After our excursion to Wonderland (post-Brexit UK) in June, July saw us return to the real world.
The aspect of deals that always confuses the outsider is the Biodollar concept: the headline value of the deal which bears little or no resemblance to the actual cash invested, but can garner much needed PR for the licensor. Frequently, deals top the table of the monthly charts, having billion dollar plus headlines, but having guaranteed cash (upfront, equity, R&D investments, etc.) representing a very small proportion of the total. This month is different. There are both a high number of acquisitions (9 out of our top 20), all of them putting real money on the table; and with one exception, cash payments rather than shares.There are also some substantial upfront payments among the licensing deals.
Real Money
Eleven of the top 20 headline deals this month are licences and, of these, many have real upfront money underlying the headline figure:
| Licensee | Licensor | Headline | Upfront | Equity | Near-term R&D funding |
| Celgene | Jounce | $2,561m | $225m | $36m | |
| LEO Pharma | AstraZeneca | $1,115m | $115m | ||
| Astellas | Cytokinetics | $100m | $65m | $30m | |
| Almirall | Sun Pharma | $50m | $50m | ||
| Takeda | TiGenix | $432m | $28m | $11m | |
| Servier | Sorrento | $821m | $28m | ||
| Jazz Pharma | Pfenex | $181m | $15m | ||
| ONO Pharma | Celyad | $311m | $12.5m | ||
| Almirall | Patagonia | $28m | $3.5m | ||
| Petra Pharma | Sprint BioScience | $240m | |||
| Bayer | X-Chem | $528m | N/A |
Topping the charts this month is the $2.6bn strategic collaboration deal that Celgene signed with Jounce Therapeutics for its platform and portfolio of biomarker-driven immuno-oncology therapeutics. Not only is the headline figure high, but it comes with $225m in real money and an equity investment of $36m. Not bad for a company that was founded in 2013 and has yet to take its first product into man. Jounce’s technology aims to identify the likely responders to immuno-oncology treatments by identifying the related biomarkers and enabling clinical trials to recruit more effectively. Jounce’s lead product, JTX-2011, is due to enter phase I trials later this year as a monotherapy and in combination with other immuno-therapies. It is a humanised inducible co-stimulator (ICOS) agonist antibody, designed to both stimulate T effector cells and selectively reduce intra-tumoural T regulatory cells.
In at numbers 2, 3 and 4 are the LEO-AstraZeneca deal with an upfront of $115m, Astellas-Cytokinetics at $95m and Almirall-Sun Pharma at $50m (see below).
Other deals where the licensee has committed real upfront money include Takeda’s $28m upfront payment for ex-US rights to TiGenix’s Cx601, a suspension of allogeneic adipose-derived stem cells. The product has been submitted to the EMA following a phase III trial showing safety and efficacy of a single injection in the treatment of complex peri-anal fistulas, and is therefore a relatively low risk investment for Takeda. At the other end of the development spectrum Servier paid the same amount upfront for the rights to Sorrento’s immuno-oncology product: STI-A1110, an anti-PD-1 mAb, presently in preclinical development; a higher risk and potentially higher reward area.
In the second immuno-therapy deal to make the top 20 this month ONO Pharmaceuticals paid $12.5m upfront for the rights to develop Celyad’s phase I product, allogeneic NKR-2 T-cell, in just three countries – Japan, Korea and Taiwan. The deal also included an option on Celyad’s autologous NKR-2 T-cell product.
Jazz Pharmaceuticals paid $15m in upfront and option payments to Pfenex for the rights to a portfolio of early stage products in haematology/oncology. Pfenex is a biosimilars company, and the agreement with Jazz also includes rights to a recombinant pegaspargase candidate. Earlier this year Jazz completed its acquisition of Celator Pharmaceuticals, acquiring a late-stage product, Vyxeos, which targets AML, and the new agreement brings complementary products to Jazz’s portfolio.
A smaller upfront payment, of $3m, was made by Petra Pharma to Sprint BioScience for the rights to its PIP4K2a tumour metabolism targeting programme; a relatively small proportion of the high headline figure of $240m.
Real Strategies
The remaining eight deals are acquisitions, some of which have substantial multiples or share price premiums. The range of valuations is high though, with multiples ranging from less than one times revenues, to 50 times, reflecting both strategic and financial imperatives driving the acquisitions.
