Deals of the Week's Dead Presidents Edition

As many Americans prepare for their three-day weekend celebrating the birthdays of two great Presidents, Deals of the Week cynically notes that a lot of Americans don’t really love their Presidents until after they’re dead – specifically, the ones whose visages have been enshrined on legal tender. Little Walter sang an amusing blues number about a nation’s love for currency and the commanders-in-chief who adorn it, conveniently glossing over the presence of several non-Presidents, including Alexander Hamilton and Benjamin Franklin, on commonly circulated bills.

It takes far more than even a rarely-seen Salmon P. Chase to get a pharma deal done, but sometimes it also takes more than mere dollars – or euros, pounds, or whatever you like – to keep everyone satisfied. Witness Sanofi-Aventis SA’s bid for Genzyme Corp., a once-hostile overture sweetened with contingent value rights, or CVRs – in this case, options for further payments based on regulatory and manufacturing milestones on Genzyme drugs – that could account for nearly a sixth of the deal’s value. The CVRs primarily relate to pipeline considerations, and a new study shows just how crucial they are to Sanofi and its peers.

According to a report issued Thursday by Bernstein Research’s Tim Anderson, Sanofi’s pipeline was expected to contribute less than 3% of its overall revenues by 2015, the smallest share among nine Big Pharmas studied – at least, prior to the Genzyme deal, which includes a potential blockbuster in multiple sclerosis. Bristol-Myers Squibb, by contrast, can expect nearly 18% to come from its pipeline by 2015, thanks to R&D spending approaching $4 billion annually in the coming years as well as a relatively small revenue base, according to Bernstein’s report. Meanwhile, Eli Lilly & Co. is expected to be among the biggest R&D spenders relative to revenue, though it can expect the fewest returns in total Benjamins from drugs currently in its pipeline, and only a middle-of-the-pack performance as a percentage of overall 2015 sales.

Where do exciting pipeline drugs come from when they're not homegrown? Why of course, it's...


Sanofi/Genzyme: Preliminary conversations between Sanofi and Genzyme last summer gave way to a publicly announced bid to shareholders in August, then a hostile overture in October, protracted negotiations in the following months, and finally a deal in February. The French pharma will pay $74 per share for Cambridge, Mass.-based Genzyme, along with CVRs entitling each shareholder to payouts based on drug development milestones for pipeline drug Lemtrada (alemtuzumab) for multiple sclerosis and production volumes for approved orphan drugs Cerezyme (imiglucerase) and Fabrazyme (agalsidase). While the $74 per share bid exceeded Sanofi’s rejected bid by $5, the CVRs are thought to have been the key to completing the deal, potentially adding $14 per share – $13 from Lemtrada milestones – to its value. Sanofi, whose massive diabetes franchise is balanced by diverse offerings including vaccines and soon-to-be-off-patent anticoagulant Lovenox (enoxaparin), gets Genzyme’s expertise in rare diseases, as well as its manufacturing capabilities. Though some believe it may have overpaid, the aggressive milestone timeline will bear out the deal’s true value – suggesting that the real work, including a potentially tricky integration process, is yet to be done. – P.B.

Astellas/AVEO: In one of the richest oncology deals in the past few years, Japan’s second-largest pharma placed a big bet on AVEO Pharmaceuticals Inc.’s most advanced compound, the Phase III drug tivozanib. Astellas Pharma Inc. paid $125 million up front, while committing to a milestone schedule that could add more than $1.3 billion to the deal, to license tivozanib worldwide, save for Asian territories already licensed to Kyowa Hakko Kirin under an existing agreement. The deal includes $575 million for clinical and regulatory milestones and $780 million in commercial payments, and covers all indications of the drug, currently farthest along in studies for renal cell carcinoma. The two companies will split profits 50/50 in North America and Europe, where they will also share development costs and sales forces, although Astellas is expected to lead commercialization in Europe while AVEO does so domestically. Phase III results are due in mid-2011 for tivozanib, a blocker of vascular endothelial growth factor (VEGF), although an NDA isn’t expected until 2012, pending a favorable clinical outcome. The agreement extends Astellas’ ongoing commitment to oncology beyond its $4 billion acquisition of OSI Pharmaceuticals last year. – P.B.

