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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]

  • Gilead Sciences

    Kevin Kedra, an analyst with Gabelli, told Barron’s on September 21 that Allergan could be positioning itself to acquire Gilead, posing the not-so-rhetorical question: “What if [Allergan CEO and President] Brent Saunders is playing chess while the market is playing checkers?” by making smaller strategic acquisitions that would lead to buying Gilead, especially of nonalcoholic steatohepatitis (NASH) drug developers. Kedra cited Allergan’s planned acquisition of Tobira Therapeutics for up to $1.695 billion.  

    One analyst disagreed publicly with Kedra: “Nope, not gonna happen,” declared Max Nisen in BloombergGadfly. “If [Allergan] is serious about liver disease, then buying the industry leader makes some sense. But everything Allergan is doing suggests it’s positioning itself as a competitor to Gilead’s NASH drugs, not a parent.” A day after buying Tobira, Allergan bought another smaller NASH player, snapping up Akarna Therapeutics for $50 million upfront.

    Other market watchers have pegged Gilead as an M&A play. Writing in The Motley Fool, Sean Williams noted that Gilead shares had fallen by roughly one-third between June 2015 and last month. One reason was falling sales caused by larger discounts to insurers for its hepatitis C blockbuster drug Harvoni® (ledipasvir/sofosbuvir).

    Another was clinical setbacks: On September 22, Gilead halted a Phase II/III trial of its GS-5745 in ulcerative colitis patients, six months after halting six trials of cancer candidate Zydelig® (idelalisib) in combination with other treatments, following reports of deaths and other adverse effects. Williams said Gilead could be attractive to either Pfizer or Merck & Co. Ken Kam of Marketocracy wrote in Forbes July 20 that Gilead was “the type of game-changing acquisition” needed by Merck, reasoning that it “could dramatically lower the overhead if the two were to merge,” with the combined company better able to grow profits much faster than either company could achieve alone.

  • Incyte

    Growing revenue from its marketed drug Jakafi® (ruxolitinib) has allowed Incyte to expand and build its commercial infrastructure in the U.S. and Europe, all while continuing to discover and develop new treatments in oncology and inflammation. “The combination of growing revenue and strong R&D makes Incyte a great acquisition target,” Simos Simeonidis, Ph.D., managing director/senior biotech analyst at RBC Capital Markets, declared July 14 in Barron’s, which has listed the company among 15 potential takeover targets.

    Jakafi is indicated for intermediate- or high-risk myelofibrosis as well as polycythemia vera (PV) in patients with inadequate response or intolerance to hydroxyurea. In June, Incyte raised hopes of an expanded PV indication when it trumpeted 28-week Phase III data showing Jakafi was superior to best available therapy for the blood cancer. Incyte’s potential for oncology pipeline growth makes the company a takeover target, Brian Abrahams of Jefferies told CNBC.

    Jakafi’s success makes it “a currently marketed product large enough to count”—one criterion for “the ideal acquisition candidate in this environment,” John McCamant, editor of The Medical Technology Stock Letter, wrote on July 25. A month later, 24/7 WallSt extolled Incyte’s clinical-stage compounds—baricitinib (Phase III for rheumatoid arthritis, Phase II completed in psoriasis and diabetic nephropathy), ruxolitinib cream (Phase II for alopecia areata), and INCB52793 (Phase I/II for advanced malignancies)—saying the three “could drive several billion in revenue, something important for an acquiring company looking to acquire assets.” 

    Also in August, Gabelli called the company an especially attractive target along with BioMarin Pharmaceutical (see above). Todd Hagopian of Marketocracy pegged Incyte as one of four potential acquisition targets for Gilead after it was outbid when Pfizer agreed to shell out $14 billion for Medivation. The high price of that deal enhances Incyte’s takeover odds, Eric Schmidt of Cowen told CNBC

  • Intercept Pharmaceuticals

    The scramble to develop treatments for nonalcoholic steatohepatitis (NASH) has drawn analysts and market watchers to Intercept Pharmaceuticals. Reuters stoked speculation by reporting on February 12, based on anonymous sources, that the company was considering a sale after receiving interest from potential buyers. Six months later, Reuters quoted a note to investors from BMO Capital Markets analyst Do Kim, who included Intercept among companies to watch for as possible acquisition targets.

