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Pharma deals during February 2014

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

Deal watchAs is customary this month's report focuses mainly on deals with disclosed financial terms.  Acquisitions continue to form a high proportion of the deals reported; nine out of the top 20 deals this month were acquisitions, continuing the trend we saw throughout 2013.

In terms of disease areas, the hottest fields were oncology with four deals (with another five collaborations or terminations where no financial terms were disclosed) and metabolic / endocrine diseases with three deals (with another two with no financial terms).

Appetite for growth continues

We will start this review with the largest deal of the month and quite possibly of 2014, as it is larger than any deal in 2013: Actavis's intended acquisition of Forest Laboratories for a staggering $25bn.  This is a cash and stock deal representing $89.48 per share, a 25 per cent premium to Forest's share price at closing prior to the announcement and 31 per cent uplift to its 10-day weighted average share price prior to the announcement. The Forest shareholders will receive $26.04 in cash and 0.3306 Actavis shares per share.

This deal comes hot on the heels of the acquisition of Warner Chilcott in 2013 and Watson Pharmaceuticals' acquisition of Actavis back in 2012. Actavis is one of the top three largest generics company (with Teva and Sandoz) and this deal combines the two fastest growing speciality pharma companies to create a new model in speciality pharma leadership.  Revenues from speciality brands will contribute 50 per cent of the combined companies' annual revenues of $15bn in 2015 and generate free cash flows of $4bn after making $1bn in synergy and cost savings.  Actavis will have blockbuster franchises in CNS, GI, Women's health and urology and CV.  The deal is expected to close mid 2014, pending approvals.

The announcement came just after Forest completed its acquisition of Aptalis last month for $3bn and this month sold a number of products to Hospira's Australian subsidiary Mayne Pharma for $12m. One person who must be very happy with the deal is long term investor, activist and Forest's second largest shareholder (11 per cent) Carl Icahn, but less happy is AstraZeneca, which it is now understood, made an unsuccessful bid for the company at around $70 per share at the end of 2012.  Since the announcement of the deal there has been much analysis as to why Actavis paid as much as it did when Forest seemingly could have been bought much more cheaply, given the loss of patent protection on Forest's best selling depression drug Lexapro and another patent cliff looming for Nameda, its Alzheimer's drug in 2015.

However, a healthy pipeline together with significant restructuring had recently boosted optimism for the stock; more than doubling from its lows at the end 2011 and perhaps Actavis wanted to move decisively and reduce the chance for any competing bids.

In the generics space there have been rumours that the next big deal will be one of Pfizer's three new business units ('value products') with sales of the order of $10bn. Actavis, Mylan and Valeant were rumoured to be vying as suitors; Actavis is probably out of this market as it gets its arms around Forest but Mylan and Valeant remain poised.

Not one to stand still for long, Valeant has continued its acquisitive streak by entering into a definitive agreement to acquire PreCision Dermatology for $475m in cash plus up to $25m on achievement of certain key milestones. PreCision focuses on the high quality medical dermatology market and provides further consolidation for Valeant in this field as it continues to integrate Bausch & Lomb into its ophthalmology business. Interestingly, Valeant CEO Michael Pearson, an advocate of buying marketed products rather than incurring the risks of in-house development, has acknowledged that Valeant is increasing its R&D spend to $200m for the first six months of the year (up from full year spending of $79m in 2012 and $157m in 2013) as it deals with the influx of pipeline products from the B&L deal.  Revenues and earnings are forecast to grow by 40 per cent in 2014 and Pearson is aiming to rank amongst the top five drug makers in market capitalisation by 2016 -   watch this space! 

Merck invests in oncology

According to Datamonitor, oncology is forecast to be the largest therapeutic area by 2018 with sales of over $80bn and in demonstration of the activity that will drive this growth, in February we saw a spate of deals as companies look for an edge in this fiercely competitive space.

It is has been a busy month for Merck & Co. Belgian-based Ablynx has signed a second exclusive collaboration and licensing deal with the company to focus on the discovery and development of several predefined nanobody candidates (including bi- and tri-specifics) directed toward so-called `immune checkpoint modulators'. These proteins are believed to provide potential targets for the development of oncology immunotherapies, a rapidly emerging approach to the treatment of a wide range of cancers. Under the terms of the agreement, Ablynx will receive an upfront payment of $27m (€20m) and up to $15m (€11m) in research funding during the initial three year research collaboration.

