Deals Were in the Spotlight as Biotech Shares Slumped

This article published with permission from The Burrill Report.

Life sciences companies saw $3.4 billion in disclosed merger and acquisition transactions and $1.1 billion in disclosed partnering deals during the third week of August. Aspen Pharmacare Holdings Ltd.'s acquisition of the drugmaking assets of Sigma Pharmaceuticals for $806 million in cash will allow the troubled Australian pharmaceutical to clear its outstanding debt and focus on its pharmacy wholesale and retail division. The acquisition will make Aspen, Africa’s largest drugmaker, the largest prescription pharmaceuticals manufacturer in Australia. Aspen will acquire Herron and orphan drug lines and manufacturing operations, as well as its generic and over-the-counter drug portfolios.

Two privately held contract research organizations were among the larger acquisition targets. Pharmacy benefits manager Medco Health Solutions Inc. (NYSE: MHS) agreed to buy United BioSource Corp. for $730 million in cash. United BioSource tests drugs and devices for safety and effectiveness after regulatory approval and has global resources. The UBS acquisition follows Medco’s recent announcement that it plans to offer pharmacogenetic testing services to its clients to test the effectiveness of drugs. Medco says the combination will extend Medco’s core capabilities in data analytics and research to further accelerate pharmaceutical knowledge, advancing patient safety and furthering evidence-based medicine. In February, Medco acquired San Francisco-based genetic testing firm DNA Direct.

The transaction, which will be funded through Medco's free cash and existing debt facilities, is subject to customary regulatory approvals and is expected to close in the third quarter of 2010. The new business is expected to be slightly accretive to Medco shareholders in 2011, excluding one-time items and amortization. Medco shares were at $45.46 in early trading Monday.

The agreement is expected to be slightly accretive to Medco earnings in 2011, excluding one-time items and amortization. United BioSource, based in Bethesda, Maryland, will have revenue of $280 million in 2010 and a growth rate of more than 20 percent, according to a Medco statement. Medco’s shares fell 2.4 percent on the announcement and are down 28 percent since the beginning of the year.

Avista Capital Partners, a private equity firm, and Ontario Teachers' Pension Plan, through its private investor department, Teachers' Private Capital, are going to pay $600 million to acquire INC Research, a global CRO that employs 2,000 people in 40 countries. Unlike United BioSource, which tests drugs and devices after they are approved, INC Research provides pharmaceutical and biotechnology companies with expertise in managing their late stage clinical development programs.

Busy Week for Genomics

Genomics companies, all competing for low-cost DNA sequencing systems, generated a lot of buzz as one company was acquired, one company filed to go public, and one company that had recently filed for an initial public offering raised a fresh round of venture capital. Life Technologies Corp. (NASDAQ: LIFE) agreed to acquire Connecticut-based Ion Torrent Systems Inc. for $375 million in cash and stock. Ion Torrent’s backers are also entitled to an additional $350 million in cash and stock if they achieve certain technical and time-based milestones through 2012. Life shares were at $44.47.

Formed by Jonathan Rothberg, founder of CuraGen, 454 Life Sciences and co-founder of Raindance Technologies, Ion Torrent’s chip-based PostLight sequencing technology enables a direct connection between chemical and digital information through the use of proven semiconductor technology. The first product using this technology will be the Personal Genome Machine, a highly-accurate bench top instrument optimal for mid-scale sequencing projects, such as targeted and microbial sequencing. The instrument is currently available through an early access program and will be launched later this year at an entry cost of less than $100,000.

Pacific Biosciences Inc., Ion Torrent’s California competitor in the race for a cheaper sequencer, filed for a $200 million initial public offering. Pacific Biosciences just completed a $109 million series F venture round, including a $50 million investment from Gen-Probe, bringing the total it has raised to date to $370 million. The company said in its filing that it will focus its technology in the near term on clinical, basic and molecular diagnostics.

