Deals of the Week: Ante Up For Antisense, Pharma Places Another Isis Bet

Isis Pharmaceuticals has been on a roll of late. The antisense platform play is busy highlighting its incredibly deep line-up of candidates and partners, now that it secured an FDA approval for Kynamro (mipomersen) to treat homozygous familial hypercholesterolemia (HoFH). And investors seem to like what they see; Isis shares are up 84% this year and may be poised to exceed an all-time high price set in 2001. But any long-term success the company hopes to enjoy depends on eventually ramping up commercial revenue.

The biotech has 28 clinical and preclinical candidates; nine of which will have Phase III or “important” Phase II data by early 2014. To develop this embarrassment of pipeline riches, Isis has a large roster of partners. This week it added a new one, Roche, bringing the number of major biopharma partners to seven. The others are AstraZeneca, Biogen Idec, Bristol-Myers Squibb, Eli Lilly, Sanofi’s Genzyme and GlaxoSmithKline.

Isis has raised about $2 billion through partnerships, much more than its $834 million in net proceeds from equity sales or $784 million borrowed in long-term debt deals. The biotech expects to finish this year with $325 million in cash. Last year, Isis did four major biopharma deals, three with Biogen Idec and one with AstraZeneca.

From those four deals alone, in 2012 Isis received $96 million in up-front payments with the potential to earn more than $2 billion in milestone payments and licensing fees. At year-end, all told, Isis had the potential to earn as much as $5.1 billion in future milestone payments.

Its latest option deal with Roche is for Huntington’s disease treatments; it brings to the table Isis’ antisense oligonucleotide technology (ASO), as well as Roche’s brain shuttle technology, a method to deliver oligos into the central nervous system. The initial research will focus on blocking all forms of huntingtin (HTT) protein. In addition, the partners will also work to block production of disease-causing forms of HTT protein and to treat asymptomatic patients.

Roche will pay Isis $30 million upfront, as well as tiered double-digit royalties on any products that result. Isis is eligible for $252 million in development milestones, including a large payment at the end of Phase I. Roche will also pay $80 million in commercial milestones. Isis will be responsible for discovery and development through Phase I, at which time Roche has an option to license all compounds that result from the collaboration and take over global development and commercialization. Products under the collaboration are expected to be IND-ready by the end of 2014.

“Isis now has a stronger balance sheet where it can be much more selective in choosing partners, and can choose when to partner,” noted Dallas Webb of BB Biotech, a major Isis investor that held 7.9% of its shares at Dec. 31. “Additionally, the company has a clear focus on rare diseases, where its technology can be used to target previously un-addressable disease mechanisms.”

Isis plans to put about three to five candidates into the clinic annually. It’s defined five major research areas as its primary territory: cardiovascular disease, severe and rare diseases, metabolic diseases, cancer and inflammation.

While early stage research partnerships continue to pay the bills, to make it on its own Isis needs to start banking some serious product revenue. Wall Street isn’t particularly optimistic that will materialize in the near-term. The consensus estimate for 2013 Isis revenues is just $110 million, with $116 million expected for 2014. Even without Kynamro, in 2012 Isis had $102 million in revenues and a $68.9 million operating loss. Still, Isis says it has five products it could bring to market within the next five years.

These include ISIS-TTR to treat transthyretin (TTR) amyloidosis, a severe and rare genetic disease in which the patient produces a misfolded form of TTR that progressively accumulates in tissues, and ISIS-SMN to treat spinal muscular atrophy (SMA), a severe motor-neuron disease that is a leading genetic cause of infant mortality. The former is partnered with GSK and is in a Phase III trial, while Biogen Idec has an option to the latter, which is slated to start a Phase II/III trial in infants before year-end with another Phase II/III trial in children scheduled for the first quarter of 2014.

Isis also has two ongoing Phase II trials for ISIS-APOCIII, to treat severe hypertriglyceridemia. The unpartnered candidate will have data from one trial in the next few months and the other by year end. A Phase III trial is expected to start late this year or early next year.

Webb said investors are currently focused on SMN and will follow the asset closely in the next 12-18 months. He noted the upcoming APOCIII data and he expects TTR will move more into the spotlight in the next year or so. “These compounds on top of the Kynamro approval should lead to an increased focus on the pipeline, where we believe a lot of value remains to be unlocked,” he said.

In addition, Isis is hoping to bulk up its Kynamro label. Isis and partner Genzyme have an ongoing Phase III/IV trial in severe heterozygous familial hypercholesterolemia (HeFH) patients with data due late next year. Not only is the patient population much larger for HeFH, but the subcutaneous drug is dosed 3x weekly rather than the 1x a week with HoFH patients. However, Webb sees the true value of Kynamro as the validation of Isis’ technology and an establishment of FDA’s willingness to approve an antisense compound.

Other Isis investors as of Dec. 31, 2012 include top-flight mutual fund groups Fidelity Management (14.9% of shares outstanding) and T. Rowe Price (2.2%), as well as hedge fund BlackRock (3%). In the fourth quarter, only two of its top 10 holders trimmed positions and each only by single-digit percentages. But another seven added to positions, four of them by double- or triple-digits. Fidelity held pat in the fourth quarter as the largest Isis holder.

Isis/Roche wasn't the only deal of the week, of course. In fact, it wasn't even the only antisense deal. Keep reading for the rest of the week's deal-making highlights in this week's edition of  . . .