In addition, Ablynx is eligible to receive development, regulatory and commercial milestone payments on achieved sales thresholds for a number of products, with the ultimate potential to accrue as much as $2.3bn (€1.7bn) plus tiered royalties. Merck will be responsible for the development, manufacturing and commercialisation of any products resulting from the collaboration. The companies' previous deal in 2012 with a headline of $590m, was to develop and market nanobodies towards a voltage gated ion channel, understood to be involved in a range of diseases including hypertension, cancer, diabetes, arrhythmia and neurological conditions.

Merck & Co also signed three separate agreements with Amgen, Incyte and Pfizer to investigate combination regimes with its experimental anti-PD-1 immunotherapy, MK-3475 (see Box 1).  MK-3475 was awarded FDA breakthrough therapy status for advanced melanoma last year, and is being studied in 13 clinical trials across more than 30 types of cancer.  Financial terms for these deals were not disclosed.

Also, this month Merck & Co has handed back the rights to Ariad Pharmaceutical's ridaforolimus, a mTOR inhibitor in a phase III trial for advanced sarcoma. This follows an FDA rejection due to its risk / benefit profile and demands for a further trial. The deal was originally reported to be worth $708m and Merck had paid Ariad approximately $200m in milestones. 

Future trends in oncology

This month saw Servier ink three deals. Cellectis, an expert in allogenic CAR T-cell therapies, signed a strategic collaboration with Servier to cover Cellectic's lead product UCART-19 targeted at leukaemia and lymphomas. The agreement covers research, development and potentially commercialisation of five other product candidates targeting solid tumours. Servier is paying a modest $10m upfront and up to $140m for each of the six candidates plus royalties on sales. This deal complements Servier's existing immunotherapeutic monoclonal antibodies, an HDAC inhibitor, kinase inhibitors, anti-angiogenic and proapoptotic small molecules.

This month Servier has also exercised an exclusive option to develop and commercialise MacroGenics' MGD006, a humanised Dual-Affinity Re-Targeting (DART) molecule, in development for haematological malignancies that recognises both CD123 and CD3. Servier is paying $15m, plus an additional $5m when the IND clears the 30 day review period by the FDA, for exclusive development and commercial rights in all countries outside of the US, Canada, Mexico, Japan, South Korea and India. MGD006 was one of three undisclosed tumour targets covered by the original option agreement. Servier paid an upfront of $20m and MacroGenics could receive a total $1.1bn if all three targets are commercialised.

In another termination of an oncology deal, Astellas exercised its right to terminate its collaboration with Aveo Oncology to develop the tyrosine kinase inhibitor, tivozanib, for “strategic reasons”. The FDA Complete Response Letter relating to an advanced renal cell carcinoma study is likely to have been a factor in Astellas' decision, together with the discontinuation of two phase II BATON studies in colorectal cancer and metastatic triple negative breast cancer.

Innate Pharma has acquired full development and commercialisation rights to Novo Nordisk's anti-NKG2A antibody, a phase II ready first-in-class immune checkpoint inhibitor. Novo Nordisk conducted a phase I safety trial with anti-NKG2A in patients with RA, and will be advancing further development in inflammation, including anti-NKG2D1, which is currently undergoing phase II trials; this antibody was generated within the existing collaboration between Innate Pharma and Novo Nordisk. Innate Pharma will prioritise development of anti-NKG2A in immuno-oncology and trials are expected to start in 2014. Under the terms of the agreement, Novo Nordisk will receive $3m in cash and 0.60 million shares in Innate and be eligible for a total of $27m in potential registration milestones and single-digit tiered royalties on future sales.

Taking up the diabetes challenge

To complete its trio of deals in February, Servier has also taken an option in Celladon's SERCA technology to develop novel small molecule  SERCA2b modulators  for the treatment of type 2 diabetes and other metabolic diseases. Servier's rights relate to ex-US rights. Deal terms were not disclosed.

Continuing in the diabetes space, Israel's Andromeda Biotech bought back the worldwide rights to its phase III diabetes therapy, DiaPep277 for type 1 patients, from Teva for $72m, to be paid on an instalment plan based on future revenue.  DiaPep277R is currently in a phase III confirmatory study with 475 type 1 diabetes patients. The therapy is a peptide derived from heat shock protein 60, designed to safeguard pancreatic cells which produce insulin, preventing an immune system attack and offering an innovative approach to treating the disease.  News on the street is that Andromeda's owner Clal Biotechnology Industries, has a buyer for Andromeda. Lilly or BMS may be in the frame as they both had similar products that have recently failed in the clinic.

