Deals Of The Week Goes To The Oscars

It's that time of year. The science of bracketology has yet to enliven talk around the water cooler, the official start to the 2011 baseball season is still a month away (no, spring training doesn't count), and all the backchecks, forechecks, and stick-checks are about as meaningless as the top shelf or the five hole. (Yes, this blogger admits she's a philistine.)

Which leaves us with Oscar drama. The Black Swan or The King's Speech? Sorry, not The Social Network. An Oscar nod to a film about a 26-year-old and a company that stands to raise a gazillion dollar IPO is a little like giving a 40-something president in his first term the Nobel Peace Prize. (Oh, wait a minute.)

Far from Hollywood's glitterati, there's been plenty of drama in the biotech industry this week and a couple of Oscar- (er, Roger?) worthy performances. Roche's Genentech continues to challenge FDA, trying to position itself as David against a regulatory Goliath in the ongoing brouhaha surrounding Avastin's use in breast cancer and the FDA Oncology Drugs Advisory Committee's decision to rescind accelerated approval.

On Feb. 24 Genentech said a hearing to review the decision will go forward, but within ODAC itself. That's not what the drugmaker wanted; it was pressing for "an objective advisory committee with substantial breast cancer expertise," arguing that the recent ODAC session was underpowered in this indication. But FDA will use its ODAC to make the decision, with Commissioner Margaret Hamburg's designee Karen Midthun arguing the rules don't allow FDA to substitute a different advisory committee. (Recall Avastin use in this indication was shot down 12-1 in the December meeting.)

Moreover, FDA won't be adding additional consultants to the current ODAC panel, arguing that the controversial nature of Avastin's breast cancer approval makes it difficult to find additional unbiased panelists. "We must face the reality that many experts in this area have already expressed a view on this issue and/or might be considered as having conflicts of interest because of their association with one of the parties to the hearing or competitors to Genentech," said Midthun.

To add to the excitement, the biopharma community won't just be watching, it will actually be in town when the ODAC convenes. The meeting coincides with BIO's national wheeling and dealing event in DC in late June. No word on whether FDA will roll out a red carpet in advance of the event, but we're guessing it's not in the regulatory body's budget.

Other biopharma events worth a call-out this week? For best stoic performance, the leading candidate has to be David Bredt, Eli Lilly's beleaguered head of neuroscience, who unexpectedly resigned this week. And for best comedy of errors, in a sequel to the Bad News Bears, Johnson & Johnson is clearly the leading nominee. The big pharma continues to hamstring its own R&D advances with manufacturing slip-ups. This week came news of problems with its Simponi injector and a recall of more than 660,000 Sudafed packages due to a 'not'-ty typo in the label that reminds consumers the following: "do not not divide, crush, chew, or dissolve the tablet." That's got to be a nomination for worst proofreading in a major consumer product label, not to mention an affrontery to the King's English.

We don't have the envelope yet, but odds are the winner for most insightful deal analysis is going to be...


Gilead Sciences/Calistoga: For the DOTW Oscar for best performance in a competitive space, with a nod to a separate category -- risk-sharing -- look no further than this week's tie-up between Gilead and privately-held Calistoga. Gilead announced February 25 it would pay $375 million in upfront cash, plus another $225 million in potential milestones, to take out Calistoga, one of the most closely watched entities in the PI3K inhibitor space. The on-the-table dollars represent a 4.6x increase over the $81 million the four-year-old start-up has raised from its venture investors, which include Frazier Healthcare, Alta Partners, and Three Arch. It's also one of the richest deals yet in the PI3K space, an arena big pharmas are eager to enter because the signaling pathway involved is implicated not only in oncology, but also inflammatory disease, cardiovascular disorders, and neuro-degenerative conditions. The acquisition gives Gilead a Phase II asset and a basket of interesting, highly specific but early-stage PI3K blockers. It also deepens the big biotech's commitment to oncology, building on its 2010 acquisition of CGI Pharmaceuticals and that firm's kinase discovery engine. Gilead's decision to make Calistoga its base of oncology expertise via the creation of a stand-alone Seattle division is probably smart but could be tricky to execute. Recall Gilead's commercial strength remains squarely in the anti-infective space and the strategy to acquire oncology capabilities is one other biotechs have tried and failed to replicate in the past. Biogen (via the Idec merger), for example, never grew into the dominant oncology player it planned to be and has since jettisoned that half of its business, betting that focus not diversification will be the greatest path to shareholder value. The onus on Gilead is to ensure the Calistoga team, especially its R&D and early clinical development execs, stay on board; the earn-out structure may help in that regard. -- EFL