AdventRx/SynthRx - About two years ago, AdventRx Pharmaceuticals had placed its lead clinical programs on hold and cut staff twice, to a headcount of five. Now, the San Diego-based firm has an FDA action date for its lead program, chemotherapy drug Exelbine (vinorelbine injectable emulsion), and is acquiring privately held SynthRx in an all-stock deal to move into the sickle cell disease (SCD) space. AdventRx, focused on a growth-by-acquisition strategy, will acquire Texas-based SynthRx through an equity deal in which more than 75% of merger consideration is based on NDA acceptance and approval of SynthRx’s lead program and more than 95% is based on milestone achievement. In exchange for an upfront consideration giving SynthRx’s shareholders a 4% interest in AdventRx, SynthRx becomes a wholly owned subsidiary of AdventRx, giving the latter firm ownership of the Phase III poloxamer 188 program. Initially advanced into Phase III in myocardial infarction by CytRx, 188 is a purified form of a rheologic and antithrombotic agent to be studied first in pediatric SCD and thought to have potential in other illnesses involving microvascular flow abnormalities, such as heart attack, stroke and hemorrhagic shock. During an investor call Feb. 14, CEO Brian Culley explained that if every milestone in the deal is paid out fully, SynthRx shareholders would end up with a 40% stake in AdventRx. “If the NDA is accepted and approved, [that is] something I think we would be happy to make these equity payments for,” he added. – Joseph Haas

Bayer/Philogen: The crumbling of one European deal led to the cancellation of a potential bellwether IPO. Swiss-Italian biotech Philogen SpA might be searching for an aspirin after its oncology deal with Bayer AG came apart, prompting Philogen to cancel its anticipated IPO. Bayer abruptly walked away from its licensing arrangement for Philogen’s L19 therapies, vascular-targeting immunocytokine drugs that are being investigated for several different cancers. The two companies’ association dates to 1999, when Schering AG took an option on Philogen’s research into antibodies that inhibit angiogenesis, leading to a formal worldwide license in 2003. Despite the extended relationship, Bayer gave no specific reason for unraveling the deal. Philogen, which says it has six clinical antibodies targeting cancer as well as a rheumatoid arthritis drug and a preclinical ophthalmology program for age-related macular degeneration, was expected to list on the Milan exchange February 18, but instead scuttled what was expected to be Europe’s first IPO of 2011. In the offering, thought to be a signal of a warming climate for biotech listings, Philogen had anticipated raising as much as €65.3 million ($89.3 million) by floating 23% of its shares. The failed listing is Philogen’s second IPO cancellation; it withdrew a planned offering in 2008 as well, citing unfavorable market conditions. – P.B.

Mt. Rushmore image courtesy of Flickr user dclamster, used under Creative Commons license.

DotW: Dollars To Donuts

It was a busy week but not necessarily in terms of deal-making activity. Instead, all eyes were on Washington DC, where the discussion on healthcare reform continued to dominate--from the spacious halls of Congress to the tight confines of taxi cabs. As you muse over how many dollars it will take to close the donut hole (are these the Dunkin' variety or Krispy Kremes?) and ponder emerging news about the exclusivity period for biologics, we bring you...

GlaxoSmithKline/Chroma: We confess we've had entirely too much fun writing about this deal this week. We could use this post to delve into the industry's mysterious desire to inflate a deal's price by including stratospheric but highly improbable bio-bucks figures. But where is the fun in that? So let's focus on the actual deal. Here's what we know: GSK and Chroma teamed up June 23 in an option-based drug discovery and development deal. In conjunction with the deal, Chroma announced its $24.5 million Series D financing, which GSK also took part in, although it hasn't become a major shareholder overall. According to Chroma's CEO Ian Nicholson, GSK's stake is "well below 10 percent." Further terms weren't disclosed beyond the $1 billion 'biodollars' figure Chroma cited in a press release, but the helpful folks at EP Vantage provided some additional color on the tie-up: "we found out that GSK paid £5m upfront and contributed £5m of the £15m Series D, giving GSK a 5% equity stake in Chroma. So a total upfront consideration of £10m," EPV commented on our earlier post.

