Deals of the Week: Deal--or No Deal

The debate over Vytorin's medical benefits and, by extension, the utility of all cholesterol meds, continues to rage. Meantime, the Zyprexa marketing scandal reared its head: new this week, the NY Times reports Lilly is in talks with federal prosecutors to settle investigations into its marketing of the antipsychotic. If an agreement is reached, it could cost the pharma $1 billion, the largest fine ever paid by a drugmaker for breaking federal laws governing a medicine's promotion.

And, it was earnings week, with fourth quarter reports from Wyeth (up, but flat forecast for '08 due to generic Protonix), AZ (down), BMS (down, and WSJ's Health Blog highlights concerns that this big pharma may be affected by the sub-prime mess), Novo Nordisk (down, but did beat analysts' expectations sending the stock up), and Merck (down, thanks to Vioxx settlements) among others.

All in all, a crazy week, but not necessarily on the deal-making front. That's prompted this IN VIVO blogger to ponder the deals that happened--and those that did not. Without further ado, the Deal or No Deal edition.

First, a look at the actual deals that got done...

Inverness/Matria: On Monday Inverness announced its third major acquisition in the health management space, buying Georgia-based Matria for $900 million and the assumption of $280 million in debt. Definitely the big money deal of the week, though Wall Street reacted negatively to the news. Inverness continues to build through acquisition: the Matria deal is its twelfth in the past 12 months. (For more on Inverness's acquisition strategy, click here.) The company's recent emphasis on health management suggests another trend we've been following: the expansion of the diagnostic business model to include services not exclusively related to in vitro tests or reagents. Such business activity has muddied the waters stretching the definition of what it means to be a diagnostic company.

Sepracor/Nycomed: A few weeks ago when Nycomed got FDA approval for its inhaled corticosteroid ciclesonide we figured Sanofi-aventis, the original partner of Altana (bought by Nycomed in '06), still had US rights to the drug--we hadn't heard otherwise, after all. So we were a little surprised on Monday when Sepracor picked up rights to the drug (Alvesco) for $150 million upfront plus various development and sales milestones. Nycomed will also receive payments for manufacturing and royalties on sales. Alvesco's route to the US market has been chock-full of speed bumps. Way back in 2002 Altana suggested the drug might be approved in 2003, but an NDA wasn't filed until December 2003. Altana and Aventis received an approvable letter in October 2004 and the drug was launched in 2005 in Europe.

Iroko Pharmaceuticals/ Merck: Specialty pharma Iroko inked a deal with Merck for non-US commercial rights to Aggrastat, a drug used alongside heparin in patients with unstable angina to prevent cardiac ischemic events. Financial terms of the deal were not disclosed. This is the third product Merck has out-licensed to Iroko and the second in the beleaguered cardiovascular space. Last spring the company acquired rights to Indocin, for rheumatoid arthritis, and Aldomet, a hypertension treatment, from the big pharma. As we reported here, the independent futures of many spec pharmas are in question, as product-poor pharmas gobble them up in hopes of fattening their pipelines. Still, primary care remains a popular space for many, especially as big pharma eschews risky products in the cardiovascular and metabolic disease space.

(Clearly someone forgot the briefcase models.)

BiogenIdec/Genmab: Perhaps we should say "No deal, yet." This week BiogenIdec was once again in the news thanks to manueuvers by Carl Icahn to install three supporters onto the company's board. Also swirling in the ether, rumors that BiogenIdec intends to buy Genmab. Certainly, such a deal would scupper any attempts by Icahn to sell the company to another entity. Adding Genmab's pipeline would go a long way to securing an independent future for the Cambridge, MA-based biotech. But such a deal won't come cheap. In part, because it seems likely that GSK might up the ante. The British pharma, after all, has three partnerships with Genmab, including a very rich co-development, co-promotion deal for the biotech's HuMax-CD20, an antibody to treat cancer and rheumatoid arthritis. Until now, GSK's had no real reason to bring Genmab in-house--it's already got rights to the antibody cow's milk, after all. But it may not be willing to stomach the risk associated with a change in Genmab ownership, deciding its worth the hefty price tag to nail down its rights to its partnered products.

