And the Roger Goes To ... Your 2010 In Vivo Blog Deals of the Year Winners

Thank you, dear IVB readers, for your decisive voting this year. Gone are the days when a DOTY winner squeaked through with only 27% of the vote (we're looking at you, Roche's acquisition of Genentech). Again this year it seems that you'd rather vote on some categories and not others -- a hint for 2011? -- but at least you've managed to come to a consensus.

In short, everything's turning up Jersey in this year's contest, with Celgene apparently given a mandate to do as it pleases. But we're getting ahead of ourselves. The envelopes, please...


The IN VIVO Blog 2010 M&A Deal of the Year, with a shade over 50% of the vote, goes to Celgene/Abraxis, the $2.9 billion cash-and-stock-and-(whew!)-CVRs deal that puts Celgene deeply into solid tumors. Congratulations. Coming in second, with nearly 24%, is Abbott/Piramal, and third, with 18%, is Pfizer/King. No love for generics (Teva/Ratiopharm, 5%) or Endo's acquisition of Healthtronic (3%).

The IN VIVO Blog 2010 Alliance Deal of the Year, with a whopping 55% of the vote, goes to Celgene and Agios. This early-stage pact, in the area of cancer metabolism, was worth $130 million in upfront cash and equity payments and gives Celgene an option on Agios programs at the end of Phase I. Pfizer/Biocon was no slouch with nearly 32% of the vote, while four nominees were relegated to also-ran status: Abbott/Reata (7%), GSK/Amicus (2.5%), Pfizer/UCSF (3%) and Biogen/Knopp (less than 1%).

The IN VIVO Blog 2010 Exit/Financing Deal of the Year, with about 46.5% of the vote, goes to Ablexis. The mouse that roared! The company's June 2010 Series A from Third Rock and Pfizer Venture Investments twinned with its five-pharma consortium deal for its antibody discovery technology won the day in a well-qualified field. Incline took in 23%, Ironwood had 19%, and Castlight nearly 12%.

Thanks everyone for voting and if Celgene, Agios or Ablexis would care to make an acceptance speech, please contact us here.

And the 2010 M&A DOTY Nominees Are ...

OK, IN VIVO blog readers, it's time to have your say. We've supplied the nominations but YOU will decide the winners. Once again we've created a special page so you can vote on all three categories in one place. Remember you much click on the "VOTE" button in each individual category--Alliance, M&A, and Exit/Financing--to record your choices.

CLICK HERE TO GO TO THE VOTING BOOTH.

Below, in no particular order, are the nominees for IVB's 2010 M&A Deal of the Year!

ENDO/HEALTHTRONIC: This acquisition, which was the first of a 2010 Endo buying spree that eventually led to an uptick in the company's share price, illustrates how pharma needs to change given physician access grows tougher and differentiation may come by offering a continuum of products. The $258 million deal moved Endo from pain to pelvic health, adding about $185 million in annual revenues, and a new asset in a deal that is immediately accretive. Most importantly, it allows Endo to combine drugs, devices, and services in an area far less competitive than pain, providing the company new skill sets as health care reform and concerns about cost of treatment increasingly factor into strategic decision making. Read our full nomination post here.

PFIZER/KING: Pfizer's October acquisition of pain play King Pharmaceuticals for $3.3 billion takes advantage of the near-unique size and scale that will allow it to play virtually anywhere it likes in the pharmaceutical space. It illustrates one possible future for Pfizer's business development strategy (the era of the bolt-on deal) while at the same time highlighting abuse-resistant opioids, a class of drugs at the center of commercial and regulatory brouhaha. Of course Pfizer also gets King's auto-injectors and animal health businesses, further helping it diversify. But in addition to the resources necessary to drive forward those abuse-resistant opioids like Remoxy, it's King's specialty marketing sales force that can now go off and market some of Pfizer's pain franchise and the added heft Pfizer's primary care reps can give to some of King's portfolio that really drives this deal. Read our full nomination post here.

TEVA/RATIOPHARM: Germany's number-two generics firm had been up for sale since January 2009, following Adolf Merckle's suicide. There were believed to be three suitors, Pfizer, Actavis and Teva. Given Teva's ambitious growth plans and its very weak position in Germany, the largest European market, it's easy to see why the Israeli group did stump up $4.9 billion for the booty, including $820 million in debt--exceeding analysts' expectations, and apparently also exceeding what even Pfizer was willing to pay. Teva needed to solidify its position in the European generics sector, where it promised sales would increase to $9 billion from just over $5 billion in 2009. Read our full nomination post here.

ABBOTT/PIRAMAL: Abbott's whopping $3.72 billlion ($2.1 billion in cash) May 2010 deal to buy the branded generics business of Piramal Healthcare boasts a valuation that is an unheard of: nine-times sales and 31 times earnings. The deal, which put India's fourth largest pharma company under Abbott's wing, has kept global biopharma tongues wagging for months about over-heated valuations in emerging markets, and in particular, of course, India, as well as Big Pharma's true long-term intentions in Asia versus their short-term opportunistic motivations. It catapulted Abbott, which until last year could be diagnosed as emerging-markets deficient, into the number one spot in India. That's a steep climb from 2009, when it barely cracked the high teens, and puts it ahead of MNC India virtuosos like GSK and Sanofi. Abbott's move changed not only Abbott, however, but the entire Indian pharmaceutical landscape forever. Read our full nomination post here.

CELGENE/ABRAXIS: Celgene hasn't been shy about striking creative deals. The $2.9 billion cash and stock acquisition of Abraxis Bioscience fits that mold. After building its bona fides in liquid tumors with Thalomid (thalidomide) and the now-blockbuster Revlimid (lenalidomide), the New Jersey firm is spending nearly $3 billion to expand into solid tumors, an aggressive move at a time when retrenchment (Biogen Idec), reorganization (Genentech, via its parent Roche), desperate defense (Genzyme) and urgent reinvention (Amgen) are the main trends for big biotechs. In late 2007, Celgene's dealmakers high-stepped into the spotlight after years of relative silence, and they haven't relinquished the stage. The Abraxis deal, dollar-wise, is Celgene's largest yet, gaining it the breast cancer drug Abraxane. It's a modest seller so far -- $360 million in 2009 revenue -- but Celgene sees promise in other solid tumor indications, including a potential submission for use in non-small cell lung cancer in the first half of 2011, and that and other Abraxane progress is linked to significant CVRs. Read our full nomination post here.

And the 2010 Alliance DOTY Nominees Are ...

OK, IN VIVO blog readers, it's time to have your say. We've supplied the nominations but YOU will decide the winners. Once again we've created a special page so you can vote on all three categories in one place. Remember you much click on the "VOTE" button in each individual category--Alliance, M&A, and Exit/Financing--to record your choices.

CLICK HERE TO GO TO THE VOTING BOOTH.

Below, in no particular order, are the nominees for IVB's 2010 Alliance Deal of the Year!


