Big Pharma in Frenzy of Drug Deals

By Brett Chase

Big drug companies are rushing around before year end to ink deals they hope will spark future growth.

Several deals were announced today -- none of which are blockbusters and most of them are stacked with “bio bucks”: dollars committed based on milestones that may never materialize. These bio-buck deals are lower-risk transactions that promise bigger payouts only when the smaller companies deliver.

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But each deal reveals strategic thinking by the companies, Pfizer (PFE), Sanofi-Aventis (SNY), Bristol-Myers Squibb (BMY), Novartis (NVS), and Gilead Sciences (GILD). The transactions focus on cancer, HIV and other unmet needs, while Novartis makes a play for Russia. Emerging markets are a growing area of interest for drug makers.

Among the pacts announced today, only one is a takeover: Gilead's $225 million bid for closely held Arresto Biosciences, a biotech company developing treatments for cancer and a fatal lung disease. The agreement potentially makes future payments to Arresto owners based on sales goals. Arresto is testing a drug in the first phase of human studies to treat idiopathic pulmonary fibrosis. That's the same disease targeted by InterMune (ITMN), which is hoping to get European approval for its drug Esbriet. Gilead hopes to close its deal in the first quarter of next year.

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“This is a fit for Gilead, both on therapeutic area and acquisition size,” says Robert W. Baird analyst Thomas Russo, who rates Gilead a buy. “While it's very early days, the technology looks promising.”

Sanofi is also investing in cancer research [pdf], paying closely held Avila Therapeutics $40 million to develop drugs, with potential milestones up to $154 million. Avila is backed by several venture capital firms, including one run by Novartis. Of course, Sanofi continues to pursue Genzyme (GENZ), offering $18.5 billion for the rare-disease drug maker.

Bristol-Myers agreed to pay up $286 million to Japan's Oncolys BioPharma for an HIV drug, festinavir, in the middle stages of human testing. HIV/AIDS is one of the top areas of focus for Bristol, which sells Reyataz. The HIV treatment had more than $1 billion in sales through nine months this year.

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Pfizer signed two deals -- one with Australia's Phylogica to develop vaccines for cancer and other diseases, and another agreement with small-cap Lpath (LPTN) to develop eye treatments. Pfizer is paying Lpath $14 million upfront with potential payments of almost $500 million to develop iSONEP for wet age-related macular degeneration, a major cause of vision loss in the elderly. Phylogica gets $500 upfront and up to $134 million in milestones.

Novartis is spending $500 million to build a plant in St Petersburg, Russia, and enter into a development pact with government officials there. As part of its deal with the government, Novartis plans to collaborate with academic and private companies in Russia that includes licensing deals. The Swiss drug maker is doubling its investments in clinical trials in the country.

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