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Pharma deals during October 2014

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

deal watch image mergers acquisitions pharma

Following on from last month's initiatives from the US Treasury to modify the tax guidelines, there has been a distinct change in the deal flow. One of the big acquisition stories of 2014 has reached closure now that AbbVie is drawing a line under its planned acquisition of Shire and other companies are backing off or restructuring planned M&A.

Tax inversions—quo vadis?

It has been interesting to see how the various companies have reacted to the US tax guidance changes in terms of their M&A strategy. Even though the integration teams were hard at work in Shire/AbbVie, AbbVie announced the termination of the acquisition based on the Board's withdrawal of its support for the deal. The company specifically commented that the ongoing uncertainty around the tax position such that if further measures were taken by the US government, this would impact the financial viability of the deal.

Of course this has had an impact on both businesses [Shire's shares initially fell by almost 30%] with the sole remedy for Shire being the $1.6bn termination fee. However AbbVie is showing clear intent to put other strategies in place ahead of the Humira patent expiry [2106] and the company has not ruled out further acquisitions albeit of a lower value. AbbVie is also keen to keep shareholders on side, announcing an increased quarterly dividend and share repurchase scheme. By reducing the amount of share capital this increases the earnings per share in the future.

deal watch table 

Another company which was not successful with its planned acquisition strategy is Pfizer which is also busy buying back its shares with an $11bn share repurchase scheme. The company is also stating its interest in securing a big deal irrespective of the new tax guidance. So watch this space.

The need to keep the shareholders happy is paramount as evidenced by the rather unexpected dispatch of Sanofi's CEO Chris Viehbacher following concerns over the impact of the pricing environment on its key diabetes franchise in the US.  So how will the various US businesses invest any significant amounts of non-US cash sitting around in operating subsidiaries?  One option of course would be to deploy this into local deals and acquisitions but would this keep the shareholders happy if it only generates more non-US profits which cannot be easily repatriated?  Local deals are often not reported and generally do not deliver the required big headlines. On the plus side, non US acquisitions certainly do not attract the same amount of shareholder activism and litigation.

Other companies sticking firmly to their M&A plans include Mylan with its purchase of Abbott's generics business for $5.3bn but the deal has been re-structured with better pricing terms for Mylan plus 5m more shares; Mylan will own 78% of the company.  Medtronic is also pressing ahead with its takeover of Covidien and, as in the case of Mylan, this deal has required restructuring with Medtronic borrowing $16bn in place of the cash accrued in overseas subsidiaries.

In contrast though, a casualty was the Salix acquisition of Cosmo Pharmaceuticals with a breakup fee of $25m. Similarly, another pending deal was the intended acquisition of QLT by Auxilium now abandoned.  In a major about face, after adopting a poison pill strategy following receipt of an unsolicited offer from Endo, Auxilium has capitulated and the $2.6bn acquisition by Endo is moving ahead. A cash and stock transaction, this gives a value of $33.25 per share, a 55% premium. Deemed to be the best solution, QLT is no longer of interest and is left out in the cold with a $28.4m termination fee and the need to look at other strategic options.

Topping this month's table is the acquisition of CareFusion by Becton Dickinson with a $12.2bn deal of cash and stock valued at $58 per share [a premium of 26%].  Medtech deal activity continues apace with consolidation in the top players in this sector. 

So M&A activity aside, what is happening on the licensing front?

Building on existing partnerships

This month sees several deals that build and develop on existing relationships. 

First up is the ever deal active Celgene closing a transaction with Sutro Biopharma for the almost customary headline value of $1bn. An oncology deal for multispecific antibodies and antibody drug conjugates [ADCs], this transaction builds on the original deal signed in December 2012 with a headline of $500m. Sutro receives an upfront of $95m with a further $90m in additional payments. A key feature is Celgene's exclusive option to acquire Sutro, including all rights to Sutro-owned programmes. Sutro also has deals in place with Merck Serono and Pfizer.  

Originally signed up with Aduro Biotech in May 2014, J&J secured a global exclusive licence [headline value $365m] for product candidates specifically engineered for the treatment of prostate cancer based on Aduro's novel LADD [live-attenuated double-deleted Listeria monocytogenes strains that have been engineered to induce an innate immune response] immunotherapy platform. Now with a headline of $847m, Aduro receives an upfront of $30m with $817m in milestones for ADU 214 in the treatment of lung cancer.

