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Pharma deals during February 2013

Deal Watch: Major pharma collaborations, acquisitions and agreements in the past month

Pharma deal watchIn our regular review of monthly deals, we focus on the top headline value transactions (where financial terms are disclosed) which were announced during February 2013. During this month, we saw transactions across a range of therapeutic and disease areas (including autoimmune, haematology, metabolic, dermatology) with branded, OTC, generics and biosimilars all represented. There has been a variety of deal structures with licences, asset and company acquisitions, research collaborations and an increasing number of options at the front and back end of deals and interesting multiples. A number of the deals have had a regional focus, with India and Latin America represented. 

Deal of the month
The largest agreed deal announced was Biogen Idec's acquisition of Elan's interest in Tysabri (natalizumab), the multiple sclerosis (MS) treatment, thereby terminating their previous collaboration of profit share 50:50. Tysabri's sales amounted to $1.6bn in 2012 and Biogen will pay Elan $3.25bn plus future contingent payments (12 per cent to 25 per cent of global net sales).

With the company coffers full, Elan CEO Kelly Martin promptly announced that the company would be going on a shopping trip. However, less than two weeks later, Royalty Pharma announced a $6.55bn offer to buy Elan, offering $11 a share - a 6.5 per cent premium to closing share price prior to its offer - suggesting that it was a quick exit for Elan's shareholders, who may have had concerns following announcement of the Biogen deal (the share price fell to $9.40). Elan subsequently made an announcement that it would be offering a $1bn share buyback as well refinancing the debt and investing in a number of assets in the near future, with no reference to Royalty Pharma's unsolicited bid. Interestingly Elan's share price closed at $11.46 on March 1, so watch this space.

Autoimmune options
Elan-Biogen's deal was the first of four this month to focus on autoimmune diseases. Merck & Co extended its alliance with Lycera, a spin out from the University of Michigan, to discover new targets with immune mediated responses, and is paying an incremental $300m for this. In their original deal in 2011, Merck paid $12m upfront with up to $295m in milestones to target T-helper 17 cells which would offer a first-in-class approach to treating major autoimmune diseases. This latest deal takes the total milestone package close to $600m.

In one of two option deals in this therapeutic area, Takeda has taken an option to Resolve Therapeutics' RSLV-132c fusion protein currently in pre-clinical studies to treat Lupus. Takeda has paid Resolve an initial $8m to fund development and if it exercises the option, it will pay a fee plus an additional $247m in development milestones, plus royalties on sales. In the other option deal, Merck Serono has acquired an option over Opexa Therapeutics' phase IIb Tcelna (imilecleucel-T) vaccine for MS (for all territories except Japan). The option fee was $5m with up to a further $220m in milestone payments, plus royalty payments. Tcelna is being developed as a personalised therapy specifically tailored to each patient's individual disease profile using Opexa's proprietary production method, ImmPath, and has received fast track designation from the FDA as a treatment for secondary progressive MS.

Another deal which featured an option this month is Leo Pharma's option to license 4SC Discovery's pre-clinical product for psoriasis. Leo paid a $1.3m option fee, and will pay another $4m if it exercises the option and upto $120m in milestones. Interestingly in this deal the option fee represents ~1 per cent compared to the ~2 per cent and ~3 per cent that Merck Serono and Takeda paid, respectively; perhaps a reflection of the relative attractiveness of the disease areas or the more the result of the relative negotiating strengths of the parties?

Geographic expansion and consolidation
Mylan, the generics giant, has announced a trio of deals with Indian companies this month.  In the largest, it announced its planned acquisition of Strides Arcolab's subsidiary, Agila Specialities for a total of $1.85bn. Mylan will pay $1.6bn in cash with upto $250m in additional conditional payments. This deal will consolidate Mylan's position in injectable generics, effectively doubling the size of Mylan's 2012 $500m sales bringing another 200 marketed products into the portfolio (to total 700) and another 350 in development. This deal will also give Mylan access to the Latin American market through Agila's new plant and an established presence in Brazil as well as substantial growth opportunities in the US, where there continue to be supply problems. The global generics injectables market is expected to grow at 13 per cent annually between 2011-2017, and this deal will give Mylan  about 70 per cent of this market.

Mylan also announced this month that it was acquiring India's UniChem Laboratory's manufacturing plant for $30m.

Other companies expanding in India and Latin America were GlaxoSmithKline (GSK) and Reckitt Benckiser, respectively. As announced in November, GSK spent $900m acquiring an additional 29 per cent of its publicly traded Indian OTC subsidiary GlaxoSmithkline Consumer Healthcare to hold 72.5 per cent, thereby increasing its exposure to a fast growing market (19 per cent annually over the last 5 years). After acquiring India's Paras at the end of 2010 for a sizable 8.2x sales, Reckitt Benckiser has entered into a three-year collaboration agreement with Bristol Myers Squibb (BMS) for its OTC business in Latin America. Reckitt is paying $438m upfront (a noteworthy 4.7x sales for only 3 years) with an option price of $44m to purchase the rights outright at the end of the three year period – the purchase price being the average net sales for the 2 years preceding the sale.  BMS will retain manufacturing rights and will earn royalties on the sales during the collaboration period. This deal will allow BMS to focus on its more innovative products in the region and Reckitt may be hoping that this deal, together with the acquisition of Schiff Nutrition in November 2012 may distract attention from the noise surrounding the Suboxone film versus tablets debate.

