Deal Watch | Issue Seventy Three | July 2016
MEDIUS DEAL WATCH July 2016
The Real Deals A er our excursion to Wonderland (post‐Brexit UK) in June, July saw us return to the real world. The aspect of deals that always confuses the outsider is the Biodollar concept: the headline value of the deal which bears li le or no resemblance to the actual cash invested, but can garner much needed PR for the licensor. Frequently, deals top the table of the monthly charts, having billion dollar plus headlines, but having guaranteed cash (upfront, equity, R&D investments, etc.) represen ng a very small propor on of the total. This month is different. There are both a high number of acquisi ons (9 out of our top 20), all of them pu ng real money on the table; and with one excep on, cash payments rather than shares. There are also some substan al upfront payments among the licensing deals.
Real Money Eleven of the top 20 headline deals this month are licences and, of these, many have real upfront money underlying the headline figure:
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Deal Watch | Issue Seventy Three | July 2016
Licensee
Licensor
Headline
Upfront
Equity
Celgene
Jounce
$2,561m
$225m
$36m
Near‐term R&D funding
LEO Pharma
AstraZeneca
$1,115m
$115m
Astellas
Cytokine cs
$100m
$65m
$30m
Almirall
Sun Pharma
$50m
$50m
Takeda
TiGenix
$432m
$28m
$11m
Servier
Sorrento
$812m
$28m
Jazz Pharma
Pfenex
$181m
$15m
ONO Pharma
Celyad
$311m
$12.5m
Almirall
Patagonia
$28m
$3.5m
Petra Pharma
Sprint BioScience
$240m
$3m
Bayer
X‐Chem
$528m
N/A
Topping the charts this month is the $2,561m strategic collabora on deal that Celgene signed with Jounce Therapeu cs for its pla orm and por olio of biomarker‐driven immuno‐oncology therapeu cs. Not only is the headline figure high, but it comes with $225m in real money and an equity investment of $36m. Not bad for a company that was founded in 2013 and has yet to take its first product into man. Jounce’s technology aims to iden fy the likely responders to immuno‐ oncology treatments by iden fying the related biomarkers and enabling clinical trials to recruit more effec vely. Jounce’s lead product, JTX‐2011, is due to enter Phase 1 trials later this year as a monotherapy and in combina on with other immuno‐therapies. It is a humanised inducible co‐s mulator (ICOS) agonist an body, designed to both s mulate T effector cells and selec vely reduce intra‐tumoural T regulatory cells. In at numbers 2, 3 and 4 are the LEO – AstraZeneca deal with an upfront of $115m, Astellas – Cytokine cs at $95m and Almirall – Sun Pharma at $50m (see below). Other deals where the licensee has commi ed real upfront money include Takeda’s $28m upfront payment for ex‐US rights to TiGenix’s Cx601, a suspension of allogeneic adipose‐derived stem cells. The product has been submi ed to the EMA following a Phase 3 trial showing safety and efficacy of a single injec on in the treatment of complex peri‐anal fistulas, and is therefore a rela vely low risk investment for Takeda. At the other end of the development spectrum Servier paid the same amount upfront for the rights to Sorrento’s immuno‐oncology product: STI‐A1110, an an ‐PD‐1 mAb, presently in preclinical development; a higher risk and poten ally higher reward area. In the second immuno‐therapy deal to make the top 20 this month ONO Pharmaceu cals paid $12.5m upfront for the rights to develop Celyad’s Phase 1 product, allogeneic NKR‐2 T‐cell, in just three countries – Japan, Korea and Taiwan. The deal also included an op on on Celyad’s autologous NKR‐2 T‐cell product. Jazz Pharmaceu cals paid $15m in upfront and op on payments to Pfenex for the rights to a por olio of early stage products in haematology/oncology. Pfenex is a biosimilars company, and the agreement with Jazz also includes rights to a recombinant pegaspargase candidate. Earlier this year Jazz completed its acquisi on of Celator Pharmaceu cals, acquiring a late‐stage product, Vyxeos™, which targets AML, and the new agreement brings complementary products to Jazz’s por olio. A smaller upfront payment, of $3m, was made by Petra Pharma to Sprint BioScience for the rights to its PIP4K2a tumour metabolism targe ng programme; a rela vely small propor on of the high headline figure of $240m.
