Wariness, Hope Pervaded $150M Deal

December 3, 2002
Reprinted with permission from the Connecticut TechTribune

Stakes high in Biovitrum-Glaxo venture

The tantalizing hope of a safe, effective way to fight obesity without dieting or exercise has been an elusive dream of drug companies -- but liability problems with "solutions" like Fen-Phen have grown into legal nightmares.

On that landscape of hope and fear, New Haven’s Wiggin & Dana mapped out a $150 million pharmaceutical development venture between Biovitrum AB, of Sweden, and Philadelphia-based GlaxoSmithKline. The six-month effort concluded Oct. 23.

Not long ago, anti-obesity pharmaceuticals were viewed as "lifestyle" drugs, away from intensive public and governmental scrutiny. But obesity is now regarded as a serious public health challenge. Increasing at a rate of 30 percent in the last decade alone, it is viewed as akin to an epidemic, responsible for 6.8 percent of all health care expenditures in the U.S., according to GlaxoSmithKline.

Its growing association with heart disease, diabetes and hypertension have elevated anti-obesity drugs well above mere "lifestyle" concerns, said James F. Farrington, Jr., Wiggin’s biotech practice chairman and lead counsel in the deal.

IMCLONE EMBARRASSMENT

Farrington, who has a chemical engineering background, also has a longtime association with Wiggin client Pharmacia AB, which is in the process of being purchased by Groton-based Pfizer, Inc.

Biovitrum was spun out of Pharmacia in 2001 after its merger with Monsanto, to blend the stability of an established pharmaceutical company with the innovation and growth scale of a start-up. It gained venture capital backing from MPM Capital LP of Cambridge, Mass., and Nordic Capital, of Sweden, Farrington said.

In February, Biovitrum announced positive results for its appetite-suppressing compound BVT.933, in phase IIa clinical trials, in which a drug is tested on people suffering from the disease or condition that the drug is meant to alleviate. Positive results were found at this "proof of concept" testing level, and it is currently slated for phase IIb and phase III testing, with a potential FDA approval around 2006.

The unexpected heart valve problems of Fen-Phen, which led to mass tort litigation in the wake of the drugs’ ban in late 1997, is one factor heightening scrutiny in the Biovitrum deal, Farrington said. Another is the IM-Clone experience. While Martha Stewart’s alleged insider trading problems have all the headlines, there’s a different cautionary tale there for due diligence professionals.

A year and a half ago, Farrington noted, Bristol Meyers agreed to pay Imclone a total of $2 billion - - $1 billion for shares of stock and $1 billion in payments in product rights for a cancer drug. Within six months after they did the deal, the FDA rejected the drug, at least, initially. "That was of course very embarrassing for Bristol Meyers," Farrington said. The value of Imclone stock decreased substantially, to the point where Bristol Meyers had paid $1 billion for a stock now written down to $100 million.

Against that backdrop, the due diligence surrounding the Biovitrum deal was intense, Farrington said.

Getting the Deal Done

In-house counsel Lawrence DeGraaf, of its Research Triangle Park, N.C. offices, headed the GSK team. The international transaction took place in London, Philadelphia, Stockholm, and Connecticut, and included Wiggin associates Gretchen Burger and Suzanne Wachsstock, of its Stamford office, and Lauren Sullivan in Hartford.

Today, deal lawyers like Farrington don’t have grass growing under their feet. He travels to Sweden about once a month, and has been posed there as long as 18 months for Pharmacia work, he said.

The shape of the drug companies can change fast, he added. "The interesting part is that Biovitrum, which is now the third-largest European biotech company, was a spinoff from Pharmacia last year. Overnight they created this rather large company with over 1,000 employees."

Antitrust lawyers from Allen & Overy in London and Brussels advised on European competition issues in this multinational effort.

"The business people on the other side were in Research Triangle Park and in Stockholm, so it was very much electronic," Farrington said of putting the deal together.

"The last negotiations I had were sitting on the floor of a hotel in the airport in Copenhagen for an hour, negotiating the last parts of the deal, revising the document on the airplane, and sending it to my cell phone when I got into a taxi in New York. That’s the way things are done these days."