Biosimilars continue to attract
Mylan's third Indian deal is in biosimilars, as it sets up an exclusive strategic collaboration with Biocon for three insulin biosimilars: Biocon's Glargine (the generic version of Sanofi's Lantus), Lispro (the generic version of Eli Lilly's Humalog) and Aspart (the generic version of Novo Nordisk's NovoLog). Mylan and Biocon will share development and pre-commercialisation costs. Mylan will have exclusive commercialisation rights in the US and EU and certain other territories and co-exclusive commercialisation rights in other markets. The deal terms were not disclosed, but it is worth noting that the branded drugs generated sales of $11.5bn in 2012. This deal together with the recent option agreement with BMS for IN-105 (DW 29) should help Biocon to heal the wounds after Pfizer walked away from their insulin pact (with the same three insulin biosimilars) in March 2012.

Merck & Co has also returned to the biosimilar race following its exit from the Enbrel development programme after Amgen settled an off-label use case for Aranesp in December 2012.  This time Merck is not going it alone, but has announced a collaboration with Samsung Bioepis (the joint venture between Samsung and Biogen Idec set up in December 2011. Again no deal terms were disclosed, but the partnership covers “multiple pre-specified and undisclosed biosimilar candidates”. Samsung Bioepis will be responsible for all the development work, whilst Merck gains the commercialisation rights.

End of the line?
It is always sad to see a venture fail as completely as Ipsen's partnership with biotech partner Inspiration Biopharmaceuticals. Following Inspiration's filing for protection under Chapter 11 in October 2012, Ipsen has agreed to sell IB1001 (plus 2 preclinical products in development); a haemophilia drug candidate placed on clinical hold by the FDA last year, to Cangene. The deal is worth up to $56m in upfront ($6m) and commercial milestones, plus double digit royalties (upto $300m in total). This is the second divestiture for the partnership with OBI-1 sold to Baxter for $185m in upfront and goal-based payments, plus royalties. It is hoped total aggregate consideration (including royalty streams) for all the assets may reach $1bn if Baxter and Cangene are successful ($700m and $300m, respectively).

Another failure this month has been Phytopharm's phase II compound, Cogane, in early stage Parkinson's disease.  As Phytopharm does not have a portfolio of other late stage projects to develop in place of Cogane, the company is looking at “other strategic options”.  The most likely is a reverse merger with another company that is looking to obtain a London stock market listing.  Degenerative neurological diseases is a graveyard for new molecules but perhaps more patient specific tailored treatments along the lines of the one Merck Serono has licensed from Opexa Therapeutics (described above), will be more successful. 

Second chances?
In amongst all the failed drugs, they may be some gems waiting to be rediscovered and re-purposed for a new indication. In an example of an emerging trend of collaboration between pharma, academics and NGOs, is the announcement of Europe's big Pharma community (AstraZeneca, Bayer, Lundbeck, Janssen, Merck KGaA, Sanofi and UCB Pharma [but not GSK]) pooling its research efforts with academics (in UK, Germany and Netherland) and SMEs in a new €196m ($265m) project. There are 30 partners and together they will be using a crowd-sourcing and open innovation approach (much like that used in the development of Linux software). Pharma will contribute 300 compounds and the remaining 200 will be developed by academia and the SMEs.  Between them they will use crowd sourcing to generate novel ideas on how to tackle certain disease and then these can be tested used shared industry know-how. The programme is supported by the Innovative Medicines Initiative (IMI) set up five years ago to re-establish Europe as the “pharmacy of the world”. This initiative follows the drive announced by IMI in December 2012 with 10 major drug makers led by Roche to develop human disease models with stem cells to aid research on drugs for neurological diseases and diabetes.

New avenues and novel deal structures
In big pharma's continuing quest to find new avenues of growth, the appetite for orphan drugs is not diminishing. Roche has acquired an exclusive licence from Chiasma for Octreolin (in phase III), an orphan designated oral treatment in US for acromegaly with a neuroendocrine tumour indication to follow. Acromegaly develops when the pituitary gland produces too much growth hormone and current therapies are typically inconvenient injectables. In addition approx. 40 per cent of patients are non-responders to the currently available therapies, so there is a significant unmet need. Roche has paid an upfront of $65m with an additional $530m payable in milestones and regulatory hurdles over commercial. There are also double digit royalties payable.

Finally, following the trend towards more novel deal structures, the deal recently closed between SpePharm and Norgine enabled the SpePharm shareholders to retain an interest in the business and for Norgine to leverage its European infrastructure.  The deal was based around a joint venture that comprised finance from Norgine which cash was then used to secure the product rights unencumbered from SpePharm. This enabled those SpePharma investors who wished to exit at this point to do so while retaining those shareholders who wished to continue. The joint venture is owned 50 per cent Norgine and 50 per cent SpePharm.

In addition to the joint venture, Norgine also acquired four operating companies. Norgine provides all support services to the joint venture and sells products through its sales and marketing organisation at a guaranteed fixed margin; the profits from the joint venture are shared.

One of the perennial problems with joint ventures is the exit strategy but in this case this has been addressed upfront as Norgine has the option to buy the products out after a certain period of time.  This structure maintains flexibility going forwards as there is scope for the joint venture to acquire other assets or the products can be sold unencumbered. It will be interesting to see if there are further developments from Norgine or other companies along these lines.

6th March 2013

6th March 2013

From: Research, Sales

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