Deals Of The Week: GSK/Abbott, AZ/Merck, Bausch & Lomb/NicOX...

Each week, "The Pink Sheet" presents commentary on some of the week's most interesting business deals, contributed by the editors of the IN VIVO blog. Visit the blog at ¹ http://invivoblog.blogspot.com.

Watson/Columbia Laboratories & Watson/Population Council: Watson announced a pair of deals this week in its efforts to bolster its branded women's health care products line, purchasing Columbia Laboratories' marketed infertility drug, Crinone/Prochieve, and Population Council's Phase III contraceptive vaginal ring. As part of the deal with Columbia, Watson will pay an upfront fee of $47 million in exchange for 11.2 million newly issued shares in that company, along with U.S. rights to Crinone/Prochieve, which pulls in about $20 million in sales annually.

But the real opportunity for the infertility therapy is its potential use in preventing preterm birth. Here Columbia will continue to take the leading role in development of the product (it's in Phase III), but its costs are capped, with Watson picking up the tab if expenses exceed an undisclosed limit. Watson will also pay an additional $45.5 million in milestones pegged to clinical advancement and launch of the medicine in this new indication. Financial details of Watson's second tie-up of the week were undisclosed, but apparently do include the usual upfront, regulatory and sales milestones and royalties. While both deals provide Watson's 350-person sales force with additional branded products to sell, it's worth remembering that the drug maker's overall business is still primarily focused on generic offerings, which last year generated $2.3 billion in revenue. Still, in an interview, CEO Paul Bisaro argues his company has made great strides in the branded market, noting the firm is on the verge of providing an array of women's products, including a novel oral contraceptive and an emergency contraceptive currently under review at FDA (² (Also see "Two Deals Bolster Watson's Position In Branded Women's Health Products" - Pink Sheet, 4 Mar, 2010.)).

GlaxoSmithKline/Abbott: The companies are broadening their existing immunotherapy companion diagnostics collaboration with the March 3 announcement that Abbott is developing a molecular test for selecting patients with melanoma who could benefit from GSK's therapeutic vaccine targeting the MAGE-A3 antigen, which is expressed on melanoma cells but not normal cells. Last July, GSK engaged Abbott to develop a test for the first product expected out of its Antigen Specific Cancer Immunotherapy (ASCI) program - a diagnostic to select patients for its MAGE-A3 ASCI vaccine for non-small-cell lung cancer (NSCLC). MAGE-A3 ASCI is in Phase III trials in both melanoma and NSCLC. The latter study is more advanced, with enrollment slated for completion in 2011. Abbott will have to run separate trials to clinically validate its molecular test for the melanoma indication, of course, and while the target is the same, there may be differences in sample prep because it is assaying a different tumor type.

That said, the new development likely says more about GSK's goals in immunotherapy than Abbott's already-established skills as a companion diagnostics partner. GSK's immunotherapy program will span almost two decades before an anticipated first approval (see ³ (Also see "GSK's Early Link-Up with Abbott for an Immunotherapy Companion Diagnostic " - In Vivo, 1 Jul, 2009.) IN VIVO, July 2009). GSK wants to be comfortably armed with trial data using a validated companion diagnostic when it goes for approval, perhaps having used the Abbott screening test to identify a subset of patients with a sufficiently high delay in time to relapse.

Bausch & Lomb/NicOX: In August 2009, when NicOx took back full rights to its Phase II glaucoma drug, NCX116, it promised investors it would have a partner for the program in 2010. The company has now made good on its promise, announcing an alliance with the specialty-focused ophthalmology player Bausch & Lomb. Since being taken private by the private equity firm Warburg Pincus in 2007, B&L has been quietly rebuilding, primarily by acquisitions or alliances to access innovative products. Interesting deals include the firm's 2008 take-out of intraocular lens player eyeonics and alliances with the likes of Pfizer, Croma Pharma and Tubilux Pharma. Still, the upfront value B&L is paying NicOx - just $10 million for a Phase III ready program - suggests a wariness on the part of the licensor. (Milestones up the potential deal value significantly to $170 million.)

That trepidation is probably warranted. Recall that Pfizer lost interest in the program because mid-stage trials suggested the drug showed at best modest clinical benefit compared to the New York behemoth's juggernaut Xalatan . That's relevant because Xalatan will soon go generic; in the current payer-dominated environment, pricey new glaucoma medicines will have to show significantly better results in the clinic to warrant coverage by managed care plans. Will NCX116 have a commercial future? NicOx management remains bullish on the compound even as it talks up what has always been its real value proposition - nitric-oxide donating drugs for pain, such as naproxcinod. Meanwhile for a small $10 mil., B&L isn't exactly doubling down, but seems willing to take the bet.

