Deals Of The Week: Managing Expectations

Amgen issued its first dividend ever this week, a move that may officially settle the debate over the Thousand Oaks, Calif. firm's status as biotech or pharma.

Either way, it’s ironic that as it finally gave back cash to its investors, Amgen’s share price dropped roughly 4% to close April 21 at $53.69.

Maybe investors didn’t like the idea that Amgen has officially "pharma-fied" itself. More likely, the reaction stems from unmet expectations.

Amgen has a lot of cash in its coffers, about $17 billion, and even with plans to return much of it to shareholders over the next five years, the initial pay out was smaller than hoped for and well below the threshold set by bigger drug makers. (Proof, yet again, that if you want to act like the big boys you have to play by their rules.)

Still, Amgen deserves some credit for trying to assuage investors and still maintain financial discipline. Amgen’s Prolia/Xgeva franchise has launched with mixed success, with osteoporosis sales lagging as oncology sales are off to a stronger-than-expected start. For the drug maker to meet the ambitious goals outlined by CFO Jonathan Peacock in his business day review (see here for more), the company has no choice but to continue to invest in denosumab’s commercialization--especially in the primary care setting. And it's going to take cash to deploy sales reps to educate physicians, patients and payers about the benefits of Prolia over Zometa and generic alternatives.

And with the Epogen franchise on the wane, Amgen also needs to show investors it can move beyond an all-denosumab-all-the-time strategy. Thus, it can’t afford not to invest in its pipeline, which in turn means maintaining a high R&D burn. (Not a popular sentiment in any corner of our industry these days, but especially in the eyes of Valeant’s CEO Michael Pearson.)

In doing the right thing with its new dividend, however, Amgen got slapped on the hand anyway, a useful reminder that success in this business is as much about managing investors’ expectations, when it can take years to deliver positive results. Here at IN VIVO Blog, we have no problem under-promising and over-delivering. (That’s one benefit of being a free publication.) In honor of Earth Day, chocolate rabbits, and egg rolls (not the brown and crispy but the hard boiled variety) we bring you another edition of...

Sanofi-Aventis/Stanford University: At the JP Morgan confab this winter, Sanofi CEO Chris Viehbacher promised his company would do R&D better. If this week’s tie-up between the French pharma and Stanford University’s interdisciplinary Bio-X Center doesn’t convince you that one crucial leg of Sanofi’s R&D plan is partnerships with academia, well, you haven’t been paying attention. In March, the company inked deals with Columbia University (diabetes) and the French Vision Institute (ophthalmology, bien sur), having already allied itself with institutions such as Cal Tech, Harvard, and MIT. The Stanford collaboration hews closely to the other research partnerships in its structure and ambitions, not to mention in the lack of disclosed financials. As we explained in this IN VIVO feature, Sanofi’s view of academia-industry partnerships puts heavy emphasis on aligning with the top minds in a particular field and building mutual trust via joint-steering committees. Under the terms of this most recent collaboration, a funding committee staffed by Stanford and Sanofi researchers will fund up to five programs annually. Sanofi will also host an annual research forum to bring together Sanofi and BIO-x researchers to discuss science, and may even host post-docs at the company. (Stanford also has the option to invite Sanofi scientists to be visiting scholars.) As we note in this 2009 Start-Up feature, such moves are becoming more and more common, as industry players hope to develop stronger relationships with bright scientists in their efforts to amp up the innovation in their pipelines. --EFL

Ariad Pharmaceuticals/ReGenX: Ariad has struck three new licensing deals for its Argent cell-signaling regulation technology to help further fund its internal oncology programs ponatinib, ridaforolimus and AP26113. Through the three agreements, Ariad will receive undisclosed upfront fees, as well as potential milestone and royalty payments. Privately-held, Washington, DC-based ReGenX Biosciences will use Argent as a complimentary tool to its internally developed NAV gene delivery technology, giving the smaller biotech access to technology that increases its ability to control the genetic payload being delivered. The start-up, which was founded in 2009, has proprietary technology that uses recombinant adeno-associated viral vectors to deliver genes to cells. Ariad's alliance with ReGenX also includes an equity stake, so should any of these discoveries bear out, Ariad stands to gain outside the clinical milestone payments and royalties that are standard licensing fare. Bellicum Pharmaceuticals of Houston, TX, meanwhile, is licensing Ariad's technology for its experimental cancer vaccine and cell therapies. Bellicum has used the Argent technology in Phase I/II trials of the BPX-101 DeCIDe immunotherapy and CaspaCIDe DLI. The third agreement was struck with Clontech Laboratories, a Mountain View, CA-based research reagents provider. Clontech has licensed the technology to provide it to researchers worldwide. -- Lisa LaMotta