Every little bit counts, as they say. In exchange for the cash and equity, Chroma will use its macrophage-targeting technology to identify four small molecules, mainly for inflammatory and auto-immune disease indications, although the deal covers other indications as well, according to Nicholson. The biotech will take these compounds through proof of concept, at which point Glaxo can exercise its option to take an exclusive worldwide license. As an option-based deal, the tie-up illustrates yet again that this kind of risk-sharing approach to partnerships is GSK's modus operandi. (When it comes to actually exercising the option--well, that's another story.) Earlier this month the Big Pharma signed a similar deal with Concert Pharmaceuticals around three preclinical candidates in which it paid $18.3 million up front in cash and took a $16.7 million equity stake.

From Chroma's standpoint the equity stake was likely just as important as the option portion of the deal. At a time when every small company is a seller, and Big Pharma is barraged with pitches screaming "Buy me!" (or at least "Buy a piece of me!"), engaging the larger company is the real sticking point for smaller biotechs. With skin in the game, GSK is far likelier to pay closer attention to the ongoing work at Chroma, which likely stands to benefit the company as its programs move through development. Indeed, the need to engage Big Pharma is one reason traditional VCs are going out of their way to include corporate venture investors in their syndicates (the fact that CVCs still have money to commit is just a minor detail).

Biovail/Cambridge: Okay, we admit it: we’re obsessed with Xenazine, a drug for Hungington’s chorea that was approved by FDA last year. But we have our reasons. We see Xenazine as exactly the type of narrow-market product that the new regulatory and reimbursement climate favors. And, as the flurry of deal-making triggered by its approval indicates, it demonstrates that these types of products can be very lucrative, albeit not at the level of the primary care blockbusters Big Pharma is built on. (You can read much more “The Billion Dollar REMS,” from The RPM Report.)

Biovail certainly agrees with us: the company paid $200 million to buy-out Xenazine developer Prestwick Pharmaceuticals. That deal was complex, since Ovation (now Lundbeck Inc.) simultaneously acquired US marketing rights for the drug for $50 million, so Biovail really acquired Canadian marketing rights and a US royalty stream. Now Biovail is upping its piece of the Xenazine pie by acquiring global commercial rights from Cambridge Labs. Biovail paid $200 million when the deal closed June 22—an indication of the value the company sees in the product. The company will pay an additional $30 million over the next two years.

In one sense, Biovail is simply buying out a large royalty obligation: Cambridge collected 50% of US revenues. With almost 2,000 patients already on therapy at an average annual cost of $30,000 to $50,000 each, that is already a significant amount. Biovail won't save all that money; the company will continue to pay a royalty to an undisclosed third-party who manufacturers the product for global markets.

Still, Biovail says the transaction will be immediately accretive to revenues and margins, and will add $23 million to $26 million to Biovail’s cash flow in 2010. (Those figures include the contribution from international sales from European marketers of the drug as well as the impact from canceling out the royalty obligation.) It is also a pipeline play, giving Biovail full rights to a controlled-release formulation of the drug and a single isomer version of the active ingredient. Those line extensions may be key to expanding the market beyond Huntington’s; the extended release form is in development for Tourette Syndrome.

But the deal has one more wrinkle, in keeping with the unique profile of Xenazine: It takes out a layer between Biovail and international marketers of the drug, and this is a case where cutting out a middleman can pay off for reasons that aren't strictly economic. Xenazine is basically a generic drug around the world, raising a high potential for diversion into the US to capitalize on the premium price. Biovail told its investors during its second quarter call in May that Cambridge was keeping appropriate track of the supply in Europe, and the company says preventing diversion is not a factor in this deal. But we’re still betting that this transaction buys Biovail some peace of mind.—Michael McCaughan

MediciNova/Avigen: It ain't over till it's over, but for Avigen--and major shareholder Biotechnology Value Fund--the future grows clearer every day. Late on Thursday came news that MediciNova and Avigen had reached an "understanding of certain key terms", paving the way for MediciNova's acquisition of the troubled biotech. Should it come to fruition, the deal would combine the two companies' development programs based on the novel glial activation inhibitor ibudlast. (Avigen's AV-411 is stalled in Phase I studies for neuropathic pain; while MediciNova's MN-166 has advanced to Phase II for multiple sclerosis.) Interestingly, the buy-out by MediciNova recalls the plan Biotechnology Value Fund proposed several months ago.

