Deals Of The Week: CATT Fight

Well, the cat (er catt) is out of the bag – and, n,o we aren’t talking about Kate Middleton’s decision to wear a long-sleeved ivory confection with flower appliqué details when she tied the Windsor knot.

While fashionistas, pundits, and the British nation had their eyes trained on Westminister Abbey, the biopharma industry was focused on the release of data comparing the utility of the high priced Lucentis versus the much cheaper Avastin to treat wet age-related macular degeneration. And as everyone now knows, the data from the 1200-patients trial sponsored by NIH suggest that in this particular setting, there seems to be little reason—based on overall outcomes—to spend thousands of dollars on Lucentis when Avastin works just as well for a fraction of a cost.

Dr. Phillip Rosenfeld, an ophthalmologist at the University of Miami Miller School of Medicine, was particularly blunt in his assessment in a NEJM editorial that accompanied the data’s publication: "Healthcare providers and payers worldwide will now have to justify the cost of using ranibizumab [Lucentis]," he said.

That’s not to say Genentech and Novartis aren’t channeling their inner Churchill (or perhaps, more appropriately, their inner John Paul Jones). Already the companies are highlighting potential unanswered safety questions, including discrepancies in dosing and a slight increase in the incidence of non-specific serious adverse events, mostly hospitalizations. Expect the drug companies to play up whether the controlled conditions of the NIH trial can adequately be replicated in a real world setting too.

Given we are talking about people’s sight, those questions may provide a persuasive argument for docs and patients wary of not using the formulation that has FDA’s stamp of approval. Provided payers play along, of course.

And that's why Medicare’s decision is so critical. Avastin vs. Lucentis has become the poster child for the comparative effectiveness debate; thus, you can bet industry will be watching closely to see whether or not CMS initiates a coverage review that would limit Lucentis’ use. Such a decision would certainly give private payers more license to limit the medicine as a first-line treatment option.

The ripples of CATT will almost certainly be felt outside the walls of Novartis and Roche/Genentech as well. Ophthalmology – particular treating diseases that blind—has become an area of interest for big pharma because of the unmet medical need for new therapies. Because back of the eye diseases are treated by a highly trained and technically savvy group of specialists, the sector has long been a favorite of the venture community as well.

What does this mean for new AMD drugs coming down the pike like the complement inhibitors developed by Optherion or the anti-PDGF inhibitor developed by Opthotech? Given such medicines work by a different mechanism of action than the anti-VEGF inihibitors Lucentis and Avastin, their value proposition is still a little bit easier to explain. But whether potential partners will bite without superiority data is another question.

Certainly the CATT data seem to make life much tougher for Bayer and Regeneron, who now face some thorny questions about their VEGF Trap-Eye medicine, aflibercept. Phase III data released last fall showed the drug to be non-inferior to Lucentis, with fewer doses required. But with data from CATT suggesting drugs like Lucentis and Avastin can be given at less frequent intervals, a dosing advantage alone seems unlikely to be enough to ensure Regeneron and Bayer coverage and commercial uptake of their medicine – especially when data showing a much cheaper alternative can do the job.

Whether you think the CATT results are the cat’s meow or worth nothing more than a cat call, it’s time for another edition of deals of the week…

Johnson & Johnson/Synthes: The deal garnering the lion’s share of the PR this week is Johnson & Johnson’s $21.3 billion tie-up of orthopedic trauma device maker Synthes, announced April 27. Under the terms of the deal, J&J will pay $181.75 per share for Synthes in cash and stock, an 8.5% premium over Synthes’ stock price close on April 26 and a 21.7% premium over its close on April 14, when rumors about a possible tie-up first surfaced. It’s the largest deal in J&J’s history, coming half a decade after the diversified giant passed on upping its $25 billion bid for Guidant. Strategically the Synthes buy-out makes a lot of sense: it gives J&J the pole position in orthopedics boosting sector revenues from around $5.6 billion to more than $9 billion, and deepens its expertise in trauma fixation devices, an arena less prone to payer oversight and the vagaries of a slowing economy. (Fixing the damage arising from a major accident ain’t exactly elective.) At the time of the Guidant bidding war, analysts noted J&J’s interest in that company and the size of the deal said a lot about the health care company’s view on the relative merits of investing in med-tech versus pharma. Given the Synthes acquisition, the question of J&J’s dedication to Rx is sure to resurface, though the early approval of Zytiga may help the balance.

One interesting wrinkle is whether this big orthopedic deal could presage additional dealmaking in CV, since within J&J there’s historically been a school of thought linking opportunities in these two markets. As rumors about the possible J&J/Synthes tie-up coalesced, speculation ran the gamut. Thanks to the precipitous drop in market share of its drug-eluting stent biz, some predicted J&J would exit CV altogether, selling off its Cordis business; others said 'no,way,' opining this will spur J&J to re-up in CV, perhaps via acquiring percutaneous valve-leader Edwards Life Sciences.

Because J&J is paying for Synthes mostly in stock -- just 35% of the payment is cash -- the health care firm has plenty of ammunition for additional deal making. Given J&J's hefty balance sheet, its use of stock to ink the deal took some by surprise since it creates additional unwelcome earnings pressure. Even though the deal bolsters the struggling DePuy subsidiary, which like the consumer division, has seen major setbacks due to recalls, some claim J&J is simply putting a Band Aid (pun definitely intended) on its problems. Critics argue the company’s manufacturing problems are significant and that integrating Synthes will detract from the hard work required to fix a broken system. —The EBI Device team

Kadmon/Nano Terra: Sam Waksal’s Kadmon is at it again. After its deal-making bonanza last fall – recall the firm acquired Three Rivers and set up a strategic partnership with Valeant—Kadmon is teaming up with privately-held Nano Terra, a nanotech accelerator developing technologies with applications from biopharma to more industrial settings. Terms of the tie up weren’t disclosed but they do provide Kadmon with an exclusive license to three novel, clinical stage assets and access to Nano Terra’s proprietary Pharcomer Technology drug discovery platform. (FYI, the product candidates and the Pharcomer technology were originally developed by another private biotech, Surface Logix, and only recently acquired by Nano Terra, though no formal announcement about that deal appears to have been made.) Perhaps the most interesting asset for Kadmon is Slx-2119, a selective Rho-associated coiled-coiled kinase 2 (ROCK2) inhibitor that impacts cell shape and cell migration and may play a role in diseases as diverse as diabetes, cancer, and spinal cord injury. As part of the recent alliance, the assets and technology will be transferred to a new joint venture owned by Kadmon and Nano Terra called NT Life Sciences.—EFL

