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.

DOTW: Variations On A Theme

2008 is drawing to a close. Today marks the year's final "Deals of the Week" post. As this blogger takes time to reflect on the pre-holiday deal-making activity, it's no surprise that all of the deals in today's recap reflect broader themes at work in the biopharma industry. From Big Pharma's penchant for specialty products to highly structured alliances that allow both parties to share the financial risk (and gain), these deals mirror past DOTW discussions, as well as the larger themes highlighted in our various Deals Of The Year posts. DOTY voting commences on Monday. Remember to vote early and often. Until then, we hope you enjoy this week's variations on a theme. (Bach is optional.)

GSK/Dynavax: It was a good news, bad news kind of week for Dynavax. The biotech announced that it's partnership with Merck concerning the troubled Hepatitis B vaccine Heplisav was officially over (see below). Despite the bad news, Dynavax can at least take comfort in its recent deal with GlaxoSmithKline: an option-style tie-up that gives Dynavax $10 million up-front in exchange for a worldwide strategic alliance involving endosomal toll-like receptor drug candidates in four autoimmune and inflammatory disease areas, including Dynavax's preclinical TLR7/TLR9 inhibitor, DV1079. Under the deal's terms, Berkeley, Calif.-based Dynavax will conduct research and early clinical development using its proprietary technology, and GSK has the exclusive option to license each program at proof-of-concept, or earlier if certain circumstances occur. Should GSK exercise the option, it will take over development and commercialization activities, with Dynavax getting tiered royalties up to double digits, the two firms said Dec. 17. Dynavax, which could realize milestones up to $200 million apiece in each of the four programs, also retains the option to co-develop and co-market one pre-specified product. During a same-day investor call announcing the collaboration, Dynavax CEO Dino Dina called the partnership with GSK "a transformational event" for his biotech. "The alliance will allow us to diversify and advance a very valuable pipeline of products that target significant unmet needs," he said. According to "The Pink Sheet" DAILY, that's likely to be the case even if GSK ultimately declines the option on Dynavax's drug. Certainly, given the pipeline pressures of Big Pharma companies, it's unlikely there will be the stigma of "tainted product" attached to the program if GSK ultimately declines the option--assuming no adverse side-effects and positive clinical data with DV1079. Case in point: Exelixis. In October, GSK declined its option on Exelixis' small molecule oncologic XL184, ending a six-year R&D partnership that brought the latter firm an estimated $260 million in funding, including an $85 million loan. Exelixis regained all rights to XL184 and quickly partnered the molecule, along with an earlier-stage compound, with Bristol-Myers Squibb for $240 million in assured payments plus a major co-development and marketing role. For GSK , the deal marks the continuation of a business strategy heavily weighted toward option-based deals, which involve a relatively minimal upfront commitment for the global pharma, allowing it to hedge its financial exposure until the R&D risks are known more fully. In addition to its 2002 deal with Exelixis, GSK has also inked option arrangements with Cellzome, Affiris, Anacor, NeuroSearch, Regulus Therapeutics and OncoMed, according to FDC-Windhover's Strategic Transactions database.

Wyeth/Thiakis: This deal, which sees Wyeth acquiring London-based Thiakis’ obesity candidates, could best be described by a made-up word: alli-quisition (hey, you want real words, read a book). Wyeth pays $30 million up-front for Thiakis and its portfolio of synthetic gastrointestinal peptides and up to $120 million in earnouts tagged to downstream milestones. Our Pink Sheet DAILY in-depth coverage of the deal is here. Thiakis’ backers secure an exit—the biotech had raised about $19 million from private investors Novo and Advent Venture Partners—but without some of those milestone payments it’s not a particularly good one. Expect these kind of earn-out based deals to become more prominent as we move into 2009. With Big Pharma content to sit on the sidelines and wait while prices for biotech companies fall, most investors surveyed recently by FDC-Windhover believe future M&A activity is likely to place a premium on hedging risk. Earn-outs haven’t featured in a ton of deals lately—in fact thus far in 2008, just 20 percent of all private acquisitions have included earn-outs, down from a high in 2006 of nearly 43 percent of all private deals. (Read all about it in our next issue of START-UP.) Back to Wyeth: the pharma gets Thiakis' lead project, TKS1225, a potent, long-acting analogue of oxyntomodulin, which is a naturally occurring peptide hormone involved in regulating food intake. The hormone is released by the gut following food ingestion, sending satiety signals to the brain. It is thought to work through the GLP-1 receptor and does not cross the blood brain barrier, an important consideration given the suicidality risks associated with another class of obesity treatments, the CB-1 antagonists--Christopher Morrison.

Pfizer/Auxilium: As Big Pharmas continue to have more negotiating leverage, there’s a clear preference these days for tightly structured alliances rather than the outright biotech purchases. And given the regulatory hurdles associated with many big primary care drugs, Big Pharma is much more interested in specialty care products. Pfizer's tie-up this week with Auxilium illustrates both those trends. The two companies announced this week that Pfizer would pay $75 million upfront for the European rights to Xiaflex, a biological enzyme in Phase III for Dupuytren’s contracture and Phase IIb for Peyronie’s disease. Malvern, Pa.-based Auxilium stands to earn $150 million in regulatory milestones, $260 in sales-based milestones and increasing tiered royalties on Xiaflex if all goes well. Pfizer, meanwhile, has the right to negotiate commercial rights for additional indications within its territories, including frozen shoulder syndrome, where the drug is currently in Phase II trials. It sounds as though there was stiff competition for the biologic. In a conference call discussing the news, Auxilium CEO Armando Anido said the biotech chose Pfizer as its partner over several other global pharmas, because of the larger company's success marketing drugs such as Lipitor and Viagra. As might be expected, Pfizer's newly created specialty care business unit will have the commercialization honors. The Pfizer deal likely occurs at an ideal time for Auxilium, which faces a patent fight with Upsher-Smith Laboratories over intellectual property related to Testim, the biotech's testosterone gel for hypogonadism. Upsher-Smith notified Auxilium in October that it plans to file an Abbreviated NDA with the FDA for its own testosterone gel that it believes does not infringe on Testim's patent, which runs until January 2025.

