Pharma deals during December 2012

As is customary, this month's deals focus on those with disclosed financial terms. There is often a spate of deals in the December month as companies seek to agree contracts before their financial year end. This year is no exception with a high number of discovery / research deals, portfolio re-structuring and company acquisitions. 

The highest value deal this month is Baxter's purchase of Gambro at $4bn representing 2.5 x 2011 sales. Gambro, which has been privately owned since 2006, sells haemodialysis equipment which will complement Baxter's presence in peritoneal dialysis and will increase Baxter's renal segment sales by over 60 per cent to $4.2bn making it a more potent competitor to Fresenius's Medical Care division (sales $13bn).

In a similar move to expand global presence, Sanofi's animal health company, Merial, has acquired the Indian veterinary business Dosch for an undisclosed amount. The animal health business seems to be “hot to trot” following acquisitions in September by Bayer costing $145m and Perrigo $285m.  This month also sees the licence by Pacira to Aratana of a liposomal form of bupivacaine (Exparel) for animal health indications for $1m upfront plus $42.5m in milestones.  Exparel was launched for post-surgical pain in the US in April 2012.  The next major event in the animal health deal calendar will probably be the IPO of Pfizer's animal health business (named in the IPO documents as Zoetis) which had 2011 sales of $4.2bn.

The second largest acquisition this month is by Gilead (2011 sales of $8bn) of the Canadian company YM Bioscience for $510m ($385m net of YM's cash reserves of $125m).  The purchase price of $2.95 per share represents an 84 per cent premium to the average price over the prior two months.  In return for this hefty premium, Gilead acquires a company with an annual cash burn of $30m developing orally active JAK 1 / JAK 2 kinase inhibitors and with a lead product, CYT387, in clinical development and complementary to Gilead's research programme in myelofibrosis.

In early December, YM presented at the American Society of Hemotology (ASH) results from the phase I/II study of CYT387, which has orphan drug status for myelofibrosis in both the US and EU. Prior to the acquisition announcement, YM had had discussions with US and EU regulators about the pivotal study programme and had been actively seeking a licensing partner. As such any company seriously interested in myelofibrosis and CYT387 would have to close a deal promptly and perhaps Gilead offered to buy the company rather than pursue a licensing deal.

Two mysteries
Another clinical stage deal this month is the $376m co-development and exclusive global licence by Teva of the Canadian company Xenon's topical sodium channel blocker XEN402 in phase II for treatment of pain. Xenon has been very successful in closing deals with Big Pharma companies including Merck, Novartis and Genentech. The Genentech / Xenon $646m deal to discover and develop new pain products was closed three months ago which makes one wonder why Genentech (or Xenon) did not include XEN402 in that deal?

Coincidentally, the third late stage deal this month is also an analgesic, a buprenorphine implant lasting for six months for maintenance treatment of opioid dependence; the NDA was submitted in late October. Titan has licensed US and Canadian commercialisation rights to Braeburn, which appears to be a new company set up by the venture capital company Apple Tree Partners. Braeburn  has set aside $75m to market the product.

The $231m deal consists of an upfront of $15.75m plus $50m at FDA approval, plus $165m in sales-related and new indication milestones. No doubt Titan welcomed the upfront payment because at the end of September cash reserves were $5m and the operating loss for the quarter was $2.65m. What perhaps is a mystery is why Titan made this deal with a newly formed marketing company rather than Purdue Pharma, a well-established US company expert in analgesics and which already markets a seven-day buprenorphine patch for chronic pain.

The main focus this month - Big Pharma discovery and research deals
The most common type of deal this month is the discovery / research acquisition or licence by the major pharmaceutical companies seeking to source new products and technologies. The potentially highest value deal in this category at up to $515m is the co-development and license between Halozyme, a Californian based company and Pfizer. Halozyme has a subcutaneous drug delivery platform designed to deliver biologics and Pfizer has licensed the rights to use the technology for its biologics for up to 6 targets.  The headline value in these types of deals is often high and a better guide to the size of the deal is indicated by the upfront of $8m.

A similar size deal that “could be worth over $500m to Sutro” is the Celgene collaboration to design and develop novel antibody drug conjugates and bispecific antibodies for two undisclosed targets and to manufacture a Celgene antibody. Sutro, based in California, is coy about the upfront referring to it as “substantial”.

Rather than a 'collaboration' to discover new drugs, Amgen decided to acquire, for $415m in cash, deCODE Genetics, the privately owned Icelandic company that studies the links between the genome and disease susceptibility. Amgen hopes that deCODE will be able to help it improve targeting and validation of new drugs and to capitalise on the trend to personalised medicines.

