Sanofi-Aventis announced on Oct 1 it would buy French ophthalmology biotech Fovea in an earn-out deal with a total value that could reach €370 million ($538 million). According to Fovea's president and chief executive, Bernard Gilly, the drug maker is paying a 'significant' chunk of the money upfront, with the rest due upon achieving concrete clinical milestones within three years.
The earn-out structure - besides being a popular format for Big Pharma acquisitions these days - will give Fovea's management incentive to remain with what will become the ophthalmology business unit within Sanofi. "They'll give us the freedom to run our programs, but provide the resources we'll need, too. We'll be left as a flexible, fast-moving unit," Gilly said.
It's a sign of the times - and certainly a sign of where Sanofi chief executive Chris Viehbacher came from. He previously ran North American pharmaceuticals at GlaxoSmithKline, which last year famously reorganized its R&D organization into small, biotech-like units with a high degree of independence. One of those is Ophthrisi, a unit focused on eye disease.
Indeed, this isn't Viehbacher's first deal to acquire a new business unit. Sanofi's April 2009 acquisition of BiPar Sciences was similarly structured, albeit with larger payments. BiPar, which focuses on cancer, received $375 million upfront, according to Elsevier's Strategic Transactions Database, and up to $125 million in further earn-outs. According to Gilly, BiPar is 'completely independent' and has very little interaction with the mothership.
But Fovea - which will remain at its current headquarters at the Vision Institute at the National Eye Hospital in Paris - won't be totally isolated. The unit will help Sanofi scout for new ophthalmology assets (most of Fovea's own most advanced programs are in-licensed) and sniff out any existing compounds within the big drug maker that could potentially be developed in this market.
The team - which includes renowned ophthalmologist professor José Sahel, Fovea's scientific founder - also likely will get involved with the gene-therapy-based ophthalmology programs that Sanofi licensed from UK biotech Oxford BioMedica in April 2009.
Aside from that deal, Sanofi - like most of its peers - hadn't been hugely interested in what was in the past seen as a specialist, insignificant opportunity, certainly for large drug makers.
That's all changed, particularly given the success of Genentech's Lucentis , which amply proved the value of drug repositioning in this arena. Novartis, Glaxo and Pfizer, among others, now list ophthalmology among their important therapeutic areas. And "since Viehbacher's arrival (in December 2008) Sanofi had decided to look at what's going on in ophthalmology" too, recounts Gilly. The drug maker assessed almost 100 biotechs, he continues, many working on vascular endothelial growth factor, or VEGF, inhibition. In the end, they chose Fovea - which isn't working on VEGF at all.
Indeed, "we think that (anti-VEGF) train has left the station," comments Tim Haines, a Fovea board member and partner at Abingworth, one of Fovea's investors. Fovea's lead compound is a Phase II fixed combination of prednisolone and cyclosporine, which is in development as an eye-drop for persistent allergic conjunctivitis (it was licensed in from CombinatoRx).
Other programs include an intravitreal formulation of a plasma kallikrein inhibitor in Phase I for retinal vein occlusion induced macular edema (EU rights in-licensed from Dyax) and a bradykinin B1 receptor antagonist (in-licensed from Solvay) for diabetic macular edema. The latter could be the most significant commercially (although it's only due to enter Phase I in November 2009) in a market where most other development candidates target VEGF. According to Gilly, "our target is more important." Bradykinin is a proinflammatory peptide and a potent vasodilator.
Abingworth first invested in the French biotech (along with lead Sofinnova, The Wellcome Trust, GIMV and Credit Agricole Private Equity) in a Series A financing round in 2005, which raised €20.5 million. Two years later, it participated in a €30 million Series B, led by new investors Forbion Capital Partners and Vesalius Biocapital, which are based in the Netherlands and Luxembourg, respectively.
Abingworth's (and its co-investors') internal rate of return is "very nice", according to Haines, even considering only the upfront payment. (He won't disclose that, but, note Sanofi paid BiPar over half the deal value upfront, although in that case the earn-outs were based on one product that was already part-proven, rather than on several). As for Abingworth's overall return on the deal, once the milestones are achieved, "it's not exceptional, but it's extremely healthy, particularly in the current environment," comments Haines.
That environment explains why Fovea's management is delighted to have found a Big Pharma acquirer, despite its claim to have lined up two large growth funds to lead a potential Series C round earlier this year. "We were looking to raise €150 million to take our programs to proof-of-concept," Gilly recalls.
But faced with the choice of a certain return and a guaranteed future for Fovea's compounds - and management - and the volatility of the markets, it was an easy decision. "If the financial climate had been different, we might have chosen independence. But I don't see a serious return to biotech investing in the market - not with good enough conditions to earn our investors a good return."
Big Pharma acquisitions have represented the only exit for private biotechs for a while now, and this appears unlikely to change anytime soon. Sanofi certainly intends to continue its small-to-mid-sized company acquisition spree: the company also on Oct. 1 announced it was raising €1.5 billion in 5- and 10-year Euro notes, and revealed a lucrative licensing agreement with Merrimack Pharmaceuticals for a Phase I monoclonal antibody in oncology The Big Pharma is paying $60 million in upfront cash for the compound - a sign, perhaps, of a recovery in early-stage deal values?
- Melanie Senior (2 m.senior@elsevier.com)
This article is reprinted from "The Pink Sheet" DAILY –Oct 2, 2009
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