Alex Philippidis Senior News Editor Genetic Engineering & Biotechnology News
Biopharma M&A Expected to Rebound After a Down Year
Investor fears that government would curb the price of prescription drugs dampened merger-and-acquisition (M&A) activity in 2016. According to EY, deal volume last year exceeded $200 billion, “in line with the previous two years and signaling a new plateau after nearly a decade averaging well below $100 billion.”
HBM Partners, however, showed a sharp 35% year-over-year deal dollar drop, down to $148.2 billion in worldwide Biopharma M&A in 2016, compared with $228.1 billion measured by the firm in 2015, even as the number of completed transactions (136) was only one lower than 2015. Less dramatic, but still significant, was a 22% value decrease in the Zephyr Biotech Report, which recorded 1,370 deals totaling $94.62 billion, down from $121.294 billion for 2015. Deloitte, which also focuses more specifically on Biotech M&A, recorded a 23% decrease in deal value from $118 billion in 2015 to $91 billion in 2016, with the number of deals dipping to a six-year low of 326.
While President Donald Trump continues to promise that his policies will lower what people pay for medication, there are expectations that he will do so through market mechanisms (like allowing Medicaid and Medicare to negotiate prices with drug developers) as well as enact business-friendlier regulations (like his proposal to cut from 35% to 10% the income tax rate of corporations that repatriate profits earned overseas). Such policies will likely drive M&A activity well above last year’s levels, EY concluded in January.
The prospect of a hotter buyout market this year has already begun to generate more buzz about biopharma businesses likely to be bought out, ten of which are highlighted in this year’s edition of GEN’s annual Takeover Targets list. This year’s list combines six new names with four companies spotlighted in our 2016 list. For each company mentioned, this list explains where talk of acquisitions has surfaced, and why.
As in past years, small- to medium-capitalization biopharma companies continue to dominate Wall Street speculation by showing promise for reasons ranging from approvals for new products and rising sales to successful clinical programs in indications that are expected to generate billions in new revenues.
Biogen has made a lot of moves—most well-received by investors—in the months since finding itself the center of takeover speculation. The Wall Street Journal reported in August that the company had drawn the interest of Merck & Co. and Allergan as a potential buyout target, citing unnamed sources.
Since then, Biogen has spun off its hemophilia and other rare blood disorders business into a new company called Bioverativ, which began trading its shares in January. “I think they're on the right track—and the move could make Biogen a more attractive acquisition target,” Keith Speights wrote in The Motley Fool in October. He noted that the company was among the top three most likely biopharmas to get acquired in a survey of market watchers by Evercore ISI. Also placing Biogen high on his list of takeover prospects is Michael Yee of RBC Capital Markets.
The spinout of Bioverativ enabled Biogen to refocus on treatments for eye diseases and neurological disorders—such as spinal muscular atrophy, the first treatment for which is Biogen’s Spinraza™ (nusinersen), which won FDA approval in December. Biogen has licensed global Spinraza rights from Ionis Pharmaceuticals, which won a $60 million milestone payment and will receive royalties. One Wall Street watcher (Jay Silverman of the Medical Technology Stock Letter) believes Ionis itself may be bought by a Biopharma giant in the near future as well.
Another reason Biogen has attracted buyout buzz is its dominance of the market for multiple sclerosis (MS) drugs, led by Tecfidera®, which generated $3.968 billion last year, up 9% over 2015. Another MS drug, Plegridy (peginterferon beta-1a), saw its year-over-year sales zoom 42% in 2016, rising to $482 million. The company finished 2016 with net income of $3.703 billion (up 4% from 2015) on revenues that rose 10% year-over-year, to $11.449 billion. “There's definitely a lot to like about the biotech. Biogen's multiple sclerosis franchise is impressive, led by Tecfidera, with Plegridy growing sales quickly,” Speights added.
What would a list of Biopharma takeover targets be without BioMarin? The rare disease drug developer has appeared on every such list compiled by GEN—from the first such list published in 2013, when Roche was said to have cast its eyes on the company, through last year’s edition.
This year, Michael Brush, publisher of the stock newsletter Brush Up On Stocks, named the company one of his five “prime buyout candidates” in MarketWatch, based on comments by RBC Capital Markets analyst Michael Yee. And the company was another of those top three most likely Biopharma buyout prospects in the Evercore ISI survey.
