Radius Bone Drug Delivers--Will Novartis Bite?

Radius Health yesterday released top-line Phase II data from its osteoporosis hopeful BA058, demonstrating statistically significant increases in bone mineral density (BMD) versus placebo in the lumbar spine and hip.

Big deal, you say. Well, it kind of is, since Novartis has an option on the compound, exercisable following Phase II evaluation, which is happening now. These days, option deals might be ten-a-penny, but back in 2007, when the deal was signed, they were less common. And Novartis took the option at the same time as the MPM/Novartis 'Strategic Fund', a joint program between the VC firm MPM Capital and Novartis' pharmaceutical business unit, made a $10 million equity investment in Radius. (Read this for background.)

Novartis has since signed option deals on a bunch of other assets, and created a separate venture fund, the Novartis Option Fund, which also inks option-based deals. (For more on their recent activity and the pursuits of corporate venture groups generally, check out this START-UP piece.)

The souring economy and the travails of traditional venture capitalists have made the MPM/Novartis experiment one worth watching. As the first product officially up for grabs, its hard not to see Novartis' decision to exercise--or not--its option to BA058 as a test case for the viability of this particular mix of business development and corporate VC. If Novartis says no, won't traditional VCs and biotechs think harder about the potential taint of an option spurned? Won't an early 'no' also make it harder for the side-by-side fund to ink future deals, especially if the capital markets come roaring back and traditional VCs put money to work again?

Radius' CFO Nick Harvey confirmed to The IN VIVO Blog that "Novartis do now have the Phase II data," but isn't revealing the time period granted to the Swiss group to decide whether to bite. Earlier this year, Joe Jimenez, Novartis Pharma's CEO, included BA058 in an email description of Novartis' osteoporosis development portfolio, suggesting Radius (and its investors) were onto a winner.

But at a recent Elsevier Business Intelligence conference, Novartis' head of BD and Licensing ,Tony Rosenberg, was more circumspect. Moreover, he downplayed the significance of the BA058 decision on the viability of the option model. According to Rosenberg, it would be naive to expect the drugmaker to exercise all the options it has currently taken. "Phase II compounds have a 20 to 30% success rate. If we do five deals, we should expect one or two of them to pay off," he argues.

Do investors buy Rosenberg's logic? Maybe. According to Biogen Idec's Michael Lytton, who invested in Radius while still at Oxford Biosciences and who has become a convert when it comes to these kinds of deals, there's still a bias against such transactions because of their potential to curb a biotech's future deal-making activity. In the case of Radius, Lytton says "co-investors partially accepted the answer that with a primary care product such as Radius' osteoporosis drug, Novartis was one of the few logical acquirers anyway." And after a thorough analysis, they grew more comfortable that the deal's economics were a reasonable approximation of what the biotech might hope to gain from a future partnership.

If it works, BA058--which is parathyroid hormone-related protein--will compete with Lilly's teriparatide (Forteo), a form of parathyroid hormone, and the only bone-building, or anabolic, drug on the market currently. (Check out this START-UP feature for some background on the space.) Appropriately, then, the Phase II trial included a Forteo arm, and, according to Harvey, the highest dose of BA058 boosted BMD at the hip (femoral neck) significantly more than Forteo. (Hip fractures are rarer than spinal ones, but more debilitating and thus costlier.)

Still, since "the trial was designed and powered to show a primary endpoint vs placebo," the Forteo-related statistics are therefore being regarded as "exploratory, rather than pre-planned," Harvey clarified. But he and CEO Richard Lyttle declare themselves pleased with the data, which they say looks "as we expected". Of particular interest: findings show only half the occurrence of hypercalcemia in the group taking the highest dose of BA058 versus those taking Forteo.

Radius reckons this is because BA058 has less effect on bone resorption than Forteo, which means it's less likely to lead to high blood calcium, currently a dose-limiting factor for parathyroid hormone--and the key reason NPS' Preos, for instance (a full-length PTH), never made it onto the US market.

Forteo sold about $800 million in 2008 despite a black box warning related to osteosarcomas, inconvenient administration, and a refrigeration requirement. Radius thinks it has a better molecule, one that's room-temperature stable, and which may be more convenient (Radius is working with an undisclosed partner on a transdermal delivery form).

So will all this plus the crucial Phase II data be good enough for Novartis? We may find out soon--although MPM has said it will support the company whatever the Big Pharma's decision. As to whether there might be any half-way house outcome, other than an opt-in or opt-out scenario, "we could never anticipate that there wouldn't be something [possible] in between," says Harvey.

(Image courtesy of flickr user rachel_r used with permission courtesy of a creative commons license,)

Last Call: Novartis Gets Vaccine Bricks & Mortar Money

Novartis isn't taking any chances about missing the last call from the government's cash spigot for vaccine manufacturers.

The Swiss company collected the most recent installment of its $865 million in support from the US government before a potential change in attitude towards corporate subsidies by the Obama Administration.

Novartis collected the most recent, and biggest, chunk of that support ($486 million) on January 15, five days before the Obama Inauguration.

Significantly, the new piece includes bricks and mortar, just the kind of direct support to one company – especially a non-US one -- that is most threatened by the change of administration in Washington. Many observers expect the Obama Administration to channel more funds in health to paying for beneficiaries to receive health products and services rather than to support the companies that provide those products and services.

[Editor's note: The publishers of IN VIVO Blog, “The Pink Sheet" and The RPM Report will host a webinar Jan. 29 on the outlook for vaccine developers under the Obama Administration. Dack Dalrymple, Chris Colwell (McKenna Long & Aldridge) and Isabelle Claxton (GlaxoSmithKline) will analyze the prospects for the vaccine business in the next four years. For more information, visit: http://www.windhover.com/ezine/html/ac0109-2lp.htm.]

The January 15 Novartis grant is an eight-year commitment to help Novartis finish building and qualifying its Holly Springs, N.C. facility for the production of cell-culture flu vaccine (seasonal and pandemic/prepandemic). The new money is for “design, construction, validation and licensing.”