TiGenix/Cellerix: Belgium-based regenerative medicine player TiGenix and Spanish cell therapy firm Cellerix propose to combine forces via a share exchange to create “a new European leader in cell therapy." The enlarged company will have two marketed products in Europe (including the first ever cell-therapy product to be approved by the European Medicines Agency, TiGenix’s ChondroCelect), two stem cell platforms (TiGenix’s allogeneic one, and Cellerix’s autologous one), and at least €33 million in cash that will last two years minimum. Indeed, both sides have concurrently secured additional financing from their shareholders, signaling investors’ general support for the deal. TiGenix has secured €10 million of a planned public rights offering, while Cellerix’s investors have committed the final €18 million of a €28 million round that began in late 2009. The hope is the newly enlarged group will provide investors a better shot at getting a return. Since its inception Cellerix has raised about €60 million as one of Spain’s first biotechs, and this deal values the Barcelona-based group at about the same. In the short term, the combined group may be better placed to lock in an interested big pharma partner. Importantly, Cellerix’s platform, based on expanded adult stem cells extracted from adipose tissue, creates off-the-shelf products that are less complex and expensive to create and administer than TiGenix’s ChondroCelect, which requires harvesting a patient’s own cells. Signs that big pharma is no longer running away from cell therapies? Think Cephalon’s December 2010 deal with Australia’s Mesoblast, GlaxoSmithKline’s toe-dipping with Harvard Stem Cell Institute, and Sanofi-Aventis’ tie-up with the Salk Institute. -- Melanie Senior

Forest Labs/Clinical Data: Much of the buzz around this week’s merger agreement between Forest and Clinical Data was around valuation. Forest is paying $30 per share, or $1.2 billion, plus up to $6 per share in contingent milestones to get ClinData’s antidepressant vilazodone, which was approved in January in the US for major depressive disorder. The price was less than ClinData’s prior Friday closing price of $33.90 and only a 6.6% premium over the volume-weighted average trading price since the vilazodone approval. But there’s considerable risk attached to vilazodone; hence the contingent payout to shareholders, which begins to kick in at $1 per share if trailing four-quarter sales exceed $800 million within five years. The drug label looks “clinically undifferentiated to us,” Leerink Swann noted, adding that the lack of an active comparator in trials “makes it difficult to tease out any meaningful benefits.” That said, it also believes Forest can get solid formulary coverage for the drug based on its track record with payors with its existing medicines -- Celexa and Lexapro -- and the strength of the new brand in a category that’s become genericized. (Lexapro, for example, goes generic next year. ) Vilazodone’s development is a true success story for ClinData, which got the drug via its 2005 acquisition of Genaissance Pharmaceuticals for $55 million, and ultimately for the Genaissance team, which had licensed vilazodone from Merck KGAA in one of its early pharmacogenetics programs. But like Vanda and its schizophrenia drug iloperidone, ClinData did not fully execute on the original premise for the development of vilazodone: i.e. its initial evaluation using pharmacogenetics would lead to a drug approval in parallel with a biomarker that would direct the drug to an enriched patient population for which it would show a more favorable risk/benefit profile. Indeed, for psychiatric drugs, that kind of targeting still seems a long way off. -- Mark Ratner

