Dealmaking Sweeps the Biotech Sector

by: The Burrill Report

By Marie Daghlian

Plenty of executives shook hands last week as a rife of dealmaking swept the life sciences sector. Among those were executives at Johnson & Johnson (NYSE:JNJ) and Elan Pharmaceuticals (NYSE:ELN), who ended months of rumors as J&J agreed to acquire the rights to Elan's Alzheimer's Immunotherapy Program and make an equity investment in the Ireland-based company. The Alzheimer's program, a partnership with Wyeth through a newly formed J&J company, will initially commit up to $500 million to continue to develop and launch bapineuzumab. The potential first-in-class treatment is being evaluated for slowing the progression of Alzheimer's disease, as well as other compounds.

For its part, Elan will receive a 49.9 percent equity interest in the newly formed J&J company, which will acquire the AIP Program. The newly formed company will also be entitled to a 49.9 percent share of the profits and certain royalty payments upon the commercialization of products under the collaboration with Wyeth. Johnson & Johnson will also invest $1 billion in Elan in exchange for newly issued American Depositary Receipts of Elan, which represents 18.4 percent of Elan's outstanding ordinary shares. Investors saw the deal as positive for strengthening Elan's financial position, sending its shares up more than 10 percent on the news.

Financially strapped CombinatoRx (CRXX) agreed to merge with privately held Canadian biotech Neuromed Pharmaceuticals in an all-stock transaction. Under the terms of the agreement, CombinatoRx is expected to issue about 36 million new shares of its common stock to Neuromed stockholders, with each party owning about 50 percent of the voting power of the merged organization upon closing. Relative ownership of CombinatoRx will then be adjusted based upon the outcome of the FDA’s review of the Neuromed's pain therapeutic Exalgo, an extended-release formulation of hydromorphone in late-stage clinical development. Neuromed shareholders will hold more of the merged company the sooner Exalgo is approved. Neuromed recently sold U.S. rights to Exalgo to Mallinckrodt, a subsidiary of Covidien, for $15 million in upfront payments and additional development funding, milestones, and royalties.

Cell Genesys (CEGE) ended its financial problems by agreeing to be acquired by BioSante Pharmaceuticals (BPA) in an all-stock transaction worth $38 million, which represents a 12 percent premium to Cell Genesys' closing share price on June 29, 2009. Former Cell Genesys stockholders will own 39.6 percent of BioSante upon completion of the transaction. The merged company will focus primarily on LibiGel, BioSante's testosterone gel in late-stage clinical for the treatment of female sexual dysfunction. The merged company also will look for development opportunities for Cell Genesys' GVAX Immunotherapies, including potential combination with BioVant, BioSante's vaccine adjuvant, as well as possible external collaborations, and also will seek to out-license other Cell Genesys technologies. In addition, the merged company will acquire a 16 percent equity ownership position in Ceregene, a former subsidiary of Cell Genesys which is developing gene therapies for neurodegenerative disorders.

Acorda Therapeutics (NASDAQ:ACOR) licensed its multiple sclerosis therapy, Fampridine-SR, to Biogen Idec (NASDAQ:BIIB) in markets outside the United States for $110 million upfront and up to $400 million in development milestones. The deal is a sublicensing of an existing license agreement between Acorda and Elan, which will continue to manufacture commercial supply of Fampridine-SR, based on its existing supply agreement with Acorda. Acorda will also pay Elan 7 percent of the upfront and milestone payments that Acorda receives from Biogen Idec. While this looked like a promising licensing deal for Acorda, investors were disappointed that it was just that, a licensing deal rather than a takeout and Acorda shares fell 11 percent on the news. Acorda shares had previously risen almost 20 percent on the hope that discussions with Biogen Idec would lead to a takeout.

Partnering for the week was also strong. Privately held South San Francisco-based Catalyst Biosciences and Wyeth Pharmaceuticals (WYE) formed an exclusive worldwide collaboration to discover, develop and commercialize Factor VIIa products to treat hemophilia and other bleeding conditions. Total payments under the collaboration, including an upfront payment of $21 million, research funding and milestone payments, could exceed $500 million, exclusive of royalty payments.

