Deals Of The Week Presents Last Week's Deals

Not to go all eschatological on you, but this blogger owes the IVB readership a confession. Religious broadcaster Harold Camping's exhortations (and innumerable billboards and emails) announcing May 21, 2011 as the onset of the Rapture and the ensuing end-of-days offered this blogger an excuse to book out early to enjoy a last supper with friends and family. (At which there was much speculation about the soon-to-be revealed identities of the four horsemen.)

In the blogger's defense, the signs were all there. (And no, we aren't talking about cataclysmic earthquakes, the rise of either false prophets (Beck or Trump?) or the Mississippi River, or the sky-rocketing home prices in the Bay Area tied to LinkedIn's IPO.) How can you deny it's not the end of the world, when the Cleveland Indians are leading their division, Oprah's pulling the plug on her daily tv show, and reality stars like Jersey Shore's Snooki command speaking fees higher than Nobel prize winning writers?

Thus, in the hopes of cramming celebratory fun into the final hours of May 20 (we had until 11pm PT by dear Harold's calculations), DOTW seemed a wee bit, well, unnecessary.

In the face of Armageddon, who really cares about Shire's decision to diversify into regenerative medicine with its non earn-out purchase of Advanced BioHealing? (Dermagraft, after all, can't be used to treat the gnashing of teeth.) And, really, with the world absolutely ending on Oct. 21, it's not like Takeda needs Nycomed to bridge its 2012 Actos patent cliff. (Now if Nycomed sold an OTC product to repair the rending of hair, we might pay attention given its apocalyptic best-seller potential.)

Oh wait, it's Monday May 23-- and we're still here (and so is everyone else). Damn. That means we'll be writing this column until at least December 21, 2012, which REALLY, TRULY is the end of days. With apologies for our tardiness, it's time for another edition of...

Takeda/Nycomed: The Rapture may not have come to pass but Takeda/Nycomed did. On May 19, after a week of speculation and a press release warning journos not to get too hasty, Takeda announced its €9.6 billion ($13.6 billion) purchase of privately-held Nycomed. As IN VIVO Blog told you last week, the deal satisfies a number of strategic and financial imperatives for Japan's largest drugmaker, as it faces generic competition to best-selling diabetes drug Actos from 2012 and seeks to expand its footprint beyond Japan and the U.S. The deal doubles the Japanese firm's European sales, jump-starts its emerging markets presence and provide an immediate 30% revenue boost, increasing operating income by more than 40%, according to the company. Swiss-based Nycomed brings to Takeda not only the fruits of recently-launched chronic obstructive pulmonary disease drug Daxas, but also a more diversified product mix, including OTC and branded generics, regulatory expertise, and an entrepreneurial culture that Takeda President and CEO Yasuchika Hasegawa said he hoped could "vitalize" his firm. As such, the deal helps accelerate the 2011-2013 mid-range growth plan unveiled by Hasegawa earlier this month. The transaction – worth slightly more than initial reports suggested – values the Swiss-based Nycomed at about 3.4 times its 2010 revenues, excluding its U.S dermatology business, which is not part of the deal. The higher price tag means Takeda will take a ¥600-700 billion ($7.33 billion to $8.55 billion) loan to finance the deal, which is the largest yet in the Japanese firm's aggressive ongoing bid to expand its presence and pipeline through M&A. --Melanie Senior

Shire/Advanced BioHealing: Shire/Advanced BioHealing marks the return of the IPO as a stalking horse, a private M&A deal with NO earn-outs, and an ROI greater than 10x for certain investors. True venture like returns --it must be the end of days!! Just before its planned debut on the New York Stock Exchange, Advanced BioHealing instead agreed to a $750 million all cash offer from the specialty pharma Shire, which has a history of using acquisitions to jump quickly into new lines of business. With ABH, Shire dives into regenerative medicine, grabbing the commercial product Dermagraft, a patch that uses natural cells called fibroblasts to heal diabetic foot ulcers. (Dermagraft has a long and painful history, which you can read about in greater detail here.) The current deal builds on Shire's willingness to pay healthy premiums for companies that it sees as cornerstones to new lines of business. The most striking example is Shire's 2005 purchase of Transkaroytic Therapeutics for $1.6 billion, an acquisition that gave the pharma access to enzyme-replacement drugs for rare diseases and a technology platform for further growth. As part of Shire, ABH will be run as a semi-autonomous unit, with retention of top management one of the hoped for outcomes post-integration. The all-cash offer was a 25.6% premium to the amount ABH was expected to raise had it debuted at $15-a-share, the midpoint of its expected range. Since the IPO was reportedly oversubscribed and pricing was on the upswing, a public debut might have resulted in a larger return to investors -- eventually. Still, ABH's backers, which included Canaan Partners and Safeguard Scientific had to be more than satisfied with the terms-- and certainty of exit --offered by the Shire take-out. Canaan apparently reaped a 15x return on the deal, while Safeguard's ROI was a not too shabby 13x. -- Alex Lash and EL

