Deals Of The Week: The ASCO Edition

ASCO is just moving into full swing, but already the press releases are flying fast and furious. Biotechs have long looked to this meeting as a means to showcase their smarts and increase their profile with public investors. But as big pharmas have set their sights on oncology as the therapeutic area of choice -- given its high unmet medical need and, historically, generous reimbursement, there's no doubt ASCO is now a critical meeting for even the biggest players in the industry.

Like last year, the particular tumor type driving a lot of investor interest at this year's Chicago confab is melanoma. Since presenting robust Phase III data at ASCO 2010 showing a survival benefit for Yervoy, Bristol-Myers Squibb has gone on to win rapid approval for its CTLA-4 inhibitor. This year, investors and clinicians will be watching for new data measuring Yervoy efficacy in pretreated melanoma patients; they'll also be monitoring the data associated with Plexxikon/Roche's vemurafenib, which is pending FDA approval for use in patients with the BRAF V600 mutation, a specific genetic abnormality observed in about 50% of melanoma patients.

As "The Pink Sheet" Daily notes, it's not entirely clear how the melanoma market will shake out when both products are finally on the market. They may be competitors, but given their different modes of action -- Yervoy stimulates the immune system, while the Plexx/Roche drug targets only tumor cells that carry the V600 abnormality -- it's equally likely they could act synergistically. Certainly neither drug on its own works in all patients or offers a long-term cure, even if both extend median patient survival in clinical trials.

Thus, the news June 2 that Roche/Plexxikon would find a way to work with BMS to study the two drugs in combination seemed almost a fait accompli. The press releases issued (from three different companies no less) were long on breathless prose and short on detail: the parties will conduct a Phase I/II study evaluating safety and efficacy of the two drugs in combo, but did not provide more clarity on the trial's design, its timing, or its enrollment. "If appropriate, the companies may conduct further development of the combination," Bristol said in its press release.

You will notice there's also no information on the economic sharing that might come from such a clinical collaboration either. That's hardly surprising. We've yet to see much in the way of financial deets for earlier tie-ups in oncology: AstraZeneca's 2009 alliance with Merck to combine development of their respective clinical-stage MEK inhibitor and AKT inhibitor; or Sanofi's December 2010 deal with Merck Serono to marry their Phase I PI3 Kinase- and MEK-targeting molecules.

Despite the increasing complexity of the oncology market, one in which payers are taking a more active role in controlling costs, such cross-collaboration remains the exception rather than the rule. There are plenty of reasons why: issues around control, valuation, and overlap with other non-partnered products mean it can be tough for two large companies to come to agreement on how to share knowledge and find ways to work together.

That BMS and Roche have found a way to do so can only be a smart thing. The reality is organizations like US Oncology, Cardinal's P4 Healthcare, and Via Oncology are going beyond traditional treatment guidelines recommended by the likes of ASCO and the National Comprehensive Cancer Network, working with payers to provide "clinical pathways" that aim to standardize treatment for a specific disease or tumor type. Aimed for now at treating the most costly cancers, these programs, which are still in pilot mode at major players like Aetna, Blue Cross Blue Shield and Highmark, reduce the wide latitude US doctors have historically enjoyed when prescribing oncologics.

The ultimate impact of these pathways on the biopharma industry isn't yet known, but as we write in this IN VIVO feature, their advent has real consequences for how companies should approach drug development. And while it's very early days to be talking about a melanoma pathway, doing clinical trials to show the merit of your drug in conjunction with a competitor, when it's highly likely to see real-world use in such a combination, just makes sense. (We also wonder how this impacts GSK's Phase III melanoma drugs, its MEK1/2 inhibitor and its BRAF protein kinase inhibitor. Can these earlier stages medicines get traction in the current competitive marketplace? GSK certainly hopes so, and has its own combo trials ongoing.)

Will we see more cross-company clinical stage oncology pair-ups in the future? We hope so. Could such alliances be broader and extend beyond on-offs to a ViiV type arrangement? We're doubtful given the deal making complexities and nearly every pharma's desire to be tops in oncology. But as crazy as that idea sounds, it'd be a clear choice for 2011's DOTY.

In the interim, we always have ASCO (if not Paris) and...

Clovis/Pfizer: Attention biopharma trend watchers! We bring you this news flash of another sighting of that rare bird in the wild: the out-licensing. On June 2, Clovis announced it was licensing Pfizer's Phase I/II Poly (ADP-ribose) polymerase (PARP) inhibitor, PF-01367338, for an undisclosed upfront sum. Under the terms of the agreement, Clovis Oncology will take over responsibility for global product development and commercialization, and in addition to paying the u/f, will owe Pfizer additional downstream fees milestones totaling up to $255 million (pending success in the clinic and commercially, of course). Interestingly, as part of the out-licensing, Pfizer Venture Investments is taking an equity stake in the biotech. (So it's a licensing AND a financing in one blow.) Not that Clovis is hurting in the cash department. Recall Clovis, a START-UP A-lister, pulled in one of the biggest Series As EVUH in 2009. PARP inhibition is, of course, a hot topic at ASCO, and a quick search of the pipeline database Inteleos, shows there are more than a dozen drugs in development against this target, including some that are much further along, including Sanofi's iniparib (Phase III, originally developed by BiPar), AstraZeneca's olaparib, and Cephalon's CEP-9722. The press release announcing the news emphasizes '338 is a "potent" PARP inhibitor, so it's a bit curious that Pfizer would give it up unless its trying to walk the talk of jettisoning anything not first-in-class or best-in-class. (But that raises other questions, including what does Clovis see in the compound?). Separately, Clovis also announced this week plans to develop in concert with Roche an in vitro PCR-based companion diagnostic linked to EGFR mutations.--EL

