In this regular review of deals we focus on transactions announced during July 2012. As usual for this series of articles we focus on those deals where financial terms are disclosed. July was a quiet month for deals but as always there are some interesting aspects worth noting.
M&A – Human Genome Sciences destiny was predetermined
The largest deal which has been discussed in Deal Watch before is the final stage of the acquisition of Human Genome Science (HGS) by GlaxoSmithKline (GSK) for $3bn (equivalent to 23 times 2011 revenue). As of July 30, 79 per cent of shares had been acquired by GSK and a four day subsequent offering period for the remaining shares has been set. Once GSK has 83 per cent it can exercise an option requiring HGS to issue new shares bringing GSK’s total share to 90 per cent. The share price premium of 99 per cent is high, although this is still likely to be a good deal for GSK.
Positives include access to the HGS pipeline; the potential to divest projects and reduce costs based on synergies between the companies ($200m has been quoted); and, in a specific benefit to GSK as a bidder, savings in future licence fees and royalties to HGS from the three products already licensed by GSK. These are Benlysta (belimumab), an antibody approved for the treatment of lupus; darapladib, a phase III small molecule drug for the treatment of cardiovascular disease; and albiglutide, an albumin-fusion protein in phase III development for the treatment of type 2 diabetes.
There is $150m in potential licence fees outstanding for albiglutide plus single digit royalties and a 10 per cent royalty on darapladib plus a registration milestone and profit shares on Benlysta. With the products forecast to achieve sales in excess of $1bn per annum, the savings in royalties and profit shares alone could be substantial.
The fate of HGS in many ways was predetermined by the number of deals they had made with GSK. Although offers were sought from other big pharma companies, there were either no bidders or those companies that tried could not meet the GSK price. When biotech companies enter into licence deals with multiple companies they always need to bear in mind they may be creating, or blocking, a bid at a later date from a licensee (or acquirer).
July also saw the announcement of the acquisition of Par Pharmaceuticals by a private equity company TPG for $1.9bn. The deal value represented 2 x 2011 sales and the share price premium was 37 per cent. As is usual in the US, one shareholder has already started legal action against the deal saying the price is too low and a competitive bidding process has been avoided. Par has the option to seek competitive bids up to August 24.
In one respect, this is an unusual transaction because the acquirer is a private equity company where there are no synergistic benefits that would come from an acquisition by a pharmaceutical company. Most M&A deals of generic companies have been between generic companies, eg Watson’s acquisition of Actavis in April this year. According to Fierce Biotech, the sale was driven by an activist investor in Par who believed the company did not have the scale to succeed in the generic sector (Par made a $50m loss in 2011). An addition benefit to the Par management team of a private equity acquirer rather than pharma company is that they are more likely to retain their jobs.
The executives at TPG must have had a busy July because four days after the Par announcement, Fresenius announced the acquisition of Fenwal, which is partly owned by TPG. Fenwal, based in the US, makes products for blood collection, separation and processing. Fresenius reported the deal value did not exceed $1.2bn which would represent around twice the figure for 2011 sales and 13 times EBITDA.
Licensing platforms – Janssen closes two deals
The quantified licensing deals in July have been few and far between. Two of the largest deals involve Janssen licensing a platform technology from specialist biotechnology companies, Evotec and Genmab. Evotec’s licence to Janssen Pharmaceuticals consists of a portfolio of molecules that trigger the regeneration of insulin-producing beta cells. The deal consists of a relatively low upfront of $8m plus $200m to $300m in development and sales related milestones for each molecule launched. Evotec, a German drug discovery company that is profitable and had revenues of $100m in 2011, will share the proceeds with their collaboration partner, Harvard University. Diabetes remains a hot topic for licensing. In the last 18 months there have been 6 financially quantified deals involving big pharma companies including Lilly, Boehringer Ingelheim and Servier with a total headline value of $3.36bn (an average exceeding $500m) and total upfront payments of $0.51bn.