Sarepta/University of Western Australia: Another company developing new antisense drugs deepened its commitment to commercializing academic research in this area on April 11, when Sarepta Therapeutics. agreed to license a portfolio of patented technologies addressing Duchenne muscular dystrophy from the University of Western Australia. For $7.1 million in up-front and milestone payments, as well as a low single-digit royalty on sales of any approved products that come from the collaboration, Sarepta will receive intellectual property concerning exon-skipping technology, which is used to excise a key piece of dystrophin RNA during the transcription process, resulting in functional dystrophin that gives strength to muscle fibers. The Cambridge, Mass.-based company already uses the technique in its lead candidate eteplirsen, a Phase II drug for DMD, which repairs exon 51; Sarepta obtained the exon-skipping technology for that drug from Perth-based UWA under a 2008 agreement. The company also has three other preclinical drugs that address exons 45, 50 and 53. Sarepta says that by combining the newly obtained patents with its own phosphorodiamidate morpholino oligomer technology, it can create exon-skipping drugs capable of treating the majority of DMD patients worldwide. One in 3,500 boys is born with the muscle-wasting disorder, which usually leads to death by age 30. -- Paul Bonanos

GlaxoSmithKline/A*STAR: GlaxoSmithKline and Singapore’s Institute of Chemical and Engineering Sciences Agency for Science, Technology and Research are working together to develop new formulations of existing medicines specifically for emerging markets. The collaboration, which the organizations announced on April 9, will continue for five years and focus on development of “evidence-based formulations,” or EBFs, of GSK’s off-patent drugs, in order to improve patient outcomes in emerging markets. ICES is part of Singapore’s A*STAR network, which is charged with helping to grow Singapore’s economy by building and maintaining a world-class scientific research infrastructure. A*STAR oversees 14 biomedical, physical and engineering sciences institutes and six consortia in Singapore. ICES and GSK have been working together since 2003, and GSK also works with other divisions of A*STAR. ICES is contributing expertise in synthesis, formulation and process development, while GSK will provide drug candidates, and optimization and product development skills. Through the alliance, ICES will be able to enhance its knowledge of drug formulation, analytical capabilities, and scale up and will develop a pool of local expertise in specialized formulations.  The aim, from GSK’s perspective is to bring affordable medicine to more people. Terms were not disclosed, but the deal enhances Singapore’s position as a regional hub for drug development. Singapore is the regional headquarters for a number of multinational pharma companies, including GSK, Abbott Laboratories (now AbbVie), Roche, Merck & Co., Bayer, Pfizer, and Novartis. -- Wendy Diller

Resverlogix/RVX Therapeutics: Unlike Isis, which is embracing its platform, Resverlogix  is spinning out its platform into a separate private company, temporarily named RVX Therapeutics. The publicly listed Canadian biotech said it wants to make the move in anticipation of its own potential takeout following June Phase IIb data for lead candidate RVX-208, a BET bromodomains inhibitor. RVX-208 is designed to treat atherosclerosis by increasing serum levels of apolipoprotein A-1, a building block that makes up 70 percent of HDL cholesterol. RVX-208 is also in Phase II testing to treat diabetes and will soon be in a Phase II trial for Alzheimer’s disease. In the spin-out, RVX Therapeutics will get the epigenetics platform, excluding any ApoA-1 and RVX-208 technology. The platform is based on targeting BET (Bromodomain and ExtraTerminal Domain) proteins. Resverlogix compounds bind to BET bromodomains and prevent them from engaging proteins associated with DNA called histones. The newco would either be supported by a royalty from a potential Resverlogix acquirer or it would perhaps IPO. The spinout is subject to a shareholder vote, which will likely be at the end of May. Shareholders would receive one share in the new company for each Resverlogix share they hold at a date of record in late April. Investors haven’t exactly embraced the deal, sending shares down about 12% since the April 8 announcement. -- Stacy Lawrence

Aeterna Zentaris/Ergomed Clinical Research: The Canadian biotech and the European contract research organization partnered to conduct a Phase III trial for AEZS-108 in endometrial cancer. Structured to share risk with Ergomed Clinical Research, the deal calls for the CRO to assume 30%, or up to $10 million, of the clinical and regulatory costs associated with the trial that are estimated to total about $30 million. In return, Ergomed stands to receive a single-digit percentage of any net income to Aeterna Zentaris for AEZS-108 in this indication, up to a pre-specified maximum amount. The trial for the doxorubicin peptide conjugate will be of 500 patients and have a primary endpoint of overall survival.
Aeterna Zentaris had a major disappointment in March, when an independent Data Safety Monitoring Board recommended the discontinuation of a Phase III trial for perifosine to treat multiple myeloma since it was deemed highly unlikely the study would achieve a significant difference on progression-free survival, the study’s primary endpoint. Aeterna Zentaris shares are down 22% this year, giving it a market cap below $50 million. -- S.L.

GlaxoSmithKline/Academic Institutions: GlaxoSmithKline will dedicate $1 million in prize money and research funding of an undisclosed amount for up to 40 researchers across 20 academic and other nonprofit institutions to answer early questions about the possibility of using extremely focused electrical impulses to modulate the neural signals that control vital organs. With so-called “electroceuticals,” the aim is to do with electrical information what drug makers currently try to do with biologics and small molecules: control blood pressure, cytokine production, glucose function, or any number of biological functions that lead to disease when out of whack. “Correcting disorders with treatment in their own electrical language” is how Kristoffer Famm, the vice president in charge of GSK’s new bioelectronics group, and his co-authors describe their goal in the latest issue of Nature. Before treatments come to light, there are years of work ahead in mapping the neural activity associated with various diseases. Famm says the funding, to be parceled out to two researchers per lab, is aimed at jump-starting the mapping projects or building upon works in progress.
The field is gaining momentum with the new U.S. brain-mapping initiative and a Stanford University breakthrough that creates see-through brains that allow researchers to highlight and study networks of neurons as they fire. At the end of 2013, GSK expects to convene a meeting where researchers will zero in on a key hurdle the field needs to overcome; GSK will then put up $1 million as a prize to the group that solves the problem. -- Alex Lash

Photo Credit: Ramberto Cumagun

Versant Looks For "Off-The-Beaten-Path" Deals In Canada, Europe

Versant Ventures has been deepening its commitment to international expansion lately. The firm is replicating its San Diego-based discovery engine, Inception Sciences, in Vancouver, tightening its ties with the Canadian research community and spinning out new companies as its predecessor has been doing for almost two years. And with new partners in its Basel, Switzerland office, the firm expects to forge new deals in Europe -- especially in off-the-beaten-path areas -- while enjoying closer proximity to both academic scientists and European acquirers.

Operating principal Jerel Davis says the firm has had some presence in Europe dating back to 2008, when venture partner Thomas Woiwode established a beachhead.  But new partners Guido Magni and Gianni Gromo, both former Roche colleagues of Versant partner Brad Bolzon, have arrived in recent months to flesh out the Basel office. The firm backed genetic vaccine start-up Okairos in September 2010, but more deals are expected soon. Stay tuned – the “Pink Sheet DAILY” expects to have full coverage of what’s on the way, and the next issue of START-UP will feature a deeper look at Versant’s international strategy.

