Deals of the Week Goes Hollywood

It's not every day that a biopharma company swaps dreams of developing a blockbuster for dreams of developing a different sort of blockbuster (GSK's documentary dreams notwithstanding) but today ImaRx Therapeutics is doing just that. The erstwhile vascular therapeutics play was trading about 99% off its IPO price last we checked in -- investors had seemingly given up on blockbusters of the first variety.

Well, say goodbye to ImaRx, now just a shell of a company anyway. Say hello to Sycamore Films.

Sadly it's unfortunately not very uncommon for a biotech to meet its demise, especially in today's environment. But it did get us thinking. If the biopharmaceutical industry were a movie, what would it be? (C'mon people, it's Friday.) The first one that springs to mind for this blogger is Risky Business. (Of course the medical devices world needs its own movie too: this bit of Medtronic news has us thinking about the end of Se7en ... "what's in the box??!?!")

Your suggestions in the comments, pls. Meanwhile, not so long ago in a conference room not so far away . . .

Gen-Probe/Pacific Biosciences: Molecular diagnostics provider Gen-Probe, one of the original developers of nucleic-acid-based diagnostic test platforms, is getting into the sequencing game, via a $50 million investment in privately held Pacific Biosciences, part of the sequencing company’s Series F. The companies will also co-develop systems based on PacBio’s single-molecule sequencing technology aimed at the clinical diagnostics market. They will work exclusively with each other for two-and-a-half years on the program. Several other companies including IBM, Illumina, Life Technologies, Oxford Nanopore Technologies, and newcomer Ion Torrent are developing real-time, single-molecule sequencing technologies, with some geared towards eventually being able to look at the entire human genome. The move by Gen-Probe appears to be part of a strategy gaining favor with life science tools providers to provide an integrated sequencing offering including sample prep, sequence measurement, assays, and perhaps even bioinformatics in one package. Expectations are that technical validation of these systems will come in the next five years, and with sequencing costs rapidly decreasing – one start-up recently suggested the capability for whole-genome sequencing at under $100 around year-end – the clinical diagnostics market appears to be within reach for these companies. --Mark Ratner

Tranzyme/Norgine: In seeking a European development and commercialization partner for ulimorelin, a ghrelin agonist about to enter Phase III in gastrointestinal dysmotility disorders such as post-operative ileus, Tranzyme Pharma thinks it found the perfect fit. Tranzyme’s June 16 tie-up with Netherlands-based Norgine BV includes only $8 million up-front. But more importantly to the North Carolina biotech, the deal leaves it with North American rights to its lead program, while Norgine obtains rights in Europe, Australia, New Zealand, the Middle East and Africa. In addition to Norgine’s focus on gastrointestinal disorders, CEO Vipin Garg said one of the factors he likes best about the partnership is the regional nature of the deal and in particular that Norgine is “pan-European” rather than specializing in its home market or just a few countries. “A lot of companies want worldwide rights nowadays for products [or] just US or North American rights," told “The Pink Sheet” DAILY. “In our case, we wanted to retain those rights for ourselves and perhaps partner them later or even have the ability to build a small sales force” to sell the drug to hospital-based docs. Beyond the upfront payment, Tranzyme also is eligible to earn up to $150 million in development, approval and commercial milestones; Garg would not break down the biobucks specifically other than to say that the first milestone would be realized upon completion of the first Phase III trial.—Joseph Haas

Bayer/OncoMed: OncoMed Pharmaceuticals pulled in an eyebrow-raising $154 million Series B round in 2008, but investors apparently aren't the only ones that think the company is on to something. The cancer stem cell-focused biotech has signed its second major pharmaceutical collaboration – the only two significant deals in the space to date. The Redwood City, Calif., firm received $40 million upfront June 17 from Bayer Schering Pharma to co-discover and co-develop five agents that target the Wnt cancer stem cell pathway. The new partnership follows a 2007 deal with GlaxoSmithKline in which privately held OncoMed received an undisclosed upfront payment and equity investment in exchange for option rights to four monoclonal antibodies targeting the Notch cancer stem cell pathway. With potential discovery, development, regulatory and sales milestones, the deal with GSK was valued at up to $1.4 billion. The Bayer/OncoMed tie-up is similarly risk-adjusted: for starters, the German pharma gets an option to license development and commercial rights to antibody and protein therapeutics developed under the collaboration up through completion of Phase I. OncoMed can receive up to $397.5 million in milestones for each antibody or protein therapeutic developed and commercialized successfully, along with double-digit sales royalties. OncoMed will also assist Bayer in developing small molecule cancer therapies that target the Wnt pathway, which could earn it up to $112 million per successful candidate.--JAH