Johnson & Johnson/AVEO: Months after partnering its lead asset tivozanib in a lucrative deal with Astellas, Aveo has extended its network of partners with an early stage deal with Johnson & Johnson's Centocor Ortho Biotech division. The Cambridge, Mass.-based biotech announced the licensing deal for compounds targeting the RON (Recepteur d'Origine Nantais) receptor - believed to play a role in cancer development - for $15 million upfront May 31. Under the deal, Aveo will receive half of the $15 million in an upfront payment and the rest through a separate equity investment that gives J&J a 1.25% stake in the biotech. Given the early-stage nature of the deal, it's not surprising the arrangement is back-end loaded, with Aveo eligible to receive up to $540 million in development, regulatory and commercial milestones. Aveo will also receive tiered, double-digit royalties on sales of any products stemming from the collaboration. Centocor will be responsible for clinical development, manufacturing, commercialization and costs. J&J will also fund some research to be conducted by Aveo to identify biomarkers for patients most likely to respond to treatment with RON-targeted antibodies. "It is about building out a portfolio," said Aveo Chief Business Officer Elan Ezickson of the collaboration in an interview with "The Pink Sheet" DAILY. For J&J, the deal provides access to what could be an important product in oncology, an area of critical importance to the big pharma's overall business success. -- Jessica Merrill

AstraZeneca/Heptares: (Spoiler alert. No oncology refs in this deal.) UK biotech Heptares Therapeutics signed its third Big Pharma agreement in two months this week, this time with AstraZeneca. The two companies have entered into a four-year research collaboration to discover and develop new medicines that target G-protein coupled receptors (GPCRs). AstraZeneca will have worldwide commercial rights to product candidates emerging from the collaboration, with Heptares receiving $6.25 million in unconditional upfront payments plus committed research funding and future milestones. Heptares will also receive royalties on product sales. Research teams drawn from both companies will focus on a number of GPCR targets known to be linked to CNS/pain, cardiovascular/metabolic and inflammatory disorders. The deal brings to more than $13 million the total upfront money that Heptares has received from its pharmaceutical partners this year, which together add an extra 18-20 months to the biotech's cash runway, according to CEO Malcolm Weir. It also represents further validation for the four-year-old company's technology, which helps stabilize GPCR molecules. That AstraZeneca is modality-agnostic in this deal - purporting to seek both small- and large-molecule candidates - reflects the growing importance of the Big Pharma's MedImmune biologics subsidiary within its overall R&D operations.--John Davis
Johnson & Johnson/Diamyd: J&J's Ortho-McNeil-Janssen (OMJP) signed one early stage deal this week -- and called it quits on another. It was barely a year ago when Elisabeth Lindner, then President and CEO of the Swedish diabetes outfit Diamyd, pronounced on a quarterly earnings call that "a new chapter has begun" as a result of the firm's $45 million upfront licensing agreement with OMJP. That chapter closed on June 1, when OMJP returned all rights to the Phase III GAD65, an antigen-based therapeutic vaccine designed to preserve beta cells in type 1 diabetics. A big disappointment to Diamyd and its shareholders, the news can hardly be called surprising. (We're even tempted to say the writing was on the wall.) On May 9, the two companies reported clinical trial data from a European pivotal study, showing GAD65 failed to meet the primary efficacy endpoint of preserving beta cell function in new diagnosed Type 1 diabetics after 15 months of therapy. Although the company noted "a small positive effect was seen", the data weren't good enough to keep OMJP engaged -- and, importantly, willing to shoulder any additional development costs. Recall the 2010 deal stipulated the two partners would share R&D costs until results of the first Phase III study were available, at which time OMJP had the option to assume full development of the drug candidate. It can't be an easy message to give shareholders, but Diamyd's acting president and CEO, Peter Zerhouni (who replaced Lindner after her abrupt departure in late April) did his best to spin the news positively. "With all the rights to returned to us we are free to decide on how to extract the most value from GAD65 going forward," he said. Whether Diamyd can sign a new partner near term is unclear -- a therapeutic vaccine for diabetes is scientifically risky and it's hard to see a lot of interest after the disappointing Phase III study results. (Even Diamyd doesn't seem that interested. In the wake of OMJP's decision it announced it would shelve a planned longer term follow-up of patients in the European trial.) Investors may have more clarity on GAD65's potential partnerability by end of June -- at the upcoming ADA meeting Diamyd will present data on the European trial, presumably providing greater detail about the small positive effect. There's also a Phase III ongoing in the US due to read out in 2012 and two other externally funded studies that may yet result in the vaccine's resurrection.--EL

Deals Of The Week: Outsourcing

Stop the presses! Pfizer has done the unthinkable! The Big Pharma has upended its huge R&D operation!

Reading the headlines and tweets May 26, this blogger anticipated a dramatic pronouncement from Pfizer's head of R&D Mikael Dolsten explaining exactly how the behemoth intended to strengthen its "innovative core." But we were pretty sure Pilates wasn't part of the prescription.

It was just three months ago, after all, that newly installed CEO Ian Read announced sweeping budget cuts to the R&D organization and hinted that certain business units might be ripe for spinning out. But the R&D changes announced Thursday was more ho-hum than a humdinger.

In fact, it wasn't even an R&D shake-up at all. What Pfizer has instead done is winnow its myriad clinical service providers from 17 (!) to 2, moving to a system that is less about buying clinical trials capacity than it is about buying expertise. "We think that expertise can actually help us execute trials more effectively, faster, and with better quality, which will ultimately lower costs," Pfizer's SVP of development operations John Hubbard told "The Pink Sheet" DAILY.

With the looming patent expiration of Lipitor coming in November, there's no doubt Pfizer must cut costs. But it's hardly clear how much Pfizer will actually save via its newly announced preferred provider relationships with Icon and Parexel. It's not as if the drug maker is outsourcing significantly more of its total research and development work to outside organizations after all, a move that would allow for additional job eliminations -- and cost reductions -- in the R&D organization.

