Alex Philippidis Senior News Editor Genetic Engineering & Biotechnology News
Market Watchers Pick Their Top Biopharma Buyout Candidates
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.
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.
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.
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.
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.
Why attractive: SunTrust Robinson Humphrey analyst Salveen Richter notes the company is a key player in gene therapy, with recent data and positive progress toward commercialization. In February, the company said it received the FDA’s Breakthrough Therapy designation for its LentiGlobin® BB305 gene therapy for transfusion-dependent patients with beta-thalassemia major.
LentiGlobin seeks to treat beta-thalassemia major and severe sickle cell disease by inserting a functional human beta-globin gene into the patient’s own hematopoietic stem cells ex vivo and then returning those modified cells to the patient through an autologous stem cell transplantation. Last December, bluebird’s share price jumped 83% the day after the company said the first four subjects treated with BB305 produced enough hemoglobin to reduce or eliminate the need for transfusion support after at least three months of follow up.
“LentiGlobin has the potential to become a blockbuster therapy, according to a handful of Wall Street projections,” The Motley Fool’s Sean Williams noted. Given the company’s focus on both rare disease therapies and chimeric antigen receptor T-cell technologies against cancer, Williams added, “bluebird bio is what you might call the cream of the crop of attractive biotech buyout candidates.”
Key products and pipeline: bluebird’s pipeline is led by LentiGlobin and another gene therapy, Lenti-D™ for childhood cerebral adrenoleukodystrophy (ALD), now in the Phase II/III “Starbeam” study. In August, bluebird said it will pursue conditional approval of LentiGlobin BB305 for beta-thalassemia major in the E.U. through the Adaptive Pathways Pilot Program based on data from the ongoing Northstar and HGB-205 studies. In the U.S., the company will pursue accelerated approval based on the planned HGB-207 and HGB-208 studies.
The company is also partnering with Five Prime Therapeutics on chimeric antigen receptor (CAR) T cell therapies for an undisclosed cancer; with Kite Pharma on second generation T cell receptor (TCR) product candidates directed against the human papillomavirus type 16 E6 (HPV-16 E6) oncoprotein; and with Celgene on treatments targeting B-cell maturation antigen (BCMA). The Celgene collaboration was narrowed in June to multiple myeloma.
Why attractive: “Their pipeline alone would be transformative for any big pharma or biotech company,” John McCamant, editor of Medical Technology Stock Letter, wrote in a recent commentary, adding the company to his takeover target list. “In our view, Incyte is a strategy acquisition that could propel a cancer laggard to the top of the class.”
Nomura analyst M. Ian Somaiya and SunTrust Robinson Humphrey analyst Salveen Richter also identified the company as a buyout candidate, with Somaiya naming Gilead as the company most likely to acquire Incyte. Somaiya cited Jakafi’s approximately $3 billion peak sales potential in three indications—myelofibrosis, polycythemia vera, and solid tumors—as well as the 18-28% royalty the company stands to collect on baricitinib sales should the product reach the market as expected. That potential could reach $2.5 billion in rheumatoid arthritis alone, Somaiya added.
Key products and pipeline: Lead product Jakafi® (ruxolitinib), a JAK1 and JAK2 inhibitor, is currently approved in the U.S. for intermediate or high-risk myelofibrosis, and (as of December 2014) polycythemia vera for people who have had inadequate response to or are intolerant of hydroxyurea. The company retained U.S. rights to Jakafi while licensing ex-U.S. rights to Novartis.
The pipeline includes four additional Jakafi indications, led by metastatic pancreatic cancer (JANUS 1 and JANUS 2 Phase III trials), with three Phase II trials ongoing for Jakafi in non-small cell lung cancer, breast cancer, and colorectal cancer.
The pipeline’s other Phase III compound is JAK1/JAK2 inhibitor baricitinib for arthritis (Phase III), as well as psoriasis and diabetic nephropathy (both Phase II). Incyte has licensed worldwide rights for baricitinib to Eli Lilly, and will co-develop the drug for arthritis while retaining co-promotion and/or co-development options for the other indications. On September 29, Lilly reported top-line results for its third Phase III trial for the compound, saying the study met its primary objective of demonstrating non-inferiority of baricitinib monotherapy to methotrexate monotherapy based on ACR20 response rate after 24 weeks of treatment.
