Pharma deals during November 2013

As we move towards the close of the year, here is this month's Deal Watch, which reviews the top value deals reported during November. In line with our usual practice, this month's report focuses predominantly on the deals where financial terms are disclosed. 

The month closed with a leading shareholder denying the rumours that UCB might be on the market as the latest big pharma acquisition target. Certainly the good performances from key products such as Cimzia, Vimpat and Neupro may well appeal to those companies feeling a little pipeline bereft.

Staying with big pharma strategies, this month has also seen announcements from Bristol-Myers Squibb (BMS) that the company will discontinue drug discovery in the three key areas: hepatitis C, diabetes and neuroscience, as well as making cuts of about 1 per cent of its total researchers. In the same vein, Novartis is reviewing its strategy and announced the divestment of its blood transfusion diagnostics unit for $1.7bn to Grifols as part of its ongoing business review. Also, other strategic options such as spinoffs and joint ventures are under active consideration for its animal health and OTC activities. In addition, a $5bn share buy-back programme was announced to take place over the next two years. 

Acquisitions
As evidenced throughout this year, acquisitions continue apace with 10 out of the 20 top deals reported in November being acquisitions. This trend was reinforced by comments made by Sanofi's CEO Chris Viehbacher, who has stated the company's intention to spend between $1.4bn and $2.7bn per annum on acquisitions.

Following the rumours that had abounded over the last few months, the top of the table deal this month was the acquisition of ViroPharma, the orphan drugs company by Shire. Valued at approximately $4.2bn, the price of the transaction at $50 per share represents a 27 per cent premium to ViroPharma's closing share price on 8th November, but around 64 per cent based on the share before the rumours in mid-September. In 2012 ViroPharma generated revenues of $428m, with Cinryze posting US sales of $321m (representing 75 per cent of total sales). A perfect strategic fit, this addition will create a $2bn rare disease revenue base in 2014, approx. 40 per cent of Shire's total product sales.

Running close together in second and third positions of our deal table were the acquisitions made by Salix of Santarus and Bayer of Algeta. Salix is to acquire the outstanding shares in Santarus for $32 per share giving a deal value of $2.6bn. The all-cash transaction is expected to close in Q1 2014.  The combined company will market 22 products, including Xifaxan (rifaximin; 2012 sales of $514.5m) and Santarus' therapy Glumetza (metformin) for type II diabetes, (projected sales of $221.6m in 2015).  Salix's purchase offer represents a 36 per cent percent premium to Santarus' closing share price on November 6.

Hot on the heels of the European approval of Xofiga (an innovative radiotherapeutic for bone metastases in prostate cancer) reported on November 18, Bayer's opening offer for the Norwegian company.

Algeta, has been noted as being rather ungenerous, with room for upping the offer.  This takeover was an obvious tactic bringing in the key the asset, Xofigo which has been under joint development since 2009. The 27 per cent premium appears low when compared to the 36 per cent calculated by Reuters and in comparison with the 40 per cent average reported in our Annual DW for 2012.  Peak sales for Xofigo are expected to reach $1.5bn plus further upside from other indications in development.  Assuming this acquisition goes through, this buys out the previous deal with Algeta under which there was US co-promotion for 50 per cent of in-country profits, plus royalties and milestones due outside the US.

Where have all the licensing deals gone?
Five licence deals were closed this month, with Roche, Lorem Vascular, Servier, Shionogi and Baxter gaining access to new products and technologies.

With the highest headline value at $548m Roche announced its licence to Polyphor's experimental macrocycle antibiotic POL7080. This antibiotic kills Pseudomonas aeruginosa by a novel mechanism of action and has completed its phase 1 development.  Under the agreement, Roche will make a $38m upfront payment with milestones of a further $510m and tiered double-digit royalties on sales. As is often seen in such deals, Polyphor retains the option to co-promote an inhaled formulation of POL7080 in Europe.

Carrying a headline value of $531m, Lorem Vascular (reported to be a new company set up by a Malaysian real estate developer) secured regional rights to Cytori's cell therapy for China, Hong Kong, Malaysia, Singapore and Australia in certain therapeutic fields, namely cardiovascular, renal and diabetes applications. 

The exclusive licence has a duration of thirty years, includes supply commitments and an equity component of $24m for shares at $3 per share.

It was clearly busy times at Clovis this month with two major announcements, firstly the acquisition of the privately owned Italian company, Ethical Oncology Science (EOS) for an upfront payment of $200m which includes $190m in Clovis shares and $10m in cash. In addition, Clovis is to pay $65m on the FDA approval of lucitanib.

Lucitanib is an oral, dual-selective inhibitor of the tyrosine kinase activity of fibroblast growth factor (FGF) and vascular endothelial growth factor (VEGF). It is in clinical development for treating FGF aberrant breast cancer and in October 2012 was the subject of a collaboration with Servier. This 2012 deal had a headline value of $58m (N.B. only the upfront value was reported) and excluded certain territories ie the US, JP, China.

