San Diego-based Ambrx, Inc., and Roche have entered into a collaboration agreement, in which Ambrx will use its proprietary technology to develop next generation proteins and peptides. The parties plan to use the technology platform to generate novel pegylated interferon alpha molecules.

The terms of the agreement provide for Roche to fund research and development of the products and to retain exclusive worldwide commercialization rights. In return, Ambrx will receive license fees, research funding, development milestone payments, and royalties on product sales. The Roche Venture Fund has also agreed to make an equity investment in Ambrx.

The Biotech Stock Blog raised some noteworthy concerns about the recent announcement by American Pharmaceutical Partners, Inc. that it will acquire its largest shareholder, American Bioscience, Inc., creating a biopharmaceutical company “Abraxis Bioscience.” If you did not read BioBlogger’s blogpost Bait and Switch: American Pharmaceutical Partners’ Proposed Acquisition of American BioScience (APPX) , you should check it out.

The terms of the acquistion provide for American Pharmaceutical to issue 86 million additional shares to American Bioscience, raising American Bioscience’s ownership of American Pharmaceutical’s shares from 64.4% to 83.5%. Abraxis Bioscience will own the global rights to Abraxane, a cancer treatment marketed in the United States for metastatic breast cancer, and American Pharmaceutical chairman and American BioScience CEO Patrick Soon-Shiong will become the chairman and CEO of the new Abraxis Bioscience.

It is this last point that caught the attention of BioBlogger, who said of the acquisition:

The rationale behind the transaction is to simplify the corporate structure while acquiring all the rights to the cancer drug, Abraxane, and a pipeline of development stage drugs. The question is: Is this transaction being done in the best interests of shareholders? In my opinion, the only person that will be enriched by the deal is American Pharmaceutical Partners’ (APP) Chairman and CEO, Patrick Soon-Shiong, who also happens to own over 80% of American BioScience (ABI) and is its President and Chief Financial Officer. . . . The most disquieting fact pertains to Patrick Soon-Shiong who owns more than 80% of ABI and is its President, Chief Financial Officer, and a Director while also serving as APP’s Chairman and CEO. Since ABI owns almost 48 million shares of APP, Mr. Soon-Shiong is a de facto shareholder in APP to the tune of about 40 million shares. The relationship between ABI and APP isn’t what one would define as “arm’s length.” Mr. Soon-Shiong’s interests are clearly not aligned with APP’s minority shareholders. The proposed merger of APP and ABI illustrates this point…

BioBlogger further explains his concerns:

As a consequence of the merger, existing shareholders, in addition to their shares being diluted, will sacrifice 50% of their interest in the profitable generics business in exchange for ABI’s early stage pipeline. The majority shareholder in ABI, and as a result the de facto majority shareholder in APP, Patrick Soon-Shiong, will increase his APP interest from about 40 million shares to about 130 million shares. In the process, Mr. Soon-Shiong gets a top valuation for is private stake in ABI and converts the aforementioned stake into publicly traded APP shares. He accomplishes all this while also pawning off ABI’s product development risk to APP shareholders and gaining exposure to APP’s profitable generic business. It’s easy to see how this benefits Mr. Soon-Shiong, but how does it benefit APP shareholders?

Clearly, BioBlogger raises serious concerns regarding the underlying reasons for this acquisition, including even the rationale for the $4 billion valuation for Abraxane. It goes without saying that many people are going to be watching Mr. Soon-Shiong as this deal closes.

Genzyme Corp. has agreed to acquire the San Diego manufacturing operation of South San Francisco-based Cell Genesys, Inc. The 47,000 square foot manufacturing facility was sold for $3.2 million.

The sale for Cell Genesys is part of a restructuring plan by Cell Genesys to focus its resources on the development of its most advanced and most promising products, which resulted in a decision to reduce the company’s manufacturing capabilities in the viral product area. The San Diego team has been conducting work in advancing the production of oncolytic virus therapy and gene therapy products. The majority of those employees will now become part of the Genzyme workforce.

Genzyme’s interst in the manufacturing facility, on the other hand, is to utilize the new assets and facilities to support the growth of its gene therapy program and strengthen its ability to manufacture quantities of both Adenovirus vectors and Adeno-Associated virus vectors, which are used to deliver genes to the appropriate cells in patients. Genzyme is currently in Phase 2 clinical trials for Ad2-HIF-1 alpha in patients with peripheral arterial disease. Genzyme’s therapy is designed to promote the growth of new blood vessels and improve circulation in patients’ limbs.

