Stream of consciousness pharmaceutical banter

Intercell AG, a Vienna based biotechnology company which makes adjuvants for vaccines, bought Iomai yesterday for approximately $189M ($6.60 per share, or a 126% premium over the previous day’s close). Intercell, which has a BLA pending with the FDA for a Japanese encephalitis vaccine, will gain full rights to Iomai’s late stage Travelers’ Diarrhea vaccine which is based on a proprietary needle-free patch delivery vaccine technology and has shown positive interim Phase II efficacy data. The Travelers’ Diarrhea vaccine is expected to enter pivotal Phase III trials in the first half of 2009.

I think this is a good deal for both sides. Iomai’s cash was thinning out ($15.5M remaining to start the year) and needed an influx to remain solvent, while Intercell found a truly synergistic partner for its vaccine franchise. If anything, I would say Intercell got a bargain. Not just in the pipeline, but in the novel, transcutaneous delivery system pioneered by Iomai. Needleless delivery of vaccines could both enhance efficacy of existing vaccines and enable the development of new vaccines that are not able to be delivered by current syringe methods.

(Image from Ciao-chow on flickr under a creative commons license)

A little over a month after Daiichi Sankyo (post-merger) ditched their license for KAI-9803, Bristol-Myers Squibb agreed to a partnership agreement with similar terms. Originally, KAI received $20 million upfront from Sankyo, as well as potential milestone payments of up to $300 million for two initial indications and milestone payments on any future delta PKC inhibitors developed.

Under the terms of the new BMS collaboration, KAI will receive an upfront cash payment of $25 million. BMS will fund all future development, including the Phase 2b clinical trial to be conducted by KAI. In addition, at KAI’s option, Bristol-Myers Squibb will purchase $10 million of KAI stock at the time of a qualified initial public offering, or under other specified future conditions. KAI may receive up to $192 million in milestone payments. KAI could be eligible for additional milestones if other compounds are developed. KAI will have an option to co-promote KAI-9803 in the United States and will receive royalty payments on product net sales worldwide.

KAI-9803 is an inhibitor of delta protein kinase C and is designed to dampen the size of a heart attack and improve clinical outcomes during treatment of acute myocardial infarction (AMI). During a heart attack, blood flow to the heart is compromised resulting in myocardial and endothelial cell necrosis and apoptosis. Selective inhibition of the delta PKC isozyme by KAI-9803 may reduce the injury to myocardial and endothelial cells during a heart attack and reduce the risk of death or heart failure. KAI-9803 has received Fast Track designation from the FDA.

Usually, agreements take more than a month to announce. BMS must think KAI has something special here, though as a rule, intracardiac injections scare me.

On the same day that Elixir Pharmaceuticals canned its IPO plans citing tough market conditions, Aldagen filed an S-1 expecting to raise as much as $81M.  The company has not yet issued details of how many shares they expect to offer or even the share price. The only biotech, US IPO was Bioheart Inc.’s infinitesimal $5.8M offering in February.

In the S-1, the company said the proceeds from the offering would be used to fund ongoing research and development, including clinical trials.  The company uses a platform to find adult stem cells expressing high levels of aldehyde dehydrogenase (ALDH), an enzyme believed to promote regeneration across a wide variety of cell types.  Aldagen began enrolling patients in a phase III trial in March to improve the efficacy of umbilical cord blood transplants used to treat inherited metabolic diseases.  Results are expected in the first half of 2010.

I doubt the Aldagen IPO will be any different that the nearly 20 other biotech IPO filings idling waiting for the market to change.  After the Bioheart fiasco, it might be nice if Aldagen raised enough cash to pay Cowen its fees.

Enzon Pharmaceuticals, on the reported urging of uber-investor Carl Icahn, will spin off a NewCo along with the majority of the company’s core technology (PEGylation), their entire published preclinical pipeline (i.e.; their RNA antagonist oncology portfolio) and $150m of funding from Enzon. Not a bad way to start a company, right?

Maybe I’m way off here but it seems to me in analyzing this deal that the NewCo gets all the goodies while Enzon is left with a manufacturing plant and a stable of marginal drugs (zero out of four therapies have over $50m a year in revenue). Now, I don’t mean to imply that I think Enzon is a bad company - hell, they’ve managed to make more profit this quarter, than any pharma company I’ve ever worked for - I’m just saying they are selling their future based on the advice of a man notorious for breaking up companies and wringing every last dime out of a shakeup. Just listen to the PR speak from their CEO and tell me if it makes strategic sense:

“By separating these unique businesses into two focused companies, the opportunities for both the specialty pharmaceutical business and the biotechnology business could be substantially enhanced and greater value could be created than under the current structure,” said Jeffrey H. Buchalter, Chairman, President and CEO. “Operating separately will allow each company to benefit from greater strategic and managerial focus and appeal to their own unique shareholders. The separation will enable the two businesses to compete more effectively in their respective markets and optimize their business goals, research initiatives and capital requirements. We look forward to creating this opportunity for the shareholders,” said Mr. Buchalter.

So… 1-x= more than 2, due to focus and appeal from unique shareholders? Interesting. I guess it would be wrong to beg for a quick exit strategy via big pharma acquisition for NewCo in the initial press release. But it doesn’t stop there, the bullshit continues:

“The specialty pharmaceutical business will continue its long-standing track record in providing life saving therapies for patients. The business has strong fundamentals, including stable revenue, cash flow, and strong assets,” said Mr. Buchalter. “Upon completion of the spin-off, Enzon will have the resources to better focus its strategy and compete more effectively in the specialty pharmaceutical market.”

Yes, without all that pesky preclinical discovery and development going on, the company can focus on its stable revenue and cash flow until the patents run out and they have to begin thinking about the future!