Baxter/Avigen: Like so many other small biotech companies, Avigen, which focuses on neurological compounds, has had a tough year. The company has the dubious honor of posting one of the largest market cap losses among biotechs valued under $500 million in Q3 according to Rodman & Renshaw. Avigen's share price tanked in October when it announced negative news associated with AV650, its Phase IIb drug for the treatment of spasticity associated with multiple sclerosis. The biotech terminated its development partnership with Austria's Sanochemia Pharmazeutika and said it would focus on developing AV411, a novel glial activation inhibitor, for neuropathic pain and opioid withdrawal. But during its third-quarter financial call on Oct. 28, Avigen unveiled a massive restructuring plan that entailed discontinuing work on the glial activator and another preclinical product, AV513, unless a development partner could be found. CEO Kenneth Chahine said the new direction meant Avigen would have sufficient cash for four years of operations, given the $47.4 million the company had in cash, cash equivalents and securities at quarter's end. But the company's largest shareholder, Biotechnology Value Fund, which holds 29 percent of Avigen's stock and has provided capital directly to the biotech, clearly is troubled by the news. In a Dec. 11 letter to Avigen's board, BVF's Mark Lampert decried the steep decline in the company's share price, which has fallen 90 percent since 2004. He charged the company with threatening to destroy shareholder value by broadening "golden parachute" provisions for executives to one-fifth of Avigen's market cap and adopting a "poison pill" to prevent BVF from trying to intervene by purchasing a majority share. Lampert asserted that "Avigen has no real business at this time and has abandoned the development of all its products." Instead of looking for potential new partners and directions, the letter urged Avigen to return its excess cash to shareholders or at least offer a downside guarantee - an obligation to buy shares back at a specified price on a certain date. This week comes news that might appease Lampert and the crew at BVF. Avigen announced it was partnering its preclinical, oral blood coagulation product, AV513, to Baxter Healthcare in deal worth $7 million. "The sale of AV513 is an example of building value in a product that is differentiated from current therapies, and bringing it to a valuation point that generated a positive return on investment," said Avigen's Chahine in a press release announcing the news. Hmm, we can't wait for BVF's response.

GlaxoSmithKline/Genmab: Back in the days when licensors had clout, co-promote options featured in almost every deal. Biotechs figured they would keep their strategic options open just in case going commercial took their fancy, and Big Pharma were in no position to refuse. This week’s news that Genmab has sold back its co-promote option on CLL candidate ofatumumab to partner GlaxoSmithKline makes two things clear: first, many of these options are unlikely to ever be exercised given the logistical and financial commitments required (which is in large part why Big Pharma were so relaxed about granting them in the first place); second, in today's roiling financial markets, getting a guaranteed cash payment is a wiser course of action than holding out for theoretical money in the future. (A bird in the hand, as they say.) Genmab got just $4.5 million from GSK for the option, which covered a targeted oncology setting in the US and the Nordic region. Not a lot, particularly since GSK had granted Genmab the option to co-promote two of its own drugs , too—and agreed to reimburse some sales reps. But Genmab no longer has anything behind ofatumumab that could make a sales infrastructure cost-effective (one that Genmab estimates would have cost $7 million a year); it ended development of the potentially synergistic HuMax-CD4 for cutaneous T-cell lymphoma and its other program is in head and neck cancer. So if it wouldn’t have exercised the option anyway, why not take the money? And why not re-negotiate a lower share of the (currently 50/50) R&D costs, too, in exchange for a bit of royalty?--Melanie Senior.

AstraZeneca/MAP Pharmaceuticals: Another day, another deal heavily weighted on the back end. On Friday Dec. 18, AstraZeneca and MAP Pharmaceuticals announced a worldwide collaboration to develop and commercialize MAP's proprietary nebulized formulation of budesonide, currently in Phase III development, for treatment of pediatric asthma. While the biodollars sounded huge--"AZ, MAP ink $900 million asthma deal" read one write-up of the transaction--the reality is far less glorious. Under the terms of the agreement, AstraZeneca will pay MAP Pharmaceuticals an upfront cash payment of just $40 million (certainly not bad). True, the company owes MAP another $35 million if the ongoing Phase III trial reaches certain primary endpoints with the appropriate safety results. And, it's also true that at some point in the future, MAP could receive up to $240 million in potential development and regulatory milestones, as well as sales performace-related milestones of up to $585 million in the event the product is a considerable commercial success. Don't get me wrong--$40 million is a sizeable chunk of non-dilutive change and kudos to MAP for getting the deal signed at all. But the other $860 million? It may never well materialize--and MAP and its investors would do well to remember that. (NOTE: MAP wasn't the only potential winner in this deal: Elan Pharmaceuticals may also get a welcome boost. MAP's proprietary formulation of budesonide comes courtesy of Elan's nanocrystal technology. )


