The Health Care M&A Monthly: Biotech Posts A Strong Month--

Produces 11 deals Worth $9.9 Billion
 

Among the individual health care sectors, Biotechnology led in June with 11 deals worth a combined total of $9.9 billion. The sector thus accounted for 14% of the month’s deal volume and 44% of its dollar volume.

In June’s largest deal, Cerberus Capital Management and Ampersand Ventures finally announced plans to sell Talecris Biotherapeutics (NASDAQ: TLCR) to Grifols, SA (MC: GRLS) in a deal worth $4.0 billion. Talecris is a biopharma that produces and markets plasma-derived protein therapies. On a trailing 12-month basis, TLCR generated revenue of $1.5 billion, EBITDA of $301.0 million and net income of $158.0 million. Grifols is a Spanish holding company specializing in the pharmaceutical-hospital sector and is present in over 90 countries.

Under terms of the deal, Grifols will pay $3.4 billion in cash and stock, and assume $600.0 million in debt. Each share of TLCR common stock is to be exchanged for $19.00 in cash and 0.641 shares of GRLS stock. This deal effectively values each share of TLCR stock at $26.16, and offers shareholders a 53% premium to the stock’s 30-day moving average. The premium strikes us as somewhat high for a company at the lower end of the technology scale, but shareholders may have needed a fillip to accept a Spanish stock in the current market. The deal is also valued at 2.7x revenue and 13.3x EBITDA. The transaction’s financing is to be fully committed by a syndicate of banks, including Deutsche Bank, Nomura, BNP Paribas, HSBC and Morgan Stanley.

This acquisition greatly expands Grifol’s blood-based product lines, allowing the buyer to compete more effectively on a global scale with other plasma-oriented businesses, such as CSL (ASX: CSL), Baxter International (NYSE: BAX) and Octapharma AG. In 2007, TLCR had 12% of the global market by sales while BAX had 22%, CSL 18%, Octapharma 9% and Grifols 8%. This deal effectively catapults Grifols from the fifth- to the second-largest provider of plasma derivatives in terms of sales. It also gives GRLS a commanding presence in the North American market, which alone accounts for about 39% of global sales.

This isn’t the first time that Cerberus had tried to off-load Talecris and secure a return for its investors. Shortly before August 2008, Talecris filed an S-1 to go public. Sensing, perhaps, that the IPO market was headed south, Cerberus then struck a deal with Australia’s CSL, Ltd. to sell Talecris for approximately $3.1 billion, or 2.5x revenue. The equity markets then took a Nantucket sleigh-ride to a generational low in March 2009. Shell-shocked from the experience and likely unable to agree on valuation, the parties scrapped the deal in June 2009. Four months later, Talecris went public. Talecris Biotherapeutics is owned by Talecris Holdings, LLC, whose members are Cerberus-Plasma Holdings, the managing member of which is Cerberus Partners, and limited partnerships associated with Ampersand Ventures. At the end of 2009, Talecris Holdings owned 50.1% of Talecris’s common stock. Third time should be the charm. Nomura and BBVA advised GRLS while Morgan Stanley, Citi and Natixis advised TLCR.

Celgene Corporation (NASDAQ: CELG) is acquiring Abraxis BioScience (NASDAQ: ABII) for about $2.9 billion. Based in Los Angeles, Abraxis discovers, develops and delivers next-generation therapeutics and core technologies to treat cancer and other critical illnesses. The company principally offers Abraxane, a nanoparticle chemotherapeutic drug that is based on its proprietary tumor-targeting nab technology platform for the treatment of metastatic breast cancer. On a 12-month trailing basis, ABII generated revenue of $397.0 million and a net loss of $83.0 million. Under terms of the deal, CELG is paying $58.00 in cash and issuing 0.2617 shares of its common stock for each share of ABII stock. Celgene’s bid thus values each share of ABII at $71.93 per share, offering a premium of 17% to the prior-day price. This bid is thus valued at 7.3x revenue. On news of the deal, ABII stock rose to $74.39, which suggests investors are anticipating higher compensation. In fact, they will get it, though on a contingent basis: Abraxis shareholders are also to receive one tradable contingent value right for each share, which will enable them to receive up to $650.0 million of milestone payments plus royalties related to Abraxane approvals. This deal expands Celgene’s oncology franchise from its base in blood cancer treatments into breast cancer, bolstering its expertise with solid tumors.

Sanofi-Aventis (NYSE: SNY) announced two biotech deals in June. In the larger of the two, one worth as much as $750.0 million, Sanofi is entering into an alliance with California-based Regulus Therapeutics to discover, develop and commercialize microRNA therapeutics. Under terms of this deal, SNY will make a $25.0 million  upfront payment and a $10.0 million equity investment; milestone payments take the potential value up to $750.0 million. This agreement expands SNY’s biotech drug pipeline. Alnylam Pharmaceuticals (NASDAQ: ALNY)  and Isis Pharmaceuticals (NASDAQ: ISIS) formed Regulus in 2007; each owns 50% of its preferred stock.

In its second deal, Sanofi is paying up to $398.0 million in upfront and a variety of milestone payments to license the rights to certain of Ascenta Therapeutics’s drug candidates. This agreement enlarges SNY’s pipeline of potential cancer drugs. The candidates work by reactivating the tumor-suppressing function of the p53 gene. Two compounds, MI-773 and MI-519-64, are due to enter preclinical treatment soon. These orally active, small molecule candidates inhibit the interaction between HDM2 and p53, which could restore tumor cell apoptosis (programmed cell death). Ascenta originally in-licensed the compounds from the University of Michigan.