Sequella/Maxwell Biotech Venture Fund: Anti-infectives developer Sequella of Bethesda, Md., signed an unusual deal that gives Maxwell, a venture fund that specializes in Russian investments, rights to tuberculosis treatment SQ109 in Russia and the Commonwealth of Independent States, which includes Armenia, Kazakhstan, and Ukraine. Maxwell is taking an undisclosed equity stake in Sequella, but the parties do not consider the transaction a round of funding. Sequella could receive up to $50 million from Maxwell, the first tranche being an upfront payment and near-term milestones that the companies declined to disclose. Run by former Pfizer discovery executive and incubator chief Alex Polinsky, Maxwell has responsibility for development and approval of SQ109 in its licensed areas. Sequella has completed three Phase 1 studies of SQ109 in the U.S. and is currently running Phase 2 efficacy studies in TB patients in Africa. It is also testing the compound as a treatment for Helicobacter pylori infections and fungal infections. Sequella officials told the IN VIVO Blog that the company has not raised traditional rounds of venture capital, instead leaning on individual investors and hedge funds to supplement government grants. -- Alex Lash

Eli Lilly/Medtronic: While drug companies routinely team up with device makers to find better ways to deliver drugs, the April 26 deal between Eli Lilly and Medtronic, to research and develop a new treatment for Parkinson's disease is notable for two reasons. For starters, the collaboration involves two very early stage technologies. But the alliance also facilitates Lilly's move into a new area of CNS that heretofore hasn’t been a primary focus. If all goes according to plan, the alliance will result in a combination of Lilly's modified form of glial cell-derived neurotrophic factor (GDNF) and Medtronic's implantable drug infusion system. Because the large protein growth factor can't get past the blood brain barrier, and, on its own, isn't targeted, the Medtronic device would deliver it directly to the dopamine-producing neurons that degenerate as Parkinson’s disease advances. The companies aren't disclosing much about the terms of their alliance, except to note that it is a 50-50 split in both costs and revenues and spans clinical development, regulatory and ultimately commercial stages. The aim is to produce a combination product that can be submitted jointly for regulatory approval. The partners don't have a fixed time line for getting their therapy through development, but expect to move it into the clinical within five years, said Ros Smith, a senior research director of regenerative biology at Lilly.While the modified GDNF is most advanced, Lilly also has several compounds in pre-clinical development for Parkinson's disease. Medtronic, for its part, doesn't currently sell a device that delivers drugs directly to the brain, although it markets a deep brain neurostimulation technology for treating Parkinson's disease and sells implantable pumps and catheters for delivery to the spinal cord.--Wendy Diller

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

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.

DOTW's 12 Deals Of Christmas

On the first day of Christmas, IN VIVO gives to you an earn-out in a pear tree
On the second day of Christmas, IN VIVO gives to you two consumer deals
On the third day of Christmas, IN VIVO gives to you regional alliances
On the fourth day of Christmas, IN VIVO gives to you hostile deals now friendly
On the fifth day of Christmas, IN VIVO gives to you ON-CO-LO-GY
On the sixth day of Christmas, IN VIVO gives to you biotech spin-offs
On the seventh day of Christmas, IN VIVO gives to you biobucks a plenty
On the eighth day of Christmas, IN VIVO gives to you eight pharma partners
On the ninth day of Christmas, IN VIVO gives to you platform biologics
On the tenth day of Christmas, IN VIVO gives to you billion dollar skin care
On the eleventh day of Christmas, IN VIVO gives to you a new eye care unit

On the twelfth day of Christmas, IN VIVO...needs a break. Please read (instead)...

MedImmune/Evotec: Big pharma’s love affair with primary care is on the wane, making cardiovascular deals as rare as partridges in pear trees. But it’s a different story for metabolic disease, where drug makers see large opportunity in growing waistlines. Think Merck’s take-out of SmartCells or Sanofi’s spate of alliances to build itself into an end-to-end solutions provider. Now comes news that AstraZeneca's biologics group MedImmune is aligning with Evotec in a broad R&D deal centering on regeneration of insulin-producing beta cells. As with most early stage alliances, the deal is heavy on the back-end payments, with the German biotech due €5 million upfront and up to €254 million in milestones down the road. But should Evotec deliver the goods, it would prove a nifty return on the biotech's acquisition of DeveloGen, a deal completed less than three months ago for up to €14 million in cash and stock, plus potential earn-outs. It's DeveloGen's metabolic target discovery platform that MedImmune is tapping into, and it adds a third alliance to the subsidiary's portfolio. Meanwhile, MedImmune and parent AstraZeneca are looking to fill a hole in their pipeline. -- Alex Lash

Reckitt Benckiser/Para Pharmaceuticals: Reckitt Benckiser Group pushed further into the consumer health business and India on Dec. 14 when the household cleaning products maker announced its £460 million ($727.3 million) acquisition of India’s Para Pharmaceuticals from private equity group Actis and minority shareholders. The acquisition, which is 31 times Para’s EBITDA, gives Reckitt access to one of India’s most popula cold-and flu-remedies, D’Cold. Still that’s a steep price to pay to boost exposure in an emerging market, where Reckitt already sells Dettol, Durex and Disprin. (At that price, IN VIVO blog thinks Para should throw in at least two turtle doves.) The company’s consumer healthcare unit now accounts for one-quarter of sales and will become increasingly more important since its household cleaning division faces pressure from competition like Procter & Gamble.—Lisa LaMotta

GlaxoSmithKline/Maxinutrition: As part of its pre-Christmas shopping spree, Glaxo says no to French Hens, but yes to muscle shakes, acquiring U.K. sports nutrition firm Maxinutrition Group Holdings for £162 million. The deal diversifies Glaxo’s Nutritional Healthcare business, adding the smaller player’s line of protein-rich body building, weight management, and endurance products onto the big drug maker’s carbohydrate business Lucozade and Horlicks (also known internally as a @calcium micronutrients business"). GSK's Nutritional Healthcare sales were already on a tear climbing 12% to $408.6 million for the third quarter of 2010. But with this new triumvirate, the pharma sees a recipe for growth. It can leverage the selling power of Horlicks while tapping into the sports nutrition business, a sector still growing strong in established markets that, globally, could be worth nearly $5 billion. – Dan Schiff

