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Deal Watch June 2016

Allergan, Novartis and Merck & Co are among those featured in this month's round-up of pharma deal activity

Medius Deal Watch June 2016Where to start? Whilst the deals keep flowing in, the population of the UK might be forgiven for waking up on the morning of 24 June and thinking they were Alice in Wonderland1 - but this was no dream and Brexit had become the stark and frightening reality.

So what happens now? With UK politicians fighting like the weasels in the Wind in the Willows2, there is no consensus on how the next few weeks, months or years will play out as far as our relationship with the EU is concerned.

We do not yet know all the ramifications of Brexit on the pharmaceutical industry. It really depends on how the UK decides to negotiate its exit, i.e. whether to be a member of the EU single market outside the EU (e.g. the "Norway" model being part of European Economic Area (EEA)), or a different approach, but several key issues are already being mooted.

Consequences of Brexit
Based on the need to have common standards across our globalised industry, it seems probable that the UK will want its legislation on drug regulation to continue to reflect that of the EU. However, outside the EU, the UK will have to comply with any changes made in Brussels and will have no say in those changes. A key question is whether the UK will be excluded from the centralised system for drug approvals and whether the European Medicines Agency (EMA) headquarters can remain in London. Already Spain, Italy, Sweden and Denmark have expressed interest in making a bid to relocate the EMA HQ to their countries.

Under the new EU Clinical Trials Regulation, which is due to take effect in October 2018, the EU is moving to a more centralised system for authorising clinical trials. This will provide a new submission process whereby sponsors can conduct multi-site trials across the EU with a single application. It remains to be seen how withdrawing from the EU will affect the UK's ability to engage in this system and again this depends on subsequent negotiations.

It is most likely that the Unitary Patent system and Unified Patent Court (UPC) Agreement will be delayed for years (Unitary Patents are intended to provide a cost-effective means of pan-EU patent protection without the need to validate each patent at the national level). Discussions around the Unitary Patent system have already taken many years and the UPC was due to be ratified and opened in 2017.

Until the UK decides whether it wants to negotiate to be a member of the EU single market outside the EU, or a different approach to trading overseas, it is not clear if and how tariffs will be applied to pharmaceutical imports and exports.

The EU has been a significant source of grant funding for the life science sector through initiatives such as the Framework programmes and Horizon 2020. There are serious concerns that universities, other research organisations and companies (particularly SMEs) in the UK will suffer from reduced funding as the loss in EU grants is unlikely to be matched by the UK government. As a result the UK biotech industry may well be forced to turn to the US to seek additional sources of funding.  

Until we have a clearer idea of how the UK approaches its exit from the EU, it will be difficult to gauge the complete picture in terms of the effects of Brexit on the pharmaceutical industry. Meanwhile business development carries on and deals will be done. Moving forward it will be interesting to see if deal structures start to include provisions to accommodate the uncertainties of Brexit.

Alice: Would you tell me, please, which way I ought to go from here?

The Cheshire Cat: That depends a good deal on where you want to get to.

Back to deal making for the month
Five of our top deals this month involved larger companies divesting or out-licensing selected assets. Three of the deals were focused on the requirement of Teva and Allergan to divest assets to satisfy the regulators and obtain clearance from the US Federal Trade Commission for Teva's $40.5bn acquisition of Allergan's generics business, first announced in July last year. The three deals with Mayne Pharma, Impax Laboratories and Dr Reddy's, for a combined value of over $1.5bn, cover portfolios of marketed and approved generic drugs, drugs currently pending ANDA and in the pipeline. Analysts predict that the Teva-Allergan deal will finally be able to close later in July.

Meanwhile AstraZeneca has out-licensed ex-US rights to a portfolio of seven anaesthetics to Aspen. Paying $520m upfront Aspen gains access to a series of local anaesthetics including Marcaine (bupivacaine) and Xylocaine (lidocaine/ lignocaine), and Diprivan (propofol), a short acting intravenous sedative/ anaesthetic. Downstream payments include up to $250m in sales milestones and double digit royalties. Global sales for this anaesthetics portfolio in 2015 were $592m.

