Catalyst - Winter 2011 - All the Right Pieces: Answering the Call from Big Pharma
January 01, 2011
Some people believe there are only two things you can count on in life – death and taxes. Ask financially savvy business people and they’ll toss in a third – the ever-growing interest in mergers and acquisitions.
According to industry analysts, they’d be correct – especially in the life sciences sectors. Indeed, the last decade has been busy for M&A. According to DealSearchOnline.com, (during the 10 years that ended Dec. 31, 2009), a total of 1,345 mergers and acquisitions of pharmaceutical assets and companies were announced, with disclosed prices totaling more than $694 billion.
Remember the biggies?
- In 2000, GlaxoWellcome merged with SmithKline Beecham, creating GlaxoSmithKline. The deal was worth $74 billion.
- Sanofi-Synthelabo acquired Aventis in 2004 for $65.6 billion.
- In 2006, Johnson & Johnson bought Pfizer's consumer unit for $16.6 billion. That was the same year that Bayer's inked a $21.5 billion deal for Schering.
- In 2009, drugmakers' deals amounted to $147.2 billion -- including Pfizer's $68 billion deal for Wyeth and Merck's $41 billion deal with Schering-Plough.&
Of course, industry analysts forecast even more M&A in 2011, and perhaps for a reason obvious to those working everyday in the struggling economy that continues to plague the New Jersey, New York and Pennsylvania markets. Companies here are trying to look past the uncertainty of recent years, hopeful about ways to bolster their own growth. For some, that will mean taking on additional investors. Others will seek to acquire, merge or be bought outright.
Catalyst interviewed the dealmakers behind three local pacts. We learned that there are many reasons a company seeks to acquire or be purchased. But, in the end, when the deals are done, hopefully, everyone – stakeholders and patients alike – wins.
Partnering for Success
Eli Lilly and Avid Radiopharmaceuticals had plenty to celebrate this past holiday season. And, if market analysts are correct, 2011 will be a very happy new year indeed.
Indianapolis-based Lilly acquired Avid, a privately held developer of novel molecular imaging compounds intended for the detection and monitoring of chronic human diseases, on Dec. 20. Officially being called a “definitive merger agreement,” Lilly acquired all outstanding shares of Avid for an upfront payment of $300 million, subject to adjustment based on existing cash on hand at closing. Avid stockholders will also be eligible for up to $500 million in additional payments contingent upon potential future regulatory and commercial milestones for Florbetapir (Avid’s lead asset.)
High on the list of New Year’s Resolutions is getting NDA approval for Florbetapir, a molecular imaging agent under investigation for detecting the presence of amyloid plaque in the brain. Beta-amyloid plaque is a defining pathology of Alzheimer’s disease. In fact, the drug has been given priority review treatment; the Peripheral and Central Nervous System Drugs Advisory Committee of the FDA will hold a meeting to discuss the new drug application on Jan. 20, 2011.
According to Richard A. Baron, vice president of finance and chief financial officer of Philadelphia-based Avid, his company was seriously considering an IPO when Big Pharma started making inquiries.
“Avid had $70 million of venture capital and we finalized Phase III trials. We were about to embark on initial fundraising to get through final trials for Florbetapir when several large pharmaceutical companies began to show interest,” Baron explained. “They inquired about our need for money and started discussing a full-fledged acquisition or merger.”
Still, Avid stayed on the IPO path. “We decided to go forward with an IPO and started preparing the materials. At the same time, though, various pharmaceutical companies were doing due diligence in an effort to make a bid for Avid,” explained Baron, who joined the five-year-old company in 2007.
As Avid neared completion of the materials, M&A conversations heated up. “We knew that we would be going forward with the IPO unless one of the bids was sufficient. When we accepted Lilly’s proposal officially on Nov. 8, we put aside our IPO plans for good,” Baron said.
Avid will remain a stand-alone entity, officially a wholly-owned subsidiary of Lilly. All 50-plus Avid employees will be retained.
Baron said the deal is a real collaboration of interests. “Our relationship has developed over time. We have helped Lilly and other large pharmaceutical companies with their clinical trials. Between that, and due diligence, you really get to know people pretty well,” the CFO said. “Lilly understands the way Avid works. They understand our compounds and how we developed them. Lilly was fascinated by our science.”
In addition to the Alzheimer’s drug, the acquisition of Avid also provides Lilly with a diagnostics development platform covering several disease areas, including Parkinson’s disease and diabetes.
John Lechleiter, Ph.D., Lilly chairman and chief executive officer, said that the acquisition of Avid “aligns well with Lilly’s innovation-based strategy, offers a potential near-term revenue opportunity, leverages our neuroscience expertise and will immediately bolster our diagnostics capabilities.”
Clearly, Lilly recognizes that Avid is an innovator in the field of molecular diagnostic imaging. While there are a few drugs on the market to treat Alzheimer’s disease, Florbetatir is the first compound of its nature to complete Phase III trials and be submitted to the FDA for approval.
