta (PPARd). DARA has already developed the drug through Phase I for diabetes and dyslipidemia. T3D, which was founded by DARA’s former Chief Scientific Officer John Didsbury, intends to refocus the molecule as a treatment for Alzheimer’s disease. T3D is paying $250,000 up front, another $250,000 before the end of the year, plus commercial and development milestone payments. DARA will now focus solely on the commercialization of products that help with the side effects of cancer treatment – the company currently has three marketed products that fit this category, including a cream for skin irritation caused by radiation treatments. The company is looking to in-license other commercial-ready products and to find a partner that will develop the cancer support product it has in its pipeline. - Lisa LaMotta  

Protalix/Fiocruz: Israel’s Protalix BioTherapeutics Inc. reached an agreement with Brazil’s Ministry of Health that will allow the Brazilian government to manufacture the Gaucher disease treatment Uplyso (alfataliglicerase). The June 19 supply and tech-transfer agreement between Protalix and Fundação Oswaldo Cruz, known as Fiocruz, calls for the Brazilian health group to purchase $280 million worth of Uplyso from Protalix. Fiocruz will construct a facility and receive a license to manufacture its own Uplyso after seven years, once the purchase agreement is fulfilled. Uplyso, known in the U.S. and Israel as Elelyso, is an enzyme replacement therapy for Gaucher disease, a lysosomal storage disorder. Pfizer Inc. had licensed the drug locally and received Brazilian marketing approval in March, but returned rights to Protalix in exchange for $12.5 million in annual payments. Fiocruz is obligated to buy $40 million worth of Uplyso during the first two years of the agreement, and $40 million each year subsequently until it reaches the full $280 million. The seven-year agreement may be amended to add an additional five-year term to fulfill the financial terms. - P.B.

Deals of the Week: An Update On A Potential Pfizer Split-Up

Pfizer's Chairman and CEO Ian Read doesn’t make himself available for interviews readily, so a March 26^th note from Sanford Bernstein’s esteemed pharma analyst Tim Anderson caught our attention pronto. The note describes a teleconference call Anderson held with Pfizer’s top management team, including Read and R&D chief Mikael Dolsten. Also on the call were Geno Germano, president and general manager of specialty care and oncology; John Young, president and general manager of the primary care business unit; and Amy Shulman, EVP and general counsel and business unit leader for consumer health. 

Much of the call revolved around management’s perspectives on splitting up the company. The topic is by no means new, but the strategy continues to fascinate, particularly given the implications it has going forward for the bigger is better argument that dominated the industry for decades, and Pfizer’s leading role in embracing the pro-scale argument, not to mention its gargantuan 2009 acquisition of Wyeth. 

The shifting commercial landscape and concerns about the difficulties of managing massive global R&D units are two key factors underlying the motivation for a split, Read told Anderson. No news there, as Read has said this before, but Anderson’s conversation illuminates how management’s thinking is evolving and what its choice points are likely to be. Anderson believes Pfizer is very much still considering a split, although it has not yet made a firm decision. One possibly telling note about the timing: It has not hired consultants to help the process along. Such a move would seem a logical step, given the complexity of the undertaking. Moreover, it is closely following whether investors sustain their positive reaction to the Abbott Laboratories/AbbVie split.

To do so, Pfizer is taking several steps, including installing different management structures for its two core businesses: one for the innovative medicines and the other for the ‘value’ or established products businesses. These structures are largely in place already, although not yet in emerging markets, Pfizer management told Anderson.

Still, dividing up various aspects of Pfizer’s businesses would be complicated. Pfizer’s manufacturing plants serve multiple purposes, for example, separating them operationally “so they can be managed by two divisions would be a long and difficult process,” management told Anderson. Manufacturing also ties into how profits from individual products are taxed, he noted.

The company is also still considering a compromise as a draw for investors. Anderson calls it a ‘virtual split,’ in which Pfizer retains both businesses, but provides more transparency around each, including separating their P&Ls. This is likely to happen in 2013, Anderson speculates; management has not defined a deadline, but said it would likely take this step ‘soon’. A full break up, should that be the ultimate choice, could take three years to completebecause of SEC requirements for three years of audited financial data and the operational complexities. 

The pros and cons of a split are already well known to Pfizer followers. On the plus side, each business has very different growth drivers, with different cultures required, time lines for getting products to market, and regulatory and commercial strategies. The cons are: loss of scale for back office operations and added costs of two standalone companies, and the complexities of sorting out how to divide up manufacturing operations. 