The agreement between Cell Genesys and Genzyme provides for Cell Genesys to have the opportunity of having its lead oncolytic virus therapy product, CG0070, manufactured under contract with Genzyme. CG0070 is currently in a phase 1 trial for recurrent bladder cancer.

The purchase comes six years after Genzyme terminated a $350 takeover offer for Cell Genesys following the withdrawal of support for the offer by the Cell Genesys board on the grounds that the offer failed to reflect the increased value of its nineteen percent stake in Abgenix, Inc., which had increased by $240 million since the announcement of the merger. Cell Genesys paid a $15 million break-up fee to Genzyme, when it backed out of the deal.

South San Francisco-based Theravance Inc. has entered into a license, development, and commercialization agreement with Astellas Pharma, Inc., a Japanese corporation, for the development and commercialization of Theravance’s investigational antibiotic, Televancin.

Televancin is an injectable antibiotic, which is developed to be the first-line therapy for serious infections in hospital settings. Theravance seeks to establish in the trials that Televancin is superior to Vancomycin, the current standard of care treatment for such infections. Televancin is currently in phase 3 studies for the treatment of complicated skin and skin structure infections (“cSSSI”)and hospital-acquired pneumonia (“HAP”).

According to the Form 8-K, the agreement between Theravance and Astellas provides that on the effective date, Theravance will grant Astellas an exclusive license to develop and commercialize Televancin on a worldwide basis, except in Japan, and that Astellas will pay Theravance an up-front payment of $65 million. The Agreement also provides for Astellas to make clinical and regulatory milestone payments to Theravance of up to $156 million, including $136 million for completion of enrollment, filing, and approval in the ongoing Phase 3 programs in cSSSI and HAP, and $20 million if the Phase 3 data demonstrates televancin’s superiority over Vancomycin for patients infected with MRSA. Theravance will further receive royalties on global sales of televancin that range from the high teens to the upper 20s.

The Form 8-K also says that the terms of the agreement provide for Theravance to lead the development of Televancin for cSSSI and HAP and collaborate substantially with Astellas in marketing in the U.S. for the first three years. Astellas will lead all other development, regulatory, manufacturing, sales, and marketing activities worldwide, except Japan. Theravance will be responsible for all development costs for cSSSI and HAP, while Astellas will be responsible for substantially all costs associated with commercialization and further development of Telavancin.

The Chiron board has accepted a $5.1 billion purchase offer from Novartis AG. Novartis already owned 42% of Chiron’s shares, and was unhappy with the recent direction of the company, following a string of manufacturing problems, including the contamination of last year’s supply of flu vaccines. Despite these recent problems, however, Novartis saw the potential for the vaccines business. As the San Francisco Chronicle reported:

Novartis sees Chiron as a springboard into an expanding international market, not only for next-generation flu vaccines, but inoculations for other illnesses like meningitis and even cancer.

Chiron is one of the manufacturers trying to sidestep the process of producing flu vaccines in live chicken eggs, an arduous and time-consuming method that makes it hard to adapt vaccines quickly as flu viruses mutate into different strains. Chiron is developing vaccines produced in cell culture, which may produce higher yields in less time, and thus higher profits. . . .

The move by Novartis, as the San Francisco Chronicle noted, is similar to the move taken by Roche Holdings, Inc., another Swiss pharmaceutical giant, which has held a majority share in Genentech, Inc. since 1990. Genentech and Chiron are two of the three oldest companies in the biotech industry.

This acquistion highlights how Novartis has taken the unusual step of positioning itself as both a brand-name and generics pharmaceutical company, having just recently purchased generics drugs makers Hexal in Germany and Eon Labs in the U.S. In Vivo wrote about the Hexal/Eon Labs purchase as follows:

[T]he significance of this proposed transaction extends beyond the generics sector. Novartis, whose core focus remains on patented drugs, is thereby making a statement about the role of generics in a wider environment where both pricing pressures and the hurdles to proving innovation are increasing. It’s also making a statement about pharma firms’ perceived image and credibility among payers, governments and patients.