Following its $430m diabetes / metabolics deal with Merck & Co in May 2013, Abide Therapeutics and Celgene have entered into a strategic collaboration to discover and develop new drugs in inflammation and immunology. This deal centres around Abide's technologies (licensed from The Scripps Research Institute) to selectively target serine hydrolases, "one of the largest enzyme families involved in regulating human physiology”.  The deal with Celgene includes a collaboration on AB101131, a lead pre-clinical programme expected to move into the clinic next year.  Abide is getting $50m upfront from Celgene, plus an additional $10m investment from Cardinal Partners.  Abide could receive an additional $40m if Celgene exercises its option to license the rest of the world rights on the first two products that reach the clinic, and $180m in further milestone payments.

The lustre of orphans continue

The orphan drug space continues-to-attract, not surprising given EvaluatePharma's estimate that orphan drug sales totalled $92bn in 2012, and will grow 8 per cent a year to reach $148bn by 2018, double the rate of global prescription drug sales over the same period.  The projections indicate that by 2018 these products will be generating 16 per cent of prescription drugs sales (13 per cent in 2012).

Recently public, Retrophin has acquired Manchester Pharmaceuticals, a speciality pharmaceutical company that focuses on treatments for rare diseases. Retrophin is paying a total of $62.5m, including an upfront of $29.5m, plus royalties based on product sales. Manchester's Chenodal (chenodeoxycholic acid, a synthetic bile acid also known as chenodiol), indicated for inoperable gallstones, is Retrophin's target. Chenodeoxycholic acid is also the standard of care for cerebrotendinous xanthomatosis (CTX), a rare inborn error of cholesterol metabolism that often causes chronic diarrhoea in infants and cataracts in childhood or adolescence, and ultimately neurodegeneration due to the formation of fatty yellow nodules (xanthomas) in the brain.  If untreated, the disease can cause severe intellectual disability and death. The FDA granted chenodiol orphan designation for CTX in March 2010. Chenodal is the only FDA-approved chenodeoxycholic acid and is only used for CTX, but it is not FDA approved for CTX or any orphan indication. According to Martin Shkreli, founder and CEO: “We also intend to move quickly to pursue FDA approval of Chenodal for CTX."

The takeover fits perfectly with Retrophin's strategy of buying rights to forgotten products and then moving to reposition them for treating rare disorders. This approach is not unlike Questor's strategy and although they say imitation is the most sincere form of flattery, it is definitely ruffling feathers.  Questor and Retrophin are is now in litigation over two synthetic versions of Acthar (ACTH), a corticotropin with 19 indications, many in rare diseases including infantile spasms, MS, nephrology, and rheumatology.

Antibiotics back in vogue

With healthcare officials around the world ringing alarm bells over a weak global pipeline of antibiotics, a notable deal this month is Roche's continued foray back into the world of antibiotics. Like much of Big Pharma, Roche largely abandoned the field back in 1999. However, the combination of the escalation in hospital-acquired infections around the world and an alarmingly sparse pipeline across the industry, has led Roche to re-enter the franchise with multiple deals and development programmes. Its most recent deal is with UK's Discuva to discover and develop new treatments for deadly infections using the biotech's novel platform. Roche will pay $16m upfront, and Discuva is due up to $175m per resultant drug depending on development and commercialisation milestones, plus royalties on future sales. In the meantime, Roche's pRED group will make use of Discuva's development technology, which uses gene sequencing and bioinformatics to identify targets for multi-drug resistant Gram-negative bacteria, to identify some promising candidates.

This follows Roche's deal with Polyphor worth up to $560m in November 2013. Under that agreement, Roche gets its hands on the phase II POL7080, an antibiotic designed to fight infections spurred by hospital-acquired Pseudomonas aeruginosa.

Final thoughts

In the conclusions to the Annual Deal Watch 2013, we predicted four areas where we might see activity in 2014 :
1.    R&D deals between Big Pharma and Big Pharma and possibly also involving NGOs
2.    Big Pharma companies' strategic rationalisation via divestment of non‐core business areas
3.    Generic companies doing deals to diversify their portfolios
4.    Deal activity for products and technologies to treat neurodegenerative diseases.

Already in the first two months of the year we are seeing 'ticks' in 2,3 and 4, undoubtedly there are lots more of these to come as the year progresses.

See a table listing all the major pharma mergers, acquisitions and collaborations agreed during February 2014

Article by
Bridget Lacey

Bridget is an associate at Medius Associates.

14th March 2014

Article by
Bridget Lacey

Bridget is an associate at Medius Associates.

14th March 2014

From: Research, Sales

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