The European office hopes to extend its reach throughout the continent and into Israel, while the Vancouver office will be in close touch with the Montreal research community while remaining “a short flight away from San Francisco and San Diego,” Davis says. He adds that the Canadian arm of Inception will likely spin out new companies in a fashion similar to Inception’s third project, which included an option for Roche to acquire it as it files an IND.

Deals Of The Week Wonders Whether Heated Competition To Buy Ache Laboratorios Will Muddy The Brazilian Waters

Could a bidding war for Brazil’s privately held Ache Laboratorios do for Latin America what Abbott Laboratories’ gargantuan purchase of part of India’s Piramal Healthcare did for biopharma M&A in India?

Call it the “Piramal effect,” if you will. Abbott reset expectations among India’s domestic pharma world with its $3.72 billion purchase in 2010 of Piramal’s branded generics business. Brazil hasn’t yet seen the kind of blockbuster deal that would raise prices across the board; the highest value deal in that market to date is Sanofi’s $662 million buyout of Brazilian generics firm Medley Pharmaceuticals in 2009.

Sanofi got in early – staking its claim before big pharma’s buying spree in emerging markets generated significant deal inflation – but the deal hardly lifted the value of Brazilian companies across the board. That transaction was followed by smaller deals, such as Takeda’s $251.5 million (BRL 500 million) buyout of Brazilian branded generics specialist Multilab Indústria e Comércio de Produtos Farma about one year ago, which also included potential for up to BRL 40 million in earn-outs.

But, now comes word that could blow all previous Brazilian deals out of the water – Abbott and two of its big pharma competitors, Pfizer and Novartis, are preparing a second round of bids to buy Ache, Brazil’s leader in the sale of prescription drugs. The rumored price tag for Ache, fourth overall domestically in drug sales when over-the-counter products are included, ranges between $4 billion and $5 billion, a matter complicated by talk that at least one of three ownership families does not wish to sell. Ache’s public stance is that it is not up for acquisition.

Ache reported net earnings of $270 million for the 12 months ending Sept. 30, 2012. Nonetheless, a source familiar with the company told Deals of the Week that Ache remains an appealing investment for big pharma due to higher gross margins than its domestic competition, high top-line growth and strong relationships with distributors. In an emerging-markets competition where it is difficult to acquire worthy assets without overpaying, the three pharmas are facing a reality that a price tag above $5 billion – about 20 times EBITDA (earnings before interest, taxes, depreciation and amortization) – may be required just to get a foot in the door.

One pharma executive who asked not to be named told DOTW that his company is so discouraged by prices for assets in the primary emerging markets that it already is looking to next-generation possibilities such as Nigeria and Colombia.

As an article in The Atlantic notes, for overall business climate, Brazil recently has been viewed as the shining jewel of the so-called BRICS nations (Brazil, Russia, India, China, South Africa), with an average real gross domestic product growth rate of 4% between 2004 and 2010, including an eye-opening 7.5% in 2010. Add in low unemployment and a fairly industry-friendly regulatory environment, and Brazil perhaps was positioned to join China as the top emerging market for biopharma.

An early 2013 Business Monitor International report states that total pharmaceutical expenditure in Brazil in 2011 was more than $28.7 billion, and that total was expected to grow by 7.6% in local currency terms in 2012 (while declining in U.S. dollar spending due to exchange-rate fluctuations.) However, the biopharma opportunity in Brazil is being diminished by drug rebates, which are increasing both in total numbers and in size.

Meanwhile, GDP declined 0.9% in Brazil last year, combining with a 6% inflation rate to tarnish the South American giant’s emergence. Outside investment hoping to tap Brazil’s huge population, highlighted by a rising consumer class, faces what is known as “the Brazil cost” – a combination of high tariffs, poor infrastructure and red tape that increase the cost of doing business, the Atlantic reported.

But industry interest in tapping the Brazilian market cannot be denied. A review of Elsevier Business Intelligence’s Strategic Transactions database reveals six major equity investments in Brazilian biopharma holdings this decade. Beside last May’s Takeda/Multilab transaction, these include:

• Valeant Pharmaceuticals paying $28 million in May 2010 for Instituto Terapeutico Delta, a private branded generics and OTC company focused largely on dermatology;
• Pfizer anteing $240 million plus performance-based earn-outs to acquire 40% of generics firm Laboratorio Teuto Brasileiro in October 2010;
• Amgen ponying up $215 million in cash for Bergamo, a hospital-focused company with an emphasis on oncology, in April 2011;
• Merck investing an undisclosed amount in February 2012 to create and own a 51% stake in a Brazilian joint venture with Supera Farma Laboratorios, Cristalia Produtos Quimicos Farmaceuticos and Eurofarma Laboratorios; and
• UCB Group paying an undisclosed sum with potential for performance-based earn-outs to acquire 51% of specialty pharma Meizler Biopharma. The May 2012 deal included an option for UCB to buy out the remainder of the company.

While we await the outcome of the multi-company pursuit of Ache – GlaxoSmithKline reportedly dropped out of the bidding a while back – other biopharma deal-making was completed in the past week as we tally up …

AstraZeneca/AlphaCore: Following through on CEO Pascal Soriot’s promise to rebuild the company’s cardiovascular pipeline, AstraZeneca announced its third cardiovascular deal in two weeks. In the latest tie up, announced April 3, AstraZeneca’s biologics unit MedImmune acquired private biotech AlphaCore Pharma for an undisclosed sum. The big pharma gains ACP-501, a recombinant human lecithin-cholesterol acyltransferase (LCAT) enzyme that is believed to play a major role in removing cholesterol from the body and also may increase levels of high-density lipoprotein (HDL) cholesterol, better known as “good cholesterol.” A Phase I trial testing the drug met its primary safety and tolerability endpoint and also showed that ACP-501 raised HDL cholesterol in patients taking it. The cholesterol space is a high-risk, high-reward area of drug development, given the growing regulatory and commercial hurdles. But Soriot vowed AstraZeneca would embrace risk as a key to unlocking success in the drug-development process during an overview March 21 in which he unveiled his turnaround plan for the company. Cardiovascular disease is one of three core therapeutic areas the company has committed to. In March, the company signed two deals in the field: an option agreement with messenger RNA developer Moderna Therapeutics for up to 40 programs in exchange for $240 million upfront and a research partnership with Sweden’s Karolinska Institute. - Jessica Merrill