ABBOTT/REATA: Abbott Labs agreed to pay $450 million up-front for non-US, non-Asia rights to the Reata's bardoxolone for chronic kidney disease. In connection with the Abbott transaction Reata has doled out some of that record-breaking upfront to investors who've poured $178 million into the company since its formation in 2002. Just based on the sheer size of the deal's upfront payment, Abbott/Reata deserve a Deal of the Year nod. But there's more about the tie-up that piques our interest. Not least, Abbott has proven itself to be an adventurous biopharma dealmaker and could well reach the podium in more than one category this year. Moreover at a time when industry seems to be scrambling for quality assets and belt-tightening at every opportunity, it's exciting to be reminded that there are drug candidates out there that generate significant interest because of their potential to change the course of disease and define new treatment paradigms. Read our full nomination post here.

CELGENE/AGIOS: In exchange for $130 million in upfront cash and equity investment, Agios, one of the leaders in a happening scientific space called cancer metabolism, gives Celgene an exclusive option to develop any drugs resulting from its research platform at the end of Phase I. Celgene can extend the exclusivity period – if Agios agrees – but it will have to provide additional funding for the privilege. On each program Celgene licenses, Agios could receive up to $120 million in milestones, as well as royalties on sales. It's the latest on big-bro-little-bro dealmaking; note that Agios remains the one running the discovery and early translational work until an option is exercised--and the biotech has a say if Celgene wants to delay bringing a program in house. Read our full nomination post here.

PFIZER/BIOCON: The terms are pretty plain vanilla - Pfizer pays $200M upfront to Indian biotech Biocon and an additional $150M in development and regulatory milestones, plus payments tied to commercialization. In exchange, it gets rights to sell Biocon's portfolio of biosimilar insulins throughout most of the world. While the structure of Pfizer/Biocon is quite traditional, the concept is anything but. Indeed, the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demostrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets. Read our full nomination post here.

GSK/AMICUS: Faced with slack pipelines and increasing payor demands, big pharma CEOs spouted the words "niche" and "orphan" more often then "primary care" and "blockbuster" this year (though they have been biting their tongues behind the scenes or crossing their fingers behind their back). Nonetheless, GSK has gone beyond talk with action on the deal-making front, even creating a business unit exclusively devoted to rare diseases back in February. GSK's alliance with Amicus, announced in October, is the big pharma's fifth in the rare disease space in just over 12 months, and it also involves the latest-stage candidate of the bunch. Under the deal, GSK gains worldwide rights to the Phase III Fabry disease treatment Amigal (migalastat HCI), a potential first oral treatment for the genetic disease. Read our full nomination post here.

PFIZER/UCSF: Pfizer's five-year, $85 million commitment to fund academic research at UCSF is the company's latest and largest push into the so-called Valley of Death that lies between the university laboratory and the commercial sector. Like other Big Pharmas, Pfizer has inked deals with universities before, and even established a presence on UCSF's campus when it launched its Biotherapeutics & Bioinnovation Center in 2008. Still, the new UCSF deal is a more expensive, closer-knit arrangement. For Pfizer, the agreement offers access to research at the point of creation, joint ownership of drug candidates (thought to be split 50-50 with UCSF), and options to develop compounds internally after Phase I trials are completed. The university will receive royalties or other payments as the drugs march bravely toward commercialization, while also receiving a view into Pfizer's library of antibodies, reagents and other compounds. Read our full nomination post here.

BIOGEN/KNOPP: It's not necessarily how much, but what Knopp will do with, the money. Biogen Idec paid $80 million upfront -- $20 million as a fee and $60 million in equity -- for worldwide rights to KNS-760704 (dexpramipexole), which had hit its primary endpoint in a Phase II trial for ALS. Dexpramiprexole came with orphan designation in both the US and Europe, and fast track FDA status. Milestones to Knopp could add up to $265 million more, as well as tiered, double-digit royalties on worldwide sales. $80 million was more than Knopp needed for its ongoing operations, so it planned to return extra cash to investors -- a mix of low-profile institutional investors, angels and foundations. But it was no exit or share buyback, according to Knopp. Instead the investors who got the distribution kept all their equity: in essence, a one-off dividend. Read our full nomination post here.

And the 2010 Financing/Exit DOTY Nominees Are ...

OK, IN VIVO blog readers, it's time to have your say. We've supplied the nominations but YOU will decide the winners. Once again we've created a special page so you can vote on all three categories in one place. Remember you much click on the "VOTE" button in each individual category--Alliance, M&A, and Exit/Financing--to record your choices.

CLICK HERE TO GO TO THE VOTING BOOTH.

Below, in no particular order, are the nominees for IVB's 2010 Financing/Exit Deal of the Year!

ABLEXIS: Ablexis, which is developing a next-generation antibody-discovery platform around its proprietary AlivaMab mice, was founded in December 2009 and raised a $12 million Series A from Third Rock and Pfizer Venture Investments in June 2010. The company's nomination is less for its Series A and more about the baked-in exit for investors provided by the biotech's five-member pharma consortium. Those companies have non-exclusively opted-in to receive Ablexis' mouse platform for an undisclosed seven-figure fee and will owe an undisclosed eight-figure sum upon delivery. That cash can then be distributed to Ablexis' investors. Read our full nomination post here.

INCLINE THERAPEUTICS: The story of Incline Therapeutics’ $43.5 million Series A funding begins with Johnson & Johnson's decision to close Alza and sell its Ionsys electronic fentanyl patch to this start-up, backed by Cadence Pharma and some of that company's investors. As part of the deal Cadence has structured a two-time option to acquire Incline should that patch perform between now and 2013. Thus, Incline's financing is a sign of the times, demonstrating that when VCs commit large amounts of capital, they’re willing to negotiate upfront for a speedy, healthy return. Read our full nomination post here.

IRONWOOD PHARMACEUTICALS: Ironwood's monster $203 million IPO didn't just provide temporary financial independence or give the company the biggest pre-money IPO valuation for a biotech in history. More importantly, it made real the company's unusual dual-class share structure, which concentrates decisions around change-of-control (and only change of control) in the hands of long-term, pre-IPO shareholders as a means of warding off hostile offers and unwanted activist shareholder involvement. If Ironwood is able to build a freestanding pharmaceutical company on the back of its promising IBS/constipation drug candidate linaclotide, the reason it will be able to remain independent was cemented into place with this offering. Read our full nomination post here.

CASTLIGHT: If ever a financing represents the new business and market opportunities now in play because of health care reform, surely it's the Castlight deal, a $60 million Series C inked in June. Castlight, founded in 2008 as Ventana Health Services, aims to solve one of the thornier wickets of health care delivery: the issue of pricing transparency for medical services. Castlight aims to illuminate the murky arena of health care pricing, creating an algorithm that allows users to search a database of providers to determine out-of-pocket costs for various procedures. Read our full nomination post here.

2010 Alliance DOTY Nominee: GSK/Amicus Therapeutics

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

GlaxoSmithKline's pact with Amicus Therapeutics sums up a theme that resurfaced again and again in 2010: the rare disease renaissance.