Johnson & Johnson (NYSE: JNJ) made three biotech deals in June. In the largest, its Ortho-McNeil-Janssen Pharmaceuticals franchise acquired the rights to Diamyd Medical’s (OMX: DIAM.B) late-stage diabetes vaccine, GAD65. The antigen-based therapy is designed to prevent the autoimmune assault on beta cells, preventing the damage that causes Type 1 diabetes. Under terms of the deal, JNJ will make a $45.0 million upfront payment and up to $580.0 million in milestone payments. This strengthens  JNJ’s diabetes franchise, and complements its blood sugar testing and control equipment business.

In the second deal, JNJ is entering into an alliance with Orexo AB (OMX: ORX) to develop two preclinical programs which target pathways involved in arachidonic acid metabolism. These programs are strongly implicated in mediating inflammation, including asthma and COPD.  The deal is worth as much as $585.5 million, consisting of $10.0 million upfront, $11.5 million in research funding and up to $564.0 million in development milestones.  This deal is being carried out by JNJ subsidiaries Ortho-McNeil-Janssen Pharmaceuticals and Janssen Pharmaceutica NV, which may add a third candidate to this alliance. ORX’s two compounds include OX-CLI, an inhibitor leuketriene CA synthase, which catalyzes the formation of leukotriene C4, and OX-ESI, whose target has not been disclosed. This alliance enlarges JNJ’s pipeline for inflammatory disease drug candidates.

Finally, JNJ subsidiary Centocor Ortho Biotech is acquiring RespiVert, an English drug discovery company focused on developing small-molecule inhaled therapies for the treatment of pulmonary diseases. This deal gives JNJ a company whose lead candidates, RV-568 and RV-1088, are anti-inflammatories indicated for the treatment of asthma, COPD and cystic fibrosis. RespiVert has the backing of Advent Venture Partners, Fidelity Biosciences, Imperial Innovations and SV Life Sciences.

Abbott Laboratories (NYSE: ABT) is entering into a collaboration agreement with Neurocrine Biosciences (NASDAQ: NBIX) to develop and commercialize Elagolix, a drug candidate for the treatment of endometriosis-related pain. It is an oral gondadotropin-releasing hormone antagonist. The deal is potentially worth up to $575.0 million, consisting of an upfront payment of $75.0 million and up to $500.0 million in milestones. This license agreement gives ABT a drug candidate for the treatment of endometriosis and, potentially, uterine fibroids, enhancing its women’s health portfolio. Elagolix recently completed a phase 2b study in endometriosis. This agreement gives ABT worldwide rights to the candidate. News of the deal led at least one firm to raise NBIX’s stock rating from neutral to outperform.

Japan’s Sosei Group (T: 4565) is paying approximately $75.1 million to acquire Activus Pharma (not to be confused with Iceland’s Activis Group), a biopharma involved in nanoparticle technology which keeps compounds free from contamination. This acquisition expands the buyer’s drug delivery systems. The target’s nanoparticle technology enables the development of injections, ophthalmic solutions and inhalations with poorly soluble compounds where high purity is required.

Minapharm Pharmaceuticals (Cairo: MIPH), an American-Egyptian pharma company, is paying nearly $37.7 million to buy a 95% interest in ProBioGen AG, a German company that is involved in cell line development and contract manufacturing for biopharmaceutical clients. The two companies have collaborated in the past. This acquisition helps to boost the buyer’s biotech operations in Europe. MIPH subsidiary Rhein Minapharm Biogenics concentrates on the research development and manufacture of biopharmaceuticals in the areas of liver disease, thrombosis and hemostasis.  HC Securities and Investment, Cairo, and Corporate Finance Partners CFP BioConnect AG, Frankfurt, provided Minapharm with advice on this deal; Nomura Code Securities provided ProBioGen with similar advice.

Finally, two biotechs on the Northeast Corridor have merged to form Corridor Pharmaceuticals: Pennsylvania-based Immune Control and Maryland-based Arginetix. Immune Control is developing serotonin-based immunotherapeutics while Arginetix is developing and commercializing therapeutic small-molecule inhibitors of arginase. As Corridor, they will develop treatments for vascular diseases with an initial focus on pulmonary arterial hypertension. In conjunction with this deal, Corridor completed a $15.0 million Series A financing involving such investors as Quaker BioVentures and Ben Franklin Technology Partners of Southeastern Pennsylvania.

 Biotech Deals In The Making

Abbott Laboratories is selling off the vaccines business it acquired when it bought Solvay Pharmaceuticals earlier this year for $7.6 billion. A price tag of €500.0 million ($614.0 million) has been penciled out for this unit. The unit’s exposure to eastern Europe has been suggested as a factor contributing to its sale. Apparently, the auction has begun, with Abbott sending out marketing materials to certain select health care companies.

Ascendis Pharma, an early-stage biotech based in Denmark with a six-product portfolio, is up for sale in an auction run by Lazard. So far, bids have come in between $350.0 million and $450.0 million.

It is rumored that Sanofi-Aventis is looking at several potential deals in the American biotech market, one of which could be as big as $15.0 billion. Shares of Allergan (NYSE: AGN), Genzyme (NASDAQ: GENZ) and Biogen-Idec (NASDAQ: BIB) all moved up on news of Sanofi’s general interest. Stay tuned.