According to PSD, Pfizer will increase the percentage of clinical trials work it outsources by only about 10%, with the move really designed to streamline the management of vendors, something Hubbard admits is "complex." Thus, consider this not a revamping of how R&D is done but a consolidation of already outsourced development work into the hands of just a few players. As such, the move sounds a lot like Sanofi's broad 10-year collaboration with Covance. Announced last year, that alliance also met with sweeping headlines but was in reality a more prosaic realignment designed to reduce the complexity of managing development work.

We aren't saying Pfizer's newly announced arrangement isn't noteworthy-- or smart. We're just saying its iterative rather than innovative. (And, maybe, just plain old common sense.)

What's really smart about the set-up is that Pfizer didn't pick just one preferred provider. By signing on two different CROs (can we now call them clinical repair orgs?), the drug maker has created a situation that fosters competition. Financial details of the two new partnerships, which start in June and last until 2016, haven't been disclosed, but Pfizer is apparently keeping a scorecard that benchmarks how well Icon and Parexel each execute on their assigned trials. And as Pfizer gathers data on quality, timeliness -- and perhaps most importantly cost -- that means it can pit the two service providers against each other, potentially further increasing efficiencies. Five years from now, you can imagine CROs jockeying for position to be the next preferred vendor. To merit an alliance, such outfits will be forced to guarantee they can deliver "x" by time "y", and it will only cost "z".

It's a new kind of pay-for-performance arrangement -- and it's definitely a step in the right direction.

But it's far from the sexy R&D shake-up proclaimed in the blogosphere -- and still far from what Pfizer (or any other big pharma, quite frankly) needs to do to solve its moribund R&D productivity problem.

As for the larger changes afoot in Pfizer R&D, it's anybody's guess what model (or what acronym), the drug maker will pursue. We hear CEDDs are out and TAUs and TSUs are the new fashion. (Don't forget OI -- for open innovation -- either. JNJ's promising its externally driven model will yield fruit -- and plenty of products for regulatory approval by 2015.)

Whatever. To be honest, the acronym that most excites us is B-B-Q. Before you quaff your first summer pale ale of the holiday weekend, remember to read...

Elan/Proteostasis: Elan's tie-up this week with Proteostasis replicates last year's mega Celgene/Agios tie-up on a smaller scale. The new deal, potentially worth $50 million to the privately-held Proteostasis, requires Elan to pay $20 million upfront as well as $30 million for R&D expenses over the next five years. In return, the developer of the blockbuster multiple sclerosis drug Tysabri (natalizumab) gets a 24% stake in the U.S. biotech, seats on its board of directors and scientific advisory boards, and the first right to license any neurodegenerative compounds that come out of the collaboration. Yeah, that's right. The privately-held co. has agreed to an option-style deal that gives Elan first dibs on its potentially novel disease-modifying drugs in return for the security of funding. The deal is the first industry collaboration Proteostasis has signed since its splashy debut in 2008: a $45 million Series A financing from high-profile investors, including HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund, and Genzyme Ventures. (Hmm, wonder what happens to any Novartis options as a result?) The company has stayed under the radar in the interim, using the time and considerable financial backing to build its platform, which is designed to target the biological pathways that regulate the correct folding or placement of proteins within a cell. (For more on protein folding and disease, check out this still-relevant Start-Up feature.) Proteostasis' molecules are still preclinical but the new alliance with Elan could accelerate the biotech's clinical development plans; that's because it marries the biotech's discovery technology with Elan's proprietary animal models, biology, med-chem and clinical development capabilities. --EL

Eli Lilly/BioCritica: Attention biopharma insiders! We interrupt your regularly scheduled programming to bring you news of that rare species observed in the Rx wilderness: the spin-out. On Monday May 23 came news that Eli Lilly was spinning out US development and commercial rights to its commercially underwhelming sepsis drug Xigris to private investors Care Capital and NovaQuest Capital. The new private company, which has been christened BioCritica, will focus initially on the continued development of Xigris but the ultimate goal is to create a portfolio of critical care medicines. To bolster its pipeline, BioCritica has the option to in-license other critical care compounds in preclinical development at Lilly as well as the right to acquire ex-US rights to Xigris. In exchange, Lilly will receive royalties on US sales of the drug and an equity stake in BioCritica. The financial terms of the agreement were not disclosed.The decision to shed Xigris reflects Lilly's effort to focus development resources, according to the company. Though Xigris has been available commercially since 2001, its sales have not met Lilly's or Wall Street's expectations and Lilly has had a spate of expensive late-stage development snafus. BioCritica will continue Lilly's work on identification of the best uses of the controversial treatment, which has serious bleeding side effects and questionable efficacy in the broad sepsis patient population.--Jessica Merrill

Medco/Exagen: Can Medco do for methotrexate in rheumatoid arthritis what it's done for warfarin in the blood thinner market? An interesting alliance announced Monday May 23 between Medco's research institute and the privately-held Exagen Diagnostics shows that it is going to try. Exagen, which has raised a minimal amount of venture money since its 2002 founding, has developed proprietary software to discover and create predictive molecular tests that can aid in disease diagnosis, prognosis, or predict a likely treatment response. One of its tests, Avise PG, helps doctors and patients monitor the effectiveness of low-dose methotrexate therapy in rheumatoid arthritis patients. The oral anti-folate is, of course, decades old --it was first introduced as an oncologic in 1947 and became an important part of the RA armamentarium in the 1980s. And compared to newer TNF-alfa injectables like Humira or Remicade or Simponi the drug is definitely a cost-effective choice for treating the auto-immune disease. The problem is that establishing the right dosing regimen for patients isn't trivial, since individuals metabolize the medicine so differently. (Hmm, methotrexate's profile is starting to sound a lot like another cheap, effective, but difficult to use medicine: warfarin.) And if docs can't get the dosing right in a defined period of time, the default is to move to the costlier biologics. For payers who are increasingly concerned about the cost of specialty products -- and RA is an area of intense interest these days -- new tests that can promote the use of older, cheaper drugs are an obvious solution. But there's got to be data showing the utility. Enter Medco, whose research arm will recruit around 400 patients to participate in a pilot study (called Nimble) gauging the usefulness of Avise in RA patients beginning methotrexate therapy. Docs will send patient blood samples to Exagen's lab, which will conduct the Avise test, and report back on appropriate dosing; outcomes data will be compared to a similar cohort of patients who don't receive the Avise PG test. Why should the drug industry care? Medco's been resurrecting warfarin, conducting a series of observational studies gauging the utility of the medicine plus the genetic test versus newer, pricier drugs like Pradaxa. If the Medco/Exagen team can demonstrate the same utility for methotrexate, it's bad news for newer RA meds, creating a higher bar for adoption with payers.-- EL

