BMS splits off Mead Johnson, signs potential $1 billion deal with Alder Biopharmaceuticals in quest to become biopharma

NEW YORK—In a continuation of its 2007 "string of pearls"strategy, Bristol-Myers Squibb Co. (BMS) recently made two moves intended toaccelerate its transformation into a biopharmaceutical company. In onetransaction, BMS will split off its holdings in Mead Johnson Nutrition; in theother, the company will potentially pay up to $1 billion to antibodytherapeutic developer Alder Biopharmaceuticals Inc., in a global agreement forthe development of a treatment for rheumatoid arthritis (RA).

According to BMS, the Mead Johnson split-off is a tax-freeway for BMS shareholders to exchange shares of BMS common stock for shares ofMead Johnson. In the exchange offer, BMS shareholders can exchange some, noneor all of their shares of common stock for shares of Mead Johnson common stock.As part of the exchange offer, BMS will convert all of its Mead Johnson class Bcommon stock into Mead Johnson class A common stock. Upon the completion of theexchange offer, only Mead Johnson class A common stock will remain outstanding.The split-off is expected to be net cash flow positive to the BioPharmabusiness and accretive to earnings per share beginning in 2010.

Under the terms of its collaboration agreement with Alder,BMS will pay the Bothell, Wash.-based company $85 million up front, up to $764million in potential development-based and regulatory-based milestone paymentsand potential sales-based milestones that could $200 million. Alder may alsorequire BMS to make an equity investment of up to $20 million in Alder duringan initial public offering. When the ink dries on this deal, Alder couldreceive up to $1 billion total for worldwide exclusive rights to develop andcommercialize ALD518, a novel biologic that has completed Phase IIa developmentfor the treatment of rheumatoid arthritis.

Brian Henry, a spokesman for BMS, says both transactions areBMS' latest moves in its ongoing "string of pearls" strategy, under which it isattempting to accelerate the discovery and development of new therapies with astring of innovative alliances, partnerships and acquisitions with othercompanies.

"We have been looking for innovation in many different formsoutside of the company," Henry says. "For us, this is another way for us tocomplete our transformation into a full-fledge biopharma company, and we'recertainly looking for other opportunities under this strategy that will help usreach that goal."

For Alder, the ALD518 deal could be a game-changer. Dr. RandallC. Schatzman, president and CEO of Alder, says BMS' extensive development andcommercial experience in immunology translate into an exceptionally good fitfor Alder, especially at this stage of the company's corporate development. Thecompany is only six years old, having been incorporated in 2004 and initiallyfunded by the United States Army to explore the development of new productiontechnologies for humanized antibodies. Following several financing rounds,Alder is now actively developing its own antibody therapeutics whileout-licensing its technologies.

"Foremost, BMS brings a significant knowledge base andexperience in the RA space," says Schatzman. "They have an outstanding drugcalled Orencia for treating RA. As such, they understand the disease and the needsof patients. BMS also brings the financial horsepower required these days toachieve approvals in RA. Phase III trials can be very expensive. Finally, BMSand Alder are very much aligned in the best, aggressive approach to developingALD518 in multiple autoimmune indications."

ALD518 is a humanized, monoclonal antibody designed to blockthe pro-inflammatory molecule interleukin-6 (IL-6), which plays a key role inthe inflammatory cascade leading to the inflammation, swelling, pain anddestruction of large and small joints associated with RA. Based on the strongassociation of IL-6 with inflammatory disease, inhibition of IL-6 with ALD518represents a promising new anti-inflammatory mechanism that could result inbone and joint preservation. ALD518 is also being studied by Alder for thetreatment of cancer and in cancer supportive care, but cancer is not among theindications involved in the BMS deal.

"We believe ALD518 will be the best-in-class for agentstargeting the IL-6 axis of biology," Schatzman says. "In addition, we thinkthat the molecule has the potential to compete head-on with the anti-TNFagents, such as Humira and Remicade. This is a very large market amounting tomany billions of dollars per annum."

Already counting Schering-Plough (now Merck), SeattleGenetics and Genmab among its Big Pharma partners, Alder is seeking additionalpartners who are interested in using its technologies to develop monoclonalantibodies for a variety of indications, says Schatzman.

"In addition, we do have several earlier stage programstargeting cancer, anemia and chronic pain, where we will be seeking partners,"he adds.