After Iceland where next ….but Texas and California! GSK closed a research collaboration and licence worth $335m with the University of Texas MD Anderson Cancer Center to develop new therapeutic antibodies to promote an immune attack against cancer.

In another discovery and research deal but this time including options, Biogen Idec has teamed up with Isis in California for a third time this year in a $230m+ deal, including an upfront of $30m, to discover and co-develop antisense drugs to treat three neurological or neuromuscular disorders. In January 2012, Biogen Idec paid Isis an upfront of $29m for an option to an investigational drug ISIS-SMNRx until the end of a successful phase II/III study in spinal muscular atrophy. In June the company paid an upfront of $12m for Isis to discover an antisense drug candidate for the treatment of myotonic dystrophy type 1 with an option to license until the end of phase II.

The antisense bandwagon is gathering speed as AstraZeneca also jumped on in December with a strategic alliance with Isis for a $31m upfront to discover and develop new antisense compounds for cancer.  Finally whilst in California it should be mentioned that Shire has closed a $32.8m research and licence agreement with Arrowhead for research of peptide-targeted therapeutics for rare diseases.

European biotech also active
Not all the drug discovery action is in Texas or California, as Evotec (based in Germany) has ably demonstrated this year.  The licensing deal in December with Janssen to Evotec's series of NR2B subtype selective NMDA antagonists for treatment of depression is valued at $175m. In another deal with Janssen in July worth over $200m, Evotec licensed a portfolio of small molecules and biologics to trigger the regeneration of insulin-producing beta cells. Evotec has closed 12 deals this year which speaks for itself. Janssen has been busy in December, also closing a $135m deal with Phenex, Germany to discover compounds that treat chronic autoimmune and inflammatory disease.

Another deal involving European biotech companies is the acquisition of the Austrian company Intercell by Vivalis based in France for an all share deal valued at $174m. Both companies are loss making. It is billed as “a merger of equals”, with equal representation on the management board, to create “a European biotech leader in vaccines and antibodies”. The Vivalis shareholders will own 55 per cent of the new company called Valneva based in Lyon and the Intercell shareholders will obtain a 32 per cent premium for their shares. The company expects to make around $6m synergy savings per annum and to divest non-core businesses such as contract manufacturing.

In a similar move to improve profitability, strengthen its balance sheet and focus the business, MorphoSys announced the sale of its diagnostic antibody business to Bio-Rad for $69m and Consort Medical announced the sale of its US King Systems airway products division for up to $179m to Ambu.

Commercial deals bring an early Christmas to some…
The Medicines Company has closed two deals this month both involving hospital devices. It paid $185m to acquire Incline Therapeutics, which is developing an iontophoretic transdermal fentanyl device for treatment of post-operative pain. It also entered a $115m deal with BMS is for a two year licence and option plus royalties to market a device to control bleeding during surgery. Sales in 2011 were $65m so it looks like BMS has fully covered its loss of gross profit on the product for at least two years.

Similarly Lundbeck is likely to get at least three years gross profit from the deal to divest to Recordati a range of rare disease products sold mainly in the US. The purchase price is $100m, 2.5 x expected 2013 sales of $40m. A price of $14m representing much the same sales multiple was paid by Mayne to GSK for rights to Kapanol (controlled release morphine) in Australia, a product that was originally developed and licensed to GSK in the 1900s.

Another deal worthy of note is the $94m (0.8 x sales) acquisition of the privately owned Kent Pharmaceuticals, a UK based generic company manufacturing and distributing antibiotics. What makes this deal interesting is the acquirer is not another generic company as is usual but a 'conglomerate'. The acquirer, DCC Healthcare a public company based in Ireland, has five different divisions ranging from distribution of oil and gas to food and beverage products. The healthcare division has sales of over $400m mainly distribution services to health and beauty, pharmaceutical and device companies. The entry into the highly competitive generic manufacturing segment may be a challenge for DDC. However it looks like Christmas is coming early for the founder of Kent who, with 80 per cent of the shares, will receive over $70m.

All deals are worldwide unless otherwise noted – see below:
* US and Canada

The Author
Roger Davies works with Medius as a consultant in pharmaceutical licensing and business development. Having personally completed over 80 deals he specialises in valuations, deal structuring and negotiating licensing and acquisition deals. He is the former Chairman of the UK Pharmaceutical Licensing Group, the professional association of licensing and business development executives and is the Finance module leader for the Business Development MSc at the University of Manchester.