Valeant/Sanitas & Watson/Specifar: Need growth? Try a branded generics firm in Central or Eastern Europe. That's the message from a duo of deals this week, both acquisitions by hitherto US-focused firms – and the first of more to come as US growth shrivels up, according to those familiar. Barely a week after Takeda finally confirmed it was forking out €9.6 billion to buy Nycomed, whose attractions also included its strength in CEE and Russia, Canadian specialty pharma Valeant announced it was paying €314 million cash for Lithuania's listed Sanitas, and Watson snapped up Greece's privately-held Specifar for €400 million, plus earn-outs linked to a tablet form of Nexium due to launch in some markets later this year. Europe's ultra-tough pricing and reimbursement environment may make it a graveyard for growth in innovative drugs, but there's plenty of upside in generics, particularly of the branded, specialist kind. The battle for Germany's ratiopharm, ultimately won in March 2010 by Teva, was one of the more high-profile asset-grabs in this field. Valeant had to pay almost four times' sales for Sanitas, a healthy multiple that reflects what was a "dynamic" auction process, according to someone close to the deal. The attraction: for starters, development prowess in dermatology, ophthalmology and hospital injectables (niche, high-margin drugs), formulation expertise, some pipeline, and a portfolio that's 80% non-reimbursed (thus circumventing the government pricing pressures). The deal furthers Valeant's stated goal of doing at least five ex-US deals this year, and follows the February 2011 acquisition of PharmaSwiss, which provided a commercial infrastructure in Eastern Europe. If Sanitas shareholders think they did well, how about Specifar's: Watson appears to have paid over five times 2010 revenues for this group, based in a country whose economy is falling apart and where generic penetration is one of the lowest in Europe. Most of Specifar's revenues come from developing and out-licensing products worldwide, and it’s highly profitable, according to a source involved in the deal. So Watson has paid for a European R&D engine to bolster the sales infrastructure and starter revenue-base it started to establish via its $1.8 billion cash and stock deal in 2009 for Western-European based Arrow. --Melanie Senior

Nestlé/Prometheus Labs: Via its newly formed Nestlé Health Science subsidiary, global food products conglomerate Nestlé SA is buying specialty pharma and diagnostics provider Prometheus Labs as part of its goal of developing personalized nutrition strategies that will help in the management and prevention of chronic health conditions, according to the company’s announcement of the deal. Prometheus, which had been looking to go public, generated revenues of $519 million in 2010 including $316.5 million from the sales of the glucosteroid Entocort EC for Crohn’s disease, which Prometheus licensed from AstraZeneca for the US market in 2004. Prometheus also began distributing Novartis’ cancer drug Proleukin in the US in February 2010, which brought in $64 million. The diagnostic services business, comprising GI tests to differentiate irritable bowel disease (IBD) and Crohn’s from other disorders and oncology services to guide the use of targeted therapies, accounted for $81.3 million for the year, according to an S-1 amendment filed in February 2011. The companies are silent on the deal price, which an analyst cited in a Bloomberg report put at somewhere north of $587 million. Nestlé has also recently added Vitaflo, a maker of nutritional products aimed at individuals with genetic disorders that affect how the body processes food, and CM&D Pharma, which produces IBD, kidney disease, and cancer-related nutritional foods. But unlike those others, the Prometheus acquisition is aimed at the physician market. Nestlé is one of several food and consumer products companies thinking about ways it can leverage its marketing and distribution capabilities to deliver medical diagnostics and personalized medicine. Unilever has engaged the VC firm Physic Ventures to explore opportunities in the area, and for years, Procter & Gamble has maintained a notable presence at personalized medicine meetings. – Mark Ratner

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

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.

At Allicense, VCs Avoid The Creep

If Tuesday’s discussions at Deloitte Recap’s Allicense conference focused on how VCs are putting their money into new biotech companies, Wednesday’s sessions dealt largely with the challenges they face in getting their money out – and what they’re doing about it. Privately-held start-ups are continually struggling with structured buy-out deals that delay full liquidity. Those few companies that can go public must debate internally whether to partner their assets beforehand, a variable that may not be as validating as once thought. And some have even looked for liquidity through creative asset-based financing arrangements that provide returns without an M&A deal or a public listing.

As Cooley LLP life sciences partner Barbara Kosacz pointed out during an afternoon panel, the weighting of earn-out deals has shifted heavily toward milestone-based biobucks, a trend she doesn’t see turning around anytime soon. “It used to be the icing, not the cake,” she said, postulating that a $500 million upfront deal with a $100 million earn-out is largely a thing of the past. Now, she says, “we have creep” – a series of incremental shifts that have devalued upfronts and placed more weight on contingencies that may never materialize.

