Pharma deals during September 2012

In this regular review of deals we focus on the transactions announced during September 2012. As usual, we review those deals where financial terms are disclosed. September has seen an interesting selection of deals, across a number of territories, with only the highly acquisitive Valeant Pharmaceuticals featuring more than once in the table. In a noteworthy concentration of deals, seven of the 20 deals are in the oncology space with a combined headline value of about $2.6bn.

This month's deals also show a wide cross section of deal types: product and technology licences, company and business acquisition, options, equity investment and monetisation of a royalty stream.

On the acquisition trail
The largest deal announced in September was Valeant's acquisition of Medicis Pharmaceutical, the dermatology specialist, for $2.6bn. At $44 per share, this represents a 39 per cent bid premium, relatively modest by recent standards. Since 2008, Valeant has made more than 50 acquisitions of assets and companies, growing through an aggressive acquisition strategy rather than a more traditional R&D route. Through this deal, the company is set to become the largest dermatology player in the US with annual sales of more than $1bn. The deal was mainly financed through debt and investors will be closely monitoring the delivery of the $225m targeted cost savings and the performance of Medicis' lead product Solodyn (40 per cent of Medicis' revenue and approaching 70 per cent of earnings), after news that its sales seem to be declining faster than had been anticipated.

Later in the month Valeant also acquired Visudyne (verteporfin) from QLT for $112m. Visudyne treats abnormal blood vessels in the eye associated with conditions such as wet macular degeneration using light activation as photodynamic therapy. QLT had announced they were re-structuring to focus on development of their synthetic oral retinoid and have now sold their only marketed product.  The purchase price is split, with $50m representing the rights to 20 per cent royalties from sales outside the US (80 per cent of total) from Novartis, and $62m, representing the rights and assets within the US. The purchase price represents 1.25 times end user sales ($44.7m in the 6 months to June 2012) and the product is in steep decline in the US and Europe.  Valeant may be contemplating growth from new indications as there are additional contingent payments of $20m and royalties on other indications for Visudyne.

Focus on oncology
Another notable deal this month was Les Laboratoires Servier's option agreement with MacroGenics for the development and commercialisation of dual-affinity re-targeting (DART) products directed at three undisclosed tumour targets. MacroGenics will receive $20m upfront, whilst retaining full development and commercialisation rights to the three pre-clinical DART programmes in the US, Canada, Mexico, Japan, Korea and India, while Servier has the option to take an exclusive licence covering the rest of the world for each of the programmes. If the options are exercised, MacroGenics will receive fees, and pre-clinical milestones, totalling $80m and up to an additional $1bn in clinical, regulatory and commercial milestone payments for the three programmes, plus tiered, double-digit royalties on net sales. This is MacroGenics' second collaboration with Servier (MGA271, a bi-specific antibody) and their third around the DART platform with a major pharmaceutical company.

As mentioned in the introduction, there are several other oncology deals this month in a variety of shapes, sizes and deal structures. In its search for a follow-on to Erbitux, Merck KGaA has taken an exclusive worldwide licence to Symphogen's Sym004, currently in phase I/II trials, for the treatment of advanced KRAS; a wild-type metastatic colorectal cancer (mCRC). Symphogen could receive up to $638m (€495m), comprising an upfront payment of €20m, up to €225m for clinical development and regulatory milestones, and €250m in potential combined sales performance milestones and royalties on worldwide net sales.

Baxter International has been granted a licence for commercialisation rights for Estybon (rigosertib) in Europe by Onconova Therapeutics. Estybon is in phase III for the treatment of myelodysplastic syndromes (MDS) (rare haematologic malignancies) and in phase II/III for pancreatic cancer. Onconova will receive $50m upfront and up to $515m in development and regulatory milestones for the MDS and pancreatic cancer indications, in addition to sales milestones and royalties. Baxter has the option to participate in the development and commercialisation of Estybon in additional indications. Baxter has an existing equity investment of $50m in Onconova.

