July proved to be another busy month of deal activity with around half of the top twenty deals with financial terms disclosed being acquisitions of whole companies, business units, products or royalties. In the last four days of this July, $6.3bn worth of commitments were made in acquisitions, licences and collaborations across five deals.
It is interesting to look back to see what was happening this time last year. In the last three days of July 2013, nine deals were announced with a total value of just over $12bn, of which Irish-based Elan’s $8.6bn acquisition by Perrigo was a major point of discussion. Twelve months on and we are again mulling over tax inversions and the benefits of having an HQ outside the US with a lower rate of corporation tax rate. This time it is AbbVie‘s acquisition of Shire, albeit for a much bigger price tag than Elan, that was bubbling throughout June and tops this month’s Deal Watch table at just over $54bn. Shire accepted AbbVie’s fourth offer of £52.48 per share, comprising £24.44 in cash and 0.8960 of new AbbVie shares.
Tax inversions certainly continue to be in vogue amongst US companies. In addition to the AbbVie-Shire transaction, this month saw Mylan buying Abbott‘s non-US developed markets specialty and branded generics business in a $5.7bn all stock deal (3 x the additional annual revenues forecast from the acquired assets). As part of this transaction Mylan will form a new company to be incorporated in the Netherlands, thereby reducing its tax rate. The deal brings to Mylan a portfolio of over 100 specialty and branded generic products in five major therapeutic areas (cardio-metabolic, gastrointestinal, anti-infective/respiratory, CNS/pain and women’s and men’s health). This acquisition not only extends Mylan’s geographical reach but also strengthens its presence in non-US markets bringing a large sales force in more than 40 ex-US countries.
This month’s merger between Cosmo Technologies and Salix Pharmaceuticals valued at $2.7bn is another tax inversion. Cosmo Technologies is an Irish-domiciled subsidiary of Italian-based Cosmo Pharmaceuticals, which has a focus in gastrointestinal disease and dermatology. The plan is for Salix to become a wholly-owned subsidiary of Cosmo Technologies, which will then change its name to Salix Pharmaceuticals plc and be listed on NASDAQ. With an already established sales force in the US for its gastrointestinal product range, the merger brings Salix additional complementary products. The new company will own Cosmo Pharmaceuticals’ US and certain other patents outside Europe for several gastrointestinal products. The new Salix will also have rights of first negotiation for all future gastrointestinal products Cosmo Pharmaceuticals and its affiliates seek to market in the US and non-compete provisions that prohibit Cosmo from competing directly with the new company in the gastrointestinal area in the US.
So while several US companies have already completed or have tax inversions pending, or are even waiting in the wings, politicians in Capitol Hill have called for legislation to prevent businesses from relocating to avoid paying the higher US corporate tax rate of 35 per cent. Moreover, it has been proposed that a legislation to limit corporate tax inversions should be implemented retroactively from May 2014. In order to guard against any unfavourable new tax laws that may be introduced (although it appears unlikely that such legislation could be passed this year), companies with pending deals are including contingency arrangements to allow them to back out of the transaction. Both Medtronic‘s $42.9bn takeover of Irish-based Covidien and Salix’s merger with Cosmo have contingencies to allow the US companies to back out of their respective deals if unfavourable changes in tax legislation are enacted. In contrast Shire has negotiated a break-up fee of at least $500m should AbbVie walk away from the acquisition.
Big Pharma continue to expand and contract
Pfizer‘s quest to bolster its pipeline continues with this month’s acquisitions of InnoPharma, a company with a portfolio of generic FDA-approved products, for $360m ($225m cash and $135m in contingent milestones) and Baxter BioScience’s vaccine business for $635m.
InnoPharma has a focus in the development of novel formulations of existing but complex generic drugs. In addition to 10 FDA-approved generic drugs, InnoPharma has a portfolio of more than 30 injectable and ophthalmic products in development. The business will be absorbed into Pfizer’s sterile injectables portfolio, which is part of the Global Established Pharma (GEP) unit. The expanded Pfizer portfolio will cover 73 currently marketed products, as well as products filed with the FDA.