I don’t think I’m the only one with this opinion either. Even while releasing earnings for the quarter that showed a 20% increase in revenue over 1Q07 and netting the company a ~$2m profit, the stock was penalized ~8%. Is it a shock to learn I don’t think this is enough of a drop? I don’t generally think shareholders should reward the loss of the future earnings potential of the company and the give away the core company technology. But what do I know?

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In other Enzon related news, I just found this press release about the pay of the CEO:

DellaCamera Capital Master Fund Ltd., a 5.8% stakeholder of Enzon Pharmaceuticals Inc. (ENZN), said Thursday that it’s troubled by the compensation granted Enzon Chairman and Chief Executive Jeffrey Buchalter and calls for the resignation of three directors.

DellaCamera sent a letter to Enzon’s board on Thursday, saying that it’s also reviewing its voting alternatives with respect to the three directors up for election at the company’s May 22 annual meeting of shareholders.

DellaCamera is calling for the resignation of Goran A. Ando, Rolf A. Classon and Victor P. Micati, who are the current members of Enzon’s compensation committee.

So I did a little research and it turns out, Jeff Buchalter made $773,558 base with $1,162,500 in bonuses for a total cash compensation of ~$2m. Add to that the just over $3.1m in equity granted to Jeff and he pulled in a total of ~$5.2m in compensation last year (almost 3X any other executive at the company). It’s good to be the king.

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(photo of Icahn from samlustgarden under a creative commons license)

In a previous post, I speculated on reasons for shedding of non-core pharmaceutical assets by BMS. Don’t read it. I was grasping at straws and missed the real connection, I think BMS is divesting non-biopharm assets because it will soon be acquired. The company’s stock is down 11% from this January and ~23% from a year ago today, though it us up 8% in the last five days, so now might be a good time to buy.

BMS has some potential winners in late stage development like apixaban (a factor Xa antagonist as an anticoagulant), saxagliptin (DPP IV inhibitor for diabetes), ipilimumab (CTLA-4 mAb for cancer), pexacerfont (CRF-1 antagonist for anxiety), belatacept (CD28 antagonist for immunosuppression), dapagliflozin (SGLT-2 inhibitor for diabetes and MDX-1379 (Pmel17 based cancer vaccine). Out of these programs, only ipilimumab, pexacerfont and MDX-1379 don’t have a partner [apixaban is partnered with Pfizer, saxagliptin and dapagliflozin with AstraZeneca and belatacept with Novartis].

So who is the suitor? Any of the companies mentioned above would be a logical starting point and Sanofi-Aventis would be another good fit. There is already a relationship between the two companies through the co-marketing of Plavix and many of analysts have speculated Sanofi to be in the lead but ultimately, any of the big five could pull off the deal. BMS holds its annual shareholders meeting today, let’s see what news creeps out.

Which name sounds the best to you?

- Pfizer-Myers Squibb
- Bristol-Myers Zeneca
- Sanofi-Aventis Squibb
- GlaxoSmithKlineSquibb
- NovarSquibb

A few hours after I had written this post about the Pfizer/Esperion spin-off signaling a changing of the times in big pharma, I see I this story about Bristol-Myers Squibb divesting ConvaTec to some private equity groups (Nordic Capital VII and Avista Capital Partners) for $4.1 billion dollars. This press release jogged my memory and I remembered reading about BMS divesting its medical imaging division for 500 something million, also to Avista sometime in late December. While neither deal is applicable to my “entering a new R&D phase” projection I put forth in the aforementioned post, the move does still signify the big players’ willingness to concentrate on what they do best.

Now, I don’t follow non-biopharma industries real closely so you can correct me if I’m wrong, but doesn’t this seem to be the anti-GE strategy (i.e.; divesting non-synergistic business units)?  I’m not sure what this means.  Maybe pharma is choosing potential growth rate over mitigating risk by diversification for a potential larger return? Or, contrary to my thesis, big pharma may just be trading a failed (or stagnant) asset for one with a brighter future by buying the next hot commodity. With licensing deals for in-demand, phase 2 compounds increasingly in the 100-200m upfront, $1b biodollar every dime helps (even if you have 11 figures of cash in the bank.

Can’t resist.

What a difference time makes.  Pfizer acquired Esperion roughly 4 years ago at a 53% premium and a price tag of $1.3 billion dollars.  Yesterday, Esperion was spun off from Pfizer and raised ~$23m from VCs to continue operation, with no other financial terms disclosed.  Esperion had been operating as a separate research division inside Pfizer (Ann Arbor) and I doubt the move was a surprise.  The company’s main focus was on modulating HDL, a task Pfizer failed miserably at with torcetrapib last year and with big pharma being as risk averse as the come (I hear you can’t even mention the words “irritable bowel” at Novartis), it was probably a no-brainer for them to divest.

The thing I find interesting about this, aside from Esperion probably being the only series A funded start-up previously valued at $1.3B, is the signaling over the last year of big pharma’s willingness to divest, dis-integrate and part with intellectual property.  Earlier this year, AstraZeneca spun off its gastrointestinal research unit into a new company, called Albireo Pharma, in which it holds a minority stake.

Maybe this is the next big thing and a signal of things to come. Rather than kill an entire disease or target area due to a failed trial or compound, let a small (relatively), minority owned and specialized research shop continue advancement of compounds.   There is little downside and it allows the parent company to profit from any potential success.

Of course, the two instances noted are far from a trend, but my hunch is you will see this happening more as a thinning late-stage pipeline and patent expiries combine to force executives into hard decisions about the future of their respective companies. The next 10 years in this industry will be radically different that the previous decade and this seeming willingness from big pharma to give up IP, I believe, signals that the industry is reaching an inflection point where the blockbuster business model is changing.  Of course, I could be wrong.