Ramius/Cypress: It took four calling birds, but Cypress Bioscience finally got a buyout offer from Ramius that was music to its ears. On Dec. 15, the San Diego biotech announced it had accepted a $255 million takeover offer from Ramius. The deal values Cypress at $6.50 per share, 63% more than Ramius’ $4-per-share offer in July. When Ramius launched its pursuit, it ripped Cypress management in an open letter, blasting the company’s decision to license a schizophrenia drug from Israel’s BioLineRx and declaring its 2008 acquisition of diagnostics company Proprius a failure. Since then, Ramius has incrementally increased its offer, including a $6.00 per share deal that Cypress’s board rejected. The parties finally agreed on the $6.50-a-share price, and agreed to extend the tender offer in order to complete the deal. Cypress garners most of its revenue from fibromyalgia drug Savella (milnacipran), and completed small-money deals in August to acquire rights to an autism drug from Marina Biotech and a smoking cessation product from Alexza Pharmaceuticals.—Paul Bonanos

Sanofi-Aventis/Merck Serono: ON-CO-LO-GY! In the drug world, viable cancer drugs are definitely as valuable as five golden rings. But as the recent U.S. regulatory decision around Avastin in metastatic breast cancer shows, incremental efficacy against an unmet medical need ain’t enough any more. Some companies are trying to overcome wily tumor cells by combining targeted therapies that work via different mechanisms into a single agent. And as the Dec. 17 alliance between Sanofi-Aventis and Merck Serono shows, they are willing to forge ties with competitors (excuse me, external parties) if that’s what it takes. According to the deal’s terms, Sanofi contributes two novel small molecule kinase inhibitors (both incidentally inlicensed from Exelixis in 2009): a PI3 kinase/ mTOR inhibitor SAR245409, and a class I PI3K inhibitor, SAR245408. Merck Serono, meanwhile, supplies its MEK inhibitor, MSC1936369B. (All three molecules are currently being studied in independent Phase I trials.) Here’s how the sharing works: Sanofi will conduct trials combining Merck’s MEK with its PI3K/mTOR inhibitor, while Merck will study the other PI3K blocker in combination with its medicine, and both drug companies will fund their own studies. Beyond breathy prose about “personalizing and stratifying cancer care” and maximizing the portfolio, details about the collaboration were vague, meaning what happens after Phase I, and importantly how the financials will be sorted, remain mysteries. Structurally – and therapeutically – the deal is almost an exact duplicate of the 2009 tie-up between Merck & Co. Inc. and AstraZeneca. (No word if an overly long airport security queue also played a role in this most recent alliance, however.) -- EFL

Xention/Provesica: Rather than divide its focus between two largely unrelated programs, UK-based Xention and its investors have elected to divide and conquer, spinning out the biotech's overactive bladder program into a new, separate company called Provesica. Two of Xention’s stakeholders, Forbion Capital Partners and Seroba Kernal, have supplied not six geese-a-laying but something much more important: cold hard cash to the tune of £4 million ($6.2 million). Beyond setting up an independent Provesica, the money will support Phase II trials of its lead compound, a vanilloid TRP (transient receptor potential) receptor antagonist, which affects the detrusor muscle in the bladder. Xention, which recently raised £8 million in Series D funding, will continue to advance its atrial fibrillation program, aimed at developing inhibitors to selectively block ion channels in the heart’s atria but not its ventricles. In conjunction with the spin-off, Xention has restructured, with holding company Xention Pharma Ltd. operating an R&D subsidiary.—PB

GlaxoSmithKline/Impax: GlaxoSmithKline, which now faces generic competition for its only Parkinson’s disease drug, Requip, swam back into that space Dec. 16, inking a co-development and commercialization deal with Impax Pharmaceuticals for the smaller firm’s lead program, IPX066. (Seven swans were apparently optional.) GSK will pay $11.5 million upfront along with up to $175 million in potential milestones and tiered, double-digit royalties on sales of IPX066, an extended-release combination of levodopa and carbidopa now in Phase III, in exchange for worldwide rights outside the U.S. and Taiwan. Impax, the CNS-focused, branded drugs division of generic player Impax Laboratories, will continue to make and supply the medicine to GSK. Impax completed a Phase III trial (APEX-PD) in early-stage Parkinson’s earlier this year with strong results and expects data from a second Phase III study (ADVANCE-PD) in patients with advanced Parkinson’s in the second quarter of next year. An NDA filing could come as soon as end of 2011.—Joseph Haas

Adimab/Lilly, Adimab/Genentech, Adimab/HGSI: On the eighth day of Christmas Adimab dispensed with the 8 maids-a-milking (and drug development too) and focused on the cream of the crop: its platform. At a time when most biotechs can’t monetize their platforms through discovery stage deals, privately-held, yeast-based antibody discovery biotech Adimab (alongside DOTY nominee Ablexis) remains the rare bird. Adimab watchers shouldn’t be surprised the company has inked more deals – three of them actually, with the likes of Lilly, Genentech and Human Genome Sciences. Nor do these recent deals stray far from the company’s previous single-target antibody discovery alliances, which emphasize non-exclusivity around a target and pay the biotech undisclosed financials that include an upfront, plus milestones and royalty payments. Why is Adimab the belle of the antibody discovery ball? “Our technology platform is not only faster than conventional antibody technology but it yields more relevant therapeutic leads with a higher probability of success,” CEO Tillman Gerngross, PhD, told us for a piece we did earlier this week in “The Pink Sheet” DAILY. The upshot of all Adimab’s dealmaking is that the cash-flow positive biotech (it announced two milestone payments to go along with the three deals this week) is restructuring to an LLC to return cash to shareholders in a tax-efficient way. – Chris Morrison

Mitsubishi Tanabe/Anaphore: At least one lady (if not nine) is surely dancing on the news of Mitsubishi’s R&D tie-up with Anaphore, a San Diego-based biotech developing trimeric proteins called Atrimers. Anaphore’s CEO Katherine Bowdish tells sister publication “The Pink Sheet” DAILY, “this first partnership does a great job of validating our technology platform.” It’s certainly a nice first and Mitsubishi’s willingness to contribute research funding is a decided plus, but Anaphore isn’t going to win any DOTY nominations based on the deal terms – a $5 million upfront, $110 million in milestones, and tiered royalties on sales of any products resulting from the option-style collaboration, which could be expanded to up to three targets. Still the tie-up, focused in auto-immune disease, is a reminder that drug makers remain interested in accessing novel technologies, especially if said platforms can create medicines against intractable drug targets or are inaccessible because of preexisting IP. Anaphore is especially interested in creating novel proteins that bind receptors in the so-called TNF super-family. The biotech’s most advanced candidate, the still preclinical ATX3105, antagonizes the interleukin-23 receptor, which plays a role in autoimmune disorders. -- Shirley Haley & EFL

