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October 24, 2016

10 Takeover Targets of 2016

Which Biopharmas Do Wall Street Watchers View As Top Buyout Candidates?

10 Takeover Targets of 2016

The increasing number of M&A deals can be expected to generate even more buzz about additional biopharmas eventually being bought by or merged with other companies. [George Hodan]

  • You could wallpaper your living room with all the speculation and unfulfilled predictions churned out by analysts, investors, journalists, and other Wall Street watchers about what companies may end up being taken over by whom.

    So it’s more than notable that of the “Nine Takeover Targets of 2015” spotlighted around this time last year by GEN, one company is actually being acquired—Medivation, for which Pfizer is shelling out $14 billion in a deal intended to strengthen the pharma giant’s oncology portfolio.

    Notwithstanding that blockbuster deal, the value of mergers and acquisitions (M&A) during the first 8 months of this year actually shrank compared to a year ago, despite an increase in the total number of transactions. During January–August 2016, the total value of biotech M&A slipped nearly 18% to $77.448 billion from $94.27 billion a year earlier, even as the number of deals ballooned to 869 from 655 in January–August 2015, according to the monthly Biotech Report of the Zephyr database of M&A, IPO, private equity, and venture capital deals.

    More than likely, that decline reflects a preference by buyers for smaller, multi-million-dollar “bolt-on” acquisitions, in which a drug or pipeline is combined into the buyer’s portfolio, rather than the multi-billion-dollar mergers that reshaped big pharma nearly a decade ago. Whatever their value, the increasing number of M&A deals can be expected to generate even more buzz about additional biopharmas eventually being bought by or merged with other companies—such as the ones highlighted in this GEN List.

    As in past years, the 2016 edition of our Takeover Targets combines some new names with a few usual suspects included in past year’s GEN Lists. For each company mentioned, this list explains where talk of acquisitions has surfaced, and why. Small- to medium-capitalization biopharma companies continue to dominate Wall Street speculation by showing promise for reasons ranging from approvals for new products and rising sales to successful clinical programs in indications that are expected to generate billions in new revenues.

  • Acadia Pharmaceuticals

    Having gained FDA approval in April for its Nuplazid™ (pimavanserin), indicated for hallucinations and delusions associated with Parkinson’s disease psychosis, Acadia Pharmaceuticals has found itself at the center of takeover talk through for much of this year.

    One reason why is the 80% surge in Acadia‘s stock price since the approval, announced April 29. Another reason is the drug’s bullish sales forecast. The Motley Fool healthcare analyst Brian Feroldi cited projections that Nuplazid could generate more than $3 billion in annual peak sales when he included the company as one among five potential acquisition targets for a big pharma. And that $3 billion, he added, “could prove to be a conservative number if Nuplazid also wins label expansion claims for Alzheimer's disease psychosis or schizophrenia,” for which the drug is in late-stage studies.

    “I think that's a big enough number to grab the attention of many big pharma companies, and that's why it wouldn't surprise me one bit to see one of them make an offer to buy Acadia outright,” Feroldi concluded.

    Agreeing with that assessment is Brian Nichols of BNL Finance: “We think $10 billion is possible, at least $5 billion, and as current expectations prove too conservative and Wall Street starts to take Nuplazid’s potential serious, M&A offers will become more serious too.”

    Two biotech giants have been among many speculated as potential buyers of Acadia. Michael Yee of Morningstar has said that Biogen expressed interest in buying the company, while Ken Cacciatore, analyst at Cowen & Co., has cited Teva Pharmaceutical as a possible acquirer. In a note to investors, Cacciatore has pegged a potential price for Acadia at $6 billion—$1 billion more than what analyst Charles Duncan of Piper Jaffray projected as a price target for Acadia.

    Needham has cited Teva among 11 potential suitors for Acadia, a list that included AstraZeneca, Allergan, Eli Lilly, Lundbeck, Merck, Novartis, and Takeda Pharmaceutical.

  • Alexion Pharmaceuticals

    Citing their own anonymous sources, perhaps the same ones, Bloomberg and Reuters both reported last month that Roche was exploring financing options for acquiring Alexion. Because Roche did not immediately deny the reports, Jim Cramer of CNBC and TheStreet.com predicted that the pharma giant will eventually buy Alexion. Other market watchers see Alexion eventually being bought, though they have not named Roche as a potential buyer. Barron’s on June 29 named the company among 15 biotechs that it said “Could Be Takeover Targets,” while Do Kim, an analyst with BMO Capital Markets, also named the company as an acquisition possibility.

    However, TheStreet.com’s Adam Feuerstein has taken an opposite view, predicting no acquisition will occur: “Sure, Roche would like to dig into the orphan drug market, but buying Alexion would not produce much cost-saving synergies because the two companies don't have overlapping research or manufacturing capabilities.”

    Behind the takeover talk is the expectation of rising sales for Alexion’s main marketed drug Soliris® (eculizumab), the first and so far only treatment approved for two conditions: paroxysmal nocturnal hemoglobinuria (PNH), to reduce hemolysis, and atypical hemolytic uremic syndrome (aHUS), to inhibit complement-mediated thrombotic microangiopathy. As Feuerstein noted, Soliris sales have been predicted to reach about $1.5 billion this year and soar further to peak at annual sales of $3 billion to $6 billion, depending which analyst you believe.