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Deal Watch | Issue Seventy Three | July 2016
Real Strategies The remaining eight deals are acquisi ons, some of which have substan al mul ples or share price premiums. The range of valua ons is high though, with mul ples ranging from less than one mes revenues, to 50 mes, reflec ng both strategic and financial impera ves driving the acquisi ons.
Acquirer
Acquired
Payment
Revenue
Revenue mul ple
Share price premium
Galenica
Relypsa
$1,530m
$30.9m
50x
60%
Nichi‐iko
Sagent
$736m
$318m
2.3x
40%
Cooper
Vemedia
$416m
$443m
0.94x
N/A
LabCorp
Sequenom
$302m
$128m
2.4x
180%
$250m plus $75m con ngent
N/A
N/A
$80m
$71m
1.1x
N/A
$21.3m plus $56.5 con ngent
$22m
3.5x
N/A
$16m
$10m
1.6x
N/A
$12.2m
$16.7m
0.73x
N/A
BioTechne Globus Medical
Advanced Cell Diagnos cs Alphatec’s interna onal division
Derma Sciences
BioD
Recorda
Pro Farma
DUKAL
Derma Sciences’ First Aid division
Historically, when acquisi ons have not performed to expecta ons, they have been described as “strategic”; that is to say bringing long‐term benefits on which companies can build in the future to compensate for their lack of immediate benefits. This month however, we see real strategic benefits to the acquisi ons in our list, which is backed by the payments having been in cash rather than stock. Galenica, the Swiss healthcare company that is preparing itself for a split into two parts, Vifor Pharma (healthcare product development, manufacturing and marke ng) and pharmacy and wholesaler service provider, has acquired Relypsa for $1.5bn in cash. The Vifor division, which focuses on treatments for iron deficiency, has gained a fully integrated US opera on prior to the spin‐out, and a complementary product in Veltassa®, a potassium binder for the treatment of hyperkalaemia. Veltassa was approved in late 2015 and Relypsa achieved revenues of $30.9m since its launch, making the 50x revenue mul ple paid look rela vely a rac ve. LabCorp has described its acquisi on of Sequenom, which provides non‐invasive prenatal tes ng, as strategic, and has paid $371m for the company. Although Sequenom’s revenues were $128m in 2015 the company has been loss‐making and in nega ve equity for some years, and the 180% premium to share price was no doubt welcome to shareholders, despite it being a frac on of the company’s value in the heady days of the early 2000s, coming as it did in cash. Two acquisi ons in our list bring together two companies in the same field to create larger and presumably stronger organisa ons. In the generics field Nichi‐Iko Pharma’s bought Sagent Pharma for $736m in cash. With complementary por olios and geographies this is also a strategic move, enabling Nichi‐Iko to bring its biosimilars to the US market. And in the OTC field the sale by IK Investment of Vemedia, to Charterhouse Capital’s Cooper, creates a strong company in the European OTC market, with the aim of leading further (strategic?) consolida on in the field.