Galderma/Q-Med: Lords a leaping! Leading Swiss dermatology company Galderma’s $967 million bid for medical implant manufacturer Q-Med will roughly double the acquirer’s sales and substantially increase its presence in aesthetic dermatology, a sub-segment of dermatology that is growing worldwide. Galderma, a joint venture of Nestle and L’Oreal, sells prescription and non-prescription dermatology products worldwide and is the largest manufacturer of topical dermatology therapies in the U.S. Q-Med makes dermal fillers including Restylane, which competes against Allergan’s successful Botox. The deal is non-traditional in that it offers different terms for the majority shareholder, Lyftet, which owns 47.5% of Q-Med, and the remaining shareholders. Bengt Agerup, Lyftet’s CEO, has already agreed to accept an irrevocable offer of 58.94 SEK in upfront cash, with up to 16.02 SEK in additional payments if certain development and business milestones are met. The remaining Q-Med shareholders would receive a flat cash payment of 75 SEK per share. Q-Med investors will have between Jan. 4, 2011 and Jan. 25, 2011 to tender their shares.—Wendy Diller

Novartis/Alcon: On Dec. 15, Novartis AG finally acquired the remaining 23% of eye care company Alcon Inc. that the Swiss-pharma giant didn’t already own. Alas, the announcement, which requires Novartis to pay independent shareholders the same average share price it doled out to Nestle, came without much fanfare. (In what was surely an oversight given the months it took to finalize the transaction, there were no pipers piping or drummers drumming.) The deal, which is a stock swap, will cost Novartis another $12.9 billion, driving the total price of the Alcon acquisition to $51.6 billion. In dollar terms, that rivals the mega-mergers of Pfizer/ Wyeth, Merck/Schering and Roche/Genentech. Is an ophtho company worth that much? The beauty of a deal is always in the eye of its beholder, but this particular therapeutic sector is enjoying a renaissance. Ophthalmologists are a technically savvy bunch, so having a strong device presence will likely help Novartis leverage its existing ophthalmics medicine business, which along with consumer-focused CIBA Vision and Alcon will be folded into a new eye care unit run by Alcon CEO Kevin Buehler. – Lisa LaMotta & EFL

Deals Of The Week Gets Exclusive

Commitment is such a weighty decision, isn’t it? Whether it’s high schoolers obsessed about going steady or 30-somethings who stay over three nights a week but refuse to stash their extra underwear in an available drawer, making the choice to be exclusive is hard. What if things don’t work out? Gulp.

In biopharma land, exclusivity is no less thorny a subject, especially when it relates to options-to-acquire. This week news comes that Novartis, which alongside Cephalon remains one of the most active in inking this specific flavor of option-based deals, is at it again. On November 11, Novartis said it had taken an option either to buy San Diego-based Aires Pharmaceuticals outright or license the biotech’s mid-stage treatment for pulmonary arterial hypertension called Aironite.

Along with the option announcement, Aires said it reeled in a $20 million Series B financing, enough money to finish Phase II trials of Aironite, a nitric oxide prodrug that causes vasodilation and has anti-inflammatory properties. Novartis didn’t officially take part in the financing, but it has ties nonetheless. That’s because the new investor, MPM Capital, made the investment out of its MPM Bio IV NVS Strategic Fund (try saying that three times fast), a side-car fund backed by—you guessed it—Novartis. Existing Aires backer ProQuest Investments also participated in the round.

Details surrounding the option are murky. We know that Novartis paid a separate fee for the right to acquire Aires after it successfully completes Phase II studies of Aironite and, all-in, the deal price could reach $250 million. But the price of the option remains undisclosed, as do values for the initial acquisition payment and the regulatory and sales milestones.

Since its formation in 2007, the MPM/Novartis fund has signed at least eight option deals, including the recent Aires transaction, according to Elsevier’s Strategic Transactions. The Aires deal hews closely to a familiar formula designed to give Novartis an advantage at the deal-making table. Except for the overall buy-out price, the Aires news is reminiscent of Novartis’ March 2009 option-to-acquire Proteon Therapeutics for up to $550 million. That deal, contingent on Proteon’s ability to demonstrate proof-of-concept with its Phase I/ II recombinant human elastase, was also announced concurrently with the first tranche of Proteon's $50 million Series B financing.

Given the cash constraints privately-held start-ups face, option-type deal making has become more common. Such deals might cap investor upside, but the additional non-dilutive cash and greater certainty of an exit mean it’s an offer investors have a hard time refusing.

But as anyone who's watched a Mafia flick can tell you, "hard to refuse" isn't the same as "popular." Some VCs and biotech executives worry that the Novartises of the world will try and wiggle out of the pre-agreed upon terms that trigger an alliance or acquisition. Indeed, there is recent precedent.

In 2007, Radius optioned its mid-stage osteoporosis medicine, BA058, to Novartis for $10 million. According to the terms of the deal, once Radius announces Phase II data for BA058, the big pharma has 90 days to evaluate the information before making a go/no-go decision. At the end of the option period, Novartis can say “no” and walk away, leaving Radius to shop the product to anyone they want, or “yes” and trigger the pre-negotiated deal. The thing is, Radius announced its Phase II data in August 2009, and there’s been no nay or yeah about the option in the intervening period. Math may not be this blogger’s strongest suit, but even a nine-year old can calculate that a decision from Novartis is a year overdue.

Indeed, there’s little clarity on whether any of the options associated with the MPM/Novartis fund have actually been exercised, even though a number of them have undoubtedly reached critical decision points. Does Novartis’ decision regarding BA058say anything about the long-term viability of the option model?

Maybe yes. Maybe no. (Depending on the daisy--er, asset-- it's a little bit like playing effeuiller la marguerite.)Given current uncertainties in the marketplace, it’s a fair bet option-style deal making isn’t going away. And for the cynics in the readership, there are happy endings: Purdue Pharma and Cephalon recently exercised prior options associated with their respective tie-ups with Infinity Pharmaceuticals and BioAssets Development Corp.