The company got $220 million from the Department of Health & Human Services in 2006 (before selecting Holly Springs as the manufacturing site) to begin developing a cell-based vaccine. Novartis says that the first round of funding “was not for the facility, land or building.” The $865 million also includes funding for development work on adjuvants and a chunk awarded to Chiron to help get its flu vaccine production back up to par just prior to the major Novartis purchase of Chiron to get into vaccines in a big way.

By collecting commitments for $865 million from the U.S. government over the last three-plus years, Novartis has successfully defrayed much of the cost of expanding into the vaccine business. The company paid $5.7 billion to buy the part of Chiron that it did not already own in early 2006. The grants do not obviously relate directly to the cost of the initial purchase; but as a marker of the size of support for the Swiss company’s engagement in the vaccine business, the US funding represents more than 15% of that initial investment.

Novartis indicates that commercial production from Holly Springs is more than three years away. “Construction activities will continue until late 2010,” the firm says. After than, “engineering and process validation will start,” continuing through 2011-2012. FDA clearance procedures will follow the process validation.

Holly Springs will eventually produce bulk prepandemic vaccine (vaccines designed against projected pandemic strains), the MF59 adjuvant to permit lower doses of antigen in the flu vaccines and other cell-based vaccine products. By the January 15 contract, Novartis is committed to provide two commercial-scale lots of prepandemic vaccine annually to HHS for at least three years.

The new funds will help pay for the regulatory clearance, which can be a significant cost. The Congressional Budget Office has recently estimated that the FDA approval process can add approximately 25% to the initial construction cost for a new vaccine plant.

CBO, in fact, analyzed the projected government and private spending to develop cell-based vaccine manufacturing in mid-September of last year. At that point, CBO reported that HHS was intending to spend up to $600 million to support the creation of new facilities for cell-based manufacturing – as opposed to the traditional egg-based production system. The Novartis contract does not leave much left (about $115 million ) from those estimated funds.

CBO noted that Novartis says that the total cost for Holly Springs will exceed $600 million. As we reported soon after the Chiron purchase, Novartis has said from the start that Holly Springs would cost between $600 million and $700 million. CBO says other vaccine industry sources have estimated that it should cost Novartis less (about $400 million). Novartis is indicating that the final cost could be well over $1 billion.

The other big participants in the flu vaccine expansion: primarily Sanofi-Pasteur, GlaxoSmithKline and Medimmune (AstraZeneca) have also been beneficiaries of HHS largesse. Sanofi and Medimmune have received respectively $77 million and $55 million to retrofit existing flu vaccine plants.

Novartis, however, claims that it will eventually contribute a larger share (60%) to the total cost of Holly Springs than other manufacturers have put into government-supported retrofit projects. Sanofi and Medimmune each put about 25% into the projects funded by the government. CBO said that companies should be expected to put more in for the development of new cell-based manufacturing facilities.

GSK is developing a site in Marietta, Pennsylvania purchased from Wyeth for increased flu and pandemic production in the US. GSK is nearing the stage to seek FDA approval for filling and packaging of vaccines for use in the US from antigens made overseas. GSK has been reluctant to accept much direct funding for construction for the vaccine production projects: people close to the GSK effort say that the restrictions inherent in government contracts reduce the value of the subsidy funds.

The Bush Administration has really created a new vaccine industry in short order by pumping in money, making use of the public concern for a potential pandemic. Now, the new producers are likely to lobby the new administration to make sure that the products from the new production capacity find an adequate market.

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 Year Nominee: Novartis/Alcon

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.

The more legs you’ve got, the more stable you are when you’re standing still. But how do you get all those legs moving in synch?

Attitudes vary towards just how much diversification is worthwhile, but – with just a few holdouts -- drug companies agree that basing a business on novel small-molecule research is way too risky.

But as with multi-legged creatures, the problem with diversification is how managers good at (or at least familiar with) running one kind of business – R&D-intensive prescription drugs – do with another kind. Which is why the more conservative of the diversifiers aren’t actually getting out of the drug business per se – by going into branded generics or OTC medicine they’re still staying close, theoretically, to home. Take the most recent convert to diversification – Merck: its recent announcement that it would be going into follow-on biologics edges it toward a kind of generics but without the full-blown commitment to just-in-time product development and manufacturing and rock-bottom prices that the small-molecule end of that business requires.

Novartis, too, certainly recognizes the managerial challenge of diversification. Among the most aggressive of the industry’s diversifiers with extensive consumer and generics businesses, it moved this year even further afield through its play for Alcon (see our transaction summary here and a longer analysis here) – another nominee for deal of the year. Alcon’s largest and fastest growing business is in largely self-pay surgical products, which make up 45% of its total revenues. The consumer side of ophthalmology makes up another 15% -- the rest is specialty eye drugs.

Novartis is trying to minimize the problems of a pharmaceutical company managing a device business in part through the structure of its deal. Novartis is merely investing in the company (starting out with a 25% stake -- for $11 billion -- with a plan to increase it, sometime between 2010 and 2011, to 76%, for no more than an additional $28 billion). It theoretically won’t be managing Alcon any more than Alcon is managed by its current majority owner, Nestle. Instead -- once it owns a majority of Alcon’s shares -- it will be able to consolidate Alcon’s double-digit-growth-sales-and-earnings but without the executive headache of actually running the business. And with Alcon trading independently, investors should still be able to independently follow and profit from its progress, and with luck according it a bigger valuation than what it might receive hidden inside the much larger and slower-growing overall Novartis business.

The disadvantage: with Alcon as an independently trading company, Novartis can’t do the usual cost-cutting most acquisitions allow; nor will it be able to combine marketing efforts (e.g., between Novartis’ ophthalmic businesses in its Ciba Vision contact lens unit or its two eye drugs, in particular the macular degeneration drug Lucentis.

The closest recent comparator we know of to the Novartis/Alcon deal is what Bristol-Myers Squibb is trying to achieve in spinning off of its consumer nutritionals business, Mead Johnson (see our analysis, here). Bristol, too, wants to get the benefit of non-pharma growth without having to manage it. The company figured its pharma-oriented execs couldn’t pay quality attention to the much smaller and much different nutritionals unit; and that when they did pay attention to it, these earnest auslanders probably didn’t add significant value. Investors, too, ignored the group – Big Pharma analysts, hardly experts in the area, buried the Mead results in their spreadsheets.