The previous week AstraZeneca signed a licence with Grünenthal for the exclusive rights to Zurampic (lesinurad) in Europe and all LatAm countries including Mexico, the Dominican Republic and Cuba. Zurampic, a Selective Uric Acid Reabsorption Inhibitor (SURI), works selectively to complement xanthine oxidase inhibitors (XOIs) in the treatment of hyperuricaemia associated with uncontrolled gout, and was approved by the EMA in February 2016.

The deal also covers a fixed dose combination of lesinurad and allopurinol which is currently in clinical trials. Grünenthal will pay up to $230m in sales and other milestones plus tiered, low double digit royalties; there was no specific information provided about an upfront payment. As part of the transaction Grünenthal has the option to take over manufacturing of Zurampic from AstraZeneca from October 2021. In a "mirror deal" in April this year, AstraZenenca licensed US rights to Zurampic and the fixed dose combination to Ironwood Pharmaceuticals for $100m upfront and up to $165m in further milestones with tiered single digit royalties.

Also out-licensing during June was Pfizer, which granted Shire global rights to a phase 3 ready antibody called PF-00547659 for the treatment of moderate to severe inflammatory bowel disease (IBD). PF-00547659 targets a gastrointestinal endothelial adhesion molecule known as mucosal addressin cell adhesion molecule 1 (MAdCAM-1) that binds to the α4β7 integrin on lymphocytes. No financial terms were disclosed.

Merck & Co - from cough to mRNA
Merck & Co had a busy month signing three of the deals in our top 20. The $1.25bn acquisition of Afferent Pharmaceuticals brings compounds that target P2X3 receptors, which are believed to play a key role in the sensitisation of certain sensory nerves and which are in development for the treatment of neurogenic conditions, such as chronic cough. AF-219, a selective, non-narcotic, oral P2X3 antagonist, is currently in a phase 2b trial for the treatment of refractory, chronic cough and in a phase 2 trial in idiopathic pulmonary fibrosis (IPF) with cough. More than half of the consideration is deferred with $500m in cash upfront and up to $750m based on downstream clinical development and commercial milestones.

Through its discovery stage collaboration with Innovative Targeting Solutions, Merck & Co gains access to the HuTARG mammalian display platform, which allows the generation and engineering of fully human antibodies. The parties will employ the HuTARG research platform to identify and develop antibodies against challenging molecular targets. The deal headline is around $150m and Merck & Co will pay tiered royalties on product sales.

Back to the immuno-oncology theme, near the end of June Merck & Co signed a collaboration agreement with Moderna Therapeutics to use Moderna's mRNA technology to develop personalised cancer vaccines. Administration of mRNA vaccines encoding a patient's tumour neoantigens can stimulate a specific immune attack against the cancer cells. Of course personalised therapies require a rather different approach to manufacturing and Moderna has developed a small scale batch manufacturing process that enables vaccines tailored to individual patients to be produced within weeks. The mRNA vaccines will also be assessed in combination with Keytruda on an exclusive basis.

Apart from the $200m upfront cash payment to Moderna, there were no other financials disclosed. Following human proof of concept studies, Merck & Co has an option to make an additional undisclosed payment to Moderna and, if this is exercised, the parties will progress the collaboration under a 50:50 cost/profit share. As is typical of US biotech deals Moderna has an option to co-promote in the US.

Protein engineering - towards enhanced biologics
Also active in immuno-oncology, Novartis signed a broad collaboration and licence agreement with Xencor worth a potential $2.56bn covering two bispecific, tumour targeting antibodies, both at late preclinical stage, and Xencor's antibody engineering technologies. Paying $150m upfront Novartis gains access to XmAb14045 being developed for acute myeloid leukaemia (AML) and XmAb13676 in development for B-cell malignancies. These antibody molecules comprise the XmAb Bispecific Fc domain as a scaffold for the two antigen binding domains.

Both antibodies have a cytotoxic T-cell binding domain (CD3), which activates T-cells at the site of the tumour for killing of malignant cells, and a specific tumour antigen binding domain. For XmAb14045 the tumour antigen binding domain is CD123 (highly expressed on AML cells and leukaemic stem cells) and for XmAb13676 the tumour antigen binding domain is CD20 (highly expressed on B-cell tumor cells, including chronic lymphocytic leukaemia (CLL) and non-Hodgkin lymphoma (NHL) cells).

