Deals Of The Week: Teva/Xenon, Biogen Idec/Isis, Bristol-Myers Squibb/The Medicines Company
Executive Summary
Amgen’s unexpected buyout of deCode Genetics means the founder’s expensive philosophy of focusing on pioneering science rather than quick-to-market products finally will pay off for the Icelandic firm’s venture capital backers.
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.
Deals of the Week’s reaction to the Dec. 10 announcement that Amgen Inc. is buying deCODE genetics EHF for $415 million in cash was “say what?” It’s hard to get past the unlikely mix of cultures between Amgen, the most buttoned-down of biotechs, and deCODE, whose irascible founder and CEO, Kari Stefansson, is anything but.
On second thought, though, the combination makes sense. For Amgen, it’s a buy-versus-build way to install a broad-based, genetics-oriented discovery and target validation engine. For deCODE’s investors Polaris Venture Partners LP and Arch Venture Partners, it’s a timely and profitable exit: they put down roughly $14 million to bring the Icelandic genomics specialist out of bankruptcy in November 2009 and have been carrying it since. And for deCODE’s scientists, it’s an opportunity to continue discovery research using population genetics and armed with blood samples from Icelanders and the country’s conserved genealogical and health care records.
As Polaris’ Terry McGuire wrote the day the deal broke: “Almost all of the other companies that started in this space gave up and moved to safer ground – developing drugs. Kari Stefansson never lost sight of what was truly important, which is pioneering the genome.”
Equally true is that Stefansson’s broad vision caused his reach to exceed his grasp. The fundamental issue was one of business strategy – an overly optimistic view of the rate at which discoveries made with its genomics platform could convert into tangible drug and diagnostic assets, including intellectual property, and thereby justify the infrastructure investments the company had made (Also see "deCODE Re-Emerges: Can a Genomics Platform Model Work in Diagnostics? " - Scrip, 1 Feb, 2010.).
DeCODE’s troubles stemmed from a combination of factors including a fragmented set of operations ranging across gene-based drug and diagnostics discovery and development as well as a foray into consumer genomics. As an Iceland-based company, it also had been especially sensitive to the impact of the global financial downturn in the latter half of the 2000s, which hit that country’s banking industry very hard. Plus, an arrangement with Lehman Brothers to manage its money had left deCODE with essentially worthless paper.
Stefansson’s unwavering faith in deCODE’s expansive – and expensive – approach to discovery finally has paid off. “This was a 16-year saga,” said McGuire. “But true to the saga, Kari’s has been one of finding the path forward.” Polaris and ARCH together (via the aptly named Saga Investments, organized for the deCODE recapitalization) owned about 65%, roughly one-third each, of deCODE. They’d put in around $50 million all told (plus some non-cash obligations to turn the firm around), netting more than a 5x return.
The business model for the recapitalized deCODE focused on establishing corporate partnerships, which is where Amgen came in. The companies were discussing ideas for partnerships when, as sometimes happens, “there was a moment where they could see the breadth of this engine,” says McGuire. Some of deCODE’s insights will relate directly to Amgen’s therapeutic areas of interest, he says, but as important will be deCODE’s long-term contribution to R&D.
Becoming part of Amgen presumably puts an end to deCODE’s aspirations as a developer of clinical diagnostics, an area very much in its sights when the firm re-launched. In that respect, the deal speaks to the relative value of genomics in drug discovery versus clinical diagnostics development.
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. 10; more will be announced in the next few days.
M&A:
Exit/Financing:
Alliance:
Teva/Xenon
In an effort to streamline its business, Teva Pharmaceutical Industries Ltd. has decided to take a more focused approach to R&D, with an emphasis on respiratory diseases and central nervous system disorders (including pain and neurodegenerative disorders). A deal announced with Xenon Pharmaceuticals Inc. on Dec. 11 will fit snugly into the Israeli company’s new strategy (Also see "Xenon Feels No Pain After $41M Upfront From Teva" - Pink Sheet, 11 Dec, 2012.).
In exchange for the global rights to Xenon’s pain drug XEN 402, Teva will pay the Vancouver-based company $41 million upfront, as well as development, regulatory and sales milestones of up to $335 million. Xenon also will be entitled to royalty payments and have the chance to participate in U.S. commercialization, although details of the commercialization split were not disclosed.