Bind Therapeutics/Pfizer: Nanotech company Bind Therapeutics has inked its second deal with a major player this year, signing a collaboration with Pfizer on April 3. Pfizer will pay Bind to combine its Accurins technology with small molecules provided by the big pharma. Pfizer will pay $50 million in upfront and near-term development expenses per molecule and Bind is eligible for $160 million in regulatory and commercial milestones for each product that reaches the market. Bind did not retain any commercialization rights, but will receive tiered royalties on worldwide sales. The company would not reveal the number or kinds of molecules covered by the deal or the therapeutic area of focus, but did say the agreement covers more than one molecule. The Accurins technology has been explored in the areas of oncology, inflammatory diseases like arthritis and cardiovascular indications. In January, Bind announced a similarly sized agreement with Amgen to develop and commercialize kinase inhibitor nanomedicines to treat solid tumors. - Lisa LaMotta

Ra Pharma/Merck: Less than a year after exiting stealth mode, Ra Pharmaceuticals has landed its first partnership, aligning with Merck to help the pharma discover and develop drugs for difficult-to-hit protein targets. Under the agreement announced April 1, Ra will use its proprietary Extreme Diversity platform to find and develop cyclomimetic candidates that can address intracellular protein-protein reactions in multiple undisclosed therapeutic areas. Ra will receive an undisclosed upfront payment and research funding; discovery, development, regulatory and commercialization milestones could bring its full remuneration to $200 million. While the deal stemmed from early conversations between Ra executives and Reid Leonard, head of Merck Research Ventures Fund, it does not include an equity component for the pharma, Ra President and CEO Doug Treco said. It also includes no risk-sharing, such as a co-promotion option down the road. Ra is developing what it terms a new class of drugs, peptide-like molecules offering the diversity and specificity of antibodies along with the attributes of small molecules, such as oral bioavailability. Cyclomimetics, the cyclic polymer drug candidates produced with Ra’s technology, are characterized by their cyclic structure and backbone as well as side-chain modifications that can provide beneficial properties not offered by natural peptides, the company says. It claims that Ra’s platform produces molecules that are highly specific and stable, offering improved cell permeability and potential for increased bioavailability as well as longer half-lives. - Joseph Haas

Astellas/Ambrx: In its latest tie-up with a major pharmaceutical player, Ambrx announced April 5 that it will collaborate with Japanese pharma Astellas Pharma on a series of antibody-drug conjugates (ADCs) in the oncology setting. Astellas will pay the biotech $15 million upfront, as well as $285 million in potential development, regulatory and sales-based milestones to discover and develop an undisclosed number of molecules that use its site-specific ADC technology. Last June, Ambrx inked a deal with almost identical financials with Merck. While details of the targets the companies intended to focus on were not disclosed, it was revealed that they would focus on areas “beyond oncology.” Ambrx also has tie-ups with Eli Lilly and Bristol-Myers Squibb. Previously it had arrangements with Wyeth, Roche and Merck Serono. ADC technology, which allows drugs to be targeted to a specific site carrying a therapeutic payload, have become a hot space since Seattle Genetics got approval of its ADC lymphoma drug Adcetris (brentuximab vedotin) in August 2011. - L.L.

Agios/Foundation Medicine: Agios Pharmaceuticals and Foundation Medicine signed a pact April 4 to use the latter’s clinical assay, FoundationOne, to create diagnostics which could identify ideal patients for Agios’ compounds aimed at cancer metabolism. No financial terms were disclosed. The diagnostic-discovery collaboration will focus on Agios candidates intended to inhibit tumors that carry mutations in the IDH1 and IDH2 metabolic enzymes. The work will seek to identify tumor genomic alterations that would be most likely to respond to Agios’ candidates, and to potentially develop and commercialize companion diagnostics for Agios compounds. Foundation, which developed the FoundationOne genome analysis profiling system for personalized cancer treatment decision-making, raised a $42.5 million Series B financing in 2012 with a syndicate of venture capital and corporate venture outfits. The round was topped off with an additional $13.5 million this past January from individual investors including Bill Gates, Yuri Millner and new board member Evan Jones. Agios, partnered since 2010 with Celgene on cancer metabolism R&D efforts, raised a $78 million Series C round in 2011 and announced plans to branch out therapeutically into rare genetic disorders. - J.A.H.

Novartis/ImmunoGen: ImmunoGen on April 4 updated the status of its 2010 licensing agreement with Novartis to apply the biotech’s Targeted Antibody Payload (TAP) technology platform to create cancer-fighting antibodies for undisclosed targets chosen by the multinational pharma. Under an amendment to the agreement, Novartis has exclusively licensed one compound against a still-undisclosed target, while taking a non-exclusive license to a second compound which can be converted later to an exclusive license. ImmunoGen will receive $4.5 million upfront under the amendment and could earn between $200 million and $238 million in milestones pegged to the two compounds, plus potential sales royalties. Of the upfront money, $1 million is an option exercise fee, while the remaining $3.5 million, which could be credited against future milestone payments, will be paid if Novartis terminates development of one or both compounds. In a same-day note, Cowen & Company analyst Simos Simeonidis called the developments “an incremental positive for ImmunoGen” that helps to validate the TAP platform. In October 2010, Novartis paid $45 million upfront for the license, intended to help it create antibody-drug conjugate (ADC) therapeutics for cancer. The deal offered the potential for up to $200.5 million in milestones for each target leading to development of an ADC, as well as sales royalties on any products reaching market. - J.A.H.

ArQule/Daiichi Sankyo: In our “No-Deal” of the week, collaborators ArQule and Daiichi Sankyo have decided to terminate an early-stage collaboration around Phase I oncology compound ARQ-092. The news comes just months after a Phase III setback of the companies’ later-stage oncology compound tivantinib, which the two companies will continue developing together. Daiichi opted to license ARQ-092 in November 2011 and paid $10 million upfront at the time, as well as Phase I development expenses. ArQule stood to gain $255 million in milestone payments and the deal included development of multiple compounds; the program now has been returned to the Woburn, Mass.-based company. Meanwhile, tivantinib failed to show overall survival in a late-stage trial in non-small cell lung cancer. The drug’s development focus now has been shifted to liver cancer. The partners signed their initial agreement for tivantinib (known then as ARQ-197) in November 2008. Daiichi agreed to pay $60 million upfront, as well as $560 million in milestones to license the c-Met receptor tyrosine kinase inhibitor. - L.L.

