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Pharmaceutical deals and megamergers tend to be mentioned in the same breath, and with good reason: Such transactions have dominated much of the past decade, spurred by a lack of return on R&D and a thirst for expansion. But while Teva Pharmaceutical Industries Ltd., Takeda Pharmaceutical Co. Ltd. and Gilead Sciences Inc. grabbed headlines by carrying out multibillion-dollar deals in 2011, Amgen Inc. began the year by paying just $1 billion for a Woburn, Mass.-based biotech company named BioVex Group Inc. It's that acquisition that is likely to be lauded as the industry's best value play of the year.
Thousand Oaks, Calif.-based Amgen announced last Jan. 24 that it would pay $425 million in cash up front and up to $575 million in contingent value payments for the rights to BioVex. The deal's structure -- an up-front payment with a contingent-value hook based on regulatory milestones -- is a common feature in Big Pharma deals for small biotechs. But BioVex's potentially revolutionary OncoVex vaccine, and the price paid for it, is what sets Amgen's deal apart.
OncoVex, derived from the herpes simplex virus, is an oncolytic virus therapy, a vaccine that attacks cancer by replicating inside of a tumor and prompting the cells to burst. It also provokes the immune system to attack other cancer cells wherever they reside in the body.
OncoVex piqued Amgen's interest when the drug passed its Phase 2 trials, showing positive anti-tumor activity in studies for the treatment of melanoma as well as for head and neck cancer. The transaction provides BioVex the financial clout to boost OncoVex's push toward the market.
Currently, the drug is undergoing two Phase 3 trials. One is for the efficacy and safety compared to granulocyte-macrophage colony-stimulating factor, or GM-CSF, which is used as a medication to stimulate the production of white blood cells in chemotherapy. The second will test the efficacy and safety of OncoVex in patients with melanoma. Results should be in by June 2012 and June 2013, respectively.
Should it pass muster with regulators, OncoVex would be the first oncolytic virus therapy approved by the Food and Drug Administration. Such a breakthrough in oncology would not only benefit countless patients, but also provide a windfall for Amgen and BioVex's venture capital investors.
Having paid $425 million in cash initially for BioVex, Amgen has already given the target's VC backers -- a group including MVM Life Science Partners LLP, Morningside Venture Investments, Sectoral Asset Management Inc., Ventech, Ysios Capital Partners and others -- more than a 2.5 times return on the roughly $166 million in funding they poured into the biotech -- with more cash potentially on the way.
It's worth comparing the BioVex deal to Gilead's $10.4 billion purchase of Pharmasset Inc. That was a 90% premium -- up front -- for Pharmasset's highly coveted hepatitis C compound, PSI-7977, after the drug breezed through Phase 2 trials. Amgen's more measured approach to taking on risk, along with the potential gains, makes this deal special.
"To me, [Amgen's deal] is less betting the farm than the Pharmasset transaction, but with the same potential upside and certainly the potential to change the whole landscape of how cancer is treated," says Robert Dentice, co-head of Cantor Fitzgerald LP's healthcare investment banking division, who was not involved with the transaction.
"I thought it was a watershed moment, and who knows? In four or five years [OncoVex] could be the cornerstone of Amgen's pipeline, and they could say they paid $425 million up front for it."
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