Thursday, April 10, 2008

Takeda/Millennium: The Price is Right

Just one week ago, on a blustery early spring day, this IN VIVO blogger crossed the bridge into the PRC--that's the People's Republic of Cambridge--to speak to Deborah Dunsire, CEO of Millennium Pharmaceuticals, for an up-coming feature focused on the biotech's near-term stategy. Most of the discussion was about Velcade and the company's plans to build that drug into a multi-billion dollar cancer franchise through label expansion.

Millennium hit its billion dollar jack-pot a bit sooner than expected. On April 10, Takeda announced it had agreed to acquire the Cambridge-based biotech for $25-a-share in an all-cash tender worth roughly $8.8 billion. If the deal terms remain the same, Millennium will make its biotech exit with the 8th largest market value in that industry--roughly twice as much as the next ones in line, Cephalon, ImClone, and Vertex.

Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets.

From the day Dunsire arrived at Millennium from Novartis three years ago, pundits predicted that the biotech’s days as an independent entity were numbered. Many expected that Dunsire would off-load the company to Johnson & Johnson, whose Ortho Biotech division owns ex-US rights to Velcade. But apparently Takeda was the only serious bidder for Millennium.

Takeda is clearly the new deep pockets in the cancer world. (Remember its $640 million two-part, 13-compound, mostly Japanese deal with Amgen and its even more recent $320 million worldwide deal for Cell Genesys’ GVAX prostate cancer prostat program?) But it also has the tremendous advantage of the dollar’s low value relative to the yen. That’s why Takeda could afford to pay the 65% premium to Millennium’s Wednesday closing price, even without a share of those valuable ex-US Velcade rights owned by J&J. It's a deal that would have been impossible from any US player.

So what is Takeda getting? In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium's fate--barring some kind of external business transaction--was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. In other words, at Millennium it was all Velcade all the time.

Roughly 55,000 patients in the US have multiple myeloma, and only half--those who have refractory cancers that haven't responded to other treatments--are currently eligible to receive Velcade. In December, Millennium submitted a supplemental new drug application for Velcade's use as a front-line agent based on strong clinical data presented at last year's American Society for Hematology meeting. A positive regulatory decision, widely expected by June 2o, would double the drug's market, sending already strong Velcade sales soaring.

Back in January, Howard Liang, an analyst with Leerink Swann, wrote in a research report that "the current Street consensus significantly underestimates Velcade's growth in the next two years," and predicted 2008 and 2009 Velcade sales of $379 million and $488 million respectively. (In a separate press release issued Thursday, Millennium noted that first quarter 2008 sales of Velcade were $83.5 million, a 13% increase over fourth quarter 2007 sales and a 42% increase over the first-quarter of last year.)

Add in potential label expansion into another form of cancer, follicular lymphoma, an event widely expected to happen in 2010, and one begins to see the product’s growth trajectory. “Velcade is enough to sustain the company. We feel confident we can deliver on the pipeline,” Dunsire insisted last week.

Or maybe not. Dunsire admitted that despite step-ups in Velcade's growth, in-licensing a late-stage cancer asset would go a long way to “evening out the bumps” as the company looked to shepherd its other products through clinical development. Still, she was adamant that the company was “under no pressure to do a deal” and it surely wouldn’t overpay for the privilege.

But it’s almost certainly the case that Millennium would have had to pay a pretty penny for any oncology product expecting near term approval. Such assets are rare, and with pharmaceutical companies eyeing such specialty markets with greater favor, the competition for rights to these products is intense. Recall that about 18 months ago, Millennium tried—and failed—to acquire the Canadian biotech AnorMed, which had Mozobil, a small-molecule CXCR4 chemokine antagonist in Phase III clinical trials for hematopoietic stem cell transplantation and non-Hodgkin’s lymphoma. Despite the obvious sales synergies with Velcade, Millennium refused to get caught in a bidding war, and bragging rights for Mozobil ultimately went to Genzyme for $584 million.

In today’s market, where deep-pocketed pharmaceutical companies are competing with mid-sized biotechs for valuable assets, prices are likely to go much higher. And cash-poor Millennium—the company had about $900 million in cash on its balance sheet at the end of 2007—probably doesn’t have the financial wherewithal to buy a product and simultaneously invest in its pipeline. (For those keeping track, Millennium hasn’t done a significant acquisition since it bought Cor Therapeutics in 2001.)

So the company was forced into its “All Velcade” strategy. Until Takeda entered stage right, that is.

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.
At February’s BIO CEO conference in NYC, Dunsire noted the company was anticipating the need to “aggressively manage its portfolio,” and was shopping around non-core assets, including atherosclerosis and inflammatory disease products. Without a sudden windfall, the company might have been forced to give up rights to products with more strategic value, such as the second generation, orally administered proteasome inhibitor MLN-2238, which is scheduled to begin Phase I trials later this year.

Thanks to Takeda, Millennium execs can delay such hard decisions.

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