Kyowa Hakko/ProStrakan Group: Best foreign drama has to be the evolving Prostrakan/Kyowa Hakko tie-up. Three months after putting itself up for sale, U.K.-based specialty pharma ProStrakan might be teaming up with Japan's Kyowa Hakko Kirin. The 130 pence-per-share deal, announced Feb. 21, values the company at about £292 million ($475 million). If finalized, ProStrakan would provide Kyowa a commercial presence and regulatory expertise in Europe and the U.S. that would be useful as it looks to commercialize its pipeline assets outside of Japan. The two companies are already familiar biz cronies: Kyowa is a licensee for two of ProStrakan's products in Japan and other Asian countries. The price represents a 41% premium to ProStrakan's share price one day before its offer period began in November 2010, and it's supported by more than 47% of the specialty pharma's shareholders. But most analysts believe it undervalues the U.K. group. ProStrakan suffered a series of regulatory and manufacturing setbacks in 2010, sending its shares to an all-time low of barely 40 pence in September. That led to an unsolicited offer from privately held pan-European Norgine (which, when rejected, went on to buy a 12.6% shareholding), and, subsequently, ProStrakan's decision to put itself up for sale. The logic behind the move: fix ProStrakan's internal commercial and regulatory issues and then secure a reasonable sale price. The first has happened, but the second hasn't, according to some. "A fair price would have been 160 pence per share," Nomura Code analyst Samir Devani told sister publication "The Pink Sheet" DAILY. The current deal values ProStrakan at about 2.7 times revenues, less than the 3.5 times revenues paid by Meda for U.S.-based specialty pharma Alavan Pharmaceuticals in August 2010, and well below the (admittedly punchy) 4.5 times revenues paid by Biovitrum for orphan-diseases focused, pan-European player Swedish Orphan in November 2009. -- Melanie Senior

Roche/Transgene: And finally, the DOTW Oscar for best performance in the face of adversity goes to Transgene, which this week announced its big pharma partner Roche was pulling out of a collaboration to develop the smaller company's TG4001, a Phase 2b therapeutic vaccine for lesions caused by Human Papilloma Virus infection. The good news (also known as the spin): Roche's decision won't have a significant impact on Transgene's financial situation, at least in the short term. Also, the termination won't slow down the ongoing Phase IIb trial, which is structured to test the vaccine in over 200 patients. Transgene already has 195 patients enrolled in its mid-stage study, and anticipates interim data by the end of the year or early in 2012. In addition, Transgene "regains full and unencumbered development and commercialization rights to the product" according to the press release announcing the news. That means when the licensing deal officially concludes this summer, Transgene can look for another deep-pocketed partner to help prepare a registrational trial. Will another pharma bite? Specialty products and especially vaccines are all the rage these days, and Trangene emphasized in its press release that the "no deal" was the result of a strategic decision by Roche, and "is not data driven." The question is who might have greater strategic interest in HPV than the Swiss pharma, which via its diagnostic business is developing its cobas HPV test to individually detect HPV-16 and HPV-18, the two HPV genotypes causing 70% of cervical cancer cases. (Interestingly, the Swiss pharma published new positive data about the test this week in the American Journal Of Clinical Pathology.) -- EFL

Deals of the Year Nominee: Takeda/Millennium

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Takeda's $8.8 billion bid for Millennium Pharmaceuticals--the largest deal in its storied two century history--deserves a nod as deal of the year for a number of reasons.

Along with Eisai's 2007 acquisition of MGI Pharma and Daiichi Sankyo's $4.6 billion buy-out of a controlling interest in Ranbaxy (another 2008 deal of the year), Takeda's purchase of Millennium shows the determination of Japanese pharmaceutical companies to morph into global players on the biopharmaceutical industry stage. Indeed, as a group, Japanese pharmas were one of the top acquirers of private biotech from 2003 through August 2008, according to a recent START-UP article.

And their penchant for ex-Japan acquisitions is likely to continue, fueled in large part by a demanding domestic market where yearly price cuts on drugs are mandated by the government, stagnating growth, and a slower regulatory approval process. Add in pipeline pressures, large war chests of cash, and the relative strength of the yen to other currencies (a condition that gives the Japanese the upper hand in bidding wars), and its not unreasonable to believe that in 2009 Japan pharma companies will continue to be some of the industry's most active--and important--dealmakers.

But the Takeda/Milllennium deal doesn't just illustrate the prowess of Japanese deal-making. The transaction underscores another major theme at work in the industry: Big Pharma's apparently insatiable appetite for oncology products.

Think about it. In the past six months, we've seen Pfizer restructure with an eye to a more flexible future--a move that included eliminating early stage R&D in Big Pharma standbys like cardiovascular and obesity, and a greater emphasis on oncology, through the creation of its oncology business unit. Then there was Eli Lilly's October surprise--the $6.5 billion purchase of ImClone, a move that gives the Indianaoplis-based drug maker partial ownership of Erbitux plus a pipeline of targeted, but primarily early stage oncology products.

Indeed, Lilly's rationale for the ImClone deal sounded a lot like the reasoning Takeda offered up for its own bid for Millennium back in April: a need to bulk up in biologics, particularly in an indication with high unmet medical need and a smoother regulatory approval path.

