AstraZeneca struggles to spin out anti-infectives division, coming down to the wire

The moment of truth is arriving for AstraZeneca's anti-infectives unit. For more than a year now, the pharma giant ($AZN) has been quietly shopping a deal, seeking an investor willing to take control of the assets, while allowing AstraZeneca to keep a substantial stake for itself, FierceBiotech has learned. Now, industry insiders are buzzing that the company is coming down to the wire on a final decision--and that throughout the negotiations, staffers have been steadily fleeing the once-sizable operation.

A behind-the-scenes look at the dealmaking process reveals some big issues preventing AstraZeneca from finalizing a pact. A variety of insiders in the anti-infectives field say they've carefully considered the deal AstraZeneca has been shopping--and walked away.

"AstraZeneca had a formal process underway where they were pitching spinning off the business and AstraZeneca being the lead shareholder," one executive close to the bargaining table tells me. "Based on the economics of the deal and the assets involved, it was very difficult to make the proposal work. I know they shopped it to everyone" without getting much interest.

The pharma giant also specifically sought out venture groups that had been investing in anti-infectives in an effort to find a buyer for the Waltham, MA-based group. "The assets had little (if any) differentiation and were late to the market and the economics didn't make sense," the executive added.

Another player in the field says he took an early look at AstraZeneca's proposition. "The challenge was that they wanted to spin out the whole pipeline plus a 20-person team," he said. "The pipeline had a couple of interesting assets but they wanted to get paid for the uninteresting assets as well."

Those high-value assets could come back into play if AstraZeneca abandons its initial all-or-nothing pitch, with some execs telling me that cherry-picking assets would be appealing. 

AstraZeneca never came right out and said what it was planning to do with its anti-infectives group, but the company didn't mind saying that it was considering a deal. "We will continue to remain opportunity-driven in infection and neuroscience, exploring opportunities to maximize the value of our pipeline and portfolio," noted a company spokesperson contacted by FierceBiotech. But she declined to respond to "rumors" of an attempted deal and a deadline.

This kind of deal structure is similar in several respects to the partnership AstraZeneca hammered out with Eli Lilly ($LLY) last fall for the pharma giant's BACE drug for Alzheimer's, part of its strategy to wind down direct involvement in neurosciences R&D. Eli Lilly, which had already dumped its own BACE program on toxicity issues, paid $50 million up front to gain 50/50 rights to AZD3293, and promised hundreds of millions more in milestone payments for a successful program.

Throughout the process, AstraZeneca--in the midst of a complete R&D makeover under CEO Pascal Soriot--has seen dozens of staffers, including some top execs, make their way to the exits in Waltham. One former staffer tells FierceBiotech the group has shrunk from 175 to fewer than 100, and biotech executives with an interest in anti-infectives say they have been recruiting researchers from the Waltham division. Another AstraZeneca R&D group in Bangalore was dismissed last summer as AstraZeneca abandoned its work on neglected tropical diseases, malaria and TB. The company cut 168 researchers there but retained its experimental AZD5847 for tuberculosis.

For AstraZeneca, the restructuring in anti-infectives is part of a top-to-bottom overhaul that will see thousands of employees without jobs and thousands more shifting to a new a headquarters and research center in Cambridge, U.K.

Anti-infectives fell out of style years ago in Big Pharma, which shunned the low-margin market. But there have been real signs of a comeback recently. Merck ($MRK) spent $8.4 billion to buy antibiotics developer Cubist; the U.S. government is working to spur new research on antibacterials; and drugmakers increasingly believe the right products can win significant reimbursements from payers. That change-up has influenced Roche's ($RHHBY) dealmaking team, as well as others in the industry.

So far, though, there hasn't been enough of a turnaround to allow AstraZeneca a fast exit with the deal structure of its choice and the assets at hand. -- John Carroll (email | Twitter)

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