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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 to accelerate its transformation into a biopharmaceutical company. In one transaction, BMS will split off its holdings in Mead Johnson Nutrition; in the other, the company will potentially pay up to $1 billion to antibody therapeutic developer Alder Biopharmaceuticals Inc., in a global agreement for the development of a treatment for rheumatoid arthritis (RA).
According to BMS, the Mead Johnson split-off is a tax-free way for BMS shareholders to exchange shares of BMS common stock for shares of Mead Johnson. In the exchange offer, BMS shareholders can exchange some, none or 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 B common stock into Mead Johnson class A common stock. Upon the completion of the exchange offer, only Mead Johnson class A common stock will remain outstanding. The split-off is expected to be net cash flow positive to the BioPharma business 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 $764 million in potential development-based and regulatory-based milestone payments and potential sales-based milestones that could $200 million. Alder may also require BMS to make an equity investment of up to $20 million in Alder during an initial public offering. When the ink dries on this deal, Alder could receive up to $1 billion total for worldwide exclusive rights to develop and commercialize ALD518, a novel biologic that has completed Phase IIa development for the treatment of rheumatoid arthritis.
Brian Henry, a spokesman for BMS, says both transactions are BMS' latest moves in its ongoing "string of pearls" strategy, under which it is attempting to accelerate the discovery and development of new therapies with a string of innovative alliances, partnerships and acquisitions with other companies.
"We have been looking for innovation in many different forms outside of the company," Henry says. "For us, this is another way for us to complete our transformation into a full-fledge biopharma company, and we're certainly looking for other opportunities under this strategy that will help us reach that goal."
For Alder, the ALD518 deal could be a game-changer. Dr. Randall C. Schatzman, president and CEO of Alder, says BMS' extensive development and commercial experience in immunology translate into an exceptionally good fit for Alder, especially at this stage of the company's corporate development. The company is only six years old, having been incorporated in 2004 and initially funded by the United States Army to explore the development of new production technologies for humanized antibodies. Following several financing rounds, Alder is now actively developing its own antibody therapeutics while out-licensing its technologies.
"Foremost, BMS brings a significant knowledge base and experience in the RA space," says Schatzman. "They have an outstanding drug called Orencia for treating RA. As such, they understand the disease and the needs of patients. BMS also brings the financial horsepower required these days to achieve approvals in RA. Phase III trials can be very expensive. Finally, BMS and Alder are very much aligned in the best, aggressive approach to developing ALD518 in multiple autoimmune indications."
ALD518 is a humanized, monoclonal antibody designed to block the pro-inflammatory molecule interleukin-6 (IL-6), which plays a key role in the inflammatory cascade leading to the inflammation, swelling, pain and destruction of large and small joints associated with RA. Based on the strong association of IL-6 with inflammatory disease, inhibition of IL-6 with ALD518 represents a promising new anti-inflammatory mechanism that could result in bone and joint preservation. ALD518 is also being studied by Alder for the treatment of cancer and in cancer supportive care, but cancer is not among the indications involved in the BMS deal.
"We believe ALD518 will be the best-in-class for agents targeting the IL-6 axis of biology," Schatzman says. "In addition, we think that the molecule has the potential to compete head-on with the anti-TNF agents, such as Humira and Remicade. This is a very large market amounting to many billions of dollars per annum."
Already counting Schering-Plough (now Merck), Seattle Genetics and Genmab among its Big Pharma partners, Alder is seeking additional partners who are interested in using its technologies to develop monoclonal antibodies for a variety of indications, says Schatzman.
"In addition, we do have several earlier stage programs targeting cancer, anemia and chronic pain, where we will be seeking partners," he adds.