Bristol/Astra Diabetes Deal Further Indicates Bristol Will Stay Independent

Bristol-Myers Squibb's partnership with AstraZeneca for two of its top diabetes candidates may diminish chances that Bristol will be merged.

The deal, announced Jan. 11, is potentially worth upwards of $1 billion and covers development and marketing of two of Bristol's type 2 diabetes candidates: saxagliptin, a dipeptidyl peptidase-4 inhibitor, and dapagliflozin, a sodium-glucose cotransporter-2 inhibitor.

Bristol has been the center of acquisition rumors in recent months after Apotex launched a generic of its blockbuster antithrombotic Plavix in August, although interim CEO Jim Cornelius has indicated that the firm is not for sale (¹ (Also see "Bristol Is Not For Sale, CEO Says; Plavix Woes Partly Offset By Other Products" - Pink Sheet, 6 Nov, 2006.), p.12).

In addition to lost Plavix sales, Bristol recently lowered its 2006 earnings guidance following a $499 million "agreement in principle" with the Boston U.S. Attorney's Office to settle several investigations (² (Also see "Bristol To Pay $500 Million Civil Fine Under Tentative Deal With U.S. Attorney" - Pink Sheet, 1 Jan, 2007.), p. 13).

The influx of cash and funding support for the diabetes programs from AstraZeneca may give Bristol the additional financial freedom it needs to support its strong late-stage pipeline, which is heavily focused on oncology, including the cytotoxic agents ixabepilone, vinflunine and the immunotherapy ipilimumab (MDX-010).

The partnership may also make Bristol less attractive to potential suitors because any revenues received for the two diabetes agents would have to be split with AstraZeneca.

The collaboration is not a complete surprise; Bristol CFO Andrew Bonfield previously indicated the company would consider commercialization partners in the primary care area as Bristol looks to focus its business on specialty products.

However, codevelopment deals between big pharma companies remain rare. Merck recently ended a partnership with Bristol for another diabetes agent, the dual peroxisome proliferators-activator receptor agonist Pargluva , after FDA requested an additional clinical trial (³ (Also see "Pargluva Panic: Need For Additional Trial Prompts Merck To Drop Partnership" - Pink Sheet, 31 Oct, 2005.), p. 3).

In a Jan. 11 statement, Cornelius said that the deal provides Bristol "the opportunity to maximize our primary care assets and it is aligned with our corporate strategy to concentrate R&D efforts on serious diseases such as diabetes while maintaining commercial focus on specialists and high prescribing primary care physicians."

Bristol will be able to control marketing costs by using AstraZeneca's existing primary care sales force.

Bristol also said it is looking to leverage AstraZeneca's experience in diabetes R&D; the most notable diabetes product in AstraZeneca's pipeline, the PPAR agent Galida , was recently dropped due to safety concerns. Galida was one of a number of pipeline setbacks AstraZeneca experienced in 2006, leaving the firm's late-stage pipeline nearly empty (⁴ (Also see "AstraZeneca Clinical Setbacks Add To Pipeline Woes" - Pink Sheet, 6 Nov, 2006.), p. 16).

The collaboration between AstraZeneca and Bristol is seemingly symbiotic: AstraZeneca is cash-rich but has a weak late-stage pipeline, while Bristol has a strong pipeline, but is facing near-term revenue pressures.

Under the terms of the agreement, AstraZeneca will pay $100 million upfront and will cover the majority of development costs for saxagliptin and dapagliflozin from 2007 through 2009. Additional costs will be shared between the companies.

Bristol will be eligible for additional payments of up to $650 million based on undisclosed regulatory and development milestones for the two compounds and may receive potential sales milestones up to $300 million per product.

The companies will share commercialization expenses and develop clinical and marketing strategies jointly. Profits/losses will be split equally on a global basis, excluding Japan, where Bristol has licensed saxagliptin to Otsuka.

The companies said they have agreed upon initial development plans for the two compounds, with the Phase III candidate saxagliptin expected to be filed in the first half of 2008. Saxagliptin will likely be the third or fourth DPP-4 inhibitor to reach the market; Merck's Januvia was the first to clear FDA in October (⁵ (Also see "Januvia Clears FDA; Sitagliptin Has “Neutral Effects” On Weight, Agency Says" - Pink Sheet, 23 Oct, 2006.), p. 6).

Bristol said dapagliflozin, which is currently in Phase IIb, could be the first agent in the SGLT2 class.

- Kathryn Phelps