By spinning off just 10-20% of Mead, Bristol opens up the company for investor examination, frees its own managers to focus 100% of their attention on the pharma business, and focuses Mead’s execs on the competition in nutritionals, rather than the competition for corporate resources. Meanwhile, Bristol still gets to consolidate Mead's top and bottom lines.

So far, quite similar. The big difference between the two deals is that Novartis is paying for its diversification (and had it waited six months, it could have saved 50% or so on its $11 billion down payment); Bristol wants to get paid (albeit the market meltdown will presumably lower the take it had hoped for).

And from an investor’s point of view, Novartis is therefore asking its shareholders to fund its attempt to do what investors might see as their job – buying stock. Since it’s leaving Alcon independent, Novartis can’t argue that its money will be adding much corporate value to the ophthalmic company. One could argue, on the other hand, that Novartis is limiting investor choices: because they could buy Alcon shares on their own, shouldn’t Novartis do something with their money that investors couldn’t (like buy pipeline)?

On the other hand, Bristol’s spinoff actually offers investors a new choice – if they prefer to unload pharma shares for stock in a nutritionals business, well, the menu of choices just got bigger (and theoretically Bristol wins either way). The real strategic equivalent: Novartis could spin off a minority of its generics business, Sandoz, which likewise has virtually no synergies with its parent and which might profit from some independence.

Or you could argue that Novartis is in fact offering investors a new set of choices. Those with a higher appetite for risk can put their money into Alcon; those who want the security of a big company, but now with a frisson of mid-size company excitement, can buy Novartis stock leavened with Alcon growth.

Image via Funny-Dog

Deals of the Week: Don't Worry Be Happy

Because life needs an optimistic soundtrack. This week In Vivo Blog is adopting the "Don't Worry, Be Happy" motto made famous by Bobby McFerrin in the 80s on the sage advice of Christoph Westphal, CEO of GSK's Sirtris.

At MassBio's annual event on Dec. 9, Westphal urged audience members to think about the opportunities the current financial crisis has created. "I think many of you who are well-financed [also] are going to be able to build even stronger teams and do exciting things," Westphal said, according to "The Pink Sheet" DAILY. His other piece of wisdom? "I think the important things is to always be very well financed and to keep on a momentum path, so that the venture guys don't get nervous on you," he said.

Ah, sweet mystery of life. At last I know the secret of it all.

Sadly, Westphal's recipe for success came too late for folks at Emisphere, XTL, Panacos, and Elan, which all officially joined the ranks of IVB's "troubled biotechs" list this week. The fall-out for Elan was swift and particularly ugly. You can bet CEO Kelly Martin is having a hard time making "Happy Talk" these days. On Friday, the firm announced it was cutting 114 jobs and closing its Tokyo and New York offices, as it attempts to offset the slower growth of its lead drug Tysabri and strengthen its balance sheet. Whether or not the move goes far enough to appease increasingly angry shareholders remains to be seen. (On Thursday, Jack Schuler, former president of Abbott Labs and a 1% stakeholder in Elan, wrote a letter to its board expressing frustration at money wasted on private jets and an excessive number of company offices.) If it doesn't, Martin may have to change his tune to "You're not the boss of me now".

Certainly, Merck executives are clearly in "why worry now?" mode; after all there should be laughter after pain. Clearly their new initiative in follow-on biologics is going to be the answer to recent slower growth of Gardasil and the on-going fall-out from the Vytorin mess. Sadly, the same can't be said for Eli Lilly, which got caught flat-footed at its analyst day. When asked about Lilly's own potential interest in FOBs, CEO John Lechleiter clearly wasn't prepared for the question. “We’re very much considering it. It’s something we’re looking at,” he replied. GEEZ. IVB's response: De do do do, de da da da is all I want to say to you.

We bet next time Lechleiter get asked that question he won't be fooled again. If the news has got you singing the blues, we have the solution (and maybe even a lyric). It's that time again...



BMS/Exelixis: At Exelixis, it's love the one you’re with. Exelixis first began collaborating with Bristol back in 1999 – when the biotech was still basically a platform operation, using worm and insect models to define mechanisms for Bristol compounds. As the relationship deepened, Exelixis leaned heavily on Bristol to help it step up to a product development strategy – swapping, for example, targets and access to its biology platform for access to Bristol’s combinatorial chemistry and a later-stage cancer compound (see this 2002 In Vivo analysis for more). In the next deal, Exelixis paid back virtually the entire price of its X-Ceptor acquisition by selling Bristol a couple of X-Ceptor cardiovascular compounds. A year later it turned once again to Bristol to sign a more elaborate oncology agreement on some early-stage assets. So it was only natural that when GlaxoSmithKline turned down its option on a small collection of Exelixis cancer compounds, including the Phase III XL184 – presumably because of a mechanistic overlap with another Exelixis compound GSK had already optioned – the biotech would turn back to its most important partner. And their long relationship no doubt accounted for Scangos’ confidence, as he implied to IN VIVO at the time, that he’d be able to partner the product before year-end. In the current confidence-less market, Big Pharma partnerships are again becoming key – but ultimately informationless -- imprimaturs for the value of small company technology. The news of the Bristol deal (in return for rights to XL184 and the Phase I XL281, Bristol will pay $195 million upfront; $45 million guaranteed next year and fund most of the development expenses for XL184, all for XL281) prompted investors to return almost exactly the same amount of share value that the GSK “no thank you” had prompted them to subtract two months before. The equivalence is surprising: since the inception of their relationship in 2002, GSK has spent a total of $260 million with Exelixis (including an $85 million loan). The latest Bristol deal alone will put a guaranteed $240 million into Exelixis’s bank account (roughly $2 a share in cash – though since the stock was up only $1.22 on the day, you could actually argue that investors see the deal as value destroying). Or to put it another way: Exelixis got paid twice – first by GSK; and now by Bristol. Good deal. Kind of odd investors don’t get that.