Roche/Merck:The two current heavyweights in hepatitis C therapy got together May 17 with a plan to co-promote Merck’s newly approved protease inhibitor Victrelis , in what was widely viewed as an effort to squeeze upstart Vertex Pharmaceuticals out of the HCV market despite superior efficacy data for its protease inhibitor, Incivek. Boceprevir was approved by FDA on May 13; telaprevir's PDUFA date is today, May 23. Under the non-exclusive agreement, Roche reps will include boceprevir as part of their promotion to health care providers on the use of Pegasys in triple combination therapy for HCV. Pegasys, part of the current two-drug backbone of HCV therapy, commands about 80% of the peg-interferon market in HCV, far ahead of Merck’s competing product, PEG-Intron. Roche will not bundle boceprevir with Pegasys, however, and the deal does not preclude Merck from marketing its HCV drugs in a discounted bundle. (Nor does it preclude Roche from inking a deal with Vertex though analysts think that's unlikely.) The two peg-interferon products will continue to be marketed separately, both companies said, and Merck added that the collaboration will not affect the pharma’s economics for its new product. Merck and Roche, each of which has other HCV compounds in clinical development, also will test their compounds together in combination therapy trials.--Joseph Haas

Stryker/Orthovita: Yes, dear readers, a device deal, which means the rapture must be coming (even though Harold Camping's calculations this time around were off). In 2010 IN VIVO wondered if Orthovita, hit hard by scientific debate about the merits of vertebral compression fracture treatment and allegations of fraud, was giving up its grand dreams. Thanks to Stryker’s $316 million acquisition last week, its independent efforts at becoming the specialty spine player are over. But with a take-out price tag that included a 41% premium, did Orthovita's investors win? The deal allows Stryker to pair its existing hardware with Orthovita’s Vitoss bone graft and Cortoss bone filler. The former can be used along with Stryker’s spinal implants while the latter might serve as a hook to help sell Stryker’s new vertebral augmentation products, giving the med-tech giant another way to differentiate itself from Medtronic’s line of Kyphoplasty products, which use traditional bone cement polymethylmethacrylate (PMMA.)If Orthovita’s products live on, it's fair to say the company never recovered from a series of er, crushing (compressing?) blows. First, in 2009, New England Journal of Medicine published two studies suggesting vertebroplasty – the filling of fractured vertebra with cement (or Cortoss) – wasn’t an effective method of relieving pain from vertebral compression fractures. The studies were published just two months after the company received FDA approval for Cortoss. Then a Medicare fraud investigation by Department of Justice forced vertebral compression procedures to move from in-patient – where Orthovita’s Vitoss and other materials are currently used -- to outpatient settings. The shift caused problems with pricing and, analysts say, distracted Vitoss sales reps. In the end, economic pressures that have been a drag on the entire orthopedics sector also weighed heavily on Orthovita, which had high hopes that Cortoss sales would quickly ramp total sales to $300 million annually. -- Tom Salemi

ThermoFisher/Phadia: The European private equity firm, Cinven, is to exit ownership of the Swedish in vitro diagnostics company, Phadia, after four years by selling it to Thermo Fisher Scientific, reportedly more than trebling its investment in the process. US laboratory equipment manufacturer Thermo Fisher Scientific Inc. aims to strengthen its allergy and autoimmune disease diagnostics business by acquiring Phadia for a hefty €2.47 billion ($3.5 billion) in cash, announced May 19. (In case you are keeping track, Phadia was spun out of Pharmacia in 2004 when Pfizer acquired the parent company, and was acquired by Cinven in 2007 in a deal that valued the company at €1.285 billion.) Phadia markets complete blood test systems to support the clinical diagnosis and monitoring of allergy and autoimmune diseases and chalked up 2010 revenues totaling €367 million thanks to strong sales in Europe and emerging markets. Thermo Fisher is using a mixture of debt financing from Barclays Capital and cash to fund the Phadia acquisition, which is expected to complete in the fourth quarter, and be immediately accretive to Thermo Fisher's adjusted earnings per share. The deal completes a busy week for Thermo Fisher, which completed its $2.1 billion acquisition of Dionex on May 17 and one day later announced the $35 million purchase of UK player Sterilin.--John Davis

Image courtesy of flickrer WarmSleepy via a creative commons license.