Baxter/Prism Pharmaceuticals: Specialty pharma Baxter International entered an agreement to buy privately-held Prism Pharmaceuticals April 18, in a deal slated to include a $170 million upfront payment and up to $168 million in potential future milestones tagged to sales of Prism’s FDA-approved anti-arrhythmic drug Nexterone (amiodarone HCl). The two companies expect the transaction to close during this quarter. Prism first obtained FDA approval of Nexterone in December 2008, but waited to commercialize the drug until after gaining approval for a more convenient, intravenous pre-mixed bag formulation. That formulation was approved in November 2010. Baxter said that formulation should offer numerous conveniences to clinicians in the acute care setting. The ready-to-use product requires no admixing, which helps eliminate potential medication errors associated with compounding, and it can be stored for two years at room temperature. Having been selected as contract manufacturer for the premixed IV bags by Prism, Baxter likely brought considerable knowledge of Nexterone to the transaction. Morgan Stanley analyst David Lewis, in an April 18 note, was bullish on the deal, saying it would bolster momentum and is consistent with Baxter’s stated M&A strategy. “Prism is likely a low-risk deal that will leverage Baxter’s strong sales channel in IV injectables,’ he wrote. “We expect to see more deals in the several hundred million dollar range in coming quarters.” -- Joseph Haas

SciClone/NovaMed: On April 18, SciClone Pharmaceuticals announced it was taking out privately-held NovaMed Pharmaceuticals, a Shanghai-based specialty pharma backed by US venture groups. The deal is worth $62 million upfront, with $24.7 million coming in the form of cash, and another $37.1 million in SciClone stock. For NovaMed’s backers, which include Atlas Venture and Fidelity Asia Ventures, the upfront cash alone appears to provide an exit, though barely. Since its founding, NovaMed has raised $18.8 million via two financings, meaning the cash portion of the deal provides a step up of 1.3. (The SciClone stock is a nice sweetener, but it doesn’t provide the liquidity most VCs really want.) The deal also includes earn-outs worth up to $43 million tied to revenue and earnings targets for legacy NovaMed products. If all the milestones are met, we calculate the step up for Atlas and Fidelity increases to a healthy 5.6. The deal significantly broadens SciClone’s commercial footprint in China, increasing its current number of sales reps more than three-fold to 680. NovaMed’s CEO, Mark Lotter, will stay on to manage the commercial team, and SciClone says the group will be structured as an independent entity. In contrast to big pharmas (see below), biotechs have been slower to commercialize their products in China, but the country has been of strategic interest to SciClone for some time. The firm has been selling its flagship immunomodulator Zadaxin in China since 1996 and has two oncology products, DC Bead and Ondansetron RapidFilm, winding through China's regulatory process. -- Josh Berlin and EFL

Pfizer/Shanghai Pharmaceutical Holdings: On April 21, Pfizer and China's second-largest distributor Shanghai Pharmaceutical Holdings announced a memorandum of understanding to explore business opportunities in China, including the potential to jointly register, commercialize and distribute an undisclosed branded Pfizer product. But near-term the value of the memorandum is undoubtedly increased sales potential of Pfizer’s Prevnar 7 vaccine, which is the drug maker’s biggest revenue generator after Lipitor. For Big Pharmas looking to commercialize products in China, distribution alliances with in-country players are one way to rapidly gain market share, even as they add their own “boots on the ground” capabilities. Indeed, such strategies makes sense given China’s highly fragmented health care market and the difficulty penetrating its rural markets. Pfizer and SPH have a long working history already, with the Chinese pharma acting as the multi-national’s largest distributor in this region. Apart from joint commercialization of Pfizer's innovative products, Pfizer and SPH are also exploring a range of future potential collaborations in R&D, manufacturing and other potential areas. -- Dai Jailing

(Image courtesy of flickrer iaintait used with permission through a creative commons license.)

Amgen's Dividend Dilemma: To Pay Or Not?

Amgen investors have high expectations for Amgen's Business Review Day, scheduled for April 21. With Medicare's coverage decision on March 16 settled in Amgen's favor (or at least not against it), their main focus now is on whether the big biotech will initiate a dividend. The question is tantalizing to Wall Street analysts, who are predicting that anything less than a positive announcement by the company will be a major setback for the stock.

