Alex Philippidis Senior News Editor Genetic Engineering & Biotechnology News

Which firms are ripe for the picking this year?

So many mergers and acquisition deals have gone done this year that GEN was able to expand its list of companies ripe for takeover from last year’s List.

But in growing to nine companies from seven in 2013, the List also shows what has remained the same over the past year—that 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 that show promise for a few reasons. Those reasons typically include rising sales of marketed products in segments that are expected to grow in coming years, pipelines heavy with mid- to late-stage compounds showing clear success in clinical trials, or both.

Sometimes the market watchers are right. For the first half of 2014, Idenix Pharmaceuticals and InterMune were cited numerous times by analysts as ripe for takeover. They were all proven right on June 9 when Merck & Co. said it planned to shell out $3.85 billion to acquire Idenix, and again in August when Roche said it was spending $8.3 billion to buy InterMune and a lead product anticipated for launch later this year, pirfenidone for idiopathic pulmonary fibrosis (IPF). Idenix brought to Merck three clinical-phase HCV drugs that the buyer is evaluating for potential inclusion in future combination therapies—IDX21437 and IDX21459, both nucleotide prodrugs, and samatasvir, a NS5A inhibitor. But as popular a segment as HCV has become, it is cancer that dominates this GEN List as it did last year’s, with five of the nine listed companies showing an oncology focus.

Sometimes, however, the market watchers miss the mark. None of the seven companies that made last year’s GEN List as takeover targets were acquired. However, four of the nine companies listed this year also appeared in 2013, showing that at least some of the takeover talk can be dominated by usual suspects.

For each company mentioned, this list furnishes descriptions of their biopharma focus, their key product(s) and pipeline, reasons why analysts found them attractive, and reference sources.

Achillion Pharmaceuticals

Focus: Advancing multiple candidates with proven mechanisms for the treatment of infectious disease including hepatitis C virus (HCV).

Key products and pipeline: ACH-3102, 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, an investigational Phase II protease inhibitor with FDA Fast Track status and plans for combination HCV therapy with ACH-3102 and ACH-3422, a Phase I nucleotide NS5B polymerase inhibitor. Pipeline also includes ACH-2684, a once-daily NS3/4A protease inhibitor, also for HCV.

Why attractive: Edison Equity Research called the company “a prime candidate for a big pharma company still interested in the hepatitis C market but lacking the necessary components to create a competitive oral drug for the indication.” The competiveness of the HCV field was shown most recently when Bristol-Myers Squibb withdrew its NDA for asunaprevir, an NS3/4A protease inhibitor, and retreated from pursuing a combination treatment consisting of asunaprevir and daclatasvir for patients with HCV genotype 1b. “The HCV space offers significant commercial potential,” observed Zacks Equity Research, which has cited the company as a takeover target.

Shares of Achillion surged over the summer. On August 15, the company released positive data on ACH-3102, reporting that all 12 treatment-naïve genotype 1 chronic HCV patients treated with the compound plus sofosbuvir remained HCV RNA undetectable four weeks after completing therapy (SVR4).

Ariad Pharmaceuticals

Focus: Develops and commercializes oncology drugs.

Key products and pipeline: Iclusig® (ponatinib) launched in January following December 2012 FDA approval for chronic myeloid leukemia and Philadelphia chromosome-positive acute lymphoblastic leukemia, both for patients resistant or intolerant to prior TKI therapy. Pipeline consists almost entirely of seven new Iclusig indications, all in Phase II trials, though on September 29, the company reported promising updated Phase I/II data on AP26113 for non-small cell lung cancer (NSCLC), shortly before it received FDA’s Breakthrough Therapy designation.

Why attractive: Iclusig rose from the dead this past winter: The drug resumed commercial sales in the U.S. in January with a narrower patient subpopulation and a new boxed warning—both designed to address concerns that drove the company to halt a Phase III trial and pull the product late last year. The halt resulting in the company laying off about 40% of its U.S. staff—160 employees—and shrunk Ariad’s workforce to about 295 employees in the U.S. and Europe.

With first-half 2014 sales of $19.9 million, Iclusig is 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. As of the last update in August, Iclusig was under Article 20 review in Europe by the Pharmacovigilance Risk Assessment Committee (PRAC), which was expected this month to submit recommendations for managing risks following earlier adverse events. However, sales are expected to grow as new indications are approved. The company’s relatively small market cap, in the $1 billion range, makes it “a much more attractively priced takeover target” than Pharmacyclics in the $9 billion range, according to “Intrepid Investor” at SeekingAlpha.com.