Photo Credit: Muddy Amazonia

Uneasy Lies The Head That Wears a Financings of the Fortnight Crown

Compared to other types of financing, royalty-based deals in the biopharma world are rare. That’s because a company needs products with future revenue to parlay into a near-term lump sum, and the relative few companies that have such products often don’t need the immediate cash or can get it other ways.

So when a royalty deal – or a debt deal using product royalties as collateral – crops up, we take notice. And they seem to be cropping up more often. Just our imaginations? Not according to Elsevier’s Strategic Transactions database, which offered up ten deals in 2012, the most in any of the past ten years. 2011 was a close second with 9 deals, and with three more this year, 22 of the 47 we found in the past ten years are of recent vintage. (These numbers reflect only the publicly disclosed deals; there are certainly more, as investors in this space often keep activities out of the spotlight.)

In dollar terms, the total since the start of 2003 is $5.7 billion. The last two years and change have seen $2.7 billion worth of deals, a proportion akin to the deal flow.

The richest deal in recent years is Royalty Pharma’s $761 million purchase of the earn-out rights from the shareholders of Fumapharm, the German firm that sold to Biogen Idec in 2006. The deal could end up extra sweet for Royalty, now that the Food and Drug Administration has approved the main product in the Fumapharm dossier, the oral multiple sclerosis treatment BG-12, renamed Tecfidera.

Another near-blockbuster was Royalty’s $609 million purchase of DPP-IV rights from Astellas Pharma’s Prosidion division. A bit farther down the pay scale, but still significant, were Dendreon’s sale of Victrelis royalties to CPPIB Credit Investments for $125 million, and Nektar Therapeutics’ $124 million deal with an offshoot of Royalty Pharma for its royalties to Mircera and Cimzia, both of which were formulated with Nektar’s pegylation technology.

Now add one more to the list. This fortnight, weight-loss drug maker Vivus used royalties of its Qsymia, weighed down so far by slow sales, as collateral to borrow up to $110 million. (We describe the deal below in our roundup.) And of course, in what could be the ne plus ultra of all royalty deals, Royalty Pharma (who else?) is dangling $6.6 billion to buy Elan, which after its major divestments is basically a holding company for royalties from multiple sclerosis treatment Tysabri. Elan has resisted so far, instead promising shareholders it will pay out a dividend based on the Tysabri stream. This week an Irish regulatory panel gave Royalty a May deadline to firm up its offer.

The dance began in late February soon after Biogen Idec bought out Elan’s share of the drug, paying Elan $3.2 billion plus the promise of tiered sales royalties. Whether Royalty Pharma succeeds in its hostile buyout is more a matter for our Deals of the Week compatriots, but it’s our duty to note that Royalty and its brethren have plenty more to spend. Royalty raised $600 million in debt in 2012 to put toward investments. Its previous debt raise included $850 million to give back to shareholders. Healthcare Royalty Partners, which dropped the "Cowen" from its name in December, raised a $1 billion fund in early 2012.

Royalty funds are to venture capital what bonds are to stocks: a lower-risk, lower-return investment, and often built with complex structures that purposely limit both parties' risk. They're certainly not going to replace a big chunk of venture capital, because they can't fund companies without current or near-future revenue streams. But as the numbers show, they're providing billions of dollars of capital to an industry that can always use a few extra pennies.

It's no jest. Whether you’re biotech royalty or an indentured serf, you’re always welcome in the biweekly court of…

Vivus: Initial sales of the Vivus weight-loss drug Qsymia (phentermine/topiramate) have been slow, so the company fortified its balance sheet with $50 million in new debt. The "synthetic capped royalty financing" from Pharmakon Advisors, announced March 26, allows Vivus to raise another $60 million in debt before the end of 2013, at a time of Vivus’ choosing. Under the terms of the arrangement, Vivus is obligated to repay the Pharmakon fund according to a schedule of pre-set payments between 2014 and 2018, or 25% of Qsymia royalties, whichever is valued lower. Analysts expect that Vivus would make quarterly payments between $7 million and $10.3 million during most of the four-year schedule, if it opts to raise the other $60 million later this year. The total repaid is likely to be about $162 million, according to analysts. Sales of Qsymia were just $2 million during the fourth quarter of 2012, its first full quarter on the market since FDA approved the drug in July 2012. Vivus had $213 million in cash and equivalents on Dec. 31, and spent $58 million on its operations during the fourth quarter. The company is seeking to modify its current Risk Evaluation & Mitigation Strategy for Qsymia, which limits sales of the drug to mail-order pharmacies; an FDA decision allowing it to sell via traditional pharmacies could come in late April or early May. – Paul Bonanos

Novira Therapeutics: The antiviral startup said March 26 it has topped off last year’s Series A with $7.5 million from Versant Ventures, matching the earlier co-lead investors and bringing the round’s total to $25 million. Novira is one of the few startups around working on treatments for Hepatitis B, its lead program, and for HIV. That, plus its pursuit of a relatively new mechanism of action – capsid assembly inhibition -- was enough to put Novira on our sister publication Start-Up’s annual A-List, which highlights the year’s most intriguing recipients of Series A money. 5am Ventures and Canaan Partners led the initial Series A investment, which came after the company spent years subsisting on angel and nonprofit funding and casting about for a way forward. The angels who nurtured the firm through its pre-Series A years also participated in the A round. Only after Lalo Flores, former head of antiviral research at Merck & Co. took over did Novira steer toward capsid assembly. It aims to file an IND for its lead HBV program by year’s end. The company's oral therapeutic candidates could potentially be used as both a monotherapy or in combination with currently used drugs. The company says the Series A money should be enough to move that initial program into Phase Ib or Phase IIa. For Versant’s contribution, the firm will place one of its new European team members, Gianni Gromo, in a board seat. Gromo is one of three Versant partners based in Basel, Switzerland and has ties to Versant’s top biopharma managing director Brad Bolzon from their days at Roche. – Alex Lash