Neurocrine/Abbott: Less than a month after Neurocrine Biosciences said it was seeking a partner to advance into Phase III its novel gonadotropin-releasing hormone (GnRH) antagonist, elagolix, it sealed a deal with Abbott. Abbott agreed to pay $75 million upfront to develop and globally commercialize elagolix for the treatment of endometriosis-related pain, and undertake Phase II studies for the treatment of uterine fibroids. Neurocrine, a bit of a comeback tale since losing lead asset indiplon a few years ago, also could earn up to $500 million in milestones, mainly tied to pre-commercial achievements, and will receive undisclosed sales royalties. In addition to endometriosis and uterine fibroids, Neurocrine believes elagolix could be used to treat prostate cancer and benign prostatic hyperplasia, since the drug lowers testosterone levels in men. Though Neurocrine had been in talks with several potential partners, Abbott's experience with the GnRH mechanism made it an ideal fit, President and Chief Executive Kevin Gorman told “The Pink Sheet” DAILY. Abbott sells Lupron (leuprolide), an injectable GnRH agonist, which is one of two approved therapies for endometriosis. Leuprolide also is indicated to treat prostate cancer, which Gorman said adds value to the deal since elagolix is in preclinical studies for this use.--Carlene Olsen

Neurocrine/Boehringer Ingelheim: Sequels aren't usually as good as the original and this is frankly no exception. But Neurocrine's second deal this week, announced less than a day after its deal with Abbott, is nothing to sniff at either. Neurocrine on Thursday inked a pact with Boehringer Ingelheim to discover and develop small molecule GPR119 agonists to treat type-2 diabetes and other indications. Neurocrine gets $10 million up-front plus research funding and is elgible for development, regulatory and commercial milestone payments and royalties on any products BI develops from the collaboration. GPR119 is a GPCR thought to play a variety of roles in inducing insulin secretion; BI has made no secret of its desire to become a player in diabetes, though it hasn't done many deals. --CM

Covidien/Somanetics: Call it the Covidien Creep. Just as the medical device company moved slowly into the vascular and neurovascular business with the successive acquisitions of Bacchus Vascular, VNUS Technologies and this month's $2.6 billion acquisition of ev3 Inc., Covidien now is building its oximetry and monitoring products with its second sizable acquisition in less than a year with the purchase of publicly traded Somanetics Inc. Covidien agreed to pay $250 million, or $25 per share, for the company, seller of the INVOS System, which measures blood oxygen levels in the brain of surgical patients so clinicians can detect and correct a variety of threatening complications. The technology pairs nicely with the Bispectral Index, the only system capable of measuring the effects of anesthesia and sedatives on the brain. Covidien added the Bispectral to its oximetry and monitoring group last year by acquiring Aspect Medical Systems Inc. for $210 million. The combined revenues from Aspect and Somanetics will add $150 million in annual revenue to the Oximetry and Monitoring group, which reported $636 million in revenue in each of the last two fiscal years. Even with the additional revenue, oximetry and monitoring will likely be the fourth largest in Covidien’s medical device unit but that could change with future acquisitions.--Tom Salemi

Basilea/Almirall: Switzerland's Basilea Pharmaceutia has signed on Spain's Almirall to be the exclusive distributor of Basilea's eczema treatment Toctino (alitretinoin) in 10 European markets and Mexico. Now Basilea can benefit from broader sales of Toctino without making costly investments to build its own commercial infrastructure in Austria, Belgium, Czech Republic, Italy, Luxembourg, Mexico, the Netherlands, Poland, Portugal, Slovakia and Spain. At the same time, Almirall, a top 10 dermatology country in Europe, gains a novel therapy for its portfolio – Toctino is the only therapy approved for adults with severe chronic hand eczema unresponsive to potent topical corticosteroids. Almirall will make an upfront payment of €5 million, and Basilea also could receive milestone payments related to the launch of Toctino in two key markets of up to €11 million, plus €11 million more in pre-specified sales milestones. Basilea also retains the right to co-promote Toctino in selected markets. Though Basilea would not disclose its transfer price for Toctino, Merrill Lynch analysts estimate that the biotech will receive 44 percent to 55 percent of the product's revenues generated in Almirall's distribution markets. Toctino's fortunes are especially important for Basilea given the high-profile failure and break-up with Johnson & Johnson over its next likely commercial candidate, the anti-infective drug ceftobiprole. Since then, the biotech has made aggressive moves to regain its footing, including a licensing deal with Astellas Pharma earlier this year. --CO

image from flickr user emma.kate used under a creative commons license

DotW: IPO Medicine

The big news this week for early stage biotechs and their VC backers: The IPO Window is Officially Open!