Avigen has been reeling ever since last fall when its multiple sclerosis spasticity drug, AV-650, failed to meet its primary endpoint in a Phase IIb study. Shortly afterwards, Avigen reduced headcount and suspended its other clinical programs but BVF, loudly and publicly, called upon the biotech to suspend operations and return its remaining cash to its shareholders. Meanwhile, BVF offered to buy the company's outstanding shares with a tender offer of $1.20 per share, with the intention of merging Avigen with MediciNova. But to effect this latter proposal, BVF needed to win control of the board, a change that could only happen with the support of two-thirds of Avigen's shareholders. In late March, BVF came close--its proposal swayed 58% of Avigen's investors--but that wasn't good enough. At the time Avigen's acting CEO, Andrew Sauter, promised the biotech would sell off the remaining assets and roll-up the company. In an interview with "The Pink Sheet" DAILY, Sauter made it clear that Avigen would consider a bid by MediciNova as long as it offered fair return to Avigen shareholders.

And it looks like both sides have come to an agreement on the definition of "fair". Under the terms of the merger, Avigen shareholders will receive a consideration approximating Avigen's net cash liquidation value plus $3 million. Avigen shareholders would be able to elect to receive this consideration in cash or as MediciNova stock. At the end of 18 months, any unexercised convertible securities would be paid out at their cash value. "We believe that the proposed merger presents clear advantages for the shareholders of both companies," said Yuichi Iwaki, MediciNova's President and Chief Executive Officer, in a press release.

Astellas/NeurogesX: This week's deal with Astellas to market and distribute the neuropathic pain patch Qutenza in Europe bolsters NeurogesX’s cash position, giving the company some breathing room to prepare for regulatory approval and a 2010 launch in the U.S. market. Qutenza was approved for neuropathic pain in non-diabetic patients by the European Medicines Agency in May and it is pending review at the FDA, with an Aug. 16 user fee date. A European launch is expected by the first half of 2010. NeurogesX is set to get €30 million ($42 million) upfront for Qutenza commercialization rights from Astellas' European subsidiary. In addition to 27 countries in the European Union, the deal covers Iceland, Switzerland, and some countries in the Middle East and Africa. This isn't exactly the deal Astellas watchers have been expecting ever since it tried--and failed--to bring CV Therapeutics in-house. But in a small way, rights to Qutenza help the Japanese pharma achieve another ambition: bolstering its European presence with an additional product it can market alongside its specialist-focused medicines in dermatology, urology, transplantation, and infectious disease. The dermal patch Qutenza packs a high concentration form of synthetic capsaicin (also called trans-capsaicin) that stimulates transient vanilloid 1 receptors in the skin to subdue overactive pain receptors. As part of this week's agreement, Astellas will also pay €5 million upfront ($7 million) for a co-development and commercialization option on NGX-1998, a Phase I liquid formulation of the NeurogesX product.

The deal is definitely a balm to NeurogesX's uncertain cash position: the company had about $19 million in cash and marketable securities at the close of the first quarter, enough to carry it through 2009, but insufficient to give the company much comfort in making plans for breaking into the U.S. market. During a June 22 investors’ call, Chief Financial Officer Stephen Giglieri declined to provide runway guidance, but added: “Obviously, putting $49 million into the bank is going to extend our runway fairly significantly.” (It's all about the runway, people.) NeurogesX is also eligible for roughly $100 million in sales-based milestone payments and additional option payments for the liquid formulation. (Not billion dollar bio-bucks territory, but nothing to sneeze at either.)--Emily Hayes