Dividends have been an active, ongoing part of investor dialog with Amgen for several years. But very recently, the grumbling is getting louder, and Amgen is showing signs of capitulating. Until recently, the big biotech has refused to commit to a number or time frame. Now, apparently, executives have told analysts that they will provide a clear explanation of their capital allocation policy, presumably including dividends, on April 21.

Amgen's approach to dividends says a lot about its place in the biotech world and its strategy going forward, as well, perhaps, about the rise of shareholder activism. With its business maturing, and its growth prospects slowing, it is by far the largest of a small contingent of successful biotechs that are throwing off profits or expected to shortly. All of these companies – Gilead, Biogen, and, down the road, Vertex and Human Genome Sciences - are the subject of dividend questions, some more serious than others.

Most of these companies are sitting tight - HGSI and Vertex have yet even to launch products. And, after all, issuing a dividend means relinquishing a perception – or perhaps illusion – that a growth company can grow forever. Occasionally, one, like EU-based Actelion, the beleaguered maker of Tracleer, latches on to dividend payouts as a short-term, somewhat misguided and obviously desperate lollipop-attempt to respond to shareholder activists until the something it's waiting for happens (in Actelion's case, it wants favorable data from a late-stage compound to come out in late 2011 or early 2012).

With Genzyme and Genentech no longer independent, Amgen is clearly at the moment a special case. Its numbers tell of its maturity: 2010 revenues were roughly $15.1 billion, with growth in recent years ranging from -2.4% to +2.7%. Even with the launch of Prolia/Xgeva (denosumab) in the U.S. in 2010, Deutsche Bank analyst Robyn Karnauskas projects its top-line CAGR will only reach 2% between 2010 and 2014, although bottom line growth will rise 8%. Yet, it has the pharma industry's highest net margin, is sitting on $14 billion in cash (most of it stashed overseas), and generates $5.4 billion a year in free cash flow. With the exception of its purchase of BioVex in January 2011, it hasn't made a sizeable acquisition in years—if one can call BioVex "sizable". Investors and others insist that they want to know how the company plans to allocate this enormous amount of capital.

But what they really want is a clear articulation of Amgen's strategy. Analysts are divided on how comfortable they are with what Amgen's told them to date. They largely concur that the core franchise in anemia and anti-inflammatory drugs is set to decline slowly. Even if denosumab peaks at $3 billion to $4 billion, it is likely at best to contribute incrementally to overall long-term growth, Karnauskas says. The company has a sizable Phase II portfolio, but that will take time to mature and everyone knows the stats around R&D success.

Then there's the international question. Amgen has previously hinted that it is intent on making an acquisition that would be synergistic with its base business, perhaps one that is centered in the West but has a presence in emerging markets. Indeed, new CFO Jonathan Peacock, in comments that may have muddied rather than cleared the waters, indicated as much to analysts last year. More recently, on March 1, SVP International Operations Rolf Hoffman told a Citigroup Healthcare investors' meeting that the company "might consider non-organic options" to accelerate its global expansion.

Some on Wall Street fear the worst: a highly dilutive acquisition in a region of the world that is hard to value quantitatively and overshadowing any other news affecting the stock. Indeed, "If they are going into something we don't understand, they need to outline their strategy," Karnauskas argues. A sizable dividend would go a long way toward making investors more comfortable.

Ultimately, however, despite the hoopla, Wall Street expects Amgen will initiate a token dividend, yielding 1% to 2.5%. That should be enough to appeal to investors who are restricted to buying only stocks that pay dividends. But it won't eat up too much cash flow, especially in the long-term, when several key Amgen products go off line.

"The idea is that if you give a token dividend, those investors can 'check the box,' " says Karnauskas. On the other hand, for some investors, even 2% isn't enough, so Amgen might aim higher, at about 4.5%. About 10% of Amgen's annual cash flow would have to be dedicated to a dividend with a 1% yield, she says.

If this math addresses the logical part of the equation, it doesn't directly help the cultural transition from a growth to a value investment, which comes once a company enters the dividend world. Still, the move for Amgen may be unavoidable, as the market is already putting it in the value category, points out Standard & Poor's analyst Steve Silver.