Certainly, from a deal-making perspective Takeda has become the new deep-pockets of the cancer world. In 2008 alone, it inked handsome—some might argue excessive--agreements with Amgen, Cell Genesys, Millennium, and Alnylam to boost its abilities in oncology.

In its two-part monster deal with Amgen in February, for instance, Takeda spent $300 million up-front to gain Japanese rights to 13 compounds, including Vectibix, a humanized antibody to treat metastatic colorectal cancer, and purchased world-wide rights to motesanib, Amgen's Phase III angiogenesis inhibitor for various cancers. As part of the deal, Takeda agreed to purchase Amgen KK, Amgen's Japanese subsidiary, for an undisclosed price, in a bid to bulk up its large molecule offerings.

In May, the company announced one of its biggest research tie-ups yet: a deal with Alnylam worth $150 million up front for a nonexclusive license to develop drugs against oncology and metabolic disease targets using that company's RNA interference technology (another deal of the year nominee.)

But as we wrote in this feature, the acquisition of Millennium, which gives Takeda a potentially important marketed product in Velcade plus 10 other molecules in early-stage clinical trials, has to be considered the most significant--and perhaps strategically transformative--deal in Takeda's history.

Takeda's president, Yasuchika Hasegawa apparently played a critical role in pushing the deal through the company, convincing fellow executives and board members of its wisdom via a plethora of data that included financial simulations and pipeline studies. Key selling points in Millennium's favor: it offered Takeda geographic and pipeline synergies, dramatically expanding the company's commercial capabilities in the US, as well as strengthening its oncology franchise. In addition, Millennium already had in place a very capable management team, including president and CEO Deborah Dunsire, MD, a seasoned pharmaceutical veteran.

"Our typical approach when doing an acquisition is to select a target company with a proven track record where we don't need to implement major restructuring after the purchase," said Hasegawa in an interview with IN VIVO following the deal's announcement. But analysts have roundly criticized the deal for its expense, the lack of revenue generating products it provides, as well as the near-term quarterly hit on earning growth it will necessitate. Back in May, Takeda predicted that integrating Millennium would reduce the pharma's profit by 55% this year alone. In a November update, the company revealed just how much the acquisition cost its bottom line: ¥137.7 billion, reflecting in part the adverse impact of the U.S. economic slowdown.

Even so, six months later, it looks to have been a smart move. Velcade's approval in June as a first-line therapy for multiple myeloma has dramatically increased sales of the drug. In early December came news that worldwide sales of the product eclipsed $1 billion for the first-time. Moreover, a spate of positive news at the annual American Society for Hematology meeting suggest that the drug will remain a cornerstone of myeloma treatment for years to come.

And the truth is, Takeda' emerging cancer franchise, with Velcade as its cornerstone, is the company's lone bright spot. Recall that Takeda's two biggest money-makers, Actos and Prevacid, will go generic in 2013, at which time analysts expect profits from those drugs will drop 35% and 26% respectively. But thanks to late-stage clinical failures and missed PDUFA dates there's little beyond Velcade to make up the revenue gap.

Put another way: without eggs such as Velcade--and to a lesser extent Amgen's Vectibix--Takeda's basket of products would be decidedly empty.

Earlier this year the company announced it was shelving TAK-475, a novel cholesterol lowering drug in Phase III clinical trials, and matuzumab, a humanized antibody targeting the EGFR receptor under development with partner Merck KGAA. In late summer came news that the Phase III GVAX prostate cancer vaccine developed by Cell Genesys (for which Takeda paid $50 million upfront in a deal announced March 2008) failed to show efficacy in two different clinical trials. On October 17, Takeda officially pulled the plug on GVAX.

And the bad news kept coming. As October slid into November, the Japanese pharma announced the FDA has missed PDUFA dates for both its Prevacid follow-on TAK-390MR and its DPP-IV inhibitor, alogliptin. Both drugs fall squarely into the category of primary care drugs with high bars for regulatory approval.

TAK-390MR treats gastro-esophageal reflux disease, a non life-threatening condition well-treated by generic meds such as Zantac and Prilosec (and soon to be generic Prevacid). If regulators have any concerns about potential safety signals--Takeda attributes the delay to a backlog at FDA not something more sinister--they may be taking their time to evaluate the drug's application.