It’s not clear whether Novartis will achieve the stated objectives of this deal, either on the credibility front, or financially. The Swiss giant paid a healthy price for businesses in two large, but tricky markets. It also faces the ongoing challenge of successfully managing the very different businesses of branded and generic drugs. . . .Whatever the outcome, Novartis’s move is bold, and it demonstrates this firm’s belief that Big Pharma needs to make some radical changes to its model in order to return to historical growth rates.

It is evident that Novartis is continuing to make bold moves in the biotech/pharmaceutical industry. We will just have to wait and see whether those bold moves reap the big benefits that Novartis is counting on.

David Marston and Eric Stein of PricewaterhouseCoopers LLP presented yesterday, September 28, 2005, at the event “Designing and Implementing an Effective License Compliance Program,” sponsored by the Silicon Valley Chapter of the Licensing Executives Society (“LES”), and provided some alarming insights into problems that exist with the enforcement of royalty terms in licensing agreements.

According to Marston and Stein, many companies have no one in charge of the royalty compliance process. Instead, it is common for compliance oversight to get pushed to the legal or accounting departments, which have other duties that get higher priority than royalty enforcement. As a result, Marston and Stein often find that no one is really monitoring the royalty payment process at all.

To enact an effective compliance program, Marston and Stein recommended that companies first establish a separate compliance group within the company whose only job is to monitor the royalty collection process, and that this group should conduct a handful of audits each year as a matter of course on some of the agreements. They also recommended sending out a general letter to all customers before commencing an audit program just to advise customers that the company was enacting a better compliance program and that they might receive an audit letter in the next few months. By taking these intial steps, they advised, customers will be reassured that they are not being singled out. Several months after the receipt of the general letter, Marston and Stein say that companies should then send out their first audit letters to select licensee customers. Interestingly enough, the speakers indicated that receipt of a general letter alone will often prompt companies to go back and take a look at old agreements and even to make a restatement of the royalties, particularly if the licensor company initiating the process has offered forgiveness of late charges for a period of time after receipt of the general letter. In the end, Marston and Stein suggested that this process can produce millions of dollars in unpaid royalties that were just slipping through the cracks.

As a lawyer who has drafted numerous royalty clauses, I was really taken back to hear how these royalty clauses were operating in practice. Clearly, it was a bit of a reality check on my practice and the gaps that can exist between what I draft and how it is enforced. Also, the presentation really brought to light how companies that are strapped for cash should look to an effective compliance program to finance some of the operating expenses necessary to run the company.

We should all ask ourselves what our companies or, in the case of outside service providers, what our clients are doing right now in the licensing compliance area. If licensing compliance efforts are generally as ineffective as Marston and Stein believe them to be, then we may be horrified to discover that our companies or our clients’ companies are losing millions of dollars each year in uncollected royalties.

At the San Francisco Business Times event that was held this past Friday in San Francisco, CA, “The Art of the Deal: Dealmakers who are reshaping Bay Area Biotechnology,” panelists Mark McDade, CEO of Protein Design Labs, George Scangos, CEO of Exelixis, Joe McCracken, Vice President of Development at Genentech, and Nick Simon, Managing Director of Clarus Ventures shared their insights on modern biotech dealmaking.

The speakers indicated that as the industry matures, deals are becoming increasingly complex, so the parties no longer look to get mere cash from the party across the table, but instead are looking to secure valuable partnerships and to tap into new resources and compatible goals. In addition, the speakers indicated that modern dealmaking is heavily influenced by the prevalence of underlying relationships in the industry, since the biotech indusry is a relatively small world where many of the players have a previous history of working with other players at prior companies.

Another trend in modern dealmaking is that biotech companies are increasingly looking to do deals with large biotech companies, instead of limiting deals to just large pharmaceutical companies, since they perceive the big biotech world to have a better understanding of the issues facing smaller biotech companies. Also, there is more of a perception that the biotech company can better preserve its independence and continue to pursue its long-term goals by entering into deals with large biotech companies, as opposed to a deal with a large pharmaceutical company.

The presentation struck a chord with the audience by conveying just how complex modern dealmaking has become, and for the service providers in the audience, it conveyed the importance of understanding everything that the parties will be bringing to the table, including the parties’ underlying relationships and their long-term goals for the company. We as service providers need to listen to our clients and push the deals forward that best advance their plans for the company, and to recognize when underlying issues are affecting the negotiations.