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Product acquisitions remain popular

Drug companies are opting to buy firms to access their technologies or products

Pharma acquisitions remain popularIn November 2011, there were a number of important company and product acquisitions as well as licensing deals and strategic collaborations. There appears to be a growing trend to gain access to a technology or product by acquiring a company rather than pursuing a traditional licensing deal. In part, this probably reflects the desire of investors in private biotechnology companies to exit.

Vaccines
The biggest deal by far was Gilead's acquisition of Pharmasset for $11bn. The price represents an 89 per cent premium on the share price prior to the announcement and 59 per cent above Pharmasset's all-time high share price. Gilead takes on $6bn of debt to fund the deal. So what justifies such a high price?

Well, it is not marketed products. The latest-stage product in the Pharmasset pipeline is an oral hepatitis C vaccine due to start phase III clinical trials in 2012 with a second version in phase IIb. A third hepatitis C vaccine in phase II is partnered with Roche. Pharmasset also has some collaborative clinical trials with Bristol-Myers Squibb (BMS). These relationships could lead to some interesting discussions between Gilead and BMS/Roche.

2011 was a busy year for vaccine licensing. Vertex licensed two preclinical hepatitis C vaccines from Alios in June with a headline value of $1.5bn. In November, Sanofi Pasteur announced a four-year collaboration to use CureVac's messenger RNA technology with Sanofi's pathogens to develop new vaccines. Sanofi will provide $33m co-funded by the US Defense Advanced Research Agency. CureVac stands to gain $135-200m plus royalties if a therapeutic vaccine ensues. Another deal is GlaxoSmithKline's collaboration with Alnylam to use its RNAi technology for vaccine production.

Buying ready-made
November saw five acquisition deals of launched products, ranging in value from $686m paid by Valeant to $17m paid by Sinclair IS. Valeant acquired the company iNova present in Australia, New Zealand, south-east Asia and South Africa, which provided both a marketing capability and access to prescribed and over-the-counter products.
In contrast, Medicis, Lab SERB and Meda acquired only the product assets rather than the firm owning them. With product acquisition deals, the purchase price as a multiple of historic sales is often used as a benchmark. In the case of Valeant and Meda, the multiples were 3.5 and for Lab SERB's acquisition of Sinclair's Mysoline it was 3.7. In the other deals, the historic sales were not reported and the buyers referred to future sales to justify the price.

The Lab SERB deal to acquire Mysoline is interesting because, three weeks later, Sinclair IS announced the $33m acquisition of the rights to the silicone scar treatment Kelo-Cote for all countries of the world except the US. Without the sale of Mysoline, it is doubtful that Sinclair IS could have borrowed the full $33m. Kelo-Cote will be Sinclair's second biggest product and is a better fit in its portfolio than Mysoline. This is a good example of a firm pro-actively managing its portfolio.

A complex agreement
According to most commentators, the numbers of licensing and collaboration deals in 2011 was about 15-20 per cent lower than the previous two years. Nevertheless, there is a reasonably constant flow of deals with high headline values. In November, the biggest 'licensing' deal, with a headline value of $1.8bn, was the global alliance between Lundbeck and Otsuka, which is noteworthy on a number of fronts. First, it is a long-term deal to co-develop two Otsuka late-stage products, namely aripiprazole depot and OPC-34712, both of which are in phase III, and up to three Lundbeck early-stage central nervous system products.

There seems to be a growing trend for large companies to collaborate in developing new products, which is hardly surprising given the limited number of new product opportunities arising from big pharma internal R&D and the high risk of failure in development.

The second interesting point is that it is not a traditional development and commercialisation deal. While Lundbeck pays $200m up front and a further $1.6bn in development, regulatory and sales milestones to Otsuka, there appears to be no royalty component and, instead, the companies have decided to 'share sales as well as development and commercialisation costs'. Lundbeck has rights to the products in the Americas, Europe, Australia and some other countries. Lundbeck's share of sales booked by Otsuka (and promotion costs) is shown in the table below.

Where Otsuka sets up a sales organisation in a Lundbeck territory, it will have the rights to participate in the promotion of the product. Otsuka will supply bulk product at a price represented as a percentage of sales. This cost of goods mechanism for the licensee is becoming increasingly important given governments' pressure to reduce reimbursement prices. This is an innovative deal which, for success, will rely heavily on a good working relationship down to grass-roots level.

There are two examples where the project outcome has not turned out as envisaged. Amylin and Lilly have announced an agreement to resolve all litigation between the two companies relating to exenatide, a GLP-1 agonist for treating type 2 diabetes. According to Lilly, "this marks an amicable end to a very productive ten-year collaboration…". 'Amicable' is an interesting word, given that the companies must have been discussing the issue since January 2011. At that time, Lilly announced a joint venture with Boehringer Ingelheim to develop and sell a range of diabetes drugs including linagliptin, an oral dipeptidyl peptidase-4 inhibitor for treating type 2 diabetes that would compete directly with exenatide.