Valeant/Dow Pharma: Valeant executives are likely crooning "I've got you under my skin" this week, after acquiring privately-held Dow Pharma, a Petaluma-based derm company founded in 1977, for $285 million in cash, plus another $200 million in milestones. Ever since Valeant scored a $125 million up-front payment from GSK earlier this summer for its late-stage epilepsy drug retigabine, the company has been buying up dermatology-focused companies in a valiant effort to solidify its standing as major derm spec pharma player. In mid-September the company paid $95 million for Coria Laboratories, a division of the privately held spec pharma DFB Pharmaceuticals, to gain its marketed acne products and the CeraVe skin care line. In November it spent another $12 million on DermaTech, which sells a number of over-the-counter products for sunburn, warts, and dry, itchy skin. This latest deal--at roughly 4.5 times Dow's annual revenues--shows the amount of money companies are willing to shell out for revenue-generating entities. (It also shows just how bad things are out there--it used to be that kind of multiple--while not small--wouldn't have raised many eyebrows. Not in this climate.) In addition to an approved topical drug for mild-to-moderate acne called Acanya, Dow also has a healthy service business providing topical formulations to other pharmaceutical companies. In 2008 that side of Dow's business generated $25 million in revenue, helping to offset the company's internal R&D burn. In addition to Acanya, Valeant gains five development-stage dermatology products and a revenue stream from previously out-licensed products that runs about $20 million annually. Valeant clearly believes that by morphing into a derm player it might have more success, particularly given the safety-first regulatory climate and penny-pinching payers. Topical products are less likely to raise red flags at the FDA because they are not absorbed systemically and private-pay line of cosmetics avoids the reimbursers (though the recession might make the out-of-pocket market significantly less attractive). Dow's venture backers clearly aren't complaining: Essex Woodlands, Galen Partners, and Skyline Ventures, which invested $36.5 million in the company in 2005, are more than in the clear given Valeant's proposed purchase price.

Novartis Option Fund/Ascent: Employees at tiny Cambridge, MA-based Ascent, which was in stealth mode until last month, are likely rocking out to U2's "It's a beautiful day." The company announced that Novartis, together with its option fund, had signed a deal to develop drug candidates against a specific GPCR target. The aggreement includes an undisclosed upfront fee and potential milestones totaling over $200 million, as well as royalties. It's also some validation for the biotech's nascent so-called Pepducin technology. GPCRs are one of the biopharma industry's favorite targets when it comes to developing new therapeutics (according to some sources, 40 - 50% of all marketed drugs target this protein class). Problem is that many of the seven-membrane-domain proteins have proven undruggable--at least with traditional medicinal chemistry approaches. Enter Ascent, which has a nifty technology that allows it to generate short lipopeptide molecules capable of acting as highly specific GPCR inhibitors. To date the company has generated 15 such GPCR inhibitors--at least in vitro--and CEO Rick Jones claims its scientists haven't yet found a receptor they couldn't antagonize (or didn't like). The biotech, which announced a $19 million Series A in November with backing from Novartis Option Fund, Healthcare Ventures, and TVM Capital, plans to identify one suitable IND candidate by mid-2009, probably in inflammation or oncology. As we wrote here, Novartis Option Fund is one of two option funds recently launched by Novartis. Both buy equity in companies and simultaneously secure options on other products, adding a business development spin to the funds' more traditional venture functions.




Unilever/Phytopharm: Unilever, retailer of Dove soap and Pond's cold cream, sang a modified version of "I'm Gonna Wash That Man Right Out Of My Hair'' this week, when it announced it was washing its hands of Hoodia, a functional food extract for weight management developed by Phytopharm. All the orignal patents and rights will revert to the UK-based Phytopharm; in addition, Unilever has granted the company a "non-exclusive, perpetual, irrevocable, worldwide, royalty-free licence, with the right to sub-license, to any Unilever patents, intellectual property rights and know-how connected with the Hoodia programme" according to a press-release. Whew, I'm sure that makes Phytopharm's board feel much better. Phytopharm's chairman Alistair Taylor announced the news in true British fashion--with a stiff upper lip--and did his best to spin the "disappointing" news positively: "We are pleased to have agreed [on] termination terms with Unilever which enable us to take the product forward with another partner. Phytopharm continues to believe strongly that there are alternative product formats and applications for the commercialisation of Hoodia." Maybe, but this isn't the first time a partner has given the extract back to Phytopharm. According to FDC-Windhover's Strategic Transactions database, Phytopharm first licensed Hoodia from South Africa's Council for Scientific and Industrial Research in 1997, then offered Pfizer worldwide development and marketing rights to the compound in 1998. Following the closure of its nutraceuticals group, Pfizer returned its rights to Phytopharm in July 2003.

AZ/Infinity: Infinity execs are channeling their inner Soup Dragons--or maybe they prefer the Stones' rendition?--this week. Yes, readers, they are free to do what they want with their HSP90 inhibitor program, thanks to the pocket full of cash (not kryptonite) they recently received from Purdue Pharma and its affiliate Mundipharma. As we reported in "The Pink Sheet" DAILY, Infinity will pay AZ nothing upfront to get back full control of its Phase III injectable, IPI-504, as well as its Phase I oral compound, IPI-493. As part of the break-up, AZ will pay its development obligations for another six months; if Infinity manages to launch a product, it will owe AZ a single-digit royalty. Although some have speculated that AZ saw something it didn't like in the ongoing HSP90 trials, there's no indication currently of increased clinical or regulatory risk associated with program, which includes a Phase III study in refractory gastro-intestinal stromal tumors and earlier stage studies in other indications. Instead, the break-up appears to be a case of an evolutionary incompatibility, marking the definitive end of a deal Infinity had originally signed with MedImmune, then an independent company. AZ certainly wasn't gettin' sentimental over the terms it inherited-- in particular, the 50/50 profit split MedImmune accepted because it lacked small-molecule and oncology expertise. Moreover, AZ didn't feel it particularly needed Infinity's expertise given it's world-leading oncology franchise primarily focused on small molecule drugs. It's not unreasonable to assume the two companies were in discussions to renegotiate the terms of the partnership--the current financial crisis has made such discussions commonplace. But Infinity's deal with Purdue in late November gave it the freedom to change the nature of any on-going talks. Thanks to Purdue and Mundipharma largesse--they agreed to fund virtually all of Infinity's R&D through at least 2013 and bought $45 million worth of equity at a 100% premium in return for ex-US rights to Infinity's pipeline (the exception being the HSP90 program)--Infinity can afford to re-acquire the program, gaining full rights to a relatively late-stage asset. Indeed, given the generous terms Exelixis got from Bristol on another Big Pharma-rejected Phase III cancer program -- see note above -- Infinity execs are undoubtedly practicing an up-tempo version of "Hey Big Spender".