The market is pushing less hard for other biotechs to change for now; indeed, the biggest step the next tier companies like Celgene and Biogen are taking to placate shareholders is introduction of stock buy backs. It behooves them to watch how Amgen maneuvers into a space where few biotechs have tread.

Deals Of The Week: The Sputnik Edition

Outside the deal making arena, the word garnering significant air time this week was “innovation.” During this week’s bipartisan date night, also known as the State of The Union address, President Obama mentioned the word at least nine separate times, as he channeled Survivor’s Jeff Probst. “We need to out-innovate, out-educate, and out-build the rest of the world.” He called on the country to “get behind innovation”, exhorting “this is our generation’s Sputnik moment.”

One could well ask if this is Big Pharma’s Sputnik moment as well. The biopharma industry is well aware of the need for innovation. Indeed, the stricter pricing environment in Europe and the US (where payers are pushing back on multiple classes of drugs even if NICE-like decision making isn't yet a reality), has already forced a wholesale shift, with a greater emphasis on devising drugs for unmet medical need and actually demonstrating said value.

As the industry wrestles with its innovation gap, there are a number of puzzles to solve. The first, and potentially easiest, to come to grips with is access to new products and new ways of thinking. It’s one of the primary reasons biopharma companies are cutting deals with academia and not-for-profits with such regularity, none more so than Pfizer, which rolled out its New York-based Center for Therapeutic Innovation(CTI) just hours before the Prez made his way to Capitol Hill.

A thornier question is what actually constitutes innovation these days. Ask a completely random group of industry execs and the answer almost certainly would be new drugs (or devices) to address some unmet medical need: lupus, major depressive disorder, Alzheimer’s. Undoubtedly those are areas deserving investment; so too, however, are improvements in care delivery in high cost arenas like diabetes or hypertension, where the problem isn’t lack of therapy, but actual compliance. There’s a growing opportunity on the service side, and some companies – Sanofi in diabetes, Novartis via its collaboration with Proteus Biomedical – are taking important, albeit early steps, in this direction.

For pharmas to “win the future”, maybe they, too, need to reinvent themselves, like the Michigan-based mom and pop roofing company run by the Allen brothers, which Obama highlighted in his SOTU challenge. One way to do so is by embracing new definitions of innovation beyond the canonical: a new drug hitting a novel target that historically garners a premium price tag. We remain an industry where “better” might mean “faster” (or more convenient) but it almost never means “cheaper”. Why not?

It's a question worth pondering for big drug makers; as Obama rightly reminds us, "Our destiny is our choice." Meanwhile it's time to take a spin through another weekly deal-making wrap up...

Novartis/Genoptix: This week Novartis launched a $470 million cash tender offer for cancer specialty testing lab Genoptix, which offers personalized diagnostics services related to hematological malignancies – and to a lesser extent solid tumors – to community-based oncologists. The acquisition will add more muscle to the Swiss pharma’s two-and-a-half-year-old Molecular Diagnostics unit. As the pharma’s division head of pharmaceuticals, David Epstein, told investors on the company’s quarterly earnings call on Jan. 27, the move ensures companion diagnostics would be “readily available as we launch our new pharmaceuticals.” Indeed, the acquisition gives Novartis infrastructure and also know-how not normally found in pharma-based R&D that should smooth the transition from biomarker identification to actual companion diagnostic test development, which could range from home brew tests run at Genoptix’s lab to more broadly distributed test kits. As such, the deal is another indication of the confidence the pharma has in its pipeline of targeted cancer drugs, largely for hematological malignancies, and their belief in biomarkers – a marching order unaltered since the formation of the Novartis Institutes for Biomedical Research, whose resources directly fuel much of the effort of the Molecular Diagnostics unit. (To learn more check out this issue of IN VIVO.) Even as the industry has turned more and more towards outsourcing R&D, Novartis continues to drive translational research from within via NIBR. By taking on the risk of bringing in and supporting a diagnostics development infrastructure, it’s making a similar statement in the testing realm. – Mark Ratner