Or maybe not.

As my colleague Alex Lash describes in this week's issue of "The Pink Sheet", Ironwood Pharmaceuticals' $188 million IPO is the proverbial elephant among the blind men. How you perceived it, depended upon where you touched it.

Let's start with the good news. Ironwood raised more money with this offering than any U.S. biotech in the past 10 years, nabbing a $1 billion post money valuation. (Only Eyetech Pharmaceuticals' 2004 $150 million raise comes close.) The company's stock price has even increased, albeit only modestly since the debut.

But for investors and would be IPO candidates, the offering was a lesson in caution. Several weeks prior to Wednesday's debut, Ironwood made the gutsy move of actually increasing its offer price 28%, confident that investor appetite for its shares would be robust based on the pre-come-out road show.

Let's just say things didn't exactly go as forecast. On Feb. 3, the company sold 16.7million shares at $11.25, significantly below its revised target range of $14 to $16 a share, and modestly below the $11.75 target predicted in SEC filings in November 2009. Moreover, nearly half the offer went to Morgan Stanley, one of Ironwood's top private investors and a banker on the deal. "There were unorthodox methods used to place shares," Cabot Brown, of San Francisco boutique bank Seven Hills, which had no connection to the deal, told our sister pub "The Pink Sheet" DAILY. "This was half a public offering."

Indeed, taken together, Ironwood's close shave and the apparent lack of widespread interest in the offering suggest investors pushed back hard or Ironwood's attempts to hit a grand slam instead of a home run.

And that could be a problem for IPO wannabees in the queue. After all few venture-backed, pre-commercial biotechs can match Ironwood's profile. The 10-year-old company's Phase III compound, linaclotide, is backed by strong clinical data and partnered on three different continents. It faces only two competitors, one in the U.S. (Amitiza from Sucampo and Takeda) and one in Europe (Resolor from Belgian firm Movetis, which incidentally managed a lucrative IPO last December).

So if investors aren't lapping up Ironwood's offering, will they have greater interest in a company like Tengion or Trius Therapeutics or Anthera, or any of the other 7 biotechs that have declared their intent to go public? (On the same day as Ironwood's debut, Anthera priced its offering at $13 to $15 a share, for a total expected raise of slightly less than its original $70 million target. It's slated to debut the week of Feb. 22.)

And should these subsequent offerings fall flat--or worse--how will that, in turn, impact the IPO climate? According to Elsevier's Strategic Transactions database, there are at least 10 privately-held biopharmas with compounds in Phase II development or later who are--how can we put this delicately?--long in the tooth when it comes to fund raising. Indeed it wouldn't surprise IN VIVO blog at all to learn companies like Portola Therapeutics, Helicon Therapeutics, and Biolex were mulling potential IPOs.

Still, venture's inability to finance itself adequately means there could be a movement to push some of these fledgling biotechs out of the financing nest before they are ready to fly solo. And rest assured, a few lackluster offerings won't just close the IPO window for brave biotechs. It will slam shut faster than Washington D.C. in a snowstorm.

Big questions to ponder as the snow falls--#snOMG!--and you rate the ads from Careerbuilder.com, Budweiser, and Frito-Lay. (Wait, there's a game?) For now, it's on to Deals of the Week.