    Alexion is well on its way to exceeding 2016 sales forecasts for Soliris, having generated $1.366 billion in the first half of this year, up 10.5% from a year ago. Soliris accounted for 94% of Alexion’s first-half 2016 revenues—though that percentage is expected to slip now that the company’s marketed enzyme replacement therapies include Strensiq® (asfotase alfa) for perinatal/infantile- and juvenile-onset hypophosphatasia (HPP) and Kanuma® (sebelipase alfa) for lysosomal acid lipase deficiency (LAL-D).

  • Ardelyx

    Relypsa’s July 21 announcement that it was being acquired for $1.53 billion by Galenica Group stoked speculation that it wouldn’t be long before Ardelyx itself would also find a buyer.

    “Ardelyx has a treatment that has properties very similar to Relypsa's Veltassa®, so if companies were interested in purchasing Relypsa then they might be interested next in Ardelyx,” Wedbush analyst Liana Moussatos told TheStreet.com. Moussatos and another Wedbush analyst, Kelechi Chikere, said July 21 in a note to investors that Sanofi was a prime potential buyer for Ardelyx, since Sanofi signed a two-year agreement last year with Relypsa to provide commercial support complementing Relypsa’s sales force for Veltassa (patiromer for oral suspension).

    In August, Citigroup analysts Yigal Nochomovitz, Ph.D., and Yang Huang included the company among six biotechs they predicted “could be M&A targets next” following the Pfizer–Medivation deal. A month earlier, Bret Jensen in Investors Alley said talk of Ardelyx being acquired was being fueled in no small part by its pipeline. The company has a hyperkalemia treatment candidate, RDX227675, entering Phase III trials, as well as tenapanor, which is in registration studies for irritable bowel syndrome with constipation (IBS-C) and for end-stage renal disease (ESRD) in patients on dialysis. The company could file up to three NDAs next year, said Jensen, who said Allergan “seems a logical suitor” for Ardelyx given Allergan’s interest in expanding its gastrointestinal holdings.

    Last year, tenapanor failed a Phase IIa trial in stage 3 chronic kidney disease patients with type 2 diabetes and albuminuria, after which Ardelyx paid $15 million upfront and $10 million in R&D costs to regain worldwide tenapanor rights from AstraZeneca. However, during 2015, tenapanor succeeded in Phase IIb studies in patients with IBS-C and in hyperphosphatemic patients with chronic kidney disease on hemodialysis. 

  • Biogen

    Biogen attracted intense investor speculation in August, after The Wall Street Journal reported that the company had become the subject of takeover interest from Merck & Co. and Allergan, citing unnamed sources.

    Behind their reported interest is Biogen’s relatively strong results—it finished the second quarter with GAAP net income of $1.05 billion, up 13% from a year ago—as well as dominance of the nearly $20 billion-a-year market for multiple sclerosis drugs. Leading that market is Biogen’s Tecfidera® (dimethyl fumarate), which racked up $1.933 billion in revenues in the first half of this year, up 13% from January–June 2015. Yet Tecfidera’s Q2 revenue of $987 million fell short of the $991 million average projected by analysts surveyed by Bloomberg News.

    A companywide sales slowdown prompted Biogen last year to reduce its workforce by 11%, or about 880 employees, in a restructuring that included termination of several pipeline drug development programs. Biogen over the past year has named new managers to head its sales and R&D operations and has sought to narrow its therapeutic focus to neurological and opthalmological treatments. The company is spinning off its hemophilia business as an independent, publicly traded company, a move expected to be completed next year.

    Given CEO George Scangos’ planned retirement, combined with the company’s strong quarterly results and strong pipeline, “the company is considered an attractive takeover opportunity,” Sarah Collins of Market Realist wrote on September 9. On September 24, Brian Nichols of BNL Finance included the company as one of 10 biotechs whose stocks are “most likely to soar behind M&A.”

  • BioMarin Pharmaceutical

    BioMarin Pharmaceutical has been on every list of takeover targets compiled by GEN since the first such list published in 2013, the year Roche was rumored to be interesting in buying the company for $15 billion. Roche has been mentioned this year too as a potential buyer, with shares jumping 9% on the morning of July 7 based on a report to that effect by Betaville, which cited anonymous sources.

    Numerous news outlets, financial firms, analysts, and others have repeatedly talked about BioMarin ending up being bought someday, somehow, by some other company. This year, according to 24/7 WallSt., takeover speculation has been further fueled by the company’s strong first- and second-quarter results. During the first half of this year, BioMarin revenues jumped 18.5% over January–June 2015 to $536.9 million, more than halfway to the $1 billion mark projected by Thomson Reuters I/B/E/S.

    Net product revenue from Morquio A syndrome enzyme replacement therapy Vimizim® (elosulfase alfa) nearly doubled in Q2, zooming nearly 72% for the first half to $179.4 million. Also boosting BioMarin revenues is the first and only FDA-approved phenylketonuria (PKU) treatment Kuvan® (sapropterin dihydrochloride), net product revenue for which jumped 51% year-over-year, to $166.9 million.

    Another factor in this year’s takeover talk is the theory by some analysts that companies that lost out to Pfizer for Medivation will try to snap up other large biotechs. “Many investors that speak to us believe that this could include BioMarin,” Jefferies analyst Jeffrey Holford wrote in an August 22 note to clients quoted by CNBC. According to TheStreet.com, Jefferies and Goldman Sachs believe a potential buyer for BioMarin is Sanofi, having been publicly rebuffed in its effort to buy Medivation back in the spring.

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