Amgen/BioVex: Amgen's Jan. 24 earnings call promised a plan to invest more heavily in research & development. On the same day, the company put its money where its mouth is.
Amgen deepened its commitment to oncology, revealing plans to acquire biologic vaccine developer BioVex for a $425 million cash upfront payment as well as milestone payments totaling as much as $575 million. Cash-rich (the big biotech has around $18 billion in its coffers), Amgen's massive upfront commitment - the largest for any privately held biotech in at least two years, according to Elsevier's Strategic Transactions database - is a powerful vote of confidence in cancer vaccines, the area in which BioVex has concentrated most of its efforts. The agreement is also easily the largest deal in the sector since April 2010, when Dendreon received approval for Provenge. The deal represents a payday for the well-funded BioVex, which has raised $175 million from at least 15 firms since its spinout from University College London in 1999. For BioVex, the sale to Amgen – especially at this price tag – makes obvious strategic sense. With two Phase III trials underway on its OncoVex product, an immunotherapy for both metastatic melanoma and head and neck cancers, the company faced increasing commercial costs that would require an alternate source of funding. "Getting to the public markets is hard in the current circumstances," Coffin told sister publication "The Pink Sheet" DAILY. "Amgen has amazing resources, and we felt that on balance, this was the best overall opportunity." – Paul Bonanos

Ligand/Cydex: For biotechs, the truism “it’s good to have a revenue stream” has never been more important than in today’s capitally constrained environment. The logic of regular income underpins Ligand Pharmaceutical’s purchase this week of privately-held Cydex Pharmaceuticals for $36 million, nearly all of which – $31.2 million – was paid upfront. The move diversifies Ligand, a classic drug development play founded in 1987 that has been moving away from that paradigm to a model described on the company’s website as “developing or acquiring royalty revenue generating assets and coupling them to an efficiently lean corporate cost structure.” Not including new licensing revenue or accelerated growth of the San Diego biotech’s Promacta, the deal is expected to double Ligand’s projected 2011 revenue relative to what it stood to pull in as a stand-alone and moves the firm forward in its goal of becoming a profitable entity. In 2010 Cydex chalked up $16.3 million in revenue thanks to its proprietary drug reformulation Captisol technology, which works by surrounding drugs with specially modified cyclodextrin molecules to allow tighter control of a medicine’s delivery. The Kansas-based Cydex, which will continue to operate as an independent subsidiary of Ligand following the close of the acquisition, already has numerous partnerships with industry players, including Onyx Pharmaceuticals and Prism Pharmaceuticals for the creation of Captisol-enabled IV formulations of carfilzomib and amidarone respectively. And in terms of regulatory risk, the formulation technology is something FDA seems comfortable with – it’s already included in five marketed medications. If Ligand believes it can earn a pretty penny from the Captisol franchise, Cydex’s investors, which include among others SR One, Eastman Ventures, and Techno Venture Management, have barely achieved an exit. Since its inception in 1993, Cydex has raised around $27 million in financing; like so many other private companies, it tried – and failed – to go public in 2008. – EFL

Teva/Corporacion Infarmasa: Teva Pharmaceuticals has conspicuously shied away from the sometimes frenzied investment in China, India and other emerging markets, noting the high valuations and intense competition. It is targeting Latin America for growth, however, as it progresses with plans to increase revenues from $14 billion in 2009 to $31 billion in 2015. Thanks in part to its 2006 acquisition of rival Ivax, it now has operations in Venezuela, Mexico, Argentina, Chile, Brazil and Peru. With this week’s acquisition of Corporacion Infarmasa, one of Peru’s top ten pharma companies, it makes additional in-roads into this Latin American market. Terms weren't disclosed, but Corporacion Infarmasa is owned by two American investment groups: The Rohatyn Group and Altra Investments. Infarmasa manufactures and sells a portfolio of more than 600 branded and non-branded generics, focused largely on antibiotics, antihistamines, analgesics and corticosteroids. By combining Infarmasa with its existing Peruvian organization, Corporacion Medco, Teva will be the number two player in a market that had a CAGR of 12% between 2005 and 2010 and could reach $1.8 billion by 2015. Expenditure per capita on pharmaceuticals in Peru is one of the lowest in Latin America, leaving ample opportunity for future increases, Teva said. – Wendy Diller

Image courtesy of flickrer dad1_ used with permission through a creative commons license.

Clozel: We're Fine on Our Own, Thanks

Actelion CEO Jean-Paul Clozel used the opening ceremony of a new office building on Friday to remind reporters that the company is not for sale, according to Bloomberg. Amgen is said to be considering an offer for the company that last year declared its ambition to become "a Genentech in Europe."

No, Clozel wasn't saying he wanted to be acquired by Roche, either -- the company that Clozel and Actelion's other co-founders came from. He was saying that Actelion should remain independent and continue to create value for its shareholders, and that message is the same today.