Theraclone Sciences: Another antiviral add-on this week, with Seattle-based Theraclone bringing its Series B total to $50 million with contributions from a host of existing investors including Arch Venture Partners, Canaan Partners, MPM Capital, and Healthcare Ventures. In addition to the extra $8 million from investors, the antibody platform company also secured $6 million in debt from MidCap Financial and Silicon Valley Bank. The firm’s lead programs in the clinic are aimed at pandemic and seasonal flu, partnered with Zenyaku Kogyo, and human cytomegalovirus (HCMV). It has a discovery-phase antibody partnership with Pfizer, as well, and it has worked with Scripps scientists and the International AIDS Vaccine Institute on research to identify more than a dozen “broadly neutralizing” antibodies that might eventually lead to a vaccine for HIV. Theraclone’s platform screens for antibodies from the B cells of the lucky humans who demonstrate natural resistance to particular diseases. Once called Spaltudaq, Theraclone is one of a handful of biotechs to emerge from the Seattle incubator Accelerator and has had its share of tribulations, the worst of which was the sudden death of its CEO David Fanning in 2010. – A.L.

Receptos: The San Diego biotech filed April 4 its intent to go public, joining the growing queue of life science firms with hopes of breaking through to public markets. The firm is farther along in the IPO process than it might have been in previous times, as it actually filed its S-1 confidentially in February under new securities rules ushered in by last year's JOBS Act. Its lead compound is in Phase II testing against relapsing multiple sclerosis and inflammatory bowel disease. Its top four shareholders, each with slightly more than 15% ownership, are Flagship Ventures, Lilly Ventures, ARCH Venture Partners, and Venrock. An IPO would also benefit a much newer venture fund, Osage University Partners, which is trying to prove the worth of a new model based on schools’ participation rights that we describe in the March issue of Start-Up. Based on work that elucidates the structures of G-coupled protein receptors, Receptos spun out of the Scripps Research Institute, which has a partnership with Osage, which would send a slice of its carried interest back to Scripps if the fund succeeds. A Receptos IPO would certainly help. It has not yet set terms of the offer. Credit Suisse and Leerink Swann are leading the underwriting team. Other health care firms on file to go public include Bausch & Lomb, Chimerix, Omthera Pharmaceuticals, Harvard Apparatus Regenerative Technology, Ambit Biosciences, and Sophiris Bio. – A.L.

All The Rest: Raising $38mm from Invesco Asset Management in the biggest venture financing of the fortnight was infirst Healthcare, founded less than a year ago to launch new consumer cough and cold and pain medicines…Through a $33mm Series E financing (concurrent with the conversion of $71mm in debt into Series E preferred stock), Revance Therapeutics aims to complete Phase III trials for RT001, a topical botulinum toxin type A for crow’s feet wrinkles…Led by two China-focused venture funds, research and diagnostics MAb firm OriGene Technologies brought in $21.3mm in its Series D round…With participation from J&J Development and Pfizer Venture, Aquinox Pharma secured $18mm in Series C financing to help advance its Phase II AQX-1125 for COPD… To support development of spec pharma Taris Biomedical’s LiRIS (Lidocaine-Releasing Intravesical System) Phase II interstitial cystitis candidate, return backers added $12.5mm to the $37.3mm the company had previously raised…Schizophrenia drug firm Reviva Pharmaceuticals received $12mm in early-stage debt and equity funding from undisclosed investors… In a Series A round, Hurel Corp. (artificial tissue constructs and microfluidic cell-based assay platforms) snagged $9.2mm from Spring Mountain Capital… Genomic data analysis start-up Bina Technologies brought in $6.25mm of a planned $8mm Series B round…In the second close of initial financing secured in November 2012 when it spun-off from InDevR, rapid virus quantification firm ViroCyt has brought the total funding to $5mm…Undisclosed equity financing secured from the Innovation & Investment Fund Gelderland (managed by PPM Oost) along with several angel backers will enable InteRNA Technologies to progress its lead candidate miR-3157 for melanoma through preclinical studies…In a private placement, public Australian company Prana Biotech issued 35.9mm new fully paid ordinary shares at a price of A$0.195, for $7.3mm in proceeds to fund further development of PBT2, now in two concurrent Phase II trials in Huntington disease and Alzheimer's disease… Through a follow-on offering of up to 165.7mm new Hong Kong-listed shares at HK$24.60, Chinese CRO Sinopharm Group could reap $515.3mm in proceeds to expand its sales network and complete additional M&As… Arca Biopharma hopes to bring in $20mm in a FOPO to fund a Phase IIb trial of Gencaro (bucindolol hydrochloride) for atrial fibrillation… With proceeds from a public offering of units, public Toronto spec pharma Trimel Pharmaceuticals hopes to fund costs related to an NDA filing and further clinical trials for its CompleoTRT bioadhesive intranasal gel technology for male hypogonadism… Eye care giant Bausch & Lomb – owned by PE firm Warburg Pincus, which acquired it and took it private in a $3.67bn 2007 buy-out – filed for an initial public offering that could raise as much as $1.5bn… Two biotechs sent ranges for IPOS, but have yet to price: Chimerix (oral antivirals) plans to sell 6.1mm shares at $13-15, while dyslipidemia therapeutics company Omthera Pharmaceuticals said it hopes to get between $12-14 through the sale of 5.8mm shares… Cell Therapeutics, using proceeds from a $15mm senior secured term loan with Hercules Technology Growth Capital, hopes to advance Phase III pacritinib (for myelofibrosis) and promote recently EMA-approved non-Hodgkin lymphoma treatment Pixuvri (pixantrone) in Europe…In a second debt financing by Hercules, CNS stem cell therapeutics developer Neuralstem issued the finance company 649k warrants to purchase Neuralstem stock at an exercise price of $1.08…In exchange for up to $16mm, ophthalmologic drug developer InSite Vision will sell its future royalties on bacterial eye infection medicine Besivance (besifloxacin ophthalmic suspension) to SWK Funding LLC…Cancer-focused public Australian biotech Prima Biomed hopes to raise $15.6mm in a rights offering of up to 150mm new fully paid ordinary shares. - Maureen Riordan

Royally weird photo courtesy of flickrer simononly.

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.

