Deals Of The Week: Baxter/Gambro, Optimer/AstraZeneca, Ironwood/Protagonist
Executive Summary
Three rapid-fire clinical setbacks scuttled a planned merger between BioCryst and Presidio that would have created a new competitor in the hepatitis C space. Now, BioCryst is retrenching with a staff cut and narrower R&D focus.
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.
As baseball executives gathered at the Opryland Hotel in Nashville during the week of Dec. 3 for the trade and free agency frenzy known as the winter meetings, deal-making also was afoot in the biopharma corner of the world. But just as executives from major league teams were waiting for the strategies of big spenders like the Texas Rangers and Los Angeles Dodgers to materialize so they could make their corresponding moves, it all fell apart for BioCryst Pharmaceuticals Inc. and Presidio Pharmaceuticals Inc. as a planned merger that might have created a new significant player in the hepatitis C space crumbled under the weight of three rapid clinical setbacks for BioCryst.
In the aftermath of a third setback, FDA placing a clinical hold on BioCryst’s oral hereditary angioedema compound BCX4161 the week of Nov. 26, the two companies announced Nov. 30 they mutually had decided against a planned all-stock merger that was announced on Oct. 18 and would have created a new company with a wholly owned portfolio of three oral antiviral candidates for hepatitis C.
During an investor call on Dec. 7, BioCryst announced it will cut its staff by 50% and reduce planned cash-burn for 2013 by as much as 45% while it narrows its focus primarily to the HAE and HCV programs, as well as preclinical broad-spectrum antiviral BCX4430. CEO Jon Stonehouse explained that three clinical setbacks – the clinical hold for BCX4161, the delay of a clinical trial for NS5B inhibitor BCX5191 in HCV because of toxicity concerns and the Phase III clinical failure of flu candidate peramivir – had eroded the North Carolina biotech’s stock price.
“Despite these setbacks, we have a path forward for BioCryst to rebuild shareholder value because of our promising compounds,” the exec said. “Following the review of BioCryst’s assets, resources and cost structure, we concluded that restructuring and a highly focused approach to our development programs was required. This will preserve cash and enable BioCryst to reach near-term milestones that will give us greater insight regarding the opportunity and risk associated with our three core programs.”
Deals Of The Year
The IN VIVO blog is presenting nominations for its Fifth Annual Deals of the Year, heralding the most interesting and creative deal-making solutions of 2012 in three categories: M&A, Alliance and Exit/Financing. Once all the nominees are announced, polls will open and readers will be invited to vote early and often for their favorites.
Click on the links below to read about nominations unveiled the week of Dec. 3; more will be announced over the next two weeks.
M&A
Exit/Financing
Alliance
The planned merger with privately held Presidio not only would have combined HCV assets, but also would have brought BioCryst a needed injection of cash (Also see "BioCryst Joins HCV Race With $101M Presidio Merger" - Pink Sheet, 18 Oct, 2012.). The deal valued Presidio at $101 million and would have involved issuing 24.5 million new shares in BioCryst to Presidio’s investors. At the same time, Presidio shareholders would have committed $25 million of a planned $60 capital raise for the new company [See Deal].
Now, the retrenched BioCryst will cut headcount to 37 from 74, which Stonehouse said reflects reductions evenly spread throughout the organization. Instead of spending $40 million in R&D and associated costs in 2013, the company now anticipates a cash burn of $22 million to $25 million, excluding deal-related and restructuring costs. BioCryst will record a restructuring charge of $2 to $4 million during fourth quarter 2012.
The revised R&D plan is to study low doses of ‘5191 in HCV-infected chimpanzees in an attempt to demonstrate meaningful antiviral activity at lower doses than previously used in clinical trials. In November, BioCryst withdrew an IND for ‘5191 due to safety concerns regarding renal toxicity at the dosage thought needed to benefit human patients (Also see "Rejected IND For HCV Asset May Put BioCryst/Presidio Merger At Risk" - Pink Sheet, 9 Nov, 2012.). BioCryst expects go-or-no-go data from the chimpanzee studies in early 2013, Stonehouse told investors on the call.