The company has been evaluating a split for at least two years — almost as long as Read has been at the helm. It has already spun out or sold its animal health, drug formulation and delivery, and international pediatric nutritionals businesses, adding tens of billions of dollars to its coffers. It is now the most cash-rich company of a cash-rich industry, a position investors laud. (Statistically-minded investors might note that two of these deals took place in consecutive Aprils — 2011 for Capsugel, and 2012 for the $11.9 billion sale of the pediatric nutritionals business to Nestle. However, divesting consumer health, one of Pfizer’s growth drivers, is not on the table, management told Anderson and has previously told the Street. Wall Street seems favorably inclined toward current management, a sharp turnaround from the dissatisfaction that helped drive previous CEO Jeff Kindler from his post in December 2010 and paved the way for Read’s ascent. But, given the success of other pharma spin outs and divestitures, it’s itching for this split to occur.

Other nuggets from Anderson’s call: Pfizer’s goal for its newly launched anti-coagulant Eliquis is to reach equivalent formulary positioning to earlier entrants, Boehringer Ingelheim’s Pradaxa and Johnson & Johnson/Bayer AG’s Xarelto by year end. The company’s other new specialty drug, Xeljanz, an oral medication for rheumatoid arthritis, is ”getting consistent uptake in the post anti-TNF portion of the market.” Direct-to-consumer advertising is expected to begin in mid-2013.  Breast cancer pipeline drug palbociclib, a CDK 4/6 kinase inhibitor, is on investors’ radar following release of strong clinical data in December 2012.--Wendy Diller

Who's splitting up, buying, selling, licensing, or partnering? It's all in this week's installment of...

Lundbeck/Otsuka: Just weeks after partners Lundbeck and Otsuka launched their first joint product in the U.S. derived from a 2011 collaboration, they expanded their 2011 alliance for yet the second time in a month, focusing  on Lundbeck’s novel Phase II compound for Alzheimer’s disease, LuAE58054. In March 2013, the companies launched the once-monthly injectable anti-psychotic Abilify Maintena, a long-acting formulation of Otsuka’s blockbuster Abilify, which is set to lose patent protection in 2015. Just days after the launch, the partners expanded the original agreement to include co-promotion of all Abilify formulations (including tablets and oral solutions) in certain European countries. The companies are also jointly developing Otsuka’s brexpiprazole, now in Phase III for multiple psychiatric disorders. The latest expansion adds $150 million from Otsuka to Lundbeck’s coffers upfront, and could result in regulatory and sales milestone payments of up to $675 million. In exchange, Otsuka gets co-development and commercialization rights to Lu AE58054 in the U.S., Canada, East Asia (including Japan), major European countries, and Nordic countries. Phase II studies of the asset recently completed, and three Phase III trials are expected to begin later in 2013. The compound, a selective 5HT 6 receptor antagonist, is in development as an adjunct to donepezil for Alzheimer’s disease. The drug is expected to begin three Phase III trials later this year involving 2,500 patients. – Lisa LaMotta

Shire/SARcode: Shire's CEO-designate Flemming Ornskov hasn’t officially taken over the reins at the specialty pharma but he is already pulling the strings when it comes to business development. The company announced its second acquisition within two weeks in ophthalmology – a therapeutic area Ornskov knows well, but one that is new to the company. The Irish specialty pharma announced on March 25 that it acquired SARcode Bioscience Inc. and its lead asset lifitegrast for dry eye disease for $160 million upfront and undisclosed milestones. That announcement follows the March 12 acquisition of Premacure AB, the developer of a rare neonatal eye disease treatment, for an undisclosed amount. Ornskov called ophthalmology a 'very attractive' therapeutic area in an interview with “The Pink Sheet” DAILY. Prior to Bayer, Ornskov worked at the eye specialist Bausch & Lomb as global president of pharmaceuticals and OTC, and previously headed Novartis's ophthalmology business. For SARcode investors the deal is an attractive exit. The process was competitive, with multiple potential acquirers coming forward after the first Phase III trial read out last year, according to Sofinnova Ventures partner Garheng Kong, who also sits on SARcode’s board of directors. Sofinnova led SARcode’s $44 million Series B financing, completed in July 2011 to fund the Phase III program.–Jessica Merrill

