DotW: J.P. Morgan Redux--UPDATED

It's common wisdom that the J.P. Morgan conference is the sole reason many in our industry get their flu shots. (We point you to the CDC website for other, far more important stats on why that annual vaccine is important.) Not too surprisingly, deal-making flurry continued apace, as companies small and large sought to garner valuable positive press to balance out the increasingly negative economic news.

Even as Cephalon, BMS, and Wyeth announced new deals (see below), another theme this week was shareholder activism.

On Jan. 14, Deerfield Capital continued to press its case that NitroMed investors stand to lose out if the troubled specialty pharma merges with privately-held aptamer-focused Archemix. In an effort to woo investors, the firm sweetened its black-knight offer from $0.65-a-share to $0.75-a-share in a deal roughly valued at $34 million. The New York-based private equity firm objected to the reverse merger in December because existing NitroMed stockholders would be apportioned only 30 percent of the new entity despite contributing between $35 million and $40 million to a company with no late-stage clinical programs.

Meanwhile, the tussle between Avigen and its largest stockholder, Biotechnology Value Fund, continues to play out on the public stage. On Jan. 15, BVF offered to buy all of Avigen's outstanding stock for $1-a-share, a 35% premium over the biotech's closing price on Jan. 8, the day before BVF announced a plan to replace Avigen’s board with four “stockholder-focused nominees.” BVF, which has nearly a 30% stake in Avigen, wants the biotech to accept a merger offer from MediciNova, while Avigen management has said it plans to seek a new direction in 2009 after its stock price crashed following the failure last year of its lead candidate in multiple sclerosis spasticity.

The economic crisis is sure to force a number of biotechs to make the hard decisions execs at NitroMed, Archemix, and Avigen now face. That realization was an obvious undercurrent in the meeting halls and evening soirees this week, with many adopting a mantle of "been here before" bravado tempered with gallows humor. Being able to actually walk through the lobby of the Westin St. Francis with arms akimbo on Tuesday afternoon only added to the feeling that this year our industry is in a very different place than it was just 12 months ago.

Suffering from post J.P. Morgan letdown? (It's a real syndrome, though unlikely to make it into the 2012 edition of the DSM-V. Please resist the temptation to utter the phrase "let me give you my card" to your spouse. He or she won't appreciate it.) Instead, we're here to continue to pound the industry drum with another packed edition of ...


Wyeth/Santaris: Established as one of Big Pharma’s strongest players in biologics, Wyeth has lagged behind its competitors in the RNAi space. A strategic alliance announced Jan. 12 with Denmark’s Santaris Pharma brings Wyeth the opportunity to develop and commercialize microRNA and mRNA therapies in up to 10 targets. And Wyeth gets the opportunity at what looks like an economical price - $7 million up-front plus a $10 million equity investment to access Santaris's technology platform. Wyeth will also fund the research collaboration for three years – annual amounts haven’t yet been set according to Santaris CEO Soren Tulstrop– and will pay milestones up to $83 million apiece for each target, plus worldwide royalties on any products that reach the market. While not talking specifically about this deal during his JPM presentation Jan. 14, Geno Germano, president of Wyeth's U.S. and Pharmaceutical Business Units, noted that more than 60% of the company’s 2008 revenues derived from “non-traditional pharma sources,” such as biologics and vaccines. Such revenue is expected to increase to 75% of the Big Pharma's business by 2012, he said. One critical product: Xyntha, a Factor VIII plasma product approved for hemophilia A in the U.S. last February. Combined with the pharma’s existing hemophilia drugs, ReFacto and BeneFIX, Germano said the three products represent Wyeth’s next blockbuster franchise--Joseph Haas.

Novartis/HHS: At JPM, Germano also talked up Wyeth’s success with Prevnar, a conjugated pneumococcal vaccine and the industry’s first blockbuster vaccine, which brought in about $2.7 billion last year. While Wyeth is looking to broaden its vaccine franchise with a planned purchase of Crucell, giving it entrée to hepatitis A, hepatitis B and typhoid fever competition, it also has to keep an eye on Novartis, which flexed its muscles in the vaccine world this week. The Swiss pharma announced it had been awarded a $486 million grant from HHS to help fund a new pandemic flu vaccine manufacturing facility on Jan. 15. While acquisition of the Dutch Crucell, the sixth biggest vaccine company in the world, would make Wyeth more competitive in pursuing vaccine contracts with other countries, Novartis is already there and HHS’ help in funding the Holly Springs, N.C., facility should only add to its advantage. HHS will provide the money over eight years to support design, construction, validation and licensing of the facility, which will make cell-based vaccines. Under the agreement, Novartis will provide a pre-pandemic supply of vaccine and ensure capacity to manufacture 150 million doses within six months of the declaration of a wide-spread outbreak. HHS also gets the option to purchase additional flu vaccine over 17 years--Joseph Haas.