Merck/Dynavax: It's official. Merck and Dynavax announced Friday Dec. 18 that they were tabling their agreement concerning Heplisav, a Phase 3 hepatitis B virus (HBV) vaccine placed on clinical hold at the FDA earlier this year after a sgnificant adverse side-effect occurred. All rights to develop and commercialize Heplisav revert to Dynavax. According to the press release, Dynavax will continue to evaluate Heplisav's development options, especially as a treatment for adults outside the U.S. and for the global end-stage renal disease markets, which the company estimates represent approximately 70% of the total market opportunity for this vaccine. If the regulatory feedback is favorable, Dynavax plans to line up a new partner or financing arrangement to support necessary clinical work with the drug. It will be interesting to see how regulators outside the U.S. view the drug. Back in October, the FDA notified Merck and Dynavax that "the balance of risk versus potential benefit no longer favors continued clinical evaluation of Heplisav in healthy adults and children." Though Dynavax is putting on a brave face--it wins our award for the little biotech engine that could--there's no denying the company faces some tough choices in the months ahead. With limited cash resources--just $65 million including the recent up-front from GSK and '08 operating expenses for the first three quarters totalling over $50 million--it's hard to see how the company will be able to push Heplisav to the point where it is sufficiently derisked for potential future partners.

through the fingers by flickr user akash k courtesy of creative commons license.

DotW: Angst

The mood of the nation is undeniably dark. The turmoil on Wall Street is enough to give even the most steady individual palpitations. And the antics on the Hill--don't get us started. Even Silicon Valley, that bastion of wealth and exorbitantly priced homes, looks to be in jeopardy according to today's New York Times.

Despite the counter-cyclical nature of the biopharma industry and its relative immunity to the widening credit crunch, skies in biopharma land are also far from rosy. Roche still hasn't managed to close the deal with Genentech, but according to the WSJ, remains steadfast that it has the capital it needs to get it done. So what if the two companies haven't agreed on a price? (It's worth noting that if negotiations drag on much longer, the Swiss pharma's original offer of $89-a-share may start to look better and better given the roiling market and the news that Raptiva use has now been linked to at least one case of PML. Hmm. Maybe patience is a virtue.)

Moreover, discussion of biopharma's lack of R&D productivity has been replaced by talk of an "innovation crisis" in certain circles. A small but intrepid group of readers weighed in with their own thoughts: 63% agree their isn't enough innovation to sustain the industry, while 37% remain more optimistic. (Note there's still time to have your say if you haven't already.)

We aren't sure if the folks at Pfizer and Merck see the innovation glass as half-empty or half-full, but we're guessing the former based on this week's news flow. Forced to take a hard look at their pipelines, both Merck and Pfizer responded this week by terminating R&D programs that were suddenly too expensive to justify. In the case of Merck, it was their troubled Phase III obesity drug, taranabant, a close cousin of Sanofi-Aventis’ rimonabant (Acomplia/Zimulti). Pfizer announced an even bigger retrenchment, forsaking early stage R&D in heart disease, obesity, bone health, and other areas, an amazing turn-around for a company's who bread-and-butter has been primary care blockbusters such as Norvasc and Lipitor.

And then there's the news that Lilly is ImClone's mysterious suitor, but not quite ready for its big reveal. In a statement released Wednesday night, Carl Icahn announced that “the large Pharma company has completed due diligence and made a proposal not subject to financing or further due diligence," but has asked ImClone to stay mum about its identity until the negotiations are finished. Oh, Carl you are so coy. It's enough to make a grown person cry.

If your calls for mommy dearest have gone unheard, fear not. We have the antidote for your furrowed brow--and no, it's doesn't call for watching send-ups of Sarah Palin or spiking the water supply with antidepressants. (We're pretty sure that's already been tried.) It's time once again for...


Genentech/GlycArt/Roche: The boards of Roche and Genentech may not be able to agree on a price for Genentech, but that isn't stopping scientists at the two companies from working together. (Isn't it special when family members play nice?) On Friday came the announcement that the South San Francisco biotech was teaming up with Roche's subsidiary to develop GlycArt's GA101 molecule, a humanized, souped-up anti-CD20 antibody currently in early stage clinical trials for various leukemias. As part of the deal, Genentech will record $105 million in R&D expenses as part of its third quarter 2008 results. The three companies will, however, share certain development costs and Genentech will receive US commercialization rights in the US. This is not Genentech's first foray into the development of an anti-CD20 antibody. The company, of course, markets Rituxan, which was developed by scientists at BiogenIdec. But that drug is far from perfect and a certain percentage of patients fail to respond to the antibody. That's allowed next-generation antibody players such as GlycArt, Xencor, BioWa, and GlycoFi (now part of Merck) to develop souped up versions of the molecule using optimization technologies as we discussed here. In fact, this latest announcement may spell trouble for Xencor. Back in 2004, it inked a deal with Genentech to develop a better version of Rituxan using its own protein engineering technologies.