Also among pipeline compounds is capmatinib (INCB28060), indicated for solid tumors, hepatocellular cancer, and NSCLC; Incyte licensed worldwide rights to Novartis but retained co-development and co-promotion options. Another compound, epacadostat (INCB24360), is indicated as monotherapy for metastatic melanoma, and in combination with various treatments for NSCLC and multiple solid tumors. And INCB39110 is in development for pancreatic cancer, NSCLC, and B-lymphoid malignancies (in combination with INCB40093.
Why attractive: Mindy Perry, a Manulife Asset Management portfolio manager who specializes in health care, told stock letter editor Michael Brush the company has generated a “remarkable” response to its cancer immunotherapy in early-stage trials (“That’s a truly innovative breakthrough”), though she cautioned the company’s stock price may have to pull back to generate buyer interest.
Also remarkable is the young company’s collaborations with a pair of biopharma giants: In April, MedImmune and Juno Therapeutics agreed to conduct clinical trials for a combination of their cancer immunotherapies as a potential treatment for as a potential treatment non-Hodgkin lymphoma (NHL). Two months later, Celgene and Juno Therapeutics launched a 10-year global collaboration to develop and commercialize cancer and autoimmune diseases immunotherapies, in a deal that could generate about $1 billion for Juno.
Following news of the Celgene deal, Howard Liang, Ph.D., managing director, biotechnology, with Leerink Research, said in a note to investors that Juno’s pipeline of CAR-T cell products “is arguably the most extensive in the industry.” He also cited Juno’s access to technology through the three institutions that launched the company in 2013, The Fred Hutchinson Cancer Research Center, the Memorial Sloan-Kettering Cancer Center, and the Seattle Children’s Research Institute.
Key products and pipeline: CAR product candidate JCAR015 is the subject of three trials—Phase II in adults with relapsed or refractory B-Cell acute lymphoblastic leukemia; Phase I in patients with precursor B cell acute lymphoblastic leukemia (B-ALL); and Phase I in patients with relapsed and refractory aggressive B cell non-Hodgkin lymphoma.
In addition to JCAR015, Juno’s pipeline includes the CD19-targeted JCAR014, another CD19-targeted product. JCAR014 is in a Phase I/II trial in patients with chronic lymphocytic leukemia, non-Hodgkin lymphoma, or acute lymphoblastic leukemia that have come back or does not respond to treatment. Two other CAR-T cell products are under Phase I study: the CD22-targeted JCAR018 and JCAR023, which targets L1-CAM (CD171).
Also in the Phase I/II pipeline is JTCR016, Juno’s lead high-affinity TCR T cell product candidate targeting WT-1, an intracellular protein overexpressed in a number of cancers. JTCR016 is under study in a pair of Phase I/II trials, each assessing the candidate’s effect on nine different forms of cancer. Nine disorders including acute myeloid leukemia arising from previous myelodysplastic syndrome, as well as other forms of leukemia and myelodysplastic syndrome.
Why attractive: Xtandi net sales have continued growing from its successful 2012 launch, with Q2 U.S. net sales of $298.4 million and ex-U.S. net sales of approximately $188 million reported by Astellas, up 108% and 121% from Q2 2014. Medivation collaboration revenue related to net sales also more than doubled, to $149.2 million stateside and $25.6 million outside the U.S. Medivation raised its 2015 investor guidance in August, so Xtandi is now projected to reach Astellas-reported U.S. net sales of between $1.14 billion and $1.18 billion, and total collaboration revenue of between $670 million to $700 million.
A buyer would be interested in the potential to expand the use of Xtandi against earlier-stage prostate cancer, MLV & Co. biotech analyst Raghuram Selvaraju has said.
Key products and pipeline: Xtandi® (enzalutamide) capsules marketed since 2012 for metastatic castration-resistant prostate cancer (mCRPC) in men who previously received docetaxel (chemotherapy)—and since last year, for mCRPC in men who have not received chemotherapy. Medivation and Astellas Pharma are jointly responsible for commercialization and development of Xtandi in the U.S, while outside the U.S., Astellas oversees development and commercialization, paying Medivation a tiered royalty ranging from the low teens to the low twenties on aggregate net sales.