(Photo courtesy of flickr user jovike through a creative commons license.)

DotW: Broken Record

The news just keeps getting worse: the economy is bleeding jobs and the band-aid that is interest rate cuts will likely do little to stop the hemorrhage of foreclosures and late mortgage payments. While executives from the Big 3 drove to Washington in their green cars to beseech Washington for a bail-out, reports from biopharma land were equally depressing. (So much for a recession proof industry.)

Your broken record, bad news round-up sounds something like this: Sanofi Aventis announced it was cutting hundreds of sales reps in the US (the ax fell in France some months ago), adding to the growing list of pharmas scaling back on their commercial organizations. Meanwhile BMS laid off workers at its Dewitt manufacturing plant and the outlook for Merck remains...murky after this week's guidance update. (Maybe the company should team up with Schering-Plough to find a way to use Zetia as an alternative fuel source. Now that's innovation--and a way to get rid of excess inventory.)

As Big Pharmas struggle with their lack of research productivity, Goldman Sachs offers a ray of hope, according to the Financial Times: the London firm is apparently in talks to provide hundreds of millions of dollars of funding to a large pharmaceutical company--and it's not AstraZeneca--to create a hybrid R&D model built around the co-development of certain medicines. Hmm, could this be a step forward in the evolution of pharma's business model?

It's not just pharma that needs a new business model. Trouble appears to be brewing in the VC kingdom as well. Rumors continue to abound that limited partners--hit hard by redemptions--have asked various venture firms to delay capital calls while they right their alternative asset allocations. Meantime, Venture Wire is reporting that Sofinnova Partners, which managed to raise a significant portion of its 6th fund, did so with an increased number of LPs, suggesting that even when investors could be swayed to part with their money, they weren't willing to ante up as much as in prior years.

Tired of this monotonous drum beat? We are too. Thankfully it's time for...


J&J/Mentor: J&J is buying aesthetics leader Mentor for $31 per share--or $1.07 billion. They win this week's award for biobucks and curry favor for their recessionista outlook, as they aim to snatch up good assets on the cheap. Since September '08, Mentor’s stock has declined from around $28-per-share to just $16.15 the day before the Dec. 1 announcement. The tie-up makes a lot of sense, given that 90% of Mentor’s revenues come from its breast implant business, and the current plan is to incorporate Mentor firmly within J&J's Ethicon surgery division. Even before the effects of the sub-prime mortgage crisis were fully felt, aesthetic (and other elective, out-of-pocket) procedure volumes had begun to drop. In a depressed economy, Mentor’s large, diversified parent cushions it from the downturn, allowing it to build up its portfolio of office-based products for plastic surgeons and dermatologists—dermal fillers, skin care products, and lipoplasty products. J&J gets into a business that’s adjacent to other core skill sets—surgery and wound care—with good long-term growth prospects. Consolidation in the industry had already begun in early summer—when the industry saw the takeout of LipoSonix by Medicis Pharmaceutical, and the merger of Thermage and Reliant. Now, while shoring up Mentor’s defenses, the J&J acquisition removes a major consolidator from the aesthetics field, at a time when small companies in the space will have a tough time weathering the financial crisis--Mary Stuart.

Novartis/Evotec: Not every Big Pharma is going to Chindia to outsource its R&D. This week comes news that Novartis has teamed up with the Germany-based biotech player Evotec in an early stage research collaboration to identify and develop small molecule therapeutics. As part of the collaboration, which will run for three years, Evotec will be responsible for programs up through preclinical development, with Novartis taking over responsibility--and cost--for the project once the molecules enter human testing. The money certainly isn't huge--for it's cutting edge science, Evotec garners an undisclosed milestone payment and preclinical and clinical milestones that could exceed a whopping $28 million. (Novartis will also pay royalties on sales of any marketed products resulting from the collaboration.) But in these straitened economic times, that's not chump change either, providing the German biotech with important non-dilutive funding to drive forward its four clinical programs--including EVT 201, a partial positive allosteric modulator (pPAM) of the GABAA receptor complex for the treatment of insomnia. Jorn Aldag, president and CEO of Evotec, positively bubbled in a press release announcing the news: "We are excited to be leveraging our drug discovery expertise with such a world class company."

Cephalon/Alkermes: Cephalon and Alkermes parted ways on the future prospects for Vivitrol, a monthly injection for alcohol dependence launched in 2006. Alkermes announced Monday that it had acquired full commercialization rights to the extended-release injectable suspension formulation of naltrexone. The deal was nearly a wash for both parties: Cephalon will pay Alkermes $11 million to cover losses related to the product over the next 12 months, while Alkermes will transfer $16 million to the Bristol, Pa., firm to purchase manufacturing equipment. With its strong cash position--Alkermes has nearly $426 million in cash and cash equivalents currently--the company says it plans to continue marketing Vivitrol on its own, with a 12-month commercial strategy of increasing utilization among doctors who already prescribe the drug, streamlining product access and reimbursement, and enhancing continuity for patients transitioning out of the treatment setting. But driving adoption has been difficult, in part because historically the problem has not been recognized as a treatable disease. Alkermes' VP of Corporate Communications Rebecca Peterson puts it this way: "Standard operating procedure was not to use medication [to treat alcohol dependence]; that is changing over time." But even if doctors and payers are more willing to entertain the idea that alcohol addiction can be treated with a pharmalocologic agent, it's likely Alkermes will need every person on the 70 person Vivitrol commercial team it now controls--especially the 55 sales reps--espousing the message at detox centers in order to boost prescription sales. In "The Pink Sheet" DAILY, Peterson admitted that Vivitrol sales have not been "as robust as maybe we had originally expected," adding that the product's main challenge was not in the areas of reimbursement and payer acceptance.