Faced with slack pipelines and increasing payor demands, big pharma CEOs spouted the words "niche" and "orphan" more often then "primary care" and "blockbuster" this year (though they have been biting their tongues behind the scenes or crossing their fingers behind their back).

Nonetheless, GSK has gone beyond talk with action on the deal-making front, even creating a business unit exclusively devoted to rare diseases back in February. GSK's alliance with Amicus, announced in October, is the big pharma's fifth in the rare disease space in just over 12 months, and it also involves the latest-stage candidate of the bunch. Under the deal, GSK gains worldwide rights to the Phase III Fabry disease treatment Amigal (migalastat HCI), a potential first oral treatment for the genetic disease.

Partnering with Amicus required only a small upfront on the part of GSK, which paid $60 million for a 19.9% equity stake in Amicus in addition to worldwide rights to Amigal. GSK also agreed to pay $170 million in milestones, clinical development costs and tiered double-digit royalties on sales. But it stands to gain in return. As a reference point, the market-leading enzyme replacement therapy for Fabry disease – Genzyme's Fabrazyme – generated $494 million in sales in 2008, the year before Genzyme's manufacturing problems negatively impacted sales. GSK is betting there is plenty of upside potential for a more convenient oral brand. And with Genzyme embroiled in a manufacturing debacle and a hostile takeover battle by Sanofi-Aventis, it opens the door for rivals to stake a claim for the space.

For Amicus, the deal provides enough cash to see it through to the US approval of Amigal, according to management, and getting GSK on board as a partner helps validate its pharmacological chaperone technology.

Whether or not big pharmas' increasing emphasis on rare diseases ultimately plays out in its favor is yet to be seen, but we think giving it a serious shot – at least as one platform in a multi-pronged growth strategy – is worth a DOTY nod.

-- JESSICA MERRILL

2010 Exit/Financing DOTY Nominee: Castlight

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Castlight's $60 million June Series C wasn't the biggest venture round of 2010. (That honor belongs to Archimedes, which pulled in a stunning $100 million from new and existing investors in March). In fact according to Elsevier's magic eight ball (also known as Strategic Transactions), Castlight's financing -- certainly a large sum -- wasn't even enough to merit a top five ranking, inched out by the raises of European companies Immatics and AiCuris, and on the U.S. side by Relypsa, Cerenis, and Pearl Therapeutics. Why, then, does it merit your vote for IN VIVO's DOTY in the Exit/Financing class?

Call it a vote for the new world order.

You probably know that earlier this year Congress passed a small piece of legislation called the Patient Protection and Affordable Care Act. We at IVB thought about nominating health care reform for DOTY, but after a couple of years of running this competition, we knew better. HCR is too big, too vast, too encompassing a topic to capture the voting public's imagination. You, dear reader, want something more tangible that you can point to and say yes, here's a deal that embodies a larger trend at work.

And if ever a financing represents the new business and market opportunities now in play because of health care reform, surely it's the Castlight deal. Castlight, founded in 2008 as Ventana Health Services, aims to solve one of the thornier wickets of health care delivery: the issue of pricing transparency for medical services.

Downloadable smart phone apps such as TheFind can tell you whether Amazon or WalMart or Best Buy has the best price on the fancy new GPS system you want to buy your girl friend with the poor sense of direction. But it can't tell you where to get the best price on a colonoscopy or a dental cleaning or an MRI. And with the advent of high deductible health care plans and an ever larger percentage of costs being passed on to the consumer (er, patient), that's valuable information to have.

Castlight aims to illuminate this murky arena, creating an algorithm that allows users to search a database of providers to determine out-of-pocket costs for various procedures. Its business model is simple: the company aims to sign contracts on a monthly per-employee fee with businesses that self-insure or are encouraging their own employees to make smarter--i.e. more cost-conscious--health care choices. But it's easy to imagine the model could evolve over time to an open access system where pricing is based on a per-use fee and anyone can sign up to use it. To date, Castlight already has one customer: the grocery store giant, Safeway, which employs about 200,000 workers.

Castlight has plenty of competition too. Small start-ups such as Change: Healthcare, along with insurers such as Aetna, or even information service providers like Thomsen-Reuters, are getting into this game. Though Castlight is small compared to some of those established players, it boasts an impressive roster of founders and backers, which include not just traditional venture backers such as Maverick Capital, Oak Investment Parnters, and Venrock, but also the Wellcome Trust and the Cleveland Clinic.

It certainly helps that one of Castlight's founders, CEO Giovanni Colella, is no neophyte in the health care services arena. He sold his previous firm, Relay Health, which enables doctors to communicate with patients via secure web-based technology, to McKesson in 2006. An added bonus is surely the involvement of investor Alan Garber, a professor of medicine at Stanford who also happens to run that university's Center for Health Policy.

Analysts have long said the only way to rein in skyrocketing health care costs is to make patients understand what they are paying for and why. But for most of us health care is heavily subsidized by our employer. With some one else footing most of the bill, there ain't a huge incentive to ask the neurologist treating your headaches if an expensive MRI is must-have data that will change his or her treatment plan for you. If it's not, knowing the costs of the MRI versus a 10-pill prescription for generic sumatriptan become valuable data points that help guide decision making--especially if you have to pay a portion of the tab.

It's perhaps surprising that with the passage of health care reform, VCs aren't talking up the opportunities in actually delivery of care with greater enthusiasm. Conventional wisdom is such technology plays are risky--unlike drugs or devices, these tools can be commoditized and don't have the same intellectual property protections that limit the playing field.

But the IP protection enjoyed by drugs and devices is a red herring. Health care reform means comparative effectiveness will be the rule not the exception and that means biopharma and medtech companies face increasing competition not less as payers, physicians, and patients evaluate the costs and benefits of various therapeutic options. Already companies have pivoted, talking about differentiation and unmet need as being important drivers of innovation.

By that definition, doesn't the information Castlight provides represent innovation with a capital "I"?

And that's why Castlight deserves your vote for the exit/financing deal of the year. It's a vote for innovation -- maybe a different kind of innovation than you are used to --but innovation nonetheless.

Heceta Head Lighthouse courtesy of flickrer dezz, courtesy of a creative commons license.

2010 Exit/Financing DOTY Nominee: Ironwood Pharmaceuticals

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

The February 2010 public market debut of Ironwood Pharmaceuticals valued the company at greater than $1 billion pre-money. That had never happened before for a development-stage biotech.

Impressive? Oh, hell yes. Is that the reason we think you should vote for Ironwood's IPO as IVB's exit/financing of the year? Not so much.

Then Ironwood deserves a DOTY award for the $203 million it netted at the offering, right? After all that's the most money any biotech has pulled in since 2000, when Lion Bioscience, Tanox, Lexicon were filling their coffers via the public markets.

No, that's not the reason either. And we certainly aren't nominating Ironwood for any post-IPO performance metric: the company hasn't fared so badly, but it's basically treading water (there, Aveo Pharmaceuticals, up 56% from its March IPO price, out-performs the 2010 class).