"We have created so much value that of course somebody would like to catch this value," Clozel was reported as saying last week. But "we will have a 20-year future," he said, and might have added that we're certainly not going to be bought while our shares our down (nearly 5% this year).

Another part of Clozel's message has changed, though. Back in 2009, Actelion was poised to move into the GP domain, on the back of Phase III pipeline candidate almorexant, partnered with GSK for sleep disorders. It wasn't just talk: Actelion had re-organized its commercial organization and hired a bunch of GP-experienced folk. It was all about diversifying away from PAH treatment Tracleer (which accounts for the bulk of Actelion's SFr 1.7 billion in revenues), and about "following innovation wherever it leads."

That particular innovation doesn't appear right now to be leading anywhere: the Phase III trials of almorexant threw up some safety concerns and further investigations are underway with a decision on whether to continue expected early next year.

Meanwhile it's back to rare diseases, then--the precise reason Amgen's interested (as are a few others, no doubt). Actelion's signficant success to date (it became profitable in just six years and is one of the few European biotechs to have created its own commercial infrastructure) is built around Tracleer in particular, and around PAH more generally, an indication that it more or less built itself, albeit initially more as a result of chance than design.

Today, then, Clozel's message isn't about "being as good as Pfizer" when it comes to primary care marketing. Both are so passe. So, apparently, are prospects for Tracleer beyond PAH (the drug failed Phase III trials in idiopathic pulmonary fibrosis in March).

Today's story is back to PAH again, but it's about macitentan: you guessed it, a Tracleer-follow-on. Due to report Phase III trials in 2011, macitentan could be even more potent than Tracleer, say some, since it's a highly tissue-specific endothelin antagonist.

"At the end of next year we will be a completely different company because we will have macitentan," Clozel told journalists at the site opening. Not so different as if it had almorexant, though. But, as Clozel implied, different enough to be worth a lot more than what today's share-price says -- assuming things work out, of course.

Back in 2009, Clozel said that Actelion had specifically not tried to turn itself into 'the endothelin company'; the message being that it would not limit itself to a specialist indication or approach.

Forced now, by pipeline upsets, to lean back on that original focus, it's this specialization that nevertheless makes Actelion an attractive take-over target. And if macitentan goes the same way as almorexant and as clazosentan, which failed in a late-stage study in vasospasm earlier this year, Amgen's offer, if it exists, may yet prove the most valuable option for those shareholders after all.

image by flickr user secretlondon123 used under a creative commons license

DotW Considers Restructuring

As part of its announced restructuring this week, Biogen Idec decided to terminate or divest 11 programs in areas such as cardiovascular and oncology and instead focus on its historic strength in neurology and autoimmune disease, as well as promising hemophilia assets.

The ripples of that decision are already being felt, most immediately by Cardiokine, a privately-held biotech based in Philadelphia that has raised $87 million in venture dollars since its 2004 founding. Back in 2007 the start-up ,which counts Health Care Ventures and Care Capital among its backers, partnered its sole asset, a selective vasopressin receptor antagonist for hyponatremia called lixivaptan, to Biogen for $50 million upfront.

Amber Salzman, president and CEO of Cardiokine, did her best to spin the divestment news in a positive direction. "I am pleased we have regained exclusive global rights to lixivaptan, a potentially important advance in the treatment of hyponatremia," she said in a statement. "We are nearing the completion of the Phase 3 program and look forward to study results and confirming our registration plans in the near future.”

Biogen nabbed lixivaptan as it was rebuilding its late stage pipeline in the wake of a previous restructuring that began in 2005. At that time Biogen execs admitted they had neglected their pipeline to concentrate on the launch of Tysabri (natalizumab), a next-generation MS therapy that promised much greater efficacy than the interferon-based treatments dominating the market at the time. So they ramped up dramatically in several areas, including CV, buying rights to the pulmonary arterial hypertension drug Aviptadil from mondoBiotech and Adentri, an A1-adenosine receptor antagonist for heart failure, from CV Therapeutics. (Biogen dropped work on Adentri earlier this year. )

As a result of Biogen's new restructuring, Cardiokine loses out on a potential $170 million in milestones. At this point, it's got to hope Big Pharmas in need of late stage products (Lilly? Sanofi-Aventis?) could be drawn into a more lucrative partnership, or even an acquisition.

