The Health Care M&A Monthly: Biotech Dominates Deal Making--
15 Deals Announced In May Worth $2.2 Billion
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A total of 15 mergers and acquisitions were announced in the Biotechnology sector during May. This single sector captured 23% of the month’s deal volume in the health care industry. Based on prices revealed, a total of $2.2 billion was spent on this M&A activity. This figure represents 30% of all M&A dollars committed during the month.
The assets acquired in these deals run the gamut from single drug candidates to entire companies, from technology platforms to clinical-stage pipelines. As might be expected, cancer drugs dominate the therapeutic areas covered, with treatments for autoimmune, CNS, orthopedic diseases and disorders also represented. Experimental vaccines for anthrax, travelers’ diarrhea, influenza and malaria are also in the mix.
The buyers include six pharma companies, five biotechs, two biopharmas, one diagnostics company and one medical device maker. In keeping with their ability to raise capital on the public markets, 12 of the buyers are publicly traded corporations and the remaining three are privately held. On the other hand, nine of the targets are privately held companies and six are publicly traded corporations.
Big Pharma Buys In
The four largest deals, in terms of price, have large pharma companies as their buyers. Fresh off its $8.8 billion acquisition of Millennium Pharmaceuticals (NASDAQ: MLNM), which despite its name is a biotech focused on oncology and inflammatory disease, Japan’s Takeda Pharmaceutical Co. (T: 4502) returned to Cambridge, Massachusetts to craft a drug development alliance with Alnylam Pharmaceuticals (NASDAQ: ALNY), a biotech that is focused on RNAi therapeutics. Under terms of the deal, Takeda has agreed to pay up to $1.0 billion in upfront and milestone payments for ALNY’s proprietary RNA-interference technology that may be used to "silence" genes that cause disease. RNAi therapeutics target the cause of disease by silencing specific messenger RNAs, thereby foiling the creation of disease-causing proteins in the first place. The Takeda-Alnylam alliance primarily concerns the fields of oncology and metabolic disease, but contains provisions to be extended into other therapeutic fields. Takeda clearly wants to expand and diversify the oncology franchise that it acquired when it bought Millennium. ALNY’s RNAi technology platform complements Takeda’s current small molecule and antibody research programs. Apart from the financial consideration it stands to gain, the terms of this deal also give ALNY the opportunity to co-develop and co-commerciale Takeda RNAi therapeutics with Takeda in the U.S. market. This agreement, which is to run for five years, is the first to introduce RNAi therapeutics to Asia. Last July, Alnylam entered into a similar alliance worth $1.0 billion with Roche Holding (SWX: ROCZ.S). That deal covered oncology, respiratory disease, metabolic disease and certain liver disease. By spreading these alliances—and its risk—over several continents and among several companies, ALNY hopes to accelerate the development and commercialization of drugs grounded in its RNAi technology. Its big pharma partners, looking for new blockbusters, are also banking on the success of that strategy.
In the second largest biotechnology deal of May, Denmark’s H. Lundbeck A/S (CSE: LUN) is paying up to $350.0 million to Myriad Genetics (NASDAQ: MYGN) to acquire the European rights to Flurizan, an experimental drug that may delay disability in Alzheimer’s patients. Under terms of the deal, Lundbeck is to make an upfront payment of $100.0 million and up to $250.0 million in regulatory milestone payments. Royalties on sales of marketed products are also contemplated. Flurizan is currently in phase III clinical trials; the addition of this drug to Lundbeck’s portfolio would complement its existing Ebixa Alzheimer’s drug. From another, nontherapeutic perspective, however, Flurizan’s potential to generate $1.5 billion in annual sales would also bolster the buyer’s revenue from Cipralex. Known to U.S. patients as Lexapro, Cipralex is a drug designed to combat anxiety and depression; it has global sales of $1.42 billion in 2007. But this money-maker faces patent expiration in major markets during 2012-2014 so Lundbeck needs something new to offset the revenue loss looming from generic competition.
