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Deals Of The Week: Merck KGaA/Ono, Puma/Pfizer, AstraZeneca /MedImmune/Pfizer…

Executive Summary

Each week, “The Pink Sheet” presents commentary on some of the week’s most interesting business deals, contributed by the editors of the IN VIVO blog. Visit the blog at

Each week, “The Pink Sheet” presents commentary on some of the week’s most interesting business deals, contributed by the editors of the IN VIVO blog. Visit the blog at

It’s a plain-vanilla Deals-Of-The-Week this week, although one can speculate as to why Pfizer Inc. out-licensed two oncology compounds aimed at promising, albeit risky, targets even as it builds its oncology franchise – and what terms it got for those deals. To be sure, cancer immunotherapy has received a bad rap in recent months given the disappointing performance of Dendreon Corp.’s flagship drug, Provenge, the first cancer immunotherapy to reach the market. But the field is quite robust, as highlighted on Oct. 3, when the Nobel Prize for Medicine was awarded to three immunologists, one of whom, Ralph Steinman, discovered dendritic cells, which became the basis of Dendreon’s business. Ironically Steinman died hours before Karolinska Institute announced his award; the two other winners Bruce Beutler and Jules Hoffmann were honored for their work on innate immunity.

PPD/Carlyle Group & Hellman & Friedman

Since the summer, rumors have swirled that contract research organization Pharmaceutical Product Development Inc. was in play. This week, private equity firms The Carlyle Group and Hellman & Friedman struck a $3.9 billion deal to acquire PPD, taking it private in a leveraged buyout (Also see "In Private Equity Hands, PPD Could Seek More Deals" - Pink Sheet, 10 Oct, 2011.).

Affiliates of the two firms will combine to put up nearly $1.8 billion of their own equity capital, although neither firm revealed whether they contributed equally. The firms arranged for the remainder as debt funding from four lenders: Credit Suisse AG, J.P. Morgan Chase Bank N.A., Goldman Sachs Bank USA and UBS Loan Finance LLC. The deal will compensate PPD stakeholders with $33.25 per share. That’s a premium of nearly 30% over PPD’s closing price of $25.66 on Sept. 30.

In July, rumors suggested PPD might explore a sale. The Wilmington, N.C.-based company confirmed this with a July 18 statement that it would conduct a strategic review of its options, although founder Fred Eshelman insisted that PPD remained committed to its long-term plan and had not considered combining with another CRO. The deal is subject to a 30-day “go-shop” window, and is subject to a $58 million breakup fee if PPD chooses a higher bid, or a $116 million fee if the parties walk away for some other reason.

Merck KGaA/Ono Pharmaceutical Co. Ltd

Why pay cash if you can barter asset rights instead? In a duo of agreements announced Oct. 4, Germany's Merck KGaA licensed worldwide rights ex-Japan, Korea and Taiwan to Ono Pharmaceutical 's Phase II MS candidate, ONO-4641, while granting Ono Japanese rights to its own Phase III cancer immunotherapy Stimuvax. This is the second barter-style deal that Ono has signed in recent weeks. It licensed Japanese rights to Bristol-Myer Squibb's Orencia (abatacept) on September 20, while BMS gained rights in additional territories to an Ono antibody, ONO-4538/BMS-936558.

The deals were described as two separate agreements, but linking them together means that less cash changes hands: Merck owed Ono Yen 1.5 billion ($18.6 million) for the MS drug, but was able to knock off a third of that by granting Ono the rights to its Stimuvax cancer vaccine, now in Phase III for non-small-cell lung cancer, for €5 million ($6.6 million). No further financial details were given, except that milestone payments would be made to Ono on Merck's progress with the MS drug. Merck Serono licensed worldwide rights to Stimuvax from the U.S. biotech, Oncothyreon Inc. And Merck Serono has also recently snapped up another MS therapy, PI-2301, from a U.S. company going through liquidation, Peptimmune Inc., for what appears to be a bargain $1.5 million upfront.

Puma Biotechnology Inc./Pfizer Inc.

Entrepreneur Alan Auerbach may have found a replicable biotech business model, which relies on private placements and reverse mergers to shore up financing for development of new compounds. Auerbach, a former securities analyst, founded Cougar Biotechnology Inc. in 2003 to develop oncology drugs, took it public through a reverse merger in 2006 and sold it to Johnson & Johnson for nearly $1 billion in 2009. Along the way, the company raised several hundred millions of dollars from private placements with institutional investors, who earned handsome returns upon the J&J sale. Now, he is taking a similar tack with another startup he founded, Puma Biotechnology Inc.

On Oct. 5, Puma announced that it had in-licensed worldwide commercial rights from Pfizer to an investigational pan-HER inhibitor, neratinib, now in Phase II studies for Herceptin (trastuzumab)-resistant metastatic breast cancer patients.

Almost simultaneously, it also announced completion of a reverse merger with a shell company, Innovative Acquisitions Inc., and a $55 million private placement, which attracted some veteran biotech investors, such as Orbimed Private Investments IV, Adage Capital Partners, H&Q Life Science Investors, and others. Also, in July, a company with Auerbach on its board of directors, Radius Health Inc., followed a similar financing path after a key partner elected not to exercise its option on its lead compound, a treatment for osteoporosis. Radius raised $91 million from a private placement consisting of two-thirds equity and one-third debt and engineered a reverse merger with the shell company MPM Acquisition Corp. Neratinib is being studied in the neoadjuvant, adjuvant and metastatic settings in patients with HER2/ErbB2 positive breast cancer.

AstraZeneca PLC/MedImmune/Pfizer Inc

Neratinib wasn’t the only oncology compound Pfizer out-licensed this week. It also gave global development rights for the cancer immunotherapy tremelimuma to Medimmune, AstraZeneca PLC’s oncology arm. Terms of the deal were not disclosed. Tremelimumab is a fully human monoclonal antibody, which binds to the protein CTLA-4, expressed on the surface of activated T lymphocytes.

Pfizer is working to build its global oncology franchise, now a distant runner to some of its big pharma competitors. Its top oncology drugs are Sutent (sunitinib) and the newly launched targeted therapy Xalkori (crizotinib). But it has had difficulty expanding Sutent indications beyond advanced renal cell carcinoma and gastrointestinal stromal tumors.

The question, then, is why Pfizer would have out-licensed either drug. None of the companies involved in these deals was available for comment, but Pfizer appears to be taking a nuanced approach to building its oncology franchise and is focusing on targeted therapies. And Medimmune’s expertise is in biologics, which could fit well with tremelimumab.

Gilead Sciences Inc./ Boehringer Ingelheim

Gilead will license an indeterminate number of non-catalytic site integrase inhibitors (NCINIs) for HIV from Boehringer Ingelheim, including the lead compound BI-224436. Terms were not disclosed other than that Gilead will pay BI an upfront payment plus further payments based on the achievement of development, regulatory and commercial milestones, as well as royalties on future net sales for exclusive worldwide rights to the series.

These second-generation integrase inhibitors represent a new class of antiretrovirals that bind to a novel site distinct from the current catalytic site targeted by the current generation of integrase inhibitors including Merck’s Isentress (raltegravir) or Gilead’s own late-stage candidate elvitegravir. Klaus Dugi, SVP medicine at BI, said in a press release that BI would focus on development of other assets in their virology portfolio, in particular on hepatitis C. BI-224436, which has completed a PIa trial, may offer a superior resistance profile compared with the predecessor drugs by engaging a different site on the enzyme.

By Paul Bonanos, Wendy Diller, Mike Goodman, John Davis


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