Ultimately commitment is a leap of faith—or at least a flying leap. Here at IN VIVO Blog we’ve got your exclusive line-up of deal making news. It’s time for another edition of…


Clovis Oncology/Clavis Pharma: News flash! IN VIVO Blog has learned that several other firms were also involved in this deal: Cleavis, which is working on DNA repair mechanisms; Clyvis, an under-the-radar Scottish start-up; and Clivus, with the latest advances in phrenology! Of course we jest. The real deal here is just between Clovis and Clavis, announced Nov. 11, and it expands upon the November 2009 tie-up that saw Clovis pay Clavis $15 million upfront for partial rights to CP-4126, a reformulated gemcitabine currently in Phase II for pancreatic cancer. The reformulation with Clavis's Lipid Vector Technology aims to promote gemcitabine uptake in patients with low levels of the nucleoside transporter protein hENT1, which normally allows gemcitabine into cancer cells. Several studies suggest a significant percentage of pancreatic cancer patients, perhaps up to 67%, have low levels of hENT1, and the partners are working on a companion diagnostic to sort low- from high-hENT1 patients. With the expanded deal, Clovis pays $10 million immediately for full global rights, plus $30 million in Asian milestones and up to $165 million in sales milestones. Clovis is still on the hook for the $365 million in milestones attached to the development and commercial rights it originally bought for North America, South America and Europe. -- Alex Lash

GlaxoSmithKline/Xenoport: The partners on the restless-leg syndrome (RLS) treatment Horizant said Nov. 8 they had amended their February 2007 agreement to give the San Francisco Bay Area biotech the right to pursue development of the drug for diabetic peripheral neuropathy (DPN) and additional indications in the US. All ex-US rights previously granted to GSK have reverted back to Xenoport, as well, and the firms have made undisclosed financial adjustments in milestones and royalty rates to reflect the new responsibilities. GSK remains responsible for US approval of Horizant – formerly known as Solzira and burdened with a track record of clinical and regulatory misses – for restless-legs syndrome and post-herpetic neuralgia. The drug failed a Phase II trial for DPN in 2009, then FDA rejected Horizant for RLS in February 2010, issuing a complete response letter and prompting investors to bail on Xenoport. But FDA has accepted GSK's response and has issued a new PDUFA date of April 6, 2011. Under the original deal, GSK paid Xenoport £40 million upfront, promised up to £298 million in milestones, and sales royalties. -- A.L.

Eli Lilly/Avid Radiopharmaceuticals: Lilly announced a deal this week, but not the blockbuster M&A investors have been hankering for. Even as ratings agencies downgrade the Indianapolis pharma, Lilly is sticking to its strategic guns, replenishing its pipeline with bite-sized transactions centered on late-stage assets. The company’s decision Nov. 8 to purchase Avid Radiopharmaceuticals, a privately-held diagnostics company that specializes in the detection of chronic diseases through brain imaging, is further evidence of Lilly’s mindset. It also shows that despite the risks of Alzheimer’s drug development (semagacestat, anyone?), Lilly still believes in this therapeutic arena. Lilly will pay $300 million upfront to acquire all outstanding shares of Avid and another $500 million tied to regulatory and commercial milestones to get its hands on the biotech’s molecular imaging agent, florbetapir F18, which is pending FDA approval. While such a large sum isn't unusual for a biotech with a late-stage asset in a valuable therapeutic area like oncology, it's almost unprecedented in the diagnostics arena, where M&A targets generally have marketed assets and are acquired not by drug companies but by fellow diagnostics specialists. Given the risks associated with Alzheimer's, technologies that help prevent costly late-stage failures like semagacestat are worth a premium. And Lilly, determined to push forward its remaining Phase III Alzheimer's drug, the antibody solanezumab, certainly can’t afford to repeat its semagacestat outcome. But those peculiarities mean the startling deal price for Avid is likely the exception rather than the rule. Meantime, Avid’s backers, which include Safeguard Scientifics, Alta Partners, Pfizer Strategic Investment Group, and Lilly's own corporate venture group, can celebrate a tidy exit. Based on the deal’s upfront alone, investors stand to realize an estimated 4x return on their venture, having put in just under $70 million since Avid’s 2004 founding. -- Lisa Lamotta and E.L.

Pfizer/Biovista: This week’s deal between Pfizer and Biovista illustrates yet again the thrifty mindset at work in the halls of the the biggest pharmas. To discover additional uses for existing compounds, Pfizer has inked a pilot research collaboration with privately-held Biovista that gives the big drug maker access to the service firm's proprietary datamining technology, which uncovers potential utility in various therapeutic areas, including oncology, ophthalmology, metabolic disease, and CNS disorders. Biovista will collaborate with Pfizer’s Indications Discovery Unit to identify up to three novel indications for each of the Pfizer candidates being evaluated. In return, Pfizer will pay Biovista an undisclosed upfront payment and success-based milestones. Biovista has inked numerous partnerships around its technology, including one earlier this year with the FDA to help regulators identify and understand the mechanisms resulting in adverse events. Biovista isn't content to remain a service play; in 2009, the firm started its own drug development program based on repositioned compounds in CNS diseases. Pfizer, meanwhile, continues to try to wring value from every compound in its research pipeline. This is the second repositioning deal the behemoth has inked in 2010 alone. In May, it announced it was teaming up with Washington University in a $22.5 million, five year collaboration designed to find new uses for a 500-compound Pfizer data set. -- E.L.

Image courtesy of flickrer dmixo6 under a creative commons license.

Novartis Gilenya Launch: The Importance of Health Care Reform

Since literally the day the Pharmaceutical Research & Manufacturers of America reached an agreement to contribute $80 billion-ish to health care reform, we have been calling the "dollars for donuts" deal a real coup for industry. We haven't let anything deter us. Not published estimates that the true cost is well north of $80 billion over 10 years, nor a series of big charges announced during quarterly earnings reports after the reform law was enacted.

We are ready to start feeling vindicated.

Exhibit A: Novartis' new oral MS therapy Gilenya, which, Bloomberg reports, is being launched with one of the most ambitious patient copay support programs yet attempted in the industry. In our view, the strategy Novartis is pursuing perfectly illustrates the advantages of the PhRMA deal.

How so? Because it shows off perfectly the two key advantages of the reform deal: pharmaceutical companies maintain control of their launch prices while simultaneously consumers are sheltered from attempts to impose price sensitivity on them.

Those twin advantages, in our view, more than make up for the deeper rebates, new Medicare discounts, and market share fee imposed on industry as part of the deal.

According to the article, Gilenya will be priced at $48,000 per year (or about $4,000 per month). That is a hefty premium to the injectable beta interferons widely used for MS, more in line with the pricing of Biogen Idec's Tysabri, which is limited to patients sick enough to risk PML associated with the therapy.

Gilenya may cost more than Avonex, but it won't feel that way to patients: Novartis will be covering copays for all Gilenya users (except in states where that is not permitted), up to $800 per month.

Suppose every commercial managed care plan decides to slap an $800 (20%) copay on the brand? That will reduce Novartis' net price to something more in line with Avonex--while avoiding any meaningful cost-sharing on behalf of the patient that might provide an incentive to chose the older therapy.

That's pretty nifty, but what does it have to do with health care reform?

Well, at the risk of stating the obvious, Novartis can set its own price for Gilenya because there are no federal price setting mechanisms in the US. That easily could have been part of the reform law; after all, a breakthrough drug pricing board was one key element of the Clinton health care reform proposal two decades ago. So Novartis doesn't need to tie its price to existing therapies, benchmark to overseas prices, negotiate on QALYs or anything else.