Cephalon/Ception: In what is emerging as an ever more common method of getting assets cheaper--if not on the cheap--Cephalon announced this week its $100 million down-payment for privately-held Ception, which was founded by a group of former GSK execs in 2004. The payment gives Cephalon the option to purchase all outstanding stock in Ception for $250 million should the start-up's Phase IIb/III anti-interleukin-5 antibody, reslizumab, make good in the clinic. Reslizumab is targeted as therapy for pediatric eosiniphilic esophagitis, a rare inflammatory disease that has seen a ten-fold increase in diagnoses over the past decade. The deal also gives Cephalon a potential biologics platform that it can bolt onto its existing infrastructure. This increased capability is one reason the down-payment for Ception is so generous. Large molecule platforms have been commanding far higher price tags, and with this deal, Cephalon has signaled its interest and capped the ultimate expense it might owe down the road. This is the second option-type arrangement Cephalon has entered into in recent months. Last November, Cephalon did its first option deal, paying UK biotech Immupharma $15 million for license rights to Lupuzor, a CD4 T-cell modulator in Phase IIb for lupus--Shirley Haley.

The Medicines Company/Targanta: Facing the strong possibility that its franchise antibiotic Angiomax will lose patent protection in 2010, The Medicines Company hewed to its strategy of acquiring late-stage assets – this time through the acquisition of Targanta Therapeutics for $42 million. It's the second major acquisition for MDCO in recent months. In December, the company announced a riskier move: the buy-out of Germany’s Curacyte Discovery, whose lead program is Phase I serine protease inhibitor CU-2010, a candidate to fill the antifibronolytic gap created when Bayer had to pull Trasylol from the market. For its $2-per-share offer, MDCO will get the IV antibiotic oritavancin, stalled in Phase III for complicated skin and skin structure infections after receiving a “complete response” letter from FDA requiring additional trials in early December. Cambridge, Mass.-based Targanta netted $53.5 million in an IPO in late 2007, and has more than $40 million in cash on its balance sheet. Still there's no denying the oritavancin delay--and the cost of an additional pivotal trial--was a significant blow for the biotech. Phase II trials reportedly cost Targanta $40,000 per patient, and a larger Phase III study to better demonstrate the drug’s efficacy in patients with MRSA would be even more costly. Noting the growing U.S. market for gram positive infection therapies, estimated at $1.1 billion in 2007, MDOC stepped in, offering shareholders potential regulatory and commercial milestones payments, which could reach roughly $4.55 per share, in addition to its up-front offer. Cowen and Company’s Ian Sanderson called MDCO's move “a savvy deal” in a Jan. 14 note. In addition to Targanta's cash, MDCO also picks up an experienced antibiotic development team.--Joseph Haas.

Bristol-Myers Squibb/ZymoGenetics: With disappointing sales from its surgical bleeding drug Recothrom (topical recombinant thrombin) - just $1.8 million during third-quarter 2008 – and November’s change at the top, as then-President Douglas Williams succeeded retiring CEO Bruce Carter, ZymoGenetics appears fortunate to have gotten $85 million up-front for its Phase Ib Peg-interferon lambda candidate in hepatitis C from Bristol. At the JPM conference, Bristol Chief Scientific Officer Elliott Sigal said the deal fits with that pharma's strategic focus on antivirals and offers the potential of adding a “special type of interferon” with improved tolerability and targeting to the current standard of care in HCV. Adding a little spice to the transaction, which Williams says should bring ZymoGenetics $200 million total this year, including a $20 million license fee, is that the two companies were engaged in a two-year patent-infringement lawsuit related to Bristol’s rheumatoid arthritis drug Orencia that only was resolved last October. Bristol paid ZymoGenetics $21 million to settle the dispute over two patents held by the latter firm. This latest tie-up greatly strengthens ZymoGenetics' cash position and continues Bristol’s “string of pearls” strategy as the pharma attempts to transform into a next-generation biopharma--Joseph Haas.

Novartis/Peptimmune: Novartis and privately-held Peptimmune agreed on a pair of technically separate deals Jan. 15, with the pharma optioning exclusive rights to PI-2301, a peptide copolymer in Phase Ib for multiple sclerosis, while the venture capital fund Novartis formed with MPM Capital made an undisclosed equity investment in Peptimmune. Back in 2007, the Novartis/MPM fund took a $10 million equity stake in Radius Health, while a separate deal optioned Radius’ Phase II osteoporosis drug, BA058, in what was the first sign of corporate venture's ability to do biz dev. Few terms of the Peptimmune deal have been disclosed, although the biotech says it could realize more than $500 million in development, regulatory and commercial milestones if Novartis options ‘2301. If Novartis does elect its option, it will take over global clinical development, manufacturing and marketing of the drug. Meanwhile, the in-house venture capital model looks to be thriving. Thanks to their big pocketed Pharma sugar daddies, these groups can afford to be a little more generous in the terms they set than traditional VC firms, many of whom are drip-feeding companies as they go out on the fund-raising circuit--Joseph Haas.