Lilly/Gastrotech: Deal or No Deal? Here's an odd one for you. On Jan 28, Denmark’s Gastrotech Pharma announced it was in-licensing Lilly’s GLP-1 analog GTP 010 for IBS and functional dyspepsia. That’s a deal, not a non-deal, surely? Well, depends on how you look at it. Simply turn it over and you get….a non-opt-in by Lilly.

Lilly and Gastrotech had been collaborating on GTP 010 since 2004, when Gastrotech took over Phase II trials of this Lilly compound in IBS and dyspepsia (in part thanks to the biotech’s ownership of some use patents for GLP-1 analogs in IBS, according to chairman Hans Schambye, though no, that wasn’t mentioned in the release).

That—four years ago--was arguably the real licensing deal. And that was also when Lilly received an option to later take over development and commercialization of the compound in return for milestones and royalties.

This week's news is that Lilly didn’t take that option, which means Gastrotech gets to keep the compound, instead, paying Lilly royalties. “Sure,” Schambye acknowledged to IN VIVO Blog, “you could look at it both ways. Either party could have licensed the drug.”

See? Hmm, exactly. Now ok, we know that small biotechs need all the positive spin they can get, but we're getting pretty close to "Press Release of the Week" territory here. Perhaps Gastrotech will do something big with 010, who knows (Lilly did take an equity stake). But please, a bit of clarity and objectivity wouldn’t go amiss.

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Deals of the Week: New Year's Resolutions

It's day four of the New Year and you've already broken that resolution to exercise, eat better, or spend more time with the family. Hey, it's okay. Those are tough ones to keep.

So how about an easy one: tune in every Friday for a run-down of the week's most interesting biopharma deals. It's a quick, easy way to stay on top of the industry's events, leaving more time for the kiddos or the gym, or your blackberry.

Once again, we bring you:

(Aren't you glad we aren't on strike?)

Admittedly, deal-making activity has been lighter than usual this past week. We surmise that's because execs are shining their shoes, amassing their business cards, and honing their laser pointer skills in preparation for the biotech's annual coming out party, aka the JPM conference. (The burning questions: 1. Can a company's success be correlated to its executives' neckwear preferences? 2. What color will the famous tote bag be this year?)

Sepracor/Bial: Specialty pharma Sepracor inked a much-needed licensing deal with Bial on Wednesday for the Portunguese drug maker's Phase III anti-epileptic compound BIA 2-093. (Naturally enough for Sepracor, the drug is an enantiomer, (S)-licarbazepine, a metabolite of an analogue of the off-patent anti-convulsant carbamazepine.) Last year the company lost the bidding war for Kos Pharmaceuticals to Abbott Labs and analysts began raising questions about the company's pipeline beyond its insomnia drug Lunesta. (For more, read here.) Under the terms of the agreement, Sepracor will pay Bial a $75 million up-front fee, plus an additional $100 million in development and regulatory milestones for rights to the compound in the US and Canada. In addition, Sepracor will also file the compound's new drug application with the FDA, which should occur late this year or early in 2009. "Strategically, BIA 2-093 further strengthens our existing central nervous system portfolio, which includes Lunesta for the treatment of insomnia, as well as earlier-stage candidates for various central nervous system disorders," said Adrian Adams, President and Chief Executive Officer of Sepracor in a company press release.

Merck/Addex: In terms of "biobucks", the Merck/ Addex agreement was the week's biggest splash. As we wrote yesterday, the two companies announced an exclusive licensing agreement centered around the Swiss biotech's ADX63365, an allosteric modulator currently in preclinical development for schizophrenia and other undisclosed indications. The deal terms are potentially rich: Addex could see up to $680 million in downstream development, regulatory, and sales milestones, but that would require an unlikely alignment of the R&D planets. Guaranteed money was not quite as generous, but the solid upfront of $22 million for a non-clinical compound does suggest Merck is taking the idea of allosteric modulation seriously, and is roughly an order of magnitude greater than the company's previous discovery deals ... so who knows what a deal around its lead Phase IIb candidate might look like (you'll have to wait til next year to find out). For more on Addex and allosteric modulators check out this profile of the company from the January 2006 START-UP.