Shionogi/QuatRx: Shionogi's U.S. subsidiary, Shionogi Pharma (formerly Sciele Pharma), acquired global development and marketing rights to QuatRx Pharmaceuticals' selective estrogen receptor modulator ospemifene, building on the company's sexual medicine and women's health portfolio. Shionogi Pharma will pay $25 million up front and up to $100 million in milestone payments for ospemifene, and the company expects to file a U.S. NDA for the drug in the second half of 2010 for the treatment of postmenopausal vulvovaginal atrophy (⁴ (Also see "Shionogi Builds Women's Health And Sexual Health Portfolio With QuatRx Deal" - Scrip, 3 Mar, 2010.)).

If approved, the once-daily tablet ospemifene would be the first non-estrogen treatment option for vaginal atrophy; SERMs that are currently marketed in the U.S. have not shown beneficial effect for vaginal atrophy symptoms. QuatRx posted positive Phase III results in January 2008, announcing statistically significant results for all primary endpoints in its first Phase III study. At the time, the company planned to market the product on its own in the U.S. and partner elsewhere.

Merck KGaA/Millipore: There's life in the tools sector yet. After disappointing investors with lackluster 2009 financial results, Merck KGaA sought to put its own spin on diversification with its proposed acquisition of Massachusetts-based tools and service provider Millipore for €5.3 billion (U.S. $7.2 billion). The addition of Millipore, which had attracted wider interest from a number of suitors, adds $1.7 billion in sales to Merck KGaA's coffers and bulks up its chemicals division, which will now be responsible for an estimated 35 percent of the German firm's revenues. But the move surprised analysts, in part because it was the non-pharma business divisions - life science chemicals and liquid crystals - that had a poor 2009, dragging down overall revenues. Beyond balancing Merck's business portfolio, the acquisition may have added benefits, providing Merck much-needed biologics manufacturing expertise. The company's therapeutic cancer vaccine, Stimuvax , is in Phase III clinical trials, and the recombinant protein, atacicept, is in Phase II/III trials for autoimmune disease.

AstraZeneca/Merck: This week AZ officially swung the R&D axe, jettisoning internal R&D capabilities in 10 specific disease areas, including depression and anxiety, hepatitis C, acid reflux and thrombosis (⁵ (Also see "AstraZeneca Pares R&D Areas By 25 Percent" - Pink Sheet, 2 Mar, 2010.)). Still, AZ isn't turning its back on the lucrative cardiovascular market. On March 1, AZ announced it is paying Merck $647 million to regain full rights to a group of drugs, including marketed hypertension medicines Atacand , Lexxel , and Plendil , plus the potential blockbuster Brilinta currently under review by the FDA and the European Medicines Agency.

Ties between the two big pharmas go back to 1982, when AZ predecessor Astra teamed up with the U.S. pharma to co-develop and co-market several drugs in the U.S. Astra bought out Merck's 50 percent ownership of the joint venture in 1998, setting up a series of option dates on which Astra, or its successors, could regain full rights to the products. Thanks to this deal, AZ now has rights to all products from the joint venture except those related to its purple pill franchise Nexium and Prilosec . (Those meds are part of a second option agreement, which can be exercised as soon as 2012.) Of the marketed products now wholly owned by AZ, only Atacand can truly be thought of as a blockbuster, generating over $1.4 billion in worldwide sales in 2009. But much of the deal was almost certainly driven by a desire to own full rights to Brilinta, which posted superior results to Sanofi/Bristol's Plavix in an 18,000-patient trial in November 2009. According to Cowen and Company analyst Steve Scala, Brilinta could generate annual sales of $600 million in 2012 and $1.5 billion in 2015 if it's approved.

Merck/GTX: As goes the old saying, sometimes the bear gets you. And sometimes the bear gets you and you don't really want to talk about it. The "no deal of the week" is Merck and GTX. The two have collaborated in the area of selective androgen receptor modulators to treat muscle and bone disorders.

But as often happens after a big merger (like Merck's Schering-Plough deal), there is some R&D fall out, and Merck now is opting out of at least some of its work with GTX (⁶ The IN VIVO Blog, March 3, 2010).

- Daniel Poppy ( ⁷ [email protected]) , John Davis ( ⁸ [email protected] ), Mark Ratner ( ⁹ [email protected] ), and Ellen Foster Licking ( ¹⁰ [email protected] )