Medtronic/Ablation Frontiers: If you’re actually wondering whatever possessed Medtronic to pay $225 million for Ablation Frontiers we’d like to introduce the company’s CEO Keegan Harper, with an excerpt taken from our November profile on the atrial fibrillation company. "Today, more than ever, that is a formula for success in medtech because by shortening procedure times or simplifying a surgical procedure, you enable doctors to treat more patients and that is generally a winning combination." Bingo. Medtronic CEO Bill Hawkins said it himself during his company’s presentation at the J.P. Morgan conference this week: Ablation Frontiers' “very unique set of anatomically correct catheters” will “democratize the atrial fibrillation procedure” by shaving considerable time off of a procedure that takes six hours or more at other companies. The purchase, if approved, would complement Medtronic’s earlier acquisition of CryoCath Inc., giving Medtronic a broader offering of atrial fibrillation products in its battle with Boston Scientific Corp. and Johnson & Johnson Corp. for the hearts and minds of electrophysiologists everywhere. It’s this pursuit that’s turned atrial fibrillation—a one-time black hole for device investors—into one of the sector’s brightest lights--Tom Salemi.

Merrion/Novo Nordisk: Irish oral delivery specialist Merrion Pharmaceuticals has inked another deal with Danish diabetes powerhouse Novo Nordisk to work on an oral formulation of a Novo GLP-1 receptor agonist. A deal to develop oral insulin analogues was signed back in November 2008. The Friday Jan. 16 deal is worth up to $58 million in up-front and milestone payments associated with a theoretical first-product approval and sales hurdles, plus an undisclosed royalty. Novo will also buy 300k Merrion shares at €3 apiece. Though there’s not a lot of granularity in the deal terms it’s worth noting that they’re very similar to the November insulin deal. Also remarkably similar and to us, more amusing: Merrion CEO John Lynch’s photo accompanying the release. Today’s picture of Lynch involves a photographer apparently lying on the floor in order to take a photo of the CEO upwards through a pill-strewn glass table. November’s picture is the same, except the pills are strewn in a slightly different pattern, and Lynch is accompanied by Ireland’s Minister for Enterprise, Trade, and Employment, Mary Coughlan. Now before you all write in to point out that Lynch is wearing the same suit/tie combo and therefore the photos were probably taken on the same day, answer us this: where’s Coughlan? Why is the photo on the second release dated today? Why the different pill formation? Are the photos Photoshopped? Are they a metaphor for the state of Irish biotechnology—nay, for biotechnology the world over? Or is the photo-through-the-glass-table all the rage now? We’re no conspiracy theorists, but something is afoot on the Emerald Isle (and/or rotten in Denmark, we’re not sure where the photos were taken …)--Chris Morrison.

Abbott Laboratories/AMO: The ophthalmic industry has traditionally been in its own club, with specialty device and pharmaceutical companies exclusively selling products marketed to ophthalmologists. So the announcement on Jan. 12 that diversified giant Abbott Laboratories would acquire Advanced Medical Optics for nearly $3 billion in cash was as astonishing as the hefty premium Abbott ponied up. According to the terms of the deal, Abbott will pay $22 per share or a 149% premium to the ophthalmology company’s Jan. 9 closing price of $8.85. Despite the hefty price tag, Abbott is getting a business that many predict will continue to grow by double digits because of aging demographics and improved markgins on products like intraocular lenses. The predicted increased incidence of cataracts, age-related macular degeneration, presbyopia, and glaucoma mean this market could expand from $700 million globally today to $1 billion by 2020. Currently AMO holds the number one spot in refractive surgery, through its LASIK franchise, which accounts for one third of AMO’s overall business. It’s also the second player in cataract surgery, a recession-proof sector that treats the leading cause of blindness in the growing elderly population, and the number three player in eye care with a number of popular consumer brands. Indeed, it is this troublesome environment that caused AMO’s valuation to be depressed enough to make it a prime takeout target. At the November 2008 meeting of the American Academy of Ophthalmology in Atlanta, the talk was all about the deteriorating state of the refractive surgery market as consumers pulled-back on discretionary spending, especially high cost, elective surgical procedures like LASIK. As the S&P 500 fell, so did laser vision correction procedures. With a high debt load in a hard-hit market, AMO’s stock price had fallen from $24 in June 2008 to $10 by the end of December. But with the backing of Abbott, AMO will have the financial resources it needs to make sure it’s in a good position when the financial storm abates--Mary Stuart.

Deals of the Week: Slowly, Unsurely

Any day now.

