Deals Of The Week: Abbott/Reata, GSK/Dendreon, Novartis/Alnylam

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 http://invivoblog.blogspot.com.

This statement may be surpising, coming on the heels of Abbott Laboratories' mind-boggling $450 million upfront payment to license ex-U.S. rights to Reata's bardoxolone in chronic kidney disease: in 2010, alliance upfronts are declining.

Reata's upfront haul is surely giant. But a look at all alliances signed by the industry's larger companies (Big Pharma, Big Biotech, large Japanese and European companies, and specialty pharmas) over the past four years show that not only are alliance upfronts decreasing, but fewer deals are being signed overall –approximately 20% fewer.

The data through August 2010 suggest that at least in terms of deals where financials were disclosed, pharma is becoming more cost-conscious. This isn't really a surprise – we're seeing more option-alliances and earn-out heavy acquisitions than ever before, and payments on the front end are bound to suffer.

But Reata's impressive terms around bardoxolone again show that there will always be assets that cause a stir, and a bidding war. Reata retains sole possession of bardoxolone's U.S. rights and will fund its Phase III development itself. Even so, this cash should allow it plenty of breathing room to get through NDA filing and – if all goes well – toward a U.S. launch.

Abbott/Reata

Upfront payments on licensing deals have trended downward lately, but Abbott is headed full steam in the opposite direction. Abbott made an enormous $450 million upfront commitment to Reata Pharmaceuticals’ Phase II renal disease candidate bardoxolone methyl. It's the largest upfront ever for a Phase II product, especially given the deal is only for ex-U.S. (It also doesn't include rights in certain Asian countries that Reata already has partnered away.) Milestone payments could add $350 million to the deal, plus Reata gets royalties on sales in Abbott’s territories.

Bardoxolone, an antioxidant inflammation inhibitor, has shown promise as a potential disease-modifying drug that can reverse the effects of chronic kidney disease; Reata is preparing to present Phase IIb data at the American Society of Nephrology conference in November. A Phase III trial in the coming months will further study bardoxolone's effect on glomerular filtration rate, the amount of filtered fluid passing through the kidney per unit of time.

Abbott also took a minority equity stake in Reata, whose backers include Cardinal Investment's CPMG, Novo A/S, and Texas firms Ojai Goliad and StarTech Ventures. Abbott already markets Zemplar, a hyperparathyroidism treatment for renal patients, in 24 countries. Kyowa Hakko Kirin paid $35 million upfront in January 2010 for Asian rights to bardoxolone, plus milestones that could drive the deal value to $272 million.

As Abbott tries to move itself away from its dependence on the TNF-alpha drug Humira, it's been opening its checkbook, especially for mid-stage assets. Recall late in 2009, it spent $170 million to acquire PanGenetics' Phase I NGF inhibitor; in March the big pharma paid a 61% premium to acquire Facet Biotech, a PDL Biotech spin-off, developing the Phase II multiple sclerosis drug daclizumab; this past June, the company spent $75 million to in-license Neurocrine Biosciences' Phase IIb gonadotropin-releasing hormone (GnRH) antagonists for women's and men's health. And don't forget the purchase of Piramal's health care solutions unit for $2.12 billion upfront and another $1.6 billion over the course of four years to establish a significant beachhead in India.

GlaxoSmithKline/Dendreon

This may be a happy problem for a young company launching its first product: demand for the new prostate cancer therapeutic vaccine Provenge is likely to exceed supply, and the company that makes the drug, Dendreon, has limited production capacity. Dendreon is a small biotech, after all, and its ability to ramp up and manage the supply of Provenge has been a serious concern for patients and investors since the vaccine launched in May. In response, the Seattle-based biotech has turned to a big pharma, GlaxoSmithKline.

According to a Securities & Exchange Commission report filed on Sept. 21, the companies signed a development and supply agreement in which GSK will supply the antigen used to make Provenge to Dendreon, with the first supplies slated for delivery in August 2011. Sales of Provenge, which Dendreon launched last spring, were $5.2 million in July and $2.45 million in June.

Warner Chilcott/Novartis

Warner Chilcott took full control of the U.S. sales and marketing of Novartis' overactive bladder drug Enablex (darifenacin) in a $400 million deal. The Irish specialty pharma already had a co-promotion agreement with Novartis for the drug, but scrapped that alliance and replaced it with the new one.

Warner Chilcott had obtained some rights to Enablex through its $3.1 billion acquisition of Procter & Gamble's prescription drug business in August 2009; P&G had shared promotion of Enablex with Novartis since 2005. Recall Novartis acquired the drug from Pfizer in 2003. In 2009, Enablex sales in the U.S. were $190 million, of which Warner Chilcott was entitled to a share; it also incurred advertising, promotion and selling costs for the drug.

Under the new agreement, Warner Chilcott will take full responsibility for sales and marketing of Enablex in the U.S., and will assume control of its manufacturing within three years. A milestone payment could add $20 million more to the new deal as well.

Novartis/Alnylam

In our “no deal” of the week, Alnylam announced Sept. 23 that Novartis has selected a “full and final list” of 31 targets for which it will seek to develop RNAi drugs based on Alnylam intellectual property. That decision brings an end to a five-year partnership in which the two companies worked together to identify and advance RNAi therapeutics for a range of undisclosed indications.

Concurrently, Novartis also declined to exercise an adoption license for Alnylam’s RNAi technology platform, which would have brought the biotech an additional $100 million. According to Alnylam CEO John Maraganore during a Sept. 24 investor call, Novartis determined that the 31 programs it will undertake at the Novartis Institutes for Biomedical Research will keep it plenty busy for next several years.

To date, the five-year collaboration has brought Alnylam about $125 million in proceeds, both in the form of research funding and equity investments – Novartis currently holds a 13.4% ownership stake in the biotech. The partnership also funded about 25 full-time equivalents annually, Maraganore said. With the partnership’s expiration Oct. 12, Alnylam plans to reduce its workforce by 25% to 30%, he said, enabling the company to position itself for “continued growth, success and focus on the highest value activities.”

By Ellen Licking, Paul Bonanos, Wendy Diller, Joseph Haas