True, the health care reform law ratchets up the one price control that already exists in the US (Medicaid rebates). But if manufacturers control launch prices, they can build in the deeper mandatory discounts to that program. And Medicaid remains completely free of consumer price sensitivity, since there are only de minimis copays for drugs.

In addition, health care reform limits the ability of plans to respond to Novartis' attempt to protect patients from high copays. One response by payors might be to set an extremely high copay to absorb the company's $800 per month and still create price sensitivity among consumers. Not gonna happen. Thanks to health care reform, there are limits on cost-sharing that health plans can impose.

Last but not least, there is the validation of Novartis' copay support plan for the centerpiece of the PhRMA deal, a 50% discount on brands in the Medicare Part D "donut hole." Copay support programs are prohibited in Medicare and other federal programs (except via bona fide, third-party charities). So Novartis' program isn't available under Part D.

Instead, the company will be required by law to offer a 50% discount for beneficiaries exposed to the donut hole.

Low-income Medicare beneficiaries already have essentially no copay under Part D, and the discount doesn't apply to them. But those who do face the Part D cost sharing will be exposed to much less out of pocket spending, thanks to the discount program and the already generous catastrophic coverage of Part D.

At $4,000 per month, Gilenya patients will blow through the donut hole quickly, but the discount program will save them about $1,800 while they do. The net patient cost will be on the order of $5,000 for a year's therapy--not cheap, but not unbearable for a highly effective oral MS drug.

And, given that Novartis is offering commercial patients $9,600 per year in copay support, it is hard to argue that the 50% donut hole discount is a hardship to the company. In fact, we are willing to bet that Novartis' only regret about that aspect of the deal is that the company can't give a 100% discount in the donut hole.

Of course, as health care reform phases in, the taxpayers will start to kick in additional coverage in the donut hole.

We said it before and we will say it again: there is a lot for Big Pharma to love in health care reform.

Deals of the Week Meets "The Outlier"

This statement may amuse you, coming on the heels of Abbott's mind-boggling $450 million up-front payment to license ex-US rights to Reata's bardoxolone in chronic kidney disease: in 2010, alliance upfronts are declining.

Reata's upfront haul is surely a giant among men (more on the deal below). But a look at all alliances signed by the industry's larger companies (big pharma, big biotech, large Japanese and European co's, and spec pharmas) over the past four years show that not only are alliance upfronts decreasing, but fewer deals are being signed overall (approximately 20% fewer).

We presented the chart below at this week's Pharmaceutical Strategic Alliances meeting in NYC, as part of a dealmaking overview. The data (which are through August 2010) suggest that at least in terms of deals where financials were disclosed, pharma is becoming more cost-conscious. This isn't really a surprise -- we're seeing more option-alliances and earn-out heavy acquisitions than ever before, and payments on the front end are bound to suffer.

But Reata's impressive terms around bardoxolone again show that there will always be assets that cause a stir, and a bidding war, and a blogger to exclaim 'holy crap that's a lot of money!' Reata retains sole possession of bardoxolone's US rights and will fund its Phase III development itself. Even so, this cash should allow it plenty of breathing room to get through NDA filing and -- if all goes well -- toward a US launch.



Abbott/Reata: Upfront payments on licensing deals have trended downward lately, but Abbott Laboratories is headed full-steam in the opposite direction. Abbott made an enormous $450 million upfront commitment to Reata Pharmaceuticals’ Phase II renal disease candidate bardoxolone methyl. It's the largest upfront ever for a Phase II product, especially given the deal is only for ex-US rights. (It also doesn't include rights in certain Asian countries that Reata has already partnered away.) Milestone payments could add $350 million to the deal, plus Reata gets royalties on sales in Abbott’s territories. Bardoxolone, an antioxidant inflammation inhibitor, has shown promise as a potential disease-modifying drug that can reverse the effects of chronic kidney disease; Reata is preparing to present Phase IIb data at the American Society of Nephrology conference in November. A Phase III trial in the coming months will further study bardoxolone's effect on glomerular filtration rate, the amount of filtered fluid passing through the kidney per unit of time. Abbott also took a minority equity stake in Reata, whose backers include Cardinal Investment's CPMG, Novo A/S, and Texas firms Ojai Goliad and StarTech Ventures. Abbott already markets Zemplar, a hyperparathyroidism treatment for renal patients, in 24 countries. As Abbott tries to move itself away from its dependence on the TNF-alpha drug Humira, it's been opening its checkbook, especially for early and mid-stage assets. Recall late in 2009, it spent $170 million to acquire PanGenetics' Phase I NGF inhibitor; in March the big pharma paid a 61% premium to purchase Facet Biotech, a PDL Biotech spin-off, developing the Phase II multiple sclerosis drug daclizumab; this past June the company spent $75 million to in-license Neurocrine Biosciences' Phase IIb gonadotropin-releasing hormone (GnRH) antagonists for women's and men's health. And don't forget the purchase of Piramal's health care solutions biz for $2.12 billion upfront and another $1.6 billion over the course of four years to establish a significant beachhead in India.--Paul Bonanos

GlaxoSmithKline/Dendreon:It may be a happy problem for a young company launching its first product to have: Demand for the new prostate cancer therapeutic vaccine Provenge is likely to exceed supply, and the company that makes the drug, Dendreon, has limited production capacity. Dendreon is a small biotech, after all, and its ability to ramp up and manage the supply of Provenge has been a serious concern for patients and investors since the vaccine launched in May. In response, the Seattle-based biotech has turned to a big pharma, GlaxoSmithKline. According to a Securities & Exchange Commission report filed on Sept. 21, the companies signed a development and supply agreement September 15, in which GSK will supply the antigen used to make Provenge to Dendreon. (Okay, so technically this is a deal of last week.)The first supplies are slated for delivery in August 2011. Sales of Provenge, which Dendreon launched last spring, were $5.2 million in July and $2.45 million in June.--Wendy Diller

Warner Chilcott/Novartis: Warner Chilcott took full control of the U.S. sales and marketing of Novartis’ overactive bladder drug Enablex (darifenacin) in a $400 million deal announced Friday September 24. The Irish specialty pharma already had a co-promotion agreement with Novartis for the drug, but scrapped that alliance and replaced it with the new one. Warner Chilcott had obtained some rights to Enablex through its $3.1 billion acquisition of Procter & Gamble’s prescription drug business in August 2009; P&G had shared promotion of Enablex with Novartis since 2005. Recall Novartis acquired the drug from Pfizer in 2003. In 2009, Enablex sales in the U.S. were $190 million, of which Warner Chilcott was entitled to a share; it also incurred advertising, promotion and selling costs for the drug. Under the new agreement, Warner Chilcott will take full responsibility for sales and marketing of Enablex in the U.S., and will assume control of its manufacturing within three years. A milestone payment could add $20 million more to the new deal as well.--PB

