Partnering Your Way to M&A? Keep Cash Balance, Options
By Jennifer Boggs
NEW YORK – How does a biotech company look to set itself up as a potential acquisition target down the road? The answer, according to a panel at this year's BIO CEO & Investor Conference, is that it depends.
On financing, on the indications, the market size and the internal pipeline of prospective acquirers, just to name a few variables. There are, however, a couple of certainties. One, the number of M&A deals has dropped in the past couple of years, with only a fourth-quarter surge in 2012 lifting it above the abysmal figures in 2011. And, two, many of those deals involve earn-outs or contingent value rights, so the full value of the deal might never be achieved.
Add to that the fact that there are fewer big pharma acquirers – though big biotechs are stepping up, with recent deals including Gilead Sciences Inc.'s bid for YM BioSciences Inc. and Amgen Inc.'s offer for DeCode Genetics Inc. – and M&A is no surefire exit. Not even a partnership can ensure a potential future takeover bid, though there are ways of structuring deals that encourage – or prevent, in some cases – an M&A transaction.
In the case of Human Genome Sciences Inc., the firm had a good collaboration with GlaxoSmithKline plc on assets including lupus drug Benlysta (belimumab), when the London-based big pharma offered to acquire HGS in a 2012 deal valued at $3.6 billion. But HGS hadn't entered the 20-year partnership with the specific aim of getting acquired.
"The reason we get into these partnerships in the first place is to build value," said Thomas Watkins, former CEO of HGS, during a Tuesday plenary discussing how to move from partnering deal to buyout.
But sometimes an acquisition becomes the next logical step for companies that have worked together – Amgen's buyout of Micromet Inc. or Bristol-Myers Squibb Co.'s acquisition of Yervoy (ipilimumab) partner Medarex Inc. Or in the case of Stromedix Inc., which was acquired by Biogen Idec Inc. a year ago, the buyer had a history with the compound. (See BioWorld Today, Feb. 15, 2012.)
Stromedix had been formed as a spinout of Weston, Mass-based Biogen to develop fibrosis compounds. After reaching a certain point in development, Biogen decided it wanted those compounds back and acquired Stromedix in a $562.5 million deal, said Michael Gilman, who headed up Stromedix and now serves as senior vice president of early stage research at Biogen.
But whether an acquisition offer is coming from a partner or an unrelated big pharma or big biotech, panelists agreed on several points for a successful takeout candidate.
Robust data obviously are a must, but would-be buyers are looking for more than clinical data these days. "It used to be just the data, just the science," said Effie Toshav, a partner at Fenwick & West LLP. Now buyers want data on commercial potential and even reimbursement issues.
Firms need to be well financed, with enough cash in the bank to provide leverage in any negotiation. And they need to have partnering deals that add value without handing over all the value.
Toshav pointed to Bothell, Wash.-based Seattle Genetics Inc., which she said has "done a tremendous job" monetizing its technology platform without "creating a poison pill."
That doesn't guarantee, however, that Seattle Genetics will be next to be bought – assuming the antibody firm sought an M&A deal. As Biogen's Gilman put it, "From an M&A perspective, it's a very inefficient market."
Michael Margolis, managing director at Roth Capital Partners, was even blunter. "To wait around for an acquisition, is not an option."
FDASIA: Clear Win for Rare Diseases
It's been 30 years since the orphan drug act passed and rare disease work is no longer a rare occurrence in biotech and big pharma. The latest boost to the space was the passage of FDASIA last year, which provided the FDA with tools for allowing more rapid and flexible regulatory pathways for drugs targeted at small patient populations and subpopulations. (See BioWorld Today, July 19, 2012.)
Orphan designation and fast-track status are now joined with new channels in accelerated approval and the breakthrough designation for certain innovative drugs. "No one knows exactly how you qualify" for either one yet, noted John Crowley, chairman and CEO of Amicus Therapeutics Inc. during a session dubbed Orphan Drugs: Making Rare Diseases Rarer. "But they're toolsets the FDA can draw upon."