GlaxoSmithKline/Apeiron: GSK continues to access early stage innovative programs through small, back-end weighted licensing agreements. This week the big pharma inked a deal with privately-owned Apeiron worth $17.5 million in upfront cash and equity for full rights to the biotech’s Phase I biologic for acute respiratory distress syndrome (ARDS), an adverse event associated with sepsis, trauma, and post-operative complications that affects approximately 1 million people annually in emerged markets. Glaxo could be on the hook for another £207 milllion in development milestones as well as sales royalties should Aperion’s asset, APN01, a recombinant human Angiotensin Converting Enzyme-2, succeed in three indications. Although this is far from big money for GSK, the upfront payment exceeds the £10 million Apeiron has raised from Austrian and European grants and angel backers. (Apeiron is one of a growing number of companies eschewing VC.) GSK’s respiratory CEDD, one of the half-dozen semi-autonomous therapeutic areas focused units comprising GSK’s R&D operations, gets credit for the deal. But it may have its hands full when it comes to APN01’s development. As “The Pink Sheet” DAILY notes, the track records for drugs for similarly complex—and associated—conditions such as sepsis show why the unmet medical need remains high. (Xigris anyone?)—Melanie Senior

Cephalon/Mepha: Generics, that low margin, but inherently stable business, remains a sexy proposition. Any doubts look no further than Cephalon’s purchase this week of the private Swiss generics firm Mepha for $590 million. One year after it launched the option-to-acquire party with its $100 million bid for Ception, a privately held biotech developing the Phase IIb/Phase III reslizumab for the rare autoimmune condition eosinophilic esophagitis, Cephalon is now talking up diversification and internationalization. (Or is the internationalisation?) “This is about growing top-line and bottom line, and generating cash,” Cephalon CEO Frank Baldino said on a conference call announcing the deal. Like other drug makers (including Pfizer), Cephalon’s late stage pipeline is thin and the specialty pharma faces revenue pressure given the 2012 genericization of its juggernaut, Provigil. In addition to providing much needed near-term revenue, this deal is also about building a European commercial infrastructure. Thanks partly to Mepha, 30% of Cephalon’s global sales will now be ex-US. Bidding for Mepha, owned by Germany’s Merckle family and sister to ratiopharm, another generics firm on the auction block, was apparently competitive. Still the ultimate price tag for the deal was just 1.5 times Mepha’s 2009 sales.—Jessica Merrill and Ellen Licking

Medco/DNA Direct: On Feb. 2, the pharmacy benefits manager Medco announced the acquisition of privately-held DNA Direct, a decision support services outfit for payors, providers, and patients to help ensure the appropriate use of more than 2,000 available genetic and molecular diagnostic tests. Financial terms of the deal were not disclosed. Five-year-old DNA Direct, which had backing from Firefly Investment and Lehmi Ventures, will become a wholly-owned Medco subsidiary and its current prez, Ryan Phelan, will remain at the helm. The deal was apparently driven by Medco’s need to bolster its commercial side rather than its R&D capabilities, according to “The Pink Sheet” DAILY. DNA Direct charges fees only for its consulting services; it does not make money on the tests it recommends and supplies to individuals. The company started out focused on the consumer, but has shifted to a B2B model in which it helps health plans choose appropriate genetic tests for their physicians and members. Thus, it’s a good fit with Medco's personalized medicine program. The deal comes approximately three years after Medco reorganized the front end of its pharmacy operations into Therapeutic Resource Centers, a network of six sites each focused on one disease. Medco is not the only PBM to tap into the burgeoning genetic counseling market. In November, CVS Caremark announced a partnership with genetic benefits manager Generation Health.—Mark Ratner

Abbott/Pierre Fabre: Abbott continues to look for alliances or acquisitions in high growth therapeutics areas, this week inking a deal for Pierre Fabre’s preclinical antibody targeting the cMet receptor, h224G11. cMet’s definitely a target that’s caught Big Pharma’s attention. Late last year, Novartis ponied up $150 million (plus $60 million in near term milestones) to acquire Incyte’s Phase III JAK 1/JAK2 inhibitor and its Phase I oral cMet inhibitor. In that transaction, acquiring rights to the late stage JAK1/JAK2 inhibitor clearly drove the deal economics, so it’s a bit surprising to discover Abbott is paying $25 million upfront, plus two years of research expenses and undisclosed milestones to get its hands on Pierre Fabre’s not yet studied in humans mAB. (Who says you have to get to POC to make money on a deal?) Under the terms of the collaboration, Abbott will be responsible for all further development of h224G11, which has shown promising results in treating a range of solid tumors (including prostate, lung and gastric cancers), as well as the mediation of chemotherapy resistance. The addition of h224G11 bolsters the Big Pharma’s oncology pipeline, which also includes a PARP inhibitor and a monoclonal antibody targeting a unique epitope of the epidermal growth factor receptor. Beyond oncology, other priority therapeutic areas include cardiovascular disease, immunology, and pain. In November 2009 Abbott paid $170 million to acquire PanGenetics’ treatment for chronic pain, an antibody targeting nerve growth factor.--EFL

