A Lukewarm IPO, White Knight Spice Up Biotech's Latest Deals

by: The Burrill Report


AVEO Pharmaceuticals’ initial public offering on March 12 reaffirmed investors’ tepid interest in IPOs of developmental-stage biotech companies. After delaying its debut for two days, the Cambridge, Massachusetts-based biotech priced 9 million shares at $9.00, well below its target $13 to $15 a share range. Top investors in Aveo include Biogen Idec, MPM Capital, Highland Capital Partners, Venrock Associates, and Prospect Venture Partners. At the end of the day, Aveo’s shares were trading down one penny. The company raised $81 million for further development of its late-stage renal cell cancer treatment.
Aveo is the third biotech company to IPO this year and the third to also price well below its target range. Anthera Pharmaceuticals (NASDAQ:ANTH) went public last week at $7 per share, half of what it had originally hoped for. Anthera shares ended the week up slightly at $7.10 per share. Ironwood Pharmaceuticals (NASDAQ:IRWD) went public at the beginning of February at $11.25 per share, 25 percent below its original target price. At the end of six weeks, Ironwood shares were trading at $12.91, up 15 percent. Trius Therapeutics (TSRX) has postponed its initial offering in order to reconsider some new FDA clinical trial protocol.
After fending off Biogen Idec (NASDAQ:BIIB) for four months last year, Facet Biotech (FACT) signed a definitive agreement to be acquired by Abbott Laboratories (NYSE:ABT), enhancing Abbott’s early- and mid-stage pharmaceutical pipeline. As the white knight, Abbott is offering $27 a share for Facet, well above the $17.50 final offer of Biogen Idec in December 2009.
The Abbott offer values Facet at $722 million, including $272 million of Facet’s projected cash and marketable securities at closing. The acquisition of Facet provides Abbott with a pipeline of biologics in immunology and oncology, including daclizumab, a biologic treatment for multiple sclerosis that will enter late-stage testing this year, and several oncology compounds in early- to mid-stage development. The transaction is expected to close in the second quarter of 2010.
Animal health was in the spotlight this week with two separate deals. Sanofi-Avenetis (NYSE:SNY) exercised its option to combine its animal health unit Merial with Intervet/Schering-Plough (SGP), Merck’s (NYSE:MRK) animal health business, creating a joint venture that will be equally owned by Sanofi and Merck.
The enterprise value of Merial has been fixed at $8 billion and the enterprise value of Intervet/Schering-Plough at $8.5 billion, leading to a true-up payment of $250 million to Merck to establish the 50-50 joint venture. Sanofi will also pay an additional $750 million as per the terms of the agreement signed on July 29, 2009 when Sanofi bought Merck’s 50 percent interest in Merial for $4 billion. The new joint venture will offer a broader portfolio of animal health products and services in pharmaceuticals and biologics, as well as the ability to capitalize on growth opportunities in all fields and countries around the world [see story].
A worldwide animal health market that reached $19 billion in 2008 is not a trifle. In the same week, Elanco, the animal health division of Eli Lilly (NYSE:LLY), agreed to acquire the European rights to a portfolio of Pfizer (NYSE:PFE) Animal Health products that have been marketed by Pfizer and Wyeth's (WYE) Fort Dodge operations. Elanco also will acquire a manufacturing facility in Sligo, Ireland, currently used in the production of animal vaccines. As part of the agreement, all Sligo employees will be offered positions with Elanco. Pfizer’s divesture came at the request of the European Commission as a result of its acquisition of Wyeth last year. Lilly will pay Pfizer an undisclosed upfront payment. Other terms were not disclosed.
Swiss biopharmaceutical company Novartis (NYSE:NVS) is paying French biotech Transgene (OTCPK:TRGNF) $10 million upfront for an option for a worldwide license to its TG4010 experimental cancer vaccine. If Novartis exercises the option, Transgene will be eligible for as much as $950 in milestones and royalties. Transgene has been looking for a partner for more than a year to help develop TG4010, which has been granted fast-track status by the U.S. Food and Drug Administration. Investors were not too happy with the deal because Transgene will have to shoulder development costs for another two years when the first results of a mid-stage trial testing the vaccine in patients with non-small cell lung cancer will be reported. Novartis wants to see the outcome of the trial before exercising its option.
Privately held German biotech Cellzome entered into a second drug discovery alliance with GlaxoSmithKline (NYSE:GSK) potentially worth $695 million. The new collaboration gives GSK exclusive access to Cellzome’s proprietary Episphere technology, which addresses epigenetic targets in disease-specific protein complexes, in inflammatory diseases. Under the terms of the agreement, the companies will work together to identify selective small-molecule drug candidates against targets from four different epigenetic target classes. The companies will share operational responsibility for the programs until identification of drug candidates, at which stage GSK will assume responsibility for any further preclinical and clinical development and commercialization. Cellzome will receive an upfront payment of $45 million in technology access fees and an equity stake by GSK in the company. Cellzome will also be eligible for milestone payments and tiered royalties for each program.
Finally, AstraZeneca (NYSE:AZN) raised its presence in emerging market by entering into a supply partnership with India’s Torrent Pharmaceuticals, its first such deal. Under their agreement, Torrent will supply AstraZeneca with a portfolio of 18 generic medicines, which AstraZeneca will then brand and market in nine countries. Financial terms of the deal were not disclosed.
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