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Deal Watch | Issue Seventy Three | July 2016
Licensor Acquired / Licensee Acquirer Jounce Therapeu cs/ Celgene
Por olio and pla orm of biomarker driven immuno‐ Licence, co‐development, oncology therapeu cs and CDx equity stake
2,561
Relypsa/ Galenica
Veltassa® ‐ Potassium binder
Acquisi on
1,530
AstraZeneca / LEO Pharma
Tralokinumab (an ‐IL‐13) in skin diseases
Licence
1,115
STI‐A1110 – an ‐PD1 immune checkpoint mAb
Licence
812
Por olio of hospital generics
Acquisi on
736
DEX pla orm for small molecule drug discovery
Collabora on – discovery
528
Sorrento Therapeu cs/ Servier Sagent Pharmaceu cals/ Nichi‐iko Pharmaceu cal X‐Chem/ Bayer Vemedia/ Cooper TiGenix/ Takeda Advanced Cell Diagnos cs/ Bio‐Techne Celyad/ ONO Pharmaceu cal Sequenom/ LabCorp Sprint BioScience/ Petra Pharma Pfenex/ Jazz Pharmaceu cals Cytokine cs/ Astellas Alphatec/ Globus Medical BioD/ Derma Sciences
Product / Technology
Deal Type
OTC drugs, food supplements and medical devices Acquisi on producer and distributor Cx601 – stem cell treatment for perianal fistulas in Licence* Crohn’s Disease pa ents Technology pla orm and consumables por olio for Acquisi on diagnos cs in clinical and research arenas
Headline ($m)
416 432 325
Allogeneic NKR‐2 T‐cell immunotherapy
Licence**, op on
311
Non‐invasive prenatal tests and gene c tests
Acquisi on
302
PIP4K2a inhibitor programme
Licence
240
Licence, op on
181
Collabora on –development & commercialisa on
100
Acquisi on*
80
Acquisi on
78
Licence***
50
Por olio of early‐stage hematology candidates & op on for recombinant pegasparaginase Tirasem v, CK‐2127107 and next genera on skeletal muscle ac vators in amyotrophic lateral sclerosis Interna onal opera ons & distribu on of medical devices for spinal disorders Regenera ve medicine products derived from placental & birth ssues for mul ple indica ons
Sun Pharma/ Almirall
Tildrakizumab (IL‐23p19 inhibitor) ‐ psoriasis
Patagonia/ Almirall
PAT‐001 (isotre noin‐based treatment) – congenital Licence ichthyosis
28
Pro Farma/ Recorda
Proprietary prescrip on and OTC specialty drugs
Acquisi on
16
Derma Sciences (First Aid Division)/ DUKAL
American White Cross® ‐ por olio of products for first aid wound care
Acquisi on
12
All deals are worldwide unless otherwise noted – see below: * ex US ** Japan, Korea, Taiwan *** Europe
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Deal Watch | Issue Seventy Three | July 2016
BioTechne paid $250m in cash (with a further $75m in con ngent milestones) for Advanced Cell Diagnos cs, a move into the genomics field described as an “excellent strategic fit” by ACD’s CEO. BioTechne acquires ACD’s technology for monitoring gene expression pa erns at the single cell level. Globus Medical paid $80m in cash for the interna onal business of Alphatec, a medical device company. Alphatec will use the cash to pay down its debt and transi on itself to a US‐focused company. Recorda has been busy on the acquisi on front recently; in May the company acquired Italichimici for $145m, strengthening its gastroenterology and respiratory ranges, and in July it bought the Swiss company Pro Farma for $16m, both for cash. Finally, Derma Sciences has sold its First Aid Division for a modest sum of $12m in cash, describing it as a “decisive strategic step” to enable it to focus on its advanced wound care business. And indeed, the following day it announced that it had paid $21.3m in cash and stock (plus a further $56.5m in poten al milestone and earn‐out payments) for BioD, a privately held regenera ve medicine company.