Wyeth/Advanced Life Sciences: It's no secret that public biotechs walk a tight-rope when they sign alliances--the deals give them some necessary cash and validation, but investors don't always like them. How to solve this conundrum? Sign a development pact that's limited to a geographic area of the world. On Wednesday Advanced Life Sciences and Wyeth announced a commercialization pact for ALS's long delayed antibiotic, cethromycin. Wyeth will market the drug, which is related to Sanofi-Aventis's Ketek, in all parts of Asia except Japan, where Abbott Labs has rights to the compound. As part of the deal, Wyeth is purchasing a 4.9% equity stake in ALS and will pay the company milestones and sales royalties based on the future development of the antibiotic. The commercial partnership is a significant step forward for Advanced Life Sciences, which has worked hard to shore up its balance sheet by inking debt and equity financing agreements so that it can remain in business until cethryomycin's approval. Unfortunately concerns that Advanced Life Science's drug may also cause the liver toxicities and patient deaths observed with Ketek use have meant that the antibiotic must complete additional trials before it can be approved in Asia. (Advanced Life Sciences recently submitted the drug to the FDA for approval.)

Ortho-McNeil-Janssen Pharmaceuticals/Advinus: Yet another company goes to South Asia to access cheaper drug discovery and early clinical development expertise. On Tuesday, Advinus, an India-based CRO, and Ortho-McNeil, a division of Johnson & Johnson, announced they were teaming up to develop molecules against a variety of undisclosed disease targets. Historically OMJP's interests have been in pain, infectious disease, and GI disorders, while Advinus has focused on metabolic diseases. Like the previous deal Advinus signed in 2006 with Merck, the agreement with OMPJ gives Advinus responsibility for discovery and clinical work through Phase IIa, at which point the J&J group has the option to advance promising candidate drugs into late stage clinical trials. If it does so, OMPJ picks up responsibility--and the tab--for worldwide commercialization. Deal terms were slightly richer for the CRO this time around, perhaps proof that the company has established itself as one of Asia's service companies of choice. As was the case with the Merck tie-up, Advinus will receive an upfront payment of an undisclosed amount. If it delivers two targets to OMJP, it will receive an additional $247 million plus royalties on sales of any future drug products. (In its deal with Merck, the Indian company gets just $149 million plus royalties on future sales for delivering the same number of targets.)

GE Healthcare/MicroCal: General Electric, GE HealthCare's parent company, continues to get beaten in the market, announcing Wednesday that it would gladly accept $3 billion from Warren Buffett (So would we!). But the financial upheaval didn't stop the med-tech group from acquiring the privately-held instrument maker MicroCal for an undisclosed sum. MicroCal's proprietary platform dovetails nicely with GE Healthcare's existing BiaCore platform, providing scientists with detailed information on the structure, function, and binding properties of biomolecules like proteins and antibodies. The move shows that GE Healthcare continues to eye the competitive tools space, and should give pause to companies like Perkin Elmer and Thermo Fisher. Indeed, the conglomerate has inked four other deals this year alone, including the take-out of Whatman PLC, maker of filtration and cell sample preparation technologies, for $702 million and the recent $990 million purchase of respiratory device specialist Vital Signs. Massachusetts-based MicroCal was pretty long in the tooth despite its private status--it was founded in 1977 by John Brandts, a U. Mass. chemistry professor. The private equity group Riverside Partners, which first invested in MicroCal in 1999, was the instrument maker's primary owner.


Covance/WuXi: Just months after unveiling plans to create a JV for preclinical drug testing services in China, WuXi PharmaTech and Covance have scuppered the deal. When the deal was first announced in June, it was heralded as a positive step for both companies: the Covance name appeared to give WuXi added credibility outside Asia, while the collaboration helped the Princeton, NJ-based CRO access the lucrative China market. But the deal wasn't necessarily balanced from the start: WuXi had committed to building the facilty, and for its work Covance was ponying up just $20 million. Though details haven't been fully disclosed, it seems likely that this imbalance coupled with competing priorities at Covance may have derailed the agreement. Recall that Covance recently acquired Eli Lilly's drug development campus in Greenfield Indiana for $50 million. Our sister publication PharmAsia News has the full story.

image from flickr user 'stuck in customs' used under a creative commons license.

Changing of the Change Agents: Exit Wyeth’s Ruffolo, Enter OrbiMed’s Dolsten

We just heard the news that Bob Ruffolo, Wyeth’s R&D boss, is retiring.

A few points to make: first, from our auslander’s point of view, Ruffolo took a Wyeth research group which had already been significantly improved in the almost reverse takeover by the former Genetics Institute crowd (including its head of R&D Pat Gage) and made it a lot more business-like.

Ruffolo is not an executive to suffer fools (or those he thought fools) gladly. He rubbed a lot of people the wrong way – including colleagues running competitive R&D organizations, who didn’t like his outspokenness. And he was a particularly harsh and public critic of the FDA (at least when he talked with us – as you can read in The RPM Report here)

But he ran an organization which got stuff done. In the otherwise horribly dry year of 2007, Wyeth managed to push through two drugs (Torisel and Lybrel) – punching far above its R&D weight (Wyeth is on the small side of Big Pharma’s R&D organizations).

Wyeth is already ahead of the game this year, with two approvals, both of which your blogger had – incorrectly – written off (and we weren’t alone): Relistor (methylnalrexone), which they’d licensed from Progenics, and Pristiq, which is an isomer of their near-patent-expired anti-depressant Effexor. Pristiq in particular ran into FDA trouble last year, with the agency dinging it twice – first for its major depression indication, then for its use for post-menopausal hot flashes. Still hasn’t been approved for the latter – but scooted in on the former.

