Blockbuster M&A Deals Highlight Big Week for Biotech

This article published with permission from The Burrill Report.

The boards of Sanofi-Aventis S.A. (NYSE: SNY) and Genzyme Corp. (NASDAQ: GENZ) finally reached agreement on deal terms for the French pharma to acquire the American biotech, seven months after Sanofi made its intention public. After looking at Genzyme’s books, Sanofi agreed to pay $74 per share in cash, or approximately $20.1 billion, a step up from its original $69 per share offer.

Sanofi also agreed to give each Genzyme shareholder one contingent value right (CVR) for each share they own, which will entitle the holder to additional cash payments tied to specified milestones related to Genzyme’s Lemtrada, Cerezyme, and Fabrazyme drugs. Most of the milestones are based on the success of Lemtrada, a treatment for multiple sclerosis and a drug Genzyme CEO Henri Termeer has claimed has the potential to be a blockbuster. If all milestones are met, it will add as much as $3.8 billion to the total price of the deal.

The CVRs will be publicly traded and could be worth as much as $14 per share if all milestones are met. The value of the CVRs are tied to one-time payments of $1 per CVR, if specified production levels of Genzyme’s two main drug products -- Cerezyme and Fabrazyme -- are met in 2011; $1 per CVR upon final U.S. Food and Drug Administration approval of Lemtrada as a treatment for multiple sclerosis; $2 per CVR if net sales after Lemtrada’s launch exceed an aggregate of $400 million within specified periods per territory; $3 per CVR if Lemtrada’s global net sales exceed $1.8 billion; $4 per CVR if its global net sales exceed $2.3 billion; and $3 per CVR if global net sales exceed $2.8 billion. The CVR will terminate on Dec. 31, 2020, or earlier if the fourth product sales milestone has been achieved.

Based on realistic assumptions, the deal will be worth $78 per share, Marc Booty, an investment manager for Pictet Asset Manager in London, told The New York Times. The deal is expected to close early in the second quarter of 2011, subject to customary closing conditions, and is expected to be accretive to Sanofi’s net earnings per share in the first year following closing, and accretive to net earnings per share in the range of $1 to $1.40 per share by 2013.

The acquisition makes good on CEO Chris Viehbacher’s strategy of looking externally for innovation and diversifying its business. The deal is the second-largest acquisition of a biotech deal after Roche’s purchase of Genentech, according to data from Thomson Reuters. Sanofi plans to make Genzyme its global center for excellence in rare diseases and the acquisition will reinforce its commitment to the greater Boston area, where it already has a sizeable presence. Genzyme will retain its corporate brand.

At the close of trading Friday, Sanofi’s American depositary shares were trading at $34.75; and the Cambridge-Mass., company’s shares were at $75.38.

In another sizable deal in the biotech sector, Aveo Pharmaceuticals Inc. (NASDAQ: AVEO), also headquartered in Cambridge, signed a major cancer drug licensing deal with Japan’s Astellas Pharma that will net the biotech $125 million upfront and could be worth more than $1.3 billion if all milestones are met. Aveo’s shares closed Friday at $13.89.

The experimental drug, tivozanib, is currently in a late-stage trial as a treatment for advanced renal carcinoma, and in other studies as a treatment for other solid tumors. It is designed to optimally block the VEGF pathway by inhibiting all three VEGF receptors, for the treatment of a broad range of cancers.

Astellas will pay Aveo $125 million upfront, which includes a $75 million license fee and $50 million in research and development funding. Aveo is also eligible to receive up to $1.3 billion in potential milestones that includes $575 million in clinical and regulatory milestones, as well as more than $780 million in commercial milestones. Subject to regulatory approval, Aveo will lead commercialization of tivozanib in North America and Astellas will lead commercialization of tivozanib in the European Union. The companies will share equally all North American and E.U. development and commercialization costs and profits for tivozanib. Astellas will be responsible for the development and commercialization costs of tivozanib outside of North America and European Union and will be obligated to pay Aveo a tiered, double-digit royalty on sales in those territories. Kyowa Hakko Kirin retains the rights to develop and commercialize tivozanib in Asia. Aveo will be responsible for the manufacturing of tivozanib.

In other market-moving news:Merck & Co. Inc. (NYSE: MRK) said it was unable to find a buyer for its MSD Organon research and development unit in the Netherlands, M&A Navigator reported. Merck, based in Whitehouse Station, N.J., delayed closure of the plant as it considered alternatives including a sale of the unit. Though there were talks with potential buyers, no deal resulted. M&A Navigator said Aspen Pharmacare, Takeda, and Dutch bioscience firm Pantarhei reportedly submitted bids for parts of the unit. The company said Organon’s drugs and biologics business would remain a core part of the group. Merck shares closed Friday at $32.85.

The FDA said that DepoMed Inc. (NASDAQ: DEPO) will need to provide additional information on its newly approved pain drug Gralise before it can grant it orphan drug status. The Melo Park, Calif., company announced the development in a filing with the U.S. Securities and Exchange Commission. Gralise is a once-daily formulation of gabapentin for the management of postherpetic neuralgia developed by DepoMed, and licensed to Abbott Products in the U.S., Canada, and Mexico. The FDA previously granted Gralise orphan drug status for the management of postherpetic neuralgia, but since notified the company that additional submissions or evidence to demonstrate the clinical superiority of Gralise based on improved safety will be required to be provided to the FDA to obtain a seven-year period of market exclusivity as a result of the orphan drug designation. (G. Steven Burrill, publisher of The Burrill Report, is a member of the DepoMed board.) Shares of DepoMed closed at $8.51.

The office of the U.S. Attorney for the District of Massachusetts has served Novo Nordisk A/S (NYSE: NVO) with a subpoena calling for the production of documents regarding potential criminal offenses relating to the Denmark-based company's marketing and promotion practices. Novo Nordisk said the office is seeking documents relating to its products NovoLog, Levemir, and Victoza, and said it will cooperate with the U.S. Attorney in this investigation. The company’s shares closed at $126.31.

Inspire Pharmaceuticals Inc. (NASDQ: ISPH) said it would eliminate 65 positions, or more than a quarter of its workforce, as part of a restructuring designed to focus its efforts on its eye-care business. The job cuts represent a 45% cut to non-salesforce positions. Inspire said the restructuring is estimated to result in a more than $40 million reduction in 2011 non-cost of sales operating expenses, excluding restructuring charges, as compared to a year earlier. Inspire’s shares closed Friday at $4.20.

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