In the case of alogliptin, the drug's approval may be delayed due to shifting guidelines on diabetes meds. On Dec. 18, the agency put more stringent guidelines related to cardiovascular safety criteria into place for diabetes medicines. The new guidelines appy to all drugs in development or currently under agency review.

But to date, Takeda's oncology franchise is holding its own. Three out of six products in development registered advances. In addition to the dramatic uptick in Velcade sales, Takeda's TAP-144-SR for prostate cancer won marketing approval in Austria and Germany this year; and the colon cancer drug Vectibix recently completed Phase III trials and is pending approval in Japan.

No wonder its oncology all the time at Takeda these days.

beautiful basket of chicken eggs courtesy of flickr user woodleywonderworks through a creative commons license.

Deals of the Year Nominee: Alnylam/Takeda

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

This year's biggest RNAi deal isn't quite as big as last year's biggest RNAi deal, but we like Alnylam's Japanese alliance with Takeda nonetheless. First off it reinforces Takeda's position as one of 2008's pre-eminent dealmakers--the February Amgen alliance and the April acquisition of Millennium were its first two big noises this year--and it also marks Alnylam's move from simple-yet-unprecedented platform monetization into the kind of technology-for-product-rights deal that could see it gaining access to others' development candidates.

At the time of the deal we intentionally mangled Alnylam CEO John Maraganore's kegger analogy by which he describes RNAi's potential to help relieve the productivity problem in drug development and provide free beer for all mankind. (Did we do so again? Oh dear.) It's fair to say that this remains a ways off, but meanwhile Takeda's cash ought to keep the fridge full in Cambridge.

Alnylam received $100 million in up-front cash and $50 million in near-term technology transfer payments for a non-exclusive license to its RNAi platform in oncology and metabolic disease, and first right of negotiation on its RNAi programs in Asia (excluding ALN-RSV01) should Alnylam look for a partner there. Alnylam also gets first right of negotiation on any project Takeda decides to shop in the US and more importantly, gets opt-in rights for 50/50 co-development/co-commercialization deals in the US on up to four Takeda programs of its choosing (exercisable all the way through the start of Phase III), plus the usual gajillion biobucks in development and commercial milestone payments.

As we noted when the May deal was signed: it bears repeating that Alnylam has once again struck a non-exclusive deal--and can go out and re-license those same therapeutic areas again at any point. That said, on the call to announce the deal Maraganore essentially laid down some ground rules. "We wouldn't do a platform license for a double-digit upfront payment," he said. "Given the opportunity cost of enabling a partner we have to and will be very discriminate in how we value these kinds of partnership alliances."

In other words, pony up $100 million or it's not worth our time and effort. How many triple-digit deals it can do before its proposition is diluted below the $100 million low-water mark remains to be seen (it hasn't done any since, though there is plenty of time to fulfil its stated goal of two or more new partnerships through the end of 2009).

In these cash-constrained times, the deal allows Alnylam to end the year with approximately $500 million in cash. It makes Takeda the sole big RNAi player in Japan (though Japanese rights to Alnylam's Phase IIALN-RSV01 product were not included in the deal and later licensed to Kyowa Hakko [our take here]) and cement's the Japanese pharma's place among the most active and creative dealmakers of 2008. And it sets the RNAi pioneer up for pipeline building down the road.

Readers, it's up to you. The voting begins next week and will be open into the new year. No stuffing the ballot box!

image via flickr user furiousgeorge81 used under a creative commons license.

DotW: Specifics a Surprise; Trends -- Not a Surprise

Your blogger this week did not expect that John McCain would select a nationally obscure, half-term governor of Alaska as his running mate. What wasn’t a surprise was the selection of a pro-life evangelical to shore up the Republican base.

Which leads to our theme in this edition of Deals of the Week. Specifics a surprise. But basic trends: not a surprise.

Take for example the announcement from Zymogenetics and Merck Serono that the two companies were restructuring their deal on the fusion protein atacicept so that Zymo could save up to $260 million in co-development and –commercialization contributions through 2012. (See our Pink Sheet Daily coverage here). Fact is deals which could get biotechs bigger downstream profits also cost them a lot more upfront – and with biotech funding scarce, those obligations are looking pretty scary these days. And particularly scary for Zymo, which was hoping to pay its share mostly out of proceeds from its marketed drug Recothrom. But the recombinant thrombin product hasn’t become the blockbuster Zymo hoped it would be – sales are actually down from the last quarter. In effect, Zymo is now opting to share a lot more of the risk – risk which, following the commercial challenges of Recothrom, looks a lot hairier than it did in 2001, when Recothrom was a great idea about to be a great reality and atacicept the next engine to turbocharge Zymo’s journey to the biotech valuation stratosphere.