Real Skin in the Game Unusually there are several dermatology deals in July. Almirall is con nuing to build the company’s ac vi es in dermatology, which now represents 43% of the company’s revenues and is driving gross margin improvements. With a cash balance of over $500m the company has been inves ng real money in new assets to add to its already strong development pipeline. Almirall paid $50m upfront to Sun Pharma for a licence to ldrakizumab (an IL‐23p19 an body) in Europe, and the deal includes payments of undisclosed development and regulatory milestones as well as sales milestones and royal es. The product completed Phase 3 studies in moderate to severe plaque psoriasis in May 2016 and announced that the primary endpoints had been met. Almirall’s second deal announced this month is with Patagonia, a company specialising in developing novel treatments for rare dermatological diseases. The product PAT‐001 is entering Phase 2 studies in pa ents with congenital ichthyosis, a group of rare gene c condi ons characterised by rough and scaly (“fish‐like”) skin. The product contains isotre noin (Roaccutane) and has Orphan Drug Designa on in the US. Almirall’s ini al expenditure has been a more modest $3.5m for this earlier stage product. The development and regulatory milestones amount to $24m and royal es are “double‐digit”. Notably this deal is global and has the poten al to have a major impact on Aqua Pharmaceu cals, the US opera on Almirall bought at the end of 2013 for $305m plus milestones. AstraZeneca is con nuing to agree deals that permit it to focus on its core strategic therapy areas by outlicensing the global rights to tralokinumab, its an IL‐13 mAb, in skin condi ons to LEO Pharma. AstraZeneca is developing tralokinumab for severe asthma, where it is in Phase 3 development, and has recently completed a Phase 2b study in pa ents with atopic derma s. The presenta on is subcutaneous injec on in both indica ons, leaving the complexi es of poten ally conflic ng posi oning open. Finally, at the other end of the dermatology spectrum, Derma Sciences has sold its First Aid Division in order to concentrate its ac vi es on advanced wound and burn care products. The purchaser, DUKAL, paid $12.2m for products with 2015 revenues of $16.7m; these products include a family of first aid products including the brand American White Cross®.
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Deal Watch | Issue Seventy Three | July 2016
Catharine Staughton. Over the last 30 years Catharine’s career has spanned three areas of exper se within the pharma industry: finance, business development and consul ng. At Medius she supports clients in various aspects of business development training, in product forecas ng, financial structuring of licensing deals and training BD execu ves in all aspects of finance.
Catharine gained her financial experience as a sell‐side analyst covering European biotech and pharmaceu cal stocks at Robert Fleming (now part of JP Morgan), and her business development experience at Medeva and An soma. She has also spent 12 years as a health care consultant, ini ally at The Wilkerson Group in New York and London, and subsequently at Bionest Partners, in New York and Paris, where she advised clients in a wide variety of projects, including new product sales forecas ng, strategy, deal analysis and due diligence.
Real Rela onships Astellas and Cytokine cs have announced another extension to their agreement involving the development of their skeletal muscle ac vators, rasem v and CK‐2127107. In 2013 the companies agreed a deal for CK‐2127107 in non‐neuromuscular indica ons (i.e.: excluding the ALS indica on for Cytokine cs’ lead product, rasem v). In 2014 the partners expanded the agreement for CK‐2127107 to include some neuromuscular indica ons, such as Spinal Muscular Atrophy (SMA). In July, Astellas paid $65m upfront for an op on to rasem v in ALS outside the US and Europe and a further $30m to fund the Phase 2 development of CK‐2127107 in ALS through 2017 and the research collabora on. The benefits of an ongoing rela onship illustrate a feature of deal‐making that is too o en forgo en – when you sign a deal it’s the beginning of a rela onship, not the end. The importance of good Alliance Management brings long‐term benefits to both sides of a deal, with the ability to expand and consolidate the reach of the deal over me. Similarly, Bayer has extended its agreement with X‐Chem for access to the la er’s DEX™ technology of DNA‐encoded libraries of small molecules with a headline figure of $528m (but undisclosed upfront payments).
And Finally, Reality Bites ALK‐Abello has issued a press release announcing that Merck & Co has walked away from the deal agreed in 2007 (with Schering‐Plough) for the allergy treatments Grastek® and Ragwitek®, and the inves ga onal treatment, Acarizax®. Grastek® and Ragwitek® are sublingual allergy immunotherapy (SLIT) tablets (for Timothy grass and Ragweed allergies respec vely) and were approved in April 2014 with Black Box warnings. They appear to have failed to have an impact on the an ‐allergy market in the US and, a er two seasons, the rights to the products in the US will revert to ALK‐Abello in early 2017. No sales figures have been released by either side, but ALK‐Abello commented that the company’s European sales of SLIT tablets reached DKK 257 ($38m) in the first half of 2016, while it received an income of DKK 15m ($2.2m) in sales royal es, R&D services and product supply for SLIT in North America over the same period. With Merck & Co’s 2015 total sales reaching almost $40B it seems clear that the impact of the loss of sales on Merck & Co’s overall business will not be significant.
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