Edison/Dainippon: Mountain View, Calif.-based biotech Edison Pharmaceuticals has scored a regional partnership with Japan’s Dainippon Sumitomo. On March 28. Edison announced that Dainippon is providing it with $15 million upfront, as well as $35 million in research funding for the Japanese development and commercialization rights to EPI-743 and EPI-589. The Japanese pharma will pay up to $35 million in development milestones for each indication, as well as another $460 million in commercialization milestones and royalties. Edison will use the funds from the deal to conduct late-stage development and commercialization of EPI-743, its lead product candidate, which it intends to commercialize itself in the U.S. and possibly Europe during the 2015 timeframe. Edison has been raising small sums of money since its inception in 2005, but had been considering the best possible way to transition from a pure development company to one with a commercial orientation as well. “We’ve been in private board discussions on how to capitalize Edison through commercialization,” said Edison CEO Guy Miller in an interview. “We had been considering different options including a regional deal or even an IPO.” – L.L.

AstraZeneca/Actavis: Actavis gained the right to launch its generic version of AstraZeneca PLC’s blockbuster Crestor on May 2, 2016 – 67 days before Crestor’s patent protection expires – in a deal announced March 25. In return, the generics maker agreed to pay a fee of 39% of its net sales during this early marketing period. The terms were part of a settlement agreement to resolve patent litigation. Actavis (formerly Watson Laboratories Inc.) will also be able to launch its zinc salt formulation of the cholesterol-lowering drug, which it developed under an NDA as a way to circumvent the Crestor patent, at the same time ([A#00130218011]). The companies noted in separate March 25 releases that the entry date may be earlier and the fee eliminated under certain circumstances, which they did not specify. In December 2012, the U.S. Court of Appeals for the Federal Circuit affirmed a district court decision that the substance patent covering Crestor is valid and enforceable. The patent expires following pediatric exclusivity on July 8, 2016. Crestor is AstraZeneca’s top-selling drug with 2012 revenue of $6.25 billion, of which $3.16 billion was in the U.S. The companies announced the settlement agreement on the same day the Supreme Court heard oral arguments in Federal Trade Commission v. Actavis, which addresses whether patent settlements in which the brand pays the generic to delay launching its product are anticompetitive. It is unclear whether the AstraZeneca-Actavis deal would spark opposition by the FTC as it did not involve a “reverse” payment from defendant to plaintiff. —Brenda Sandburg

Sanofi/Transgene: French biopharma companies Sanofi and Transgene will collaborate on the development of a new industrial platform for the production of clinical and commercial batches of Transgene’s immunotherapy products, including its modified vaccinia Ankara (MVA vaccine), a reengineered virus used as a vector for the production of recombinant proteins. Genzyme’s polyclonals facility in Lyon-Gerland will serve as the site for the platform, and is targeted for an investment of €10 million ($13 million), to be equally shared by Sanofi and Transgene. The platform will remain Sanofi’s exclusive property. Under the agreement, Sanofi will essentially serve as Transgene’s contract manufacturing organization, and Transgene will be a preferred customer for 15 years. The Genzyme site is already manufacturing polyclonal antibodies and has the necessary capabilities to support the registration of immunotherapy products for the EU and U.S. markets.  Construction will start in the third quarter of 2013, with completion scheduled for 2015. Transgene expects to file its first BLA in 2016. In 2010, Novartis AG licensed an exclusive option for global rights to Transgene’s TG4010 vaccine (MVA-MUC1-IL2) against MUC1-positive NSCLC and other types of cancer. The decision to option will be based on Phase IIB results, which should be available in the second half of 2013. The biotech is also advancing JX594, an oncolytic virus candidate licensed from Jennerex Biotherapeutics Inc. for hepatocellular carcinoma and other tumors; Phase II data will be presented in the first half of this year.—Michael Goodman

Novartis/Clinigen: British specialty pharma Clinigen Group is building a portfolio of hospital-only drugs it believes will thrive in its hands. In its latest deal, the Burton-on-Trent, U.K., company said March 26 it had acquired from Novartis rights to Cardioxane, a cardioprotective agent used to combat complications of anthracycline chemotherapy in advanced breast cancer patients. The Swiss pharma agreed to sell its rights to the drug for $33 million in cash, which Clinigen will pay in two installments. Novartis had owned rights to dexrazoxane since its 2006 acquisition of Chiron, but the drug has been approved since 1992.  It’s been marketed by several companies under a variety of names, but since 2011, its usage has been restricted to the breast cancer indication in the EU and U.S. Clinigen plans to market the drug with emphasis on certain European, Asian and Latin American markets where it believes it can stimulate sales. Last week, Clinigen licensed antiviral drug Vibativ (telavancin) from Theravance Inc. to treat nosocomial pneumonia infections stemming from methicillin-resistant staphylococcus aureus infections. The company licensed Foscavir (foscarnet sodium) from AstraZeneca PLC, an anti-bacterial drug combatting cytomegalovirus in bone marrow transplant patients, in 2010. Clinigen went public in September 2012.—Paul Bonanos