The real reason for the nomination of Ironwood -- a company founded in 1998 as Microbia that finds itself, after several twists and turns, on the precipice of filing its first NDA -- is rooted in how the biotech structured its IPO in the first place to ensure the company's independence and allow it to focus on long-term strategy instead of short term financial gain.

The IPO didn't just provide temporary financial independence. More importantly, it made real the company's unusual dual-class share structure, which concentrates decisions around change-of-control (and only change of control) in the hands of long-term, pre-IPO shareholders as a means of warding off hostile offers and unwanted activist shareholder involvement.

That's right -- Ironwood wants to build a pharmaceutical company that can stay in business for the long haul. After a few false starts and clinical setbacks throughout the past decade, it seems to be onto a winner with its Phase III linaclotide compound for IBS and chronic constipation. Phase III studies have thus far been impressive. It has linaclotide partnerships with Forest, Almirall and Astellas in key geographic areas and cash to see it through to the finish line and then some. It has seasoned drug developers and the substrate to build a pipeline.

And now it has takeover insurance. Ironwood's IPO locked in a system that won't attract short-term shareholders looking for a quick M&A-infused bump. The company won't garner the potential takeout premium that its peers might enjoy because it simply isn't for sale any time soon, even if linaclotide – or the next drug down the bench – is approved.

The guarantee of independence is a rare commodity in biotech. And of course there's no real guarantee Ironwood won't be sold. But its dual class structure allows long-term holders to call the shots, its significant financial cushion was inflated by its IPO haul, and the promise of linaclotide in the near term suggests Ironwood's growth won't be stunted. And it hasn't had to surrender large swathes of geographic territory or pawn its pipeline to get there either, part of the compromises of big-sibling protection that is the closest thing we've seen to true independence. (Just look to Genentech to see just how that can turn out in the long run).

Ironwood thinks it can innovate its way to long-term biotech success. The innovation it has shown in shareholder structure, cemented in place by arguably the most successful biotech IPO ever, will give it a chance to do so.

And that's THE reason the biotech deserves this year's Roger for best Exit/Financing.

2010 Alliance DOTY Nominee: Biogen Idec/Knopp Neurosciences

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Back in August, hacking through the thickets of the Biogen Idec-Knopp Neurosciences deal for a Phase II amyotrophic lateral sclerosis treatment, we thought for a moment we'd stumbled across a rare beast. Our binoculars at the ready and pith helmets stained with sweat (since we're on a Kipling kick), could it be...an exit-by-license? Egads!

It wasn't, actually. But it was no less exotic, and well worth nominating for our Alliance Deal of the Year. The deal itself was straightforward: Biogen Idec paid $80 million upfront -- $20 million as a fee and $60 million in equity -- for worldwide rights to KNS-760704 (dexpramipexole), which had hit its primary endpoint in a Phase II trial for ALS, also known as Lou Gehrig's disease. Dexpramiprexole came with orphan designation in both the US and Europe, and fast track FDA status. Milestones to Knopp could add up to $265 million more, as well as tiered, double-digit royalties on worldwide sales.

Knopp told our Pink Sheet colleagues that the $80 million was more than it needed for its ongoing operations, and it would return extra cash to investors -- a mix of low-profile institutional investors, angels and foundations.

But it was no exit or share buyback, according to Knopp. Instead the investors who got the distribution kept all their equity: in essence, a one-off dividend. (Biogen's $60 million equity purchase was directly from Knopp.) And spokesman Tom Petzinger said there was no quid pro quo, either. If and when Knopp finds itself in need of cash, the investors are under no obligation to re-up.

Petzinger and the rest of management like to think their gesture will create investor goodwill that will be remembered in the future. "It might be a highly unusual move, but it doesn't mean it's not highly appropriate or strategic," Petzinger said.

The deal was also notable as the first consummated in Biogen's Scangos Era, announced less than a month after George Scangos took over as chief executive. Under Scangos, Biogen has pledged to retrench around neurology and hemophilia, with its oncology and cardiology programs now on the block.

Dexpramiprexole is a reverse-image twin of Boehringer Ingelheim's Parkinson's disease drug Mirapex (pramiprexole). Biogen believes its version has the potential for greater neuroprotective activity because it has less affinity for dopamine receptors and can be used at higher doses. Thus far, the molecule has survived the R&D shake-up; indeed, executives highlighted it at a Nov. 30 R&D roundtable and reiterated last month Biogen would start a Phase III study in 804 ALS patients in the first half of 2011.

However exotic the arrangements of the deal that put dexpramiprexole in Biogen's hands, rarer -- and indeed more welcome -- would be market approval, as to date only one drug to treat the disease has come to market, according to the ALS Association. -- Alex Lash

Photo courtesy of flickr user majorvols.

2010 M&A DOTY Nominee: Celgene/Abraxis Bioscience

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.


As we noted a week ago, Celgene hasn't been shy about striking creative deals. The $2.9 billion cash and stock acquisition of Abraxis Bioscience fits the mold, for reasons we'll explain in a minute, but the creativity isn't what makes this deal worthy of a DOTY nomination.

It's actually Celgene's bet itself that intrigues us: after building its bona fides in liquid tumors with Thalomid (thalidomide) and the now-blockbuster Revlimid (lenalidomide), the New Jersey firm is spending nearly $3 billion to expand into solid tumors, an aggressive move at a time when retrenchment (Biogen Idec), reorganization (Genentech, via its parent Roche), desperate defense (Genzyme) and urgent reinvention (Amgen) are the main trends for big biotechs. In late 2007, Celgene's dealmakers high-stepped into the spotlight after years of relative silence, and they haven't relinquished the stage. The Abraxis deal, dollar-wise, is Celgene's largest yet.

For what, exactly? Abraxis' only marketed product is Abraxane, a reformulation of the generic chemotherapy paclitaxel using albumin nanoparticles that's been approved for metastatic breast cancer. It's a modest seller so far -- $360 million in 2009 revenue -- but Celgene sees promise in other solid tumor indications, including a potential submission for use in non-small cell lung cancer in the first half of 2011. Abraxis owns the "nab" nanoparticle delivery technology; whether Celgene puts it to use to reformulate other drugs remains to be seen. Investors at first were befuddled at the June 30 deal announcement, driving Celgene's stock below $50 from a high of $56.58, but they've since come round. Celgene ended trading Thursday, Dec. 16 at $58.79.

Terms of the acquisition were complicated and suggest this was a product Celgene had to have. In the end, Celgene paid $2.5 billion in cash and issued 10.7 million shares of common stock worth $58.21 each, or about $620 million, on Octo. 15, the day the acquisition finally closed.

In addition, Celgene has promised significant earn-outs, or contingent value rights (CVRs), to Abraxis shareholders -- most especially founder Patrick Soon-Shiong (pictured, right). The CVRs include a $250 million cash payment upon approval of Abraxane by FDA for NSCLC with a progression-free survival claim; either a $300 million or $400 million cash payment upon approval of Abraxane by FDA for pancreatic cancer with an overall survival claim; and potential cash royalty payments if Abraxane and certain pipeline drugs reach established sales thresholds.