The divestiture of its commercial vaccine business to Pfizer is part of Baxter BioScience’s ongoing activities to focus on the core disease areas of haematology and immunology prior to being spun off from Baxter International as a separate company. The transaction includes two vaccines currently marketed outside the US and primarily in Europe: NeisVac-C, a vaccine against group C meningococcal meningitis (MenC), and FSME-IMMUN against tick-borne encephalitis (TBE). The deal includes the associated production facilities for these two marketed vaccines but apparently does not include a number of R&D stage vaccine programmes for influenza and Lyme disease, for which Baxter continues to explore its options. Baxter forecasts that its revenues from vaccines will be approximately $300m for 2014.
Underscoring its strategy in focusing the business in the core areas, in July Baxter also announced the acquisition of AesRx, a private US company developing a phase II stage prophylactic treatment for sickle cell disease (SCD), called Aes-103. The financial details were not disclosed. Aes-103 is a first-in-class, oral, small molecule with Orphan status. AesRx is also developing a novel formulation of clotrimazole (Aes-210), which is a viscous, muco-adhesive gel delivered to distal regions of the bowel by retention enema. This novel formulation is currently undergoing phase 2 studies in the initial indication of pouchitis, with the potential to expand the label to ulcerative colitis/distal ulcerative colitis.
Among the other large pharma on the acquisition trail this month were AstraZeneca (AZ) and Genentech/ Roche, both in billion dollar deals. The acquisition of Almirall’s respiratory business enhances AZ’s respiratory franchise bringing a portfolio of marketed and developmental single and combination products for the treatment of asthma and COPD. AZ will also acquire Almirall Sofotec, Almirall’s inhalation device business which includes Genuair, its novel multi-dose dry powder inhalation (DPI) device. Almirall will receive $875m upfront and up to $1.22bn in development, launch, and sales-related milestones. Further sales-related payments may also be payable by AZ.
At the very start of the month, Genentech announced its intention to buy Seragon Pharmaceuticals for $725m cash upfront with $1bn-worth of contingent development milestones downstream. Only founded in August 2013, Seragon is a venture-backed company that was spun-out of Aragon Pharmaceuticals after Aragon’s acquisition by J&J, so this may well be a pleasing exit for the investors. Seragon’s focus is in hormone dependent cancers and specifically the development of its Selective Estrogen Receptor Degrader (SERD) platform of oral, small molecule therapeutics for breast and other cancers. The lead SERD compound, ARN-810, is currently undergoing phase I studies in post-menopausal women with locally advanced or metastatic oestrogen receptor positive breast cancer who have failed first generation anti-hormonal therapies, such as tamoxifen and aromatase inhibitors.
Continuing, but by no means exhausting, the seemingly cyclical theme of expanding and contracting pharma companies, Reckitt Benckiser announced this month that it intends to spin-off its pharmaceuticals unit into a separate company with a UK listing. Deutsche Bank analysts have estimated that Reckitt Benckiser Pharmaceuticals could have a potential value of around £2.9bn ($4.89bn), approximately 3.7 x net revenues for 2013. Other analysts have estimated the separate pharma unit could be worth anywhere between £2bn to £5.5bn. However, with revenues falling by 8 per cent in H1 2014 as a result of US generic competition for Suboxone (the pharma unit’s top selling drug), it remains to be seen what level of valuation will be achieved.
Elsewhere, London’s Financial Times reported that GSK’s CEO Andrew Witty had suggested in an interview that the new consumer healthcare business being set up as a JV with Novartis might also one day become a standalone company. A day or so later, a company spokesperson made a statement that there were no plans to spin off the consumer healthcare business in the near term.
Some licensing activity…
An initial glance at this month’s table of top deals shows that “acquisition” is the key word, whether this is of companies, business units or product assets. However there are still some licensing/ partnering deals in evidence. It is good to see long-term, collaborative relationships progressing as exemplified by the deals between Zealand and Boehringer Ingelheim, and CureVac with Sanofi Pasteur.
