Cephalon Option To Buy Biologics Firm Ception Gets The Ball Rolling For 2009, CEO Says
This article was originally published in The Pink Sheet Daily
Executive Summary
Look for Cephalon to “roll up” more assets this year while the market is good, CEO Baldino says at J.P. Morgan.
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Cephalon's $100 million down payment on privately-held Ception Therapeutics marks the second option deal for the specialty pharma in recent months as well as the firm's entree into biologics. The upfront payment buys Cephalon the option to acquire all of the outstanding capital stock in Ception for $250 million, pending final study results for Ception's lead product reslizumab, an anti-interleukin-5 antibody in Phase IIb/III studies for pediatric eosinophilic esophagitis. EE is an autoinflammatory disorder that affects one in 2,000 children and adults, with as much as a ten-fold increase in diagnoses over the last 10 years, according to the American Partnership for Eosinophilic Disorders. The news was announced January 13 just hours before Cephalon CEO Frank Baldino outlined his company's plans to analysts and investors at the annual J.P. Morgan Health Care Conference in San Francisco. Malvern, Pa.-based Ception was founded in 2004 by a group of former GlaxoSmithKline executives. The biotech announced in March 2008 that it had launched reslizumab EE clinical trials in 172 patients ages 5-18 whose condition could not be controlled by restricted diets and steroids (1 (Also see "Ception Begins Phase II/III Trial For Eosinophilic Esophagitis Compound" - Pink Sheet, 5 Mar, 2008.).) The first data triggering Cephalon's take-out of the start-up are expected by the end of the first quarter 2009. If the deal goes through, Ception stockholders also would be in line for payments related to clinical and regulatory milestones. In January 2007, the company raised $63 million in a series C financing led by Essex Woodlands Health Ventures and including Investor Growth Capital and MDS Capital. In May it raised an additional $14.7 million from Third Point and Greenlight Capital (2 [See Deal]). According to Baldino, Cephalon hopes to launch the drug in 2010. In addition to the biologic candidate, which is also being tested in adult patients with eosinophilic asthma, Ception has a discovery program for small molecule, orally-active anti-TNF agents. Keeping its options open Option-type deals are increasingly coming into vogue, as pharmaceutical companies want to strike deals earlier in a product's life cycle when assets are cheaper but also far riskier from a development standpoint. This is Cephalon's second option-type arrangement in recent months. In November, Frazer, Pa.-based Cephalon optioned exclusive worldwide rights to London-based ImmuPharma's experimental lupus medication Lupuzor for $15 million upfront (3 (Also see "Sale Of Lupus Drug License Option To Cephalon Sets Up Immupharma Business Strategy" - Pink Sheet, 26 Nov, 2008.)). Top-line results from a Phase IIb trial testing the CD4 T-cell modulator are expected at any time, and if they are promising Cephalon can opt into a deal potentially worth another $500 million in licensing fees, milestones and royalties to ImmuPharma. While Cephalon's interest in Ception is primarily its reslizumab program, the $100 million allows the specialty pharmaceutical company to buy outright biologics capabilities that it can bolt on to its existing R&D and commercial infrastructure. Deal prices for such capabilities have typically been far higher than $250 million, so this arrangement is very much a defensive move on the part of Cephalon. "The addition of biologics, which have a longer commercial life, will add higher value products to our portfolio," Baldino said in a statement. Moreover, given reslizumab's advanced clinical status, Cephalon likely feels the program has been sufficiently derisked to warrant what might seem like a high price tag. Cephalon acquisition snowball is rolling 4 's business plans can be described as a "private equity roll-up model," Baldino said at J.P. Morgan. Indeed, since its founding in 1987 the company has focused on building the business quickly through acquisition, adding expertise - and revenues - by folding marketed products in new therapeutic areas of interest into Cephalon's array of offerings. Baldino suggested that trend would continue in the coming year - and might even accelerate - given the buying opportunities available because of the current financial crisis. "We are going to acquire and license a number of assets and companies in 2009, much as we have over the past years, but perhaps a little more aggressively in this coming year," he said. But it's unlikely the company will move far from its strategic interests in late clinical stage products for highly specialized markets, where Cephalon, which markets Provigil (modafnil), Actiq (oral transmucosal fentanyl), Fentora (fentanyl buccal tablet) and its original foray into oncology Trisonex (arsenic trioxide), has excelled. Two likely areas of increased deal-flow: oncology and the anti-inflammatory space. As the company continues to tout Treanda (bendamustine), a purine analog/alkylator hybrid approved for refractory indolent non-Hodgkin's lymphoma and chronic lymphocytic leukemia - and one of its primary growth drivers in coming years - it would make sense for Cephalon to solidify its position in the cancer space with additional products (5 (Also see "Cephalon Showcasing Treanda Use For Refractory Indolent NHL At ASH" - Pink Sheet, 8 Dec, 2008.), p. 16). Baldino also signaled Cephalon's desire to increase its pipeline of inflammation-focused products beyond the two recently acquired via its deals with Ception and ImmuPharma. "Don't be surprised next year if we come here with [additional products] in the inflammatory diseases, perhaps in hospital sales, [and the] hospital business as well," he said. "Specialty markets, low cost sales opportunities is what we're really interested in," Baldino confirmed at the J.P. Morgan conference. [Editor's note: 6 Profiles of companies presenting at the JP Morgan conference are available courtesy of Strategic Transactions, a database of deal-related information published by Elsevier Business Intelligence. For information, contact James DeFalco at 203-838-4401 ext. 104.] -Shirley Haley ([email protected]) |