Takeda has agreed to acquire Cambridge, Massachusetts-based Millennium Pharmaceuticals for $8.8. billion dollars. 

The Wall Street Journal reported on the terms of the deal as follows:

Takeda, Japan’s biggest drug maker by revenue, will buy Millennium. . . . for $25 a share. The price represents a 53% premium to Wednesday’s $16.35 closing price for Millennium shares. The deal, the largest acquisition by Takeda, is structured as a tender offer and is conditional upon a majority of shareholders accepting the terms.

Obviously Millennium came out of this deal quite well: $8.8. billion is certainly not an insignificant amount of money.  In Vivo Blog certainly characterized this as an excellent deal from Millennium’s perspective, explaining as follows:

Millennium hit its billion dollar jack-pot a bit sooner than expected. . . . Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets. . . .In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium’s fate–barring some kind of external business transaction–was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. . . .

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.

So, why was this a good deal from Takeda’s perspective?  Well, as in the case of many pharmaceutical companies, it was all about rebuilding the pipeline.

The Wall Street Journal explained as follows:

By acquiring Millennium, Takeda will help address a revenue problem it will likely face soon. The patents on two of Takeda’s biggest-selling products — ulcer drug Prevacid and diabetes treatment Actos — expire in 2009 and 2011, respectively. Revenue from Millennium’s best-selling product, blood-cancer treatment Velcade, is growing quickly and is expected to reach as much as $345 million this year.

Sales of Velcade could get another big boost this summer when the U.S. Food and Drug Administration rules on an application from Millennium to sell the drug as a first-line treatment for multiple myeloma. Currently, the drug’s labeling indicates it should be used only with patients who have already tried another medicine first. A label allowing for broader usage of the drug would likely result in more patients using Velcade for longer periods of time.

Also, according to The Wall Street Journal, the acquisition is part of a larger strategy by Takeda to expand into overseas markets.  The Wall Street Journal reported as follows:

The acquisition. . . .is part of an aggressive campaign by Takeda President Yasuchika Hasegawa to spend a good chunk of the roughly $20 billion the company has in cash on acquisitions or licensing agreements.Last year, the company set aside $10 billion as part of a strategic fund to help it expand into overseas markets. In February, Takeda struck a deal to buy biotech giant Amgen Inc.’s Japan unit, as well as gain marketing rights to 13 Amgen drugs for Japan and elsewhere in Asia. Last month, it bought out partner Abbott Laboratories’ share of a U.S. joint venture. 

Thus, in the end, the deal was a win-win for both Takeda and Millenium.  

It seems likely that we will be seeing more such acquistions from Takeda in the near future.  Perhaps biotech companies should take note and put Takeda on their short list for potential strategic partners: Takeda may just be in the market for more such relationships. 

While investors may not aways support biotech alliances as discussed in our  March 27th blog posting, entering into an alliance with a pharmaceutical company can still make good business sense, as in the case of the $320 million Cell Genesys-Takeda deal that closed this week. 

The In Vivo Blog reported on the terms of the deal as follows:

Takeda agreed to fork over $50 million in up-front payments, plus additional regulatory and commercialization milestones worth up to $270 million for exclusive world-wide rights to the product. In addition, Takeda will pay Cell Genesys tiered, double-digit royalties based on net sales of the GVAX immunotherapy in the US; in all other regions, Cell Genesys will receive flat double-digit royalties. Not quite a profit split, but again, by no means stingy.

Just as important, going forward Takeda will pay for all external development costs associated with the the immunotherapy’s clinical development and will also pick up the tab for all additional development and commercialization costs. Cell Genesys even managed to wrangle a co-promote option–US only–out of the Japanse firm. Finally, the deal only includes the prostate cancer immunotherapy. Cell Genesys is free to develop its GVAX technology to treat other cancers.

Why did this deal make good business sense for Cell Genesys? 

According to the In Vivo Blog, one reason is that Cell Genesys obtained a deal which will pay the company a significant amount of money in an agreement for technology that remains unproven–Cell Genesys Phase III GVAX immunotherapy for prostate cancer.

Moreover, the partnership will provide the cash to cover the costs that Cell Genesys anticipates burning this year,  The In Vivo Blog explains as follows:

On its fourth quarter earnings call in late February, the company’s CFO, Sharon Tetlow, reported it had just $147 million in cash. Not bad for a biotech, but not good considering the $100 to $105 million burn the company forecasted for 2008, thanks largely to the significant costs associated with its prostate cancer immunotherapy trials, VITAL-1 and VITAL-2. With one partnership, the company has managed to off-load the lion’s share of these costs, giving it some much needed breathing room, while still enjoying upsides in terms of development and generous royalties. 

All in all, the In Vivo Blog concludes that "[t]here’s no doubt the deal makes financial sense for Cell Genesys.  However, did this deal really make sense for Takeda?

First of all, backing the GVAX Prostate is highly risky, according toThe Street.com’s Adam Fuerstein, who argues that the clinical data to date is unreliable. 

Second of all, the controversy surrounding cancer immunotherapies may have been a red flag to other companies, who In Vivo Blog suggests would have "steered clear of Cell Genesys’s GVAX Prostate."

On the other hand, the In Vivo Blog suggests that the deal furthered Takeda’s recent growth strategy:

[Takeda] is desperate to extend its reach beyond Japan given that country’s sluggish growth and harsh price cuts. And, like other pharmas, Takeda certainly faces its own patent cliff. But the Japanese pharma is taking bold steps to play in the large molecule arena; according to Windhover’s Strategic Transactions Database, Takeda has signed 9 large molecule alliances since 2006. While most of the deals have focused on antibody technology–a la the Amgen partnership–the company is no stranger to risky ventures. Last summer, Takeda became one of the first pharmas to collaborate with aptamer pioneer, Archemix. . . .

So, perhaps this deal will really be a win-win for both parties.  Feurstein expresses his doubts and even the In Vivo Blog is not so sure.

Regardless of how Takeda fares, it is clear that Cell Genesys will benefit from this alliance–thus demonstrating in a very clear way why entering into alliances can be a good business decision for biotech companies.