Both cited BioMarin’s combination of marketed drugs and pipeline candidates. BioMarin finished last year with a 26% jump in revenue over 2015, to $1.117 billion, and impressive double-digit gains for two of its marketed drugs: Morquio A syndrome enzyme replacement therapy Vimizim® (elosulfase alfa) saw its 2016 net product revenue grow year-over-year by 55%, generating $354 million; while Kuvan (sapropterin dihydrochloride), the first and only FDA-approved phenylketonuria (PKU) treatment, racked up $348 million, up 46% over 2015. Despite these strong numbers, BioMarin finished last year with a $630 million loss, up from a $172 million net loss in 2015.
On the pipeline front, BioMarin faces a Prescription Drug User Fee Act (PDUFA) goal date of April 27, 2017, for an FDA decision on its Batten disease candidate Brineura, which is also under regulatory review in Europe. Also during the second quarter, the company expects to file a Biologics License Application for pegvaliase in phenylketonuria expected in the second quarter of 2017. The company ended 2016 by launching a Phase III trial of its achondroplasia candidate vosoritide in children ages 5–14, based on positive Phase II results.
“I suspect bigger companies could be drawn to BioMarin, largely because the company develops drugs for indications that few other biotechs are targeting. With this competitive moat, BioMarin, in my view, is a very likely takeover target,” Keith Speights of The Motley Fool wrote on October 11.
Bristol-Myers Squibb (BMS)
The pharma giant is squarely in the sights of at least two activist investors, fueling speculation about a possible takeover. One is Carl C. Icahn, who has neither confirmed nor denied a February 21 report in The Wall Street Journal that he has bought a stake in BMS. A week later, Icahn signaled a larger role as a biopharma activist by hiring gene transfer pioneer Richard C. Mulligan, Ph.D., as a portfolio manager.
While Icahn has stayed mum, Jana Partners became a shareholder in the company late last year, owning 3.9 million BMS shares valued at $226 million, a stake well below 1%, as of December 31. That stake “substantially increased” this year, but remains under 1%, Reuters has reported, citing unnamed sources. Jana’s investment, followed by months of dialogue with the company, paid off last month when BMS named to its board three new independent directors.
Behind all the investor activism is a pair of stinging disappointments. In August, BMS acknowledged that its marketed cancer immunoptherapy Opdivo® (nivolumab) failed a Phase III trial assessing its effectiveness as a monotherapy in patients with previously untreated advanced non-small cell lung cancer (NSCLC). Shares of BMS have fallen 23% since that announcement, from $75.32 to $58.32. And on January 19, BMS said it would not pursue an accelerated regulatory pathway for the combination of Opdivo plus Yervoy® (ipilimumab) in first-line lung cancer in the U.S.
The Motley Fool analyst Todd Campbell on February 23 named five potential buyers for the company: Amgen, Gilead Sciences, Pfizer, Roche, and Sanofi. StreetInsider also named Gilead, Pfizer, and Roche as possible suitors, along with Novartis.
“A deal, if pursued, could be valued at as much as $120 billion, or $72 per share,” StreetInsider said, citing unnamed sources.
BMS management is unlikely to rule out a takeover: “if Bristol can get paid out for an assumption, they will own lung cancer,” according to an email to clients by analyst Mark Schoenbaum of Evercore ISI that was reported by Barron’s.
Added Max Nisen of Bloomberg Gadfly, “Bristol investors better hope someone is feeling bold. Buyout speculation may be the only case for optimism about the company's shares right now.”
Fortunes can turn fast in Biopharma. Just a year after Exelixis was among Wall Street Losers of 2015, the company finished in the right direction last year, becoming one of GEN’s Top 10 Wall Street Winners of 2016. That turnaround has also added the company to another list—that of attractive takeover candidates.
Last year, Exelixis basked in the glow of a series of positive developments for Cabometyx (cabozantinib), starting with positive Phase III results in comparison to Novartis’ everolimus in renal cell carcinoma (RCC). In April, Cabometyx won FDA approval, followed in September by European marketing authorization approval.
Writing in Seeking Alpha, Bret Jensen in January identified a potential buyer for the company, calling it one of two possible acquisition targets for Gilead Sciences: “Purchasing Exelixis, while costly, would dramatically expand Gilead's footprint in the oncology space and give it a potential blockbuster oncology drug as well.”
