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Rolling the dice with anti-cancer virus
THOUSAND OAKS, Calif.—Amgen Inc. announced near the end of January that it has entered into a definitive acquisition agreement under which it will acquire BioVex Group Inc., a privately held, venture-funded, biotechnology company headquartered in Woburn, Mass.
BioVex is developing OncoVEX GM-CSF, a novel oncolytic vaccine in Phase III clinical development, which the companies say "may represent a new approach to treating melanoma and head and neck cancer" and which BioVex has long hoped to become the first U.S. Food and Drug Administration (FDA)-approved virus engineered to specifically kill cancer cells.
Under the terms of the deal, Amgen will pay as much as $1 billion ultimately, with the company to produce $425 million in cash at closing and as much as $575 million in additional payments upon the achievement of certain regulatory and sales milestones. Assuming that all goes according to plan, with nothing scuttling the acquisition, BioVex will become a wholly owned subsidiary of Amgen.
This acquisition is the largest of seven that Amgen has undertaken in the past five years—with an average disclosed size of $264.2 million for those deals—and will take a chunk out of 2011 profits, but as Michael Yee told Bloomberg shortly after the announcement, the deal has the potential to pay off within a few years.
"It's high-risk, high-reward," says Yee, an analyst with RBC Capital Markets in San Francisco. "It's a call option on a late-stage, potential blockbuster drug for Amgen."
BioVex's strategy has been to create a virus that will replicate inside tumors and spare the healthy tissue around them, causing tumor cells to burst after the viral invasion. In addition, the vaccine is intended to encourage the recipient's immune system to further wage war on the cancer by hunting down any cells that have spread elsewhere in the body.
Kevin Sharer, chairman and CEO of Amgen, says that he and the rest of Amgen's leadership are being "thoughtful about using shareholder dollars in this acquisition in balancing risk and reward" with this deal, noting: "We will —and need to—advance, enlarge and enrich our pipeline. [Our] BioVex acquisition is indicative of our objectives. Good company, good science and a potential advance for patients with grievous illness but few good treatment options."
The decision to acquire BioVex may not come at the ideal time, Sharer suggests, but is necessary all the same.
"We seek to use our balance sheet flexibility to grow the company by making intelligent acquisitions when they become available. It's not that the money is burning a hole in our pocket; it is not," Sharer stresses. "But obviously, the highest and best strategic use of that cash is to redeploy it in the in-license and M&A and pipeline-enriching, top-line growing sphere. The facts are that those kind of opportunities are not many in number and they happen in lumpy kinds of ways."
Sharer also reiterates Amgen's approach that if "you don't invest money in R&D, you can't succeed in this business. Investing doesn't guarantee anything, but not investing will put you in a pretty bad spot."
OncoVex has demonstrated encouraging anti-tumor activity in clinical studies for the treatment of melanoma and head and neck cancer, and BioVex is currently enrolling patients into pivotal Phase III trials in both indications, says Dr. Roger M. Perlmutter, Amgen's executive vice president of research and development.
"Amgen is particularly excited about joining with BioVex and its talented staff to focus on advancing this late-stage investigational therapy, with the hope of bringing it to market within the next few years," he says.
During a conference call following the announcement of the deal, Perlmutter was asked if there are any controlled Phase II data and his feelings about success in ongoing melanoma trial, to which he responded: "It's hard to control these kinds of studies … You inject a virus directly into the tumor—in part, the Phase III study was designed to address that problem by controlling with systemic GM-CSF administration. Remember, again, the virus has an GM-CSF expression effect embedded within it.
"In terms of confidence, well, again, the BioVex group has had the opportunity to present a lot of their data in a number of different public forums, including most recently at the JP Morgan meeting in San Francisco," Perlmutter added. "I think when you look at patient responses there, these are not tumors that go away by themselves. What we can't know is the magnitude and durability of the effect over a long term, and that of course is what's being addressed in Phase III. I'm extremely optimistic and that, of course, is an important part of why we proceeded with the transaction."
Also, he was asked if using response rate to the vaccine was the most appropriate endpoint for OncoVEX, as opposed to, for example, survival rates, and he clarified that the response rate endpoint is actually for durable response rate.
"That is, a response rate that is maintained, either complete or partial response, over six months," Perlmutter notes, adding that it was an endpoint that was agreed to after a discussion between BioVex and the FDA under special protocol assessment.
"It's important to note that the patient population being studied here is quite different than patient populations that are being studied with other agents [in this therapeutic area], and we'll have a lot more to talk about after this deal formally closes and we have discussed it at the business review," Perlmutter says. "But suffice it to say that the results of administration of this vaccine are very impressive from the Phase II studies—we don't know, of course, about Phase III. BioVex has presented some of these data in public forums and as you look at it, I think you'll get comfortable with the fact that there really is a dramatic effect on tumors—post, proximal and distal lesions—as a result of administration of this virus. In time we'll find out how significant that really is."
The acquisition has been approved by the boards of directors of each company. It is subject to customary closing conditions, including regulatory approvals, and is expected to close in the first quarter of 2011.
"Amgen is ideally positioned to leverage the potential of OncoVEX in multiple solid tumor indications given their impressive oncology franchise and expertise in biologics manufacturing and development," said Philip Astley-Sparke, CEO of BioVex, in the news release about the deal. "We have a shared vision and commitment to bring novel therapeutics to market and we are looking forward to being able to combine our efforts towards this common goal."
Amgen reports 11 percent spike in Q4 earnings
THOUSAND OAKS, Calif.—In other news just a couple days before announcing the acquisition deal, Amgen reported adjusted earnings per share of $1.17 for the fourth quarter of 2010, an increase of 11 percent compared to $1.05 for the fourth quarter of 2009. Adjusted net income increased 4 percent to $1.1 billion in the fourth quarter of 2010 compared to roughly $1 billion in the fourth quarter of 2009. Full-year 2010 adjusted EPS were $5.21 versus $4.91 in 2009, a 6 percent increase. Total revenue increased 1 percent during the fourth quarter of 2010, and for the full year 2010, total revenue increased 3 percent.
"2010 was a strong year with approvals of Prolia and XGEVA," said Sharer on Jan. 24. "We delivered solid EPS growth while absorbing the impact of healthcare reform. Our priorities in 2011 are to make Prolia and XGEVA successes, advance and enrich our pipeline and build value for our shareholders."