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October 05, 2015

Nine Takeover Targets of 2015

Market Watchers Pick Their Top Biopharma Buyout Candidates

Nine Takeover Targets of 2015

From January-August 2015, the total value of biotech M&A nearly doubled to $94.27 billion from the same period a year ago. [iStock/shironosov]

  • Investors have soured, at least for now, on biopharma stocks based on fears that Washington will move to contain price hikes for older drugs—fears re-kindled in the furor over the 5,000% increase in the price of Daraprim by Turing Pharmaceuticals and its CEO Martin Shkreli.  On September 28, a week after the furor erupted, the iShares Nasdaq Biotechnology Exchange-Traded Fund (IBB) continued to fall, dropping 6%, putting the fund on the path toward its biggest loss since 2011. The swoon is reversing what had been a nearly 600% climb in the value of the IBB since March 2009.

    A sustained plunge in biopharma shares threatens to derail what in recent years has been a torrent of mergers and acquisitions, since many of these deals are based on premiums above market value—not to mention the belief that the target’s value will multiply in coming years. During January-August 2015, the total value of biotech M&A nearly doubled to $94.27 billion from the year-ago period, while the number of deals zoomed to 655 from 565 in January-August 2014, according to the monthly Biotech Report of the Zephyr database of M&A, IPO, private equity and venture capital deals.

    The M&A boom until lately explains an interesting phenomenon seen this year: More biopharmas mentioned by fewer market observers as takeover targets. However, GEN still managed to find nine widely speculated takeover targets, same as last year and above the seven targets listed in 2013. True, several new names joined a few usual suspects included in past year’s GEN Lists. For each company mentioned, this list furnishes reasons why analysts found them attractive, their key product(s) and pipeline, and reference sources. Yet much of the M&A talk among analysts and other market observers remains largely concentrated among a relatively small number of small- to medium-capitalization companies. These companies are thought to show promise for a few reasons—from rising sales of marketed products, to deep pipelines in segments that are expected to grow in coming years, or both.

  • Achillion Pharmaceuticals

    Why attractive: Cowen identified the company as a potential takeover target, while UBS cited a 260% surge in the company’s stock price in the 12 months ending in April, as well as its expectation of positive clinical results for two of its HCV candidates, Odalasvir (ACH-3102) and ACH-3422, in the first half of 2015.

    That expectation was met April 25 at the 50th Annual Meeting of the European Association for the Study of the Liver (EASL), when Achillion detailed earlier-announced findings showing that a combination of the compounds achieved 100% sustained viral response 12 weeks (SVR12) after completion of a six-week combination regimen of ACH-3102 and Gilead Sciences’ Sovaldi (sofosbuvir) for treatment-naïve genotype 1 HCV. Achillion also reported positive Phase 1 proof-of-concept data on its NS5B nucleotide polymerase inhibitor ACH-3422. In September, the company reported 100% SVR12 within a second patient cohort treated with odalasvir plus sofosbuvir for six or eight weeks.

    Odalasvir, ACH-3422, and sovaprevir are among lead HCV candidates Achillion is looking to commercialize through an up to $1.1 billion-plus collaboration with Johnson & Johnson’s Janssen Pharmaceuticals, launched in May.

    Key products and pipeline: Odalasvir (ACH-3102) is a Phase II second-generation NS5A inhibitor that has shown pan-genotypic activity in HCV and an enhanced resistance profile compared to first-generation NS5A inhibitors; sovaprevir, a Phase II NS3/4A protease inhibitor with FDA Fast Track status; and ACH-3422, a Phase I nucleotide NS5B polymerase inhibitor. All three are being developed through Achillion’s collaboration with Janssen.

    Also in the pipeline is the serine protease Complement factor D, in discovery and preclinical phases for indications that include paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS), and dry AMD.

  • ARIAD Pharmaceuticals

    Why attractive: Rumors swirled this summer of a possible acquisition by Baxalta for close to $2 billion. Stock prices soared 40% on August 28, but no such deal occurred; talks broke down over price, Bloomberg reported on September 2, citing unnamed sources.

    The alleged deal would have confirmed Stifel Nicolaus analyst Brian Klein’s anticipation in May that “current activist investors will agitate for a sale of the company” following the retirement of Chairman and CEO Harvey J. Berger, M.D., announced by Ariad on April 29. Klein had named five potential buyers for ARIAD: AbbVie, Celgene, Gilead Sciences, Pfizer, and Roche. Cowen has also included the company on its potential acquisition list, citing the management change and the company’s pipeline in saying a possible buyer could be any company active in the cancer space.

    In February, activist investor Sarissa Capital said it would nominate to ARIAD’s board two directors who would demand Dr. Berger’s “imminent retirement.” Sarissa complained that his compensation was too generous in light of the company’s woes with Iclusig. In 2013, Ariad halted a Phase III trial and pulled the leukemia drug from the market to address safety issues. Iclusig rose from the dead last year with a narrower patient subpopulation and a new boxed warning—but not before the company laid off about 40% of its U.S. staff, 160 employees, and shrunk its workforce to about 295 employees in the U.S. and Europe.