Pursuant to the licence agreement with Servier, Clovis is entitled to receive up to €350m (approximately $470m) upon the achievement of development and commercial milestones, as well as royalties on sales of lucitanib from the Servier territories. Clovis will also pay the EOS shareholders up to an additional €115m in cash (approximately $155m) upon the receipt by Clovis of certain of the milestone payments from the Servier licence agreement.

Clovis and Servier will now collaborate on the future development of lucitanib with Servier covering the initial $108m for global development and with additional costs being shared equally between the companies.

Supporting the view that equity investment as a part of the deal finances is completely back in vogue, was the deal struck between the Danish company Egalet, which closed an exclusive global licence and collaboration agreement Shionogi for multiple oral abuse-deterrent hydrocodone opioid product candidates using Egalet's technology.  The deal terms include an upfront payment of $10m from Shionogi, plus the purchase of $15m in common stock to close with Egalet's recently filed Nasdaq IPO.  The deal also features development milestone payments in excess of $300m, sales threshold payments in excess of $100m plus tiered mid-single to low double digit royalties.  Shionogi will also meet the development costs. 

Shionogi's presence in the opioid market has also been strengthened this month with a licensing deal with Mundipharma, with whom it has worked for many years. The licence is for tamper resistant oxycodone (marketed in the US since 2010) and an oxycodone/naloxone combination marketed in Europe since 2009.

While Sanofi announced this month that it had discontinued clinical trials of fedratinib (SAR302503), an investigational JAK2 inhibitor, Baxter entered an exclusive global agreement (headline value $172m) to develop and commercialise Cell Therapeutics' experimental JAK2/FLT3 inhibitor, pacritinib. The Sanofi decision was taken following reported cases consistent with Wernicke's encephalopathy in patients participating in the clinical trials.  Pacritinib, an oral therapy, is currently in phase III development for patients with myelofibrosis and has activity against genetic mutations linked to myelofibrosis, leukaemia and certain solid tumours.

What else is happening?
GlaxoSmithKline (GSK) has agreed to divest around one third of its 19 per cent stake in Aspen for a total of about 7.1bn South African rand ($698m). The company gained the shareholding in Aspen via a number of transactions: after building its marketing alliance with the South African company in 2009; and more recently in August 2012 divesting an extensive range of Australian products and from selling global rights to Arixtra and Fraxiparine (excluding China, India and Pakistan) in September 2013.

It was clearly a good news – bad news day for Amicus Therapeutics this month when two press releases were released. Firstly, GSK decided to return rights to the experimental Fabry disease drug migalastat, noting that support would continue through GSK's equity investment of $3m.  It was just under a year since the report that the phase 3 study had ended in failure, leading GSK to give up the co-development and commercialisation rights in exchange for a royalty on any future sales.  Secondly, Amicus announced the purchase of Callidus Biopharma for $15m in stock and up to $115m in milestones.  The deal gives Amicus access to Callidus' late-stage enzyme replacement therapy for Pompe disease.  Amicus also announced plans to cut costs as part of a restructuring to focus on enzyme replacement therapies.

Not wishing to be hostage to fortune in finding the right partner, some biotech companies are seeking to find direct access to market via their own companies. Certainly NicOx dipped a toe in the water in March 2012 when it secured an option (not later taken up) to acquire the UK ophthalmic company Altacor. Nicox is now to acquire the Italian company Eupharmed for €3.5m in newly issued shares plus potential earn-out payments. This brings direct marketing presence in Italy with established product sales; Eupharmed's portfolio had a value of €3.6m in 2012.

In a similar vein, Cardiome completed its acquisition of Correvio, a privately owned Swiss company (previously known as Iroko Cardio), achieving a European infrastructure for marketing its products. Cardiome has acquired Correvio through the purchase of a combination of assets and shares in exchange for 19.9 per cent of Cardiome's outstanding shares and a deferred cash consideration of $12m.

Looking forward
Last month we reported on a range of biotechs filing IPOs in the US. Only one month on and the appetite seems to be waning already with a range of companies citing unfavourable market conditions as the reason for postponing their IPOs.  Among these are TetraLogic which pulled its IPO stating that the market appeared exhausted. Biotechs including Xencor, Trevena and Vital Therapies have also postponed their IPOs citing unfavourable market conditions. Relypsa, a late-stage biotech developing a phase III treatment for hyperkalemia, get its IPO away but at a significantly reduced price (from a range of $16 to $19 per share reduced to $12) to raise $82m. Karyopharma Therapeutics did appear to have a successful IPO raising $109m. So despite a number of successful biotech IPOs early in the year the market conditions do seem to be toughening. Watch this space.

See a table listing all the major pharma mergers, acquisitions and collaborations agreed during November 2013