July saw huge deal activity in the pharma industry, almost as if everyone was trying to close their deals before the holiday season. Of the deals highlighted in this month’s deal watch table, nine of them were announced in the last three days of the month. And some of these were big ticket items: Elan’s $8.6bn acquisition by Perrigo, Cubist’s $1.6bn double buying spree in the antibiotic area and AstraZeneca’s $815m deal with FibroGen for an oral drug to treat anaemia in renal disease.
The appetite for acquisition shows no decline and nine of the twenty-two deals in this month’s table are acquisitions of the whole or part of a company; in addition there is Celgene’s option to acquire Acetylon Pharmaceuticals.
| See a table listing the deals mentioned in this article |
Elan’s saga finally ends
We watched with great interest as Elan battled against the $6.7bn, increasing to $8bn, hostile takeover bid by Royalty Pharma over the last few months and then heard various rumours that companies such as Allergan, Mylan and Forest Laboratories might make a bid. As July came to a close, it was OTC-focused company Perrigo that acquired Elan, which was perhaps not what people expected. US-based Perrigo develops, manufactures and distributes OTC and generic drugs, active pharmaceutical ingredients (APIs) and nutritional products, including infant formulas and dietary supplements. In a cash and share transaction worth £8.6bn, Perrigo secures a new HQ in Ireland, and hence the benefit of the attractive Irish corporation tax rate of 12.5 per cent (reducing its overall effective tax rate from around 30 per cent to 17 per cent), and a springboard for expansion into Europe and beyond.
Moving into the prescription pharmaceutical market certainly represents new risks for Perrigo but the enlarged company will have a highly diversified revenue stream. In addition to this is the very attractive tiered double digit royalty stream from Tysabri. Elan receives 18 per cent royalties on in-market sales up to $2bn and 25 per cent royalties on sales exceeding $2bn. Sales of Tysabri in 2012 were $1.6bn.
Acquisitions – a route to bolstering a core business
Whilst the Elan and Perrigo deal creates a diversified business, several companies, such as Cubist, Ipsen and Spectrum Pharmaceuticals, focused on acquiring assets to bolster their core business areas in antibiotics, neurology and haemato-oncology, respectively.
On the same day, Cubist announced it was committing nearly $1.62bn to acquire two US-based companies developing novel antibiotics, Trius Therapeutics and Optimer Pharmaceuticals. The structures of the two deals are similar comprising a mixture of upfront cash and contingent value rights (CVRs), which will bring additional cash payments if certain commercial milestones are met. Cubist had already developed a relationship with Optimer through their 2011 co-promotion agreement for Dificid (fidaxomicin), for the treatment of Clostridium difficile-associated diarrhoea (CDAD) in adults 18 years of age or older. Dificid was launched in the US in July 2011.
Trius’ lead product is a phase III stage antibiotic, tedizolid phosphate (TR-701), being developed for the treatment of certain Gram-positive infections, including methicillin-resistant Staphylococcus aureus (MRSA). Through this acquisition, Cubist also accesses several Trius preclinical antibiotic programmes.
Following its $15m investment in Acetylon Pharmaceuticals last year, Celgene has moved another step closer to acquiring the company. The two businesses announced a collaboration for the development of Acetylon’s oral, selective histone deacetylase (HDAC) inhibitors, including the phase Ib lead product for multiple myeloma, which also gives Celgene an exclusive option to acquire Acetylon. Under this transaction, Celgene is making a $100m upfront cash payment. If Celgene exercises its option to acquire Acetylon, the cash purchase price will be determined by an independent valuation process subject to a minimum upfront payment of $500m. In addition, Acetylon shareholders could receive future milestone payments of up to $1.1bn based on regulatory ($250m) and sales ($850m) targets.
Restructuring and divesting to untap value
Whilst some companies are growing via acquisition, others are divesting assets or restructuring with the objective of generating more value. Pfizer’s recent announcement that it is reorganising to create three new units, which being more nimble should allow the flexibility and independence to untap additional value, may be a prelude to the break-up of the whole company. Each of the three units will be headed by its own group president; two will focus on innovative products and the third unit on generic and soon to be generic products.