And so, on to our surprising but unsurprising...


Medivation/Pfizer: Luckily, little risk sellers have big-company risky buyers to help them out. The late-stage products in other companies’ pipelines look like the only bridges available over the vertiginous patent chasm most Big Pharmas must cross in the next few years -- however shaky those bridges may be. Were it not competing with plenty of other bidders, Pfizer wouldn’t have agreed to pay $225 million upfront, $500 million in development milestones, 60% of the development and commercial costs in order to get 60% of the profits from Medivation’s Alzheimer’s disease drug dimebon (for more of our analysis, see this post). But even Big Pharmas are increasingly unwilling to make these bets on their own. Lilly has taken on financing from TPG-Axon to help it fund Phase III trials of its two late-stage Alzheimer’s drugs. (For a brief idea of what Lilly’s doing, take a look at this posting; for a more significant analysis, see the September issue of IN VIVO – out next week). The economics of the Medivation deal aren’t all that dissimilar from the deal Bristol-Myers Squibb signed last year with Pfizer on apixaban, in which it off-loaded a bunch of the risk that drug might not work out very well. And as we noted last week, that wasn’t a bad move: the drug underperformed Lovenox in its knee-replacement trial and now has lots of people scared that it won’t work in its larger indications, particularly acute coronary syndrome and stroke prevention. Less noted – another big-bet Phase III deal looks smart for the licenser, less so for the licensee: the mid-sized Spanish firm Almirall collected $60 million from Forest Labs plus big help in funding trials, which last week underperformed their sponsors’ and investors’ expectations, with Forest stock dropping 17%.

Shionogi/Sciele: It’s likewise unsurprising, though again the specifics continue to astonish, to see Japanese companies continuing to snap up US properties. We’ve got to believe Shionogi is, years later, still smarting over its decision to out-license Crestor to AstraZeneca. Had it been a bit more self-confident, it could have done what Takeda did with Actos, co-commercializing the drug with a US partner (Lilly, in that case) and then taking the thing over when it could stand on its own two feet. Now Shionogi is paying $1.4 billion, a 37% premium over the pre-announcement 10-day average price (but only an 8% premium to what the company had been trading at last October), to take over spec pharma Sciele Pharma which – probably for all sorts of good reasons – has nonetheless seen declining operating income and prescription volumes in key products. (Check out our PharmAsia News report on the deal.) A comparatively strong yen and a constricting home market are making the US look real good to Japanese companies – which is why you’ve seen them willing to pay up big time for Millennium (Takeda), MGI Pharma and Morphotek (Eisai), and Agensys (Astellas).

Novacea/Transcept: When a company’s major drug fails, and it has plenty of cash left, it’s got basically two choices: distribute the money to shareholders (rarely done) or roll the dice on someone else’s pipeline – usually through reverse mergers (the popular choice). Indeed, since January 2005, we’ve seen 29 such deals announced (not all closed), with privately held Transcept’s reverse-merging into publicly traded Novacea the most recent. Since November of 2007, when it stopped its pivotal trial of its anti-cancer drug Asentar because more people were dying on the drug than in the control arm, the writing was on the wall for the company. With something like $90 million in cash and marketable securities as of its last 10Q, Novacea was more valuable as a bank and a listing than as a company. And although these deals are hardly picnics, they seem a lot easier than going public (two IPOs in the US this year vs. two dozen in 2007). Whether that’s the right thing for investors is another question: analysis from our colleague Chris Morrison shows that the average share price decline for reverse-merged companies was about 40%, worse even than the declines from IPOs or the biotech index in general (we’ll publish a more in-depth analysis in next month’s Start-Up).

