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Deal Watch February 2017

Actelion, Johnson & Johnson, Sanofi, Takeda and more feature in this month's pharma deals round-up

Medius Deal Watch September 2016Following the enthusiastic opening to 2017, deal numbers have fallen during February as companies appear to have taken their foot off the accelerator. There were 16 transactions with headline values over $100m compared to 25 in January. It is also interesting to note that four of February's deals over $100m cover medtech assets and one covers a manufacturing joint venture, in contrast to January when our top 25 were all focused on therapeutic entities. There were six deals worth more than $1bn this month: three focused on medtech, two on ethical pharmaceuticals and one in nutrition/ consumer health.

From nutrition to body contouring  
The largest deal of the month was Reckitt Benckiser's $17.9bn takeover of global paediatric nutrition company Mead Johnson, which was spun out of Bristol-Myers Squibb in 2009. Paying $90 cash per share the price represents a ~30% premium of Mead Johnson's closing price before there was market speculation on a potential transaction. The deal also includes Mead Johnson's net debt of $1.2bn and represents a multiple of 17.4x 2016 non-GAAP EBITDA. Mead Johnson's net sales have declined since 2014 and in 2016 they were 8% down compared with 2015.

Two of the largest deals for the month were in the medical aesthetics field. Following its spate of deals last year, Allergan is paying $2.48bn ($56.50 per share, a 14.4% premium) to acquire ZELTIQ Aesthetics to enhance its global medical aesthetics portfolio.

ZELTIQ's technology, the CoolSculpting System, is the market leader in the rapidly growing body contouring segment of medical aesthetics, which is currently worth around $4bn worldwide. First approved by the FDA in 2010, the CoolSculpting System is a non-surgical procedure that uses a cooling technology to eliminate unwanted fat cells without affecting surrounding tissue. It is approved for removing stubborn fat bulges that do not respond to diet or exercise in various parts of the body including the flanks, abdomen, thighs and under the chin. ZELTIQ's global revenues for 2016 were estimated to be approximately $350m.

Also entering the medical aesthetics space is Hologic, a US company focusing on diagnostics, medical imaging systems and surgical products in areas including breast and skeletal health and gynaecological surgery. Hologic's acquisition of the outstanding shares in Cynosure for $66.00 per share (~28% premium) corresponds to an equity value of approximately $1.65bn and an enterprise value of $1.44bn net of cash. Cynosure's portfolio of more than 20 products covers areas such as non-invasive body contouring (including SculpSure, an FDA approved laser treatment for body contouring), hair removal, skin revitalisation and women's health. Cynosure sells its products through a combination of direct sales and distributors in over 130 countries and reported revenues of $433.5m in 2016.

Competitive deal tendering and investor revolt

One of the largest therapeutic deals in February was the Immunomedics licence with Seattle Genetics for a phase 2 stage antibody drug conjugate (ADC), sacituzumab govitecan, which is also called IMMU-132. With a potential headline value of just over $2bn and $250m upfront, this deal brings Seattle Genetics, an ADC specialist itself, a product candidate that covers multiple solid tumour indications, including triple-negative breast cancer (TNBC), small-cell lung cancer (SCLC), non-small-cell lung cancer (NSCLC) and pancreatic cancer.  

As an ADC IMMU-132 contains SN-38, which is the active metabolite of the chemotherapy agent irinotecan, conjugated to an anti-TROP-2 antibody. TROP-2 is a cell surface receptor which is over-expressed by many human tumours, including cancers of the breast, colon and lung, thereby allowing the site-specific targeting of the anticancer payload to the tumour cells. IMMU-132 has FDA Breakthrough Therapy designation for the treatment of patients with TNBC who have failed prior therapies for metastatic disease and also has Fast Track status and orphan designation depending on the cancer indication.

In addition to the upfront and milestone payments, Immunomedics will receive tiered double digit royalties on global net sales, retains an option to co-promote IMMU-132 in the US and sells Seattle Genetics shares and issue warrants for approximately $57m.

What is unusual about the Immunomedics press announcement of the licence on 10 February is the so-called "Modified Go-Shop Period", which lasted until 19 February and gave Immunomedics the right to continue negotiating with a select number of parties that were still in a 13-month competitive strategic process for the rights to IMMU-132.  

In the event Immunomedics attracted a superior offer from another party, Seattle Genetics had the right to match that offer but if it decided not to do so then Immunomedics would have to pay a termination fee to Seattle Genetics. A few days after the announcement of the proposed Seattle Genetics transaction, Immunomedics' largest investor and activist shareholder, venBio, filed an injunction to block the deal saying it undervalued IMMU-132. It appears that the control of the company is at stake. Such a shareholder revolt seems more akin to what we have seen previously for company acquisitions rather than for a licensing transaction. We await with interest to see how this plays out.