It's hard to say CVRs are creative deal-making when so many acquisitions these days require them, though in the public markets, unlike the private side, they're still the exception, not the rule. There was an added twist, as well. To get the deal past the finish line, Celgene agreed to make the CVRs tradeable -- in essence, a tracking stock that follows the value of one product, Abraxane. Very few CVRs have ever been converted into tradeable securities, and Soon-Shiong has been involved in two of the most prominent examples as we discuss here.

Industry pundits continue to opine about the wisdom of spending billions for a single asset, but this diversification into solid tumors makes sense for Celgene. Data released at ASH suggests Revlimid may face headwinds in the maintenance setting for multiple myeloma. That could stymie the product's growth, a worrisome fact since it now accounts for 70% of Celgene's total revenue. Celgene wants to be one of the leaders in the increasingly competitive oncology space and it's not afraid to spend money or meet the deal requirements of the companies its courting. That chutzpah deserves your vote for DOTY, if nothing else.

Photo courtesy flickr user health2con.

2010 M&A DOTY Nominee: Abbott/ Piramal

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.


Tennyson? Maybe he's an OK mascot for academic-industry deal-maker types. Rudyard Kipling, however, best characterizes Abbott's recent full-blown attack on the Indian pharma market, with his quote: "Gardens are not made by saying 'Oh, how beautiful' and sitting in the shade." Clearly, a message Abbott executives took to heart when inking the whopping $3.72 billlion deal ($2.1 billion in cash) they made in May 2010 to buy the branded generics business of Piramal Healthcare - a valuation that is an unheard of nine-times sales and 31 times earnings.

The deal, which put India's fourth largest pharma company under Abbott's wing, has kept global biopharma tongues wagging for months about over-heated valuations in emerging markets, and in particular, of course, India, as well as Big Pharma's true long-term intentions in Asia versus their short-term opportunistic motivations. It catapulted Abbott, which until last year could be diagnosed as emerging-markets deficient, into the number one spot in India. That's a steep climb from 2009, when it barely cracked the high teens, and puts it ahead of MNC India virtuosos like GSK and Sanofi. Abbott's move changed not only Abbott, however, but the entire Indian pharmaceutical landscape forever - surely the kind of transformative event that should be at the top of any dealmaker's DOTY award list.

So, what did Abbott get for its generosity? A portfolio of 350 branded generics which its newly formed Established Products Business Unit (haven't we seen similar renditions at Pfizer and AstraZeneca, among others?) will sell in India and some other emerging markets; a large, somewhat bloated sales force, with a strong presence in rural districts, and a 4% share of a very fragmented market - bringing Abbott's new total share to 7%.

Analysts say that with this deal, Abbott can move into the center of the Indian drug market and play a bigger role in its rapidly unfolding growth story. Piramal has a large number of mass-consumption products, which Abbott could not easily create from scratch in a fast-moving market, and Abbott will also be able to sell its own brands, as well as the Piramal products, which are largely in CNS, cardiovascular, and respiratory diseases. Oh, and the new Abbott's pro forma growth is projected at 13.2%, which is stunning for Western eyes, although actually below the overall growth rate of 17.5%.

India is in the midst of an M&A frenzy, which started with Daiichi Sankyo's $4.6 billion purchase of Ranbaxy generics in 2008. Even that huge effort pales in comparison to what Abbott has wrought. Before Abbott, three of the top four pharma companies in India were Indian-owned, but now that number is whittled down to one: Cipla.

If the aim of DOTY is to reward a deal-maker's brashness and recognize a company that puts its money where its mouth is, vote for Abbott-Piramal.

2010 Alliance DOTY Nominee: Pfizer/UCSF

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

O the wild charge they made! Pfizer's five-year, $85 million commitment to fund academic research at UCSF is the company's latest and largest push into the so-called Valley of Death that lies between the university laboratory and the commercial sector. We at the IN VIVO Blog hope this endeavor is more productive than Lord Cardigan's brave but ill-fated press forward in the Crimea, although we also admit that we may fall short of Tennyson's eloquence in chronicling the occasion. We'll do our best.

If not quite all the world has wonder'd how to turn academics' novel research into viable, life-saving medicines, it's a question that's captured the imagination of many in Big Pharma. In a trend that started in 2009 and gained traction in 2010, drug makers are increasingly looking to partner with academia in hopes of injecting Innovation (yes, with a capital "I") into their pipelines. Think Sanofi/Harvard, AstraZeneca/University College of London, or Genentech/UCSF. But those tie-ups pale in comparison with Pfizer's alliance with UCSF, a potential game-changer that surely merits your vote for Deal of the Year. Will you honor the charge Kindler's (er, Read's) team has made?

Like other Big Pharmas, Pfizer has inked deals with universities before, and even established a presence on UCSF's campus when it launched its Biotherapeutics & Bioinnovation Center in 2008. Still, the UCSF deal is a more expensive, closer-knit arrangement. For Pfizer, the agreement offers access to research at the point of creation, joint ownership of drug candidates (thought to be split 50-50 with UCSF), and options to develop compounds internally after Phase I trials are completed. The university will receive royalties or other payments as the drugs march bravely toward commercialization, while also receiving a view into Pfizer's library of antibodies, reagents and other compounds.

In conjunction with the deal, announced November 16, Pfizer appointed former AstraZeneca exec Anthony Coyle to lead its newly created Global Centers for Therapeutic Innovation, which will marshal troops into various academic centers around the world. Coyle promised more on-campus deals, including collaborations in Europe and Asia over the next couple of years.

Into the Valley of Death will ride about twenty Pfizer employees, who will set up shop in a private office on the UCSF campus. The school, in turn, will hire additional management to oversee the collaboration and bring in postdocs and other researchers as needed. A steering committee comprising four members each from Pfizer and UCSF will distribute funds and resources, to make reply and to reason why.

While it may focus primarily on large molecules, the collaboration isn't limited to any therapeutic area, nor is UCSF obligated to steer clear of additional agreements that could create competition among pharma partners for projects within its halls, like foreign armies trying to capture the port of Sevastopol. (Cannon to the right of them, cannon to the left of them....) Researchers can still opt out of Pfizer's grasp, and if the company declines its option on a drug, UCSF is free to negotiate with others.

But Pfizer's influence will be high on campus, and if the partnership succeeds -- which it will if it produces a single marketable compound -- other pharmas will surely follow. Half a league, half a league, half a league onward!

2010 M&A Deal of the Year Nominee: Pfizer/King

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

One of the virtues of Pfizer's gigantism is that the company possesses a size and scale that will allow it to play virtually anywhere it likes in the pharmaceutical space. (Of course its size is one of its problems as well, but let's put that to the side for a moment.)