“We are very excited to join the great scientific team at Lilly and continue our work to develop new molecular imaging agents capable of changing the medical management of significant chronic human diseases,” said Daniel M. Skovronsky, M.D., Ph.D., Avid’s founder and chief executive officer. “We've had a productive and long-standing relationship with Lilly, and believe in their approach to providing improved outcomes for individual patients.”
According to Baron, Dr. Skovronsky has been an incredible driver of Avid. The CFO credits the company founder with surrounding himself with an “excellent management team who had been there, done that.” It’s the strong team management approach that Lilly saw as the recipe for success. “Sure, Lilly wants our science, but they also wanted our people – people who do what they do well,” Baron added, giving a nod to the entire team including Alan Carpenter (regulatory); Franz Hefty (science); and Chris Bunting (marketing and sales).”
Lilly CEO Lechleiter agreed. He said Lilly looks forward to partnering with Avid’s experts during the regulatory process for Florbetapir. “We are intent on gaining FDA approval for this promising diagnostic intended to help clinicians and researchers identify the presence of beta-amyloid plaque in the brain.”
Avid’s Baron praised Lilly’s strong interest in diagnostic neuroscience. “We feel they are the right partner to do this. The success of the product will now be in their hands. We believe their resources will allow it to be launched successfully.”
Right Place, Right Time
From the start, the acquisition of Sapphire Therapeutics, Inc. was meant to be.
Sapphire was looking for funding to advance its programs into the next phases of development. Anamorelin, a therapy for the treatment of cancer cachexia, was the company’s lead asset. Ipamorelin, an IV treatment of post operative ileus, the impairment of bowel motility following surgery, was in Phase II trials. And, ST-1141, a new oral compound for the treatment of opioid-induced bowel dysfunction, was already showing promise in Phase I trials.
Bill Mann, President and CEO of Helsinn Therapeutics (U.S.), Inc., former Vice President of Corporate Development at Sapphire, said his Bridgewater-based firm started looking for a partner around 2007. At that time, Sapphirewas considering taking on additional financing or a merger or acquisition.
At the same time, Helsinn, a privately owned pharmaceutical group with headquarters in Lugano, Switzerland, wanted to expand its international reach by setting up R&D operations in the United States. And, Helsinn, a company that prides itself on a unique business model focusing on the licensing of pharmaceuticals and medical devices in therapeutic niche areas, had its “eye” on Sapphire ever since it was founded as Rejuvenon in 2000.
When Sapphire made its potential M&A interests known in the marketplace, Helsinn came forward and discussions ensued. What started out as a licensing negotiation around Anamorelin evolved into a full company acquisition.
And, now, both parties couldn’t be happier.
“We are thrilled at this very important opportunity to increase Helsinn's value with a direct presence in the major pharmaceutical market of the world," said Riccardo Braglia, CEO of the Helsinn Group. The acquisition of Sapphire, he added, is allowing Helsinn to expand its current pipeline of products in existing, focused therapeutic areas, in particular in Cancer Supportive Care. “This is a major step forward for the growth of Helsinn into the future.”
The establishment of the new subsidiary, Helsinn Therapeutics (U.S.) Inc., gave Helsinn a U.S. base for R&D and commercialoperations. Franco DeVecchi, who is a member of Helsinn Holding's board, was appointed Chairman and President of Helsinn Therapeutics (U.S.), Inc. during the transition period with the aim of facilitating the transition and retaining Sapphire staff;
Mann said Helsinn’s decision to retain the Sapphire team “is one of the unique aspects of this deal. Helsinn recognized the expertise of the Sapphire staff and valued the entrepreneurial aspect of the company. They wanted to maintain that.”
In fact, he continued, Helsinn respected Sapphire’s “entrepreneurial spirit.”
“They have allowed us to retain that while helping us to become part of a more fiscally stable and more conservative organization.”
“Sapphire had a foothold on the East Coast with a good pipeline of cancer supportive care drugs,” Mann said. “Our portfolios were aligned.”
Of course, no deal is completed without some challenges. But, Mann said, this deal really had very few issues. There was some confusion on the information technology front – the two companies used different systems.
“People are very important in this company. The biggest challenges we encountered are typical of trans-Atlantic deals. Some of Helsinn’s written procedures were in Italian and cultural integration initially presented some challenges, But all of those were managed quickly – with grace and commitment to success.
Additionally, while management of an acquired company could have presented difficulties, Mann said the switch-over was facilitated quite easily. The U.S. team is in place and effective. The General Manager and CFO of the Helsinn Group also sit on the U.S.-based Board of Directors. The current Vice Chairman (former Chairman) helped greatly with the successful transition by bringing his international business experience to bear and facilitating communication.
The acquisition will also have a direct, positive impact on the Helsinn Group since the Helsinn Therapeutics (U.S.), Inc. products will be manufactured in Helsinn's high quality API and Drug Product manufacturing facilities in Switzerland and Ireland, respectively. Both Helsinn Advanced Synthesis SA and Helsinn Birex Pharmaceuticals Ltd.are approved by the Swiss and Irish authorities and by the U.S. FDA, EMA, PIC and Japanese PMDA as well as by several other national boards.
So, what would they do differently if the deal had to be done over?