In tandem with the shift have come more complicating factors, as various panelists noted: retention of original management, earn-outs booked as liabilities, and diligence clauses that can lead to potential conflicts over whether the buyer did its best with its acquired assets. Former Calistoga Pharmaceuticals chief business officer Cliff Stocks, whose company sold to Gilead for an impressive $375 million upfront in February, even suggested that sales royalties could increasingly come into play as an earn-out component, with shell companies being set up to collect royalties and redistribute them to selling stakeholders. It'd be yet another way M&A deals will continue to take cues from licensing arrangements, as they have for some time.

Though the IPO market has been difficult for years, another afternoon session zeroed in on the companies that can get reach the public markets – and whether their partnerships have been a boon or a liability. Moderator Michael Brinkman explained that where partnerships were once seen as validation, more current prevailing wisdom is that a good asset is worth holding onto completely. Indeed, just two IPOs since the beginning of 2010 had significant partnerships – Ironwood's multiple geographic carve-outs for linaclotide and Zealand with Sanofi – with the remainder going solo. While the few companies with partnerships commanded slightly higher valuations, and most panelists agreed that a pharma partner’s diligence goes deeper than any retail investor's would, Anacor CEO David Perry pointed out that partnering can add risk too, in the event that the licenser changes its priorities.

As far as creative asset-based financings go, we’re no stranger to mouse antibody platform developer Ablexis’ one-of-a-kind Series A deal that looped in five pharma partners to provide its VC investors with eventual liquidity, obviating the need for an IPO or M&A deal to provide returns. That agreement, which featured an LLC structure to avoid double taxation of proceeds passed back to investors, took our Roger award for Exit/Financing Deal of the Year in 2010, and was discussed at length in a morning panel. Pfizer Venture Capital’s Barbara Dalton, who backed Ablexis alongside Third Rock Ventures in the $12 million round, affirmed that such arrangements aren’t for every company, and are best suited for “variations on a theme”-- companies that add value to known science. Does Pfizer still view it as a good deal? “I’m looking forward to more transactions like this one,” she said.

Deals Of The Week: Managing Expectations

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

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

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

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

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

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

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

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

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

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

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

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

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

DotW:Talk Is Cheap; Debt Is Cheaper

Sanofi-Aventis set the debt world aflutter (or is it atwitter these days?) with its massive $7 billion bond offer this week. We'll spare you the gory details; suffice to say there are six tranches and a mixture of fixed and floating rates (tied to the low low 3-month Libor of 0.31). The most important thing to keep in mind? The highest interest rate Sanofi could be paying? 4%.

With debt that cheap who needs to invest in R&D?

It's a relevant question. The only story generating more ink these days than Sanofi/Genzyme (which still manages to capture a weekly headline or two thanks to ongoing production snafus), is Big Pharma's R&D crisis.

Just this week GlaxoSmithKline's Witty took to The Economist with an op-ed about the perils of industrializing the drug model and the need to think (and act) smaller via a new kind of research environment. (Our take on that model is here.) The March IN VIVO has an article of a similar vein from Bernard Munos, the former Lilly exec, who's been one of the leaders in the debate on how to move big pharma out of its R&D slump.

Still, if you believe analyses by McKinsey and other consultancies that calculates the internal rate of return for in-house small R&D at 7.5% at a time when the cost of capital is around 10%, and balance that against the low cost of debt, you start to wonder. It sure seems like big pharmas might be better off in the short term shelving R&D in preference for a more -- how shall we put it? -- transactionally driven approach.

As much as big pharma likes to talk about the intrinsic value of R&D, the real problem for many biopharma players -- and Sanofi definitely falls in this camp -- is bridging the patent chasm looming as blockbusters like Plavix go generic. To solve that problem you don't need R&D, you need products with near-term revenue. A platform for growth is nice, but as the Genzyme purchase shows, $4 billion in annual short-fall is a lot nicer -- and more attractive to investors who are often weighing not whether to invest in Pfizer or Roche of Sanofi but whether to invest in pharma versus IBM and General Electric.

Certainly if debt stays this low, Deals of The Week! ought to continue to be a happening place. And you can't quibble with our value proposition. IN VIVO Blog is one of the few things cheaper than the current borrowing rate, something to consider as you peruse this weeks offering...

Teva/Procter & Gamble: Sanofi-Aventis, which has been snapping up consumer health outfits small and large --think Chattem--for the past two years, may have some competition. This week comes news that the Israeli giant Teva is joining forces with P&G (known to midwesterners as Procter & God --they make diapers so you can understand the appellation) to create an ex-US-focused over-the-counter J/V. Teva doesn't have a sizable presence in the OTC space currently, but P&G does, with its so-called "personal health care" business generating around $2.3 billion in 2010, mostly in the US market. According to execs at the two companies, combined ex-US sales of their OTC products were more than $1 billion in 2010, with projections soaring north of $4 billion in a "a few years." As part of the deal, Teva gains access to P&G's leading OTC brands, including Metamucil and Pepto-Bismol. In exchange, P&G said it will benefit from Teva's broad geographic reach, its manufacturing capability and portfolio of 1,500 active ingredients. Teva has a stronger distribution network to pharmacies, whereas P&G has a stronger network to food and mass retail outlets. P&G is a recognized world leader in consumer brand marketing, an expertise Teva plans to tap. But while the consumer space is hot -- Sanofi isn't the only big pharma avidly interested in selling medicines direct to consumer -- the real rationale for the deal may be in creating a powerhouse well positioned to move Rx products to OTC. It could be tough to beat a Teva/P&G juggernaut in the switch, given Teva's R&D capabilities and P&G's brand equity. Sanofi's Chattem, beware.--Jessica Merrill & EFL