The safety-first mentality at FDA has resulted in a full-fledged flight away from anything that might be classified with a "C"and a "V," but lixivaptan has a few things going for it, not least that its in Phase III trials. Its use in hyponatremia, an electrolyte disorder characterized by an imbalance of sodium and water, is also a plus. There are currently no approved therapeutic treatments for the condition, which frequently goes undiagnosed. Thus, potential interested acquirers can check the "unmet medical need" box that is now de rigueur in any biopharma transaction. In all likelihood, no deal will emerge until potential acquirers have a gander at top-line data from the ongoing three pivotal trials, especially a 650-patient study in congestive heart failure.

Cardiokine wasn't the only entity to suffer the fall-out from revised priorities this week. The American people also decided to divest more than 60 Democrats from their Congressional pipeline, but for now we'll let others weigh in on the effects of the new portfolio, especially on health care reform. Meanwhile, it's time for this blogger to revisit her own priorities and call it a weekend...


McKesson/US Oncology: The big-ticket acquisition this week was health care services and IT player McKesson's $2.16 billion all-cash take-out of US Oncology, a physician practice management company for cancer physicians. McKesson will pay cash for the outstanding shares of privately-held US Oncology and assume its $1.6 billion in debt. The deal builds on McKesson's aspirations to expand in the oncology specialty services arena, helped out by its 2007 purchase of Oncology Therapeutics Network for $575 million. It also comes as demand for oncology products is on the rise, and drug makers both big and small are doing their best to develop differentiated medicines to tackle the disease, an event that will only increase the need for purveyors of oncology services. (That is until there is pushback from payors about the distribution of pricy cancer meds.) Bringing US Oncology in-house expands the number of oncologists to whom McKesson has access to 3000, according to executives on a November 1 investor call. Currently, The Woodlands, Tex.-based US Oncology supports about 1300 community-based physicians in 38 states. Analysts have reacted positively to the deal, which is expected to close by the end of 2010, because of the complementarity of the two businesses. In a note to investors, Tom Gallucci of Lazard Capital Markets says it gives McKesson “a meaningful land grab within the fast-growth oncology space, lending further scale to its distribution business.” -- Greg Twachtman & E.L.

Bristol-Myers Squibb/Simcere: Behold the rise of regional deal-making. As drug makers look to push into important emerging economies like China and India, they face important decisions related to the development and commercialization of products. Is it better to invest in costly infrastructure and distribution networks, building capacity from the ground up, or leverage the capabilities of an in-country firm that is more familiar with the "hows" and "whos" -- particularly the government regulators and KOLs -- of the local market? BMS chose the latter route in its tie-up with Simcere, a Chinese pharma with a diverse portfolio that includes branded generics and the proprietary medicine Endu, a recombinant human endostatin, for non-small lung cancer. Financial terms of the BMS/Simcere deal weren't disclosed, but as part of the agreement, Simcere receives exclusive rights in China to develop and commercialize BMS-817378, a preclinical MET/VEGFR2 inhibitor. BMS retains rights in all other markets, and the two firms will jointly determine development. Interestingly, it appears the early work will be carried out by Simcere, in what may be an attempt by BMS to leverage two critical advantages offered by China: 1) the still -- for now -- cheaper labor market keeps the R&D burn rate low; 2) with greater access to treatment naive patients, it can be much faster to run oncology trials in a place like China than the US or Europe, where competition for patients is greater. In 2009, Simcere inked a similar deal with OSI Pharmaceuticals for the development of OSI930, a small molecule oncologic in Phase I that targets multiple tyrosine kinases, including one of the same targets hit by BMS's drug, the VEGF2 receptor. -- E.L.

Gedeon Richter/Grunenthal: The European women’s health market is in significant flux with the third major deal in a month, and the second involving Budapest, Hungary-based Gedeon Richter. On November 3, Richter purchased Grunenthal’s oral contraceptive business for €236.5 million (about $331 million), roughly one month after Richter bought out Switzerland’s PregLem for CHF150 million ($156 million). Meanwhile on October 28 Teva purchased Merck Serono’s Théramex division for €265 million to deepen its geographic reach in women’s health and particularly in the contraceptive space. Like Teva/Théramex, Richter is eyeing both geographic expansion and growth of its oral contraceptive portfolio with the purchase of Germany’s Grunenthal. The small family-owned firm adds seven contraceptives including Belara to Richter’s portfolio, with sales largely based in Germany, Spain and Italy. The deal covers commercial rights in all markets where Grunenthal’s products are approved, except for Latin America. Richter said the transaction will provide a platform upon which it can establish a sales and marketing base in key Western European countries; currently, Richter’s primary commercial base is central eastern Europe and the Commonwealth of Independent States. -- Joseph Haas