And Ruffolo has been the outspoken exponent of the statistical strategy of R&D – that for all the theories on how to improve the odds of drug discovery and development, with new markers and “model” diseases (á la Novartis – see an IN VIVO discussion here), ultimately R&D is a numbers game. You’ve got to put a certain number of compounds in the front end to get out a set number at the back end.

Science isn’t making us any better at improving those odds, Ruffolo would almost take pride in pointing out. It was Ruffolo, speaking at Windhover’s Pharmaceutical Strategic Alliances meeting in 2005, who, at least to our knowledge first among major R&D chiefs publicly, noted that attrition rates in Phase II were going up. Before you knew it, everyone was talking about it. And Ruffolo kept insisting that the only real solution to the attrition problem was to add in more compounds.

So now enter Mikael Dolsten, the former head of Boehringer Ingelheim research, whom not so long ago the IN VIVO Blog had named as a potential candidate for the top R&D job at Pfizer. (OK – we spelled his name wrong there. We may be spelling it wrong now. But we’re not alone – either Wyeth spelled it wrong in their PR (they use an “h” in Dohlsten) or Boehringer spells it wrong in theirs (they leave out the “h”).

In the brief interregnum between leaving Boehringer and landing at Wyeth, Do(h)lsten parked himself as a private equity partner at the OrbiMed, the health-care focused investment firm. Which leads us to speculate: damned few Big Pharmas are going to be able to pay themselves for all their development programs, a fact that most of them are as yet unwilling to admit. Project financing is eventually going to play a role in this game.

When we first wrote about Dolsten, one recruiter told us he was a “change agent.” So was Ruffolo, of course. But Dolsten’s few months at OrbiMed could make him a change agent of a very different kind.

The Wacky World of Generics: Protonix Edition

Here is a headscratcher.

Wyeth decided January 30 to launch an authorized generic version of its blockbuster proton pump inhibitor pantoprazole (Protonix). The launch comes a month after generic manufacturer Teva shocked Wyeth by launching its own version at risk. Teva quickly halted shipments under a standstill agreement with Wyeth, and the company's investors assumed (prayed?) that a settlement would follow.

Apparently not. Wyeth decided to launch its own generic under a license to Prasco (more on them later). The announcement came the day before the standstill agreement with Teva was set to expire.

Wyeth's announcement was followed by a generic launch from a third company, Sun Pharmaceuticals, which under the complex rules governing these things shares six-months of generic exclusivity with Teva. Sun had not launched previously, presumably since it feared the potential for steep damages should it eventually lose the underlying patent litigation.

However, with two prior launches (Teva's in December and Wyeth/Prasco's the day before), Sun decided to take the chance.

And then Teva announced that it has no plans to relaunch its own.

Huh?

Did Wyeth really just finish off its biggest brand in response to a non-existent threat that Teva would re-enter the market for good? And why on earth is Teva sitting back and watching one of the biggest generic opportunities in history wither away?

Welcome to the wacky world of generics.

Believe it or not, there is a way in which this bizarre series of circumstances might make sense for all the players involved.

Bernstein Research's Ronny Gal and Tim Anderson suggested one possibility in a note sent Friday. Teva's decision not to launch reflects the fact that it already has significant inventory in the trade, so it has nothing to gain from contributing to a price war that would affect the selling price it can realize on the product already in distribution. And, by waiting until after Sun enters the market this time, Teva further minimizes the potential size of any damages it might owe down the road if it loses the underlying case.

If that is the case, expect Teva to launch sometime in the next quarter or so, once trade inventories of its product are depleted and it can come in at a new, more deeply discounted price.

There is another option, the Bernstein analysts say: that Teva gambled and lost. The at-risk launch was a bad gamble by Teva, intended to extort a settlement from Wyeth in litigation the generic company believes it will lose. In that case, Wyeth is calling Teva's bluff and will ultimately prevail in court, recouping at least some of its losses on the generic.

In theory, Teva could be on the hook for treble damages. However, because Wyeth has already lost a preliminary injunction ruling in the case, it is extremely unlikely that it would be awarded any damages above the actual losses incurred to Teva's product.

Bernstein believes Wyeth is pursuing the right course in either case: it is impossible to put the genie back in the bottle now that Teva's product is in distribution, and an authorized generic launch helps Wyeth hold on to a bigger share of pantoprozole revenues for longer. If the company wins the litigation and gets a bit more money back, so much the better.

The big winners in all this, however, are not the battling companies. Instead, they are the payors who will probably reap the biggest benefit, as generic competition in the PPI class intensifies. With Protonix once a $2.5 billion brand, there is plenty of savings to be had. But the opportunity is even bigger since it is sure to increase pressure on AstraZeneca to further discount esomeprazole (Nexium).

In fact, that pressure may already be showing. AZ reported last week that Nexium experienced a net price decline of about 8% in the US last year--but that came almost entirely in the fourth quarter. The company said US sales of the brand fell 18% in the last three months of the year, despite about a 2% increase in volume. Yes, its discounts really are that deep and getting deeper.

Oh, and then there is Prasco. In case you've never heard of them, they are a relatively new start-up (formed in 2002) by former Duramed CEO Thomas Arington to focus on--you guessed it--authorized generics. Duramed, incidentally, once took on Wyeth over the course of a decade in an unsuccessful battle to market a generic version of conjugated estrogens (Premarin).

If you can't beat 'em, join 'em.