 

Deals of the Week Wants Cash on the Barrelhead

 

For pharmas making all but the largest acquisitions, cash is king. From speculative buyouts of preclinical start-ups all the way through bolt-on deals worth a few billion dollars, pharmas typically spend cash rather than swap stock to make their acquisitions. Except in the cases of mega-mergers, a pharma’s purchasing power lies on its balance sheet, not in its share price.

So when Moody’s Investor Service issued a March 18 study of the U.S. companies whose cash coffers were the richest, Deals of the Week couldn’t help but turn an eye to the seven health care companies named in the report. None of them has disclosed a pharma acquisition yet in 2013, but rumors are swirling that one will strike soon.

Pfizer was the wealthiest in the bunch, with $46.9 billion in the till at the end of 2012. That’s enough to place it fourth across all industries, behind only Apple, Microsoft and Google. And although Pfizer had the world’s best-selling drug for several years running until Lipitor (atorvastatin) lost patent protection in 2011, not all of its bounty came from product sales. It did, after all, pare off its nutrition business in an $11.85 billion sale to Nestle SA last year, not to mention its Capsugel unit to private equity firm Kohlberg Kravis Roberts in 2011. Pfizer hasn’t done a pharma acquisition since its (all-cash) takeout of NextWave Pharmaceuticals Inc. in November.

Ninth-place Amgen made four large cash buys in 2012, including deals for Micromet Inc., deCODE genetics EHF, KAI Pharmaceuticals Inc., and Mustafa Nevzat Pharmaceuticals that totaled more than $2.5 billion. But those made a small dent on Amgen’s balance sheet; Moody’s said the big biotech had $24.1 billion at year’s end. The report also noted that 78% of Amgen’s liquidity is located overseas; two of its four large 2012 deals were for non-U.S. companies.

Beyond Amgen, Johnson & Johnson wasn’t far behind at 13th place with $21.1 billion, while Merck was 15th with $16.1 billion. (J&J-owned Cordis made one device acquisition this month, buying Flexible Stenting Solutions Inc. for an undisclosed sum.)

Moody’s reported that Abbott had $15.2 billion in cash on Dec. 31, enough for 17th on the overall list, but a day later, the company split in two. Its pharma descendant, AbbVie, had $7.98 billion upon launch, according to a March 15 regulatory filing. Rounding out the top pharmas were Lilly at 23rd with $12 billion and Bristol-Myers Squibb at 40th with $6.4 billion.

More broadly, the pharma industry holds about 14% of the $1.45 trillion corporate cash pile, a share which has remained roughly the same for several years. It’s the second largest sector behind technology, which gained share to 38%, while energy is among the industries losing share.

If Big Pharma isn't yet striking, some companies are still buying, licensing, and partnering. You won't get thirty days in the jailhouse, but you won't be abreast of this week's dealmaking news without...

Valeant/Obagi: Canada’s Valeant Pharmaceuticals is again strengthening its dermatology business through acquisition, this time by buying Obagi Medical Products, the maker of several proprietary aesthetic and prescription skin-care lines sold through physician offices. The companies announced Valeant’s plans to acquire the Long Beach, Calif., company March 20 for $19.75 per share in cash, or about $360 million. Valeant’s offer represents a 42% premium to Obagi’s closing share price March 14, the last trading day prior to the disclosure of its fourth quarter and full-year 2012 earnings. The company generated sales of $120.7 million in 2012. Obagi’s portfolio includes a range of skin-care lines, including Obagi Nu-Derm, Obagi-C Rx, Obagi Condition & Enhance and ObagiCLENZIderm M.D. acne therapeutic system. Valeant has built itself into one of the world’s leading dermatology players through acquisitions. Last year, Valeant announced plans to buy Medicis Pharmaceutical for $2.6 billion, positioning it as the largest dermatology player in the U.S. and second in the world behind only Galderma. - Jessica Merrill

AstraZeneca/Moderna: Along with its new R&D strategy and organizational restructuring, AstraZeneca unveiled a massive bet on an early-stage biotech platform March 21 that suggests the big pharma has taken to heart its new CEO’s directive to be more willing to embrace risk. The deal, an option agreement for up to 40 programs across several therapeutic areas with privately held Moderna Therapeutics, carries an eye-catching price tag: $240 million up front, plus potential earn-outs. All told, Moderna, which aims to use messenger RNA (mRNA) as therapeutics, could earn more than $1 billion under the deal with AstraZeneca, announced March 21. That same day, AstraZeneca also unveiled a research partnership in cardiovascular, metabolic and regenerative disease with Sweden’s Karolinska Institute, one of several collaborations between those two groups in recent years. Beyond the $240 million upfront payment – the largest this year in a biotech/pharma collaboration and one of the biggest ever for a deal built around preclinical assets – Moderna also can earn up to $180 million in “technical milestones,” an arrangement Moderna CEO Stephane Bancel described as almost a secondary, contingent upfront payment. Moderna also could bring home development, regulatory and commercial milestones for each drug candidate licensed by AstraZeneca, as well as sales royalties ranging from the high single digits to low double digits. - Joseph Haas

Merck/Cerecor: Well-funded Baltimore start-up Cerecor has licensed a portfolio of neurology drugs from Merck that have shown potential in treating Parkinson’s disease. The program includes more than 2,000 molecules that inhibit catechol-O-methyltransferase, or COMT, a compound that breaks down dopamine in the brain and is linked to improving brain functions such as cognition, motivation and emotion. In a March 20 statement announcing the deal, Cerecor said Merck’s research has improved toxicity issues related to other COMT inhibitors. Marketed drugs in the class include Novartis’s Comtan (entacapone) and Valeant’s Tasmar (tolcapone), which typically are prescribed with levodopa, a synthetic form of the natural dopamine-producing chemical L-dopa. Terms of the Merck-Cerecor arrangement weren’t released, although Cerecor said it will pay milestones and royalties “consistent with other preclinical licenses in neuroscience.” The start-up has a Phase I anti-tussive drug, as well as a group of preclinical D-amino acid oxidase inhibitors obtained from Johns Hopkins University’s Brain Science Institute, in its pipeline. Last April, Cerecor raised $22 million in a Series A round using placement agent Maxim Group; the specific investors weren’t named. Former Celgene CEO Sol Barer is Cerecor’s chairman. - Paul Bonanos