Pfizer's October acquisition of pain play King Pharmaceuticals for $3.3 billion (a deal not yet final, but one we are confident will close) demonstrates those advantages nicely and clearly has to be on anyone's Deal of the Year shortlist. It illustrates one possible future for Pfizer's business development strategy (the era of the bolt-on deal) while at the same time highlighting abuse-resistant opioids, a class of drugs at the center of commercial and regulatory brouhaha.

Why is pain, or at least the tricky, abuse-resistant space, a good fit for Pfizer? Not only are specialty areas the places where this and other Big Pharma are getting forced to dabble thanks in part to the genericization of some of their favorite primary care categories, but they may also be places where industry's largest companies can use their scale to their advantage. And for that you can thank the FDA.

More precisely FDA's Anesthetic & Life Support Drugs and Drug Safety & Risk Management advisory committees, which not long after the Pfizer/King deal completed a two-day discussion of endpoints for post-marketing studies to demonstrate abuse resistance in the opioid pain management class. The committee recommended that FDA set a very high bar for explicit claims of abuse resistance—advice that, if FDA took it on its face, would make it exceptionally difficult for new entrants (like King) to break into the market dominated by Purdue Pharma LP's OxyContin.

However, as our colleagues wrote in the November issue of The RPM Report, with Pfizer-like resources those post marketing burdens begin to look like insurance against competition. Large and expensive studies? For Pfizer, for now, not necessarily a problem. It's hard to see a stand-alone King having the same nonchalance.

Of course Pfizer also gets King's auto-injectors and animal health businesses, further helping it diversify. But in addition to the resources necessary to drive forward those abuse-resistant opioids like Remoxy, it's King's specialty marketing sales force that can now go off and market some of Pfizer's pain franchise and the added heft Pfizer's primary care reps can give to some of King's portfolio that really drives this deal.

So in this year's DOTY competition, vote for the big guy, who makes you an offer you can't resist.
image from flickr user chrisblakely used under a creative commons license

2010 Alliance DOTY Nominee: Pfizer/Biocon

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™


OK, it may not be the biggest DOTY or even the most creative in terms of structure. The terms are pretty plain vanilla - Pfizer pays $200M upfront to Indian biotech Biocon and an additional $150M in development and regulatory milestones, plus payments tied to commercialization. In exchange, it gets rights to sell Biocon's portfolio of biosimilar insulins throughout most of the world. Thus, this ain't the kind of deal that inspires heady talk in the biz dev community, which is more likely to eye the latest fancy risk-sharing schemes.

While the structure of Pfizer/Biocon is quite traditional, the concept is anything but. Indeed, the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demostrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets. Because of its conceptual radicalism, it is by far the best choice to win the DOTY award.

The alliance brings together two diametrically opposed companies that have surprisingly complementary interests: big, unwieldy Pfizer, which lacks a presence in diabetes, and Biocon, an aggressive, comparatively small Indian biotech, which, while far from naive, has limited global operations and ambitions to develop an oral insulin.

Pfizer now will sell all of Biocon's biosimilar insulins and insulin analogs, including recombinant human insulin, Glargine, Aspart and Lispro; in Germany, Malaysia, and India only, the partners will share commercial responsibilities. Biocon is in charge of global manufacturing, development and regulatory approvals. The partners assert -- and there's really no other word to describe their pitch - their broad portfolio will enble them to challenge the industry's diabetes mainstays. Take that, Novo Nordisk, Sanofi, and Lilly.

The deal was spearheaded by two aggressive business leaders who think outside the box: David Simmons, who has headed Pfizer's $10B Established Products Business Unit and recently took over Emerging Markets as well, and Kiran Mazumdar Shaw, chairman of Biocon . Simmons has spent the past two years scouring Asia and elsewhere for inexpensive outsouring opportunities to buttress his units' generics business, but the Biocon alliance is different and more strategic than his unit's previous deals with Indian generics manufacturers Aurobindo and Claris.

With insulin, Pfizer is plunging into the biosimilars fray. Simmons has said previously that Pfizer wants to play in this space, but until now, he hasn't articulated just how it will do so. By teaming up with Biocon, he's indicating Pfizer's willingness to essentially outsource its approach to this new business opportunity with an up-and-coming EM player.

For Biocon, too, the deal represents new territory. India's budding biotech industry is just that --budding -- and often seems to be stalled. Biocon, however, has stood out as an exception, with its long-time efforts to become a global innovator, backed by self-generated revenues from more traditional, lower margin businesses, such as contract research and drug development services, as well as sales of generic biologics to domestic markets. Like Simmons, Shaw seems intent on pushing beyond her company's comfort zone.

Timing is a key virtue of this deal - the partners have some -- not much - breathing room because they will roll out the insulins gradually. They won't discuss their regulatory strategy in the US, where they hope to launch in 2015, but FDA officials say the agency is "open for business" when it comes to biosimilars, despite lack of formal guidance in this area.

Emerging markets is the wild West of pharma these days, but Pfizer and Biocon have demonstrated admirable patience and a cautious, yet forward-thinking approach to a new business opportunity. Simmon's recent appointment as head of emerging markets, even as he retains his current position at EPBU, puts him in charge of one of Pfizer's major growth initiatives. How's that for validation of a strategy?

2010 M&A DOTY Nominee: Teva/ratiopharm

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

There's suicide. There's red-hot competition. There's rumors of personal CEO visits. There's even some Kindler (remember him? That industry veteran who headed up the world's biggest drug company and then retired one Sunday to recharge his batteries?). With that line-up, how could anyone not vote for Teva's acquisition of ratiopharm for M&A Deal of the Year?

We (the Teva/ratiopharm supporters, I know you're out there in your hundreds) don't need snazzy deal structures, CVNs, CVRs or anything else. Nothing clever. Just a good old story of a good old fight, with money of course, for an apparently attractive -- yet vulnerable -- target. And a relevant one, at that: generics has been the the decade's new hot target for pharma. (Pharma beyond Novartis, that is).

Germany's number-two generics firm had been up for sale since January 2009, following Adolf Merckle's suicide. (He and his family controlled VEM Holding, ratiopharm's owner, but was hit by the financial crisis.) The company had to go; that was the deal VEM struck with its angry creditor banks. Towards the end of the process, there were believed to be three suitors, Pfizer, Actavis and Teva.

It looked, at one point, as if Pfizer would win it; Kindler, after all, was reported to have been spotted visiting the company's Ulm headquarters in March 2010, just before the winner was announced. (Last-ditch effort on Kindler's part? Was this disappointment one of the reasons he, errm, left?)

Pfizer wanted ratiopharm since Pfizer needed -- needs -- all the revenue it can get (including in those surer-fire sectors like generics, where it and several of its Big Pharma peers have laid significant stakes), in order to offset the impact of generic Lipitor. ratiopharm offered a strong European presence, and some emerging market holdings too.

But Teva was hungry too, and Teva does this -- generics -- for a living. It's renowned in its aggression determination. The company had been on an acquisition binge for the previous decade, building up to almost $14 billion in annual sales in 2009 (that, by the way, is about Lipitor-sized), and the plan, announced January, was to double that again in 2015.