Lilly/Galapagos: Eli Lilly has returned the rights to an osteoporosis program to Galapagos NV, the smaller company announced during an R&D update on March 27. The alliance was initiated in December 2007, when Lilly agreed to pay an upfront of €3 million ($4.32 million) in exchange for an option to take over worldwide development and commercialization for up to 12 proprietary osteoporosis targets and drug-discovery programs. The goal of the program was to develop oral, bone-building drugs that could serve as follow-ons to Lilly’s osteoporosis franchise, which includes Evista and Forteo. Under the original terms of the deal, Galapagos was tasked with developing the drug candidates through Phase IIa proof of concept in exchange for the upfront and €88 million ($126.6 million) in milestones. It was also eligible for €130 million ($187.1 million) in commercial milestones. Galapagos said in a statement that the “alliance did not yield the expected results within an acceptable timeframe, and therefore Galapagos decided to end the alliance.” The smaller company had received €11 million in milestones from Lilly as of the end of the collaboration.—L.L.

 

DOTW: Biogen Puts Offshore Cash to Work

When it comes to corporate tax planning, biopharmas as a group aren’t spectacularly sophisticated. (A few exceptions come to mind, most notably specialty pharma Valeant and Bristol Myers-Squibb, the latter of which upped its game and expects to drop its tax rate to 16% in 2013. That's down from 26% in 2011.)

It’s particularly hard for U.S. biopharmas to do much with offshore cash. That’s unless they buy something outside the U.S. or pay a high tax rate to bring cash into the U.S. Or they can opt to keep stockpiling cash ex-U.S. in hopes a cash- repatriation tax holiday is on the horizon, an unlikely scenario anytime soon given the ongoing fiscal standoff.

This week, Biogen Idec made a bold move by using offshore cash to acquire full rights to multiple sclerosis drug Tysabri (natalizumab) from its previously 50/50 partner Elan. The deal manages to turn cash sitting on its balance sheet, much of it offshore, almost immediately into a bump for EPS and cash flow - a neat trick. Deutsche Bank analyst Robyn Karnauskas upped her 2013 EPS estimate to $7.76 from $7.15 and her 2013 revenue estimate to $6.6 billion from $6.1 billion. She expects the new structure to be in place in the second quarter.

The deal includes a $3.25 billion upfront payment from Biogen to Ireland-based Elan. Most of this will come from offshore cash, Biogen CFO and EVP Paul Clancy said on a Feb. 6 call. Biogen Idec had $3.7 billion in cash at Dec. 31. In addition, Elan will receive 12% of Tysabri sales in the first year and then after that 18% on sales under $2 billion and 25% on sales over $2 billion. Tysabri had 2012 sales of $1.6 billion, with some analysts modelling peak annual sales well above $2 billion.

Biogen CEO George Scangos made reviving Tysabri revenue growth a priority when he began his tenure in June 2010. After a 2004 approval, Tysabri was withdrawn from the market in 2006 due to reports of the fatal brain disease, progressive multifocal leukoencephalopathy (PML). It re-entered the market in 2006 with a label for second-line use and a boxed warning. Scangos pushed for the development and approval of a test for JCV antibodies to assess PML risk. In January 2012, FDA updated the Tysabri label on include information quantifying the risks of developing PML according to JCV antibody status. Last month, the partners submitted applications to FDA and EMA for first-line use of Tysabri in patients who test negative for antibodies to the JC virus.

Wall Street initially was wildly enthusiastic about Biogen’s move, spiking shares up 6% in early trading Feb. 6. But since then, the Street has become a bit more cautious, with the gain retreating to about 2% by market close on Feb. 7. Skeptics worry Tysabri won’t live up to revenue expectations or that Biogen’s execution of this deal just ahead of the March 28 PDUFA date for the oral MS drug formerly known as BG-12, now called Tecfidera (dimethyl fumarate), indicates reduced optimism for the new treatment. On the Elan side, buysiders worry about whether President and CEO Kelly Martin will use that mountain of cash to make useful deals. The company doesn’t have the best track record when it comes to strategic transactions. Elan shares were off 6% by the end of Feb. 7 on the deal.