The subheading to today's press release announcing that the intrepid Fluidigm was withdrawing its S-1 says "the company will wait for markets to stabilize." After the week that was, to us that statement is akin to saying that it'd be nice to walk from New York to Lisbon, but we "will wait for plate tectonics."

Who else remains stranded on opposite sides of a slow moving divide? Everyone's favorite biopharma pen-pals Carl Icahn and Jim Cornelius continue to entertain ("absurd!"), though we may have to wait until next week to find out the identity of Imclone's mystery $70 bidder. Alpharma has once again rebuffed King's takeover offer ("inadequate!"). UCB said it was withdrawing its application for European approval of lacosamide in neuropathic pain, citing an advisory committee's view that further clinical study would be necessary to fully demonstrate the drug's efficacy. A deal was reached to settle the details on the bailout of US banks until it wasn't but then it was but no, in fact, it wasn't. We're still not sure whether Barack Obama will be debating an empty lectern down in Mississippi tonight (and that isn't a political statement).

And don't even get us started about the tightening of the NL East race and its potentially waterlogged climax.

In these uncertain and precarious times, however, you can still rely on the movers and shakers that strike ...


Ligand/Pharmacopeia: If alliance encumbrances can sometimes hinder a deal (we're looking at you, Biogen Idec) they can also it seems add up to the primary rationale for a takeout. Royalty/discovery play Ligand said it was buying Pharmacopeia on Wednesday, noting that the $55 million deal was driven first and foremost by Pharmacopeia's array of future royalty streams from deals with Schering-Plough, BMS, and others. The all stock deal puts a value of $1.81/share (a 52% premium on Pharmacopeia's previous closing price, though still much cheaper than the shares' $5 highs earlier this year) on PCOP and provides a potential $15 million earn-out should Ligand enter a deal around the anti-hypertensive DARA, Pharmacopeia's most advanced unpartnered project, before the end of 2011. Our Pink Sheet Daily coverage of the deal is here. Recall that Ligand back in 2006, after a failed attempt to sell the company, new managers ditched its commercial assets via deals with Eisai and King and others, under pressure from activist shareholders. It now remains committed to the kind of discovery-and-license strategy that the acquisition of Pharmacopeia augments, if only slightly.

Medtronic/Cryocath: The arms race for ablative systems to treat atrial fibrillation waged on with Medtronic’s bid to pay $380 million (C$400 million) for device maker CryoCath Technologies Inc. The acquisition would pit Medtronic against fellow defibrillator makers Boston Scientific and St. Jude Medical in another front against atrial fibrillation—tissue ablation. The trio still is struggling to restore physician and patient confidence in their defibrillators. St. Jude has been the most aggressive, snapping up companies including EP MedSystems Inc. Last year, Boston Scientific put a small, but significant bet on another ablation company CryoCor, acquiring for $17.6 million. Medtronic’s paid considerably more for CryoCath’s technology, but it got a great deal in return. The company sells its catheter-based Arctic Front system worldwide, generating more than $40 million in annual sales. It still awaits FDA approval, which the company hopes to obtain in 2009, with a market launch in 2010. Once again, Medtronic and Boston Scientific will be competitors in the a-fib space. However, they’ll have to share, at least for the short term. CryoCath also announced the settlement of a lawsuit between CryoCath and CryCor, news of which was release just before the potential deal was announced. According to a release, CryoCath has agreed to “payment of future royalties on certain future products for a limited time.” The companies also will let appeals at the US Patent and Trademark office work their way through the system, although they’ve agreed not to sue each other however the appeal is resolved.--Tom Salemi

Getinge/Datascope: It might be largely a function of the depreciating US dollar, but it’s been a record year for international acquisitions of US companies. Budweiser beer--that staple of American baseball games--may soon belong to a Belgian company if it succeeds in its bid for Anheuser-Busch. That trend now extends to health care. Sweden’s Getinge announced that it would acquire New Jersey’s Datascope for $865 million in cash. Of course, the timing of the merger doesn’t only have to do with the dollar’s devaluation. In September 2008, Datascope is quite a different company than it was six months ago. It had shed its patient monitoring business to China’s leading medical device company MindRay Medical in March 2008 as well as its slow-growing vascular closure business to St. Jude Medical in August 2008. Meanwhile, it beefed up its vascular offerings by the acquisition, in June 2008, of the peripheral vascular business of the Sorin Group, whose products Datascope had been distributing in Europe. On the other side of the Atlantic, Getinge has long been executing on its strategy of diversifying beyond non-clinical areas like disinfection products and beds for hospitals. In particular, Getinge has been building out its cardiovascular and critical care divisions. To that end, Getinge acquired the cardiac and vascular surgery businesses jettisoned by Boston Scientific at the end of 2007 for $750 million Now Datascope has complementary products; it operates in two cardiovascular segments; cardiac surgery, with cardiac assist counterpulsation pulsation devices, and vascular surgery, which includes synthetic grafts and peripheral stents. After the merger, Getinge plans to realize growth from cross-selling opportunities from a wider range of products and geographic regions. The deal makes sense on a strategic level, and it’s been long coming. Still, while the medtech industry has been waiting for clinically-focused mid-sized acquirers to take over for the absent large company purchasers, Datascope’ s European and Chinese acquirors suggest that the new acquirors may come from abroad.--Mary Stuart

