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Sensible split
February 2014
by Ilene Schneider  |  Email the author
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LONDON & NEW YORK—On Dec. 19, AstraZeneca and Bristol-Myers Squibb Co. announced that they would dissolve their diabetes collaboration. Under the terms of the agreement, AstraZeneca would make an initial payment of $2.7 billion to Bristol-Myers Squibb, possibly followed by regulatory- and sales-based milestone payments of as much as $1.4 billion, plus royalty payments on net sales through 2025. In addition, AstraZeneca may make payments up to $225 million when certain assets are subsequently transferred.
 
Most financial analysts thought it would be a good move for both AstraZeneca, a global biopharmaceutical business that focuses on treatments for cardiovascular, metabolic, respiratory, inflammation, autoimmune, oncology, infection and neuroscience diseases, and Britsol-Myers Squibb, a global biopharmaceutical company that discovers, develops and delivers medicines for serious diseases. While the joint venture did not appear to be working out, the acquisition will help AstraZeneca to strengthen its pipeline in an area of strength while Bristol-Myers Squibb is expected to focus more on immuno-oncology and HIV drugs.
 
Meanwhile, both companies will benefit from the U.S. Food and Drug Administration (FDA) announcement in January that it has approved Forxiga (dapagliflozin) tablets for marketing as a means of enhancing glycemic control in adults with type 2 diabetes, despite the split. Forxiga is expected to do well even in the competitive diabetes-drug marketplace where Merck & Co. Inc.’s Januvia may have been the leader with almost $2.9 billion in sales during the first three quarters of last year.
 
In 2012, diabetes was estimated to affect more than 370 million people worldwide. The prevalence of diabetes is projected to reach more than 550 million by 2030. The FDA says that type 2 diabetes affects about 24 million people in the United States, accounting for more than 90 percent of diabetes cases diagnosed in the country. The U.S. Centers for Disease Control and Prevention adds that complications of diabetes can include amputations, blindness and stroke, as well as heart, kidney and nervous-system diseases.
 
According to Pascal Soriot, CEO of AstraZeneca, “Consolidating worldwide ownership of the diabetes portfolio would benefit both companies and allow us to better serve the needs of diabetic patients, leveraging our primary- and specialty-care capabilities and our geographical reach, especially in emerging markets.” He added that the agreement “reinforces AstraZeneca’s long-term commitment to diabetes, a core strategic area for us and an important platform for returning the company to growth.”
 
As Soriot explained, “Diabetes is rapidly becoming a global challenge of epidemic proportions. Much of this impact will be felt in emerging markets where AstraZeneca has a strong presence. In recent years we’ve worked with our alliance partners at Bristol-Myers Squibb to develop an innovative portfolio of non-insulin antidiabetic medicines that help address the needs of these patients.”
 
AstraZeneca will own intellectual property and global rights for the development, manufacture and commercialization of the diabetes business, which includes Onglyza (saxagliptin), Kombiglyze XR (saxagliptin and metformin HCl extended release), Komboglyze (saxagliptin and metformin HCl), dapagliflozin (marketed as Forxiga outside the U.S.), Byetta (exenatide), Bydureon (exenatide extended-release for injectable suspension), metreleptin and Symlin (pramlintide acetate).
 
Approximately 4,100 Bristol-Myers Squibb employees dedicated to the diabetes business will eventually become part of AstraZeneca, which will also assume responsibility for the manufacturing and supply chain of the full portfolio of diabetes products. Bristol-Myers Squibb will continue to deliver specified clinical trials in line with the ongoing clinical trial plan. A number of R&D and manufacturing employees dedicated to diabetes will remain with Bristol-Myers Squibb to move the diabetes portfolio forward and support the transition.
 
“This agreement will allow us to further evolve our business model as a leading specialty biopharma company and increase resources behind the opportunities that drive the greatest long-term value for patients, our company and our shareholders,” said Bristol-Myers Squibb CEO Lamberto Andreotti. He confirmed that the funds from the sale will be used for acquisitions, although he said the company is “not going to re-enter into primary care.”
 
Panmure Gordon analyst Savvas Neophytou described the agreement as “a sensible deal,” adding “even with a staged earn-out which could rise to $1.6 billion, the price would appear to be good business, particularly as it also gives AstraZeneca full rights to Onglyza and dapagliflozin.”
 
Andrew Baum at Citi thought it was good for both companies, explaining, “We expect [Bristol-Myers] will use the proceeds to actively pursue business development in its core specialty care areas and augment earnings through cash, debt and equity-funded future transactions.”
 
Seamus Fernandez of Leerink Swann Research called the move “positive for both companies in our opinion. Most importantly, we believe the move exhibits Bristol-Myers Squibb’s strong conviction in its overall biopharma strategy and what we expect will be an exciting time for immuno-oncology news flow.”
 
Code: E021401

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