The Health Care M&A Monthly: Biotech Leads Health Care M&A--
Twelve Deals Announced Worth $4.1 Billion
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The Biotechnology industry generated the greatest deal and dollar volume of any single sector during the month of February. Within the space of just 29 days, it produced 12 deals worth a combined total of $4.1 billion, representing, respectively, 19% of all deals announced and 33% of all dollars committed to health care M&A. The growth in importance of the biotech industry is, if you will, organic. As the industry matures, more products are coming to market and even more candidates are filling the development pipelines behind them. Larger, more established health care technology companies, rather than diffusing their own corporate focus by undertaking expensive R&D for newer, more sophisticated drugs, are considering acquisitions of biotech platforms, products and even whole companies. Pharmaceutical companies are naturally pursuing biotechs for their up-and-coming therapeutic products while some Medical Device companies are on the hunt for new diagnostic tests. And, with a number of biotech product candidates maturing to marketability, some buyers want to get in on the action while it is still relatively cheap to do so. Also, the looming threat of branded products going off patent and being cannibalized by generic companies has helped motivate big pharma to cherry-pick what it can from promising biotechs. Even so, as biotech comes of age as an industry, several of its leading stars are undertaking a variety of deals with other biotechs to grow their companies, as illustrated by the largest deal below.
The five largest biotech deals of the month are all collaboration or development agreements in which the partner has put down a relatively small upfront payment, with the bulk of the consideration coming later in the form of development, regulatory and commercialization milestones. And to round out the picture, these agreements also generally stipulate royalties on the sale of actual products. It’s a risk, of course, because some product candidates may well not make it through the gauntlet of clinical trials and regulatory scrutiny, and others will emerge only several years down the line, but that’s why the initial down payments are just a fraction of the potential total payout.
The largest deal has Celgene Corp. (NASDAQ: CELG), itself a profitable biotech, entering into a collaboration deal with privately held Acceleron Pharma to develop and commercialize ACE-001, a bone-forming compound that is used in the treatment of cancer and cancer-related bone loss. Under terms of the deal, Acceleron, based in Cambridge, Massachusetts, will pursue R&D for ACE-011 through mid-stage human clinical trials and also manufacture clinical supplies. After that, CELG will take over and conduct late-stage human clinical trials, as well as manufacturing phase III and commercial supplies. Notably, the two companies also signed an option agreement for certain discovery-stage programs.
This agreement broadens CELG’s oncology franchise, where it is already a leader in the field of blood cancers. Two years ago, CELG, which owns worldwide rights to thalidomide, reintroduced the drug as a treatment for multiple myeolma under the name Revlimid. Multiple myeloma is one of the indications for which Acceleron’s ACE-011 is also believed to have great potential. ACE-001, a protein therapeutic based on the activin receptor type IIA, has reported success in key biomarkers on bone formation in preclinical and early clinical studies: It has increased bone density, improved bone architecture and improved bone mechanical strength. The central premise of this collaboration is to bring together Acceleron’s expertise in novel biologics drug discovery with CELG’s established commercial, clinical and regulatory capabilities.
If all conditions of the deal are met, CELG will end up paying a total of $1.87 billion to Acceleron. The consideration is to consist of a $50.0 million upfront payment; up to $510.0 million in development, regulatory and commercial milestones; and up to an additional $437.0 million for each of the three discovery-stage programs. Tiered royalties on product sales resulting from this collaboration are also stipulated in the deal. Just to keep all its bases covered, CELG’s upfront payment includes a $5.0 million equity investment in Acceleron; should Acceleron go public via IPO, CELG also agreed to buy a minimum of $7.0 million of Acceleron’s common stock.
In the meantime, CELG is working hard to close on its $2.9 billion acquisition of Pharmion (NASDAQ: PHRM), a deal that was originally announced in November 2007 and is designed to get hold of PHRM’s Vidaza hematology drug, as well as its international marketing network. SAC Capital Advisors, a hedge fund that owns 8.3% of PHRM, has said that the deal undervalues the company and that shareholders should hold out for more. However, four proxy advisory firms, among them Institutional Shareholder Services and Proxy Governance, endorsed CELG’s offer on its original terms.