NitroMed/Archemix: To be fair, this really ought to be characterized as a "No Deal?". News surfaced this week that Deerfield Management aimed to scupper Archemix's proposed reverse merger with struggling NitroMed by launching it's own bid--at a whopping $0.50-a-share-price--for the troubled Lexington, MA-based company. In donning the mantle of "black knight," Deerfield's managing partner James Flynn made of point of telling NitroMed shareholders that it has not been one to "wage contentious public debates." But he also insisted that the proposed NitroMed/Archemix tie-up, which basically exchanged NitroMed's cash and NASDAQ listing for a 30% stake in the newly merged entity, placed Deerfield in an "untenable position." "NitroMed shareholders have been allotted a scant 30 percent of the combined company in exchange for NitroMed's cash," he wrote in a letter filed with the SEC. By Deerfield's calculations, the $0.50-a-share price on the table represents a 200 percent premium to NitroMed's closing share price on Dec. 3. It's also approximately double the price of NitroMed's shares in late October, when the company announced the sale of BiDil to JHP Pharmaceuticals for $24.5 million in cash plus additional payments for product inventory. Deerfield's proposed price for NitroMed represents its own calculation of what the biotech would be worth if it continued to sell off the combo heart medication BiDil as planned and then wound down the company, distributing the cash to existing shareholders. Certainly, the news comes at a time when many private biotechs are looking at potential shell companies such as NitroMed as attractive acquisition candidates in order to access non-dilutive cash. Remember Replidyne? But as we've argued in previous posts, even successful companies such as Infinity and MicroMet have been hard pressed to pull off a successful reverse merger event. It's hard to say what's next for Archemix--the company is saying nada publicly about the news. Certainly it could face a tough and very public battle, one that leaves its new investor base less inclined to stick around in a turbulent market. It's possible the company could try the reverse merger route again, with a different troubled entity (We hear Cell Genesys has a lot of cash and little in their pipeline after the official termination of its deal with Takeda). Or maybe Archemix will opt to stay private--there's really no benefit in being public these days anyway--pushing onward with the roughly $20 million it has on hand.

Photo courtesy of Flickr user william kunz through a creative commons license.

Deals of the Week: Industry Spokesperson?

News of Mr. Bill's demise has been greatly exaggerated. The hapless Play-Doh character, an icon from the mid-1970s "Saturday Night Live" episodes, is back, starring in a new MasterCard "Priceless" spot. Recall that despite being mutilated or squashed, the ever optimistic Mr. Bill always came back for more. Now Mastercard's ad agency sees a way to use him to tap into the current “unsureness about what’s going to happen next.” The tag line for the ad, of course, is: “Making it through the day: priceless.”

This got IN VIVO Blog thinking: could the pharma industry find a better pitchman than the Mr. Bill, who suffered the abuse of "friend" Mr. Hands and arch-nemesis Sluggo? Think about it. Vytorin's loss of market share or Chantix's and Lyrica's troubles got you saying "Oh Noooo"? Worried that Teva's got a better take on developing generics--or biologics--than your own stellar and highly paid R&D team? Embrace Mr. Bill.

Hmmm. We aren't sure if Mr. Bill's existing Mastercard contract--or a run-in with a dump-truck loaded with pills (see below)--precludes a deal with the drug industry. And given the state of DTC advertising, would this be the wisest career choice for our yellow friend with big lips? Perhaps it's better to say "Oh Yes" to Deals of the Week.

Ipsen/ Octagen; Ipsen/ Vernalis; Ipsen/ Tercica: Ipsen bulks up its R&D assets with the acquisition of endocrinology, neurology, and hematology projects, adding a bit of US commercial infrastructure to boot. We honored them with their own deals of the week banner yesterday.

Novartis/ Protez Pharmaceuticals: Novartis announced Wednesday that it was buying Protez in a deal that could be worth as much as $400 million if certain clinical milestones and commercial targets are acheived. Protez will become a stand-alone subsidiary of Novartis, maintaining its operations in Malvern, PA. The deal, for which Novartis pays $100 million up-front, is primarily centered around Protez's lead product candidate, PZ-601, an injectable antiobitic belonging to the carbapenem class that is currently in Phase II clinical trials to treat life threatening bacterial infections, including MRSA, and was originally developed by Dainippon Sumitomo Pharma Co. We admit to some head-scratching concerning this tie-up. Protez's other compounds, which are beta-lactamase inhibitors--appear to be in the earliest stages of drug development, so most of the company's value seems tied up in PZ-601. Why then go to the trouble of buying the whole company and ring-fencing it when it seems simpler to license the one drug? Oh, we know antibiotic resistance is on the upswing and that hospital-acquired bacterial infections are a potentially valuable specialist market for Big Pharma. We also know that stand-alones are de rigeur these days. (Sirtris and Millennium will retain their autonomy even though they know report to GSK and Takeda respectively.) But what's the logic behind this structure? Anyone from Protez or Novartis want to clue us in, we are all ears.

Gen-Probe/Innogenetics: It's been a little over four months since Roche succeeded in acquiring Ventana, so it's about time for another battle for a molecular diagnostics player. This time the company in the news is the Belgian diagnostic developer Innogenetics. A little more than a month ago, Solvay announced a friendly tie-up with the company. On Wednesday came news that Gen-Probe was throwing its hat into the aquisition ring, with an all cash offer worth $334 million, a 6% premium to Solvay's original 5.75-euros-per-share offer. Diagnostics used to be viewed as the lowly side-kick to more lucrative drugs, but a changing regulatory climate and a new breed of expensive molecular tests is changing that perception. Gen-Probe seems aiming to build a power-house to rival Roche, given this comment from the company's press release:

The combined entity is expected to be the largest standalone molecular
diagnostics company in the world, with pro forma 2008 sales in excess of $500million. The combined company would offer a broad range of nucleic acid and immunoassay tests to identify bacterial and viral infectious diseases, genetic and neurological disorders,transplant compatibility, and cancer. These tube- and strip-based products could be sold to a diverse group of small, medium and large customers around the world.