Seeking Value: How Lower Prices Can Make Sense

Angus Russell is CEO of Shire PLC. Shire is a global specialty biopharmaceutical company with 4300 employees in 28 countries. He will be the keynote speaker at the BIO-Windhover/Pharmaceutical Strategic Outlook Conference taking place March 30 to April 1 in New York.

The current issues faced by health care systems globally can be summed up in an excerpt from Michael Porter’s recent article in Harvard Business Review entitled “Creating Shared Value” --

“From society’s perspective, it does not matter what types of organizations created the value. What matters is that benefits are delivered by those organizations—or combinations of organizations—that are best positioned to achieve the most impact for the least cost.”

Nearly every health care system around the world is facing tight budgetary constraints, which is having an impact on what those economies are willing to pay for medical innovations. In particular, payors are demanding tangible value for the medicines that biopharma companies hope to bring to market. This message became crystal clear as I traveled in the past year to many of the 28 countries where Shire has a presence and met with the various stakeholders engaged in the drug development process.

Today, it is no longer sufficient to hit a clinical endpoint. As evidenced by the recent decision in the UK by the National Institute for Health and Clinical Excellence (NICE) to decline reimbursement of several clinically-proven drugs due to their perceived high cost and low value to the UK health care system, health care regulators are taking a much more critical look at the cost of a medicine and its implied value to society.

Given the changing landscape, what can companies do to increase the likelihood that their product will not only be approved by regulators, but also receive reimbursement that enables them to be appropriately compensated for their R&D investment? While the answer to this one billion dollar question – a figure some estimate as the average cost to bring a product to market – remains under debate, what has become abundantly clear is that life sciences companies must take into consideration the needs of a much broader group of stakeholders, and clearly demonstrate the value to society that can be realized through the development of innovative treatments for unmet health needs.

Historically, physicians were seen as the gatekeepers to the successful commercialization of a product. Nowadays, it's clear to most companies that patients, caregivers, advocacy groups, policymakers and payors – in addition to physicians – are all important influencers in what we at Shire refer to as the Circle of Value. It is essential that we engage with these stakeholders regularly to hear, and address, their unique needs and to gain insight into a host of factors that can have a very real and direct impact on the success of a drug candidate, ranging from clinical trial design, to meeting unmet medical needs in the marketplace and assessing prospects of obtaining product reimbursement.

Thus Shire has expanded the teams that engage with patients, policymakers and payors, which has allowed us to listen more effectively to the needs of these groups and adapt our approach to drug development and commercialization activities. As an example, Shire conducted a number of focus groups with physicians around potential pricing prior to the launch of our Gaucher treatment Vpriv. The feedback indicated that it would be beneficial to all involved if Shire priced Vpriv lower than the other approved product on the market.

Shire's management ultimately secured a price for Vpriv that is at a 15% discount compared with the only other commercially-available product for this rare disease, even though the market conditions suggested Shire could potentially have secured a premium price. In addition, as part of our patient assistance program, Shire instituted a co-pay funding plan specific to Vpriv for eligible patients in the US.

Of course, the resources a company has at its disposal to serve these stakeholders can only be effective when there truly is a need in the marketplace for a specific medicine or device. Thus Shire's approach to drug development first identifies an unmet need in the marketplace and what a new product’s value proposition needs to be in order to be considered a success. Shire conducts comparative effectiveness research, including the standard-of-care for that condition, early in the clinical development process. By doing so, we seek to demonstrate the tangible value associated with a product candidate; if we cannot do so, our process allows us to make a decision to discontinue a program earlier — and with potentially several hundreds of millions dollars still in-hand.

Delivering true value to the health care system through a market-driven, multi-stakeholder approach is critical in today’s times. The better drug companies can demonstrate and deliver value, the more likely they are to receive the reimbursement needed to meet the high costs of developing their medicines, and thus to generate revenues to reinvest in R&D – all of which helps patients and their caregivers, and contributes to the health of society overall.