In Zealand’s second collaboration with Boehringer Ingelheim, the companies will collaborate during a 4.5-year programme on the development of a novel therapeutic peptide in the cardio-metabolic area. Zealand could receive up to $395m for the first compound to reach the market plus R&D funding and tiered royalties on product sales. In 2014, under this new agreement, Zealand expects to receive payments from its partner of around $7.5m. As we often see with these early stage collaborative deals, Zealand also retains co-commercialisation rights in its home territory, i.e. Scandinavia.
CureVac’s relationship with Sanofi Pasteur dates back to 2011 when the companies entered into a collaboration and option agreement covering mRNA-based vaccines generated using CureVac’s RNActive technology platform against five pre-defined pathogens. Sanofi Pasteur has now exercised its option to take an exclusive licence to the first RNActive vaccine. It will pay CureVac an undisclosed option exercise fee, as well as a fee to extend its exclusive and non-exclusive options on all five pathogens, and will fund all further R&D and commercialisation costs for the licensed vaccine. CureVac is also eligible to receive clinical, regulatory and commercial milestones of up to $202m, as well as royalty payments associated with products sales of RNActive vaccines.
Acknowledging the importance of therapeutic area expertise and in an innovative deal to expand the application of Cimzia outside its current indications, UCB has granted an exclusive licence to US-based dermatology specialist Dermira to develop Cimzia for psoriasis in the US, Canada and the EU. Cimzia, a pegylated antibody fragment that blocks tumour necrosis factor alpha, is currently indicated for several disorders including Crohn’s disease, rheumatoid arthritis and psoriatic arthritis. Based on promising phase 2 data in psoriasis, Dermira will be responsible for phase III costs and will receive up to $49.5m from UCB in development and regulatory milestones. If Cimzia gains approval in psoriasis, UCB will grant Dermira an exclusive commercial licence to market the product to dermatologists in North America; UCB will record the sales and pay Dermira tiered royalties based on sales to dermatologists in North America, and up to $40m in commercial milestones. In addition to the cash payments, UCB has made an initial $5m equity investment in Dermira and will invest up to a further $15m in its partner’s future equity financings.
Collaborative spirit
The willingness of large and sometimes competing companies to collaborate and pool their assets and strengths appears to be increasingly a good sign. This month we saw another batch of clinical collaborations, mostly in the field of immuno-oncology and focusing on immune checkpoint inhibitors to continue on from previous months. These deals rarely have financials attached. Amongst the collaborations announced during July was that between AZ and Kyowa Hakko Kirin (KHK) for a co-funded phase 1/1b immuno-oncology study to evaluate two separate combinations of three immunotherapeutic antibodies in multiple solid tumours. The focus of the study will be KHK’s anti-CCR4 antibody, mogamulizumab, in combination with either AZ’s anti-PD-L1 antibody, MEDI4736, or AZ’s anti-CTLA-4 antibody tremelimumab.
Existing partners Bristol-Myers Squibb (BMS) and Ono Pharmaceutical also announced that they will jointly develop and commercialise multiple immunotherapies as single and combination treatments. In this collaboration the focus is Opdivo (nivolumab), an anti-PD-1 antibody that is approved in Japan for unresectable melanoma, and Yervoy (ipilimumab), an anti-CTLA-4 antibody that is FDA approved for late-stage melanoma.
As part of the collaborative spirit, the UK’s Medical Research Council (MRC) announced this month that it has entered into an arrangement under which seven leading pharma companies (AZ, GSK, J&J, Lilly, Pfizer, Takeda and UCB) have agreed to make available deprioritised development compounds for British academic researchers to work on. Based on a similar concept to the AZ-MRC initiative reported in Issue 45, this open innovation programme will publish a list of available compounds and UK scientists will be able to apply for MRC funding to use them in academic research. According to the MRC press release, the provisions covering any arising IP rights generated using the compounds will vary from project to project and will be similar to those currently used in academically-led research.