Qiagen/Pfizer: Pfizer has enlisted Qiagen to develop a companion diagnostic for its experimental glioblastoma immunotherapy PF-04948568, which Pfizer licensed from Celldex Therapeutics in 2008. The diagnostic, a real-time PCR assay to detect the EGF receptor variant vIII RNA, was one of the programs underway at DxS, which Qiagen acquired in September and has now established as its Manchester, UK, Center of Excellence for Companion Diagnostics. Terms were not disclosed, but it’s always good news for the field of personalized medicine when a pharma company reaches out for development of a companion diagnostic – especially when it’s done early in clinical trials, in this case at Phase II. Qiagen is among the more interesting emerging players in molecular diagnostics. Historically a supplier of kits and reagents, not a developer of tests (at least that was the case prior to its acquisition of Digene), Qiagen’s emphasis has always been on simplicity of processes and procedures. It appears to be adopting the same philosophy with molecular diagnostics development: in the press release announcing the deal, it specifically noted that the new test was designed for a simple workflow.--MR

Image courtesy of flickrer higlu via a creative commons license.

DotW: Going For Gold

Congratulations, Michael Phelps, on your sixth gold medal. We can only imagine the adrenaline rush as we tune in periodically from our own cube. (Kind of like the high we get writing these posts. NOT.)

But Phelps wasn't the only one turning in medal-worthy performances this week. Genentech certainly deserves at least a bronze for its neatly worded--some might even say restrained--reply to Roche's nearly $44 billion July 21 offer, which noted that the Swiss pharma "substantially undervalues the company." Go figure.

But lest you think there are hard feelings between the two companies, fear not. Charles Sanders, chair of the independent committee evaluating the offer, extended this olive branch to Severin Schwan and company: "In addition, we look forward to the company maintaining its successful relationship with Roche, regardless of ownership structure." (Certain politicos in Russia and Georgia might want to take note.)

As our sister publication The Pink Sheet Daily reports (subscription required), Genentech's response means Roche can now begin bargaining in earnest. Most analysts and industy experts expect Genentech will ultimately score gold (as in a lot more coinage). To seal the deal, Roche may have to offer upwards of $100-a-share to gain its biotech goose. The question is: can the Swiss giant still afford to feed the animal given the high cost? Or will the high price tag necessitate cost-cutting efforts that damage the high-flying culture Roche claims it's intent on preserving?


Speaking of getting air, in the high jump competition, keep your eyes on Oxford Biomedica, up more than 20% today after the beleaguered gene therapy company rejected a second takeover offer from GeneThera, and German generics play Stada, which rose 12% today on rumors of a buyout by always-acquisitive Teva Pharmaceuticals. Protherics could be the favorite to medal here, as the UK biotech was up a whopping 44% earlier in the week after it announced it was in talks with unidentified potential acquirers.

Olympic athletes know that speed isn't everything. Stamina is important too. (Imagine having the staying power to eat Michael Phelp's 12,000-calorie-a-day diet.) In our industry, the medal for stamina has to go to our favorite activist shareholder, Carl "oh yes, I can" Icahn, who bought up more shares of Biogen Idec after that biotech's stock price slipped on negative news associated with its MS drug Tysabri. Icahn's move suggests he may not be finished with the Massachusetts biotech, despite not being able to force a sale of the company roughly one year ago. (Meantime another Icahn holding, ImClone, also looks to be going for (more) gold. The company hasn't officially rejected BMS's $4.5 billion bid, but a NY Times story published August 5 suggests execs at the biotech are likely to oppose the sale at the current price.)

Your IN VIVO Blog team has stamina too. And someday we might even get a medal for the analysis we bring you week in and week out. (It won't be for the humor.) Until then, it's time for another edition of ...

AstraZeneca/Abbott: Carpe diem, says AstraZeneca’s Crestor group. It’s got a great opportunity to step-up its commercial attack on Lipitor (down about 10% in new prescription growth from a year ago) and, perhaps more importantly, Vytorin – down about 40% from a year ago, thanks to negative-sounding, albeit equivocal, data out of the ENHANCE trial and, more recently, similarly disturbing results from SEAS. Problem: AZ’s US business is sputtering, so now is not the time to add infrastructure. Meanwhile, Abbott’s big new launch, Simcor (Niaspan plus simvastatin), hasn’t tracked with expectations. So it's a perfect time for the partners who, since 2006, have been developing combinations of Crestor with Abbott’s new-generation fenofibrate (called TriLipix), to use a Crestor co-promotion to iron out, before the big test, some of the likely kinks in the joint commercialization of TriLipix/Crestor.