Biogen Idec is hardly alone among biopharmas in having stacks of offshore cash. At the end of 2011, biopharma companies had a  total of $183 billion in cash most of which was offshore, according to a March report from Moody’s. To put that in some context, that is roughly equal to the combined market caps of Amgen, Gilead Sciences and Bristol. Biopharma is second only to the technology industry when it comes to the sheer amount of cash on the books. Last week, the IT sector also offered an instructive example with the privatization of Dell, which itself could be a partial end-run around offshore cash and corporate taxation issues.

The top biopharma cash hoarders in 2011 were Pfizer ($35.3 billion); Johnson & Johnson ($32.3 billion); Amgen ($20.6 billion); Merck ($18 billion) and Bristol ($11.6 billion). Now that the immediate panic of patent cliffs is behind many of them, perhaps biopharmas will take a breather, look around and think of more creative, tax-efficient ways to deploy all that cash.

For a look the rest of the money that was spent in this week's biopharma deal activity, you need go no further than this week's edition of . . .

Alnylam/The Medicines Co. Hospital specialist The Medicines Co. is jumping into the PCSK9 race for the treatment of high cholesterol in a partnership with RNAi therapeutics developer Alnylam Pharmaceuticals, announced Feb. 4. But the program is far behind other PCSK9 drugs in development at Sanofi/Regeneron and Amgen, which are both in Phase III development. The product, which has completed Phase I testing, will have to prove itself to be differentiated from the leaders if it is to become an eventual commercial success. Alnylam and TMC don’t think that’s a problem because as an RNAi therapeutic ALN-PCS works through a different mechanism of action than the leading drugs in development, which are monoclonal antibodies. That could yield a best-in-class drug, the companies predict, although the results will have to bear out in clinical studies. Alnylam will be responsible for developing the programs further for an estimated one to two years to complete preclinical and Phase I clinical studies of the subcutaneous formulation, and TMC will be responsible for leading and funding development from Phase II forward and for commercializing the program if successful. TMC will pay $25 million upfront and Alnylam stands to receive potential development and commercial milestone payments of up to $180 million and could earn scaled double-digit royalties on sales of the resulting products. It’s not an enormous value for an asset that hits such a hot target. Alnylam Chief Business Officer Laurence Reid admitted the upfront portion of the deal reflects the competitive dynamics in the PCSK9 field and the fact that there are several drugs in later stages of development. - Jessica Merrill

Inspiration/Cangene: French company Ipsen is finally free of U.S. partner Inspiration Biopharmaceuticals. Cangene has agreed to buy rights to IB1001, a recombinant factor IX (rFIX) for the treatment of hemophilia B, which FDA put on clinical hold in 2012. The deal, announced Feb. 6, completes the sale process of all Ipsen and Inspiration hemophilia assets and follows the Jan. 24 news that Baxter would buy the troubled biotech’s flagship hemophilia drug OBI-1 and related Boston manufacturing facility. Inspiration entered Chapter 11 protection at the end of October 2012 to restructure and find a buyer for its two main hemophilia products: OBI-1, a recombinant porcine factor VIII (rpFVIII) for treating hemophilia A with inhibitors, and IB1001. In return for global rights to IB1001, Cangene agreed to pay $5.9 million upfront and up to $50 million in potential additional commercial milestones, as well as net sales payments equivalent to a tiered double-digit percentage of IB1001 annual net sales. Meanwhile Baxter, in its transaction pact for OBI-1, will pay $50 million upfront, up to $135 million in potential additional development and commercial milestones as well as tiered net sales payments ranging from 12.5% to 17.5% of OBI-1 annual net sales. As Inspiration's only senior secured creditor and as the owner of non-Inspiration assets that will be included in the sale of both OBI-1 and IB1001, Ipsen will get some 60% of the overall upfront payments. Ipsen is clearly relieved to have found a buyer for IB1001 given the medicine’s shaky regulatory prospects after the FDA-imposed clinical hold on IB1001 impacted two ongoing phase III trials. Since Inspiration filed for bankruptcy protection, Ipsen has backed the biotech with $23.6 million in debtor-in-possession (DIP) financing to keep it going amid efforts to sell its assets. Ipsen expects to cover the DIP amount with its share of upfront payments from the two asset sales with Baxter and Cangene. The French biotech may take a €100 million impairment charge for the hemophilia assets such as convertible bonds used to finance the collaboration and its investment in the Milford, MA plant. A fuller picture should come on Feb. 27 when Ipsen reports 2012 earnings. - Sten Stovall

