Friday, April 27, 2012

Deals of the Week Listens to The Rumor

“Now when the rumor comes to your town, it grows and grows. Where it started, no one knows. Some of your neighbors will invite it right in. Or maybe it’s a lie; even if it’s a sin, they’ll repeat the rumor again.”

Who’s Bayer going to buy? If you believe the Reuters story that crossed the wire Wednesday, three unnamed sources seem confident that the German company is about to spend billions of euros on a healthcare company, possibly within the next few days. And while Reuters’ sources didn’t name any names, some investors seem to think they’ve divined the answer -- or answers.

First, shares in Onyx Pharmaceuticals gained value abruptly after Reuters’ story was published, indicating that many believe the longtime Bayer partner and sometime legal adversary would be a fine fit. It’s certainly in the right price range: At the close of Thursday’s trading, Onyx’s market cap sat just above $3 billion, up about 8 percent since the story appeared. Judging by other recent premiums, Bayer would likely have to bid closer to $5 billion to buy Onyx outright.

And then on Friday, The Times (UK) reported that it was Warner Chilcott that would be on the receiving end of a Bayer bid. With a market cap juiced to $4.7 billion on the rumor, the derm and women’s health specialist also fits within the reported deal size range. Most of the company’s heft comes from its $3.1 billion 2009 buyout of Procter & Gamble’s pharmaceuticals business, which tripled its size and added to the portfolio some nearly off-patent assets, like Actonel and Asacol. The success of that transformative deal is debatable, particularly since Actonel successor Atelvia has had difficulty capturing significant share of the genericized osteoporosis market. As Warner Chilcott's price spiked following publication of the Times story, Onyx shares lagged, losing about 2% of their value in early Friday trading.

Bayer and Onyx already have a deep history together. The companies forged a discovery partnership in 1994 that led to the development of renal and liver cancer treatment Nexavar (sorafenib), now a $1 billion drug. As mutually satisfying as the arrangement might have been, Bayer raised Onyx’s ire by developing a slightly modified version, regorafenib, that’s currently in Phase III. Onyx filed a lawsuit in 2009, accusing Bayer of developing the molecule in secret and violating an agreement to share research related to Nexavar. The companies settled last fall as Onyx dropped the suit, instead taking 20% of regorafenib sales and signing away rights to the drug in Japan for $160 million up-front in a revised co-promote agreement with Bayer.

Much of Onyx’s future value is tied to carfilzomib, a Phase III proteasome inhibitor being studied in relapsed and refractory multiple myeloma. The drug is under standard review from the FDA; Onyx said Thursday that the agency’s Oncology Drugs Advisory Committee will review the drug on June 20, prior to its PDUFA date of July 27.

Multiple bidders could also be lining up for Onyx. The company was said to be exploring a sale last fall, according to a Bloomberg report. (Again, the sources were unnamed. “Could there be someone, someone here among this crowd…?) Bayer waived change-of-control provisions connected with Nexavar as part of the companies’ settlement, making Onyx a more valuable target. Now, it’s in the driver’s seat: If Bayer wants to regain full control of the sorafenib/regorafenib franchise as well as carfilzomib’s future potential, it will have to pay top dollar for its longtime partner.

For whether this rumor proves true or false, Deals of the Week will be celebrating the life of The Band’s late drummer, singer, mandolinist and spiritual anchor, Levon Helm. Take a load off, Levon, we’ll miss you. We hope that we’re writing about cancer treatments that could save people like you. And so, with that in mind, here’s…

AstraZeneca/Ardea and AstraZeneca/The Medicines Co.: It was an eventful week for AstraZeneca, whose two deals were overshadowed by the abrupt departure of chief executive David Brennan on April 26. As the company reported an 11% year-over-year decline in revenues in the first quarter of 2011, Brennan retired -- or, perhaps, was forced to resign. And although AZ has been cutting costs, it's still willing to spend: the company will pay $1.26 billion, or $1 billion net of cash, for gout treatment developer Ardea Biosciences. The British pharma said April 23 it would pay $32 per share for Ardea, representing a 54% premium over the previous session's closing price. The deal gives it Phase III candidate lesurinad, which is thought to harbor potential to improve on both Takeda's Uloric (febuxostat) and the generic drug allopurinol. Even on its tumultuous Thursday, AZ revealed yet another partnership: The company has a new four-year agreement with The Medicines Co. to co-promote coronary drug Brilinta (ticagrelor) in the U.S. TMC will market the drug to interventional coronary specialists, while AZ will continue selling it to hospitals. The arrangement will net $15 million annually for TMC. – Joe Haas and Paul Bonanos