The company also hopes to begin a Phase I study of ‘4161 in January 2013 to demonstrate the safety, level of drug exposure with oral administration and pharmacodynamic effects of the kallikrein inhibitor. BioCryst, which hopes to position ‘4161 as an oral prophylactic against HAE attacks, thinks such a product would be a game-changer. For now, however, the drug is stalled as FDA implemented a clinical hold on '4161 due to concerns about compounding of the drug at trial sites.
BioCryst also plans to seek medical journal publication of a manuscript describing the activity of ‘4430 in certain filoviruses. That candidate's prospects loom particularly large now that peramivir is considered virtually dead after a Phase III trial was ended earlier this year due to poor efficacy.
While BioCryst and Presidio were mired in a “No-Deal,” however, other biopharma companies were busy wheeling and dealing just like the baseball execs last week. Now, it is time to “play ball” with Deals of the Week …
Baxter/Gambro
In an effort to extend its global footprint to areas like Latin America, Europe and the Asia Pacific, Baxter International Inc. agreed to pay $4 billion including the assumption of debt to acquire Swedish dialysis company Gambro AB, which reported annual revenues of $1.6 billion. Baxter is using its cash held overseas to pay for the transaction and the deal is expected to close in the first half of 2013.
“With Baxter generating more than two-thirds of its cash overseas, we view the Gambro acquisition as a smart way to put that money to work,” Leerink Swann & Co. analyst Danielle Antalffy wrote in a note. The acquisition rounds out Baxter’s kidney dialysis business, adding Gambro’s suite of hemodialysis products to its own peritoneal dialysis offerings. Gambro’s products typically are used in the hospital setting, while Baxter’s products usually are used in the home.
Baxter expects to see $300 million in cost synergies by 2017 and add approximately 7% to sales over the next five years. The company currently brings in revenues of $13.8 billion. “Over the last three years, Gambro’s growth has been roughly flat, and Baxter's renal business has grown about 4%,” wrote Morgan Stanley & Co. analyst David Lewis. “Pro forma for the deal, Baxter believes it can accelerate growth to [about] 6% by investing to relieve Gambro capacity constraints, leveraging Baxter’s global selling infrastructure, using Gambro to accelerate the home HD launch, and using the new breadth of the business to pursue public/private partnerships.”
Optimer Pharmaceuticals/AstraZeneca
Building on its regional partnering strategy for Dificid (fidaxomicin), Optimer Pharmaceuticals Inc. has signed AstraZeneca PLC to market the antibiotic in South America, including in Brazil, Central America, Mexico and the Caribbean in a deal announced Dec. 3 (Also see "Optimer Teams With AztraZeneca To Bring Dificid To South America" - Pink Sheet, 5 Dec, 2012.). AstraZeneca has a “major market position in three key Latin American markets, Brazil, Mexico and Columbia, according to Optimer CEO Pedro Litchtinger.
AstraZeneca will pay Optimer $1 million upfront, up to $3 million in milestones upon first commercial sale in certain countries, and up to $19 million in other milestones contingent on the achievement of sales-related targets in the region. In a related supply agreement, Optimer also stands to receive payments from AstraZeneca that amount to a double-digit percentage of net sales in the territory.
One of a few big pharmas still investing in antibiotic drug development, AstraZeneca is Optimer’s fourth commercial partner. The company already has signed a co-commercialization deal with Cubist Pharmaceuticals Inc. in the U.S., and deals with Astellas Pharma Inc. in Japan and Europe and Specialised Therapeutics Australia Pty. Ltd. in Australia (Also see "Optimer's Deal With Cubist Gives Dificid Experienced Hospital Sales Force Support" - Pink Sheet, 6 Apr, 2011.). It’s all part of a strategy Optimer says is focused on finding commercial leaders in key regions of the world while focusing its own attention and resources on North America, where it is building a commercial organization. The company still expects to sign at least one more partner to bring the Clostridium difficile infection treatment to China.
Ironwood/Protagonist
Constipation drug seller Ironwood Pharmaceuticals Inc. and peptide discovery platform company Protagonist Therapeutics Inc. said on Dec. 6 that they have expanded an existing partnership. The parties did not disclose terms or specifically differentiate the expanded partnership from its two-year-old predecessor, but expressed that both sides are pleased with the progress of the existing deal to discover new therapeutics based on Protagonist’s Disulfide Rich Peptide (DRP) platform.