The third largest deal finds Japan’s second largest pharma company by sales, Daiichi Sankyo (T: 4568), acquiring a foreign biotech. It is paying $235.0 million (€150.0 million) to acquire 100% of the stock of U3 Pharma AG, a biotech that is based in Martinsreid, Germany, and focused on research into antibodies for the treatment of cancer. U3 was founded by Axel Ullrich, a professor at the Max Planck Institute for Biochemistry, whose research led to the development of such oncology blockbusters as Genetech’s (NYSE: DNA) Herceptin and Pfizer’s (NYSE: PFE) Sutent. Daiichi has high hopes that U3 will be able to match its founder’s earlier successes. Current investors in U3 include Alta Partners, Atlas Ventures and Life Science Partners, among others. The company also has several drug development alliances, including one with Amgen (NASDAQ: AMGN) to co-develop U3-1287 (AMG 888), a fully-human anti-HER3 monoclonal antibody that inhibits oncogenic signaling and tumor proliferation. This is the most advanced compound U3 currently has, and the two companies intend to initiate clinical development this year. Since Daiichi has already licensed the Japanese rights to denosumab for osteoporosis from AMGN, there won’t be a learning curve for Daiichi as it inherits U3’s alliance with that company. This acquisition gives Daiichi a company whose current pipeline includes product candidates for treating breast, lung and colorectal cancers, among others. It thus complements the oncology programs Daiichi currently has in place.
As noted above, a number of recent biotech deals have targeted cancer therapeutics, and the next deal is no different. Bristol-Myers Squibb is paying $190.0 million to acquire Kosan Biosciences (NASDAQ: KOSN), a cancer therapeutics company that is focused on developing various anticancer agents through to clinical development. The bid of $5.50 per share offers KOSN shareholders a 233% premium to the stock’s prior-day price. At $5.50 per share, BMY’s bid values KOSN at $234.6 million, but after deducting cash on hand, the effective purchase price drops to $190.0 million. This acquisition, valued at 13.2x revenue, adds two classes of anticancer treatments to BMY’s pipeline: Hsp90 (heat shock protein 90) inhibitors and epothilones; BMY is, in effect, buying KOSN’s drug development capabilities rather than building them from the ground up in house. Epothilones are described as microtubule stabilizers with many therapeutic applications in various cancers, potentially in neurodegenerative disease. The Hsp90 program also includes a phase III compound intended to treat multiple myeloma. BMY and KOSN simultaneously announced a separate license agreement under which BMY receives an exclusive worldwide license to KOSN’s epothilone compounds, related intellectual property and associated IND applications. On this agreement, KOSN will receive $25.0 million and is entitled to development milestone payments and royalties. The license agreement is to remain in effect in the event the primary acquisition is not completed. Credit Suisse Securities provided BMY with financial advice; Lazard Freres provided KOSN with similar services.
Biotech And Other Buyers
As the price tags of May’s deals drop in size, biotechs and other companies appear more often as buyers. Austria’s Intercell AG (VSE: ICLL) is paying $6.60 per share in stock and cash, or approximately $189.0 million, to acquire Iomai Corp. (NASDAQ: IOMI), a company that produces vaccines and immune system stimulants that are delivered through a transcutaneous patch without needles. This deal, valued at 17.7x revenue, offers IOMI shareholders a 126% premium over the stock’s prior-day price.
Frankly, IOMI needs this deal. As a small biotech, it apparently had a hard time nailing down a partnership with a large pharma company for its flu vaccine patch. From January 2007 to January 2008, its stock price slid from $6.17 to under $1.00. Finally, with only $15.0 million left in cash and cash equivalents, and faced with costs of between $30.0 million and $45.0 million to fund late-stage clinical trials, alarms were raised as to whether the company could continue as a going concern. Rather than resort to a dilutive financing, the company chose to be acquired.
The acquisition enhances Intercell’s position in the vaccine market, giving it a very strong travelers’ vaccine portfolio. IOMI’s travelers’ diarrhea vaccine candidate, due to enter phase III trials in 2009, will complement ICLL’s existing Japanese encephalitis vaccine. As a result of this deal, ICLL will issue 1.7 million shares of its stock, which represent a 4% ownership position in the company. The deal also gives ICLL a U.S. footprint, enabling it to directly market drugs here rather than partner with a larger pharma company, as it has had to do in the past, to penetrate this important market. Merrill Lynch International acted as financial advisor to ICLL; Cowen and Company provided IOMI’s board with a fairness opinion.
Medical device manufacturer NuVasive (NASDAQ: NUVA) is acquiring the Osteocel bone matrix business of Osirus Therapeutics (NASDAQ: OSIR) for up to $85.0 million. Osteocel is a viable bone matrix that preserves the native stem cell population in marrow and is intended for use in orthopedic indications for bone regeneration. Under terms of the deal, NUVA will pay $35.0 million in a cash upfront payment, and may make up to an additional $50.0 million in milestone payments in cash or cash and stock.