Deals of the Week: far from the Westin St. Francis

Attention JPMorgan attendees: we trust you've consumed enough resveratrol to make up for the pickled brain cells. Your steadfast Deals of the Week writer has been keeping tabs from afar and sighing over the gossip missed. (Feel free to drop a line with any juicy conference post-mortems.) Meantime, here's a review of the items you may have missed while talking it up at the Westin St. Francis.

Genzyme/Isis: The deal of the week, and the one generating all the buzz in the Westin hallways and Union Square restaurants was Genzyme's agreement with Isis for the southern California biotech's phase III anti-cholesterol medication mipomersen. As we wrote here, the deal, which included a $325 million up-front, $825 million in development and regulatory milestones, and an additional $750 million in commercial milestones, is a bold statement by specialist play Genzyme to remain an independent entity. Mipomersen, a lipid-lowering compound that targets apolipoprotein B-100, is a weekly injectable being investigated first for the rare, inherited disorder familial hypercholesterolemia (FH). Henri Termeer, Genzyme's CEO, describes the asset in the press release as a “very Genzyme-like product.” No doubt he's also eyeing its possible use in the general population in patients with high cholesterol and at high risk of cardiovascular events who are ineligible for statin therapy.

Pfizer/Tacera: Genzyme wasn't the only company dealing in the biologics space this week. On Monday, Pfizer signed yet another large molecule deal, this time with Tacere Therapeutics for world-wide non-Asian rights to the biotech's RNAi hepatitis C drug, TT-033. (Back in June, Tacere brokered with Oncolys BioPharma for the Asian rights to the same compound.) TT-033 is pre-IND, but that didn't stop Pfizer from agreeing to pay--potentially--more than $145 million in development and commercialization milestones. And that doesn't include the undisclosed up-front fee signed by the two companies. Pfizer has been among the most aggressive of big pharma's biologics acquirers, buying both Coley Pharmaceuticals (vaccine technology) and CovX (antibody scaffolds) late last year, as well as inking licensing deals with Xoma (antibodies) and Direvo Biotech (bioengineered proteins) last fall.

Wyeth/ Mochida Pharmaceuticals: Wyeth was another big pharma betting heavily on a preclinical compound this week. On Jan. 9, the pharma announced a deal with Japanese drug maker Mochida Pharmaceuticals for that company's experimental pain medication, a TRPV1 antagonist. Financial terms were not disclosed, but news reports cited Wyeth paying a one-time payment upon the signing of the contract, as well as milestone payments. In addition, Mochida retains the right to co-develop and market the drug in Japan. TRPV1 antagonists are in vogue within Big Pharma: Eli Lilly and Merck both have compounds belonging to this class in development. As we've mentioned before, Wyeth is not known for its overly aggressive business development team, which prefers early stage licensing deals over major acquisitions. Clearly Mochida's TRPV1 dovetails nicely with such a strategy and adds to the company's pain franchise, which also includes (the recently delayed at FDA) methylnatrexone thanks to a 2005 deal with Progenics Pharmaceuticals. (Though whether the deal can stem some of the pain resulting from last summer's troubles with Pristiq and bifuprenox remains an open question.)

Teva Pharmaceuticals/India: The Business Standard reports that Israel's Teva Pharmaceuticals plans to invest more than $1 billion dollars over the next 24 months buying Indian drug companies and setting up manufacturing facilities. We admit this isn't really a canonical deal of the week, but it does represent yet another example of off-shoring infrastructure, one of our major themes for 2008. (For more, check out the January issue of IN VIVO.) And it's not like this is something Teva is musing about doing. A few weeks ago, Teva acquired over 100 acres of land near Gwalior, Madhya Pradesh, to set up active pharmaceutical ingredient (API) manufacturing facilities that will match the production capacity of India's major generic players Ranbaxy, Cipla, and Dr Reddy’s.

Chomp! Wyeth Snaps Up Haptogen

The names are different but the premise seems the same: a struggling big pharma snaps up a promising biologics player to add bite to its large molecule divsion. Less than two weeks after BMS announced its buy-out of next-generation protein player Adnexus, Wyeth broadcast its decision to buy the Scottish biotech Haptogen.

This is the twelfth acquisition by either a big pharma or big biotech in the biologics space since September 1 2006 according to Windhover's Strategic Transactions Database. Does IN VIVO blog see a trend? Hint: Do fish swim?

It's no secret that pharmas have lately had a tough go getting drugs approved. The FDA has approved just 10 new molecular entities through September, representing a 17% drop year-over-year and matching a 10-year nadir, according to a report today by Jim Kumpel, an analyst with Friedman Billings Ramsey. (Kudos to Pharmalot for its posting.)

Desperate to get access to new therapeutic modalities, cash-rish pharmas have spent the last several years trawling for biologics players. Recall these recent deals: Roche's acquisitions of GlycArt Biotechnology and THP; Merck's take-outs of GlycoFi, Abmaxis, and Sirna; GSK's purchase of Domantis; and AZ's $15.6 billion stunner for MedImmune. (Yeah, we're still talking about that deal. If you haven't read our take, click here and here. FYI, there will be even more in the October IN VIVO.)

It's not hard to see why a company like MedImmune would make a pharma salivate--the company's pipeline was full; and they had soup-to-nuts capabilities--from discovery through marketing--in biologics. But why the interest in Adnexus or Haptogen--companies with interesting platforms but no late stage products?