Another bright spot for Ariad is AP26113, which showed sustained antitumor activity in patients with anaplastic lymphoma kinase (ALK) positive NSCLC, including patients with active brain metastases. Specifically, “waterfall plot” analysis demonstrated tumor shrinkage in nearly all ALK+ NSCLC patients, with 16 patients experiencing 100% shrinkage of the target lesion. The median duration of response was 49 weeks, and median progression-free survival was 56 weeks.

BioMarin Pharmaceutical

Focus: Develops and commercializes drugs for “serious” diseases and medical conditions.

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 three Phase III compounds—BMN 165, a PEGylated recombinant phenylalanine ammonia lyase (PEG-PAL) for phenylketonuria (PKU) in patients whose blood Phe levels are not adequately controlled by the marketed drug Kuvan; BMN 673, a PARP inhibitor for genetically defined cancers indicated for metastatic breast cancer and small cell lung cancer; and BMN 701, a GILT GAA for Pompe disease.

Why attractive: UBS cited longtime media speculation of big-pharma interest in BioMarin, which it said was likely related to the commercial success of the orphan drug model globally—as well as the company’s diversified and expanding pipeline, which it said could also provide significant strategic value to acquirers. Last year, both BioMarin and Roche dismissed as “rumors” an unconfirmed Deal Reporter story that the pharma giant was looking to acquire the biotech.

Another attraction is healthy year-over-year sales gains for marketed drugs, led by its best-selling product Naglazyme, which generated $178.4 million in product revenue during the first half of 2014, up 28.1% from a year earlier. However, analysts and others are looking for healthy numbers from the launch earlier this year of Vimizim for patients with Mucopolysaccharidosis type IVA, also known as Morquio A syndrome. As of September, Vimizim was expected to generate $60 million to $70 million in sales this year—a likelier prospect following European Union approval in April. During the first half, Vimizim generated $15.2 million.

Incyte

Focus: Discovering, developing, and commercializing small molecule drugs for “serious” unmet medical needs.

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. Pipeline includes six additional Jakafi indications led by polycythemia vera (supplemental NDA under review with December 5 PDUFA date), and pancreatic cancer (two Phase III trials launched), with earlier-phase programs for advanced malignancies (Phase I), non-small cell lung cancer, breast cancer, and colorectal cancer.

The pipeline includes INCB24360 in combination with various treatments for cancers that include metastatic melanoma and ovarian cancer, and INCB39110 for advanced solid tumor malignancies, NSCLC, and B-lymphoid malignancies, both as monotherapy and in combination with INCB40093. Company has licensed to Novartis worldwide rights to another compound, INCB28060, indicated for solid tumors, hepatocellular cancer, and NSCLC.

Why attractive: UBS said the company’s three clinical-stage assets could eventually drive several billions in revenue. Incyte is on the right track: It finished the first half of 2014 with Jakafi net product revenues of $153.7 million, up 50% from $102.4 million for January–June 2013. The company raised its net product revenues expected range in July to $330 million to $340 million, an increase from the previous $315 million to $335 million.

InvestorPlace contributor James Brumley designated the company among five “takeover targets speculators may still find worth a shot [,] not just because they’re possible M&A plays, but because they have compelling pipelines even if they never get bought up by bigger biotech companies.”

Isis Pharmaceutical

Focus: Discovery and early development of antisense drugs to key clinical value inflection points, when the company outlicenses the treatments to partners.

Key products and pipeline: Lead product Kynamro® (mipomersen sodium), being commercialized by Genzyme, is an oligonucleotide inhibitor of apolipoprotein B-100 synthesis indicated for treatment of patients with homozygous familial hypercholesterolemia (HoFH).

In September, company won a $4 million milestone payment from Achaogen upon launch of Phase III study comparing plazomicin (formerly ACHN-490) to colistin in patients with bloodstream infections and nosocomial pneumonia caused by carbapenem-resistant Enterobacteriaceae (CRE). A month earlier, the company launched Phase III study of ISIS-APOCIIIRx in patients with familial chylomicronemia syndrome (FCS). ISIS-APOCIIIRx is designed to target apoC-III, a protein produced in the liver that plays a central role in the regulation of serum triglycerides.

