Articles

Jennifer Van Brunt, Editor

"Old soldiers never die, they only fade away." So goes the line of a war ballad famously cited by General Douglas MacArthur in his farewell address to Congress in 1951. The biotech sector, too, has its old soldiers: Venerable companies that have trudged through the decades in hopes of winning battles on many fronts – especially financial and regulatory. But today many of these are fading away, too, as they're taken over by larger – or more vigorous – companies that recognize the inherent value that remains.

Corixa Corp., Guilford Pharmaceuticals Inc., InKine Pharmaceutical Co. Inc., Maxim Pharmaceuticals Inc., Xenova Group plc, Transkaryotic Therapies Inc., Vicuron Pharmaceuticals Inc. – these companies have practically grown up in tandem with the biotech industry as a whole. Many have been through numerous changes since they were founded – merging with other firms along the way, changing names, and latching onto new product opportunities via acquisition. Yet, all of these venerable firms themselves have been acquired this year – an integral part of the dynamic ebb and flow that characterizes the biotech sector.

But before we get to their stories, let's look at the big picture in biotech mergers and acquisitions this year. Companies have been active, all right, with about 130 deals either in the works or already completed by the end of September. As usual, the financial details for many M&As are never disclosed, but 58 were valued at $10 million or more. (These transactions are detailed in the tables scattered throughout this article.)

Big pharma picks up the pace

Of those, big pharma acquisitions of biotech companies accounted for more than one-third (20/58) – a huge jump from the average annual tally of 5 to 7 biotech/big pharma M&As. (These 20 include Novartis AG's $4.5 billion bid to increase its ownership of Chiron Corp. to 100 percent – a bid that Chiron flat out rejected as inadequate, but one that may yet offer some surprises.)

By late April, in fact, the pharmaceutical giants had already acquired 12 biotech firms, and they obviously haven't slowed down yet. (For details of those earlier deals, see the Signals article, "Pharma's Buying Spree.")

There are several reasons why big pharma companies have picked up the M&A pace. For one thing, they are flush with cash right now, due to a one-time federal tax break under the American Jobs Creation Act 2004 that allows companies to repatriate profits from overseas operations at a very low tax rate. These repatriated earnings must be reinvested in the U.S. – and that includes the acquisition of companies with U.S. assets.

For another, the majors still need to fatten their pipelines – and biotech firms are the source of promising drug candidates. Many biotechs are still cheap: Even though the AMEX Biotech Index hit a 52-week high on the last day of September, this indicator merely tracks a few top-tier companies. The majority of publicly traded biotechs have not enjoyed such positive attention from investors this year. Moreover, as we saw earlier this year, pharmas have been able to strike some very sweet deals for privately owned biotechs, deals in which the venture investors profited handsomely.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

As well, the growing strength of the generics sector is a major threat to traditional pharmaceutical houses.

For instance, Novartis made a major commitment to the generics side of its business (now known as Sandoz) in February 2005 by shelling out a total of $7.3 billion to acquire German generic drug company Hexal and two-thirds of U.S. firm Eon Labs Inc. (with an additional $1 billion to buy the rest), creating Europe's largest generics powerhouse: According to Novartis, the combined pro forma sales for the new generics giant were $5.1 billion in 2004.

But Sandoz didn't hold that title for long, because in late July, Teva Pharmaceutical Industries Ltd. offered to buy Ivax Corp. for $7.4 billion, hoisting the Israeli company back to the top of the generics stack – combined pro forma sales for 2004 were more than $6.6 billion.

These new entities are bound to put an even bigger squeeze on pharmas' profits, making it all the more imperative that the latter latch onto a basketful of patent-protected experimental drugs from biotechs with which to fill their pipelines.

Major moves

Among the majors, Pfizer Inc. (the world's largest pharma) has acquired Angiosyn Inc. – to build its ophthalmology franchise – Bioren Inc. – a privately held antibody discovery and optimization company --- Idun Pharmaceuticals Inc. – whose caspase-controlling technology can be used for developing apoptosis- and inflammation-related drugs – and Vicuron Pharmaceuticals – through which it gains two anti-infective drugs under FDA review. Even though we don't have all the financial details for each transaction, they add up to at least $3 billion so far.