First closed in May 2013, Novartis has expanded its collaboration with Oxford BioMedica. This is focused on the manufacture and supply, using Oxford's LentiVector gene delivery technology, to express Novartis' chimeric antigen receptor T cell [CAR-T] therapy for the treatment of leukaemia. Novartis is now investing via an upfront of $14m which includes a $4.3m for 2.8% equity. The total deal headline is $90m.

Moving to the respiratory field, Five Prime and GSK announced an expansion of their second discovery collaboration to identify first in class agents in refractory asthma and COPD.  Building on the original deal signed in April 2012, Five Prime secured $2m for this expansion, the agreement carries a potential $193.8m through option fees and milestones.

Keeping it flexible, Roche extended its 2013 licence agreement with Heidelberg Pharma [a subsidiary of Wilex] under which Roche has options to licences for selected antibody targeted amantin conjugates. Heidelberg Pharma receives an undisclosed upfront and further fees.

Options, options, options ...

A major feature throughout 2014 has been the deployment of options.  This month is no exception with Bristol-Myers Squibb (BMS) securing an exclusive option to acquire F-star Alpha gaining access to its lead candidate FS102 for HER-2 positive patients in breast and gastric cancer. The option is exercisable when phase 2b is reached and the option fee is $50m, with further payments bringing the headline value to a total of $475m.

Options also feature in the Celgene/Sutro deal and Roche/Heidelberg as noted above.

But the classic licence deal lives on...

Several classic licences were reported this month, notably NewLink Genetics and Genentech; Curetech and Medivation; Forendo and Apricus as well as Lexicon and Ipsen

Leading the pack, NewLink Genetics secured a $1bn headline which included an upfront payment of $150m for NLG919 which is in phase 1 development.

Medivation closed an exclusive worldwide licence with rights to CureTech's pidilizumab (CT-011), an immune modulatory anti-PD-1 monoclonal antibody. CureTech gains an upfront payment of $5m with development milestones of $85m and sales based milestones of up to $245m and tiered royalties [range 4-11%].

The Forendo deal with Apricus for fispemifene, an oral once daily selective estrogen receptor  modulator  [SERM] is for the US development and commercialisation rights only but brings an upfront payment of $12.5m [$5m cash with $7.5m of Apricus stock] plus development milestones of $45m and sales based milestones of $260m.

With the opposite territorial rights to the Forendo deal above, Ipsen secured ex-North America/Japan rights for telotristat etiprate from Lexicon. Telotristat etiprate, an orphan drug, is in phase 3 for carcinoid syndrome. The deal headline value is $145m plus royalties.

Big pharma co-operations continue

A consistent feature has been the steady flow of big pharma / big pharma development and commercialisation collaborations. These are not always captured in the monthly DW tables as frequently no financial terms are disclosed. This month's big pharma collaborations are in oncology, firstly where Novartis and BMS have entered a clinical collaboration for a combination of drugs in non-small cell lung cancer (NSCLC). The phase 1/2 studies will assess Novartis' Zykadia [ceritinib], INC 280 and EGF 816 in combination with BMS's PD-1 immune checkpoint inhibitor nivolumab [Opdivo]. Zykadia is approved in the US for patients with anaplastic lymphoma kinase (ALK) and metastatic NSCLC but not approved elsewhere; INC 280 and EFG 816 are in phase 1 development; the trials are to be conducted by Novartis.

A tri-partite arrangement between BMS, J&J and Pharmacyclics has been put in place again around Opdivo. This clinical trial collaboration will look at a phase 1/2 study for Opdivo in combination with Imbruvica [ibrutinib – an oral Bruton's kinase inhibitor] as a treatment option for Non-Hodgkin's lymphoma. Imbruvica was one of the first products to gain approval via the breakthrough designation pathway and has European approval for use in mantle cell leukaemia and chronic lymphocytic leukaemia. Originally the subject of a deal signed in December 2011 [upfront $150m plus $825m milestones], sales of Imbruvica are on a 50:50 profit sharing basis.

With cash in the pocket and shareholders up for acquisitions, it will be interesting to see how the deal flow will roll out through to the end of 2014.

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

Article by
Roger Davies

Roger works with Medius Associates as a consultant in pharmaceutical licensing and business development. Having personally completed more than 100 deals he specialises in valuations, deal structuring and negotiating licensing and acquisition deals.

10th November 2014

Article by
Roger Davies

Roger works with Medius Associates as a consultant in pharmaceutical licensing and business development. Having personally completed more than 100 deals he specialises in valuations, deal structuring and negotiating licensing and acquisition deals.

10th November 2014

From: Research, Sales

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