Celgene/bluebird bio: Speaking of Celgene, the Summit, N.J., gene- and protein-regulation specialist has teamed up with 2012 Deals of the Year nominee bluebird bio in a gene-therapy deal (pdf) that will target oncology. Specifically, the two companies will collaborate to develop therapies that modify a patient’s own chimeric antigen receptor T-cells, then re-introduce them to target cancer cells. Although bluebird bio will foot the bill for Phase I trials on clinical products, Celgene will have the option to obtain a global license for each for an unspecified fee; bluebird bio retains the right to share U.S. rights in exchange for reduced milestone payments. Celgene’s upfront payment wasn’t revealed, but total fees including milestones for each product could total $225 million plus royalties. Celgene also agreed to collaborate on CAR T-cell research with scientists at the Center for Cell and Gene Therapy at Baylor College of Medicine, Texas Children’s Hospital and The Methodist Hospital, Houston. The team at bluebird bio also will have access to the scientists, led by Baylor professor Malcolm Brenner. - P.B.

NPS/Takeda: Two assets came full-circle March 19 as NPS Pharmaceuticals re-acquired ex-U.S. rights to a pair of rare disease drugs in a deal that will increase the equity position of Japanese pharma Takeda Pharmaceutical. NPS previously out-licensed the rights to teduglutide and PTH 1-84 in separate deals with Nycomed Pharma, which then was acquired by Takeda. In an unusual deal structure, NPS, which is marketing teduglutide in the U.S. as Gattex and hopes to file PTH 1-84 under the brand name Natpara later this year as a biologic therapy for hypoparathyroidism, brought the ex-U.S. rights to those two compounds in-house in exchange for $50 million in common stock. Down the road, Takeda can earn an additional $30 million, which will be either cash or additional equity at NPS’ discretion, when the two drugs achieve combined worldwide, single-year net sales of $750 million. Takeda holds an equity position of about 7% following this deal, NPS President and CEO Francois Nader said. Both the licensing fee and the sales-based milestone were structured as equity (although the milestone can be paid out as cash if NPS opts) partly to preserve cash, Nader said. An ex-U.S. license to both drugs is just the start of what NPS gains under the deal. The transaction also transfers an inventory of active pharmaceutical ingredients for both drugs to NPS, a less-expensive method for making teduglutide, a glucagon-like peptide 2 (GLP-2) analog, and a pen delivery system that could be used with PTH 1-84. - J.A.H.

CRT/Janssen: Cancer Research Technology, the technology transfer arm of world’s largest charity Cancer Research UK, and Janssen Biotech have joined in the search to find potential new multiple myeloma drugs. The duo hope they can identify molecules and develop potential medicines that block a key protein on a cell-signaling route called the unfolded protein response (UPR) pathway. Teams at The Institute of Cancer Research (ICR), led by Ian Collins in the Cancer Research UK Cancer Therapeutics Unit and Faith Davies in the Division of Molecular Pathology, will work alongside a team at Janssen. Together, Cancer Research UK and Janssen will fund up to 25 scientists, with Janssen providing some of the funding to support the research at the ICR in London. Janssen also will pay future milestones and royalties and take the lead on the clinical development of any potential drugs. The two sides announced their deal on March 21 but gave no financial details. CRT long ago moved beyond simply commercializing and managing the intellectual property generated by the £500 million in research funding provided by Cancer Research UK to five core research institutes across the U.K., as well as to researchers at dozens of other universities and organizations. The breadth of CRT’s academic network – it has sourced and managed IP from more than a dozen global charities and institutes, as well as that of Cancer Research UK-funded research and drug discovery – positions it as an important gateway to cancer-focused research in the U.K. It has a strong in-house drug-discovery capability and access to clinical development capabilities in conjunction with Cancer Research UK’s drug development office. Janssen Biotech is part of the Janssen Pharmaceutical Companies of Johnson & Johnson. J&J earlier this month opened an innovation center in London but a spokesperson for the U.S. drug company said Janssen’s alliance with CRT was not the result of that center’s establishment. - Sten Stovall

Merck Serono/Nordic Bioscience and Merck KGaA/BMS: Merck Serono, a unit of Merck KGaA, said on March 18 it formed a strategic alliance with Denmark-based Nordic Bioscience AS around the German drug maker’s investigational therapy sprifermin, or recombinant human FGF-18, in osteoarthritis of the knee. Under the terms of the agreement, Nordic Bioscience will provide Merck with clinical development services on a shared-risk basis in exchange for a payment structure that includes service fees and potential milestone and royalty payments on the program. Financial terms of the collaboration were not disclosed; however. Merck retains full responsibility for the development and commercialization of the investigational drug. According to the World Health Organization, more than 5% of adults over 40 in developed countries, or more than 30 million people, suffer from osteoarthritis of the knee. A multi-national Phase IIb trial, dubbed the FORWARD study, is expected to begin enrolment in the second half of 2013 to evaluate further sprifermin for inhibition of the progression of structural damage, reduction in pain and improvement of physical function in patients with osteoarthritis of the knee. Sprifermin is a protein thought to induce chondrocyte stimulation leading to matrix synthesis and chondrocyte renewal. It is delivered by intra-articular injection. Two phase I trials in moderate/severe osteoarthritis of the knee previously were completed; a Phase II trial to evaluate the efficacy and safety in patients with cartilage injury of the knee is ongoing. The program was originally was in-licensed in 2004 from ZymoGenetics, a Bristol-Myers subsidiary. The next day, on March 19, Merck KGaA said it inked a deal with Bristol to promote type 2 diabetes drug Glucophage (metformin hydrochloride) under different formulations in China. Under terms of the agreement, Merck Serono and Bristol will co-promote Glucophage in China through a profit-sharing arrangement. Glucophage has been marketed by Bristol-Myers Squibb-SASS in China since 1999. The two companies will tap existing resources and complementary strengths, with Bristol-Myers Squibb-SASS continuing to manufacture Glucophage’s IR (immediate release) formulation. The collaboration will seek to expand the geographic distribution of Glucophage and provide diabetes-related health and medical information including education for health professionals. In addition, the co-promotion will significantly increase outreach to hospitals. Other terms of the agreement were not disclosed. -- S.S.

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