Friday, February 06, 2009

DoTW: The Calm after the Storm?

Last week was a tough act to follow on the dealmaking front. No, we still haven’t forgotten Pfizer’s $68 billion cash-and-stock collision with Wyeth; the fallout, so to speak, continues, and you can read our ongoing coverage here and here.

And you know this blogger’s favourite R&D question: how will Pfizer continue to get smaller in R&D while it integrate Wyeth’s thousands of R&D staff? We think the federation-of-biotechs might get a bit out of hand with too many members…

Other Big Pharma CEOs, unsurprisingly, have felt compelled to add their own merger sturm and drang to the mix, usually in the context of (disappointing) full year earnings. Merck’s Richard Clark isn’t ruling out ‘a major acquisition’—a bit of a change of tune for the ‘we’re great at R&D and don’t need anyone else’ line of yesteryear—but GSK’s Andrew Witty is.

“We have real confidence in our strategies going forward,” Witty said during this week's results meeting, “and in our people’s ability to deliver.” (The ‘remaining people’s’, he meant, given that several thousand staff are reportedly due to go.) When you’re buying into generics, your vaccine sales are up 20% and you’re touting the toothpaste (oral health turnover was up 6%), who needs a Wyeth or a Bristol? Nah, bar the odd licensing deal (with Idenix, see below) GSK’s close friend these days is retailer Wal-Mart, which is helping it make money from 30-year old Ventolin—at $9 a pop, uncutting many generics.

This week was another busy one for Roche on its Genentech-hunt; with pharma sales down 4% in 2008 and net income down 5%, the Swiss group has re-iterated that “there’s no Plan B” as far as buying its long-time partner is concerned. And to help pay for this $42 billion spree (slightly lower than it was, but which may, as we have noted, get far more expensive when Avastin data in colorectal cancer appear in the next couple of months), “we’ll launch a bond,” declared Chairman Franz Humer.

Bonds are certainly the thing do be launching, it seems: Novartis this week issued $5 billion worth ($2 billion of five-year bonds, and $3 billion of ten-year bonds), spreading hope that Pfizer will be able to finance Wyeth more cheaply, and that Humer’s plan may work. Catherine Arnold at Credit Suisse says that strong demand for the Novartis bonds may mean there’s an ‘appetite’ for quality paper. (There certainly appears to be in Europe, where German healthcare group Fresenius last month raised a whopping $800 million through an unsecured senior notes offering, comprising both Euro and Dollar tranches.)

Meanwhile the winds of change are swirling at both Biogen Idec and Vertex. This week came news that Carl Icahn has nominated four people to Biogen's board. Because the company holds staggered elections for board nembers, even if all of Icahn’s nominees were elected, it wouldn't be enough to take control of the biotech. Still the interpersonal dynamics could make for some interesting meetings...

And on Friday, founder and CEO Josh Boger announced he is retiring from Vertex in May, making way for ex-Shire CEO Matt Emmens. Some analysts, speaking to Reuters, say this will clear the way for a company sale; certainly with a potential Phase III blockbuster in Hepatitis C drug telaprevir, there should be some interest.

Or maybe not. Analysts at Leerink Swann reckon this shift makes it less likely that Vertex will be sold anytime soon--indeed, while at Shire, Emmens was certainly keener on buying than selling. Instead, it seems Emmens is better placed to take Vertex into its next, more commercially-focused phase. Either way, IVB expects to be writing about Vertex--whichever side of the dealmaking table it ends up on-- in the near future.

But enough of Boger, buying bonanzas, or bonds (or alliterative allusions for that matter). What about the actual deals? Not many this week; call it the calm after the storm. That said, GSK and Idenix kicked up a little breeze at the last minute on Friday...

GlaxoSmithKline/Idenix: What? It's not an option-deal! GSK has emerged (temporarily perhaps) from option-mania to sign a straightforward license with Idenix for exclusive worldwide rights to IDX899, a novel non-nucleoside reverse transcriptase inhibitor in Phase II for HIV/AIDS. It's a once-a-day; it's apparently got good defenses against drug resistance; and is potent at low doses. So GSK put up $34 million up-front, split 50/50 between cash and the purchase of Idenix stock at $6.87 per share. In an interview with "The Pink Sheet" DAILY, Idenix Chief Financial Officer Ron Renaud said GSK paid a double-digit premium on the average share price at closing over the 90 days prior to the deal. Idenix also stands to make $416 million in downstream regulatory and sales milestones and off-loads all further development responsibilities to GSK as part of the deal.