| Acquirer | Acquired | Payment | Revenue | Revenue multiple | Share price premium |
| Galenica | Relypsa | $1,530m | $30.9m | 50x | 60% |
| Nichi-iko | Sagent | $736m | $318m | 2.3x | 40% |
| Cooper | Vemedia | $416m | $443m | 0.94x | N/A |
| LabCorp | Sequenom | $302 | $128m | 2.4x | 180% |
| BioTechne | Advanced Cell Diagnostics | $250m plus $75m contingent | N/A | N/A | |
| Globus Medical | Alphatec’s international division | $80m | $71m | 1.1x | N/A |
| Derma Sciences | BioD | $21.3 plus $56.5 contingent | $22m | 3.5x | N/A |
| Recordati | Pro Farma | $16m | $10m | 1.6x | N/A |
| DUKAL | Derma Sciences’ First Aid division | $12.2m | $16.7m | 0.73x | N/A |
Historically, when acquisitions have not performed to expectations, they have been described as “strategic”; that is to say bringing long-term benefits on which companies can build in the future to compensate for their lack of immediate benefits. This month however, we see real strategic benefits to the acquisitions in our list, which is backed by the payments having been in cash rather than stock. Galenica, the Swiss healthcare company that is preparing itself for a split into two parts, Vifor Pharma (healthcare product development, manufacturing and marketing) and pharmacy and wholesaler service provider, has acquired Relypsa for $1.5bn in cash. The Vifor division, which focuses on treatments for iron deficiency, has gained a fully integrated US operation prior to the spin-out, and a complementary product in Veltassa, a potassium binder for the treatment of hyperkalaemia. Veltassa was approved in late 2015 and Relypsa achieved revenues of $30.9m since its launch, making the 50x revenue multiple paid look relatively attractive.
LabCorp has described its acquisition of Sequenom, which provides non-invasive prenatal testing, as strategic, and has paid $371m for the company. Although Sequenom’s revenues were $128m in 2015 the company has been loss-making and in negative equity for some years, and the 180% premium to share price was no doubt welcome to shareholders, despite it being a fraction of the company’s value in the heady days of the early 2000s, coming as it did in cash.
Two acquisitions in our list bring together two companies in the same field to create larger and presumably stronger organisations. In the generics field Nichi-Iko Pharma’s bought Sagent Pharma for $736m in cash. With complementary portfolios and geographies this is also a strategic move, enabling Nichi-Iko to bring its biosimilars to the US market. And in the OTC field the sale by IK Investment of Vemedia, to Charterhouse Capital’s Cooper, creates a strong company in the European OTC market, with the aim of leading further (strategic?) consolidation in the field.
BioTechne paid $250m in cash (with a further $75m in contingent milestones) for Advanced Cell Diagnostics, a move into the genomics field described as an “excellent strategic fit” by ACD’s CEO. BioTechne acquires ACD’s technology for monitoring gene expression patterns at the single cell level. Globus Medical paid $80m in cash for the international business of Alphatec, a medical device company. Alphatec will use the cash to pay down its debt and transition itself to a US-focused company.
Recordati has been busy on the acquisition front recently; in May the company acquired Italichimici for $145m, strengthening its gastroenterology and respiratory ranges, and in July it bought the Swiss company Pro Farma for $16m, both for cash.
Finally, Derma Sciences has sold its First Aid Division for a modest sum of $12m in cash, describing it as a “decisive strategic step” to enable it to focus on its advanced wound care business. And indeed, the following day it announced that it had paid $21.3m in cash and stock (plus a further $56.5m in potential milestone and earn-out payments) for BioD, a privately held regenerative medicine company.
Real Skin in the Game
Unusually there are several dermatology deals in July. Almirall is continuing to build the company’s activities in dermatology, which now represents 43% of the company’s revenues and is driving gross margin improvements. With a cash balance of over $500m the company has been investing real money in new assets to add to its already strong development pipeline. Almirall paid $50m upfront to Sun Pharma for a licence to tildrakizumab (an IL-23p19 antibody) in Europe, and the deal includes payments of undisclosed development and regulatory milestones as well as sales milestones and royalties. The product completed Phase 3 studies in moderate to severe plaque psoriasis in May 2016 and announced that the primary endpoints had been met. Almirall’s second deal announced this month is with Patagonia, a company specialising in developing novel treatments for rare dermatological diseases. The product PAT-001 is entering Phase 2 studies in patients with congenital ichthyosis, a group of rare genetic conditions characterised by rough and scaly (“fish-like”) skin. The product contains isotretinoin (Roaccutane) and has Orphan Drug Designation in the US. Almirall’s initial expenditure has been a more modest $3.5m for this earlier stage product. The development and regulatory milestones amount to $24m and royalties are “double-digit”. Notably this deal is global and has the potential to have a major impact on Aqua Pharmaceuticals, the US operation Almirall bought at the end of 2013 for $305m plus milestones.
AstraZeneca is continuing to agree deals that permit it to focus on its core strategic therapy areas by outlicensing the global rights to tralokinumab, its anti IL-13 mAb, in skin conditions to LEO Pharma. AstraZeneca is developing tralokinumab for severe asthma, where it is in phase III development, and has recently completed a phase IIb study in patients with atopic dermatitis. The presentation is subcutaneous injection in both indications, leaving the complexities of potentially conflicting positioning open.
Finally, at the other end of the dermatology spectrum, Derma Sciences has sold its First Aid Division in order to concentrate its activities on advanced wound and burn care products. The purchaser, DUKAL, paid $12.2m for products with 2015 revenues of $16.7m; these products include a family of first aid products including the brand American White Cross.