Royalty monetisation
February was a busy month for royalty monetisation with three transactions worth a combined $3.1bn. The largest of these was Perrigo's divestment to Royalty Pharma of its royalty stream from Biogen's global sales of Tysabri (natalizumab), the multiple sclerosis antibody originally developed by Elan, which Perrigo acquired in 2013. The $2.85bn deal comprises $2.2bn in cash upfront with a potential $650m in future milestones: $250m and a further $400m if the royalties earned on global net sales of Tysabri meet specified thresholds in 2018 and 2020, respectively.

Large pharma out-licensing
In our Annual Review of deals for 2016 we noted that AstraZeneca was the most active large pharma in divesting non-core assets. In February, it granted North American rights to Zoladex, a goserelin acetate implant for prostate and breast cancer and benign gynaecological disorders, to US company TerSera Therapeutics. First approved in North America in 1989, Zoladex sales in 2016 were $69m in the US and Canada and $816m globally. AstraZeneca will receive $250m upfront, sales milestones of up to $70m, and mid-teen percentage sales royalties. In addition AstraZeneca will also manufacture and sell the product to TerSera.

Other pharma companies divesting assets this month include Janssen/J&J and Sanofi. Janssen has licensed a portfolio of hypoxia-inducible factor (HIF)-targeting product candidates to US biotech Akebia Therapeutics for an initial three year research term, which is extendable for up to two additional one year periods on payment of an extension fee. During the research term, Akebia may designate one or more compounds as candidates for development and commercialisation worldwide across multiple therapeutic areas at its own expense. The deal also includes a licence to AKB-5169 (formerly JNJ5169), an oral, preclinical stage compound for inflammatory bowel disease (IBD).  

Akebia is paying $1m upfront to Janssen with up to an aggregate of $16.5m in development milestones and $215m in sales milestones on a per product basis as well as tiered royalties ranging from low to mid-single digits. Akebia has also issued warrants enabling J&J's Innovation arm to invest up to $5m in the biotech within five years of the date of the licence.  

Sanofi's $88.3m deal with Ipsen covers the divestment of five consumer healthcare products which will enhance Ipsen's Primary Care business. This transaction came as a result of the requirement that Sanofi had to divest certain assets from the Sanofi/ Boehringer Ingelheim asset swap of December 2015, in which Sanofi swapped its animal health business (Merial) for Boehringer Ingelheim's consumer healthcare business. Combined the five products cover eight European territories. They include Prontalgine, an analgesic for the treatment of moderate to severe pain, which has grown at double digit rates over the last four years and is available only in France. The portfolio also includes Buscopan (antispasmodic), Suppositoria Glycerini (laxative) and expectorants for cough and flu, Mucothiol and Mucodyne.

Building on partnerships
From a business development perspective, it is always good to see partnerships that are productive and adaptable and this month we noted three relationships that moved on to their next phase (and all conveniently announced on Valentine's Day!). In January 2015 Agenus and Incyte entered a global alliance to develop immuno-oncology antibodies directed against the four checkpoint targets, GITR, OX40, TIM-3 and LAG-3.  While the TIM-3 and LAG-3 programmes were royalty bearing at tiered rates of 6-12%, the GITR and OX40 programmes were under a 50:50 cost/ profit share arrangement. The amended agreement announced this month converts the GITR and OX40 programmes to royalty bearing arrangements, with Incyte responsible for funding and conducting global development and commercialisation, and Agenus now eligible to receive 15% royalties on net sales of each approved product.

Agenus will also receive accelerated milestone payments of $20m from Incyte related to the clinical development of INCAGN1876 (anti-GITR agonist) and INCAGN1949 (anti-OX40 agonist). In addition, Incyte is purchasing 10m shares of Agenus common stock at $6 per share.

In an expansion of their May 2016 licence, Vifor Pharma has gained additional territorial rights from ChemoCentryx to avacopan, a phase III oral inhibitor of the complement 5a receptor (C5aR) for rare renal diseases. Under the original licence Vifor's rights covered Europe, Canada, Mexico, Central and South America and South Korea. The amendment gives Vifor the rights to commercialise avacopan for orphan and rare renal diseases in Asia, including Japan, and the Middle-East so that it now has all markets outside the US and China. In return for the expanded territory, Vifor is paying ChemoCentryx $20m upfront and tiered double digit royalties on potential net sales. This is in addition to the $85m upfront paid under the original 2016 licence as well as regulatory and sales-based milestones.

Ionis Pharmaceuticals and Bayer entered into a licence in May 2015 for IONIS-FXIRx, an antisense therapeutic designed to reduce the production of Factor XI for the prevention of thrombosis. Ionis has recently received a $75m milestone payment from Bayer having successfully completed a phase II study on IONIS-FXIRx in patients with end-stage renal disease on haemodialysis. As part of the agreement Ionis will also expand the collaboration and initiate development of IONIS-FXI-LRx, which uses its Ligand Conjugated Antisense (LICA) technology. Also targeting Factor XI, the LICA version of the antisense molecule is designed to have increased uptake into tissues thereby enhancing drug potency.      