LabCorp/Monogram Biosciences: Molecular diagnostics specialist Monogram Biosciences will become part of LabCorp under a tender offer announced this week. The deal, for $4.55 per share of Monogram’s stock is worth $155 million including the net indebtedness LabCorp picks up. (According to the press release announcing the news that gives Monogram an implied equity value of $106.7 million.) For the cash, LabCorp gets two of the more innovative marketed commercial tests in the molecular diagnostics space: Trofile, developed in collaboration with Pfizer, identifies patients who are eligible for the CCR5 class of HIV drugs and is a companion diagnostic for Pfizer’s first-in-class drug Selzentry; HERmark, the first commercially available functional Her2 assay, is one of a new wave of Her2 tests for breast cancer patients. Monogram is also applying the technology that led to HERmark, called VeraTag, to other cancer markers in the EGFR pathway. But it’s been struggling to come up with the resources to do that--or, as we wrote earlier this year in our coverage of the new generation of Her2 tests--to validate its Her2 assay in a prospective trial. Moreover, Monogram has been building disease management capabilities in two distinct therapy areas – HIV and oncology – also a difficult challenge for a small company with limited capital. The cash reserves at LabCorp, which has been eying the esoteric testing market for some time, should solve those problems.--Mark Ratner

(image by flickr user Pink Sherbet Photography used with permission via a creative commons license.)<

Deals of the Week: Going Green

There were lots of reasons to evoke the color green this week. Lest you've forgotten, Tuesday was Earth Day. The IN VIVO Blog team hopes you celebrated appropriately--perhaps by replacing those incandescent light bulbs with compact fluorescent ones or off-setting the carbon dioxide emissions from a recent plane trip. (What? You have an alternate suggestion?)

It was also earnings week--that time in the fiscal calendar when certain big pharma are forced to admit to investors and analysts that "it's not easy being green" to quote an overly analytical Muppet. Among those posting quarterly losses were Bristol-Myers Squibb (thanks to charges associated with cost-cutting measures), GlaxoSmithKline (profits down 5% on tumbling Avandia sales), and Schering Plough (down 48% due to costs related to the integration of Organon as well as the Vytorin mess). Pfizer, the industry's favorite punching bag, opted to announce its bad news late last week in advance of a shareholder meeting in Memphis.

But if the quest for greenbacks was onerous, it certainly wasn't impossible. A number of companies posted positive news, including Amgen, Bayer, and Novartis. We confess color-blindness when it comes to Merck and Lilly. Merck's first-quarter earnings rose to 89 cents a share, beating analysts' expectations. Unfortunately, sales missed their mark, edging up only one percent. Lilly meantime posted lower than expected earnings, mostly due to disappointing Byetta sales.

The preoccupation with quarterly earnings meant deal flow was lighter than average, but still we found other green examples--of the biobucks variety.


Astellas/CoMentis: We'll give top-billing to the latest entrant this week, and it's a doozy. In another big win for Japanese pharma, Astellas Pharma said this morning that it licensed worldwide development and commercialization rights to CoMentis' beta-secretase inhibitor programs--for $100 million up-front (80/20 cash/equity split) plus up to $660 million in pre-commercial milestones on the program's lead Phase I compound, CTS-21166, and additional milestone payments on any next-gen compounds discovered as part of a joint research program. CoMentis retained a co-promote/profit share in the US and elsewhere will receive undisclosed royalties. Astellas will fund development up to Phase III and the companies will split the cost of a (probably very expensive) Phase III program. Inhibition of beta-secretase has long been an unrealized goal of industry and CoMentis' ability to get its program into the clinic made it the subject of takeover rumors, as we noted in this September 2007 feature on early-stage Alzheimer's programs. Back then, CoMentis CFO John Donovan told us that the company wasn't being managed toward a quick acquisition. But rather the goal was to partner the beta-secretase program sooner rather than later, he explained, while keeping a significant piece of the back-end value—half of US rights, for example. "Most of the top 20 companies are in this space, and the top five view it as a must-win," said Donovan.

Cubist/Dyax: Cubist Pharmaceuticals signed a licensing and collaboration agreement with Dyax to develop that company's DX-88, an intravenous product in mid-stage clinical trials for the prevention of blood loss during surgery. Deal terms were smallish: Dyax will get $15 million up-front, plus another $2.5 million later this year in milestones. The company is also eligible for an additional $214 million in clinical, regulatory, and sales-based milestones. For good measure, Cubist has generously offered to pay for costs associated with the on-going Phase II trials (known as Kalahari 1), and will thow in tiered, double-digit royalties based on DX-88 sales and an option for Dyax to co-promote the product in the US. If the up-front seems low, at least Dyax gets to keep exclusive rights to DX-88 in all other indications, including its hereditary angioedema program, currently in its second Phase 3 trial.