    With first-half 2015 sales of $51.7 million, Iclusig remains a long way from a Cowen & Co. estimate in 2013 that annual sales would reach $625 million in 2017 and more than $1 billion ultimately. Sales are expected to grow as new indications are approved.

    Key products and pipeline: Iclusig® (ponatinib) was launched in 2013 for chronic myeloid leukemia and Philadelphia chromosome-positive (Ph+) acute lymphoblastic leukemia (ALL), both for patients resistant or intolerant to prior TKI therapy. Pipeline consists almost entirely of seven new Iclusig indications, all in Phase II trials.

    On September 15, the company reported that it achieved full enrollment in the pivotal Phase II ALTA trial of another pipeline compound, brigatinib (AP26113), an anaplastic lymphoma kinase (ALK) inhibitor indicated for patients with ALK+ non-small cell lung cancer (NSCLC) that is resistant to crizotinib. ARIAD hopes that positive ALTA results can serve as the basis of an NDA filing planned for the third quarter of 2016. ARIAD also has another pipeline compound for NSCC, the preclinical AP32788.

  • Biogen

    Why attractive: Cowen cited the company as one of three potential biotech takeover targets, citing a 22% drop in its stock price after the company reported disappointing second-quarter earnings in July and lowered its investor guidance for this year. The results and guidance reduction followed revenue growth for Tecfidera that fell below Wall Street expectations despite a 41.6% year-over-year increase in product revenue, to $1.708 billion in the first six months of 2015.

    Cowen’s Eric Schmidt noted Biogen had $4.5 billion of cash available to repurchase stock or acquire a smaller company: “If they don’t redeploy their cash efficiently or properly, there’s always a chance that somebody may come in and monetize their assets for them.” Schmidt and Michael Yee of RBC Capital Markets agreed that Biogen stock was oversold, potentially making it attractive to buyers, according to The Boston Globe. But with the seventh-highest market capitalization among the Top 25 Biotech Companies of 2015, a Biogen acquisition would be costly albeit feasible, Brian Skorney of R.W. Baird & Co. told the newspaper.

    Key products and pipeline: Biogen has five marketed drugs for multiple sclerosis, three of which racked up revenues above or just below $1 billion in the first six months of this year: Tecfidera, Avonex ($1.535 billion), and Tysabri ($974.4 million). The rest of the marketed therapies include two hemophilia drugs (Alprolix and Eloctate) and two drugs partnered with Roche’s Genentech, Gazyva and Rituxan.

    Furthest along in Biogen’s pipeline is another MS treatment, Zinbryta™ (daclizumab) High-Yield Process, co-developed with AbbVie. In April the FDA accepted for review the companies’ Biologics License Application requesting marketing approval. The drug has also been accepted for review by the European Medicines Agency.

    Four Biogen compounds are in Phase III trials: Aducanumab (BIIB037) for Alzheimer’s disease; ISIS-SMNrx for spinal muscularatrophy, developed in collaboration with Isis Pharmaceuticals; a new indication for Tysabri (natalizumab) in secondary progressive MS; and two new indications for the Genentech-partnered Gazyva (obinutuzumab), diffuse large B-cell lymphoma (DLBCL); and indolent non-Hodgkin’s lymphoma, front-line and refractory.

  • BioMarin Pharmaceuticals

    Why attractive: BioMarin has long been speculated as a takeover target, appearing on GEN’s List in 2014 List and 2013—the year BioMarin and Roche dismissed as ‘rumors” an unconfirmed Deal Reporter story that the former was in talks to be acquired by the latter. Among reasons for all the talk are the commercial success of the orphan drug model globally, the company’s diversified and expanding pipeline—and of late, its Wall Street success, as its share price zoomed nearly 71% in the year ending September 23. Investors Alley named BioMarin as one of three companies “rumored as possible buyout candidates” based on “huge runs in the past six months.”

    Another attraction is year-over-year sales gains for its marketed drugs. Sales of best-selling product Naglazyme rose 13% during the second quarter, to $111.1 million, while Kuvan showed the largest one-year gain with a 28% jump to $60.1 million. But BioMarin’s strength could also make the company a biopharma M&A hunter rather than one of the hunted: “Although some analysts think Sanofi or Shire could be acquirers of BioMarin, Robert W. Baird analyst Chris Raymond says BioMarin should be considered as another possible acquirer itself,” CNBC observed.

    Key products and pipeline: Five orphan drugs on the market led by Naglazyme® (galsulfase), an enzyme replacement therapy for mucopolysaccharidosis VI (MPS VI). Pipeline led by Drisapersen for Duchenne muscular dystrophy, for which the company has filed an NDA with the FDA; and two Phase III compounds—Pegvaliase (formerly BMN 165), a PEGylated recombinant phenylalanine ammonia lyase (PEG-PAL) for phenylketonuria (PKU) in patients whose blood phenylalanine levels are not adequately controlled by the marketed drug Kuvan; and Reveglucosidase (BMN 701), a GILT GAA for Pompe disease. In August, BioMarin agreed to sell a third Phase III compound, Talazoparib (formerly BMN 673), to Medivation for up to $570 million. Talazoparib is a PARP inhibitor for genetically defined cancers indicated for metastatic breast cancer and small cell lung cancer. 

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