CSL/Talecris: Private equity took gold in this week's top bio-bucks deal. Cerberus Partners and Ampersand Ventures announced Tuesday that they were selling Talecris Biotherapeutics to the world's top maker of blood plasma products, Australia's CSL Ltd., for a hefty $3.1 billion. In addition, CSL will assume over $1 billion in debt amassed by the North Carolina player, which was started in 2005 when Ampersand and Cerberus snapped up Bayer AG's plasma products from Bayer's Biologics Products Division for $590 million. Talecris, which currently operates 56 plasma collection centres and two manufacturing facilities in the US, posted $1.2 billion in sales last year. The move by Talecris's backers has apparently been in the offing for months. Indeed Talecris may have been sniffing out M&A exits as early as last July, when it filed to go public. We've noted previously that many companies are now adopting a twin-tracking approach, entering preliminary talks with potential buyers while simultaneously filing for an IPO. Certainly given the stock-market turmoil and the lack of investors' appetite for risky IPOs, M&A was the quicker and more lucrative exit for Ampersand and Cerberus. By buying Talecris, CSL is betting the combined company will be able to capture a bigger share of the expanding market for plasma-based medicines, now a $7 billion-a-year market.

Schering-Plough/Shanghai Schering-Plough Pharmaceutical Co.: Schering-Plough caught Olympic fever, announcing this week that it has expanded its presence in China by acquiring shares of its former joint venture partners and folding them into a wholly-owned operation based in Shanghai. (Beijing is definitely too smoggy.) Financial details were not disclosed. (Clearly the Chinese already get S-P's corporate mantra: "earn trust, every day.) China has long been a focus of major pharmaceutical companies, of course. As drug pricing comes under tighter control in western countries and looming patent expiries will lower sales, the companies are looking for ways to expand into valuable developing markets such as China where an economic boom has created a thriving middle class eager to access Western medicines. AstraZeneca is among the leaders, with its Innovation Centre China, an R&D center based in Shanghai, and its strategic partnership with Peking University 3rd Hospital to open establish a Clinical Pharmacology Unit (CPU). In 2007, it took top selling honors from Pfizer in the country, increasing sales of its drugs from $85 million in 2001 to $423 million last year according to the WSJ.

Barr/BI: Barr Labs is busy showing us why Teva decided to plunk down nearly $9 billion (in cash, stock and assumed debt) to buy out its generics rival back in July. On Tuesday Barr announced agreements to settle its Mirapex (for Parkinson’s) and Aggrenox (an anticoagulant) patent challenges with Boehringer Ingelheim. Those drugs pulled in more than $700 million combined in the twelve months through May 2008, according to Barr. Not only has Barr nailed down early dates on which it can start to market its first-to-file generic versions of BI’s two drugs (2010 and 2015—10 months and 18 months earlier than the drugs’ challenged patents officially expire, respectively), it also inked a co-promotion deal with BI on Aggrenox. Barr’s Duramed division will co-promote the anticoagulant with its specialist women’s health sales force starting in March 2009 (BI will train them up in the interim), in exchange for undisclosed royalties. The two deals come not too long after Barr’s June victory in US District Court in the Mirapex litigation. That ruling found that BI had double-patented the Parkinson’s therapy, and likely forced the German company to enter into serious negotiations with Barr while it considered its appeal. Of course authorized generics deals have always seemed a bit sketchy in the eyes of Congress and the FTC, among others, so expect a thorough review.

Pfizer/Cytos: Swiss vaccines (jab-elin?) play Cytos Biotechnology this morning said it added Pfizer to its list of R&D partners. The Big Pharma is paying CHF10 million upfront and up to CHF140 million in milestones to access Cytos’ Immunodrug technology to develop vaccines against a set of predefined disease targets. Cytos will also receive research funding and potential royalties; Pfizer takes over development of any products at the preclinical stage. For Pfizer the move is the latest in a string of vaccines deals stretching back to the acquisition of PowderMed in late 2006; more recently the Big Pharma has bought Coley and inked a licensing deal with Avant for a brain cancer program in its efforts to beef up its vaccines efforts.