Ablynx/Merck-Serono: Apologies for spoiling the theme, but it wasn't all surprises this week. Merck-Serono has been relatively straightforward in its ambitions to assemble rights to a handful of next-generation large molecule technologies around chosen targets (or so said M-S EVP research Dr Bernhard Kirschbaum when we spoke to him for a story about one of their current partners, Archemix, a few months ago). And so its deal with Ablynx announced Thursday fits right in. The two-target deal will see M-S and Ablynx co-discovering and co-developing Ablynx Nanobody-based therapies in the areas of oncology and immunology. Ablynx receives €10 million up-front and the companies will split all costs and profits 50/50. Unless! Unless Ablynx decides to fully opt out (in which case it will receive milestones and a royalty) or partially opt out (in which case it will receive a reduced profit share). Ablynx CBO Eva-Lotta Allan told us today that this was the biotech's first 50/50 deal, a result of being in a solid financial position thanks to last year's healthy IPO proceeds of €85.2 million. --CM

Acucela/Otsuka: On Thursday, Japanese pharma Otsuka and ophthalmology-focused biotech Acucela announced twin licensing deals. In Part One, Otsuka will pay Acucela $5 million upfront plus milestones for co-development rights to Acucela's Phase I dry AMD small molecule compound ACU-4429. The companies will share commercialization expenses and profits 50/50 in North America, Acucela retains all European rights, and Otsuka gets Asia and some rest-of-world territories. The pharma also funds all pre-Phase III development costs. Part Two sees Acucela getting co-dev/co-promo rights to Otsuka's Phase III rebamipide suspension for dry eye in the US. Otsuka will again pay Acucela an (undisclosed) upfront and milestones, plus royalties on sales, and Acucela will take the lead in getting the drug approved. Under certain circumstances, Acucela could co-promote rebamipide as well, but Otsuka will cover all development and commercialization costs. If you are having deja vu, that might be because Otsuka has licensed this drug before (though the first time it probably took money in instead of paying it out). In 2005 Novartis took on worldwide rights to rebamipide (which was in Phase III back then as well), but at some point between now and then killed the project. In a conversation with IN VIVO Blog, Acucela CEO Ryo Kubota, MD, PhD, wouldn't let on what hindered the drug, saying only that the partners hope to run another Phase III and that the drug could be developed "relatively quickly." Acucela was founded in 2002 but only came out of stealth mode earlier this year. The biotech is developing so-called visual cycle modulators and has raised more than $40 million in three rounds of venture funding from Japanese investor SBI Investment Co. Ltd.--CM

Perlmutter: We're Not Abandoning Japan

Signing over Japanese rights to 13 development assets and selling the Japanese subsidiary doesn’t mean Amgen is abandoning Japan, insisted Roger Perlmutter, EVP R&D, in a phone interview with IN VIVO Blog a few hours after the Big Biotech announced its $300 million up-front double-deal with Takeda (see our post below). “We’re just saying that partnering is the right way for us now."

But Perlmutter acknowledged that most Western firms haven’t exactly sailed into the world’s second-largest market, where local knowledge and relationships still count for a lot. “Japan is a very special market, requiring special expertise. The process of getting into Japan [for a foreign company] takes decades, and requires a large investment.”

The money bit’s the problem: Amgen can’t afford large investments, since its annus horribilis in 2007—which may be repeated, possibly even more horribly, in 2008. Indeed, Amgen’s taking a “more strategic look” at its wider international expansion plans, according to Perlmutter. In other words, Japan might not be the only place Amgen pulls back, or partners. “Things we had anticipated we could do…we now can’t do in the same time-frame.”

But at least there are scores of willing collaborators standing by. Takeda apparently won a highly competitive bidding process for the broad alliance announced today—perhaps made more attractive since Amgen hadn’t insisted on any particular structure. “We let potential partners suggest the best way to ally” in Japan, insists Perlmutter. (Given its sellers’ advantage, Amgen would have called the shots, mind you—it has kept a co-promote option in Japan, for instance, should its fortunes change down the line.)

Worldwide rights to Phase III cancer candidate motesanib weren’t originally part of Amgen's Japan proposal--these were being advertised separately. "The compound needed more investment," clarifies Perlmutter--not least, one assumes, to help distinguish this VEGF-targeting multikinase inhibitor from its on-market competitors. Still, Takeda’s interest in that, too, helped it secure the lot: one partner’s easier than two.

Perlmutter isn’t expecting any more multi-molecule, broad ranging deals like this one anytime soon. But the party still isn’t over for those seeking biotech pipeline assets, and who have the money to pay for them. Amgen's currently partnering some of its earlier-stage molecules, too, for which it expects more valuable cash. After all, noted Perlmutter, "not a lot of folk have assets like ours."