Also in the news, rival Complete Genomics Inc. said it has raised $39 million in its Series E round, led by new investor Sands Capital with participation by existing investors Essex Woodlands, OVP Venture Partners, Prospect Venture Partners, OrbiMed Advisors, Highland Capital, and Enterprise Partners. The California-based company filed a $86.3 million initial public offering at the end of July. Unlike its competitors, Complete Genomics plans to offer sequencing services rather than selling its sequencers to researchers.

The company also said that it is evaluating a recent lawsuit filed against the firm by Illumina Inc. for alleged patent infringement, claiming that Complete Genomics' sequencing platform and services infringe three Illumina patents. “We cannot guarantee any particular outcome, as with any litigation, but we believe that we have substantial and meritorious defenses to the claims and intend to vigorously defend against this lawsuit," said Cliff Reid, chief executive of Complete Genomics, in a statement.

Closely held Knopp Neurosciences granted Biogen Idec Inc. (NASDAQ: BIIB) exclusive, worldwide license to its late-stage treatment for amyotrophic lateral sclerosis, also known as Lou Gehrig’s disease, and potentially other indications. The compound, KNS-760704, is a novel oral neuroprotective therapy that has received orphan drug designation in both the United States and Europe.

Biogen will make a $60 million equity investment in Pittsburgh-based Knopp and pay the company $20 million. Biogen Idec will lead the development of KNS-760704 for ALS and its potential commercialization in global markets, with Knopp providing development support and conducting certain U.S. commercialization activities under the direction of Biogen Idec. Knopp will also be eligible for up to $265 million in additional payments based on the achievement of development, regulatory, and sales milestones; and tiered, double-digit royalties on worldwide sales. Biogen shares were at $55.11.

Quark Pharmaceuticals Inc. granted Novartis AG (NYSE: NVS) an option to obtain an exclusive worldwide license to develop and commercialize its p53 temporary inhibitor siRNA drug QPI-1002, currently in mid-stage clinical development. Novartis is paying $10 million for the option. If it chooses to exercise the option, California-based Quark will be eligible for up to $670 million in additional payments plus royalties on sales of licensed products.

QPI-1002 is designed to temporarily inhibit expression of the stress-response gene, p53 and is the first synthetic siRNA to be administered systemically to humans. It is being developed for the prevention of acute kidney injury in patients undergoing major cardiovascular surgery, and for the prophylaxis of delayed graft function in patients receiving deceased donor kidney transplants. Novartis's American depositary shares were at $50.31.

In other market moving news:

All the top biotech companies saw their shares fall last week. Leading the decliners was Gilead Sciences Inc. (NASDAQ: GILD) , which dropped 9.7 percent. The company was notified last week that Sigmapharm Laboratories LLC sent an application to the U.S. food and Drug Administration asking it to allow the company to make and market a generic version of hepatitis B drug Hepsera. The notification alleged that two of Gilead's Hepsera patents are unenforceable by Sigmapharm making, using or selling a generic version of the drug. Gilead said it is reviewing the notification and has 45 days to file a patent infringement suit against Sigmapharm. If it does file a suit, the FDA would be prevented from approving Hepsera's request for 30 months or, if it happens sooner, until a court rules against Gilead. Gilead shares were at $32.90.

EpiCept Corp. (NASDAQ: EPCT) said it it received a refusal to file letter from the FDA on its new drug application for Ceplene drug to treat acute myeloid leukemia. Ceplene was approved in the European Union in 2008. EpiCept intends to request a meeting with the FDA to discuss its comments on the NDA submission. EpiCept shares plunged to 66 cents a share.

Shares of Jazz Pharmaceuticals Inc. (NASDAQ: JAZZ) plummeted after an FDA panel on Friday rejected its fibromyalgia drug. The panel was concerned about misuse or abuse of the drug. Jazz shares came under pressure on Thursday when the FDA unexpectedly posted a review of the drug on its website prior to the panel vote. Jazz shares, which hit a high of $11.90 on Wednesday, were at $7.85 in afternoon trading Monday.

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