Thanks to Chris Morrison and Roger Longman, who pitched in with some additional reporting.

Medtronic/Kyphon: Averting a Shake-Up in Spine...For Now

If Johnson & Johnson’s DePuy Spine and Abbott Spine weren’t overjoyed by Medtronic Sofamor Danek’s recent $3.9 billion acquisition of Kyphon, those two members of the spine market’s Big 3 at least heaved a big sigh of relief knowing that the market leader had eliminated the company that was emerging as a potentially significant competitor to the trio’s domination of this product sector. Indeed, Kyphon had already begun to flex its newfound muscle when it out-bid MSD and Abbott to acquire St. Francis Medical Technologies for $725 million last year—a deal that shocked the spine market as much for whom the acquirer was as for its huge sticker price.

Kyphon’s rapid recent growth and willingness to pay a premium price to acquire new technology marked perhaps the largest shock waves threatening to disrupt the status quo in the spinal market, where small companies have had little choice other than the Big 3 when looking for potential acquirers. Recently, however, that sector has been undergoing a bit of a shake-up with the major companies losing market share; MSD, in particular, has seen its market-leading position drop from 48% to 40%. These losses have largely come at the hands of the many burgeoning spine start-ups. Analysts now estimate there are as many as 150 spinal device companies, compared with one-third that number just a few years ago.

The start-up company growth and recent deal activity in this sector appear to belie the concerns that interest in the spine market peaked. A panel of investors and entrepreneurs at Windhover’s In Spine and Orthopedics conference last December (excerpted in IN VIVO) was quite bullish about the spine sector. Indeed, rather than entering a period of slower growth and retrenchment or consolidation, this group of spine industry veterans predicted that a number of product, market, and clinical forces are coming together to drive significant future growth, with one panelist suggesting that the current $4 billion spine market will more than triple in the next few years.

The factors contributing to this perfect storm in spine include innovations in diagnostics, particularly new imaging technologies, along with new implant designs, and a patient population growing not just from overall aging but from younger patients looking to take advantage of new treatment options. Clinically, the spine market is characterized by variety of conditions that can be treated by numerous therapeutic approaches; doctors are not wedded to any single therapy and continue to explore different options, resulting in a fertile environment for companies with innovative technology.

Indeed, with a clinical community receptive to new therapeutic options and a growing patient population, huge deals like Kyphon and St. Francis are likely to spur increased entrepreneurial and investor interest in spine, creating an opportunity for the growth of new mid-cap companies who themselves will be positioned to be potential acquirers, leaving the IN VIVO Blog to ask: Who will be the next Kyphon?

Schwan Song

Roche’s announcement that Severin Schwan, the head of its Diagnostics division, is set to succeed Franz Humer as CEO of the Roche Group next March came just hours after we’d filed a story for the upcoming issue of IN VIVO looking at Roche’s recent acquisitions, including its ongoing $3 billion hostile tender offer for anatomic pathology specialist Ventana Medical Systems. Given his recent history in diagnostics, the Schwan news would’ve made an excellent punch line to the article, which talks about the firm’s belief in diagnostics and its bet that personalized medicine--an area where innovative platforms and molecular test content will play significant if separate roles—will be key to its long-term growth.

This past Monday, the IN VIVO Blog also cited a rumor that Novartis could be grooming Joerg Reinhardt, the head of its vaccines and diagnostics businesses, as successor to CEO Dan Vasella.

Is it a coincidence that both firms are turning to Dx veterans? Novartis doesn’t have an in vitro diagnostics business anything like the scope of Roche’s, nor does it have a life sciences research tools unit. But Novartis knows blood banking, to which it has applied a nucleic-acid test (NAT) based platform for virology testing. And like Roche, Novartis has a significant investment in targeted cancer therapies, for which companion diagnostics are assumed to play a vital part. (Ventana, for example, markets a molecular test to gauge patients’ potential to respond to Novartis’ Gleevec).

So maybe it's a good time to examine Roche’s strategy.

