Bidding by multiple companies and strong data for a late-stage, targeted melanoma drug helped drive Daiichi Sankyo Company Limited's eye-popping $805 million acquisition of privately-held Plexxikon Inc.

Daiichi agreed to pay $805 million upfront, plus another $130 million in milestone payments, the companies announced late on Feb. 28. The deal is noteworthy for multiple reasons. It is one of the priciest acquisitions of a private biotech since 2006, according to Elsevier's Strategic Transactions; indeed, the deal's value is eclipsed only by GlaxoSmithKline PLC's 2007 acquisition of Reliant Pharmaceuticals and CSL's failed bid in 2008 for the private-equity backed Talecris.

Equally notable is Daiichi's down-payment. At a time when bigger and smaller pharmaceutical players are trying to hedge their risk by structuring earn-out heavy deals, the Japanese pharma is shelling out a deposit that approximates 86% of the deal's potential value.

Even without the additional milestones, this sum provides an impressive return for the nine venture capital firms who have staked Plexxikon over the company's 10-year existence. Since its founding, the biotech has raised $67 million from a syndicate that includes Advanced Technology Ventures, Alta Partners and Astellas Venture Capital.

Plexxikon's claim to fame is its first-in-class Phase III PLX4032, which targets the BRAF mutation present in half of melanoma patients. Patients in Phase II trials had a dramatic response to the drug, and the candidate wound up basking in the media limelight as a result. An interim read-out of the pivotal data is expected before the middle of this year; if the results are as impressive as anticipated, expect a new drug application before year's end. Given the unmet medical need in this tough-to-treat cancer, it's highly likely regulators will slate the molecule for a priority review. (Also see "Losing The Battle Of The Bulge: FDA Holds Up Orexigen's Contrave" - Pink Sheet, 1 February, 2011.).

With such a high price tag, suitable benchmarks for the Daiichi/Plexxikon transaction are few. One obvious comparator, both in terms of the stage of the asset and its therapeutic focus, is Johnson & Johnson's May 2009 acquisition of Cougar Biotechnology Inc. for $43 per share (a 24% premium), or a total of about $894 million. That biotech's lead compound - Phase III abiraterone - was and is well-positioned in metastatic castration-resistant prostate cancer ([A#14090522006])

An Unusual Acquirer

Responding to a question about Plexxikon's high valuation in an interview, CEO K. Peter Hirth confirmed that "deals such as these are achieved when there are multiple bidders."

But the deal's price tag is only a piece of the story, with an unusual, dark horse buyer being another important theme. Back in 2006, Plexxikon partnered the drug to Roche for $40 million upfront, retaining an option to co-promote the product in the U.S. market. In early January 2011, Plexxikon exercised this option, agreeing to reimburse Genentech, which is responsible for ongoing development of the medicine, for certain marketing and promotion costs. With the planned acquisition, this option - and the resulting enhanced royalties on product sales owed to Plexxikon - now transfers to Daiichi.

That the Japanese pharma would spend so much to obtain just a piece of a potentially lucrative molecule illustrates both the scarcity of late-stage oncology assets and just how much Big Pharmas are willing to pay to get drugs with validated mechanisms of action in this competitive therapeutic area (Also see "The $100 Million IND" - In Vivo, 1 November, 2006.).

It also brings Daiichi in line with the other big three Japanese pharmas - Astellas Inc., Takeda Pharmaceutical Co. Ltd. and Eisai - all of whom have used acquisition to bolster their U.S. oncology offerings. Indeed, the acquisition paves the way for Daiichi to establish its own oncology franchise in the U.S.

Although the clinical utility of PLX4032, also called RG7204, is best understood in melanoma, the medicine may also be a promising treatment for other BRAF-positive malignancies, including thyroid cancer and colorectal cancer.

Aside from PLX4032, Plexxikon has a pipeline of additional products in development and pre-development, including multiple agents to treat cancer and PLX5622, an oral drug for rheumatoid arthritis. As part of the deal, Daiichi will also get Plexxikon's proprietary Scaffold-Based Drug Discovery Platform, giving the acquirer a small molecule drug discovery engine.

Business As Usual

After the deal closes, Plexxikon will operate as a stand-alone subsidiary within Daiichi. Senior management and other staff will be retained and Plexxikon will continue to operate under the same name with a budget from Daiichi similar to its current spend. The biotech division will have freedom to decide how to allocate that money.

Plexxikon declined to comment on just who the other bidders were but Roche would have been an obvious suitor. In addition to owning rights to PLX4032, the Swiss Pharma spent an additional $60 million upfront in 2009 for rights to Plexxikon's Raf kinase inhibitors, including the Phase I PLX5568 for polycystic kidney disease.

The melanoma market is poised to finally open up, with PLX4032 on track and Bristol-Myers Squibb Co.' s cancer immunotherapy ipilimumab now pending FDA review. In a Jan. 30 note to investors, Leerink Swann analyst Seamus Fernandez noted that key opinion leaders are speaking of a "paradigm shift," in melanoma, spurred by the likely introduction of these two drugs.

Such attention is another reason deal values in this therapeutic area are increasing. Without much of a background in melanoma, Amgen Inc. paid $425 million upfront to snare Biovex and its cancer vaccine in January, in another one of the top deals for the last two years (Also see "Amgen Takes Out Cancer Vaccine Developer BioVex In Potential $1B Deal" - Pink Sheet, 24 January, 2011.).

-Emily Hayes (e.hayes@elsevier.com)

Plexxikon CEO: Expect Business As Usual, After Whopping $805 Million Daiichi Buyout

More from Archive

More from Pink Sheet