While no other big pharma has bought that many biotechs this year, Johnson & Johnson remains a significant player. In April, it shelled out $230 million to acquire TransForm Pharmaceuticals Inc., which gives the pharma new abilities in drug formulation technology and the crystallization of pharmaceuticals. In June, it paid $245 million to acquire Peninsula Pharmaceuticals Inc., which is developing new antibiotics to treat life-threatening infections: The company's lead compound doripenem is in six Phase III trials and is fast-tracked for treating nosocomial pneumonia and ventilator-associated pneumonia.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

The Japanese pharmas have jumped in the game, too – with Kyorin Pharmaceutical Co. buying ActivX Biosciences Inc. for $21 million in February to expand its global R&D network; Sosei Co. Ltd. shelling out nearly $190 million to acquire clinically focused Arakis Ltd. in August; and Takeda Pharmaceutical Co. Ltd. grabbing X-ray crystallography expert Syrrx Inc. early this year for $270 million.

And British giant GlaxoSmithKline plc (GSK) has been busy this year, too: In July, it completed its $300 million acquisition of long-time partner Corixa and in September it pledged $1.4 billion to acquire Canadian vaccine maker ID Biomedical Corp.

Vaccine ventures

For GSK, both moves were intended to beef up its vaccines business. The bid for ID Biomedical centered on the biotech firm's influenza vaccine Fluviral, which is already sold in Canada and is under priority review by the FDA. GSK, which recently received FDA approval for its own flu vaccine Fluarix, not only gets another vaccine supplier but also will inherit ID Biomedical's Canadian manufacturing facilities – providing it with increased capacity for next generation flu vaccines and to help prepare for a flu pandemic. (For details on the current status of this nation's flu vaccine supply, see the Signals article, "Flu Vaccines Back In Vogue.")

The British pharma's acquisition of Corixa was all about vaccines, too – although in this case it wasn't about vaccines per se but rather a particular additive (adjuvant) that boosts the body's immune response to vaccines. GSK has already incorporated Corixa's adjuvant MPL into its extensive vaccine portfolio – from those in clinical trials to the hepatitis B virus vaccine Fendrix, which has been approved in the European Union. Corixa licensed MPL adjuvant to GSK under five separate agreements, dating from 1991 – 1999, which cover its use in infectious disease vaccines, cancer vaccines and in products for treating and preventing allergic reactions. As well, the partners signed a manufacture and supply agreement for MPL back in 2004.

Corixa and GSK also partnered on the development and commercialization of Bexxar, an FDA-approved monoclonal antibody-based therapy for non-Hodgkin's lymphoma. But sales of this product, which must be administered by a complicated, two-step regimen, were very slow to take off, so in December 2004 Corixa transferred all Bexxar rights to GSK.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

Interestingly, neither Bexxar nor MPL was developed by Corixa. Instead, the Seattle company, which was founded in 1994 as WWE Corp., acquired these products and associated technology from other biotechs. For instance, Bexxar came as part of Corixa's 2000 acquisition of Coulter Pharmaceutical Inc., which itself had inherited the monoclonal antibody when it was spun out of Coulter Corp. in 1995. (Coulter Pharmaceutical even partnered with GSK for product development in 1998.)

And the MPL adjuvant was originally developed by Hamilton, MT-based Ribi ImmunoChem Research Inc., which Corixa acquired in the fall of 1999 for about $56 million. In 1981, Ribi ImmunoChem's co-founder Edgar Ribi and his colleagues discovered a way to detoxify endotoxin, a bacterial cell wall component, without destroying its potent immunostimulatory activities. The result was monophosphoryl lipid A, or MPL.

Given its extensive ties with GSK, Corixa's acquisition by the British giant seems a natural extension of their relationship. But in 1994, an acquisition was probably far from the minds of the biotech firm's founders – who grew the company into one of Seattle's most promising biotechs. By the beginning of 2005, however, the firm had no marketed products, no late-stage (unpartnered) drug candidates, a declining stock price and mounting debt. Unfortunately, it's a tale we hear all too often in the biotech space.

Alluring antibiotics

Vicuron Pharmaceuticals, which was acquired by Pfizer in mid-September, is another biotech firm with a past – in fact, Vicuron itself is the result of a merger. The company, located in King of Prussia, PA, started life in 1995 as Versicor Inc., a subsidiary of Sepracor Inc. Versicor, which was dedicated to discovering new antibiotics through combinatorial chemistry, high throughput screening and functional genomics, began operating independently the following year, and completed its IPO in August 2000, in the middle of the genomics craze.