Very little, if anything, said Mann. “The timing of the acquisition was optimal. Sapphire’s program required substantial future investment. Helsinn had an advanced portfolio and was looking to further advance in the United States. The parent company felt very comfortable retaining the team. Both organizations really respect each other and play on each other’s expertise. We came together as one. It’s really hard to imagine a better scenario for a more productive acquisition.”
What’s next? The company is further developing Anamorelin. In July 2010 Helsinn announced an expanded relationship with Eisai Inc., its distributer for Aloxi® in North America, to develop and co-promote the next generation agent for the prevention of chemotherapy-induced nausea and vomiting (CINV) in the U.S. Helsinn also signed a Detail Service Agreement with Eisai Inc. to co-promote the existing brand Aloxi® in the U.S. market. Independent of these deals, the company is actively looking to acquire and market a product that is currently being marketed in the U.S.”
According to Mann, the future for Helsinn is bright. “We are hoping to have the Helsinn name be recognized in the U.S. We want to be known as an ethical company, committed to respecting patients’ health, committed to supportive care. We are very quality focused.”
Happily Ever After?
To hear Chris Cashman tell it, the rise and fall of Protez Pharmaceuticals is the “classic M&A story.”
Once upon a time, he related, a small biotech was founded and formed. When the company’s lead asset began to look really promising, the financial backing needed to advance the would-be drug grew exponentially. And, the biotech founders – Cashman (who served as president and chief executive officer) and his two partners – sold their “baby” to industry giant Novartis for $400 million ($100 million up front.)
The lead asset, antibiotic PZ-601, was being developed to treat multi-drug resistant bugs such as methicillin-resistant staphylococcus aureus (MRSA), which cause over 100,000 deaths in the U.S. and Europe annually. However, PZ-601 was shelved by Novartis after some safety issues arose during Phase II clinical trials. Protez was shut down in mid-2010.
So, maybe Cashman’s story doesn’t have quite the happy ending of fairytales. However, it does underscore the impact the arduous, expensive process of bringing a drug to market.
And, regardless, like any great tale, the intrigue is in the forward – and epilogue.
In the late 1990s and early into the 2000s, several Big Pharmas were downsizing their antibacterial research and development activities and leaving the sector. The commercial side of intravenous antibiotics was a relatively small pond and Big Pharma, according to Cashman, was really looking to catch much bigger fish – in the form of blockbuster drugs.
Cashman and his partners saw an opportunity; they founded Protez in December of 2003 after they bought a small startup from Illinois. The thought was to use Influx Pharmaceuticals to “assemble the capabilities” needed to get Protez going. The three entrepreneurs then searched for a large lead antibacterial drug that had been shelved. They licensed PZ-601 from the company now known as Dainippon Sumitomo Pharma Co., Ltd. in 2005.
Now Protez was on its way. A year later, Protez completed a Series A round of $21 million, led by Quaker Bio Ventures, SR1, Bay City Capital and L Capital.
“Now we had the asset and the money and went into development,” Cashman said. “We finished our preclinical development work and had raised enough money to grow the product through proof of concept. When we reported on Phase I data in the fall of 2007, Big Pharma started to take interest.”
In fact, Novartis “stepped in sooner than anticipated.”
Cashman explained that “there was a dearth of programs in this area because Big Pharma had pulled out. At the same time, there was a growing need for new antibiotics, with resistance bacteria such as MRSA coming to light. Protez was really in the right place at the right time.”
However, it wasn’t a done deal yet. Cashman and his partners knew they had enough cash to get them through Phase II. “We told Novartis, `if you want to make us an offer, it has to be at Phase II valuation.’ We had no reason to sell early.”
Novartis paid a total of $400 million for Protez -- $100 million of it up front (and another $300 million in additional payments if the broad-spectrum antibiotic was a success) – in the spring of 2008. Protez, then based in Malvern, Pa., continued to operate independently under the auspices of Novartis.
“Novartis came to the table because it was interested in Protez’ lead asset. But they came to know our capabilities in the antibacterial R&D stages and appreciated our skills. They wanted the Protez team (16 employees) to stay on board and we did as an operating subsidiary of Novartis,” Cashman added.
However, as previously mentioned, “in late Phase II, we encountered some safety issues and Novartis decided to not move forward with continued development. The project was shelved,” Cashman concluded.
Despite the disappointment of PZ-601, Cashman is still an entrepreneur at heart. While working on his next drug development company, he is an angel investor, and serves as chairman of both JDP Therapeutics and MBFT Therapeutics, and is on the board of directors of the Science Center and Ansaris.
Protez’s research program was assimilated into Novartis’ Cambridge, Mass. R&D center. And, some former Protez executives have joined VenatoRx, a developer of new antibacterials. Perhaps the best is yet to come.
EisnerAmper's Catalyst: Winter 2011
- A Combination of Equals’ Eisner and Amper, Politziner & Mattia Combine to Form EisnerAmper LLP
- One for All…Managing the Other Capital – the Human Kind
- All the Right Pieces: Answering the Call from Big Pharma
- Legally Speaking, M&A Due Diligence is Worth its Weight in Gold
- Ingredients of a Successful M&A Deal