Pipeline includes several new prostate cancer indications for Xtandi including patients with nonmetastatic castration-resistant CRPC (Phase III PROSPER trial); patients with high-risk, hormone-sensitive, nonmetastatic prostate cancer progressing after radical prostatectomy or radiotherapy or both (Phase III EMBARK trial); and treatment in combination with abiraterone acetate and prednisone for chemotherapy-naïve metastatic prostate cancer whose disease has progressed following enzalutamide therapy (Phase IV PLATO trial). Earlier this year, Medivation and Astellas reported successful results from the Phase III PREVAIL trial in men with mCRPC with progression after androgen deprivation therapy and two Phase II trials, STRIVE in men with non-metastatic and metastatic CRPC, and TERRAIN in men with asymptomatic or minimally symptomatic metastatic CRPC.
In August, Medivation expanded its cancer holdings by agreeing to buy from BioMarin Pharmaceuticals its Phase III compound Talazoparib (formerly BMN 673) for up to $570 million. Talazoparib is a PARP inhibitor for genetically defined cancers indicated for metastatic breast cancer and small cell lung cancer.
Three Phase II studies are ongoing for breast cancer indications—single agent for advanced, androgen receptor-positive, triple-negative breast cancer; androgen receptor-positive, human epidermal growth factor receptor 2 (HER2) amplified, and estrogen-receptor negative (ER-) or progesterone receptor negative (PgR-) whose disease has previously progressed on trastuzumab; and in combination with exemestane in women with advanced breast cancer that is estrogen receptor positive (ER+) or progesterone receptor positive (PgR+) and HER2 normal.
Why attractive: Cowen this summer named the company as one of three potential biotech takeover targets, according to 24/7 Wall St. One reason why: Vertex expanded its cystic fibrosis franchise by winning its second FDA product approval in July—a combination of the marketed Kalydeco® (ivacaftor) and lumacaftor (VX-809). That combination, marketed as ORKAMBI™, is the first medicine to treat the underlying cause of cystic fibrosis in people ages 12 and older with two copies of the F508del mutation.
Investors also expect Vertex to gain European approvals soon. A key step in that direction came September 25, when the European Union Committee for Medicinal Products for Human Use (CHMP) issued a positive Opinion recommending Marketing Authorization of ORKAMBI™.
CNBC observed that among biotech watchers, “Gilead [Sciences] is mentioned as a potential suitor, largely because Vertex's roster of cystic fibrosis drugs would complement Gilead's Hep C and HIV products.” CNBC cited a note to investors from Geoff Porges of Bernstein observing that the acquisition of Vertex would be beneficial for Gilead and shareholders in both stocks. However, Michael Yee of RBC Capital Markets, told Canada’s Financial Post that Vertex may scare away potential acquirers by being highly tied to cystic fibrosis treatments.
Key products and pipeline: Vertex is looking to grow its cystic fibrosis treatments beyond its two marketed drugs with two pipeline compounds, the Phase III VX-661 and VX-371 (also called P-1037). Vertex is partnering with Parion Sciences in an up-to-$1.17 billion-plus collaboration to develop VX-371, an epithelial sodium channel (ENaC) inhibitor. Parion is conducting a Phase IIa study whose data are expected to come out in mid-2016. In March, Vertex reported data on VX-661 in combination with Kalydeco that fell below analyst expectations. But Vertex is not giving up on the combination, having launched four Phase III trials assessing Kalydeco + lumacaftor in multiple different groups of people with CF who have at least one copy of the F508del mutation.
Vertex is also looking beyond CF. The company is developing two Phase I oncology compounds, VX-970 and VX-803. Another pipeline compound, the Phase II VX-787, is an influenza treatment licensed to Johnson & Johnson’s Janssen Pharmaceuticals. Vertex says its current research focuses on autoimmune diseases, cancer, inflammatory bowel disease, and neurological disorders— including pain, Huntington’s disease and multiple sclerosis—in addition to cystic fibrosis.
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