In the second-largest biotech deal of February, Amgen (NASDAQ: AMGN) is granting rights to Takeda Pharmaceutical Co. (T: 4502) to develop and commercialize up to 13 molecules in its pipeline. The collaboration includes early to mid-stage candidates in a variety of such therapeutic areas as oncology, inflammation and pain. With the exception of oncology drug candidate motesanib diphosphate, all molecules included in this partnership are biologics. If all conditions are met, the transaction will be worth nearly $1.2 billion to AMGN. Consideration is to consist of $200.0 million in an upfront cash payment; $340.0 million in development payments; $362.0 million in milestone payments; and $275.0 million for the partnership for motesanib diphosphate. Double-digit royalties are to be paid on drugs that reach market. In addition, Takeda will acquire all the shares of Amgen’s Japanese subsidiary, Amgen KK, for an undisclosed amount sometime in Spring 2008. The overall collaboration enlarges Takeda’s pipeline in its core therapeutic areas of cancer and bone/joint diseases. It also benefits AMGN by allowing for more rapid development and commercialization of its drug candidates than could be achieved on its own.
In the third-largest deal, consisting of two related agreements, Dyax (NASDAQ: DYAX), another Cambridge, Massachusetts-based biotech, is granting sanofi-aventis (NYSE: SNY) an exclusive worldwide license to develop and commercialize the fully human monoclonal antibody DX-2240, as well as a nonexclusive license to DYAX’s proprietary antibody phage display technology. The antibody product has, it is believed, potential therapeutic value in numerous oncology indications, particularly in treating solid tumors. It works by altering the vascular tumor morphology so as to increase hypoxia and necrosis of the tumor, smothering it to death, in other words. It also increases antitumor activity when used in combination with certain other pathway inhibitors and chemotherapeutic agents. The deal, which is worth up to $500.00 million, includes a $25.0 million upfront fee. Under terms set down, DYAX may receive up to a total of $500.0 million in license fees and milestone payments in the case of full commercial success of the first five antibody candidates developed from this partnership, including DX-2240. And royalties will be paid on commercial sales of DX-2240.
As exclusive licensee, SNY is responsible for the continuing development, commercialization and consolidation of sales of DX-2400. For certain other future antibody product candidates discovered by SNY, DYAX will retain co-development and profit-sharing rights while SNY will maintain leadership in development and commercialization, and book sales worldwide. This deal clearly benefits SNY’s oncology franchise. Dyax will likely plough the proceeds of this agreement back into the development of its lead product candidate, DX-88, a recombinant small protein currently in clinical trials for two indications, one for the treatment of hereditary angioedema, the other for preventing blood loss during on-pump coronary artery bypass graft procedures.
GlaxoSmithKline (NYSE: GSK) is responsible for the fourth- and fifth-largest deals. In the larger of the two, San Diego’s Amira Pharmaceuticals is granting rights to GSK to develop and commercialize certain early-stage compounds for the treatment of respiratory and cardiovascular disease. This deal has the potential to strengthen GSK’s asthma franchise; the company’s top-selling drug, Advair, which generates $5.0 billion in revenue, is an asthma treatment. Amira’s early-stage candidate AM 103, if it comes to market, could complement Advair and be marketed economically through the same sales force. Apart from AM 103, which has already produced a promising phase I clinical study, Amira has other candidates for treating cardiovascular disease. They work by targeting a protein known as FLAP, which is implicated in inflammation. Under terms of the deal, GSK will pay up to $425.0 million if all development and regulatory milestones are met. Royalties on sales of drugs are also naturally stipulated.
In the smaller of the two deals, EUSA Pharma is out-licensing to GSK exclusive worldwide rights to its preclinical-stage human anti-interleukin-6 antibody. EUSA’s product, OP-R003, has target indications in oncology and inflammatory disease. This license gives GSK access to a promising oncology drug candidate. EUSA acquired OP-R003 as part of its 2007 acquisition of Opi SA of France. As part of the current deal, EUSA will pay about 50% of its GSK payments to Vaccinex of Rochester, New York, its development partner for the antibody product. GSK will fund and conduct all future development, production and commercialization. The upfront fee and development milestones combined yield a purchase price of $44.0 million. (And, yes, royalties are to be paid on future sales.)
It is at this point that the deals turn from collaboration agreements into more conventional acquisitions with Newron Pharmaceuticals, SpA (SWX: NWRN), a biotech based near Milan, Italy, buying Hunter-Fleming for approximately $38.0 million. Based in England, Hunter-Fleming is a biopharmaceutical company developing new medicines to treat neurodegenerative and inflammatory disorders. It currently has three compounds in various phases of clinical development. This acquisition allows the buyer to expand its late-stage development pipeline and to enhance its CNS expertise. Hunter-Fleming’s HF0220 is a very attractive candidate. It is a broad neuroprotective agent with an ongoing phase II study in patients with Alzheimer’s disease and a phase II study for rheumatoid arthritis planned for late 2008. Payment is to consist of €8.0 million upfront (minus net debt) and up to €17.0 million in performance-based contingent payments.
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