Also in January, Arpita Dutt of Zacks named the company one of “four Biotech stocks that could find themselves on the radar of companies on the lookout for acquisition targets [this year]. Cabometyx is experiencing rapid and broad uptake in the market, with label expansion opportunities leaving room for upside,” she wrote.
Dutt’s words proved even truer on February 27, when Exelixis reported net product revenues for Cabometyx of $44.7 million in the fourth quarter and $93.5 million for all of 2016. The product accounted for most of the revenues generated by the company’s Cabozantinib franchise ($51.9 million in Q4, $135.4 million in 2016), which includes Cometriq® capsules for medullary thyroid cancer.
That success helped lower Exelixis’ net loss for the year to $28.124 million, from $121.421 million in 2015.
Also cited by Dutt was Exelixis’ pipeline, which includes a potential new indication for cabozantinib as a treatment for previously untreated patients with advanced RCC, based on positive data from the CABOSUN Phase II trial. The company expects to file for approval with the FDA in the third quarter.
Also in the pipeline are additional indications for Cotellic® (cobimetinib), co-promoted in the U.S. with Genentech, a member of the Roche Group. Genentech is advancing the cobimetinib clinical development program, which includes three ongoing or planned Phase III pivotal trials of combination regimens including cobimetinib for forms of colorectal cancer and advanced melanoma. Another compound, the Daiichi-Sankyo-partnered CS-3150 [esaxerenone (r-INN)], is in Phase III for hypertension.
Treatments for nonalcoholic steatohepatitis (NASH) have emerged as one of the most closely watched areas of Biopharma, which has helped NASH-focused Genfit emerge among most-discussed takeover candidates. Speculation was rife earlier this month after StreetInsider reported that Novartis had all but wrapped up a deal to buy Genfit, citing an unnamed source: “It wasn't clear how much Novartis is willing to pay for Genfit, but discussions are said to be at an advanced stage.”
Takeover speculation began in earnest in December, after the company was said to be exploring a sale of the company among other options. “Pharmaceutical companies including Sanofi, Novartis, and Shire may be interested in Genfit,” Bloomberg News reported, citing unnamed sources.
Genfit’s lead pipeline candidate is elafibranor (GFT505), an oral once-daily first-in-class NASH treatment designed to prevent fibrosis progression, and now under study in the Phase III RESOLVE-IT trial. The trial is recruiting a first group of 1,000 patients for the study’s first stage, a task expected to be completed by the summer. Should the trial prove successful, Genfit has said, a conditional marketing authorization in Europe for the Peroxisome Proliferator-Activated Receptor-α and -δ agonist could be approved in the second half of 2019 or first half of 2020.
Genfit positioned itself to continue development of elafibranor late last year when it raised €78.5 million ($83.9 million), consisting of a private placement and a capital increase with shareholders’ preferential subscription rights.
Should Genfit be acquired, the buyer will find no shortage of competition. Allergan staked its claim for NASH leadership last year—September 20, to be exact—when it announced plans to buy Tobira Therapeutics for up to $1.695 billion and shelled out $50 million upfront for Akarna Therapeutics. In January, Gilead CEO John Milligan said NASH drug development was among his company’s priorities for 2017; the company’s GS-4997 is in Phase III trials, with two other candidates in Phase II studies. Pfizer has two NASH treatments in Phase I.
As sales of Jakafi® (ruxolitinib) continue to grow, so too does talk about Incyte being a prime takeover target. Jakafi’s myelofibrosis and polycythemia vera (PV) indications have helped propel the drug to robust sales growth; net product revenues for 2016 stood at $852.816 million, up 42% from 2015.
Also robust, say analysts, is Incyte’s pipeline. In January, the company joined Merck & Co. to announce an expansion of their clinical program for a combination of Incyte’s epacadostat and Merck’s Keytruda® (pembrolizumab). Phase III trials of the combination are set to start this year in four additional tumors beyond melanoma. Another candidate far along in development is the Eli Lilly-partnered baricitinib, which is awaiting FDA review in moderate-to-severe rheumatoid arthritis—for which it won European approval—with a Phase III trial in psoriatic arthritis to start this year.