Another deal involving access to a portfolio of molecules for development in various diseases is the deal between Genmab based in Denmark and Janssen Biotech. Janssen has licensed up to 10 panels of bispecific antibodies. These are antibodies that bind to two specific epitopes on the same or different targets and may therefore improve the antibodies’ selectivity and efficacy. Although the upfront at $3.5m is modest, Janssen pays for research and is due to pay up to $175m in milestones plus royalties for each product commercialised.
Anti-infective deals
A similar size to the Genmab deal at $168m is the agreement between Chimerix, a US based private company developing antiviral therapies and Merck & Co. Merck has licensed CMX 157 an oral nucleoside reverse transcriptase inhibitor for treatment of HIV that is 200-fold more potent in vitro than tenofovir (Gilead’s product with sales of $700m). It has completed a phase I volunteer study. There have not been many deals in the HIV area over the past few years. This may be because the market, dominated by major players, Gilead, J&J, ViiV (GSK/Pfizer), Abbott, BMS and Merck is maturing and there is constant pressure to reduce the cost of therapy.
BioAlliance the French biotechnology company that develops products for treating cancer and supportive care, has licensed to Vestiq for a potential $44m the US rights to Oravig (marketed as Loramyc in Europe). Oravig is miconazole in a mucoadhesive buccal tablet for the treatment of orophayngeal candidiasis. In Europe the indication is limited to immuno-compromised adults.
Licensing products – Big Pharma biological products face biosimilar competition from…Big Pharma companies
The latest biosimilar deal with the Dutch company Synthon is demonstration that the alliance established in December 2012 between Amgen and Watson to develop and commercialise biosimilars is bearing fruit. Watson has licensed from Synthon global rights to biosimilar Herceptin (Genentech – 2011 sales $1.7bn) and contributed it to the alliance with Amgen. The financial terms of the deal were not disclosed. The collaboration between pharma companies to develop and commercialise specific targets seems to be increasing as the cost and risk involved in product development increases. This is particularly relevant in the biosimilar market where the requirement for clinical trial data to obtain regulatory approval for biosimilars has meant that only the bigger companies can compete and even then may need partners to share the cost.
Two weeks prior to the announcement of the collaboration between Amgen and Watson, Biogen Idec and Samsung Biologics announced the establishment of a $300m joint venture to develop and commercialise biosimilars. Another example happened a month ago when Merck Serono announced a biosimilar deal with Dr Reddy’s under which Dr Reddy’s will lead early product development and complete phase I and Merck Serono will take over manufacturing and lead phase III clinical trials. R&D costs and profits from commercialisation will be shared. Merck & Co is also “in on the act” with its deal last June with Hanwha Chemical in South Korea to develop a biosimilar Enbrel (Amgen/Pfizer sales $7bn).
The generic market for small molecule products is currently dominated by generic companies that, apart from Sandoz/Novartis, are not part of the traditional Big Pharma speciality companies. In the future this is likely to change radically as the traditional Big Pharma speciality companies plus Teva enter the generic markets with biosimilars. With these developments, there is the very real prospect that Amgen, Merck, Merck Serono and Biogen will be competing with each other’s original biological products.
| Licensor acquired / partner acquiror | Deal type | Product / Technology | Headline $m |
|---|---|---|---|
| HGS / GSK | Acquisition | US biotech company | 3,000 |
| Par / TPG | Acquisition | US based generic company | 1,900 |
| Fenwal / Fresenius | Acquisition | US based blood transfusion company | 1,200 |
| Evotec / Janssen Pharma | Licence | Molecules to regenerate insulin-producing beta cells for treating diabetes | 208+ |
| Genmab / Janssen Biotech | Licence | Bispecific antibody platform to provide drug candidates for various diseases | 178 |
| Chimerix / Merck & Co | Licence | Lipid antiviral conjugate in phase 1 for treatment of HIV | 168 |
| Vestiq / BioAlliance (a) | Licence | US rights to registered oropharyngeal candidiasis drug, Oravig | 44 |
| Infinity / Mundipharma and Purdue | Licence and equity | Mundi returns licence rights, stops R&D funding and Purdue buys more equity | 27 |
All deals are global except: (a) US
The Author
Roger Davies is a consultant at Medius Associates.