Nuvelo/ARCA: This reverse merger sees ARCA Biopharma's private investors holding two-thirds of the combined company, which will focus on cardiovascular disease. Reverse mergers haven't exactly set the world on fire though, and even pre-global financial meltdown those companies that had reverse merged since 2005 were down an average of 40% since their deals (performing even worse than newly IPOd firms) according to research published in this month's START-UP. Nuvelo had essentially been a shell in search of a partner since its alfimeprase anti-clotting candidate failed back in March, and despite the difficulties faced by newly public firms, no doubt ARCA is attracted by the public company's $76 million cash pile. The companies' lead project will be the registration stage drug/pharmacogenomic test that is the beta blocker Gencaro, which has a PDUFA date of May 31. The Pink Sheet Daily's coverage of the deal is here.

image via Wikimedia commons.

Deals of the Week: Contents Under Pressure

It's been one of those weeks, hasn't it? Seems like almost every biopharma news story this week illustrated the industry's dire straits. Okay, there was some good news. Pfizer and Eisai won an appeal against a recommendation by the UK government that discouraged use of the Alzheimer’s drug Aricept. But don't get too excited. The British government didn't authorize wider use of the medication. Instead, the drug companies get access to the computer models NICE researchers use to weigh a drug's cost-effectiveness versus its clinical utility.

Meanwhile, Johnson & Johnson announced another round of lay-offs this week, axing 400 employees from OrthoBiotech and Centocor as it combines the two organizations' sales and marketing teams, while Wyeth reduced its numbers by another 1200. The dynamic duo of Genentech and Biogen Idec announced that its best-selling antibody Rituxan doesn't treat lupus any better than placebo, while another fab pair--Genzyme and Isis--struck out with regulators concerning their cholesterol lowering mipomersen.

But we're awarding Merck this week's award for staying on message despite a trifecta of negative news. Late last Friday came the Food & Drug Administration's announcement that it was issuing a "not approvable" letter for the Singulair/Claritin allergy combo being developed in conjunction with Schering. Merck had barely recovered when the FDA delivered more bad news late Monday: another non-approvable letter for another combo pill, the company's extended-release niacin plus the anti-flushing agent laropiprant called Cordaptive. And on Wednesday, came yet another letter from regulators, this time warning Merck about deficiencies at its vaccine manufacturing plant in West Point, PA. Merck wasn't the only company feted by regulators this past week. (In need of amusement? Check out this post from WSJ Health Blog, where Merck CEO Dick Clark admits he "can't blame the media." Whew. I feel soooo much better now.)

Are you feeling the pressure too? Take a load off. It's time for...


Pfizer/Esperion: More than a year after Pfizer closed down its Michigan operations, Esperion, the Ann Arbor company Pfizer bought back in 2003 for $1.3 billion and then shut down, is getting a new lease on life (and a new lease on some Pfizer lab space). Pfizer announced this week that it is spinning out Esperion under the leadership of the original firm's founder, Roger Newton, with $22.8 million in tranched venture backing from co-lead investors Aisling Capital, Alta Partners and Domain Associates, as well as Arboretum Ventures.

Our colleagues at The Pink Sheet Daily were on the case yesterday with the story here (subscription necessary). Esperion 2.0 restarts with a small molecule dual inhibitor of fatty acid and cholesterol synthesis that has not yet reached preclinical. The molecule was part of the original Esperion package bought by Pfizer five years ago, but according to Newton, Pfizer chose not to develop the drug candidate. For now, Pfizer will hang on to the rest of Esperion 1.0's stable of HDL raisers--despite the fact that the ones slated for further development--including the driver of that original acquisition, ETC-216, aka Apolipoprotein A-1 Milano--have been shelved for "scientific and technical reasons," according to the Big Pharma. Why? Pfizer R&D chief Martin Mackay told IN VIVO today that Pfizer would like to out-license the assets separately, perhaps using them as a quid in a separate transaction that will hopefully fetch more immediate and significant value.

That's just fine by Roger Newton, who told us that 216 was never part of his discussions with Pfizer on the spin-out. So now that Pfizer has broken the seal on its spin-out strategy is there more deal flow to come? Our Pink Sheet Daily colleagues think so, reporting yesterday that Pfizer is putting together dermatology and CNS packages destined for separate out-licensing deals. We'll have a more in-depth analysis of Esperion 2.0 in the next issue of START-UP and on Pfizer's spin-off and out-licensing strategy in the May IN VIVO.