Given that, and Teva's very weak position in Germany, the largest European market, and it's easy to see why the Israeli group did stump up $4.9 billion for the booty, including $820 million in debt--exceeding analysts' expectations, and apparently also exceeding what even Pfizer was willing to pay. Teva needed to solidify its position in the European generics sector, where it promised sales would increase to $9 billion from just over $5 billion in 2009.

Never mind that Germany is one of the toughest markets when it comes to generics pricing: for the last 3-4 years, companies have been competing on price via a tendering process for two-year sole-supply contracts to the country's sick funds, saving said funds hundreds of millions of Euros. Indeed, this 'all or nothing' set-up makes it even more important that Teva has a place at the table with major customers, as Teva's European CEO put it to our Pink Sheet DAILY reporter. ratiopharm had done very well at winning tenders.

So as well as providing a good, meaty fight with a strong cast, this deal is a finger-on-the-pulse of the decade's industry trends: generics' new sexiness, payer-driven pricing pressure (will Germany become a template in that regard?), and oh, yes, we forgot to mention, emerging markets (ratiopharm had a bit of that) and follow-on biologics (ratiopharm had a bit of that, too, via its BioGenerics division).

In fact, are there any reasons not to vote for it?

Ulm cathedral image by flickr user donvanone used under a creative commons license

2010 Exit/Financing DOTY Nominee: Incline Therapeutics

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

The story of Incline Therapeutics’ $43.5 million Series A funding is, to use a word, one of various inclinations. Johnson & Johnson, for example, was inclined to shutter Alza and sell for a pittance the rights to an electronic fentanyl patch it had spent hundreds of millions of dollars to bring to market, but pulled due to a safety concern. Cadence Pharmaceuticals was inclined to buy the patch from J&J, but was short on cash and otherwise inclined to focus on getting its intravenous acetaminophen, Ofirmev, approved. And a group of VCs was especially inclined to set up a new startup company with an exit strategy built into the company’s launch, charging Cadence $3.5 million for each of two consecutive options to buy the startup – if it should be so inclined.

The fascinating tale of Incline’s birth, emblematic of recent trends and extraordinary in its complexity, therefore merits your vote for DOTY in the Exit/Financing category.

Like several other large first-round fundings, the financing is tranched, with a detailed product roadmap that correlates with future capital infusions. Furthermore, it represents a bet on a mature product, a slightly modified version of a drug/device combination that has already been marketed outside the U.S., rather than murky, exploratory research VCs sometimes deride as “science projects.”

But the June deal is also uniquely structured with a built-in exit opportunity, a pair of options for minority stakeholder Cadence to acquire Incline outright by the end of 2013. Thus, Incline's financing is a sign of the times, demonstrating that when VCs commit large amounts of capital, they’re willing to negotiate upfront for a speedy, healthy return.

Incline's Series A arose as J&J put its Ionsys technology on the block. Briefly marketed in Europe to treat acute post-operative pain, Ionsys is an electronic pain relief patch that delivers the approved drug fentanyl through the skin via a small electronic charge. (“Acute,” by the way, also refers to a type of angle which describes an incline.) J&J halted sales in 2008 due to a potential electronic failure that could lead to accidental overdoses. As J&J wound down Alza’s operations, Cadence seemed a likely buyer, but faced a cash crunch while preparing Ofirmev for approval. (After multiple delays, that drug won the official regulatory nod in November.)

Enter a syndicate of VCs organized by Frazier Healthcare Ventures, which hatched a unique strategy: create and fund a new company led in part by Cadence insiders to buy Ionsys, address its safety issues, refurbish the device, and bring it back to market, while offering Cadence the opportunity to acquire Incline for an incrementally increasing amount as the product attains regulatory milestones and has been further derisked. The first option allows it to buy Incline for $135 million within a year or before the second tranche of VC money kicks in. If Cadence exercises the second option, it can pay $228 million plus a $57 million earn-out by the end of 2013, or before Incline files for an NDA.

In this way, the VCs , which besides Frazier include 5AM Ventures, Technology Partners, Adams Street Partners, Saints Capital Partners, and Emergent Medical Partners, have forged a deal that includes up to $7 million in non-dilutive cash, and could bring back two to four times the capital they invested within a relatively short time. Cadence, meanwhile, offloads some risk while maintaining an exclusive opportunity to acquire a potential $300 million product.

It’s one of the most detailed VC deal agreements we’ve seen yet: as long as investors are committing capital in tranched deals with detailed milestones, why not race to include a flexible exit opportunity as well?

by Paul Bonanos

Image courtesy of flickrer gogoninja courtesy of a creative commons license.

DOTW Senses Change In The Air

Fast away the old year passes. Hail the new ye lads and lasses.

As the last days of 2010 fast approach, already there is a sense that change is in the air (except perhaps in Washington D.C. but that's another matter.) In biopharma land, Dick Clark is packing up his office, making way for Ken Frazier, described by some Merckies as "visionary." Meantime the abrupt departure of Pfizer's Jeff Kindler has industry wags' tongues...well, wagging.

Kindler's hefty severance package suggests he may well have been pushed from the Pfizer nest. Regardless, it would appear that Ian Read, who takes over as the CEO of the world's biggest pharma (and no, that ain't necessarily an appellation to be proud of), may well find himself the agent of change--whether he wants to or not.

Less than a week after being installed in the top spot, Read already faces the task of sorting out the firm's emerging markets strategy in an increasingly competitive environment. On Dec. 9, Pfizer revealed that David Simmons, the president and general manager of the established products division, will assume duties vacated by retiring emerging markets chief Jean-Michel Halfon, who had led that unit since its formation in late 2008. In what can only be described as additional--and certainly unwelcome--news, media outlets reported that same day the pending departure of Steve Yang, who moves to AstraZeneca after leading efforts to develop Pfizer's Asia-based R&D strategy and playing a critical role in helping integrate Wyeth post-merger.

Pfizer clearly faces a potentially difficult 2011 as it seeks to replace revenue when the juggernaut Lipitor’s patent exclusivity ends. (Contrary to popular opinion that won’t mark the end of the world; 2012 is the year to watch for those of an apocalyptic bent.) To compensate, the drug maker appeared to be devising a strategy that would allow it to breathe extra life into its cholesterol-lowering drug via a bolstered presence in emerging markets such as Latin America and the all-important Asia-Pacific.

With Simmons now leading two of the five biopharmaceutical units, some speculate those divisions will be merged, possibly as part of a broader restructuring. Tim Anderson, the knowledgeable pharmaceuticals analyst with Sanford Bernstein, wrote in a research note Thursday Dec. 9 that his firm believes the emerging markets and established product divisions will be combined, potentially resulting in cost savings through the elimination of redundancies in separate units. (Anderson also speculates that Pfizer’s oncology business unit could be folded into the specialty biz; despite efforts to build strength in this particular arena, things haven’t exactly gone as planned.)