This sale, valued at 5.7x 2008 projected revenue, allows OSIR to concentrate on launching its core products. This acquisition gives NUVA a stem cell-based bone graft that is complementary to its own Formagraft product. In a separate agreement worth up to an additional $52.0 million, OSIR will process and supply NUVA with Osteocel for up to 18 months. Banc of America Securities provided NUVA with financial advice on this deal.
Emergent BioSolutions (NYSE: EBS) announced two deals in May, both targeting vaccines. In the larger of the two, it is acquiring Protein Sciences Corp. (PSC) for $78.0 million in cash, notes, assumed liabilities and milestone payments. Based in Connecticut, PSC develops and manufactures a variety of vaccines. Its late-stage candidate FluBok, in phase III, is designed to treat seasonal and pandemic outbreaks of influenza. This acquisition gives the buyer a promising flu vaccine candidate, the platform technology to manufacture it, other product candidates and a vaccine manufacturing facility. FluBok has been granted fast-track status by the FDA because it utilizes a technology, the Baculovirus Express Vector System, that dispenses with chicken eggs and therefore avoids the allergic reactions some patients can suffer from vaccines prepared from eggs. Other assets include a SARS vaccine in preclinical development and additional vaccine manufacturing capacity at PSC’s Meriden plant. In its smaller deal, EBS is acquiring all assets and rights related to VaxGen’s recombinant protective antigen anthrax vaccine product candidate. This acquisition gives the buyer a promising anthrax vaccine candidate. VaxGen, a South San Francisco-based biopharma, is selling the program and assets because it believes that EBS can bring the vaccine to market more quickly and efficiently. Under terms of the transaction, VaxGen will receive $2.0 million on the execution of a definitive agreement and up to $8.0 million in milestone payments.
Britain’s Antisoma plc (LSE: ASM) is paying $52.2 million (£26.8 million) in an all-share deal to buy Xanthus Pharmaceuticals. Based in Cambridge, Massachusetts, Xanthus is developing small molecule therapeutic candidates for oncology and autoimmune diseases. This purchase enlarges the buyer’s pipeline of oncology drug candidates, including the phase III drug Xanafide for myeloid leukemia and U.S. rights to oral fludarabine, a drug licensed by Bayer-Schering for treating lymphocytic leukemia. As a result of this combination, ASM will have a more robust pipeline, including two drug candidates in phase III. Xanthus also brings with it its Flt3 inhibitor program, which includes nononcology indications and represents a valuable out-licensing opportunity for ASM. The drugs from this program have shown regenerative effects in a multiple sclerosis model and activity in models of both rheumatoid arthritis and inflammatory bowel disease.
Simultaneously, ASM executed a fundraising that will provide an additional £20.9 million before expenses to the enlarged group. The fundraising aspect of this deal comprises a placing of shares that is to be fully underwritten by Piper Jaffray, which also advised Antisoma on the deal.
Over the past few months, analysts and pundits have been egging Pfizer on to make a big, splashy deal in the biotech arena. To their consternation, Pfizer has contented itself with making rather smaller deals. In May the pharmaceutical giant took an equity position in San Francisco-based FivePrime Therapeutics as part of a deal to find antibody targets and therapeutic protein products for diabetes and cancer. The deal originated from PFE’s Biotherapeutics and Bioinnovation Center, based out of Rinat Neuroscience, a California biotech PFE bought in 2006 for $478.0 million. FivePrime is expected to shortly file an NDA for its lead oncology compound; the deal includes an upfront payment and equity investment from PFE. Although terms were not provided, we assume that PFE is acquiring a minority stake since there are existing investors, such as Versant Ventures, Kleiner Perkins Caufield & Byers and TPG Ventures, who also made another investment in FivePrime Therapeutics.
Moreover, Pfizer appears to be taking a long, hard look at Germany’s MediGene (DE: MDGGn), a biotech with two products already on the market, one for prostate cancer, the other for genital warts. It also has a number of other drug candidates in its pipeline; of particular interest to PFE and other drug makers is Endotag, a candidate for treating pancreatic cancer and a potential blockbuster. MediGene has a current market cap of about $325.0 million, well within the reach of a big pharma company.
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