Novartis/Alnylam: In our “no deal” of the week, Alnylam announced Sept. 23 that Novartis has selected a “full and final list” of 31 targets for which it will seek to develop RNAi drugs based on Alnylam intellectual property. That decision brings an end to a five-year partnership in which the two companies worked together to identify and advance RNAi therapeutics for a range of undisclosed indications. Concurrently, Novartis also declined to exercise an adoption license for Alnylam’s RNAi technology platform, which would have brought the biotech an additional $100 million. According to Alnylam CEO John Maraganore during a Sept. 24 investor call, Novartis determined that the 31 programs it will undertake at the Novartis Institutes for Biomedical Research will keep it plenty busy for next several years. To date, the five-year collaboration has brought Alnylam about $125 million in proceeds, both in the form of research funding and equity investments – Novartis currently holds a 13.4% ownership stake in the biotech. The partnership also funded about 25 full-time equivalents annually, Maraganore said. With the partnership’s expiration Oct. 12, Alnylam plans to reduce its workforce by 25% to 30%, he said, enabling the company to position itself for “continued growth, success and focus on the highest value activities.”—Joseph Haas

DOTW: Biogen Deal Means Sunshine and Rainbows For Knopp Investors

It's tough times for biotech investors, not much disagreement there. But in covering one of the deals of the week, we found a bright spot. The deal was Biogen Idec's purchase of rights to Knopp Neurosciences' Phase II ALS treatment for $80 million upfront, a sum comprised of a $20 million license fee and $60 million for equity in the privately-held Pittsburgh firm.

Knopp told our Pink Sheet colleagues that the $80 million was in essence more than it needed for its ongoing operations. Its lead drug, KNS-760704 for ALS (also known as Lou Gehrig's disease -- although a new study questions whether Gehrig had his eponymous disease or something else) is now in Biogen's hands, and the smaller firm is back to discovery work.

Instead of squirreling away the extra cash for a rainy day, however, Knopp gave it back to its investors, which are a mix of low-profile institutional investors, angels and family foundations. "Ah!" we thought, our little reptilian deal-brains churning, "An exit via license! How exotic!"

But no. The investors who got the distribution kept all their equity. Every last dime, according to Tom Petzinger, a former Wall Street Journal-ist who runs the firm's business development and public affairs. It wasn't an exit, and it wasn't a share buyback (or a private version thereof). Nor did shareholders sell to Biogen, whose $60 million equity purchase was from the company itself. It was, basically, a one-off dividend, or as Petzinger put it, "taking care of our investors."

Indeed, it was a case of Knopp saying this is your money, not ours. 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.

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

Imagine that: a biopharmceutical startup in 2010 happily giving up cash that, for now, it doesn't need.

by Alex Lash

Medco/United BioSource: Any doubts about the importance of outcomes-based research in the post-health care reform era, look no further than Medco’s August 16 announcement that it plans to acquire the Bethesda, Md-based information services company United BioSource Corp. (UBC) for $730 million. The tie-up gives the pharmacy benefit manager a new business capability--drug outcomes based research for biopharma companies--that's likely to be a valuable service in the comparative effectiveness era in which we now reside. Among other things, UBC is the market leader in designing and conducting risk evaluation and mitigation strategies (REMS) for new medicines. UBC says it has been involved in the design, implementation and/or assessment of more than 60 REMS and predecessor programs, known as risk minimization action plans. In addition to safety and risk management, UBC focuses on health economics and outcomes research, including drug cost-benefit and cost-effectiveness analyses. UBC also brings Medco the capacity to conduct post-approval research in Europe and Japan. Medco's deal with UBC is more strategic in nature than recent moves by CVS Caremark and Express Scripts, PBMs which have aimed to add volume by acquiring large chunks of business from insurers. In July, CVS Caremark announced a 12-year contract with Aetna to manage duties previously handled by the insurer's internal PBM covering 9.7 million plan members. That followed Express Scripts' outright purchase of WellPoint's internal PBM, NextRx, which handles pharmacy benefits for about 25 million.—Cathy Kelly

Aspen/Sigma: The beleaguered Australian-based health care firm Sigma finally bought its way out of a jam, inking a deal this week with South Africa-based Aspen Pharmacare. Under the terms of the deal, Sigma, which is the largest pharmaceutical manufacturer by volume in Australia, will sell its its pharmaceutical group to Africa’s largest drugmaker for 900 million Australian dollars ($811 million). In hiving off the branded and generics drug unit and its most profitable division, Sigma will once again become a wholesale distributor; it will also be able to retire its total debt burden of A$785 million ($654 million). Sigma ran into trouble after spending $2.2 billion to acquire generics maker Arrow in 2005, with write-downs associated with that transaction resulting in a A$389 million loss for the 12 months to January 31, 2010. Interestingly, even though Aspen already has operations in Australia, the company has also commited to a long-term supply, distribution and logistics agreement with Sigma. According to sister publication PharmAsia News, opinions about the deal’s value vary, in part because the continued relationship between the two companies carries execution risks for Aspen. There are risks for Sigma as well, including whether the Aussie company’s new CEO Mark Hooper can find growth in a generics-free company. —Daniel Poppy

BioMarin/ZyStor Therapeutics: In a move to bolster its orphan drug pipeline, BioMarin Pharmaceutical has acquired enzyme replacement specialist ZyStor Therapeutics of Milwaukee for up to $115 million in upfront and milestone payments. As with many recent buyouts of private startups, the deal is back-end loaded, with a modest upfront payment of $22 million plus a $93 million earn-out. As part of the deal, announced August 17, BioMarin gets ZyStor's ZC-701, a novel therapy to treat the inherited enzyme deficiency Pompe disease, as well as a platform to create additional future enzyme replacement therapies. BioMarin says ZC-701 features a faster development timeline and lower projected development costs than its in-house candidate for Pompe disease, BMN-103. (Both compounds are in pre-clinical development.) The deal illustrates the new math currently in operation at many venture-backed companies. In order to advance ZC-701 through proof-of-concept, ZyStor would have had to raise a much larger round of capital; instead ZyStor’s backers, chiefly a syndicate of Midwestern venture firms, chose to sell. Given the $22 million upfront, ZyStor investors got their money back, but only just. The step-up multiple was a meager 1.5x, meaning the deal value was only 50% more than the amount of cash raised privately. Add in the earn-out, and the multiple could rise to 7.9x, higher than the average return for private biotechs acquired in 2009. Alas, BioMarin wouldn't discuss the duration of the earn-out or the timing of specific milestones, except to say that one $13 million payment will be made when the first patient is enrolled in ZC-701's Phase III trials.—Paul Bonanos

