Royal wedding

TOKYO—Astellas Pharma Inc. announced at the end of June thesale of its Prosidion patent estate and associated royalty stream relating tothe use of dipeptidyl peptidase IV (DPP-IV) inhibitors for the treatment oftype 2 diabetes to Royalty Pharma.

Company officials say the transaction was worth $609 millionin cash.

Astellas is Japan's second-largest pharma company and issaid to be recalibrating its long-term focus to concentrate on cancer,transplantation, immunization and urology.

Last year, the company bought U.S. biotechnology firm OSIPharmaceuticals for $4 billion to boost its cancer business. From that deal,Astellas gained the license for lung cancer drug Tarceva and several drugcandidates. The company says it now has 15 cancer drug candidates in itsdevelopment pipeline.

Royalty Pharma is adept at acquiring royalty interests inmarketed and late-stage biopharmaceutical products. The company's $6 billion inassets under management includes royalty interests in an eye-opening number ofblockbuster products. Included in that line-up are Abbott's Humira; Johnson& Johnson's Remicade; Gilead's Atripla, Truvada and Emtriva; Pfizer'sLyrica; Amgen's Neupogen and Neulasta; and Genentech's Rituxan. Its centerpieceroyalty acquisition is said to be Humira.

Pablo Legorreta, CEO of Royalty Pharma, said in a preparedstatement that Royalty Pharma's goal is to be a financial partner to largebiopharmaceutical companies that hold significant passive royalty assets, butseek to expand their product pipelines by acquiring biotech and other lifesciences companies.

"By partnering with Royalty Pharma," Legorreta said,"acquirers can reduce the amount of capital spent to acquire strategic,value-creating assets and, in doing so, preserve capital to fund otherstrategic acquisitions or its internal pipeline. The DPP-IV royalties are veryhigh-quality assets that will be an excellent addition to our diversifiedportfolio of leading biopharmaceutical royalties."

After the sale to Royalty, Astellas kept the momentum goinginto mid-July by signing a global licensing agreement with Vical Inc. That pactwill serve to develop and commercialize TransVax, a vaccine that is poised toenter Phase III trials to test the compound's ability to prevent a potentiallyfatal virus in stem cell transplant patients.

Under the terms of the Astellas sale agreement, RoyaltyPharma will be entitled to receive all royalty payments and milestones relatedto the DPP-IV asset. Royalty Pharma will also take over administration of theDPP-IV patent estate owned by Prosidion.

Yoshihiko Hatanaka, president and CEO of Astellas, said in astatement that the sale furthers his company's strategic goals and unloads anasset not related to that vision.

"The sale of this large, passive, non-core financial assetwill free up capital for reinvestment in strategic initiatives," he said. "Weare pleased to have been able to work with Royalty Pharma in this importanttransaction."

In addition to the patent estate and associated royaltystream, Prosidion's assets include two drug candidates in development fordiabetes and obesity and research and development capabilities.Those two potential pharmaceutical products might be thenext Astellas assets to sport "for sale" signs, as the company indicated thatit "will continue to review strategic alternatives for these assets." It addedthat the range of alternatives to be assessed could include minority investmentor strategic alliance, a merger or sale of some or all of these assets.

In July 2004, Prosidion acquired a portfolio of medical-usepatents related to DPP-IV inhibitors for the treatment of type 2 diabetes. Anumber of non-exclusive licenses to these patents have been granted to pharmaceuticalcompanies around the world.

In a release, Astellas representatives said the company doesnot plan to divulge additional information about the status of the review ofalternatives until a definitive agreement is entered into or the process is completed.At press time, the deal was due to close in July.