Send to printer »

Insight & Intelligence™ : Sep 30, 2013

Takeover Targets: Who Is First on the List?

Which companies are next in acquisition alley?

Below are seven biotech businesses that have been cited by analysts this year as among the most likely candidates for acquisition by larger biotech partners or pharma giants, mostly for what they have done right in recent years: successfully launching new products, building those products into successful franchises through multiple indications, and developing safe and effective new drugs, often in collaboration with larger partners.

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—which in one case included a recent GEN interview of an analyst who contributed to her firm’s report on the topic in January.

Interestingly, if not surprisingly, six of the seven companies focus on cancer drug development, with eye disorders, inflammation, and myelofibrosis among other treatment specialties of the potential takeover targets.

Reflecting how fluid these analyses can be, one of the seven biotechs found itself just a few days ago as the subject of takeover speculation that led to news headlines, followed by no-comment statements from the company and its reported suitor.

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 largely consists of new Iclusig indications, led by newly diagnosed patients in Phase III and seven more in Phase II. AP26113 for non-small cell lung cancer is in a Phase I/II trial, updated data for which was to be presented September 28 at the European Cancer Congress.

Why attractive: Iclusig has been projected by Cowen & Co. to reach $625 million in 2017 and more than $1 billion ultimately in annual sales; it generated $20.3 million in the first half of 2013, but sales are expected to zoom as new indications are approved. AP26113 has been expected to enter Phase III trial by year’s end.

BioMarin Pharmaceutical

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

Key products and pipeline: Four orphan drugs on the market led by Naglazyme® (galsulfase), an enzyme replacement therapy for mucopolysaccharidosis VI (MPS VI). Pipeline led by GALNS, a treatment for rare lysosomal storage disorder Morquio A syndrome.

Why attractive: At the center of an unconfirmed Deal Reporter story September 19 that Roche was looking to acquire the company with $15 billion in debt financing it is reportedly working to line up. BioMarin dismissed the report as “rumors” and declined comment; Roche also refused comment, with CEO Severin Schwan telling Bloomberg it doesn’t need to raise capital given its CHF 3.6 billion ($3.9 billion) in cash and equivalents as of June 30.

Naglazyme generated $257 million in sales last year, up 14% from 2011, and is company’s best-selling product. GALNS wowed investors last year with strong Phase III trial data showing patients taking a 2 mg/kg dose walked 22.5 meters farther compared with placebo. One potential challenge, however, is its valuation of more than $9 billion: “Any premium is going to test Big Pharma's appetite for major deals,” Jim Cramer told CNBC.

Karen Andersen, CFA and senior analyst, biotechnology at Morningstar told GEN BioMarin is attractive because “the firm has several rare disease products on the market, a large late-stage pipeline, and every indication that this pipeline growth will be sustainable. The rare disease market has been particularly attractive—less competitive, more pricing power, and cheaper/faster to navigate through the development process. BioMarin is about to launch potentially their biggest product, Vimizim, in early 2014, and we think they could turn profitable as early as 2014/2015. All of these factors make them very attractive as an acquisition target.”

Clovis Oncology

Focus: Acquiring, developing, and commercializing cancer treatments

Key products and pipeline: No marketed products. Holds global rights to three candidates in its pipeline: CO-1686, an oral epidermal growth factor receptor (EGFR), covalent inhibitor now in Phase I/II for non-small cell lung cancer (NSCLC), in patients with initial activating EGFR mutations as well as the T790M dominant resistance mutation; rucaparib, an oral, small molecule poly (ADP-ribose) polymerase (PARP) inhibitor for ovarian cancer, now in Phase I/II trials as monotherapy and with chemotherapy; and a discovery-phase cKIT inhibitor targeting resistance mutations for gastrointestinal stromal tumors (GIST).

Why attractive: Shares of Clovis more than doubled in price, to $74.59, on June 3 after the company made two favorable announcements: CO-1686 showed encouraging results in the Phase I portion of its ongoing Phase I/II clinical study; while a Phase I trial of rucaparib alone for ovarian cancer demonstrated a clinical benefit in 89% of patients. Shares of Clovis have since inched higher, to $75.23 on September 19, more than triple the year-earlier price of $22.06.

September 17—Bloomberg reported that Clovis “is exploring strategic options including a sale of the company,” and “working with advisers including Credit Suisse AG to help it find a buyer,” citing unnamed sources.

September 17—“The Value Investor,” “Clovis Oncology: Biotech Bubble About to Snap as Companies Put Themselves Up for Sale?” Seeking Alpha.

August 26—Benzinga, “These ETFs House the Next Biotech Takeover Targets”, “ETF Professor” Todd Shriber.

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 three additional Jakafi indications—polycythemia vera (Phase III), pancreatic cancer (Phase II), and solid/hematologic tumors (Phase I/II)—and five compounds, including INC280 (formerly INCB28060) for solid tumors, for which worldwide rights have been licensed to Novartis (Phase II); INCB24360 for metastatic melanoma and ovarian cancer (both Phase II); and INCB39110 for myelofibrosis, rheumatoid arthritis, and psoriasis (all Phase I/II).

Why attractive: Incyte has built on its successful 2012 launch of Jakafi for myelofibrosis, with the drug generating $102.4 million for the first half of 2013, more than double the year-ago number of $49 million. In August, Incyte raised its range of projected annual sales for Jakafi, to between $220 million and $230 million, a change from $210 million to $225 million. The company’s pipeline has wowed partners and investors: Ruxolitinib for pancreatic cancer showed overall survival of 42% vs. 11% for placebo, in results released August 21. Earlier this year, Incyte captured a $25 million milestone payment from Novartis once it formally launched the Phase II trial for INC280 in April, under a 2009 agreement that could land Incyte more than $1 billion. Phase III data for the polycythemia vera indication for Jakafi is expected early next year.