It's easy: Access. Most companies just launching large molecules programs are shut out of the most desirable targets because licenses to them--at least through "gold standard" antibody providers such as Medarex and Genmab--have already been given away.

“If you want to develop a product to one of those really important targets—say the CD-20 antibody—you’re blacked out,” notes Donald Drakeman, former CEO of Medarex and now with the VC firm Advent Ventures.

Better, it seems, to spend some dough and acquire new platform technologies that provide freedom to operate—for example, GlycoFi’s yeast engineering capabilities or Adnexus’s protein program--than engage in licensing deals that may blow up when a next-generation player gets acquired by a competitor.

The Wyeth/Haptogen deal fits nicely in this paradigm. Wyeth, though comparatively biologics-rich thanks to its acquisition of Genetics Institute about a decade ago and its focus on large molecule Alzheimer's Disease therapies, has had it's own share of pipeline troubles.

According to Cavan Redmond, EVP and general manager of Wyeth's biopharmaceuticals division, the pharma has been on the look-out for "technology driven companies that help us take it [biologics] up a notch, so that we can customize antibodies even more than in the past."

That was certainly the thinking behind the pharma's 2006 deal with Trubion, which included a $40 million up-front payment for access to the biotech's CD-20 therapy for rheumatoid arthritis, Tru-15.

Seems like the same philosophy applies to Haptogen. The Scottish biotech promises it can generate antibodies against targets normally too small to elicit an immune response. In addition, the company has developed novel drug discovery techniques based on the shark immune system. (And you thought it was just a great shark picture. Ha!)

Haptogen's shark platform "has a lot of potential to generate smaller therapuetic proteins that can be taken as oral drugs," Steven Projan, VP and head of biological technologies at Wyeth, told BioWorld Today (subscription required).

Wyeth and Haptogen didn't disclose deal terms, but its doubtful there was big money on the table. Wyeth, after all, is notoriously frugal in the business development department. And, in the biologics space, the pharma tends to pursue one-off opportunities, where it can leverage its own biologics infrastructure to lower the total cost of the deal.

There's no sign that pharma's biologics feeding frenzy will abate anytime soon. Who's next? The IN VIVO Blog's crystal ball is cloudy, so it's hard to say for certain. But companies worthy of keeping an eye on include: Ablynx, which makes camelid antibodies; Biolex, which recently registered for its IPO, and uses the plant Lemna to manufacture its proteins; and Xencor, which produces souped-up antibodies using its proprietary protein engineering platform.

Old Medicine in New Bottles

Two excellent posts from the Wall Street Journal’s Health Blog and Pharmalot noted speculation from Credit Suisse on a Pfizer bid for Wyeth (we detail that company's pipeline troubles here).

Catherine Arnold, who wrote the original report, is one of our favorite analysts and anything she writes we take seriously.

But let us put the acquisition in the context of some other big decisions Pfizer needs to make.

Since the simultaneous resignation announcements of Alan Levin and John LaMattina, Pfizer has to soon appoint a new CFO and a new research boss. We’re speculated before here and here about who Pfizer might turn to for R&D. The finance choice could be complicated by what we’re told is the likely retirement of David Shedlarz, Pfizer’s vice chairman as well as Levin’s boss, Pfizer’s former CFO, and Kindler’s one-time rival for the top job. A Shedlarz departure would further upset an investment community utterly uncertain about Pfizer’s direction.

But at this point, Pfizer shouldn’t be worrying about Wall Street (it ain’t as if, with $22 billion in cash and short-term investments on its balance sheet, Pfizer needs to sell stock). Instead, the choices Pfizer makes for the R&D and finance jobs will say a lot about just how much strategic change the company’s CEO and board believe they need to make.

Would, for example, they choose a finance boss who would advocate for a more radical use of Pfizer’s cash – equity investments in several dozens of biotechs, for example, or even a Roche-Genentech like transaction? Or, even more radically, with a splintering of Pfizer into a number of quasi- or indeed completely independent therapeutically focused companies, perhaps majority held by a Pfizer holding organization? Or will the new boss simply placate shareholders short term by continuing to increase the dividend (at 4.9%, already the highest in the industry, says Goldman Sachs) and repurchasing shares?

Now back to Wyeth. As we work on a story about trends in pharmaceutical dealmaking for the September issue of IN VIVO, we consistently hear about the revival of interest in major acquisitions—that the problems of Big Pharma are now so severe that CEOs are accepting meeting requests with investment bankers that, just a few months ago, they’d have ignored.

But such deals are difficult given that the product overlap among companies is more obvious to the FTC than ever. And having to sell the overlapping products is what kills value in these deals.

That’s why biotech acquisitions are so interesting. The product overlap is usually minimal and biotechs deliver biologics capabilities that Big Pharma badly wants. A metric of that desire: the highly competitive auction that ultimately delivered MedImmune to AstraZeneca for $15.6 billion.

Theoretically, Wyeth brings similar biologics capabilities to Pfizer that MedImmune brought to AZ, along with a host of non-overlapping small-molecule drugs.

And yet we remain skeptical that such a deal is either likely or in the best interests of either company’s shareholders. Sans CFO and R&D boss, Pfizer shouldn’t embark on their third gigantic integration effort in less than a decade. Wyeth’s biologics business will do at least as well under Wyeth as it will under Pfizer (let’s remember just how underwhelmingly Pfizer has performed marketing biologics like Exubera and Rebif). Meanwhile, any biologics successes will boost Wyeth’s $22 billion base of revenues far more than Pfizer’s $47 billion. Indeed, Wyeth will resist Pfizer’s blandishments, particularly if an offer comes wrapped in Pfizer’s shares.