Why attractive: Jim Cramer on CNBC called company’s antisense technology “game-changing” and cited Isis’ more than 30 drugs in development: “I think it would be a steal for any big pharma operator looking to boost its own growth rate.” And while calling Kynamro’s market potential is limited, he adds: “The fact that it received FDA approval validates Isis Pharma's entire platform.”

Motley Fool healthcare analyst David Williamson cited the company’s all-star roster of biopharma partners, which include biopharma giants Biogen Idec, Sanofi’s Genzyme subsidiary, GlaxoSmithKline, AstraZeneca, and Roche. “The number of partnerships with reputable companies helps validate the platform,” observed Barron’s Ben Levinsohn. And while Isis’ hand-off of candidates to partners for later-stage development may seem to some like giving too many assets away, he said the value lies in the drugs themselves—and that Isis’ approach “could be corrected by a new management attitude, a new management team, or a company acquisition.”

Jazz Pharmaceuticals

Focus: Unmet medical needs in focused therapeutic areas.

Key products and pipeline: Marketed products include narcolepsy and excessive daytime sleepiness (EDS) drug Xyrem® (sodium oxybate) oral solution, Erwinaze®/Erwinase® (asparaginase Erwinia chrysanthemi), indicated as part of a multi-agent chemotherapeutic regimen for patients with acute lymphoblastic leukemia (ALL) who have developed hypersensitivity to E. coli-derived asparaginase; and Defitelio, launched in Europe earlier this year for treatment of severe hepatic veno-occlusive disease (sVOD) in adults and children undergoing hematopoietic stem cell transplantation therapy. Company acquired defibrotide and European marketing rights when it completed its $1 billion purchase of Gentium in February, then bought Americas rights to defibrotide from Sigma-Tau Pharmaceuticals for up to $250 million, a deal completed in August. Pipeline includes a new Xyrem indication, pediatric narcolepsy with cataplexy, for which a Phase III trial is planned; and the clinical compounds JZP-110 and JZP-386, both also indicated for EDS in narcolepsy.

Why attractive: Jazz generated cash for its activities by carrying out a tax-slicing “inversion” deal—its 2012 merger with Azure Pharma—years before Washington politicians started railing against the practice. Investors have also salivated at the company’s numbers, with Thomson Reuters predicting a 33% jump in full-year revenue this year to nearly $1.16 billion.

Much of that can be expected to come from Xyrem, since the company itself projects 2014 net product sales for Xyrem of between $765 million and $780 million. Xyrem accounted for about two-thirds ($191.4 million) of the company’s $291 million in Q2 net sales, up 43% from a year earlier, with Erwinaze/Erwinase second with $47.9 million, up 7%. JPMorgan has forecast the company will grow over time to $1.5 billion in annual sales, with analyst Jessica Fye noting: “In the context of an ongoing wave of consolidation in the specialty pharmaceuticals sector, we see Jazz as well positioned from both an organic growth and (an) acquisition standpoint.”

Another theory raised on why some investors smell a buyout: Its marketed products could help Allergan as it scrambles to stop a hostile takeover bid from Valeant Pharmaceuticals.

Medivation

Focus: Rapid development of therapies for “serious” diseases with limited treatment options.

Key products and pipeline: Xtandi® (enzalutamide) capsules marketed since 2012 for metastatic castration-resistant prostate cancer (mCRPC) in men who previously received docetaxel (chemotherapy). In September, FDA approved an additional indication, 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 CRPC (one Phase III trial and two Phase II trials); neoadjuvant therapy (Phase II), neoadjuvant (Phase II), and treatment in combination with abiraterone acetate and prednisone for chemotherapy-naïve metastatic prostate cancer whose disease has progressed following enzalutamide therapy (Phase IV).

Two Phase II studies are in progress for breast cancer indications—single agent for advanced, androgen receptor-positive, triple-negative breast cancer; and combination with exemestane in women with advanced breast cancer that is estrogen receptor positive (ER+) or progesterone receptor positive (PgR+) and human epidermal growth factor receptor 2 (HER2) normal.

Why attractive: Xtandi net sales have continued growing from its successful 2012 launch, with Q2 U.S. net sales of $143.7 million reported by Astellas, up 74% from a year earlier, and Medivation collaboration revenue of $148.1 million. Xtandi is projected to reach U.S. net sales of between $600 million and $640 million (reported by Astellas) and total collaboration revenue of between $615 million to $640 million.