Seeking to expand its portfolio of antifungal and antibacterial drug candidates for hard-to-treat infections, Versicor reached across the Atlantic and tagged Italian firm Biosearch Italia S.P.A., with which it merged in March 2003. The new company, now called Vicuron Pharmaceuticals, had three Phase III drug candidates (anidulafungin, ramoplanin and dalbancin) and a number of earlier-stage products in development.

By the time Pfizer made its $1.9 billion bid for Vicuron in June 2005, the biotech firm had submitted NDAs for two of those late-stage drugs – anidulafungin (for fungal infections) and dalbavancin (for Gram-positive bacterial infections). And Pfizer, through its acquisition of Pharmacia, inherited an ongoing partnership with Versicor on next-generation oxazolidinones, a class of broad-spectrum antibiotics.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

Pfizer's move not only enhanced its own portfolio of anti-infectives, but also gave the big pharma two very promising near-term products. In late December 2004, Vicuron submitted the NDA on dalbavancin as a treatment for complicated skin and soft tissue infections. The FDA review on this product was expected to be completed in September. And there are actually two pending NDAs on anidulafungin: Vicuron submitted the first in April 2003, requesting its approval for treating esophageal candidiasis. About a year later, the FDA issued an approvable letter requesting additional clinical data, which Vicuron supplied as an amendment in May 2005. In August 2005, the biotech firm submitted a second NDA on anidulafungin, this time for treating invasive candidiasis/candidemia.

Unlike biotech war veteran Corixa, Vicuron seems to have been at the top of its game when Pfizer bought it out: Indeed, the fact that Pfizer bought Vicuron's stock at a 74 percent premium to its 90-day average closing price signals just how much value the pharma expects to get out of the deal. Time will tell if it was right.

Complementary lines

The major pharmaceutical houses aren't the only companies playing the M&A game, of course: Big biotechs have been busy snatching up smaller firms with promising products and/or technologies – in many cases, companies that have been struggling to attain critical mass as stand-alone entities.

The 1992 merger of Nova Pharmaceutical Corp. and Scios Inc. created two new companies, Scios Nova Inc. and Guilford Pharmaceuticals. Guilford, in fact, was created as a spin-off to develop the old Nova's neuroscience portfolio, which Scios Nova didn't want. (In 2003, Scios Nova, which had by then changed its name back to Scios, was acquired by Johnson & Johnson for $2.4 billion.)

Meanwhile, Baltimore-based Guilford went on to develop Gliadel, a biodegradable polymer approved in September 1996 for on-site delivery of chemotherapy (carmustine) to the brain after surgical removal of a tumor. (In February 2003, Gliadel was also approved as a first-line therapy for patients with newly diagnosed brain cancer.)

Having an FDA-approved product gave Guilford a substantial boost in the eyes of investors, and the firm was able to raise the money necessary to start developing a neuroscience portfolio. As it evolved, Guilford expanded its R&D programs, but hadn't been able to bring another product to market. It did, however, acquire the U.S. marketing rights to Aggrastat (which prevents blood clot formation) from Merck & Co. Inc. in October 2003. Guilford paid $84 million for Aggrastat, but never realized the kind of sales that would allow it to recoup that investment: Recently, Guilford determined that the carrying value of Aggrastat assets was in excess of its fair value, so it has decided to divest this asset (if possible) to concentrate on Gliadel and Aquavan.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

Aquavan Injection is now in pivotal clinical trials for use in procedural sedation during brief diagnostic or therapeutic procedures (such as colonoscopy). This product, in particular, attracted the attention of MGI Pharma Inc., which realized that Aquavan would fit nicely with its own acute-care franchise, complementing Aloxi injection for post-operative nausea and vomiting (PONV). MGI Pharma already sells Aloxi for chemotherapy-induced nausea and vomiting.

As well, MGI felt that Guilford's Gliadel wafer would fit right in with its oncology portfolio – and the product would also provide an immediate (although small) revenue stream. MGI is also developing Dacogen for myelodysplastic syndromes, a product for which the FDA issued an approvable letter (with conditions) at the beginning of September.

Sound like a good match? Well, Guilford stockholders certainly thought so, as did Wall Street – so Minneapolis-based MGI ended up acquiring Guilford in a $177.5 million stock and cash deal that closed at the beginning of October.

Turning the tables

Guilford Pharmaceuticals was on fairly sound financial footing as it entered 2005 – its market cap stood at $220 million and the company had a valuation of $226 million. Maxim Pharmaceuticals, on the other hand, wasn't in such good financial shape: It had a valuation of $27 million at the end of 1994, and a market cap of $86 million.