Watson/Actavis - Watson Pharmaceuticals Inc. will become one of the world’s largest generics companies with its roughly $5.6 billion acquisition of Actavis Inc. The deal, announced late on April 25, gives Watson a broad international presence in a fragmented sector of the pharma industry that is gradually consolidating as market share and global operations become critical to success. Once it closes in the fourth quarter, 40% of the combined company’s revenues will come from outside of the U.S. – up from 16% currently. The companies have minimal geographic overlap, with both present only in six markets, including the U.S., UK, Australia, France, the Nordic countries, and China. As a result of this diversification, Watson will be one of the leading generics suppliers in the UK, where Actavis already is second in the market, with 13% share of the generics market. It also strengthens Watson’s foothold in the Middle East, Northern Africa and the Asia/Pacific, which generate 5% of Actavis current sales of $2.5 billion. Watson will be financing most of the transaction with a combination of different kinds of debt, in the process raising its debt load to $6.8 billion, up from the current $1.1 billion. Wall Street greeted the deal, which has been rumored for weeks, enthusiastically. Not least in their calculations has been the obviously heavy involvement of Watson’s EVP, global generics, Siggi Olafsson, who was previously CEO at Actavis. His insight into the privately held Actavis, which is backed by Deutsche Bank AG after the billionaire owner Bjorgolfur Thor Bjorgolfsson lost money in the financial crisis, likely helped with due diligence. – Lisa LaMotta

Pfizer/Nestlé: Pfizer’s price of $11.85 billion for selling its pediatric nutritionals business to Nestlé came in at the upper end of what most analysts expected, reflecting the fierce competition among global infant formula players for opportunities in emerging markets. Nestlé managed to keep Pfizer Nutrition out of the hands of its competitors with a deal announced April 23. Morningstar analysts projected a price tag in the $9 billion to $10 billion range and suggested Nestlé went high with its offer to fend off rival bidders Danone and Mead Johnson Nutrition. The sale is the second major divestiture for Pfizer since Ian Read assumed leadership of the New York-based drug company in December 2010 and, responding to investor discontent, vowed to remake the company. After a strategic review, Pfizer in July 2011 announced plans to shed its nutrition and animal health units, to devote more resources to biopharmaceuticals. The company also raised its dividend and vowed to be more proactive in buying back shares. These moves leave Pfizer more vulnerable to the high-risk high-reward nature of biopharma drug development. Still, in an era where Big Pharma divestitures and spinouts are greeted warmly on Wall Street, investors have met them with largely positive reactions, in some cases calling for a complete break up of the company to unlock its stagnant value. Even now, Pfizer could go further, argues Goldman Sachs analyst Jami Rubin, who wrote that Read said in a recent meeting that he would be open to more divestitures under the right circumstances. Presumably he would think about Pfizer’s relatively small generics business as one potential candidate. Pfizer likely will use the proceeds from Nestle to buy back stock – potentially 373 million shares, UBS analysts estimate. The repurchase could increase Pfizer’s 2013 earnings-per-share growth by three percentage points, the Morningstar analysts added. – Dan Schiff and Wendy Diller

Celgene/Epizyme: In a deal announced April 26 (pdf), Celgene has taken a three-year option for Epizyme's unpartnered pipeline of histone methyltransferase targets, granting Epizyme U.S. rights to any programs it selects while splitting development costs post-IND. Celgene can extend the option to a fourth year for an additional fee. The deal includes a $90 million upfront payment, of which part is a minority equity investment, plus more than $160 million in ex-U.S. milestones on any program Celgene selects, as well as double-digit tiered royalties on ex-U.S. sales. Celgene also purchased rights to Epizyme's lead program focused on DOT1L, an oncogenic HMT whose aberrant recruitment drives mixed lineage leukemia, a particularly lethal subtype of acute leukemias affecting as many as 5,000 patients annually in major markets. Celgene also has the right to appoint a voting member to Epizyme's board. It's the latest close collaboration between Celgene and a high science company, and caps a hectic 15 months of dealmaking for Cambridge, Mass.-based Epizyme that has included deals with GlaxoSmithKline and Eisai as well. It's also a sign of maturity in the epigenetics sector, as money and interest move away from the problematic histone deacetylase inhibitor drug class and toward HMTs, which are more biologically selective. HMTs also have applications in immune-inflammatory conditions, a primary therapeutic focus for Celgene. – Michael Goodman

Amgen/Mustafa Nevzat: On April 25, Amgen continued its push into emerging markets by spending $700 million for Turkish pharma and generics supplier Mustafa Nevzat Pharmaceuticals. Amgen acquired 95.6% of Mustafa Nevzat shares in the all-cash deal, giving it control of a company that had about $200 million in 2011 revenues. The California biotech already had established a Turkish affiliate in 2010. It currently markets two products there, and had stated a goal of selling more drugs from its pipeline in Turkey. Mustafa Nevzat was said to be entertaining proposals from multiple suitors over the past few months, although prior reports suggested that it was mulling the sale of a minority stake rather than a complete takeover. Though the deal is a rich one for Mustafa Nevzat, the price will have a relatively small impact on Amgen's balance sheet; the company had $19.4 million in cash and equivalents as of March 31. Amgen's sales in emerging markets were $250 million in 2010, and the company said it wants to reach $1 billion by 2015. – P.B.

1 comment:

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