And if Pfizer presses its case, as it did with Warner-Lambert and Pharmacia, its own investors could easily rebel: why try to cure a disease, they might reasonably ask, with the same therapy which has consistently failed to work?

While You Were Watching the Weather Channel

Dean on the move

A few notes from the weekend that was. Yet again we've dipped into this morning's news, but it was a slow weekend unless you're an armchair meteorologist.

• Made in New Jersey. The NJ Star Ledger takes a look at Wyeth's Alzheimer's disease drug discovery and development programs (The NYT put Wyeth center stage for its own Alzheimer's feature back in June, which we pointed out here). (Hat tip, Pharmalot, where Ed points out that Wyeth's recent spate of troubles may be responsible for its proactive media push.)


• Made in China. Lilly announced early this morning a deal with Hutchison China Medtech, for multiple drug candidates in the oncology and inflammation areas sourced from Chi-Med's herbal medicine discovery platform. Chi-Med will get R&D support and upfront payments on each candidate, plus milestones ranging from $20-29 million per, plus royalties. The release arrived in our in-box at 7am BST, but it looks like the Telegraph had the scoop.


• Made in Heaven. Didja hear the one about Novartis buying Bayer? Pharmagossip helpfully illustrates some real world M&A difficulties.

Image: Reuters/NOAA

Wyeth's Leaky Pipeline

Poor Wyeth. The bad news just keeps coming. First came the FDA's July 24 letter asking for an additional year-long study of the company's menopause drug Pristiq. Then on August 10, the company announced it's own "daily double": a non-approvable letter for bifeprunox, a Phase III schizophrenia drug it's developing with Solvay Pharmaceuticals; and the preliminary halt of a study of HCV-796, a Hepatitis C drug Wyeth is co-developing with ViroPharma.

In addition to this negative trifecta, there's an on-going legal battle with generic-drug maker Teva over Wyeth's Protonix patent. (Wyeth has asked for an injunction to prevent the launch of the generic prior to the drug's patent expiration in 2010. A decision on the matter could come any day between now and September 7.) Perhaps it's no wonder the stock has been sliding. As of yesterday, Wyeth shares had fallen nearly 24% from their May high of $59.

Coming hard on the heels of the Pristiq news, the announcements about bifeprunox and HCV-796 must have been hard for Wyeth execs to swallow. DrugResearcher reports that just a few days prior, at the Drug Discovery & Development of Therapeutics Conference in Boston, Tom Hofstaetter, Wyeth's head of business development, told attendees that the pharma industry's productivity woes were a thing of the past. "The pipelines are more diverse and better quality than ever before," claimed Hofstaetter.

Ah, sweet irony. Seems like Wyeth's "diverse pipeline" has sprung a sizeable leak. And that puts additional pressure on the success of on-going collaborations with Progenics and Elan in pain and Alzheimer's disease. You don't have to be a brain surgeon--or even a lowly Windhover reporter--to know that the company is going to have to act--and fast--to shore things up. Investors are a flighty bunch and few these days are patient enough to endure a protracted turn-around.

Barbara Ryan, an analyst with Deutsche Bank, summed it up in her investor note: "While our expectations for Wyeth's pipeline have been relatively modest, it is now clear to all that the combined commercial potential of these products won't be sufficient to replenish revenues that will be lost at the end of the decade to generics." In the immortal words of Homer Simpson:"Doh."

I'm a glass full kind of gal. Earlier this year Wyeth won approval for Torisel, it's kidney cancer drug, and Lybrel, it's birth-control pill. More importantly, Wyeth is sitting on $12.19 billion in cash--money it could use to in-license some much needed late stage compounds or acquire smaller outfits to build up it's existing neurological or large-molecule franchises.

Still it's tough to see how Wyeth can quickly plug it's leaks through M&A or alliances. The company simply doesn't have much of a history as a deal-maker. (For a review of Big Pharma's acquisitive nature see these April and May IN VIVO articles, but be warned: Wyeth only gets mentioned in discussion of Big Pharma out-licensing [Wyeth's Hofstaetter tells us that Wyeth has to outlicense because it is over-productive in internal R&D] and as a non-acquirer.)

In fact, a quick search of Windhover's Strategic Transactions Database shows that, historically, Wyeth favors research-stage alliances over acquistions. In the past six years, the company has brokered only two deals for Phase III products--a $416.5 million deal for Progenics' pain drug methylnaltrexone and a $145.5 million deal for Solvay's bifeprunox. The other big deals? A 2004 alliance with Plexxikon for rights to its Phase I drug PLX-204 for Type II Diabetes worth $22 million, and a 2006 deal with Trubion Pharmaceuticals for rights to CD-20 targeted therapies worth $41 million. (See chart below.)

And you have to go back to the mid-1990s--a time when the names Wyeth-Ayerst and American Home Products were still in use--to find a buy-out linked to the company. Compare that with AstraZeneca and Pfizer, which, in the past five years, have spent $17 billion and $4.2 billion respectively snapping up biotech companies.

It's going to be an interesting few months for Wyeth. You can bet the IN VIVO Blog will be watching--and writing. And Wyeth execs, if you want to talk strategy, we are all ears.

(click chart to enlarge)