Pfizer/OxOnc: Drug-development group OxOnc, which is funded by health care hedge fund OrbiMed Advisors, signed a deal with Pfizer to co-develop Xalkori (crizotinib) in a pivotal clinical trial intended to enable the approval of the drug in Asian countries in a new indication. Xalkori is already approved in the U.S., EU, Japan and other countries to treat patients with ALK-positive advanced non-small cell lung cancer (NSCLC). This trial would be in ROS1-positive advanced NSCLC patients. The trial will be at multiple sites in Japan, China, Taiwan and South Korea. OxOnc will be eligible to receive undisclosed milestones if Xalkori is approved in this indication. No further details were disclosed. - Stacy Lawrence

Isotechnika /Aurinia: Isotechnika licensed out exclusive rights a year ago to its lead drug in a couple of indications and now it’s planning a merger to get it back. Last January, the Canadian company licensed rights to voclosporin to treat lupus and proteinuric nephrology indications to Vifor Pharma. Swiss specialty pharma Vifor subsequently spun out Aurinia with the asset. Isotechnika and Aurinia now are planning to merge under undisclosed terms with post-merger ownership of 60/40, respectively. The merged company will trade on the Toronto Stock Exchange and be known as Aurinia. Management will come from both companies. Aurinia’s management is primarily from Aspreva Pharmaceuticals, which was acquired by the Galenica Group for C$915 million in 2008. Vifor is also part of the Galenica Group. The merger is expected to complete by March 15, pending approval from Isotechnika shareholders and the Toronto Stock Exchange as well as the raising of C$3 million by Isotechnika. The new company plans to start a Phase IIb study this year of voclosporin, in addition to standard of care, to treat lupus nephritis. - S.L.

Stacks of Euros photo courtesy of flickr user aranjuez1404. 

Deals Of The Weeks Wonders If A Biopharma Super Bowl Is Imminent

Deals of the Week is torn as the Super Bowl approaches – you see, most of this feature’s contributors live either in 49ers country near San Francisco or in the case of this author, a short drive from the home field of the Baltimore Ravens. With our loyalties clearly divided, rest assured DOTW will take a non-partisan approach toward the big game.

But the Super Bowl’s attendant hype puts us in mind of the biopharmaceutical industry’s closest equivalent, the mega-merger, such as those that combined Pfizer and Wyeth and then Merck and Schering-Plough in 2009. A month into 2013, we wonder, what are the chances of a mega-merger in 2013?

Industry sentiment seems inclined against one. In recent earnings calls, CEOs of major companies have disavowed their interest in disruptive deals that require multi-year, complicated integration.

Raghuram Selveraju, the head of health care equity research at Aegis Capital, recently finished up a deep-dive into the mid- and late-stage pipelines of 12 big pharmas. And while he sees companies among the big 12 that badly need a course correction, he does not think a deal the size of Pfizer/Wyeth is likely near-term.

“Some pharmas have out-performed, some are in the middle of the pack and some are absolutely abysmal,” Selveraju said. “If we look at the ones that are performing abysmally, we find clues as to who might do a mega-merger. If a company is doing well on its own, it’s very unlikely that it’s going to do a mega-merger. A company only resorts to a mega-merger only if it feels it cannot go on sustainably in a standalone manner or feels that it doesn’t have sufficient critical mass to continue performing earnings-wise with its existing panoply of products and its existing pipeline.”

At present, Selveraju views Sanofi, Novartis and to a somewhat lesser extent Roche as the top performers in the sector. The middle of the pack consists of GlaxoSmithKline, Bristol-Myers Squibb and AbbVie. But he reserves the “abysmal” label for AstraZeneca and Eli Lilly.

“I think AstraZeneca should find someone to dance with, and Lilly definitely should,” he said. “But both are run by CEOs, especially Lilly, who believe they can just grow organically and discover and develop products internally to justify being a standalone entity. I don’t agree with either – I think AstraZeneca’s approach has been very patchwork.”

One obvious solution might be for AstraZeneca and Lilly to merge, which certainly would qualify as a mega-merger. But Selveraju is unsure they would complement each other in the way that Pfizer and Wyeth did. Of the two 2009 major deals, Selveraju contends that Pfizer made out far better than did Merck.