That tenuous financial position, perhaps, led privately held EpiCept Corp. to make a bid to acquire the public firm, which has been around since 1993. In all that time, Maxim hasn't been able to bring a product to market. It's put countless hours into developing its lead drug Ceplene, a histamine type 2 receptor agonist which it hoped would be approved as a combination therapy with IL-2 for advanced malignant melanoma. However, after setbacks with the FDA, the company finally withdrew its NDA in November 2004.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

Ceplene may still have a future, though: Maxim had also tested the compound (along with IL-2) in patients with acute myeloid leukemia (AML) who were in complete remission. Phase III results reported in December 2004 demonstrated that the combination therapy could extend the duration of complete remission in these patients. In January 2005, Maxim reported that the FDA wants to see the results of an additional Phase III trial before the company applies for approval. But that may not be the case elsewhere, for the companies said that they intend to file for European approval of the drug for use as remission-maintenance therapy in AML.

EpiCept intends to effect a reverse merger with Maxim, creating a publicly traded specialty pharmaceutical company (which will keep the EpiCept name) with a balanced portfolio of pain management and oncology product candidates. EpiCept, which received about $27 million in venture capital since its founding in 1993, will be shelling out $136 million in stock to acquire Maxim while finally achieving its goal of becoming a public company (it withdrew its IPO prospectus in May 2005).

Privately held Jazz Pharmaceuticals Inc. was in even better financial shape than EpiCept, having attracted about $265 million in venture capital by the time it offered to acquire publicly traded Orphan Medical Inc. for $145 million in cash last spring.

Selected M&A’s in 2005*

*Selected transactions that were initiated or completed in 2005 and whose value was at least $10M. It does not include M&As that involved business units, divisions, subsidiaries, product lines or facilities. It also does not include medical device transactions.

The deal, which closed in June, provided Jazz with a commercial sales and marketing staff. Importantly, Orphan also contributed a marketed CNS drug Xyrem, which is used to treat cataplexy. Orphan was also developing the product for other indications, and had filed a supplemental NDA to include treatment of excessive sleepiness associated with narcolepsy.

Xyrem fits right in with Jazz' plan to build a portfolio of neurology and psychiatry drugs, too – although Jazz has yet to describe any of its product candidates. But we do know that the well-respected specialty pharma, which was founded by Alza Corp. veterans, intended all along to acquire commercial and development-stage products to get up and running. Perhaps Orphan was its first foray.

Fading away

As we mentioned earlier, other venerable biotech firms faded away from the public eye through acquisitions this year, too. Beyond a doubt, the oldest was U.K.-based Xenova Group, which was founded in 1987. When Celtic Pharma Development UK plc bought it out in September, Xenova had a broad pipeline of clinical-stage products – including three for cancer. It was also developing clinical stage vaccines for nicotine and cocaine addiction. Celtic Pharma is a newly formed private equity fund headed by Stephen Evans-Freke (formerly of Sugen Inc.) and investment banker John Mayo: The fund intends to acquire late-stage drug programs from biotech companies and see them through the final stages of regulatory approval, after which they should be salable to big pharma.

And Shire Pharmaceuticals Group plc shelled out $1.6 billion in cash to acquire struggling Transkaryotic Therapies (TKT), which was founded in 1988. It seems a lot to pay, but then TKT had established a presence in the orphan drugs market – particularly enzyme replacement therapy, which has already proven to be a lucrative niche. Importantly, TKT has one product already on the market and another approved for marketing, which will let Shire expand its pipeline in short order.

Then there was InKine Pharmaceutical Co., which merged with Salix Pharmaceuticals Ltd. in early October. InKine got its start as Panax Pharmaceutical Co. Ltd., but after acquiring CorBec Pharmaceuticals Inc. and merging with Sangen Pharmaceutical Co. (both in 1997), it changed its name to InKine. Here, too, we find that the driving force behind the merger was to combine strategic assets: InKine brought one marketed product and one that is under regulatory review. In the process, Salix created a specialty pharma focused exclusively on gastroenterology.

Products aren't always the driving force behind biotech M&As: In times gone by, one company has grabbed another to latch onto a key piece of enabling technology or intellectual property. When the capital markets have remained closed for years on end, M&As are spurred by the need for cash, and one company will grab another merely for its fat bank account. But in recent years, products have definitely been driving deals: Whether the acquirer is a big pharma or another biotech company, every one is anxious to fill their pipelines. In the months to come, the competition for experimental (or even marketed) therapies should get even keener.

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