Medtronic/ Scil Medical Technology: Medtronic’s recent deal with Scil Medical Technology might seem small, but it’s the latest move by the device giant to beef up its biologics business and tackle the so-called convergence between medical devices and biomaterials. The agreement with Scil, a German biopharmaceutical company, centers around that firm’s biologic rhGDF-5 (recombinant human growth and differentiating factor 5), a dental regenerative technology that can regenerate teeth and treat periodontal disease. Under the deal, Scil will continue to push research and development for new dental products while Medtronic will handle clinical trials, regulatory approvals and commercialization. No financial terms were disclosed. The dental application complements Medtronic's own INFUSE Bone Graft program, which won a green light from FDA a year ago for certain oral maxillofacial and dental bone grafting procedures. It's likely that Medtronic is hunting for other deals in this space based on comments Chad Cornell, director of corporate development at Medtronic, made at our IN3 West meeting in Las Vegas earlier this year. (Shame on you if you didn't make the meeting, but you can read that entire discussion here.)

EUSA Pharma/International Drug Development and EUSA Pharma/Alize Pharma Group: EUSA contines to aspire to become a transatlantic spec pharma in the vein of Shire. This week comes news that the two-year-old company is selling off two groups of early stage assets as it continues to focus on building commercial infrastructure in the US and Europe. International Drug Development (IDD) has bought up the start-up's monoclonal antibody research business, which includes a team of research and development scientists and a well characterized library of antibodies; Alize Pharma, meanwhile, has purchased its recombinant L-asparaginase therapeutic research program for acute lymphoblastic leukemia. Terms of neither deal were disclosed, but the agreement with Alize Pharma gives EUSA some kind of call-back option on any resulting product. "This provides EUSA with access to a potential future product that is an ideal fit with the company's oncology focus," the company noted in a press release issued May 1. Both the antibody and the oncology programs originally came to EUSA through its 2007 acquisition of OPi SA. Readers might recall that EUSA has been ruthless in its pursuit of building late stage development and commercial expertise in what it considers its core areas: oncology, pain, and critical care. Back in February EUSA outlicensed a preclinical fully human anti-IL-6 antibody to GSK for $44 million. Then in March the company spent nearly $23 million to acquire Cytogen, a struggling US outfit with expertise in pain and cancer and 40 sales reps to boot. As we noted in an earlier blog post, EUSA has managed to assemble 9 marketed drugs, five late-stage programs, and raise $275 million since its inception, making building a spec pharma look easy. (For another perspective, check out this article from our September 2007 IN VIVO.)

Sepracor/Arrow International: Sepracor decided it was worth its while to make nice with Arrow International, settling a patent dispute over its inhaler solution, Xopenex, that has embroiled Sepracor and an Arrow division, Breath Limited. Under the terms of the deal, Breath has a 180-day exclusive license to launch generic versions of the drug starting in 2012 in exchange for double-digit royalties on generic sales. Perhaps that overture helped smooth the path for another deal between the Massachusetts-based company and Arrow: a global licensing and development deal for a combination Xopenox/ ipratropium therapy that is expected to begin Phase III trials shortly. Arrow's not getting much of an up-front payment--just $500,000--as part of the deal. But milestones for the combo therapy could eventually total $ 70 million. Meanwhile, in a third deal (yes, count them), Sepracor announced its acquisition of Arrow International's Oryx Pharmaceuticals for $50 million up-front plus another $20 million in milestone payments. The tie-up with Oryx, a specialty pharma that in-licenses and markets prescription meds in Canada, could give Sepracor some much needed home field advantage as it seeks to market Lunesta, Brovana, and eslicarbazine in our Northern neighbor. In the press release annoucing the acquisition, Sepracor execs noted that the purchase "fulfills a long-standing corporate objective of developing a commercial footprint in...the Canadian pharmaceutical market." Geographic expansion is, of course, essential to Sepracor right now. In its most recent quarterly earnings report, the company noted that Q1 revenue dropped to $320.8 million from nearly $328 million for the same period last year, while net income slid from $19 million to about $12 million. One reason for the decline: flagging Xopenex prices. As we reported in a recent issue of The RPM Report, Medicare has slashed reimbursement of the drug.
Image courtesy of Flickr user massdistraction through a creative comments 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.

Aye for an Eye

Well isn’t this just what the VC ordered?

Bausch & Lomb’s move to acquire privately held eyeonics Inc. certainly will be welcome news to medical device VCs wondering who the next acquirer will be. Last year wasn’t a good one for VCs who counted on mid-tier device companies to make up for the lazy pace of traditional acquirers.

Instead of emptying VC portfolios, these folks bought each other. Hologic merged with Cytyc. EV3 bought Fox Hollow. St. Francis bought Kyphon before being acquired by Medtronic. “If I come out of a meeting and find out that someone bought Arthrocare I’m going to shoot myself,” one VC told IN VIVO Blog at the JPMorgan conference.