“Merck’s decision to buy Schering-Plough, on the face of it today, looks like an unmitigated disaster,” he said. “Virtually all of Schering’s once-vaunted late-stage pipeline has fallen flat. Boceprevir (Victrelis) is a commercial failure more or less and probably never will be a success … Merck hasn’t been able to put together a successor for Vytorin (ezetimibe/simvastatin) or expand its usage. It’s been a litany of failures. Now, Merck has resorted to falling back on two other drug candidates that didn’t come from Schering: odanacatib for osteoporosis and suvorexant for insomnia.”

The other possibility for a mega-merger, Selveraju said, would occur if AstraZeneca or Lilly tried to buy out AbbVie, which he thinks could bring one of those companies some of the same benefits Pfizer derived in acquiring Wyeth. “AbbVie is a lot like Wyeth was – it has Humira (adalimumab), just like Wyeth had Enbrel (etanercept), it’s got an interesting set of late-stage candidates in clinical development, none of which are super-great but any one of which potentially could prop up earnings. And we know Humira is going to be very resistant to generic erosion.”

Buying AbbVie seems more feasible for AstraZeneca, the analyst added, as AstraZeneca has a market cap of about $60 billion, compared with AbbVie in the $40 billion range. “It’s not outside the realm of possibility that AstraZeneca could find a way to swallow AbbVie,” Selveraju said. “There’s a lot of synergy there in terms of focus – AstraZeneca likes inflammation and autoimmune disease. AbbVie also has a lot of stuff, just like Wyeth did, that would be easy to divest.”

But Selveraju thinks more focus these days is on the 2011 Sanofi buyout of Genzyme, which he sees as a much better model than either of the 2009 mega-deals,

“That deal is a major reason why Sanofi’s share price has performed so well,” he noted. “And now we’re looking at Lemtrada (alemtuzumab) potentially being approved in multiple sclerosis later this year or early next year – that could be another value-driver because it’s a biologic with an advantageous dosing schedule. Things just keep getting better and better for Sanofi.”

So Selveraju thinks big pharma should look for deals that will increase their exposure to therapies for rare diseases and bring in more “biotech-like stuff.” Two companies to watch as potential targets in the year ahead, he said, are Alexion  and BioMarin. But in the meantime, smaller but nonetheless important deals are being finalized each week in the biopharma arena. Now, let’s check in on the latest survey of …

Idenix/Janssen: Looking to advance its hepatitis C program while its nucleoside polymerase inhibitors are being reviewed for cardiovascular safety concerns by FDA, Idenix Jan. 28 announced a non-exclusive collaboration with Janssen Pharmaceuticals to test two- and three-drug combinations in the virus. FDA placed “nucs” IDX184 and IDX368 on clinical hold last year after a Bristol nuc (BMS094) was shut down due to cardiovascular adverse events that included one death and eight hospitalizations. No financial terms were disclosed for the Idenix/Janssen collaboration. It will involve testing Idenix’s Phase II pan-genotypic NS5A inhibitor IDX719 with Janssen’s protease inhibitor TMC435 (simeprevir) and non-nucleoside polymerase inhibitor TMC647055. The firms will conduct a drug-drug interaction study beginning this quarter, to be followed by a Phase II study of ‘719 and simeprevir dosed with current therapeutic standard ribavirin over 12 weeks in treatment-naïve HCV patients. After that, the two firms plan to try a three-drug combo of ‘719, simeprevir and ‘055, dosed with and without ribavirin. Idenix will conduct the trials and each company will retain all rights to their respective compounds. “This [agreement] will allow us to achieve a key goal of ours for 2013, which is to advance the development of IDX719 as part of all-oral HCV combinations in two- and three-drug regiment,” Idenix CEO Ron Renaud said in a release. - Joseph Haas

Genentech/Afraxis: Genentech has bought a full license to the entire kinase-inhibitor discovery program of Afraxis for an undisclosed upfront fee and up to $187.5 million in milestones. Although not described as a sale, the Jan. 29 deal effectively is the end of the road for Afraxis, which was founded in 2007 by Avalon Ventures. Avalon remains its sole shareholder. Avalon managing partner Jay Lichter, also Afraxis’ CEO and president, tells DOTW that his preference would have been a sale, but the licensing structure still affords Avalon an exit. Lichter declined to say how much Avalon put into the company, but SEC filings show the total could be as high as $11 million. Afraxis originally derived from research in the Massachusetts Institute of Technology lab of Susumu Tonegawa that pointed toward a cure for Fragile X Syndrome, a severe form of autism, by inhibiting P21-activated kinase (PAK) through genetic manipulation of mice, work that gained some attention at the time. Afraxis received funding from the National Institutes of Health’s TRND program to push forward a small-molecule Fragile X compound, but Genentech’s parent Roche has a Fragile X drug in advanced clinical trials. Genentech is likely to use Afraxis’ library of kinase inhibitors to pursue other indications. “Our initial goal was PAK, but we have a variety of compounds selective for other kinases, and I don’t know what indications they’ll move forward in,” Lichter said. - Alex Lash

