Rolling the dice with anti-cancer virus

Amgen to spend as much as $1 billion to acquire privately held biotech BioVex based on potential of oncology vaccine

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THOUSAND OAKS, Calif.—Amgen Inc. announced near the end ofJanuary that it has entered into a definitive acquisition agreement under whichit will acquire BioVex Group Inc., a privately held, venture-funded,biotechnology company headquartered in Woburn, Mass.
BioVex is developing OncoVEX GM-CSF, a novel oncolyticvaccine in Phase III clinical development, which the companies say "mayrepresent a new approach to treating melanoma and head and neck cancer" andwhich BioVex has long hoped to become the first U.S. Food and DrugAdministration (FDA)-approved virus engineered to specifically kill cancercells.
Under the terms of the deal, Amgen will pay as much as $1billion ultimately, with the company to produce $425 million in cash at closingand as much as $575 million in additional payments upon the achievement ofcertain regulatory and sales milestones. Assuming that all goes according toplan, with nothing scuttling the acquisition, BioVex will become a wholly ownedsubsidiary of Amgen.
This acquisition is the largest of seven that Amgen hasundertaken in the past five years—with an average disclosed size of $264.2million for those deals—and will take a chunk out of 2011 profits, but asMichael Yee told Bloomberg shortly afterthe announcement, the deal has the potential to pay off within a few years.
"It's high-risk, high-reward," says Yee, an analyst with RBCCapital 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 willreplicate inside tumors and spare the healthy tissue around them, causing tumorcells to burst after the viral invasion. In addition, the vaccine is intendedto encourage the recipient's immune system to further wage war on the cancer byhunting down any cells that have spread elsewhere in the body.
Kevin Sharer, chairman and CEO of Amgen, says that he andthe rest of Amgen's leadership are being "thoughtful about using shareholder dollarsin this acquisition in balancing risk and reward" with this deal, noting: "Wewill—and need to—advance, enlarge and enrich our pipeline. [Our] BioVexacquisition is indicative of our objectives. Good company, good science and apotential advance for patients with grievous illness but few good treatmentoptions."
The decision to acquire BioVex may not come at the idealtime, Sharer suggests, but is necessary all the same.
"We seek to use our balance sheet flexibility to grow thecompany by making intelligent acquisitions when they become available. It's notthat 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 redeployit in the in-license and M&A and pipeline-enriching, top-line growingsphere. The facts are that those kind of opportunities are not many in numberand they happen in lumpy kinds of ways."
Sharer also reiterates Amgen's approach that if "you don'tinvest money in R&D, you can't succeed in this business. Investing doesn'tguarantee anything, but not investing will put you in a pretty bad spot."
OncoVex has demonstrated encouraging anti-tumor activity inclinical studies for the treatment of melanoma and head and neck cancer, andBioVex is currently enrolling patients into pivotal Phase III trials in bothindications, says Dr. Roger M. Perlmutter, Amgen's executive vice president ofresearch and development.
"Amgen is particularly excited about joining with BioVex andits talented staff to focus on advancing this late-stage investigationaltherapy, with the hope of bringing it to market within the next few years," hesays.
During a conference call following the announcement of thedeal, Perlmutter was asked if there are any controlled Phase II data and hisfeelings about success in ongoing melanoma trial, to which he responded: "It'shard to control these kinds of studies … You inject a virus directly into thetumor—in part, the Phase III study was designed to address that problem bycontrolling with systemic GM-CSF administration. Remember, again, the virus hasan GM-CSF expression effect embedded within it.
"In terms of confidence, well, again, the BioVex group hashad the opportunity to present a lot of their data in a number of different publicforums, including most recently at the JP Morgan meeting in San Francisco,"Perlmutter added. "I think when you look at patient responses there, these arenot tumors that go away by themselves. What we can't know is the magnitude anddurability of the effect over a long term, and that of course is what's beingaddressed in Phase III. I'm extremely optimistic and that, of course, is animportant part of why we proceeded with the transaction."
Also, he was asked if using response rate to the vaccine wasthe most appropriate endpoint for OncoVEX, as opposed to, for example, survivalrates, and he clarified that the response rate endpoint is actually for durableresponse rate.
"That is, a response rate that is maintained, eithercomplete or partial response, over six months," Perlmutter notes, adding thatit was an endpoint that was agreed to after a discussion between BioVex and theFDA under special protocol assessment.
"It's important to note that the patient population beingstudied here is quite different than patient populations that are being studiedwith other agents [in this therapeutic area], and we'll have a lot more to talkabout after this deal formally closes and we have discussed it at the businessreview," Perlmutter says. "But suffice it to say that the results ofadministration of this vaccine are very impressive from the Phase II studies—wedon't know, of course, about Phase III. BioVex has presented some of these datain public forums and as you look at it, I think you'll get comfortable with thefact that there really is a dramatic effect on tumors—post, proximal and distallesions—as a result of administration of this virus. In time we'll find out howsignificant that really is."
The acquisition has been approved by the boards of directorsof each company. It is subject to customary closing conditions, includingregulatory approvals, and is expected to close in the first quarter of 2011.
"Amgen is ideally positioned to leverage the potential ofOncoVEX in multiple solid tumor indications given their impressive oncologyfranchise and expertise in biologics manufacturing and development," saidPhilip Astley-Sparke, CEO of BioVex, in the news release about the deal. "Wehave a shared vision and commitment to bring novel therapeutics to market andwe are looking forward to being able to combine our efforts towards this commongoal."

Amgen reports 11 percent spike in Q4 earnings
THOUSAND OAKS, Calif.—In other news just a couple daysbefore announcing the acquisition deal, Amgen reported adjusted earnings pershare of $1.17 for the fourth quarter of 2010, an increase of 11 percentcompared to $1.05 for the fourth quarter of 2009. Adjusted net income increased4 percent to $1.1 billion in the fourth quarter of 2010 compared to roughly $1billion in the fourth quarter of 2009. Full-year 2010 adjusted EPS were $5.21versus $4.91 in 2009, a 6 percent increase. Total revenue increased 1 percentduring the fourth quarter of 2010, and for the full year 2010, total revenueincreased 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 theimpact of healthcare reform. Our priorities in 2011 are to make Prolia andXGEVA successes, advance and enrich our pipeline and build value for ourshareholders."

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