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Survival strategy

2010 was marked by diverse approaches to bolster revenues in the face of patent expiries

Sled expeditionOne of the key issues facing many big pharmaceutical companies is how to prevent a slowdown in earnings growth caused by the patent expiries of their major products. This issue has driven the search for short-term opportunities, such as mergers and acquisitions (M&As) to increase the top line and reduce costs to improve margins, and in-licensing late stage products that can be launched within the next few years.

Marketed products
The M&A strategy in 2010 was reflected in Pfizer's acquisition of King Pharmaceuticals for $3.6bn announced in October and Astellas' acquisition of OSI Pharmaceuticals for $4bn announced in March and, in 2011, there is the imminent deal in which sanofi-aventis (S-A) is set to acquire Genzyme for about $18.5bn.

The strategy to in-license late stage products is adopted by virtually every pharmaceutical company, but the low number of such products available for licensing means the deals are few and far between. Nevertheless there were a few deals in 2010, such as the diabetes deal between Diamyd Medical (licenser) and Johnson & Johnson (J&J) company Ortho-McNeil-Janssen Pharmaceuticals for $540m and Amicus's deal with GlaxoSmithKline (GSK) for a treatment for Fabry disease for $200m. Late stage product deals are not confined to Big Pharma. In December, in addition to the deal between Impax Pharmaceuticals and GSK for a Parkinson's treatment for $186.5m, Nymox Pharmaceutical Corporation licensed its BPH drug to the medium-sized Italy-based company Recordati.

Small and medium-sized companies tend to be the most active in the acquisition of marketed products. In November Gedeon Richter acquired the oral contraceptive range from Grunenthal for $329m and during the year there were product acquisitions by other mid-sized companies, such as Meda Pharma buying three over-the-counter products from Norgine for $80m.

Growth areas
The desire to obtain short-term sales and profit growth has also triggered an interest in orphan drugs, as reported in 'Orphan Drug Focus' (July/August 2010 PME). With the blockbuster product business model severely damaged, if not broken, some Big Pharma companies have turned to orphan drugs as a fast route to market with fewer issues of market access and higher margins. In February 2010, GSK announced it was setting up a standalone unit to develop and commercialise orphan drugs. In 2009 it completed deals with Prosensa and JCR Pharmaceuticals and in March 2010 it signed a $1.5bn deal with Isis to develop and commercialise drugs for rare and serious diseases.

Another hot area for deal making in 2010 was diabetes. Given the high rate of growth in obesity and age-related diabetes it is hardly surprising that many large companies are interested in this therapeutic area. This was reflected in three deals struck in December: AstraZeneca (AZ) licensed Evotec's insulin producing beta cell regeneration technology for up to $349m (but with a low upfront of less than $7m), Novo Nordisk licensed Emisphere's Eligen technology for development of oral insulins for up to $57.5m and Merck acquired SmartCells for $500m. These three deals brought the total number of valued diabetes deals during 2010 to 11, with an average headline value of more than $400m, involving AZ, Boehringer Ingelheim, Forest Laboratories, J&J, Eli Lilly, Novo Nordisk, Pfizer, Roche and S-A.

Discovery deals
Although the Big Pharma companies have been seeking to maintain earnings growth by securing M&A and late stage product deals, they are also continuing to license-in or acquire early stage technologies and products to bolster their development pipelines. Early stage deals show a continuing high level of activity with virtually every large pharmaceutical company involved. During November and December 2010 there were five Big Pharma discovery deals involving Boehringer Ingelheim (with f-star), S-A (with Avila Therapeutics), Pfizer (with Phylogica), Tanabe Research Laboratories (with Anaphore) and Eisai (with Forma Therapeutics) with an average value of $140m.

Given the continuing demand from pharmaceutical companies for early stage technologies and products, it could be assumed that biotech companies are in a good position. Unfortunately this is not the case, particularly in Europe. A report in BioCentury revealed that nearly 80 per cent of European biotech companies needed to raise funds. The funding crisis is driving some creative deals, such as the new strategic alliance between ProStrakan and Paladin Labs, in which Paladin will take over ProStrakan's existing secured debt facility of £50m (circa $80m) with certain conversion rights. It will also be granted an exclusive licence to Prostrakan's products in emerging markets.