Immunomedics/Algeta: Norwegian oncology company Algeta agreed to collaborate on an antibody-drug conjugate with New Jersey-based antibody specialist Immunomedics. Under the Jan. 28 deal, Algeta would join its thorium-227 alpha emitter with Immunomedics’ epratuzumab, an anti-CD22 antibody already being studied in both hematological cancers and autoimmune disorders. Specific terms of the deal weren’t released, but Algeta will issue an upfront payment to Immunomedics, and will owe an antibody-delivery milestone and manufacturing payments. The companies said Algeta will fund preclinical and clinical work on the compound through Phase I, after which the parties will negotiate a license for Algeta based on certain pre-existing but undisclosed parameters. Immunomedics previously partnered epratuzumab with UCB, but re-negotiated that deal in late 2011 to recover full worldwide oncology rights to the drug. UCB returned its buy-in option in cancer, and continues to hold worldwide rights in autoimmune diseases; it is conducting Phase III trials of the antibody in lupus. The compound has shown promise in leukemia and non-Hodgkin’s lymphoma, both on its own and in an yttrium-90 labeled form. Immunomedics has two other antibody-drug conjugates in the clinic: the Phase I milatuzumab-doxorubicin in relapsed multiple myeloma and labetuzumab-SN-38 in colorectal cancer. - Paul Bonanos

Bristol/Lilly: In the first of two “No-Deals” of the week, Eli Lilly during its fourth-quarter call on Jan. 29 revealed to investors that its collaboration with Bristol regarding Phase III oncology asset necitumumab has been terminated in North America and Japan. Bristol pulled out of the three-year partnership for the squamous non-small cell lung cancer treatment, leaving Lilly with sole worldwide development and commercialization rights. A Phase III non-small cell lung cancer trial was dropped two years ago due to safety concerns. “The decision to provide notice of termination for necitumumab was based on a careful review and prioritization of our entire development portfolio, which the company regularly undertakes,” said a spokesperson from Bristol in an e-mail. Lilly assured investors that it intends to continue the development of necitumumab and that data from the late-stage SQUIRE trial are expected in late-2013/early-2014. The company plans to make the therapy part of a comprehensive treatment continuum for lung cancer that also includes Alimta (pemetrexed) and clinical-stage drug ramucirumab. Oncology is one of the main therapeutic areas driving Lilly’s pipeline beyond its so-called “YZ” years that are plagued by patent expirations of blockbuster drugs. - Lisa LaMotta

Teva/CureTech: As part of a pipeline review initiated by new top management, CEO Jeremy Levin and CSO Michael Hayden, Teva has terminated its collaboration with oncology biotech CureTech. CureTech’s lead compound is CT-011, a humanized monoclonal antibody that interacts with PD-1, a B7 receptor family associated protein. It has been assessed in Phase I and Phase II clinical trials for hematological malignancies and solid tumors, including large B-cell lymphoma, colon cancer, metastatic melanoma and other indications. Teva did not say much about the trial results to date, but Hayden, in a statement, noted, “As we looked closely at CT-011 and the most recent clinical and biochemical data, we have made the strategic decision to invest our resources elsewhere, where we can have the most impact for patients.” In the mid-2000s, Teva began dipping its toes into innovative oncology R&D with a few small in-licensing deals, but Levin and Hayden have made it clear that while the company will not completely jettison oncology, it is no longer a priority for Teva’s innovative R&D program, largely because the field is so crowded and also because Teva’s strengths lay elsewhere. The deal revolved around a 2006 agreement that Teva drove, under which it paid $6 million upfront and took an option to invest another $23 million if CureTech met certain development milestones, as well as to buy the rest of the company if CT-011 were approved. At the time, CT-011 had completed Phase I testing. Unlike many other in-licensed assets under review, this one originated at the Israeli drug maker, not one of the companies Teva has acquired. Indicative of the homegrown nature of the deal, CureTech also is based in Israel, where Teva is headquartered, and for a long time, one of Teva’s top executives, Aaron Schwartz, sat on CureTech’s board. Teva is taking a $109 million noncash charge as a result of the impairment cost of the termination. - Wendy Diller

Photo credit: Wikimedia Commons