XEN 402, a Nav1.7 inhibitor, blocks sodium channels that are found in abundance at nerve endings and contribute to chronic pain conditions. Xenon has taken it through the start of Phase II for both inflammatory and neuropathic pain and in topical and oral formulations. Teva, which now has rights to both versions of the drug, plans to begin a full Phase IIb development program immediately. Xenon hasn’t been the only company working on Nav 1.7 inhibitors – a space that has drawn interest because of its potential to be an alternative to opioid-based pain drugs.
Biogen Idec/Isis
Biogen Inc. continues to demonstrate faith in antisense technology, announcing a third deal with Ionis Pharmaceuticals Inc. Dec. 10. Much like the two previous deals between the companies, the recent tie-up focuses on neuromuscular targets (Also see "Biogen And Isis Strengthen Their Bond Through Third Tie-Up" - Pink Sheet, 10 Dec, 2012.). In exchange for access to three early-stage targets, Biogen will pay Isis $30 million upfront.
The work is currently in the discovery phase. Once Phase II has begun, Biogen will have the right to option each of the three programs and continue development and commercialization activities. Isis is eligible to receive $200 million in total milestones per program, as well as double-digit royalties should any products be commercialized.
In January, Biogen signed its first deal with Isis, agreeing to pay $29 million upfront as well as $45 million in potential milestones for the option to license Isis’ Phase I spinal muscular atrophy compound (Also see "Biogen Strikes A Deal With Isis For Antisense Technology" - Pink Sheet, 4 Jan, 2012.). In late June, Biogen agreed to pay $12 million upfront for the right to a treatment for myotonic dystrophy type (DM1) (Also see "Biogen Idec To Collaborate With Isis On Treatment For Degenerative Muscle Disorder" - Pink Sheet, 29 Jun, 2012.). Early-stage milestone payments could total $59 million. At the end of Phase II, Biogen has the option to license the drug; subsequent payments for meeting certain regulatory milestones could add up to $200 million.
AstraZeneca/Isis
Antisense drug-discovery company Isis Pharmaceuticals also landed a second partnership on Dec. 11, an oncology deal with AstraZeneca PLC that will address five targets including one program upon which clinical trials already are under way. For $25 million upfront, plus a $6 million near-term payment due in the second quarter of 2013 if research is ongoing, AstraZeneca gets rights to the Phase I/II clinical compound ISIS-STAT3Rx, as well as one preclinical program and options on other programs.
AstraZeneca will fund ongoing research on the programs covered under the partnership, save for a small Phase II trial Isis is still conducting on ISIS-STAT3Rx for lymphoma. Isis also is eligible for $75 million in milestone payments over the next two years, including a $50 million payment if the ongoing study is completed; Isis would receive additional clinical and approval-related milestone payments, licensing fees and royalties on marketed drugs, but the companies didn’t provide further financial information.
The partnership covers drugs that use Isis’ proprietary antisense technology, which destroys RNA that creates disease-causing proteins, as well as its Generation 2.5 technology that strengthens the potency of drugs.
Bristol-Myers Squibb/The Medicines Co.
In an example of a big pharma out-licensing deal, The Medicines Co. agreed on Dec. 12 to pay $115 million upfront to Bristol-Myers Squibb Co. for the global rights to Bristol’s already-marketed topical recombinant thrombin product, Recothrom, which is used to stop non-arterial bleeding during surgical procedures.
Approved in the U.S. in January 2008, Recothrom brought in $65 million in revenues in 2011. TMC plans to drive growth by seeking approval of the drug in other countries. Bristol, which will be responsible for manufacturing, will receive royalties on the product during the two-year collaboration period. After that time, TMC will have the option to acquire Recothrom.
Bristol said its decision to out-license the drug is part of its effort to streamline operations and improve efficiency. For TMC, the deal bolsters its offerings in the hospital settings. The company also announced the same day that it has agreed to pay $115 million to acquire Incline Therapeutics Inc., the maker of a needleless, patient-controlled analgesia device used in the hospital setting.