    Last month, Credit Suisse analyst Alethia Young cited an important reason for investor interest in Intercept: Its lead product candidate Ocaliva® (obeticholic acid) has advanced to Phase III in NASH, ahead of Gilead Sciences’ Phase II NASH candidate simtuzumab: “A combination of regimens will be an important part of the treatment paradigm and we think Intercept is positioned well here long-term,” Young wrote, according to Investor’s Business Daily.

    Ocaliva improved fibrosis in 35% of patients, versus 19% on placebo, noted Brian Nichols of BNL Finance: “It is just a matter of time before big pharma pays a big premium for this NASH leader,” Nichols said September 24 when he included Intercept as one of “10 Biotech Stocks Most Likely to Soar Behind M&A.” Many of those 10, he added, are NASH drug developers: “The race to develop an effective treatment for NASH might be the most competitive and urgent space in all of biotech.”

    Intercept and competitors are eager to tap into a market that RBC Capital Markets analyst Michael Yee has pegged as potentially between $5 billion to $10 billion a year. Wedbush Securities analyst Liana Moussatos told The Deal May 7 that Intercept could be bought for as much as $10.3 billion, or more than five times the combined $1.745 billion that Allergan has disclosed spending to acquire NASH drug developers Tobira Therapeutics and Akarna Therapeutics. Needham and Barron’s have also identified Intercept as a takeover target

  • Kite Pharma

    Kite Pharma’s status as a leading developer of chimeric antigen receptor (CAR) T-cell therapies—and the clinical missteps of rival Juno Therapeutics—have positioned the company as a potential top takeover target. Kite last month reported positive topline data for its lead product candidate KTE-C19 in the Phase II portion of a Phase I/II trial in patients with non-Hodgkin's lymphoma (NHL), a step toward an eventual filing of a biologics license application for the candidate by year’s end.

     Juno, on the other hand, acknowledged in a July regulatory filing that four patients died in trials related to its CAR T-cell candidates. Three of the deaths occurred the Phase II ROCKET trial of its acute lymphoblastic leukemia (ALL) candidate JCAR015, and the other during a trial of JCAR014, designed to treat patients with ALL as well as NHL and relapsed or refractory (r/r) chronic lymphocytic leukemia.

    “Due to Juno’s stumble, Kite is poised to be the first CAR-T competitor to the market, potentially years in front of its next competitor, which will allow them to become the [Gilead Sciences] of this particular aggressive new oncology market,” Ken Kam of Marketocracy wrote July 20 in Forbes, drawing an analogy to Gilead’s successful development of groundbreaking hepatitis C treatments.

    Two months later, another Marketocracy analyst, Todd Hagopian, said bluebird bio as well as Kite could bring CAR T-cell treatments to market quickly, before adding: “I believe that the CAR-T market is going to be huge in the future, and Kite will be the first-mover in the segment.” That could make Kite an attractive acquisition for Gilead, Hagopian added.

    Todd Campbell of E.B. Capital Markets opined in The Motley Fool that Kite could find itself choosing between multiple suitors: “Given the potential for an accelerated timeline to market in a multibillion dollar indication, Kite Pharma could be attractive to a number of larger companies.” 

  • Tesaro

    Tesaro has been at or near the top of investors’ takeover target lists since announcing on June 29 that its Phase III NOVA trial of its oral, once-daily poly(ADP-ribose) polymerase (PARP) inhibitor niraparib met its endpoints of progression-free survival (PFS) in patients with ovarian cancer. The median PFS for patients treated with niraparib was 21.0 months, compared to 5.5 months for placebo.

    Those results caused Tesaro shares to more than double in value, as Wall Street watchers concluded that the company was a leader in PARP inhibitors (PARPi). However, the category includes competition. AstraZeneca already has a PARPi on the market, the ovarian cancer drug Lynparza® (olaparib), while Clovis Oncology in August won FDA’s acceptance for review of its NDA for its ovarian cancer candidate rucaparib.

    Tesaro has been cited as a possible acquisition target for several biopharma giants, including Amgen, Celgene, Pfizer, and Gilead Sciences. Speculation about Gilead was enhanced after Gabelli & Co. analyst Jing He wrote in a note to investors: “Although a PARPi deal would not move the needle for Gilead, we expect the company to be more active in growing its pipeline with deals in the second half.”

    A team of Baird analysts offered another reason why Tesaro has sparked takeover interest. Its pipeline, which includes the Phase I/II anaplastic lymphoma kinase inhibitor TSR-011, and rolapitant, a Phase I neurokinin-1 receptor antagonist designed to prevent chemotherapy-induced nausea and vomiting.

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