Actually, it's not GSK, it's GSK's Infectious Diseases Center of Excellence for Drug Discovery (CEDD) that's done this transaction. So what, you ask? Well, if you're into R&D structures, it's an important distinction. The ID CEDD is one of the two GSK CEDDs that are in charge of their own deals as well as internal R&D. That means, in theory, quicker negotiations, a smaller more focused team for the biotech to talk to, and, we're told, fewer committees. So although the funds came from GSK-central, the deal will be budgeted through the ID CEDD (whose remit goes from discovery to POC) and the corresponding later-stage Medicines Development Unit (which takes compounds from POC through to approval).

With GSK taking over development of ‘899, Idenix now has greater capacity to focus on its three hepatitis C programs, led by nucleotide prodrug IDX184, which moved into a Phase I/II proof-of-concept study in January. A number of partners were reportedly interested in Idenix's HIV asset, which explains the healthy down-payment GSK had to pay. Certainly Idenix has been looking to partner it since 2008, when proof-of-concept data first became available. But complicating negotiations was the fact that Novartis owns a majority stake in Idenix, giving it right of first refusal on the biotech’s entire pipeline up through POC. When Novartis ultimately decided to pass on the option, GSK quickly established itself as the top partnering choice. “Glaxo’s extensive knowledge in HIV and comprehensive clinical plans (part of what impressed IDIX management) raise the probability of success and commercial potential,” writes ThinkEquity analyst Jason Kolbert in a Feb. 6 note.

Cephalon/Immupharma; No calm for UK biotech Immupharma this week either, in fact. It was party-time, take two. Cephalon had already flooded the group with cash last November when it paid $15 million for an option to license lupus candidate Lupuzor, a CD4 T-cell modulator in Phase IIb trials. This week, based on promising interim IIB data, Cephalon exercized its option, paying a one-time license fee of $30 million. Bye-bye fundraising, as far as Immpharma’s management is concerned, and, for the biotech’s shareholders, hello dividend. Immupharma may receive further cash milestone payments plus sales royalties. Cephalon will pay for the Phase III trials, which will start this year, and will commercialize the drug—hailed as the first specific medication for lupus sufferers. It works by desensitizing the body to the causes of the disease, according to Immupharma’s CEO Dimitri Dimitrious (see "The Pink Sheet" DAILY, Nov 26, 2008); analysts say the drug could one day bring Cephalon $4 billion in annual sales. Cephalon hopes this product deal will complement its similar, option-style deal with Ception Therapeutics inked last month. In that deal Cephalon put $100 million on the table for the option to purchase all remaining shares in the private group for another $250 million if Phase IIb/III antibody reslizumab works out. The antibody is in trials for a rare inflammatory disease in children; this and the lupus drug will in theory provide Cephalon with the beginnings of an inflammatory diseases franchise. Check coming issues of "The Pink Sheet" DAILY for a Q&A with Cephalon chairman and CEO Frank Baldino for more on the company's future direction.

Novartis/Ablynx: Meanwhile the love-in between Novartis and Dutch antibody group Ablynx continues—they extended their drug discovery and development alliance for a second time, turning this into a three-and-a-half year relationship. More research funding and potential license fees and milestones for Ablynx (but we don’t know the numbers), and, one assumes, a Novartis that’s very excited by Nanobodies. Forgotten what they are? Proteins that behave like conventional antibodies but are a lot smaller; their design resulted from the observation that camels and llamas have fully-functional antibodies that lack light chains. UK analysts say Ablynx is now “set to become a serious force in biotech”, which we think means that the company has enough cash and partners to get its products into late-stage development without having to expose itself to the elements. If things get any better with Novartis, it might become a serious option for them, too (they've got plenty of money, remember)—although Ablynx’s other partnerships, with Boehringer Ingelheim, Merck Serono and Wyeth (soon-to-be Pfizer) may complicate matters.

Oxford BioMedica/Foundation Fighting Blindness:UK gene therapy group Oxford BioMedica received a $250,000 investment from the Foundation Fighting Blindness this week as part of the group’s ongoing collaboration to develop StarGen, a gene therapy treatment for Stargardt’s disease, a juvenile retinal degenerative illness that affects children. Not a big deal, and certainly not the answer to Oxford’s financing issues—it’s likely to need money by the end of 2009, say analysts, unless it can sign a partnership for its early clinical-stage Parkinson’s treatment ProSavin—but a sign at least that some charities still have some money to push forward their therapeutic interests.

Photo courtesy of flickr user Stuck in Customs through a creative commons license.

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