GSK/Sirtris: Sirtris was the big winner this week. After the markets closed Tuesday, the biotech announced a stunner of a deal: GSK had agreed to acquire the early stage company for $720 million. Yep, that's right. Nearly three-quarters of a billion in cold hard cash for a company with just one less-than-exciting Phase II product and a raft of interesting molecules that have the potential to treat a variety of diseases, including Type II diabetes. IN VIVO Blog frequently writes about pharma's acquisitive nature, especially in areas where it needs to bulk up, such as biologics. But by and large, the out-sized price tags have been associated with platform biotechs such as Adnexus or Sirna. Thing is, Sirtris isn't really a traditional platform company. Its value lies in its targets and we've never seen a target-focused deal command this kind of price tag. Until now.

Shire/Zymenex: Shire agreed to pony up $135 million for global rights to Zymenex's enzyme replacement therapy, Metazym, designed to treat a serious neurological disease called metachromatic leukodystrophy (MLD). Zymenex recently finished a Phase Ib trial of Metazyme in Europe and plans for a Phase II trial in the US are in place. Just 2000 patients suffer from MLD, and Metazyme has been granted orphan drug status in both the US and EU. Genzyme, of course, is the company that pioneered the specialist strategy focused on ultra-niche indications. But with its 2005 acquisition of TKT for $1.6 billion, Shire is now definitely playing in Genzyme's sandbox. Interestingly, Shire's most recent deal comes at a time when Genzyme is facing its own struggles. On Tuesday, federal regulators rejected Genzyme's request for permission to sell a version of its Pompe disease drug, Myozyme, that is made at its Allston manufacturing plant. The FDA decision shows just how difficult the road may be for certain follow-on biologics makers.

Medtronic/Restore Medical: On Tuesday, Medtronic agreed to acquire Restore Medical for $29 million, lured by the company's minimally invasive Pillar palatal implant and demonstrating that the market for obstructive sleep apnea devices is no snorer. (Just before the new year, Philips Medical Systems made a $5.1 billion all cash offer for Respironics, the leader in the sleep apnea market.) The deal makes perfect sense for both companies. First, it gets Medtronic into the new area of sleep disorders, by way of the Ear, Nose & Throat (ENT) market where it’s already a leader. And since many start-ups are hoping to address obstructive sleep apnea with implantable neurostimulators this could be an area where Medtronic can take advantage of its existing expertise. For Restore Medical, the acquisition gives the company access to Medtronic's deep pockets. In addition, via Medtronic, Restore is much more likely to persuade ENTs of the value of its minimally invasive device. Currently, sleep medicine pulmonologists and neurologists dominate sleep medicine; ENTs, meanwhile, have been relegated to an ancillary role, stepping in only when invasive palatal surgery (which is rarely chosen) is the treatment recommendation. Restore execs knew that mounting successul patient education and marketing campaigns would be a nightmare. Now that Medtronic has agreed to acquire them, it's sweet dreams.

TopoTarget/CuraGen: This week's NDotW concerns the future development of the small molecule HDAC inhibitor belinostat. In 2004 Danish biotech TopoTarget licensed rights to the then-Phase I compound to Curagen. The latter company has invested a total of about $44 million in the project which is now in Phase II for a variety of oncology indications (including NCI-sponsored studies there are now 18 trials ongoing). And on Tuesday, TopoTarget bought it all back for $39 million u/f (two thirds cash, one third stock) and a potential $6 million in milestones. In other words: lets just pretend the past four years never happened. Those years haven't been kind to CuraGen which now has $145 million of cash and equivalents on hand to go with its $50 million post-deal market capitalization and $70 million in convertible debt. It plans to focus its energy and that cash on development of another Phase II oncology candidate CR011-vcMMAE. TopoTarget doesn't plan on hanging on to all rights to belinostat; partnering discussions, it said, are already ongoing.

Flickr image courtesy of user The Gansta the killer and the dope dealer's photostream through a creative commons license.