Like the January 2011 deal, the new arrangement includes an upfront payment by Ironwood, along with milestones and royalties. Ironwood will continue to fund its own full-time staff in order to evaluate and develop potential products. The companies did not identify which therapeutic areas are covered under the existing or new partnership, and they have not announced any product candidates from the original collaboration yet [See Deal].
Ironwood has discovered most of its pipeline on its own thus far; it currently markets Linzess (linaclotide) for irritable bowel syndrome with constipation and chronic idiopathic constipation. Protagonist established a separate discovery collaboration with Zealand Pharma AS in June 2012 [See Deal].
MD Anderson Cancer Center/GlaxoSmithKline
University of Texas’ MD Anderson Cancer Center has tapped GlaxoSmithKline to help it develop and commercialize an antibody discovered by scientists at the center. Anderson will handle preclinical activities, while GSK will be responsible for clinical development and commercialization.
Under the deal announced Dec. 7, the cancer center will receive an undisclosed upfront payment as well as research funding and development milestones. Anderson indicated that the deal could result in $335 million in payments for the center, as well as royalties on any commercial products that are developed.
The antibodies activate OX40, a protein that stimulates the immune response in T-cells against cancer. “This agreement is not only a testament to the vision shared by GSK and MD Anderson that successful clinical development of oncology drugs requires seamless integration of drug development expertise and deep biological knowledge,” said Giulio Draetta, director of the Institute of Applied Cancer Science at Anderson, in a statement.
Mediolanum/Genovax
Eporgen Venture, an Italian life science seed capital firm, reported on Dec. 4 the first major transaction by one of its portfolio companies, Genovax srl, which has sold its Phase II-ready potential therapeutic cancer vaccine, GX-301, to the Italian pharma company Mediolanum Farmaceutici SRL (Also see "Mediolanum Acquires Phase II-Ready Cancer Vaccine From Italy’s Genovax" - Pink Sheet, 4 Dec, 2012.). Financial details were not disclosed.
Eporgen President Konstantinos Efthymiopoulos expects several other transactions involving Eporgen-supported companies to complete in the next few months, and is aiming to raise up to €10 million ($13 million) in additional financing to develop other assets to proof-of-concept in its portfolio companies, which ideally but not necessarily would be clinical proof-of-concept.
Italian scientific research is on par with work in other European countries, Efthymiopoulos said, although he acknowledged that life science entrepreneurship and the network of academic technology transfer offices is not as highly developed. It is only a question of time before the country catches up to its neighbors, he asserted. GX301 will boost its research interests in oncology, Mediolanum said; it will take over all future development and commercialization activities for GX301. A Phase II study in patients with prostate cancer is expected to start in the first half of 2013.
StemBANCC
One of the largest European “open innovation” projects to date will see Switzerland’s Roche and the U.K.’s Oxford University coordinate the work of nine other pharmaceutical companies and 22 other academic institutions in Europe on creating more than 1,500 human-induced pluripotent stem cell lines to use as disease models to discover new therapies (Also see "Drug Firms Join In Stem Cell R&D Under EU Innovative Medicines Initiative" - Pink Sheet, 5 Dec, 2012.).
This and other new EU projects announced Dec. 5 echo themes for [TransCelerate BioPharma Inc.], an initiative announced Sept. 18 involving 10 international drug companies which also seeks to identify and solve common drug-development challenges, although focused more on regulatory than research issues (Also see "Major Pharmas To Collaborate In Non-Profit Initiative To Resolve Clinical Development Hurdles" - Pink Sheet, 19 Sep, 2012.). The EU’s StemBANCC project, a public-private partnership formed as part of the EU’s Innovative Medicines Initiative (IMI), will have a budget of €55.6 million ($73 million).
The funding will include €26 million from IMI’s EU funds and “in-kind” funding of €21 million from the participating drug companies. The in-kind funding includes company employees and their costs, access to research equipment, facilities and database access. The cell lines, of which 500 will be derived from patients, will be used to set up models of disease, like diabetes or dementia, in order to accelerate the drug-development process.