A bit of hyberbole, perhaps.

Nevertheless, with public investors being somewhat squeamish VCs need smaller companies like Arthrocare to step up their acquisition pace. Now Bausch & Lomb, fresh from its acquisition by Warburg Pincus, may be prepared to help out, at least in picking up a few of the more mature or promising eye companies out there.

This is a fairly new strategy for B&L. In the past, Bausch & Lomb has shown a stronger interest in acquiring pharmaceutical companies with the acquisition of a controlling interest in Shandong Chia Tai Freda Pharmaceutical Group, the leading ophthalmic pharmaceutical company in China, as being one of the biggest. So the move toward devices is encouraging.

Bausch & Lomb does have a considerable surgical business. It offers a line of intraocular lenses (IOLs) and phacoemulsification equipment (used to remove a patient’s natural lens) as well as disposable surgical packs. Sales of cataract and vitreoretinal surgery products accounted for 17% of the company’s $2.292 billion 2006 revenues. It’s the third largest manufacturer of these products behind Alcon and AMO, according to the company’s 2007 annual report.

But sales of these products rose only 1 percent, according to the report. A pittance compared to what eyeonics is doing.

Eyeonics developed and sells its crystalens IOL, the only FDA approved accommodating IOL used to treat cataracts. The crystalens IOL replaces the eye’s natural lens and has been implanted in more than 95,000 eyes worldwide, according to the company.

In a statement, Ronald L. Zarrella, chairman and CEO of Bausch & Lomb, says the acquisition "immediately places Bausch & Lomb into the rapidly expanding premium IOL market." The release reports that market is growing more than 20% annually. "In 2007, eyeonics generated revenues of approximately $34 million, an increase of 100 percent over the prior year revenues of approximately $17 million. Its crystalens IOL is estimated to represent approximately 30 percent of the presbyopic IOL market in the United States," according to the release.

The acquisition automatically adds 10% to the surgical group's revenues. Still, the company has run into some challenges. Check out our MedTech Insight report here. For an early profile of the company click here.

The good news is another potential buyer is in the market. The less-than-good news is eyeonics is no spring chicken. Founded in 1998, the commercial stage company last summer filed to raise $86 million in an IPO. Yet it opted to be acquired. Venture investors include Versant Ventures, Brentwood Associates, Pequot Private Equity, ABS Ventures, and Entrepreneurs Fund.

Versant's Bill Link first invested in the company when he was still with Brentwood. (Link later would leave Brentwood to form Versant.) Together, the two groups owned 33% of the company.

So did eyeonics sell because its IPO chances were iffy? Or did Bausch & Lomb make them an offer literally too good to refuse? (So-called twin-tracking certainly happens in both the device and biopharmaceutical side of the industry.) Until we find out the terms, IN VIVO Blog is leaning toward the latter.

In any case, it's good to have another buyer out there.

Ortho Settlement Doesn't Settle Everything

Yesterday’s announcement that the U.S. Attorney and four of the nation’s biggest orthopedics companies agreed to a $311 million settlement of bribery accusations would seem to put this entire matter to bed.

Under the agreement, four companies—Biomet Inc., DePuy Inc., Smith & Nephew plc and Zimmer Holdings Inc.—paid varying portions of the settlement while all agreed to adopt corporate integrity agreements and to hire outside firms that will monitor their relationships with physicians.

(It’s worth noting that Stryker Orthopedics did not take part on the settlement. CEO Steve McMillan touched on the subject before the settlement in a recent IN VIVO magazine article. Medtronic Sofamar Danek also has had prominent role in this debate.)

But once the cloud cover over the industry clears, we may find an orthopedics industry facing a whole new set of daunting questions:

What of the clean up that’s already begun? Certainly, few industry executives would deny privately that there are more than a few skeletons in the closet of most orthopedics companies—arrangements entered into around consulting agreements or royalty payments that richly reward surgeons for minimal amounts of work. But the $311 million settlement aside, our bet is that most orthopedic industry executives are applauding the settlement and—particularly given that no heavier, industry-disrupting judgments were handed down—may even have welcomed the scrutiny that the case brought.

For one thing, many orthopedic companies have themselves been trying to clean up their act over the past several years, following guidelines such as those promulgated by industry trade association AdvaMed governing appropriate compensation in sales and marketing practices and consulting arrangements.

That’s good corporate citizenship, but also good business sense. Particularly as the industry has consolidated in recent years and become much more of an oligopoly, legacy consulting arrangements that don’t deliver real clinical and economic value to orthopedics companies have become both fiscally irresponsible and unnecessary. Were there times in the past when orthopedics companies set up less-than-robust consulting or royalty arrangements with surgeons just because the surgeons demanded arrangements similar to ones they believed other surgeons were getting? Sure. But as the industry has consolidated and competitive positions stabilized, the ortho giants have no longer felt the temptation to enter into these agreements. Adherence to the AdvaMed guidelines were one rationale for pushing against these kinds of practices; the federal investigation into these practices now gives ortho companies more and more plausible arguments to deny surgeons who come asking for lucrative deals.