“This combination of growing revenues and strong R&D makes Incyte a solid acquisition target,” Simos Simeonidis, Ph.D., managing director/senior Biotech analyst at RBC Capital Markets, declared in comments MarketWatch’s Michael Brush cited to place the company on his list of five “prime buyout candidates.” Dr. Simeonidis was similarly bullish in comments to Barron’s last July, shortly before the company made GEN’s 2016 list.
Other analysts share his enthusiasm. Back in January, Michael Yee of RBC Capital Markets included Incyte as one of four possible acquisition targets back in January. Arpita Dutt of Zacks named the company one of “four Biotech stocks that could find themselves on the radar of companies on the lookout for acquisition targets in 2017.” And in a survey by Jefferies, buy-side investors named Incyte one of three likely buyout targets this year.
The case for a buyout could become stronger if Incyte can keep Jakafi sales rising with new indications. Incyte rang out 2016 by announcing that the first patient was treated in a pivotal trial assessing Jakafi in graft-versus-host disease, for which the FDA granted a Breakthrough Therapy designation in June. Incyte acquired development rights in graft-versus-host from Lilly in April for $35 million upfront plus milestones.
Just a year ago, the company was neck-and-neck with Kite Pharma and Novartis as leaders in the scramble to develop CAR-T cancer immunotherapies. Then came the Phase II ROCKET trial of its lead CAR T candidate JCAR015 in adults with r/r B-cell acute lymphoblastic leukemia (ALL), a trial in which five patients died of cerebral edema. Now Juno’s well behind, and it will be at least another year, if not longer, before it can bring its first cancer immunotherapy to market.
On March 1, Juno halted development of JCAR015, and said its attention would shift in part to an as-yet-unknown candidate with a defined cell composition for adult ALL which is set to start a trial next year. The company will also focus on its next-furthest-along CAR T candidate, JCAR017, which showed some promising preliminary data in patients with r/r aggressive non-Hodgkin lymphoma (NHL) in December.
Juno’s stock price has fallen 45% since the first three deaths were acknowledged in July, from $40.82 on July 7 to $22.48 on March 10. To be fair, that’s a few bucks above the closing price of $17.86 on December 13. Although CAN Financial and other market watchers have said the stock price has spiked up this year due to chatter about a possible buyout: “Hearing takeover rumors circulating about Juno Therapeutics,” GuerillaStockTrading.com told readers on January 18.
On March 6, Chris Meekins of FBR—which is being acquired by B. Riley Financial—included Juno in his short list of leading Biopharma takeover candidates. Also making that list was Kite Pharma, which is on track to win FDA approval for its CAR T candidate axicabtagene ciloleucel (formerly KTE-C19) as soon as this year—an application likely to be helped by positive six-month data reported on February 28 (Kite made GEN’s 2016 Takeover Targets list, too). Other companies cited by Meekins were Tesaro, Agile Therapeutics, Acceleron Pharma, Aurinia Pharmaceuticals, Geron, and Genocea.
The Medicines Company
Sometimes, biopharmas generate takeover talk because they stand to gain from what their rivals in the same indication are doing. Such is the case with The Medicines Company (TMC), which saw its stock zoom 26%, from $119 to $150.25, between December 26 and February 28.
During that run-up—February 2, to be exact—Amgen trumpeted positive topline data from its FOURIER clinical trial, saying its PCSK9 inhibitor Repatha® (evolocumab) “significantly” reduced the risk of cardiovascular events. How significantly has yet to be seen, when the company presents data March 17 at the American College of Cardiology (ACC) 66th Annual Scientific Session in Washington, DC.
Analysts concluded the good news for Amgen was also good for TMC, which has partnered with Alnylam on a cholesterol-reducing drug that also targets PCSK9, inclisiran (formerly PCSK9si or ALN-PCSsc). On November 15, TMC and Alnylam announced their own positive results from their Phase II ORION-1 study: A single injection of inclisiran (300 mg) lowered “bad” cholesterol (LDL-C) by an average of 51%, and up to 76%, while two injections at the same dosage lowered LDL-C by an average of 57% and up to 81%.
“Investors may be betting that The Medicines Company becomes an acquisition target,” Brian Orelli at The Motley Fool wrote on February 3.