And it marks a change in attitude at the FDA when it comes to developing and approving drugs for orphan diseases. For instance, the agency "really took the time to understand the morbidity and mortality" of homozygous familial hypercholesterolemia (HoFH), said Marc Beer, CEO of Aegerion Pharmaceuticals Inc., which won approval last year of Juxtapid (lomitapide), a microsomal triglyceride transfer protein inhibitor, in HoFH.
The FDA also has shown some flexibility in clinical testing, understanding that the same one-size-fits-all approach – a large, randomized, placebo-controlled Phase III trial with the usual endpoints – won't always work. Now the agency is willing to look at the entirety of the data, said Crowley, whose firm has worked with the FDA in the design of a pivotal study in Fabry's disease.
That trial allows for Amigal, a pharmacological chaperone, to be tested against placebo rather than going head-to-head with an existing enzyme replacement therapy (ERT). Amicus lobbied for that design, citing Amigal's different mechanism of action compared to ERTs. (See BioWorld Today, March 5, 2012.)
Prosensa Therapeutics BV is in the process of discussing with regulators trial designs for its exon-skipping drugs in Duchenne's muscular dystrophy (DMD). The debate is ongoing regarding the primary endpoint, which typically has been the six-minute walk test, noted Hans Schikan, CEO, because it limits enrollment to patients with more advanced disease.
"If you're sitting in a wheelchair, you can't do the six-minute walk test," he said.
But the FDA is only one side of the coin. Biotech and big pharma have to hold up their end of the deal, by maintaining innovation.
"We need to focus on true disease-modifying therapies," Aegerion's Beer said.
That also means taking advantage of pre-competitive space and joining forces with patient advocacy groups. And it means being thoughtful about pricing.
Pricing for orphan drugs has typically been the highest in health care, and as long as those drugs are backed by innovation and solid data, payers will remain on board. But firms have to be responsible. "Just having an orphan designation is not a get-out-of-jail-free card when it comes to pricing," said Alvin Shih, chief operating officer for Pfizer Inc.'s rare disease unit.
Growing the HCV Market
In the ongoing race to develop the first all-oral, interferon-free hepatitis C virus (HCV) regimen, there are debates among industry observers about the size of the treatment market. That's largely due to the fact that few – only 4 percent – of the estimated 4.5 million people diagnosed with HCV are actually on treatment.
Patients early in their disease, in particular, are not willing to deal with the side effects of interferon, said John Milligan, Gilead Sciences Inc.'s chief operating officer, during a fireside chat Tuesday morning.
"You give up your life for a year when you go on interferon," he added.
And because the treatment is so arduous, doctors can only take limited numbers of patients. "So if you eliminate the interferon or shorten the duration, these barriers go away," Milligan said.
Last year, 70,000 people in the U.S. were treated, he said. But improved dosing schedules and oral administration could open up that capacity. "I could easily see 150,000 to 200,000 a year."
Sequestration: A Real Threat to Research
With federal agencies preparing to batten down the hatches against sequestration, which could be triggered in less than three weeks, biotech execs are trying to drive home to lawmakers the true role of government funding in science and health care.
Tony Coles, CEO of Onyx Pharmaceuticals Inc., was in Washington last week, joining National Institutes of Health (NIH) Director Francis Collins and FDA Commission Margaret Hamburg, to urge Congress to find ways to avoid the across-the-board budget cuts that would come with sequestration. During a fireside chat early Tuesday, Coles talked briefly about the importance of government policy and funding to help translate basic science into approved therapies. "It would be a shame to see that interrupted in any way," he said.
The Obama administration released a fact sheet Friday describing cuts resulting from the sequester. Cuts to NIH funding, for instance, would force the agency to delay or halt projects and offer fewer research awards. (See BioWorld Today, Feb. 12, 2013.)
Just how important are those NIH research awards?
Many people might not realize it, Coles said, but Onyx's Bayer AG-partnered blockbuster cancer drug Nexavar (sorafenib) "was a byproduct of 41 NIH research grants."
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