  • July 2—24/7 Wall St. included the company in “Which Biotech Stocks Are Buyout Targets after Onyx Pharmaceutical Rejects Amgen?
  • July—One of 10 companies cited by Cowen & Co. in its quarterly biotech report, titled “Where Has All The Biotech M&A Gone?”
  • January—Morningstar’s Healthcare Observer report rated Incyte number-three among top five biotech firms most likely to be acquired in 2013.

Medivation

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

Key products and pipeline: Xtandi® (enzalutamide, formerly MDV3100) capsules for metastatic castration-resistant prostate cancer (mCRPC). 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 indications for Xtandi including prechemotherapy CRPC (one ongoing Phase III trial, and two Phase II trials), neoadjuvant therapy (Phase II), and breast cancer (a Phase II study in advanced, androgen receptor positive triple-negative breast cancer that began enrollment in June).

Why attractive: Xtandi successfully launched last year, and has generated $161.5 million in net sales for the first half of 2013. In June, Xtandi won marketing approval from the European Union for adult men with mCRPC whose disease has progressed on or after docetaxel therapy. The EU approval triggered a $15 million milestone payment from Astellas to Medivation. By year’s end, Medivation expected to release promising additional data on Xtandi for prechemo CRPC, and eventually compete head on with Johnson & Johnson mCPRC drug Zytiga.

Regeneron Pharmaceuticals

Focus: Discovering, developing, manufacturing, and commercializing medicines for serious medical conditions that include eye diseases, colorectal cancer, and a rare inflammatory condition, with developmental drugs in other areas of high unmet medical need including hypercholesterolemia, oncology, rheumatoid arthritis, allergic asthma, and atopic dermatitis.

Key products and pipeline: Arcalyst (rilonacept), marketed to U.S. patients since 2008 for Cryopyrin-Associated Periodic Syndromes (CAPS) including familial cold autoinflammatory syndrome (FCAS) and Muckle-Wells Syndrome (MWS) in adults and children 12 and older; Eylea® (aflibercept), launched in 2011 for neovascular (wet) age-related macular degeneration (AMD), with a second indication, macular edema following central retinal vein occlusion, approved by FDA in 2012. Regeneron collaborates with Bayer HealthCare on development of Eylea. Also last year, Regeneron joined Sanofi in obtaining FDA approval for Zaltrap® (ziv-aflibercept) Injection for intravenous infusion for macular edema following central retinal vein occlusion.

Pipeline consists of more than a dozen drug candidates and/or indications including four in Phase III: Eylea for diabetic macular edema (DME) and branch retinal vein occlusion (BRVO); sarilumab (REGN88) for rheumatoid arthritis; and alirocumab (REGN727) for LDL cholesterol reduction.

Why attractive: In a word, Eylea. The drug enjoyed a very successful launch, with U.S. sales more-than-doubling in the first half of 2013, up 103% to $644 million. Total worldwide sales stood at $805 million, versus $318 million in 1H 2012. Twice this year, Regeneron has raised its estimated full-year Eylea net sales forecast—most recent after the second quarter, when the company upped its projection to between $1.3 billion and $1.35 billion.

Morningstar’s Karen Andersen, however, told GEN: “I think Regeneron is not as likely to be acquired, given the stability of their relationship with Sanofi and the financial structure of their collaboration.” Earlier this year she told Reuters another factor boding against an acquisition was the doubling of its share price since mid-2012.

Seattle Genetics

Focus: Developing and commercializing innovative, empowered antibody-based therapies for the treatment of cancer.

Key products and pipeline: Adcetris® (brentuximab vedotin) for relapsed Hodgkin lymphoma (HL) and relapsed systemic anaplastic large-cell lymphoma (sALCL), approved as the first in a new class of antibody-drug conjugates (ADCs) by FDA in 2011 and HealthCanada this year. Adcetris was developed with Millennium: The Takeda Oncology Company, which has worldwide exclusive rights except in the U.S. and Canada, which are held by Seattle Genetics. The drug is in more than 20 ongoing clinical trials, including four Phase III studies—post-transplant HL relapse prevention; relapsed CD30-positive cutaneous T-cell lymphoma; Frontline HL (+ chemotherapy); and Frontline CD30-positive mature T-cell lymphomas (+ chemotherapy). An additional five indications are the subject of Phase II studies. The pipeline also has six additional compounds in preclinical phases through Phase I.

Why attractive: Adcetris has delivered net product sales of $69.7 million from January–June, just above $69.2 million a year earlier. However, collaboration revenue doubled to $55.3 million and royalty revenues from Adcetris jumped nearly five-fold, to $5.9 million from $1.2 million in 1H’12.

The company is also well-viewed for its rich pipeline, as well as its crafting of ADC licensing agreements with 12 biopharmas—including giants like AbbVie, Bayer, Genentech, GSK, and Pfizer—which have generated more than $225 million for the company. In the most recent such deal in June, Seattle Genetics netted $20 million in up-front and option exercise fees for worldwide rights to its auristatin-based ADC technology with antibodies to several oncology targets, with up to $500 million in milestone payments possible.

Seattle Genetics says it’s more focused on expanding use of Adcetris than on finding a buyer: “We have a great trajectory in the future," CEO Clay Siegall told Reuters, adding: “I believe that our big shareholders are supportive of that. I don't have any pressure on me to try to run out and do some deal.”