A number of larger companies have recently divested assets to smaller partners. Lilly entered into a deal with Transition Therapeutics with an interesting structure that allows the large pharma to buy back the asset, TT-601 for the treatment of pain in osteoarthritis, should it wish to do so following a review of clinical proof of concept data. TT-601, which is a potent and selective ligand for a novel nuclear receptor target, has completed preclinical development and Transition Therapeutics anticipates it can be in the clinic in the first half of 2014. If Lilly exercises its option to reacquire the rights to TT-601, it will pay Transition Therapeutics milestone payments of approximately $100m and high single digit royalties on sales. However, if Lilly does not exercise its option, Transition will pay Lilly a low single digit royalty on sales. This is not the first deal of this type that Transition has done; the company has a license-in/ license-on at phase II business model and it completed a similar deal with Lilly in 2010 for a series of preclinical diabetes compounds.
Other divestments noted this month include UCB’s transaction with R-Pharm in which it granted exclusive global rights to the private Russian company to develop and commercialise olokizumab, a monoclonal antibody targeting interleukin 6 (IL-6) in all indications, including rheumatoid arthritis. UCB had decided not to progress the phase II stage antibody itself after a portfolio review. In return for the licence, UCB will receive an upfront payment, milestones and royalties but the financial terms were not disclosed.
Also pruning its portfolio while just about to embark on the upheaval of a major restructuring, Pfizer has licensed exclusive worldwide rights to Sequella to develop and commercialise sutezolid, a phase II oxazolidinone antibiotic currently in development for the treatment of tuberculosis. While Pfizer’s anti-infectious disease focus is evolving towards prevention (ie vaccines) rather than treatment, sutezolid falls neatly into Sequella’s core area of developing anti-infective compounds. As for UCB’s divestment of olokizumab, no financial terms were disclosed.
Regional deals and swapping rights
July saw its fair share of regional deals for mid- to late-stage clinical and already approved assets. Servier is well known for its territorial deal focus and its creative cardiovascular transaction with Amgen plays to the strengths of both companies. Under this agreement, Servier has granted Amgen US rights to Procoralan (ivabradine), which is approved in Europe for chronic heart failure and stable angina in patients with elevated heart rates. Amgen is paying $50m upfront for US rights to Procoralan and will pay undisclosed future milestones and royalties on sales.
In addition, the two parties have reciprocal options over further cardiovascular assets: Amgen receives an exclusive option to Servier’s phase II stage S38844 for the treatment of heart failure for the US, and Servier receives an option to omecamtiv mecarbil for Europe. Omecamtiv mecarbil is currently in phase II trials for acute and chronic heart failure and is the most advanced drug candidate coming out of Amgen’s collaboration with Cytokinetics signed in 2006. The value of the respective options was not disclosed but either party can exercise its option up to the completion of certain phase II studies.
AstraZeneca’s (AZ) $815m development and commercialisation collaboration with FibroGen for FG-4592 scooped up the territories that had not already been taken by Astellas, in the agreement the Japanese pharma signed with FibroGen in 2006. FG-4592 is a phase II/III oral compound in development for the treatment of anaemia associated with chronic kidney disease (CKD) and end-stage renal disease (ESRD). The deal brings AZ rights to FG-4592 in the US, China and all major markets excluding Japan, Europe, the Commonwealth of Independent States, the Middle East and South Africa.
AZ is paying approximately 43 per cent of the consideration in upfront and subsequent non-contingent payments; royalties on net sales are tiered in the low 20 per cent range. While AZ will be responsible for commercialisation of FG-4592 in the US, FibroGen will have specific co-promotion rights in ESRD. AZ and FibroGen will co-commercialise FG-4592 in China. It is interesting to note that in recent announcements it states that FibroGen and Astellas equally share development costs for FG-4592 in the US and Europe; indeed the companies announced the initiation of the phase III programme in the US and Europe in December 2012, for which FibroGen received a $50m milestone from Astellas. So if Astellas continues to co-fund development in the US, ie in AZ’s territory, one presumes there must be another mechanism under which Astellas is compensated.
Where next?
To finish off this month, it seems appropriate to come round full circle to where we started. Royalty Pharma may be feeling somewhat aggrieved to have invested so much time and effort into trying to acquire Elan to no avail. However, Royalty Pharma did close a deal this month with presumably a fully cooperative partner, Quest Diagnostics, which had deemed the phase III anticancer drug ibrutinib to be non-core and was happy to sell its royalty rights in return for $485m.
And rumours continue to circle around the potential acquisitions of Alexion and Onyx. Roche, rumoured to be interested in Alexion, may still be smarting from the battle to try and take over Illumina last year. When competitive bidding or share holder expectations make targets very expensive, and Alexion’s market value peaked recently at over $20bn, one has to ask whether the acquirer will ever receive its target return and growth; in these situations does such an acquisition make sense?
See a table listing all the major pharma mergers, acquisitions and collaborations agreed during July 2013