Does this tilt or level the playing field for smaller companies? The US Attorney investigations focused on the largest orthopedics companies, a group who, in aggregate represent greater than 90% market share. What are the implications for smaller suppliers and start-up companies? Does the ban against aggressive sales training and consulting agreements eliminate questionable practices and level the playing field? Or does it do just the opposite, erecting huge barriers to entry around the market leaders and preventing others from using well-established tactics that get the attention of important customers? More to the point, particularly where things like the AdvaMed guidelines are concerned, what posture should non-market leaders take? Strict compliance with what are voluntary rules? Or an attitude of, “Let Big Ortho do what it has to; we’ll do what we have to?”

What of the historical and vital relationship with physicians?
Most of the scrutiny has focused on sales and marketing practices—product training programs at the Ritz or sales training done on championship golf courses—those kinds of things. But what rules do we want to adopt about surgeon/supplier relationships where it concerns new product development? Rigid firewalls in the area of technological innovation might cut down on some abuses but almost certainly would signal the end of meaningful new product development in a field where innovation comes largely, if not exclusively from collaborations and feedback from suppliers.

Already some surgeons are beginning to claim that rather than simply ending abuses, the current scrutiny is giving orthopedics and spine companies license to deny them fair compensation for new ideas and new product iterations. Many device industry executives argue that while the current wide-scale scrutiny (one which embraces physicians working with drug companies on clinical trials and the like) is entirely appropriate, some special consideration should be set aside for device companies when it comes to oversight on product company/surgeon relationships.

As noted, the settlement is most likely good news, particularly in that few believe it will call for fundamental changes in industry dynamics. But no one should breathe a sigh of relief until we see what impact, if any, the future oversight will have on surgeon relationships as they apply not to sales and marketing efforts, but to product development.

Ready, set....

Globus Medical Inc. is ready to run.

Earlier this week, the company settled its lawsuit with Synthes USA, reaching an agreement that absolved Globus of allegedly stealing trade secrets and key personnel from Synthes. As part of the deal, Globus agreed to pay Synthes $13.5 million in cash and to not hire any additional Synthes employees for one year.

Freed by the drag of that lawsuit, Globus today announced it raised a $110 million Series E investment in a round assembled by Clarus Ventures, which led a syndicate of private equity investors with a commitment north of $50 million. AIG SunAmerica is the only other identified investor although several private equity firms supposedly took part.

Not that the company had exactly been standing still. Started in 2003 by CEO David Paul and other executives who left Synthes, Globus Medical last year reported more than $80 million in revenue. The size of the settlement surprised some. (Healthpoint Capital's blog has some nice before and after takes here and here. But the Philadelphia Inquirer suggested at least one juror saw some holes in Globus' case.)

Hard to say for sure why the settlement happened, but it's easy to envision Globus executives opting to settle quickly with $110 million piled atop their board room table.

The massive deal signals two developments. The first involves Globus which currently resides on the second-tier of the spinal device market. Medtronic Sofamar Danek, Depuy Spine, Synthes USA, Stryker Corp and Zimmer Spine Inc./Zimmer Holdings Inc. still lead the way. But Globus is now positioned to make a move past other mid-tier players like Blackstone Medical Inc., NuVasive Inc., Alphatec Spine Inc and others. The capital infusion enables the company to plow through with sales of its fusion products while advancing its internally developed line of non-fusion implants and spinal spacers. For more on these areas go to MedTech Insight reports here and here.

The second interesting aspect of this financing of course involves Clarus Ventures, the firm founded by five former partners of MPM Capital who left in a very public split two years ago. This financing will likely be reported as a significant “venture capital” deal, probably the biggest since CardioNet secured its $110 million (which also wasn’t really a venture capital round.) But make no mistake, this is a private equity-style investment with private equity firms involved.

Private equity firms continue to survey the medical device industry, and orthopedics particularly, for opportunities. While the Globus deal clearly resides in a different neighborhood than the $10.9 billion acquisition of Biomet Inc. by Blackstone, KKR and others, it demonstrates how well-heeled venture firms--such as Clarus--can position themselves as private equity players, at least when when medical devices are involved. The $50 million-plus investment in Globus represents roughly 10% of the $500 million debut fund that Clarus closed on at the start of 2006, so it’s a big bet. It also may be the last device deal in this debut fund.

Clarus is clearly comfortable with big wagers as it demonstrated with its participation in the $80 million financing for Sientra, which is pushing for FDA approval of a silicon-based breast implant.

Check out our next issue of START-UP to hear more about the deal and Clarus.