Through the collaboration, Wyeth will support the discovery, research, and preclinical development by Catalyst of Factor VIIa products, including CB 813, Catalyst's investigational candidate drug for the treatment and prophylaxis of acute bleeding in patients with hemophilia. The term of the exclusive research portion of the collaboration is two years, and may be extended by Wyeth for up to three additional years. Wyeth will be responsible for the development, manufacturing and worldwide commercialization of products resulting from the collaboration. In addition, during the research term, Wyeth would have the right of first negotiation for any additional clotting factors discovered by Catalyst to treat hemophilia and other bleeding conditions.

Catalyst anticipates it would earn payments of up to $40 million or more over the next two years, including the upfront payment, committed research funding and preclinical and clinical milestone payments. In addition, Catalyst will be eligible to receive escalating clinical development and commercialization milestones, plus tiered double-digit royalties on sales of products resulting from the collaboration.

As much as three quarters of toxicity problems are not detected until preclinical or later stages of drug development, significantly increasing the cost of developing new drugs. Earlier detection of toxicity problems could reduce both overall drug development costs and potentially harmful patient exposure in clinical trials. Two partnering deals involving the use of stem cells attempt to answer this issue.

GE Healthcare (EG) and Geron (NASDAQ:GERN) entered into a global exclusive license and alliance agreement to develop and commercialize cellular assay products derived from human embryonic stem cells for use in drug discovery, development and toxicity screening. The program will use stem cells derived from human embryonic stem cell lines listed on the NIH Human Pluripotent Stem Cell Registry.

Madison, Wisconsin-based Cellular Dynamics expanded its research and development agreement with Roche (OTCQX:RHHBY) to enhance drug safety testing to accelerate drug development. The collaboration will use Cellular Dynamics' purified cardiomyocytes created from induced pluripotent stem cells.

Generic powerhouse Mylan (NASDAQ:MYL) expanded its global reach with a strategic collaboration with leading Indian pharmaceutical company Biocon to develop, manufacture, supply and commercialize multiple generic biologics for the global marketplace. As part of this collaboration, Mylan and Biocon will share development, capital, and certain other costs to bring products to market. Mylan will have exclusive commercialization rights in the U.S., Canada, Japan, Australia, New Zealand, and in the European Union and European Free Trade Association countries through a profit sharing arrangement with Biocon.

Mylan will have co-exclusive commercialization rights with Biocon in all other markets around the world. All other financial terms and product details remain confidential.

Mylan's Chairman and CEO Robert J. Coury, says generic biologics, especially monoclonal antibodies, are expected to become the next great bolus of growth in the generic pharmaceutical industry. He says through the alliance, Mylan and Biocon have covered all four corners of what any organization would “want or need to have secured to offer a highly competitive and distinct generic biologics product portfolio with tremendous growth potential for the coming decade."

Finally, venture capitalists were also busy investing their money in a variety of companies. Small Bone Innovations, an orthopedics company based in New York City, raised a total of $144 million in two rounds of financing. SBi closed a $108-million Series D preferred stock financing in April from investors including Goldman, Sachs & Co., Khazanah Nasional Berhad, the investment firm of the Government of Malaysia, Malaysian Technology Development Corporation, an integrated Malaysian-based venture capital company, The Family Office of Bahrain, and existing investors Trevi Health Ventures, NGN Capital, 3i Group, and TGap Ventures. The company also completed a $36 million Series C financing in 2008 which was led by Viscogliosi Bros. and included new investor Trevi Health Ventures, and follow-on investments by NGN Capital, 3i, TGap Ventures and Axiom Venture Partners. SBi focuses exclusively on small bones & joints and offers a clinically proven portfolio of products and technologies to treat trauma and diseases in small bones & joints

South San Francisco-based Hyperion Therapeutics, a privately held specialty pharmaceutical company focused on the development of therapies that address critical unmet needs in the areas of gastroenterology and hepatology, closed a $60-million Series C financing. New investors Bay City Capital and Panorama Capital co-led the financing with participation by existing investors Highland Capital Partners, NEA, and Sofinnova Ventures. The Series C financing follows the company's recent announcement of mid-stage results and orphan drug designation for HPN-100 in its lead indication, the chronic treatment of patients with urea cycle disorders. The capital will fund the late-stage clinical program for urea cycle disorders as well as a mid-stage study in low grade hepatic encephalopathy.

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