Sanofi-Aventis/IDM Pharma: Bad news for IDM Pharma this week. On Monday, the company learned that its partner since 2002, Sanofi-Aventis, would no longer help develop its dendritic cancer vaccine, Uvidem, which is currently being tested as a melanoma treatment. No reason was given for the move, but cancer vaccines have had a tough go in recent months, especially after the FDA required one of the field's leading lights, Dendreon, to submit additional efficacy data for the approval of its immunotherapy Provenge. IDM noted in a release that it will continue to evaluate the Uvidem clinical program, which recently completed Phase II trials "with promising results." But already, restructuring plans are in the works, involving "staff reductions in the Company's workforce and a review of the assets and costs associated with products under development." The news comes just weeks after the biotech issued a press release with updated news about its pipeline and a promise to investigate "strategic alternatives."

Sanofi Pasteur/Crucell: On Thursday, Dutch antibody maker Crucell and Sanofi Pasteur, the vaccines division of Sanofi Aventis, announced they were teaming up to develop next-generation rabies biologicals to be used in association with a vaccine for post-exposure treatment against this fatal disease. Under the terms of the agreement, Sanofi will pay Crucell 10 million euros following the deal's execution; Crucell could receive an additional 66.5 million euros in milestones as well as an undisclosed percentage on sales of the final product if the rabies antibodies pan out. To date, Crucell has developed a combination of two rabies mABs that are well tolerated and provide immediate neutralizing activity in Phase I clinical trials. Crucell expects to enter Phase II clinical trials in the first half of this year. If approved, peak sales of the rabies antibody cocktail could exceed $300 million.

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Can a Sleep Drug Awaken Demand from European Consumers?

Superficially, it’s paradoxical.

Sepracor wouldn’t sell US marketing rights to its sleep drug Lunesta, even though it could probably have gotten a great deal. And then last week it goes and sells European rights to GSK for just $20 million upfront and another $135 million in milestones?

OK, that’s by no means a true yawner. But it’s hardly a wake-up call in this age of colossal licensing fees and milestones. VX950, the barely post-proof-of-concept hepatitis C candidate from Vertex, fetched $165 million upfront, and $380 million in pre-commercial milestones for merely European rights. Why didn’t Lunesta, with US sales approaching $600 million, do at least the equivalent?

Because the comparison isn’t at all fair. Hep C is a life-threatening disease currently treated with a couple of inadequate, problematic therapies. Insomnia is probably just as big a market -- but is less important to doctors than it is to patients (for some background on the insomnia markets and related dealmaking, see our coverage here and here).

And that’s precisely the challenge. In the US, Sepracor sets its own price and then can spend hundreds of millions of dollars getting its message out to consumers. In Europe and Japan it can do neither.

Which means that Lunesta will have a lot more commercial risk outside the US than something like VX950. GSK’s $20 million bet on the product isn’t exactly trivial, but it isn’t a huge vote of confidence that European insomniacs and their doctors will clamor for Lunivia (European for Lunesta) in the face of a host of generics like racemic zopiclone, Ambien, and a number of benzodiazepines.

And it’s why so much of the deal’s $135 million in milestones apparently depends not merely on getting a centralized approval, but on getting reasonable levels of pricing from various European countries. Sepracor could still make plenty of money: we estimate that it’s getting what might, on a blended basis, work out to a 15% royalty (the rate increases with sales) plus another 10-15% profit on selling the material to GSK. But Sepracor will only make money if the drug is successful.

Thus the $20 million upfront fee represents a cautious gamble that Lunesta’s data package will not only pass muster with the EMEA, but will convince the national reimbursement groups that they should pay a premium for a drug that can be used chronically and which comes with a host of data showing its beneficial effects on insomnia-associated co-morbidities, like depression.

Same thing in Japan, where a pricing milestone on Lunesta is also a key part of the value in the deal Sepracor signed in July with Eisai. The upfront in that deal was probably considerably smaller than what GSK paid: not only is the market about half the size of Europe, the product has to jump through more clinical hoops before it can be approved. In any event, the Eisai terms were undisclosed, which means they weren’t material.

Financially material that is. Sepracor is certainly hoping they’ll be seen as strategically material. The company has recently been a punching bag for investors, taking particularly heavy punishment when new CEO Adrian Adams lowered revenue expectations for 2007 during the company’s July earnings call.

Thus the biggest value to the deals may yet be validation for Sepracor’s ability to take a product developed in the US and convince leading CNS companies they can rely on the company’s US clinical and marketplace work to win approval for, and successfully commercialize, a consumer-driven product in markets where consumers don’t rule.

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