Still, as David Hamilton over at bnet writes, it's a risky move for Gen-Probe. The San Diego company, which had 2007 revenue of $403 million and a market valuation of more than $2.83 billion, hasn't done an acquisition since 2003 when it bought Molecular Light Technology for $11 million. And it's offer could trigger Solvay, a much larger outfit with revenues of roughly $15 billion, to up its bid. Given the weakness of the dollar to the euro currently, it's possible Gen-Probe could find itself on the losing end of the bidding war.

Elron/ Given: Elron Electronic Industries aims to buy an additional 1.46 million shares in Given Imaging, upping its stake in the capsule endoscopy company it spun out in 1998 to 48%. Our own Mary Stuart wonders: could this be the prelude to an acquisition? Maybe yes--and not necessarily by Elron, she says. Investment banks like Needham & Co. are positive on Given, and some have suggested that it’s ripe for a takeover, with Boston Scientific, Fujinon, Johnson & Johnson, Olympus, and Pentax named as suspects. Given pioneered capsule endoscopy in 2001 with its creation of an encapsulated color video camera that transmits images of previously inaccessible regions of the small intestine upon swallowing. Capsule endoscopy continues to make incursions upon conventional endoscopy: at the Digestive Disease Week meeting two weeks ago, Given presented clinical studies supporting expanded indications for its diagnostic device. With $130 million in sales projected for 2008 and full US sales and marketing rights for its device (J&J used to have a share), Given might just be at the threshold that large company acquirors like to cross. It's also unencumbered, thanks to the April settlement of patent litigation with Olympus.

While You Were BBQing (on Mars)

In the event your Memorial Day / Bank Holiday weekend didn't involve a glance at the news, let us inform you that NASA landed another probe on Mars, to scoop up some Martian ice and cook it up to 1800 degrees Fahrenheit to sniff out trace chemicals in the vapor, in an attempt to find signs of previous life there. With luck your own barbeques were less costly, not as burnt, involved fresher food and were at least a little tastier. It's tough to beat Phoenix's view, however, and we can't be the only ones who want a grill that looks like that (so long as it's made by Weber, naturally).

The budget for Phoenix's 422 million mile trip was about $420 million, most of which came from NASA aside from a $37 million weather instrument supplied by Canada (presumably already paid for, because now that Canada's mad at FDA--see below--checks could start bouncing).

With yet another big-upfront technology licensing deal (this time with Japan's big dealmaker Takeda), Alnylam Pharmaceuticals can probably afford to foot the bill for NASA's next mission, providing the destination may provide them access to new companies eager to spend a ton of money to non-exclusively license Alnylam's RNAi platform.

This time they didn't have to go as far afield, though for the first time they've branched out into Japan. We'll have more to say on the deal later today so watch this space. For now we give you the basics: $100 million in up-front cash and $50 million in near-term technology transfer payments for non-exclusive license to Alny's platform in oncology and metabolic disease, first right of negotiation on Alny's RNAi programs in Asia (excluding ALN-RSV01). Alnylam also gets opt-in rights for 50/50 co-dev/co-commercialization deals on Takeda programs in the US market, plus the usual gajillion biobucks in development and commercial milestone payments.

UPDATE: We've written a post on the Alnylam/Takeda deal, here.

And what else went on over the long weekend?

• On Monday Novartis said the EU had greenlit Extavia, its brand of interferon beta-1b for multiple sclerosis. Extavia is the same as Bayer-Schering's Betaferon/Betaseron; Novartis gained the right to market its version in a 2007 settlement with Bayer after it bought Chiron (which manufactured the drug for Schering) in 2006. Launch of the interferon in the US and Europe in 2009 should allow the company to secure a beachhead in the MS market before introducing its novel oral therapy fingolimod (FTY720), which is currently in Phase III.
  
• HHS Sec. Michael Leavitt says red tape is slowing FDA's push to get boots on the ground in China. (AP, at WSJ.)
  
• Health care stocks are no longer a port in an economic storm, reminds the Wall Street Journal on Sunday. The paper quizzes a few fund managers on why, and looks for exceptions to the rule.
  
• The Sunday Times is reporting that Elan is mulling a spin-off of its drug delivery business (Elan Drug Technology), but that any move will likely wait until later this summer when it has a better handle on the success or otherwise of its Alzheimer's disease program. (via reuters.) Wait. Haven't we heard this before?


• And finally ... look out FDA! You've gone and pissed off Canada ...

image: NASA

Novartis' Herrling Talks China with PharmAsiaNews

Every major pharmaceutical company has a "China" strategy. Novartis is among the most aggressive: it is currently the fourth biggest supplier of medications to hospitals in that country and aims to make China one of its top 10 markets by 2010.

Reporters from FDC Reports' PharmAsia News, a sister publication to IN VIVO Blog, sat down recently with two Novartis execs well versed in all things China: Paul Herrling, Head of Corporate Research and En Li, VP and head of research for Novartis Institutes for BioMedical Research Shanghai. The two were in Shanghai to discuss Novartis’ R&D plans in China and the Pacific Rim at the China 2008 Pharmaceutical R&D Summit.

Herrling (pictured right), who also serves as chairman of the Novartis Institute of Tropical Diseases in Singapore, was in town to give a keynote address to the summit. He also visited Novartis’ China R&D center, which broke ground on its permanent headquarters in Shanghai’s Zhangjiang Hi-Tech park April 2. Novartis, which has more than 2000 full-time employees in China, has said it plans to make an initial investment of $96 million to build the R&D center, focusing on treatments for diseases with a high prevalence in that country. (Our 2006 take on the NITD and its ilk can be found here.)

PharmAsia News: In your keynote talk, you mentioned Novartis' efforts in China to develop Western medications based on traditional Chinese medicine. Can you elaborate on your strategy?