Gilead/YM Biosciences
Gilead Sciences Inc. furthered its diversification strategy with expansion into oncology through the acquisition of Canadian cancer company YM BioSciences Inc., announced Dec. 12. Gilead will buy YM for $2.95 per share in cash, or about $510 million, with the transaction expected to close in the first quarter. YM had cash and equivalents of $125.5 million as of Sept. 30.
The acquisition will give Gilead its sixth clinical-stage oncology compound, a Janus kinase (JAK) inhibitor, CYT387, which has shown promise in treating myelofibrosis. Gilead plans to initiate a Phase III study in the setting in the second half of 2013.
The deal represents a solid exit for YM, which gained CYT387 when it merged with Australia’s Cytopia Ltd. in 2010 in a stock transaction that valued Cytopia at around $11 million [See Deal]. YM released results of a 166-patient Phase I/II clinical trial of the drug, its lead product, at the American Society of Hematology meeting Dec. 9, showing that treatment with CYT387 improved transfusion-independence rates and spleen response in patients with myelofibrosis.
But CYT387 will have to compete with a JAK1/JAK2 inhibitor already on the market for myelofibrosis. Incyte Corp.’s Jakafi (ruxolitinib) was approved by FDA for myelofibrosis in November 2011, and was the first JAK inhibitor approved for any indication (Also see "Incyte’s Jakafi Gets Broad Label, Early Approval For Myelofibrosis" - Pink Sheet, 16 Nov, 2011.). CYT387’s second-in-class status could dampen investor enthusiasm for the acquisition, but the fact the drug has been shown to increase hemoglobin and reduce the need for blood transfusions means it could offer a competitive advantage as the preferred treatment for the roughly 30% of myelofibrosis patients who have anemia.
Somaxon/Pernix
Somaxon Pharmaceuticals Inc.’s search for strategic alternatives has come to an end, but not exactly a lucrative one. Specialty pharma Pernix Therapeutics Holdings Inc. will acquire the sleep disorder company for $25 million in stock. That’s a small fraction of the at least $224 million that’s been invested in Somaxon since its 2003 inception.
On Dec. 10, the day before the deal announcement, Somaxon’s market cap was a mere $10.5 million. It was trading just above its cash value of $8.2 million at Sept. 30. During the third quarter, Deerfield Management initiated a position of 4.5 million shares in the company; that’s almost two-thirds of its shares outstanding. Somaxon shareholders still have to sign off on the deal.
It’s been a steady slide for Somaxon. In September 2011, Procter & Gamble Co., the U.S. marketing partner for Somaxon insomnia drug Silenor (doxepin), terminated an August 2010 deal due to insufficient sales to support marketing expenses [See Deal]. Then in January, Somaxon said it was looking at strategic alternatives after a disappointing Silenor launch.
The selling point for Silenor was supposed to be its approval for sleep maintenance, staying asleep into the seventh and eighth hours of sleep. But it’s proven difficult to gain a foothold in an insomnia market awash with generics, particularly of Ambien (zolpidem). Somaxon reported net product sales of $7.8 million in the first nine months of 2012. For its part, Pernix is adding a product to its ranks of generic, branded and over-the-counter products. Until recently, the company has focused on pediatrics. But last month, it bought Cypress Pharmaceutical Inc. for $101 million in cash and stock, thereby diversifying its product offerings (Also see "Pernix Adds Generics And Branded Drugs With $101 Million Buy" - Pink Sheet, 15 Nov, 2012.).
Nuron/Pfizer
In another deal that has a big pharma unloading a non-priority asset, Pfizer Inc. sold its Meningitec vaccine to Exton, Pa.-based specialty biologic and immunotherapy developer Nuron Biotech Inc. The vaccine is aimed at preventing bacterial diseases such as meningitis, sepsis and pneumonia caused by Neisseria meningitides serogroup C. The product currently is registered in 23 countries, and Nuron plans to expand its availability to markets with unvaccinated and under vaccinated populations, the company said.
N.meningitidis is estimated to cause 500,000 cases of disease annually worldwide with a 10%-20% fatality rate. The company previously acquired the HibTiter Haemophilus influenza Type b conjugate vaccine from Pfizer in April 2011 and is looking to re-launch the product, marketed in the 1990s by Wyeth, in the U.S. following discussions with FDA [See Deal]. Nuron has several vaccines and biologics in development. Terms of the deal were not disclosed.