At least one analyst has given credence to that view in recent months. H.C. Wainwright initiated coverage of TMC with a “buy” rating in December, with analyst Ed Arce opining that an M&A exit for the company was plausible given the blockbuster potential of inclisiran—which he projects will generate peak annual sales of $5 billion in 2030—and another pipeline drug, Carbavance® (meropenem and vaborbactam), which in April 2016 won the FDA’s Fast Track designation for the treatment of complicated urinary tract infections (cUTI).
Jefferies has pegged the company as one of five likely takeover targets this year, while Jay Silverman of the Medical Technology Stock Letter last fall also described the company as a buyout candidate, according to MarketWatch.
“2017 will truly be a pivotal year for Neurocrine,” CEO Kevin Gorman, Ph.D., predicted in a February 14 statement, and in many ways he’s right. The company is awaiting an FDA decision on the application for its once-daily tardive dyskinesia treatment Ingrezza™ (valbenazine), for which the agency has set a PDUFA goal date of April 11.
Neurocrine expects an approval, with Dr. Gorman adding: “We have been preparing all aspects of the company for the anticipated commercial launch of Ingrezza in the United States.” Neurocrine submitted its NDA for Ingrezza following Phase III data showing the treatment outperformed placebo through a 3.1-point improvement in Abnormal Involuntary Movement Scale six weeks following treatment.
The company saw its stock price dip in January after Ingrezza failed a Phase II study in adult Tourette syndrome. Yet last month, the stock’s “outperform” rating was reaffirmed by Robert W. Baird, where senior research analyst Brian P. Skorney has called Neurocrine a takeover candidate, as has the firm Jefferies earlier. Two other firms, Oppenheimer and H.C. Wainwright, raised their projected price targets for the company. Neurocrine bounced back after gaining U.S. rights to Bial’s once-daily adult Parkinson's disease treatment Ongentys® (opicapone), which has European approval, for up-to-$145 million-plus.
In January, Neurocrine was listed along with a few other companies as examples of the smaller biotechs that BMO Capital Markets analyst M. Ian Somaiya said could also be targets for Biopharma giants should President Donald Trump, as expected, win enactment of his tax-cutting repatriation proposal.
During the third quarter, Neurocrine expects its collaboration partner AbbVie to submit to the FDA an NDA for another promising candidate, Elagolix. The endometriosis treatment candidate showed statistically significant improvement over placebo in scores for menstrual pain and nonmenstrual pelvic pain associated with the disorder, according to data released by AbbVie in October. Elagolix is also expected by year’s end to generate topline data from pivotal studies in uterine fibroids.
Positive results from a Phase III trial in June not only more-than-doubled the price of Tesaro stock, but catapulted the company to a top takeover target among investors, and talk about a buyout has only intensified since then.
Niraparib aced the Phase III NOVA trial assessing the oral, once-daily poly(ADP-ribose) polymerase (PARP) inhibitor, meeting its primary endpoints of progression-free survival in patients with ovarian cancer. By November, Tesaro had submitted to the FDA its NDA for niraparib as a maintenance treatment for patients with platinum-sensitive, recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in response to platinum-based chemotherapy. A month later, Tesaro won FDA Priority Review, with a PDUFA goal date of June 30, 2017.
Niraparib would compete with two marketed PARP inhibitors with ovarian cancer indications, AstraZeneca’s Lynparza® (olaparib), and Clovis Oncology’s Rubraca (rucaparib), which won FDA approval on December 19.
“Tesaro has been cited in the press as a potential M&A target and is a company we frequently hear mentioned as a target from our conversations,” Credit Suisse analyst Alethia Young and colleagues told investors in October, according to Barron’s, explaining why she deemed Tesaro an attractive buyout target. “We think the demand for late-stage oncology assets is high, especially in the PARP space, given the potential for activity across a range of tumors.”
And if the buyer was a large pharma that already has an oncology salesforce and large R&D infrastructure, she added, “We could see SG&A [selling, general, and administrative expenses] synergies of 50–75% and R&D synergies of 15–30%.”
In January, Jefferies included Tesaro as one of three companies its survey of buy-side investors deemed most likely takeover candidates. Michael Yee of RBC Capital Markets and Arpita Dutt of Zacks also cited the company as ripe for the picking, with Dutt calling Tesaro one of “four Biotech stocks that could find themselves on the radar of companies on the lookout for acquisition targets in 2017.”