Kadmon/Valeant: Just one week after Kadmon Pharmaceuticals, Sam Waksal's post-ImClone reprise, emerged from stealth mode with the acquisition of Three Rivers Pharmaceuticals, the biotech is back in the limelight. On November 1, the biotech announced a pair of strategic agreements with Valeant Pharmaceuticals that allows the start-up to hit the ground running with a mid-stage HCV candidate. In part one of the two-part alliance, New York-based Kadmon licensed worldwide development and commercialization rights (excluding Japan) to taribavirin, an analog of ribavirin that has completed Phase IIb studies for HCV, for $5 million upfront. Toronto-based Valeant, which said continuing development of taribavirin no longer fit its specialty pharma business model, stands to earn development milestones and sales royalties between 8% and 12% of future net sales related to taribavirin. That doesn't mean Valeant is getting out of selling hep C medicines altogether, however. The deal's second part calls for Valeant to pay Kadmon $7.5 million for rights to distribute in six Eastern European nations the start-up's Ribasphere and RibaPak, formulations of ribavirin that Kadmon acquired via the Three Rivers' deal. Kadmon will serve as the supplier of the two drugs. For Kadmon, a still stealthy company that has released little information about its financial backers, the complicated deal means the company nets $2.5 million and gains a mid-stage asset simultaneously. For Valeant, the outlicensing is consistent with its streamlining after the Biovail merger, as it looks to divest programs that require sizeable R&D dollars to get to market. -- J.H. & E.L.


Swedish Orphan Biovitrum/Amgen: Stockholm-based Swedish Orphan Biovitrum, which wants to be known as “Sobi” -- a decision IN VIVO Blog supports because it sounds like a tasty buckwheat noodle -- is selling back to Amgen its co-promotion rights in Nordic countries to hyperthyroidism compound Mimpara (cinacalcet). "Strategic business reasons" were a driving factor in the "mutual agreement," according to the press release announcing the split. Unfortunately, the two companies declined to say more about why the seven-year deal was ending, or how much Amgen will pay Sobi to wind down the deal. It can't be much. Sobi's revenues from Mimpara were a scant 26.2 million Swedish Krona ($3.9 millon) in 2009. Could this be the converse to the regional dealmaking brouhaha in India and China (see above)? Certainly it's well known that co-promotion deals limited to a handful of smaller markets are time-consuming and complex to manage, which may make the return for both parties de minimus. For its part, Sobi, which has developed its marketing capabilities throughout Europe, is to reallocate resources to its newer products, such as Yondelis, Multiferon and Ruconest. -- John Davis

Johnson & Johnson/Arena: On November 5, J&J's Ortho-Macneil-Janssen Pharmaceuticals division officially called it quits on the development of ADP597, a GPR119 agonist for type 2 diabetes it in-licensed from Arena as part of a two-compound 2004 deal worth $17.5 million upfront. The news marks the end of the six-year collaboration between the two parties; in 2008, J&J discontinued work on another GPR119 called APD668 in order to devote more resources to ADP597, which was believed to be the more potent compound. As of December 28, 2010, all rights to ADP597 officially revert to Arena, which has a portfolio of internally discovered GPR119 agonists, including follow-on versions of APD597 that weren't part of the original J&J deal. It's not clear why Janssen returned rights to the drug, which had just finished Phase I and demonstrated no obvious safety signals, according to company reports. Preliminary data suggest the oral molecule may have utility both alone and in combination with DPP-IV inhibitors like Januvia or Onglyza. It's possible the competitive landscape was one reason the deal came to an end. An interesting new class of small molecule drugs for type 2 diabetes, GPR119 agonists are a hot target in the type 2 diabetes landscape, with players such as Boehringer Ingelheim and GlaxoSmithKline vying to be first to market. The drugs target a protein expressed on the surface of pancreatic beta cells and endocrine cells in the gastrointestinal tract. In preclinical and clinical studies, GPR119 activation has been show to stimulate the relase of GLP-1 and other incretins that play an important role in insulin regulation. All told, Arena netted $32 million from the six-year collaboration with J&J, according to Elsevier's Strategic Transactions database. The return of the asset is another piece of negative news for Arena, which in late October received a complete response letter for its obesity drug lorcaserin. -- E.L.

Image courtesy of flickrer jasoneppink.