Future deals to look out for?
Looking ahead there are likely to be some further significant acquisitions in the wings if various rumours are to be believed. There has been speculation for several months that oncology company Tesaro may be the target for a large pharma bid and as a result its share price has increased by 570% over the last year and the company now has a market cap of around $9bn.

Also, the subject of rumours is LabCorp, the medical testing company which has money to spend. It is apparently eyeing a potential acquisition of the CRO PPD for around $8bn.

What is more than rumour, is the interest from several parties in acquiring the German generic company, Stada, which has pan-European capabilities and a foothold in Russia. Earlier in the month the private equity (PE) firm Cinven offered €56 a share to acquire Stada but this has been topped by a binding offer from another PE company, Advent International Corporation, for €58 a share valuing the company at €3.6bn ($3.8bn). A third suitor is believed to be another PE firm, Bain Capital. Whatever happens to Stada this represents another chapter in the evolution of the generics industry.

Licensor Acquired/ Licensee Acquirer Product / Technology Deal Type Headline ($m)
Mead Johnson/ Reckitt Benckiser US-based paediatric nutrition company Acquisition - company 17,900
Perrigo/ Royalty Pharma Tysabri (natalizumab) royalty stream from Biogen Royalty monetisation 2,850
ZELTIQ Aesthetics/ Allergan CoolSculpting System to affect appearance through lipolysis or reduction of unwanted fat Acquisition - company 2,475
Immunomedics/ Seattle Genetics IMMU-132 (sacituzumab govitecan), an antibody drug conjugate in metastatic triple-negative breast cancer + other solid tumours (phase II) Licence with co-promotion option 2,057
Cynosure/ Hologic Medical aesthetics portfolio inc non-invasive body contouring, hair removal, skin revitalisation and women's health Acquisition - company 1,650
J&J Codman Neurosurgery Business/ Integra LifeSciences Portfolio of devices focused on advanced hydrocephalus, neuro-critical care and operative neurosurgery Acquisition - business unit 1,045
EndoCeutics/ AMAG Pharmaceuticals Intraros (prasterone), non-oestrogen product for postmenopausal atrophic vaginitis (FDA approved), female sexual dysfunction (phase III) *Licence, supply agreement 998.6
Vention Advanced Technologies Business/ Nordson Corporation Minimally invasive interventional delivery devices, catheters and advanced components Acquisition - company 705
Advaxis/ SELLAS Life Sciences Group Advaxis' Lm-based antigen delivery technology with SELLAS’ WT1 targeted heteroclitic peptide antigen mixture (galinpepimut-S) (pre-clinical) Licence 358
AstraZeneca/ TerSera Therapeutics Zoladex, goserelin acetate implant for prostate, breast cancer, benign gynaecological disorders (marketed) **Licence 320
Lonza/ Sanofi Large scale mammalian cell manufacturing facility for antibody therapeutics Joint venture 286.3
Janssen/ Akebia Therapeutics HIF-targeting candidates inc AKB-5169 for IBD (pc) plus library of HIF pathway compounds for multiple therapeutic areas Licence, collaboration 237.5
Portola Pharmaceuticals/  HealthCare Royalty Partners AndexXa (andexanet alfa) - Factor Xa inhibitor antidote (phase IIIb/IV) Royalty monetisation 150
BIAL/ Neurocrine Biosciences ONGENTYS (opicapone), COMT inhibitor for Parkinson's disease (approved in EU) **Licence 145
Sarepta Therapeutics/  Gilead Sciences PRV received when EXONDYS 51 was FDA approved for Duchenne muscular dystrophy Sale of Priority Review Voucher (PRV) 125
Cytokinetics/ Royalty Pharma 4.5% royalty on global sales of omecamtiv mecarbil for heart failure (phase III) Royalty monetisation 100
Marina Biotech/  LipoMedic SMARTICLES nanoparticles delivery platform Licence 90.75
Sanofi / Ipsen 5 consumer products: Buscopan, Mucodyne, Mucothiol, Prontalgine, Suppositoria Glycerini Leciva †Acquisition - products 88.3
Agenus/ Incyte GITR and OX40 antibody programmes converted from co-funded dev/profit-sharing to royalty-bearing arrangement (phase I) Amendment to 2015 agreement 80
Inovio Pharmaceuticals/  ApolloBio Corporation VGX-3100, DNA immunotherapy to treat pre-cancers caused by human papillomavirus (phase II) ††Licence 70

All deals are for worldwide rights unless stated otherwise:
*    US
**  North America
†    Czech Rep, Estonia, Greece, Hungary, Ireland, Latvia, Poland, Slovakia
††  Greater China (China, Hong Kong, Macao, Taiwan)

HIF, hypoxia-inducible factor prolyl hydroxylase
COMT inhibitor, catechol-O-methyltransferase inhibitor

Jill Ogden has over 30 years of commercial and R&D experience in the biopharmaceuticals and healthcare industries and provides our biologics, early stage deals and platform technologies expertise. She has worked for a number of mid-caps and biotech companies, both public and private.  Jill has led and been involved in a wide range of product and technology deals, including corporate M&A.

8th March 2017

8th March 2017

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