Novartis and Xencor will share the development costs of these two bispecific antibodies on a 50:50 basis and Xencor will retain the US rights. In addition, Novartis gains global rights to Xencor's bispecific technology for four additional target pairs selected by Novartis, one of which Xencor may elect to co-develop with a cost/profit share arrangement and co-promotion rights in the US. As part of the transaction Novartis also has non-exclusive rights to Xencor's XmAb Fc technologies to engineer antibodies with enhanced properties, such as improved stability and pharmacokinetics, for up to ten molecules.

In addition to the $150m upfront Xencor could receive up to $2.41bn in clinical, regulatory and sales milestones if all programmes are successful. The royalties depend on the programme as summarised in Table 1:

RightsRoyalties
Exclusive commercialisation rights to XmAb14045 and XmAb13676 outside the USTiered low double digit
Worldwide exclusive rights to bispecific technology for four Novartis target pairsTiered mid single digit
Non-exclusive rights to XmAb Fc technology for up to 10 moleculesLow single digit

Table 1: Royalty rates for different programmes

Also employing protein engineering technologies, Eleven Biotherapeutics signed a deal this month with Roche for EBI-031, an IND stage antibody in development for diabetic macular edema (DME) and uveitis. Engineered for intravitreal delivery and prolonged vitreal retention using Eleven's AMP-Rx platform, EBI-031 blocks the cytokine interleukin 6 (IL-6) in the eye, the levels of which are positively correlated with the severity of DME.

Roche is paying $7.5m upfront for the exclusive worldwide rights to EBI-031 and all other IL-6 antagonist antibody technology owned by Eleven. Downstream milestones could be up to $262.5m plus undisclosed royalties. The details of milestone payments and arrangements are not always disclosed but the Eleven press release illustrates how the time sensitive nature of development can be used to create flexibility in financial terms. If Eleven's IND for EBI-031 becomes effective before 15 September 2016, the first milestone payment will be $22.5m. However if the IND becomes effective after this date, this milestone will be reduced to $20m.

Topical themes
Aside from Brexit, another topical theme is the Zika virus. With the Rio Olympics due to start in the next few weeks, some high profile athletes have already pulled out saying they are not willing to run the risk of travelling to Brazil. It is well documented that Zika virus spreads primarily through the bite of an infected Aedes species mosquito and that the virus can be passed from a pregnant woman to her foetus resulting in microcephaly, as well as other severe foetal brain defects.

There is also evidence that Zika can be passed from a man with symptoms to his sexual partners, before his symptoms start, while he has symptoms, and after his symptoms end (US Centers for Disease Control and Prevention (CDC)). Because the symptoms of Zika virus are usually mild, many people may not realise they are infected. It is for this reason that the risk of Zika virus transmission through blood transfusion is a serious concern. Indeed studies in Brazil and French Polynesia have already reported transfusion-transmitted Zika virus.

Processes for inactivating pathogens in donated blood are well established but as new pathogens are identified, these technologies need to be adapted. One of the companies developing pathogen reduction systems for donated blood, Cerus Corporation, signed an agreement in June worth up to $180m with the US Biomedical Advanced Research and Development Authority (BARDA) to support Cerus' clinical development programme for pathogen reduction of red blood cell (RBC) components. Cerus' Intercept technology is based on amotosalen (a well characterised photoactive compound that specifically targets DNA and RNA) and UVA illumination to irreversibly cross-link nucleic acids thereby blocking the replication of viruses, bacteria, and parasites, rendering them inactive.

Whist Cerus' Intercept Blood System for platelets and plasma is already approved in the US, EU and other territories, its system for RBC transfusions is still in development. The five year contract with BARDA will cover activities related to phase 3 clinical studies for the Intercept RBC System in the US and associated manufacturing and regulatory activities to facilitate adoption by US blood centres. In Europe Cerus expects to apply for a CE Mark for the Intercept RBC System in the second half of 2016.

Meanwhile BARDA has also partnered with Terumo BCT Technologies to progress clinical development of Terumo's Mirasol Pathogen Reduction Technology System. The agreement could result in a total of up to $169m in funding over ten years. BARDA also has the option to fund tests using the Mirasol system specifically against the Zika virus.

As the Summer holiday season approaches it will be interesting to see how deal flow develops. Based on previous years July can often bring a glut of deals before the holidays start. It seems highly likely that the Summer months will live up to their reputation as being the "silly season" for politics, especially in the UK!