And while not a lot of folk face quite the same near-term revenue risks, they aren’t home free, either. Big Pharma will see products with $73 billion worth of US sales lose patent protection by 2012. Which means that the kind of out-licensing and risk sharing Amgen is now doing is likely to be increasingly common among other large drug companies, too.

Amgen Cashes out of Japan; Follows Bristol's Risk Sharing Example

It’s a sign of the times when Amgen starts licensing its drugs to mid-sized Japanese pharma.

Sure, we knew that troubled Amgen, hit by declining sales of EPO drugs and growing competition--including from forthcoming biogenerics--was looking for ways to cut costs. It had already last year declared workforce culls and its intention to partner certain R&D assets.

But this double-deal with Takeda, announced this morning, is still worth a second look. In Part I, Takeda gets Japanese rights to 12 of Amgen’s pipeline assets in exchange for $200 million up front, up to $340 million in development costs—not just for Japanese, but for worldwide development—plus up to $362 million in sales-linked milestones, and royalties. The Japanese firm will also buy Amgen’s Japanese subsidiary for an undisclosed sum.

That regional deal’s interesting enough: Amgen, while touting its wider international expansion outside of the US, is exiting Japan. It wouldn't be the first; other companies have acknowledged that this tough market is best tackled by locals, who’ll pay dearly for access to assets. Amgen's move is also about cutting infrastructure—a trend, and need, that we’ve talked about in the context of Big Pharma’s unwieldy bureaucratic machines (and Amgen, too, is increasingly compared to Big Pharma, as we noted in this IN VIVO feature.)

Part II is the most telling bit of this deal, though. For another $100 million upfront and $175 million in additional success-based milestones, Takeda takes on worldwide rights to Phase III motesanib, a small molecule angiogenesis inhibitor for cancer. It'll pay double-digit royalties on Japan sales, but will also cover 60% of ongoing development expenses outside of Japan, and share profits on a 50-50 basis.

This, in case you hadn't noticed, is Amgen doing risk- and cost-sharing, big time—like Bristol Myers Squibb did via monster deals in early 2007 with AstraZeneca and with Pfizer. Amgen's not only got itself a partner in a market that's now clearly non-core, but has also secured a good chunk of its ex-Japan costs, too, on all 13 molecules.

Amgen didn’t used to do out-licensing, at least, not until a lonely deal with InteKrin last January. Now it knows it has to: it needs the cash to help cushion some of the EPO blow (which may yet get worse following the next ODAC meeting in March) and, with commitments to cut 14% of staff, it doesn’t have the development muscle to deal with its entire pipeline in-house.

Not that motesanib is the crown jewel; far from it. It'll hardly be the first tyrosine kinase inhibitor to market, after all--hence Bear Stearns analyst Mark Schoenebaum's comment that the motesanib terms are particularly good for Amgen, since "we believe that the molecule's future is bleak."

Osteoporosis candidate denosumab is the company’s big hope—some say its only life-line—and Japanese rights to that went to Daiichi Sankyo last year, for what may now appear a rather paltry $20 million up front and $150 million contribution towards global development costs.

But Takeda’s nevertheless doing ok here. Twelve of the 13 Amgen assets are large molecules, granting the Japanese company its own foothold in biologics door, following similar moves by compatriots Astellas and Eisai Co. (along with most Western Big Pharma). Many of those were acquisition-driven, though (read more about the various strategies here).

By effectively signing a regional Japanese deal, Takeda gets to cut its teeth in biologics development alongside experts—albeit paying a price for that privilege—and will likely enjoy the comfort of ex-Japan approvals for some of the compounds before taking on the task itself at home.

And worldwide rights to motesanib—a small molecule—ticks another of the boxes on Takeda’s wish-list: international expansion. All Japanese firms (at least, all the larger ones) are desperate to expand outside their domestic market because of sluggish growth and harsh price cuts. That’s in large part what drove Eisai’s $3.3 billion cash acquisition of US spec pharma MGI Pharma in December 2007—a headline-grabbing transaction that Takeda will have badly wanted to answer to, if not, this time at least, out-do. (Read more about Eisai/MGI here.)

Photo "Pharma Spam Tower" by Flickr user shimown used under a Creative Commons license