Lundbeck's share of sales booked by Otsuka (and promotion costs)

Product
EU(5) + Nordic + Canada
US
Other countries
Aripiprazole depot
50%
20%
100%
OPC-34712
50%
45%
100%

Following the US approval of linagliptin in May 2011, Amylin issued a lawsuit against Lilly. Usually in these situations, the start of legal proceedings marks the end of a relationship, however amicable, and, true to form, the companies have now negotiated a settlement, with Amyln paying $250m up front and 15 per cent of sales up to a maximum value of $1.2bn plus interest. 

Ablynx's recovery of rights from Pfizer to its nanobody technology targeting TNF-alpha is a direct consequence of Pfizer's acquisition of Wyeth in 2009. After mergers, firms review their R&D portfolio and stop non-core and overlapping projects. ATN-103 was first licensed to Wyeth in 2006 and, in May, had shown positive proof of concept results from a phase II trial in rheumatoid arthritis. These results would have encouraged Ablynx to seek to recover the rights, but the dilemma facing biotech companies is that they often do not have enough cash to pull off a deal and want to conserve cash for development. By June 2011, Ablynx had €92m in cash and a burn rate of €40m+ per year. Ablynx has been successful in conserving cash, as the deal requires no transaction until third-party milestone payments are received after regulatory approval. At that point, Pfizer will get a share of the milestones up to $50m plus royalties. So not only has Ablynx recovered ATN-103 rights for no immediate cash outflow, but also a week later announced the extension of the deal with Merck Serono for use of its nanobody technology for two osteo-arthritis targets. Ablynx gets €20m ($26m) up front over three months to pay for development of a preclinical package and a further €15m ($20m) if Merck accepts the package. It is good to see smaller firms proactively managing the future of their companies with back-to-back deals.


Company/Partner
Product/Technology
Development status
Headline ($m)
Product/Company
Acquisitions

Pharmasset/Gilead
Gilead acquires oral vaccine company for share price premium of 89 per cent
Phase III and earlier
11,000
iNova/Valeant
Valeant acquires company with Rx and OTC products (a)
Launched
686
Graceway/Medicis
Medicis wins bankruptcy auction to acquire graceway assets in US and Canada
Launched + pipeline
455
Oceana/Salix
Salix acquires US company specialising in gastroenterology and urology therapeutics
Launched + pipeline
300
Johnson&Johnson/Meda
Meda acquires Nordic OTC drugs
Launched
109
Sinclair IS/Lab SERB
Lab SERB France acquires epilepsy drug Mysoline
Launched
17
Licensing and other deals
Licenser/Licensee

Otsuka/Lundbeck
Development and commercial alliance with five CNS products (b)
Phase III and earlier
1,800
Amylin/Lilly
Termination of diabetes alliance and litigation re: exenatide diabetes drug
Launched
1,450
PTC/Roche
Roche licenses spinal muscular atrophy programme including three products
Preclinical
490
CureVac/Sanofi
Four-year vaccine development collaboration involving two other companies
Phase I
200
Immuron/Paladin
Paladin licenses OTC anti-diarrhoeal Travelan (c)
Launched
112
Ablynx/Merck Serono
Co-development of two osteoarthritis drugs using Ablynx nanotechnology
Discovery
67
Pfizer/Ablynx
Ablynx regains rights to anti-TNF alpha programmes originally licensed by Wyeth
Phase II
50
Infinity/Mundipharma
Mundipharma provides additional funds for oncology programmes (d)
Phase I
50
Quanticell/Celgene
3.5-year alliance to discover and develop oncology drugs
Discovery
45
Pfizer/Mylan
Mylan acquires dry powder inhaler platform for generic drugs (e)
N/A
18
Affymax/Johnson&Johnson
Termination for litigation regarding peginesatide for anaemia from chronic kidney disease
Phase III
13
Aeterna Zentaris/Hikma
Commercialisation agreement for perifosine (f)
Phase III
2

The table covers the top 18 deals by headline value where the financial terms are publicly disclosed. Deals are for global rights unless otherwise indicated.
(a) Australia and New Zealand, S-E Asia and South Africa; (b) Lundbeck rights to Americas, Europe, Australia; (c) Canada, Latin America and sub-Saharan Africa; (d) Mundipharma global rights excluding US; (e) Mylan rights to N America, Europe, Australia and New Zealand; (f) Middle East and N Africa.




The Author
Roger Davies
is a consultant at Medius Associates.

9th January 2012

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