Paul Herrling: China wanted for a while at first for us to come here and establish our research institutes because of a number of reasons we've heard like patents [and] talent development. And we weren't quite sure at what level China was - it was clear that it was going to be a tremendous market, because, mostly in the U.S., a significant part of our scientists in the lab are Chinese.

And at that time, that was about 10 years ago, of course, there was nothing for them here to come back to. And that's why they were all there. So we started by setting up yearly mini-symposia where we would put 10, 15 Chinese scientists, 10, 15 Novartis' scientists in an air of choice. And just sit together for three days and talk. And actually the first of these discussions started around traditional Chinese medicine, how could we make use of that for our kind of drug discovery efforts. And that's how the Shanghai thing started.

And essentially it was a way to expand the diversity of our chemical libraries. Because what's turned out is that, during the combinatorial chemistry climb, people could all of sudden make a lot of compounds. But at the same time, the hit rates would trend to zero because the criteria on which these libraries were made were chemical, not biological. So the chemists would do what would be easy to stick on beads and to vary it easily and quickly, which was not necessarily the same that biology needed.

And Novartis was a company that actually never gave up their natural compounds, whereas most big pharma companies got rid of their natural compounds. We still have a group now of more than 50 people. And they were very much a proponent of trying to do exactly what I described in my talk, use traditional Chinese medicine as a guide to where to find active ingredients. …

So we did this symposia for 10 years and during these 10 years in which I started doing that … you wouldn't recognize China then, between then and now. Because as I always like to describe it, when you went to Beijing at that time, you know the big avenues? With the small streets on the side and the big central one? Well, when I came here the first time, the center one was filled with bicycles and the few cars had to go on the side. And now you go look at it.

And all of China has changed that way, completely. And in our era, it was very clear what we saw in the symposium, like three, four years ago, is that now the Chinese were doing major efforts to create an environment in China to get Chinese scientists abroad back into the country. …

Another aspect 10 years ago that was very clear - health, pharma was absolutely not a priority in China at that time. Food, housing, heavy industry, all of that [were] and they had no resources for research-based companies. They bought what they needed or they copied what they needed locally. And that changed. So over these 10 years talking to the Minister of Science & Technology, the Health Minister, you could see that the interest changed.

And at a certain time, about three years ago, I recommended to our bosses, now is the time for En Li's institute. And they decided, yes, they would do that and actually we decided to establish our own research institute here.

PharmAsia News: Given the debate in China about whether to build an R&D facility or a virtual one, why did Novartis decide on a bricks-and-mortar approach?

Herrling: If you think that this environment is going to be important for pharma in the future - and it is, we're totally convinced that it is one of the most important emerging markets - and it's also clear that the culture and the specifics are different than in the U.S. and in Europe. And my conviction is you can't learn without getting wet. That is, the best way to get into the mindset, to understand the local science, talent and the needs also of the patients, is by actually doing research here.

So that was the decision then that we would do that, and create this institute first as a real antenna to what the environment here is, and to learn the peculiarities. In fact, what En's institute is focusing on first - he mentioned patients - is to focus on diseases that are more predominant in China than they are in the West. And that's hepatic cancers and nasopharyngeal cancers. And to try to understand what the differences are, in particular. So these are a few thoughts. And it's going to be an integrated research and development [center].

Part one of this two-part interview appeared May 5 in PharmAsia News. To access the full interview, please visit PharmAsiaNews for a 30-day free trial.

Musical Chairs at Novartis, Except When the Music Stops, 1250 Fewer Chairs

Novartis posted its third quarter results this morning and missed its profit guidance. Genericization, delays to Galvus, and the withdrawal of Zelnorm all contributed to a 12% decline in earnings. And so out comes the axe. Oddly enough, the press release was titled "Novartis delivers record earnings in first nine months of 2007 thanks to strong operational performance and divestment gains." Is it time to revive IN VIVO Blog's 'press release of the week' feature?

Novartis is cutting 1250 jobs (mostly in sales, and including 510 'third-party' sales positions) in the US, a move cheered by analysts and expected to result in savings of about $230 million in 2008. The layoffs are part of a restructuring of its pharma development and commercialization organization.

Most conspicuously Thomas Ebeling, the current head of pharma, will be shuffled over to Novartis' consumer business--a position perhaps more suited to his background: he came to Novartis from Pepsi a decade ago. At pharma he'll be replaced by American Joe Jimenez, the current head of the consumer business who joined Novartis earlier this year (and was until 2006 European president and CEO of the food giant Heinz), effective immediately, "to expand management experience and provide fresh impetus." That might be a new euphemism, we're not sure.

Less surprisingly, the company is also establishing Novartis Biologics "as a focused unit to accelerate and optimize the potential of research and development of innovative biologic medicines." We've noted before (and discuss at length here) certain pharma's need to bulk up in large molecules. Novartis says:

This unit will unify and expand the expertise within Novartis by bringing together the key elements necessary for fast and high-quality R&D activities and to help attract top talent. Biologics comprise 25% of the pre-clinical research pipeline at Novartis and are increasingly a priority in R&D activities.

It will be interesting to see whether Novartis feels the need to augment its internal biologics capabilities with the kind of external moves being pondered by Sanofi-Aventis and Pfizer. The company has inked some 22 deals in large molecules over the past five years and most impressively has bulked up in vaccines (through the full acquisition of Chiron) and in RNAi, though a first-mover deal with Alnylam.

But back to the layoffs for a moment. Novartis' cutbacks don't approach the level of some of the other Big Pharma that have cut back this year--see the chart below from the September issue of IN VIVO--and will mainly be executed by not filling vacant positions, the company says.

Nevertheless, can the decision be seen in the broader context of the general shrinkage of Big Pharma sales forces, thanks to a variety of factors including but not limited to the rise of biologics and a shift toward specialist medicines? Which brings us back to the pharma/consumer reshuffle; both execs' backgrounds are more grounded in consumer marketing than pharmaceuticals. To say the least appointing Jimenez to the pharma post goes against the grain of the specialist marketing trend.