In a couple of earlier stage deals, Sanofi and Oncodesign have entered into a research collaboration and licence agreement to use Oncodesign's  Nanocyclix technology on Sanofi's kinase targets. The Nanocyclix platform will be exclusively applied in multiple undisclosed Sanofi kinase programmes for a number of therapeutic applications over four years, in return Oncodesign is entitled to a technology access fee, milestone payments up to $168m and low single-digit royalties on net sales.

Lebanese company Immunext is developing novel therapeutics that modulate the immune system to treat cancer, and has announced a deal with Janssen Biotech. Janssen is taking a worldwide, exclusive licence to develop and commercialise therapeutics that antagonise the V-region immunoglobulin-containing suppressor of T-cell activation (VISTA) signalling pathway. VISTA is a newly identified negative checkpoint regulator. ImmuNext could receive more than $150m in payments, including an upfront payment, plus certain development and commercial milestone payments.

Towards the end of the month, Roche announced it had taken an exclusive worldwide licence to Galaxy Biotech's antibodies targeting fibro growth factor 2 (FGF2), which are over-expressed in many types of cancers. In pre-clinical studies, FGF2 has been shown to stimulate angiogenesis and also lymphangiogenesis, which might be important in metastasis. Galaxy's novel antibody neutralises the biological activity of FGF2. Roche is paying an $8m licence fee and undisclosed milestone payments and royalties on product sales.

Cash is king
This month we have also seen a couple of deals that provide immediate cash injections in return for loss of future cashflows. Lundbeck has subscribed for 4.6 per cent of Biotie Therapeutics shares for €10m (25 per cent premium to the subscription price).  The companies already have a worldwide exclusive licence agreement from 2006 for Selincro (nalmefene), a novel opioid system modulator to treat alcohol dependence.  Linked to this investment, the royalty rates in countries outside Europe and the US have been reduced to facilitate the launch of Selincro in other territories. Biotie will receive additional sales milestones on achievement of undisclosed sales target in Japan, increasing total reward to €89m ($120m).  Lundbeck filed a marketing authorisation application for Selincro in the EU with European Medicines Agency and a decision is expected later this year.  For Biotie, this deal appears to be a trade-off between a long-term royalty stream and a short term cash injection, as in August, Biotie had announced they would need to secure additional funding before the end of 2012 (or reduce costs). 

In a similar vein, Biogen Idec has sold its royalty rights to Benlysta (belimunab) for the treatment of systemic lupus erythematosus, to DRI Capital Managed Fund. Biogen had out-licensed rights to the drug, to both Human Genome Sciences and Glaxo Group (before their common ownership under GSK). This deal allows Biogen to sell its long-term royalties and related rights in exchange for larger payments “multiples” over a shorter period. The accelerated payments will allow Biogen to invest in its pipeline and to finance the launch of new products. The initial “multiple” is $18m (based on six months royalties), with subsequent payments based on royalties received from April 2012 to September 2014, with DRI retaining all the royalties thereafter unless a cumulative royalty thresheld is reached and then a one-off contingency will be paid.

Geographical focus
There are a couple of deals this month with notable geographical reaches. Two Asian companies are expanding westward; RNL Bio a South Korean company has licensed its stem cell technology to Turkish RST Biomedikal Sanayi.  Turkey is the sixth country to which RNL Bio has licensed this technology – its so-called 'Stem Cell Silk Road'. In return RNL Bio will receive an upfront of $5m and 15 per cent royalties which could amount to $200m. Chinese BGI-Shenzhen, which operates genome-sequencing centres in China, is to acquire US company Complete Genomics for $118m to expand in the US market for medical and research DNA testing.

Last but not least
The final deal under the spotlight this month is Novartis' option to acquire Selexys Pharmaceuticals upon successful phase II studies in SelG1, a humanised mAb targeting P-selectin to treat vaso-occlusive crisis in sickle cell disease (SCD). Upfront, acquisition and milestone payments could reach $665m. Whilst still predominantly a malarial-belt disease it is notable that there are about 150,000 SCD sufferers across US and Europe and it has been granted orphan drug designation in both territories.

All deals are worldwide with the following exceptions :
1. World-wide, excluding : US, Canada, Mexico, Japan, Korea, India
2. Europe : European Union and other countries in Europe
3. UK

The Author
Bridget Lacey is a consultant at Medius Associates