Novartis/Quark: Novartis has agreed to pay Quark Pharmaceuticals $10 million for the option to later in-license QPI-1002, a systemically delivered synthetic siRNA currently in Phase II for prevention of acute kidney injury in patients undergoing major cardiovascular surgery and for prophylaxis of delayed graft function in patients receiving kidney transplants. The companies revealed few details of the Aug. 18 agreement. The exercise fee and milestones for '1002 could reach $670 million but Quark CEO Daniel Zurr was not able to break down those biobucks more specifically or say when Novartis' option kicks in. Of course there are royalties on net sales too--if a drug ever reaches the market. In an interview with The Pink Sheet DAILY Zurr could only say he was "quite happy" with the royalty rate. (Gives you the warm fuzzies doesn't it?) Also left unanswered is what this week's tie-up means for Novartis' ongoing collaboration with Alnylam, under which the two companies are developing RNAi candidates in a variety of therapeutic areas. Originally a three-year agreement, Novartis has extended the Alnylam partnership twice for one year, with a termination date coming in October. At that time, Novartis will have to decide whether to non-exclusively license the Alnylam platform and further increase its ownership stake in the RNAi pioneer.--Joseph Haas

Life Technologies/Ion Torrent: This week’s acquisition of Ion Torrent by Life Technologies, for $375 million in cash and stock, continues the flurry of recent activity among gene sequencing instrument providers, who are continuing their march into the next generation of technological innovation. Seven weeks ago, Roche’s 454 Life Sciences bought up rights to IBM’s nanopore-based single molecule sequencing program, and just before that, Pacific Biosciences aligned itself with Gen-Probe. PacBio subsequently completed a $109 million Series F, including $50 million from Gen-Probe, and this week it also announced an IPO filing. Another player, Complete Genomics, filed for an IPO at the end of July and also just raised $39 million in a Series E. Did someone say “Building a war chest?” Unlike its more visible competitors, Ion Torrent’s Personal Genome Machine (PGM), which should hit the market in 2010 and sell for less than $100,000, is still kind of a black box: its capabilities are largely unknown. The heart of the PGM is a novel chemical detection system that directly measures the change in pH after a nucleotide incorporates into target DNA, using what is basically a semiconductor chip layered with an ion sensor. The company, founded by 454’s founder Jonathan Rothberg, gave a splashy demonstration of its machine at the February 2010 Advances in Genome Biology and Technology meeting on Marco Island. But it has not provided specs for the PGM, nor has there been any public third-party validation of the system from early access users. Nonetheless, because of the PGM’s novel detection system and semiconductor-based manufacturing, Ion Torrent has created quite a buzz, fueled in part by its LeBronian unveiling at Marco Island. Unlike PacBio and Complete Genomics, for example, which use optical detection, Ion Torrent could create a different set of users for gene sequencing. “For reasons of cost and footprint, I think that chemical detection-based sequencers can extend toward the clinical setting,” says Leerink Swann director of research, John Sullivan. That said, according to Life Technologies, the initial application for the PGM will be the life sciences [research] market.—Mark Ratner

Abbott/SkyePharma: Back in January FDA declined to approve Skye’s Flutiform fixed-dose combination asthma product, instead issuing a complete response letter. After a June meeting with the agency it became clear the companies would need to conduct additional clinical trials. On August 20 the other shoe dropped, with Abbott backing out of the Flutiform deal (one originally signed by Kos back in 2006 for $25 million up-front and renegotiated slightly by Abbott in 2008), penalty free. Skye hasn’t given up on the project, according to a statement, but won’t be taking home a break-up fee to keep it warm during those cold English summer nights, either. The therapy remains under review in Europe, where--perhaps luckily for Skye--“the regulatory approach is different from the United States,” the release notes. If Skye sees a path forward in the US it’ll try to sign up another marketing partner. For now, nobody seems surprised by Abbott’s decision – yet SkyePharma’s shares still slid 5% on the news.--Chris Morrison

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

Let's Dance But Be Practical: Novartis at Euro-Biotech

Novartis is structuring more of its product and company acquisitions so that its risks are shared with the seller, Novartis Pharma’s CFO Jonathan Peacock told a crowd at Elsevier Business Intelligence’s 17th annual Euro-Biotech Forum meeting in Paris, France, this week.

An example of this is its acquisition of privately-held Corthera earlier this year, where Novartis paid $120 million as an upfront payment, with an additional $500 million linked to key milestones.

The company is also keen to acquire products that complement its current portfolio, like the recent acquisition of a broad-spectrum antibiotic from Paratek, Peacock said. The compound is active against methicillin-resistant Staphylococcus aureus (MRSA), and complements Cubicin, another antibiotic in Novartis’s portfolio.

But whenever Novartis does a external licensing deal or acquisition, its strict resource allocation rules means that something has to go from the internal R&D portfolio, Peacock noted. Resource allocation decisions are tough, but Novartis is getting better at making them, he contended. Licensed products are nevertheless important to the company – around 30% of its in-market sales come from licensed products.

As Novartis faces one of the biggest patent cliffs beginning in 2012, when its bestselling Diovan is certain to face generic competition, it expects to make up for a proportion of the lost revenues through a rejuventated line of new products and growth in emerging markets. The company is waiting for regulatory approval of Gilenia, the first oral drug for multiple sclerosis.

Peacock pointed out the bulk of Novartis' new products will be targeted therapies, which start out with narrow indications that can be broadened over time. Asked whether he thought Novartis was truly interested in licensing products with smaller sales potential, the company exec said that there was always a degree of uncertainty over sales potential, pointing to the company’s own experience with Glivec, which became a multi-billion dollar product having originally been forecast to be a much smaller selling medicine.

Another key change in Novartis’s business practice –aimed at changing market access dynamics--is that it is becoming more a “key account” management business than a sales-force driven business, according to Peacock.

The company is developing a “more granular” understanding of what is happening in each region, and is allocating resources to more profitable sales territories, away from nonprofitable territories. Its U.K. sales force is probably a third the size it was a few years ago for example, he said, adding that commercial restructuring can improve sales and profitability, if it is done correctly. Given the nuances and variations in territories, it has experimented with a variety of pilot programs to achieve the right balance. --John Davis