2009 M&A/Alliances DOTY Nominee: Astellas/Medivation

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.


Options, Schmoptions. Sure GSK can ink its low-money-down, risk-hedging deals--for now. We'd argue that with pipelines flagging and the general push to look outside, the hottest targets/assets/technologies are still commanding value in competitive auction arrangements, a place where pesky options tend to be problematic. Yep, that's right. Despite the lackluster economy and the biotech financial crisis, it can be a seller's market.

Just ask Medivation. In late October the company announced a tie-up with Astellas to develop its Phase III prostate cancer drug, MDV3100 in a transaction worth $110 million up-front and biobucks of more than $650 million. Moreover, Medivation still keeps significant control of the development program--at least in the US, where the two firms evenly split costs. (Ex-US, Astellas picks up the whole tab for development and commercialization, providing tiered double-digit royalties in exchange for the privilege.)

Why does this deal merit top marks in the M&A/Alliance race? It's not because the upfront topped the chart in terms of dollar amounts. (That distinction goes to the AstraZeneca/ Targacept alliance announced last week.) But it does highlight the kind of deal you can ink when your target is hot-hot-hot. MDV3100 is one of two late-stage compounds seeking approval to treat hormone-refractory prostate cancer. The other? Abiraterone, a Phase III molecule that was J&J's primary interest for taking out its developer, Cougar Biotechnology, in a deal worth roughly $1 billion.

Other reasons to vote for this deal? Cuz Astellas may be "the new little engine that could" of deal-making. When you're Pfizer or GSK or J&J, a product like MDV3100 isn't by itself going to move the needle when it comes to growing the business. But for Astellas this is an important product that builds upon an existing urology franchise--the pharma sells Flomax and Vesicare--and helps create a new presence in oncology. And to get access, the Japanese player was willing to share the wealth with Medivation.

2009 may have been the year of the mega-merger, but smaller companies like Astellas--and the other Japanese pharmas Takeda, Shionogi, Daiichi, Otsuka, and Eisai--are still finding ways to compete. (Other interesting Astellas deals to note: partnerships with Zogenix, NeurogesX, and a joint-venture with Maxygen.) A lot of the draw comes down to one simple fact: a company's willingness to do right by its partner, including an ability to be flexible on the deal structure. (The BMS-Otuska deal is another interesting example of two partners working to find a structure that mutually benefits both.)

But there's also a willingness to play in risky markets like cardiovascular disease and be bold in the process. Recall Astellas tried--and ultimately failed--to acquire CV Therapeutics before it was outbid by Gilead. We think the company's hostile offer was a watershed moment, showing business as usual for the Japanese pharma didn't necessarily have to mean a consensus driven process. And we give Astellas credit for not being drawn into a bidding war, sticking to its price even after Gilead launched its white knight, higher offer.

So vote for Astellas/Medivation: a vote for oncology drug deals, a vote for increasing alliance values, a vote for the continued strength of the Japanese deal makers.

Why No More Roche-Genentechs?

Another note from the Oxford Bioscience CEO retreat: why can’t more acquisitions follow the Roche-Genentech model?

The question is being raised with increasing frequency. Understandably so: it’s frustrating to biotech CEOs and scientists to watch their creations disappear into what they see as the bureaucratic abyss of Big Pharma. Sure, these disappearances delight VCs, but they don’t do a lot for the employees who worked as hard as they did because they felt they were building something uniquely valuable.

Sometimes those employees are right. If you think about Genentech-Roche, the deal actually saved both parties. At the time unable to invest in research and delivering sub-par commercial results, Genentech would certainly not exist as an independent company today without the Roche reprieve. Neither would Roche, which gets from Genentech products nearly 50% of its sales and 60% of its operating profit growth. Its ownership position in Genentech shares now accounts for 30% of its own market cap.

Indeed, there is virtually no question that the deal was the single most successful transaction in the modern history of pharmaceuticals. Granted by the deal nearly six years of freedom from stock-market concerns, Genentech created a product-development engine which has delivered virtually unprecedented productivity. And Roche reaped the benefits.

So why have there been no repeat successes? Early on, American Home (now Wyeth) bought a majority of Genetics Institute, and American Cyanamid traded some cash and products for a stake with Immunex. Both were attempted variations of the Roche/Genentech deal; so, in some ways, was Novo's spin-off of Zymogenetics, Novartis' acquisition-cum-alliance with Idenix, and GlaxoSmithKline's alliance-cum-put/call transaction with Theravance.

The jury is still out on the last three; only the Wyeth/GI deal can really be said to have worked at all (that’s the source of Wyeth’s biologics business—key to its growth). But it took Wyeth way too long to capitalize on what it had and when it did, it wasn’t with GI as an independent company. Cyanamid disappeared into Wyeth before it could take advantage of Immunex – and Immunex disappeared into Amgen.

When the subject of acquisitions was raised at the Oxford meeting (full disclosure: the Blog was on the panel), it was pretty clear that there are plenty of biotechs which, rather than getting taken out completely, would welcome the chance to continue semi-independent existence. John Dee, former CEO of Hypnion, sold to Lilly a few months ago, said that he would have preferred it; he apparently even discussed the idea in deal negotiations. But it went nowhere.

There are probably plenty of good reasons Roche-Genentech is tough to duplicate. VCs would certainly rather have a simple exit; so would public shareholders. More importantly, while there probably aren’t many Genentechs around, there certainly aren’t many Roches: controlled by the Hoffmann and Oeri-Hoffmann families, the virtually private Swiss company could make big long-term bets without listening to the carping of investors and analysts (“You’re consolidating those losses for how long? And you don’t even get worldwide rights to its programs?”).

Still, Tuan Ha-Ngoc, the CEO of Aveo, noted two interesting candidates for the Roche role: Astellas and Takeda. Both have global ambitions; both have relatively tolerant shareholder bases. Both apparently want to buy into the biotech industry.

So who knows—maybe the next Roche will be Japanese.