Real Relationships
Astellas and Cytokinetics have announced another extension to their agreement involving the development of their skeletal muscle activators, tirasemtiv and CK-2127107. In 2013 the companies agreed a deal for CK-2127107 in non-neuromuscular indications (ie: excluding the ALS indication for Cytokinetics’ lead product, tirasemtiv). In 2014 the partners expanded the agreement for CK-2127107 to include some neuromuscular indications, such as Spinal Muscular Atrophy (SMA). In July, Astellas paid $65m upfront for an option to tirasemtiv in ALS outside the US and Europe and a further $30m to fund the phase II development of CK-2127107 in ALS through 2017 and the research collaboration. The benefits of an ongoing relationship illustrate a feature of deal-making that is too often forgotten – when you sign a deal it’s the beginning of a relationship, not the end. The importance of good Alliance Management brings long-term benefits to both sides of a deal, with the ability to expand and consolidate the reach of the deal over time. Similarly, Bayer has extended its agreement with X-Chem for access to the latter’s DEX technology of DNA-encoded libraries of small molecules with a headline figure of $528m (but undisclosed upfront payments).
And Finally, Reality Bites
ALK-Abello has issued a press release announcing that Merck & Co has walked away from the deal agreed in 2007 (with Schering-Plough) for the allergy treatments Grastek and Ragwitek, and the investigational treatment, Acarizax. Grastek and Ragwitek are sublingual allergy immunotherapy (SLIT) tablets (for Timothy grass and Ragweed allergies respectively) and were approved in April 2014 with Black Box warnings. They appear to have failed to have an impact on the anti-allergy market in the US and, after two seasons, the rights to the products in the US will revert to ALK-Abello in early 2017. No sales figures have been released by either side, but ALK-Abello commented that the company’s European sales of SLIT tablets reached DKK 257 ($38m) in the first half of 2016, while it received an income of DKK 15m ($2.2m) in sales royalties, R&D services and product supply.
| Licensor Aquired / Licensee Acquirer | Product / Technology | Deal Type | Headline ($m) |
| Jounce Therapeutics/ Celgene | Portfolio and platform of biomarker driven immuno-oncology therapeutics and CDx | Licence, co-development, equity stake | 2,561 |
| Relypsa/ Galenica | Veltassa – Potassium binder | Acquisition | 1,530 |
| AstraZeneca/ Leo Pharma | Tralokinumab (anti-IL-13) in skin diseases | Licence | 1,115 |
| Sorrento Therapeutics/ Servier | STI-A1110 – anti-PD1 immune checkpoint mAb | Licence | 812 |
| Sagent Pharmaceuticals/ Nichi-iko Pharmaceuticals | Portfolio of hospital generics | Acquisition | 736 |
| X-Chem/ Bayer | DEX platform for small molecule drug discovery | Collaboration – discovery | 528 |
| Vemedia/ Cooper | OTC drugs, food supplements and medical devices producer and distributor | Acquisition | 416 |
| TiGenix/ Takeda | Cx601 – Stem cell treatment for perianal fistulas in Crohn’s Disease patients | Licence* | 432 |
| Advanced Cell Diagnostics/ Bio-Techne | Technology platform and consumables portfolio for diagnostics in clinical and research arenas | Acquisition | 325 |
| Celyad/ ONO Pharmaceutical | Allogeneic NKR-2 T-cell immunotherapy | Licence**, option | 311 |
| Sequenom/ LabCorp | Non-invasive prenatal tests and genetic tests | Acquisition | 302 |
| Sprint BioScience/ Petre Pharma | PIP4K2a inhibitor programme | Licence | 240 |
| Pfenex/ Jazz Pharmaceuticals | Portfolio of early-stage hematology candidates & option for recombinant pegasparaginase | Licence, option | 181 |
| Cytokinetics/ Astellas | Tirasemtiv, CK-2127107 and generation skeletal muscle activators in amyotrophic lateral sclerosis | Collaboration – development & commercialisation | 100 |
| Alphatec/ Globus Medical | International operations & distribution of medical | Acquisition* | 80 |
| BioD/ Derma Sciences | Regenerative medicine productions derived from placental & birth tissues for multiple indications | Acquisition | 78 |
| Sun Pharma/ Almirall | Tildrakizumab (IL-23p19 inhibitor) – psoriasis | Licence*** | 50 |
| Patagonia/ Almirall | PAT-001 (isotretinoin-based treatment) – congenital ichthyosis | Licence | 28 |
| Pro Farma/ Recordati | Proprietary prescription and OTC specialty drugs | Acquisition | 16 |
| Derma Sciences (First Aid Division)/ DUKAL | American White Cross – portfolio of products for first aid wound care |
Acquisition |
12 |
All deals are worldwide unless otherwise noted – see below:
* ex US
** Japan, Korea, Taiwan
*** Europe