While Astellas would seem to be a logical acquisition partner given its partnership with Medivation on Xtandi, UBS argued that third-party buyers would also be interested given Xtandi’s position in the prostate cancer market, and the potential for growth should it gain new breast cancer indications. Both UBS and Leerink were among firms that identified the company as a top takeover candidate for this year

Puma Biotechnology

Focus: In-licensing and developing novel therapeutics for the treatment of cancer.

Key products and pipeline: Sole product is PB272 (neratinib), an irreversible tyrosine kinase inhibitor (TKI) designed to block signal transduction through the epidermal growth factor receptors (EGRFs), HER1, HER2, and HER4. Company’s initial development focus for PB272 is oral treatment for patients with HER2-positive breast cancer.

Furthest along are trials for single-agent PB272 in adjuvant breast cancer (completed Phase III), and PB272 plus Xeloda for metastatic breast cancer (Phase III). On July 22, company announced a 33% improvement in disease-free survival (DFS) vs. placebo from PB272 alone, and a 37% improvement in DFS including ductal carcinoma in situ (DFS-DCIS).

On September 29, Puma released initial Phase II results for PB272 for non-small cell lung cancer (NSCLC) with HER2 mutations. Of 13 patients in the trial who received neratinib monotherapy, seven achieved stable disease and four achieved clinical benefit (partial response or stable disease for 12 or more weeks). For the 14 patients receiving the combination of neratinib plus temsirolimus, three experienced a partial response, 11 achieved stable disease, and nine, clinical benefit.

Why attractive: Early in 2014, UBS listed the company as one of nine top takeover targets, “pending successful trial outcome and data presentations this year.” The positive results announced in July and September led to buying surges for the company’s stock, a factor cited by Zacks Equity Research in calling the company one of three “potential buyout candidates” following Roche’s acquisition of InterMune for $8.3 billion.

Leerink analyst Howard Liang said a potential acquisition was among strategic options possible for the company. “With a wholly owned asset in a large market and worldwide right rights now with further improved economics, we see full strategic options on the table for PBYI including a potential acquisition,” Liang wrote.

Likewise, Citigroup analyst Yaron Werber said in a note to investors that he expected the company to be acquired based on its strong neratinib clinical data.

Salix Pharmaceuticals

Focus: License, develop, and market treatments for prevention and treatment of gastrointestinal (GI) disorders.

Key products and pipeline: Company has 22 marketed products, led by two formulations of Xifaxan® (rifaximin)—a 550 mg dose designed to reduce the risk of overt hepatic encephalopathy recurrence in adults, and a 200 mg dose for diarrhea caused by noninvasive strains of Escherichia coli in patients 12 years old and older.

During the second quarter, Xifaxan generated combined net product revenue of $140.5 million, accounting for more than one-third of the company’s total net product revenue. That was followed by $102.7 million for Glumetza® (metformin), indicated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes; and Uceris® (budesonide) for active mild-to-moderate ulcerative colitis, the company’s third-best-selling drug at $42.5 million.

The company reported positive Phase III results in July for a new Xifaxan indication, diarrhea-predominant irritable bowel syndrome, in response to a 2011 Complete Response Letter from the FDA. And most recently, on October 8, the company won FDA approval for a rectal foam formulation of Uceris for patients with active mild-to-moderate distal ulcerative colitis extending up to 40 cm from the anal verge. The current formulation generated $42.5.

Why attractive: Leerink cited the company’s approach of in-licensing late-stage or marketed drugs, completing whatever development and regulatory work is needed, then commercializing them—accounting in no small measure for Salix’ considerable collection of marketed products. Salix also expanded its product line through a deal completed last year, its $2.6 billion acquisition of Santarus.

More recently, three would-be buyers have looked at acquiring Salix. In July, Salix agreed to a planned $2.7 billion tax-inversion merger with Cosmo Pharmaceuticals. But earlier this month, the companies canceled the deal. While they cited growing U.S. political pressure against the tax-reducing mergers, some of Salix’ top investors threatened to reject the Cosmo deal, and instead pressed Salix to consider selling itself instead, Reuters reported last month.

Bloomberg has since reported two offers for Salix of more than $10 billion each by Allergan and Actavis, citing unnamed sources. Allergan is eager to grow in order to fend off a hostile takeover bid by Valeant Pharmaceutical Industries, while Actavis has spent recent years growing through acquisitions—most recently agreeing to buy Durata Therapeutics for $675 million-plus.

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