Cephalon/Gemin X: When Cephalon announced March 21 it was buying privately-held Gemin X in a deal worth $225 million upfront, the twitterverse erupted, with at least one biotech watcher tweeting -- and we are paraphrasing -- "one of these days CEPH will buy a company I've heard of." You may not know Gemin X from Adam, but it's true the specialty pharma has a penchant for seeing value in companies Wall St. finds arcane. Mesoblast? Ception? BioAssets? The Gemin X deal gives Cephalon two mid-stage oncology assets, including the pan-Bcl-2 inhibitor obatoclax, which will help bolster an aging franchise dominated by CLL therapy Treanda and cancer pain treatments Fentora and Actiq. Given obatoclax's Phase IIb status, the deal's price tag seems to be at a discount to acquisitions of other oncology players with assets at similar stages of development. In particular the upfront is about 60% what Gilead paid for Calistoga to obtain that privately-held biotech's selective PI3 kinase inhibitor. Nor is this take-out providing Gemin X's dozen or so backers, which include Sanderling Ventures, HBM Partners, and ProQuest-- much of a return. The upfront price is about $100 million more than the company says it raised in private venture money since its 1998 founding.--Lisa Lamotta & EFL

Sanofi-Aventis/The Vision Institute: So pharma’s sharing-caring, all-embracing, academia-targeted R&D approach continues: Sanofi Aventis this week added two further public-private partnerships to its research network, one on each side of the pond. The first was a three-year R&D alliance with the Vision Institute in Paris, France (the second is a three-year diabetes tie-up with scientists at Columbia University Medical Center in the U.S.). The ophthalmology deal stems directly from Sanofi’s 2009 purchase of eye-disease focused biotech Fovea, which is based on the Paris premises of the Vision Institute. Created in 2008, the Institute houses research teams from several of France’s top-ranking research centers, and is located within the Quinze-Vingts National Ophthalmology Hospital. Its director, Prof. Jose-Alain Sahel, helped found Fovea in 2005. Not content, it seems, with owning Fovea – now the Big Pharma’s ophthalmology division – this deal grants Sanofi “priority access” to the Vision Institute’s technological platforms, and commits the Big Pharma to supporting research projects in the areas of optical nerve regeneration, vascular biology, inflammation and gene therapy in various eye tissues. Sanofi will get exclusive global rights to anything resulting from the collaboration, and pay royalties. Fovea’s pipeline includes two Phase II compounds for retinal vein occlusion- induced acute macular edema and allergic conjunctivitis, respectively; Sanofi also has some pre-clinical gene-therapy candidates in eye-diseases from a 2009 deal with U.K. biotech Oxford BioMedica. It’s not clear how many Sanofi scientists are involved in the Vision Institute tie-up, nor what their hoped-for goals are for the three-year partnership. But the emphasis on translational R&D, the highly fashionable magic mix of private and public research, and on co-location – a driving force behind the creation of the Vision Institute as well as this deal – remind us of Pfizer’s flavor of public-private partnership, the city-based Centers for Therapeutic Innovation.--Melanie Senior


Merck/Portola: Is Merck still king in cardiovascular? In mid-January the big pharma pulled the plug on Phase III trials of its anti-clotting agent vorapaxar (remember, that was one of the major assets of the Merck-Schering reverse merger?). Now comes news that Merck is giving back to partner Portola Pharmaceuticals full rights to the Phase-III ready oral Factor Xa inhibitor betrixaban. The reason? Apparently a pipeline review. (Makes you wonder, huh?) Oh, we know the oral anti-coag space, one of the few arenas where you can point to drugs with blockbuster potential, could be a tough one to conquer if you're as far behind development-wise as betrixaban is. Boehringer Ingelheim's direct thrombin inhibitor Pradaxa is already on the market in the US and Europe; two Factor Xa inhibotors -- J&J/Bayer's Xarelto is pending with US regulators and apixaban (from Pfizer and BMS) is a not too distant third -- are next in line. In today's cost-constrained environment is there room for a fourth warfarin replacement? Maybe, but the drug won't just have to be superior to warfarin; coming so late to market, it's likely it would also have to be a damn sight better than the newer agents OR priced at a significant discount. And given the size of Phase III trials required to demonstrate the safety of cardiovascular drugs, pricing at a discount could be a money losing proposition.) Portola put a brave face on the news, talking up the advantages of having a wholly-owned Phase III asset and its desire to work with academic partners like Duke Clinical Research Institute. But the privately-held company, which has raised over $200 million in venture capital and debt since 2003, only has a $100 million in its coffers. Can it afford to run the Phase III trials on its own? Will its venture backers support such a decision? No and probably not. (In prior statements, Portola's CEO Bill Lis has estimated pivotal trials in just one indication could run as high as $400 million.) In the meantime, Portola and its venture backers have to be hoping partner Novartis, which paid $75 million for rights to the anti-thrombotic elinogrel doesn't have a change of heart.--EFL

Merial/Intervet: A little over a year after Sanofi-Aventis and Merck revealed they would combine their respective Merial and Intervet divisions to create the top dog in animal health, the pair decided to call the whole thing off. The logistics in settling anti-trust concerns are just too complicated to make the planned J/V worthwhile. It's not as if these anti-trust issues are new; since the 2010 announcement, market analysts have predicted a consummation would only occur if the companies divested assets worth about $500 million, much in the poultry vaccines arena. (In this case getting rid of the chicken would have had to come first.) In a joint statement, Merck and Sanofi announced each company will retain its current, separate animal health assets and businesses.There is no break-up fee and Sanofi and Merck will cover their individual expenses for the past year’s diligence. (Isn't it nice when a planned deal unwinds so easily?) --Joseph Haas

Image courtesy of flickrer Steve Rhodes via a creative commons license.

What Biotech Wants From Big Pharma Partners: Survey Says!?

With Big Pharma's internal R&D productivity in the proverbial toilet, business development plays a critical role in securing drugmakers' future wellspring of innovation. Thus, what biotechs think of pharma as partners matters, perhaps more than it ever has before.

Two companies that can pat themselves on the back? Roche and Merck & Co., who took home top honors as best partners in a recent survey of biotech execs published by the Boston Consulting Group.