Licensor Acquired/ Licensee AcquirerProduct/ TechnologyDeal TypeHeadline ($m)
Xencor/ Novartis2 T-cell engaging XmAb bispecific antibodies: XmAb14045 for AML and XmAb13676 for B-cell malignancies (preclinical) and other rights
* licence, collaboration2,560
Afferent Pharmaceuticals/ Merck & Co.AF-219, oral P2X3 antagonist for chronic cough (p2b) and idiopathic pulmonary fibrosis (p2) with cough, and other compounds
acquisition company1,250
HeartWare International/ MedtronicMiniaturised circulatory support technologies for advanced heart failure inc HVAD System ventricular assist device
acquisition company1,100
LDR Holding Corporation/ Zimmer Biomet HoldingsSpine surgery portfolio inc Mobi-C cervical disc replacement device and MIVo portfolio for lumbar and cervical fusion procedures
acquisition company1,000
AstraZeneca/ AspenPortfolio of 7 anaesthetics (marketed)
* licence770
Teva and Allergan/ Mayne PharmaUS generic portfolio of 37 approved and 5 FDA filed products
** acquisition assets652
Teva and Allergan/ Impax Laboratories15 marketed generics, an approved generic drug and a pipeline generic drug; inc return to Impax of rights to its pending ANDA for generic Concerta
** acquisition assets/ return of rights586
Teva and Allergan/ Dr Reddy's8 generic drugs - filed ANDAs pending approval and an approved ANDA
** acquisition assets350
CrystalGenomics/ Aptose BiosciencesCG026806 inhibitor of Bruton's tyrosine kinase, FMS-like tyrosine kinase 3 and Aurora kinases (preclinical)
† option, licence303
Eleven Biotherapeutics/ RocheEBI-031 , IL-6 antagonist antibody based on AMP-Rx protein engineering technology for ocular diseases (preclinical)
licence270
AstraZeneca/ GrünenthalZurampic (lesinurad) and lesinurad fixed-dose combo with allopurinol for hyperuricaemia in uncontrolled gout (approved)
†† licence230
Moderna Therapeutics/ Merck & Co.mRNA-based personalised cancer vaccines; exclusive for Keytruda combinations (discovery)
collaboration, licence200
Cerus/ BARDAIntercept, pathogen reduction technology for blood transfusions including Zika virus
5 year contract to support US phase III trials180
Innovative Targeting Solutions/ Merck & Co.HuTARG™ research platform for biologics against challenging targets
collaboration150
Theravance Biopharma/ Takeda PharmaceuticalTD-8954, selective 5-HT4 receptor agonist for GI motility disorders, including enteral feeding intolerance (phase II)
licence125
EpimAb Biotherapeutics/ Innovent BiologicsFabs-In-Tandem immunoglobulin platform to develop multiple bispecific antibodies
‡ licence, collaboration120
Nutraceutix/ ProbiUS probiotic dietary supplements company
acquisition company105
Nektar Therapeutics/ Daiichi Sankyo EuropeOnzeald (etirinotecan pegol), long-acting topoisomerase I inhibitor for metastatic breast cancer (phase III)
‡‡ licence80
Cell Design Labs/ Kite Pharma'On/off switch' technology to regulate activity of engineered CAR T-cells for AML, certain B-cell malignancies (discovery)
collaboration, licence, equity73.5
PAION/ Cosmo PharmaceuticalsRemimazolam, ultra short acting iv benzodiazepine sedative/ anaesthetic (phase III)** licence69.4 

All deals are for worldwide right unless stated otherwise:

* Excludes US
** US
† Excludes China, Korea
†† 28 EU member states, Switzerland, Iceland, Norway, Lichtenstein, all LatAm countries including  Mexico, Dominican Republic and Cuba
‡ Includes rights to sublicense outside China
‡‡ EEA, Switzerland, Turkey BARDA, Biomedical Advanced Research and Development Authority (BARDA)

Jill Ogden has over 29 years of commercial and R&D experience in the biopharmaceuticals and healthcare industries and provides our biologics, early stage deals and platform technologies expertise. She has worked for a number of mid-caps and biotech companies, both public and private. Jill has led and been involved in a wide range of product and technology deals, including corporate M&A.

  1. Alice's Adventures in Wonderland by Lewis Carroll
  2. Wind in the Willows by Kenneth Grahame

15th July 2016

From: Sales

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