Biotech Values

[DewDiligence]

ABT Inks New $400M Deal with Reata

[This is among the largest up-front amounts ever paid in a biotech deal for compounds not yet in clinical development, and what makes it even more of an outlier is that ABT is acquiring only 50-70% of the commercial rights to the various preclinical compounds. Other deals of such magnitude for compounds not yet in clinical development include MRK’s acquisition of GlycoFi in 2006 (#msg-11018747) and MRK’s acquisition of Rosetta Inpharmatics in 2001 (http://www.forbes.com/2001/05/11/0511rosetta.html ).

One reason for the high deal price: ABT knows Reata well, having paid it $450M up-front in a 2010 deal for the ex-US/ex-Asia rights to Bardoxolone, which was then in phase-2 (#msg-54747777) and is now in phase-3 (#msg-64332248). (One has to wonder if ABT couldn’t have done better by acquiring Reata outright instead of inking two deals with cumulative up-front cash of almost $1B.)

ABT will presumably issue a PR on the new deal Monday morning.]

http://online.wsj.com/article/SB10001424052970203518404577092823436353782.html

›DECEMBER 12, 2011
By JONATHAN D. ROCKOFF

Abbott Laboratories is paying $400 million to Reata Pharmaceuticals Inc. for rights to molecules showing early promise treating chronic diseases like rheumatoid arthritis and multiple sclerosis, the companies said Sunday.

The deal, a risky gambit by Abbott to bolster its drug pipeline, is among the largest between a pharmaceutical company and a small biotechnology company to secure rights to multiple compounds that haven't been tested yet in humans, according to a database of such transactions kept by Elsevier Business Intelligence.

The agreement extends Abbott's relationship with the closely held Irving, Texas, company. Last year, Abbott paid Reata $450 million for international rights—excluding Japan, China and certain other Asian markets—for Reata's drug bardoxolone methyl, an agent now in late stage or phase III human testing for chronic kidney disease [#msg-54747777, #msg-64332248].

The new pact covers hundreds of Reata molecules that work the same way and attack the same targets as bardoxolone, a fact that the companies say reduces the risk of the transaction. Abbott believes bardoxolone has blockbuster potential—meaning it could achieve annual sales exceeding $1 billion—and could reach the market by 2014.

Under the terms, the two companies will split the costs of developing the molecules and any profits from selling them, except for rheumatoid arthritis, for which Abbott will take 70% of the costs and profits.

The compounds are called antioxidant inflammation modulators because they spur the release of antioxidants while suppressing the body's inflammatory response, each thought to be involved in a range of diseases, also including Parkinson's and chronic obstructive pulmonary disease.

"That goes to why we think and Abbott thinks there is a very broad potential application," Warren Huff, Reata's chief executive officer, said in an interview. The companies expect the first compound covered by the transaction to enter human studies in 2012.

Abbott's pharmaceuticals side, which will separate from the company's medical products business by the end of next year, needs a strong pipeline. Its top-seller Humira, a rheumatoid arthritis therapy expected to have $8 billion in sales this year, will likely face heavy competition soon from a Pfizer Inc. pill under development. In addition, Humira's U.S. patent expires in late 2016.

Major drug makers often wait to buy the rights to compounds from a biotechnology firm until the molecules have been tested in humans. Without this clinical testing, there isn't much data to support the viability of the compounds, increasing the riskiness of any deal.

Due to the uncertainty, upfront payments for these so-called pre-clinical deals average about $15 million, compared with almost $40 million for a drug in phase II development, according to Elsevier's Strategic Transactions Database. The previous biggest upfront payment for pre-clinical compounds, Elsevier says, was the $130 million that Celgene Corp. paid upfront to Agios Pharmaceuticals Inc. last year (2010) for cancer drug candidates. [Elsevier is excluding technology-platform deals, such as the two MRK acquisitions mentioned in the prologue of this post.]

Elsevier projects there will be roughly 100 link-ups this year between big firms and small biotechs over the pre-clinical assets.‹