GSK, Novartis, Eli Lilly and Pfizer also scored well, with one biotech – Celgene – sneaking onto the leader board with the third-highest proportion of respondents having a favorable impression of the company’s partnering capabilities. (Celgene's appearance shouldn't surprise our blog readers; in our 2010 Deals of the Year competition, the biotech, whose deal making prowess will be analyzed more completely in an upcoming IN VIVO feature, chalked up wins in two different categories.)

The BCG survey is the fourth in a series, following similar efforts in 2003, 2006 and 2008. The goal, says BCG partner Simon Goodall, is to determine the key characteristics companies are looking for in a partner, and which buy-siders are best fulfilling those wishes.

The survey was sent to about 500 heads of business development and chief executives during the summer of 2010, and the results are based on approximately 100 responses. Interestingly, BCG found that changes in Big Pharma corporate leadership could impact the perceptions of potential biotech partners quite quickly; despite Chris Viehbacher’s short tenure at Sanofi-Aventis, for instance, biotechs believe the French pharma is a more attractive partner because of its more outward-looking focus.

Moreover, views of Roche and Merck were not hurt by their respective mega-acquisitions of Genentech and Schering-Plough. And Japanese companies – which scored poorly in earlier surveys and were largely indistinguishable in potential partners’ view of their characteristics – have made great strides both as a group and individually. Several now score above the average overall.

“In 2003 the results told us that everyone was awful,” recalls Goodall. Less than one in three companies received a positive overall response from BCG’s list of biotech partners. Those results improved in 2006, and again in 2008, with nearly half garnering positive responses. At the same time the list of biotech ‘wants’ shifted from solid commercial capabilities to a willingness to allow biotechs to retain control over their assets. At last reckoning, in 2008, the full impact of the financial crisis was yet to be felt by the biotech community, says Goodall. “They felt they wouldn’t be as badly affected as pharma,” he says.

The financial meltdown and its impact on the biotech financing climate have helped to shape biotechs’ current wish list of important partner characteristics. In 2010, practical considerations like clinical and sales/marketing capabilities, alongside a partner’s ability to add value to a biotech’s compound, rose to the top of the list. Fuzzier characteristics, including ‘responsiveness during the deal negotiation process’, ‘fit with corporate culture,’ and ‘alliance management capability’ faded in importance. Even so, “organizations are thinking more carefully about how they project a partnership image,” says Goodall. “There’s a careful orchestration and coordination and companies are recognizing they need to make decisions more quickly, and be more efficient.”

BCG has not divulged the “losers” in its survey (feel free to ruminate in the comments below), and so we’ll have to make do with analyzing which pharma companies performed the best against key characteristics in the eyes of the respondents.

Ranked as a percentage of responders that agreed a company exhibited particular criteria, Roche struck gold in four categories, as the company is most associated with deal structure flexibility, executive leadership, alliance management, and manufacturing expertise. Merck led in five categories: responsiveness, BD/licensing group access, therapeutic areas of interest (tied with Novartis), control over development, and ‘develop and prosper,’ a metric related to post-deal success.

Pfizer and Novartis took honors in three categories apiece. Novartis took the prize for TAs of interest, regulatory capability, and research expertise. Pfizer excelled in global reach and access/reimbursement, as well as in an area it would perhaps rather forget: ‘pay highest price.’

Price tags aside, on the whole it appears that industry is moving in the right direction -- and when business development is companies' best hope at securing the next generation of important, valuable drug candidates, that's good news for everyone.

UPDATE: you can request a copy of the survey here.

Deals Of The Week Breaks For March Madness

It really is a mad, mad, mad, mad world. Libya. Yemen. Japan.

The relentless worrisome news is enough to drive this blogger to the madness that is the NCAA. (I suppose I could tune into the unceasing Kate/Wills show on BBC and TLC instead, but there's at least another 6 weeks to indulge that craving.)

For now, however, I'll have to make do with Deals of the Week. (EBI's corporate parent frowns a wee bit on live streaming during work hours, even if it allows one to make artful pop culture references.) And thankfully, there are plenty of suprises, setbacks, and leadership changes to make biopharma worthy of its own bracketology.

We'll return to weightier matters on Monday. For now it's time for...

Human Genome Sciences/FivePrime Therapeutics: On March 16, one week after winning FDA approval for Benlysta (belimumab), the first new lupus drug in 50 years, Human Genome Sciences inked a $50 million deal for rights to FivePrime's lead pipeline candidate, FP-1039. FP-1039, an inhibitor of the fibroblast growth factor (FGF) pathway that may be key to survival and proliferation of solid tumors, has been well tolerated in safety studies and is now being tested in endometrial cancer patients. No word yet if HGS will continue down that clinical path or prioritize other cancers. There are several members in the FGF family; FivePrime said its molecule inhibits most of them, with preclinical work showing strong inhibition of angiogenesis related to FGF and VEGF. The license agreement, extremely lucrative for an asset that hasn't yet dosed in Phase II, gives HGS development and marketing rights in the US, Canada and European Union. In addition to the $50 million upfront payment, HGS will pay FivePrime $445 million in potential milestones, plus double-digit tiered royalties on net sales. The biologic will slot into HGS's clinical pipeline, which beyond Benlysta includes monoclonal antibodies for anthrax, cancer and ulcerative colitis. -- Alex Lash

Seattle Genetics/Millennium: With their antibody-drug conjugate brentuximab vedotin heading toward an FDA approval decision this year, Seattle Genetics and Takeda Pharmaceutical's Millennium have extended their partnership to include an undisclosed second antigen target. The firms did not reveal financial terms, but Millennium will be responsible for all R&D and commercialization of the compound, with Seattle due milestones and single-digit product royalties on worldwide sales. That's different from the b. vedotin collaboration, in which Seattle Genetics has retained US and Canadian commercial rights, with Takeda/Millennium responsible in the rest of the world. Buoyed by positive data in its pivotal trials, b. vedotin inhibits CD-30 and was submitted in February for approval for relapsed/refractory Hodgkin lymphoma and relapsed/refractory systemic anaplastic large cell lymphoma. If approved, the medicine would be the only antibody-drug conjugate on the market, as Pfizer's Mylotarg was removed last year after post-market studies showed serious safety concerns. Other companies, including ImmunoGen and Roche's Genentech group, are pushing ADC technology through the clinic with the hope that the antibody conjugates, which consist of a cell-killing payload tethered to a tumor-homing antibody, provide strong cancer-fighting properties without the drastic side effects of chemotherapy. -- AL