Unlike other Big Pharmas (including Novartis), Roche has dedicated itself to the in-house development of companion tests. Its molecular diagnostics unit has developed know-how around adapting microarray technology to clinical diagnostics--one of the most complex aspects of the approval process for drug-diagnostic tandems--via a series of collaborations with Affymetrix, leading to tests for mutations in the p450 and cystic fibrosis genes. Roche is applying the same tools to developing its own drugs, including a p53 diagnostic for a cancer drug that binds wild type p53. And before Roche took rights to Plexxikon’s PLX4032 cancer program, which inhibits a gene mutation present in roughly two-thirds of melanomas, the two companies had begun a diagnostics collaboration around a molecular test for the mutation. Indeed, one reason Roche paid so much for the Plexxikon compound was that the companion diagnostic could dramatically expand its market into solid tumors by targeting the same mutation in those far more common cancers.

Roche has the free cash to invest in its diagnostics businesses and is clearly aiming at personalized medicine as a principal way to bolster them long term – and importantly, also support the development of targeted drugs on its pharmaceutical side. On the conference call discussing the Ventana tender offer Schwan said flatly that Roche wants it for strategic reasons relating to its drug business. The Ventana deal “is very much driven by the synergies we have on the R&D side, by the development of targeted medicines. The real value is that we can leverage the different capabilities across the entire Roche Group,” he said. “The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic,” added Roche CFO Erich Hunziker.

It’s long been held that pharma holds all the leverage when it comes to drug-diagnostics partnerships. But the demand for innovative test content to run on molecular diagnostics platforms is increasing: witness the recent upswing in deal-making, along with renewed VC interest in diagnostics. It suggests that the area's potential to drive health-care innovation by directing therapy more efficiently is finally being recognized. Even Abbott Labs noted this when, in the wake of the breakup of GE Healthcare’s bid to acquire Abbott's diagnostics businesses, Ed Michael, Abbott’s newly appointed head of diagnostics, commented to us that there are synergies between all of its diagnostics divisions--especially between the molecular and point-of-care testing businesses.

So if pharma companies truly believe in the vision – and more to the point, the necessity -- of personalized medicine, and if the development of tandem drug-diagnostic combos is best started early in development, it makes sense they’d want their senior executives to have hands-on experience with the ins and outs of diagnostics development. Finally.

GE's Abbott Indigestion

Now that GE has pulled out of its proposed $8.13 billion all-cash deal for Abbott Diagnostics (ADD) and Abbott’s point-of-care testing business, will anyone else step up to the plate?

Perhaps the logical suitor is P&G, because from what we hear, only the makers of Pepto-Bismol could have treated the massive indigestion the parties were experiencing.

We believe the explanation that it fell apart because of the complexities involved in prying them—ADD, specifically—out of Abbott.

Some analysts have suggested that compliance issues and issues over the transfer of licenses also helped scotch the deal. But while there were literally thousands of transition services agreements that the parties were going to have to enter into, in the end, it appears that the degree to which ADD is integrated into the rest of Abbott, and how difficult it would therefore be to deliver it to a company that perhaps has a different culture, very much surprised both sides. And that pain was going to persist over a protracted integration period—“a lot longer than three years,” according to one insider.

What’s puzzling is that this would not be the first time such a diagnostics business was sold lock-stock-and-barrel to a health care generalist (Siemens, for example, managed to buy Bayer Diagnostics and immunoassay player Diagnostic Products last year). Nor is GE inexperienced at handling such moves (there's too many potential links to choose from for this one to even begin to know where to start).

So we have to ask: Were the cultures an obviously terrible mix? That’s very possible, and yes, it'd be interesting to contemplate what those differences may say about each company. We’ve also heard that the first marching order for Abbott now will be to improve the level of service to its diagnostics customers, which of course suggests GE may have uncovered something specifically troubling during its preparations.

In any event, the take-home is it’s unlikely that Abbott will be looking for another buyer for those businesses. And with the exception of Roche, which unlike Abbott, views diagnostics as intimately connected with its drug development ambitions and personalized medicine, there aren’t really any very large in vitro diagnostics (IVD) players left from whom GE could wring out efficiencies, exploit scale, and improve productivity in the IVD market the way it expected to with Abbott.

It may continue pursuing smaller, more targeted acquisitions in IVD and, like Abbott, certainly in molecular diagnostics. And with some of the premiums companies offered recently to companies with molecular content, like Biosite (63%, measured from the time of Beckman-Coulter’s initial offer for it before Inverness finally landed it), TriPath (58%, from Becton Dickinson), and Ventana (43% at the time of Roche’s recent hostile tender offer of $75 per share), an exit via acquisition is nearly impossible for those companies to resist at today’s prices, leading to a wave of consolidation that might only pick up more steam, now.