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AZ Buys out Diabetes Partner BMS

By Gil Roth | December 19, 2013

Potential $4.3 billion deal plus royalties through 2025

AstraZeneca has bought out diabetes partner Bristol-Myers Squibb for an upfront payment of $2.7 billion, potential milestones and asset transfers of of $1.6 billion, and royalty payments through 2025. The companies began their collaboration in diabetes in 2007 to develop and commercialize Onglyza and dapagliflozin. In July 2012, BMS and AZ worked together to acquire Amylin and its injectable diabetes treatments, Byetta, Bydureon and Symlin, for $5.3 billion.

Under the terms of the deal, BMS will sell the assets of Onglyza, Kombiglyze XR/Komboglyze, dapagliflozin, Byetta, Bydureon, Symlin and metreleptin. Concurrent with the transaction, AZ took a writedown of $1.7 billion related to poor sales of Bydureon.

The agreement also includes the sale of the former Amylin manufacturing facility in West Chester, OH, and covers the future purchase by AstraZeneca of BMS' Mt. Vernon, IN, manufacturing facility approximately 18 months after the closing of the transaction. Approximately 4,100 employees are expected to transfer from AZ to BMS, subject to local consultations. AZ will become responsible for the manufacturing and supply chain of all diabetes products, while BMS will continue to work on specific clinical trials in the companies' ongoing clinical plan.

Approval of dapagliflozin accounts for $700 million of the $1.4 billion milestone payments due to BMS. That candidate was recently recommended for approval by an FDA advisory committee and has a PDUFA action date of Jan. 11, 2014. In January 2012, its application received a complete response letter requesting additional clinical trial data to better assess the drug's risk-benefit profile. Dapagliflozin is approved (as Forxiga) in numerous markets, but AZ and BMS recently pulled it from the German market due to pricing and reimbursement issues.

BMS is expected to use its proceeds to increase dividends and R&D spending, and potentially make acquisitions. In November 2013, BMS announced that it would exit R&D in several therapeutic areas, including diabetes, hepatitis C (HCV) and neuroscience. In recent years, the company made several large bets in those areas, including the Amylin purchase and the $2.5 billion acquisition of Inhibitex. Within months of the Inhibitex purchase, BMS was compelled to take a $1.8 billion writedown when its lead HCV product showed unexpected toxicity.

Pascal Soriot, AZ's chief executive officer, commented, “Diabetes is rapidly becoming a global challenge of epidemic proportions that is expected to affect more than 550 million people by 2030. 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 anti-diabetic medicines that help address the needs of these patients. Together with Bristol-Myers Squibb we concluded that consolidating ownership of the diabetes portfolio would benefit both companies and allow us to better serve the needs of diabetic patients. [This] announcement reinforces AstraZeneca’s long-term commitment to diabetes, a core strategic area for us and an important platform for returning AstraZeneca to growth.”

Lamberto Andreotti, BMS' chief executive officer, remarked, “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. [This] announcement puts the diabetes franchise in the capable hands of AstraZeneca and allows us to move to a more simplified operating model consistent with our pipeline and portfolio.”

The transaction is expected to close in early 2014, subject to antitrust reviews. AZ expects to pay for the transaction out of cash and short-term credit facilities.

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