Sanofi Aventis/Genfit: If it were ever in doubt, the high-profile failure of fat-buster Zimulti back in 2007 hasn't put Sanofi-Aventis off metabolic diseases – even outside diabetes. Zimulti's failure forced the French pharma to lean heavily on insulin treatment Lantus, and its moves to build a stronger diabetes franchise are well-documented. (Recall the French pharma’s deals with WellStat, CureDM, Metabolex, and its 2010 update of its 2003 Zealand Pharma alliance.) Most recently, on March 17, Sanofi Aventis signed a research contract with French biotech Genfit, hoping to identify molecules targeting the mitochondrial dysfunctions believed to be behind some metabolic disorders. Genfit has collaborated with both Sanofi-Aventis' predecessor companies since 1999. Back then, when Genfit trendily called itself a 'functional genomics' outfit, the biotech signed up Aventis to work on PPARa agonists in exchange for €5 million up front and some research costs; the same terms applied to a tie-up with Sanofi-Synthelabo in atherosclerosis. The latest pact sees Genfit, now described as experts in gene regulation and nuclear receptors, receiving annual payments to fund research, plus development, regulatory and commercialization-linked milestones that could, in a best-case, reach $54.5 million. Genfit's most advanced in-house compound, GFT505, is in Phase II trials for diabetes/pre-diabetes. –Melanie Senior

Merck/Ariad: Just last year , DOTW covered Merck and Ariad’s decision to revise their 2007 deal for mTOR inhibitor ridaforolimus, with Merck taking development control for the program and Ariad retaining an option to co-promote the medicine in the US and fielding 20% of the US sales effort. This week comes news that Ariad has opted in; and the announcement is worth noting for several reasons. When Ariad downsized its obligations in 2010, the move was about sacrificing long-term return in exchanging for securing its near-term cash runway. But if the company was seeking stability, reserving the right to co-promote provided a healthy compromise, allowing it to preserve some ownership of what could be an important revenue driver, rather than be reduced to sales milestone and royalty payments. Why is that important? For starters, even a 20% stake in ridaforolimus, an oral mammalian target of rapamycin that has the potential to be the first targeted agent for the treatment of sarcoma, is likely to be attractive to future acquirers--and that's above and beyond ridaforlimus licensor Merck. Indeed, with a pipeline of products in development including Phase II ponatinib, Ariad could catch the eye of bigger players looking to build their oncology pipelines. But with even big companies counting pennies, noone wants to leave money from marketed products on the table (or in the pockets of a competitor). Thus, while a co-promote may give existing partner Merck the lion’s share of the value, it still leaves enough to satisfy would-be buyers giving Ariad greater strategic flexibility. Want proof? Just ask Plexxikon, which managed to sell itself for a hefty price to Daiichi for its targeted melanoma drug PLX4032. –Ellen Foster Licking

Elanco/Janssen Animal Health: Elanco, the animal health division of Eli Lilly and Co. announced an irrevocable, unconditional offer March 14 to acquire Janssen Animal Health, part of Johnson & Johnson subsidiary Ortho McNeill Janssen. Financial terms were not disclosed. Belgium-based Janssen is focused primarily on Europe and would add a portfolio of about 50 products to Elanco’s line. Its products treat both companion animals and livestock, with an emphasis on poultry and swine. The deal would include no manufacturing facilities, but Janssen’s animal health employees would transfer to Elanco, which already employs more than 2,300 people and markets products in 75 countries. Elanco President Jeff Simmons said the transaction would provide synergies with current operations, as well. “Through this transaction, we intend to further expand our European presence, bolster our growing portfolio of companion animal medicines and diversify our food animal portfolio with new swine and poultry products,” he added. Elanco generated sales of $1.39 billion in 2010, 15% growth over 2009, and contributed roughly 6.0% to Lilly’s overall $23.1 billion in sales for the year. J&J does not break out sales data for Janssen Animal Health in its financial reporting. The sale would mean J&J’s exit from animal health, a space in which seven of 12 publicly traded big pharma companies currently play, led by Sanofi-Aventis, which generated €2.64 billion in sales last year, comprising 8.7% of its earnings.—Joseph Haas

Quest/Celera: Players of various stripes continue to snap up specialty labs, starting with GE buying Clarient last fall and Novartis bringing Genoptix into its molecular diagnostics fold in early 2011. Now, Quest is buying Celera for $671 million, or $344 million net of Celera’s $327 million in cash and short-term investments. For the money, Quest gets Celera’s Berkeley HeartLab (BHL) and its proprietary tests, as well as the smaller testing company's biomarker pipeline and R&D capabilities. The move is in line with Quest’s expansion of esoteric and gene-based test operations in cancer, CV, infectious diseases and neurology: less than a month ago, Quest snapped up Athena Diagnostics for $740 million, deepening its neuro testing channel. Celera has been limited by high infrastructure costs and commercial constraints and the BHL business should benefit from Quest’s distribution capabilities, including its patient service centers. Indeed, access to Quest’s patient service centers to perform phlebotomies and get the message out about new tests should accelerate growth. Celera will continue to operate independently and Ordonez and senior management will stay on. Quest no doubt values Celera’s pipeline as much as the tests Celera sells: Quest does not expect the deal to add to EPS for two years.—Mark Ratner