Certainly the union of the established products group and the emerging markets division makes a lot of sense for Pfizer. While innovative products account for the majority of the company's overall revenue, its off-patent products can essentially acquire a second life around the globe. Branded generics, baby!

The changes taking place at Pfizer are worth noting not because they provide an important, er, read on Read’s management style. No, as Pfizer continues to react to its own patent woes, the choices it makes could influence decisions at competitors (we aren’t saying in what direction). As such, it becomes if not an important bellwether, at least a means of benchmarking how industry continues to respond in the post health-care reform era.

Where else is change afoot? At expert network cos. where doing biz has gotten a lot harder. Not, however, at Genzyme. At this point in the year, only those who have been hanging out on exotic islands with absolutely no mobile, "sat" phone, or internet access could possibly be unaware that Sanofi’s hostile take-over for Genzyme expires today. In the absence of a white knight, the French pharma has no compelling reason to raise its bid (investors certainly haven’t been impressed with the biotech’s PR efforts to boost share price.) Analysts like Mark Schoenebaum at ISI Group, believe Sanofi will let Genzyme execs sweat it out for the rest of the year. Unfortunately for the biotech, last we checked deodorant wasn’t considered a legitimate reimburseable health care expense. (Botox on the other hand…)

Finally, a remonstrance to vote early and often for this year’s DOTY nominees and support the change you believe in. Meantime, while reviewing your favorite transactions, don’t forget to take a gander at this week’s round-up of the industry’s deal making. Change may be in the air, but it’s also true some things never change. Thus, we bring you another edition of…

Cephalon/Mesoblast: This week’s tie-up between Cephalon and Mesoblast shows stem cell technologies can garner hefty upfront dollars. Cephalon is spending $130 million upfront to develop and commercialize the Australian biotech Mesoblast's adult mesenchymal precursor stem cell therapies for multiple indications, the companies announced late Dec.7. In addition, Cephalon has agreed to pay regulatory milestones of up to $1.7 billion, with a hefty percentage of that amount deliverable upon U.S. regulatory approval of selected products. In exchange, Cephalon is getting exclusive worldwide rights to co-develop and commercialize products in several indications: congestive heart failure, acute myocardial infarction, Parkinson's disease, Alzheimer's disease, and, furthest along, products for augmenting hematopoetic stem cell transplantation in cancer patients. The large upfront is striking given the early stage of Mesoblast’s technology; also striking is the equity component — Cephalon is buying a 19.9% stake in the Aussie firm for $220 million. It certainly demonstrates Cephalon’s commitment to the technology. A spot check of Elsevier's Strategic Transactions database indicates big stem cell deals are still the rarity: the 2008 Genzyme/Osiris alliance, which gave the smaller biotech $75 million in upfront money, is the only one that comes close. For Cephalon, the Mesoblast alliance is part of its ongoing strategy to amass biologics capabilities via the deal table. Other examples: Ception, Bioassets, and Arana Therapeutics.--Wendy Diller

GlaxoSmithKline/MeiRui: Rumors that GlaxoSmithKline was pursuing MeiRui have become a reality. On December 8, the Big Pharma announced it was acquiring the Chinese urology firm from stakeholders Pagoda Pharmaceuticals and Allergon for approximately $70 million, as it further deepens its commitment to this important emerging market. Among MeiRui's leading products: Prostat for benign prostatic hyperplasia and Sheniting for overactive bladder syndrome. As part of the transactionGSK, the maker of Avodart, gets not just products but also MeiRui's established sales and marketing platform and a manufacturing facility in Nanjing City, Jiangsu Province, China. Completion of the transaction is expected by the end of 2010, subject to regulatory approval. Ahead of the deal's announcement, consultants told sister publication PharmAsia News just why a GSK/MeiRui marriage made sense. GSK already has four urology products registered in China: Fortum, Augmentin, Zinacef and Timentin. But deeper relationships with Chinese KOLS would undoubtedly help its commercial efforts in the Middle Kingdom, especially as it looks to launch its most important urology product, Avodart. MeiRui certainly helps with that ambition, given its ties to the China Urology Association. MeiRui stands to benefit as well. It has been trying to take Prostat over-the-counter, so Glaxo's considerable OTC expertise should be attractive. Building an emerging markets presence is an important piece of GSK's evolving strategy--and most every other big pharma, for that matter. The MeiRui take-out shows the firm's preference for bite-size acquisitions that can be bolted on to existing businesses isn't waning any time soon.--EFL

Geron/Angiochem: Geron will pay $35 million upfront to license Angiochem’s novel peptide technology that helps transfer oncology drugs across the blood brain barrier. The deal, which consists of a $7.5 million cash payment and a $27.5 million stock issue due to occur on January 5, 2011, gives Geron worldwide rights to Angiochem’s technology linking peptides. These molecules target the LRP-1 receptor with tubulin disassembly inhibitors, disrupting mitosis in tumors. More specifically, Geron gets rights to a drug now known as GRN1005, a derivative of the common chemotherapy paclitaxel, which is slated to enter Phase II trials to treat brain metastases by the second half of 2012. Furthermore, Geron and Angiochem will collaborate on projects that conjugate the same peptide technology with telomerase inhibitors, which inhibit an enzyme crucial to cell division, in an effort to transport those compounds into the central nervous system. Geron already has several telomerase inhibitors under investigation. Unspecified milestone payments, royalties, and a share of any sublicensing revenues will also be due to Angiochem as the projects advance toward commercialization. Angiochem may be due additional cash up front if fluctuations in the price of Geron’s stock drive the equity component’s value below $27.5 million.--Paul Bonanos

Pfizer/Morphosys: Partner-driven bonanza for MorphoSys today! Not only did the German antibody player secure a technology transfer deal with Pfizer via its newly-acquired Sloning BioTechnology unit, but it also announced three other partners have filed to begin Phase I clinical trials with MorphoSys-designed antibodies. That means lots of milestone payments, and triple-validation of the HuCAL technology. It seems those partners believe MorphoSys' rhetoric that HuCAL is "one of the most powerful methods available for generating fully-human antibodies". The German group now boasts 13 partnered HuCAL programs in the clinic, declaring the associated milestone payments as "an important source of revenue." Eat your heart out, Genmab! That humbled Danish antibody group is also upping its partner-generated revenue with a new 'networked' strategy; question is, whether its technology (much of it licensed originally from Medarex) will prove as popular. The Pfizer/Morphosys deal isn't that sexy, certainly not in terms of what was disclosed (nothing, financially, we mean). Sloning's Slonomics (?!) technology platform for making highly-diverse gene and protein libraries will be installed at Pfizer's Rinat subsidiary; MorphoSys gets an up-front payment and annual license fees. Check out MorphoSys' same-day ad hoc announcement for some clues on the size of those payments: it's increasing its 2010 financial guidance ("mainly as a result of the achievement of revenues from additional commercial activities, resulting from the acquisition of Sloning") to anticipate FY revenues of €91-94 million (up by €4-5 million) and operating profit of €13-16 million (rather than €7-9m).--Melanie Senior

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