Generic market
Turning to the generic sector, the trends seen in 2010 are much the same as in previous years. Generic companies have been seeking to broaden their product portfolio into branded medicines, such as Pharmaceutical Industries' acquisition of Teva Theramex for $368m. These companies launch generics at risk of patent litigation by Big Pharma, while also then making deals with them! Similarly some Big Pharma firms have entered or expanded their presence in the generic marketplace. It is not unusual to see announcements of patent litigation brought by originator companies against generic firms, these often end in a settlement. The latest example is Takeda which, in December 2010, reported a settlement with 12 generic companies regarding its pioglitazone products in the US.

A recent example of Big Pharma's entry into the generic marketplace was the purchase by Pfizer in December of 22 abbreviated new drug applications for $56m from the Akorn-Strides joint venture. Pfizer's involvement with generics in 2010 also highlighted another generic hot topic, namely, biosimilars.

Apart from Teva and Sandoz, many generic and pharmaceutical companies have been reluctant to develop biosimilars given the high capital investment and uncertain regulatory requirements. As a result, a number of generic and pharmaceutical companies have teamed up to share expertise and development and commercialisation costs. Examples include Merck's $130m acquisition of Insmed's biologic facilities and pipeline, Mylan's deal with Biocon in 2009, Pfizer's $350m deal with Biocon for insulin biosimilars in October 2010 and in December Mochida Pharmaceutical's deal with Gedeon Richter for biosimilars for Japan.

Regional deals
Regionally, the focus in 2010 was the Asian markets, particularly China. The inexorable growth of China as a major player in the industry is demonstrated by the continued strategic investment by major and medium-sized companies. In November and December, GSK and Nycomed took control of Chinese companies for $70m and $210m respectively, Cardinal Health acquired Zuellig Pharma China for $470m, Phadia acquired WKL and Gedeon Richter set up a joint venture with Rxmidas, its partner since 1998. There were also nine M&A deals where the acquirer and target were Chinese.

It should be remembered that although getting a deal is important and requires much skill and hard work, the benefit of the project depends on successful implementation. No matter how well the deal is structured or valued, unless the companies involved can develop and commercialise the product, the effort is wasted. An example of this was the announcement that an arbitration tribunal found J&J in breach of its 2005 licence agreement with Basilea Pharmaceutica because of deficiencies in the clinical trial programme that was the responsibility of J&J. As a result both the US Food and Drug Administration (FDA) and European Medicines Agency (EMA) refused to grant MA for Ceftobiprole, an anti-MRSA broad-spectrum cephalosporin antibiotic. The Dutch tribunal awarded Basilea $130m as compensation for lost payments and other damages and interest. This case is a salutary reminder of the quotation from poet Robert Burns: 'the best-laid plans of mice and men often go awry'.

 

Licenser/Partner

Product/Technology

Development status

Headline ($m)

Mesoblast/Cephalon

Stem cell therapeutics in CHF

Phase II

1,800

Lpath/Pfizer

Mab binding bioactive lipid S1P in wet AMD

Phase Ib

512

SmartCells/Merck

Glucose responsive insulin formulation

Preclinical

500

Neurimmune/Biogen

Immunotherapy company acquisition


 

428

Theramex/Teva

Branded product company acquisition


 

368

Evotec/MedImmune

Insulin producing beta cell regeneration

Preclinical

349

Grunenthal/Gedeon Richter

Oral contraceptive range

Launched

329

Oncolys/Bristol-Myers Squibb

Once daily oral festinavir for HIV

Phase II

286

Aires/Novartis

Inhaled nitric oxide prodrug

Phase II

250

f-star/Boehringer Ingelheim

Antibody-derived therapeutic products

Discovery

245

Avila/sanofi-aventis

Covalent drugs targeting signalling proteins - oncology

Discovery

194

Impax/GlaxoSmithKline

ER carbidopa-levodopa (world excluding US) for Parkinson's disease

Phase III

187

Phylogica/Pfizer

Peptide based vaccines

Discovery

135

Basilea/J&J

Ceftobiprole arbitration settlement

Registration

130

Anaphore/Tanabe

Trivalent proteins – autoimmune

Discovery

115

Baxter/Hikma

US generic injectable products/facilities


 

112

AstraZeneca/Daiichi Sankyo

Esomeprazole co-promotion Japan

Registration

100

ProStrakan/Paladin

Refinancing strategic alliance


 

80

Akorn-Strides/Pfizer

Acquisition of 22 ANDAs in US

Registration

56

Emisphere/Novo Nordisk

Oral GLP-1 receptor agonists

Phase I

58

         
          Table covers the top 20 deals by headline value where financial terms are publicly disclosed.

          Deals are global in extent unless stated otherwise.

The Author
Roger Davies is a consultant at Medius Associates

To comment on this article, email pme@pmlive.com

22nd March 2011

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