Could Take­da pull off a $50B-plus Shire takeover? Maybe, but an­a­lysts and in­vestors have their doubts if they should

The news bright and ear­ly Wednes­day morn­ing that Take­da $TKPYY was plan­ning to make a run at Shire $SH­PG caused more than a lit­tle head scratch­ing among some of the an­a­lysts cov­er­ing these com­pa­nies. And it al­so caused some fret­ting among the Japan­ese com­pa­ny’s in­vestors, who took Take­da’s share price down 7% on Thurs­day.

What kind of price makes sense for Shire, which has had its share price beat­en down over the past year? And how should Take­da go about buy­ing a com­pa­ny with a some­what larg­er mar­ket cap, where the pre­mi­um ac­qui­si­tion price will like­ly pass $50 bil­lion?

Ron­ny Gal

One oth­er is­sue float­ing around right now is whether Take­da’s move will sim­ply kick up an of­fer from a Pfiz­er or Ab­b­Vie, which could most like­ly push Take­da to the curb with­out try­ing too hard.

Ron­ny Gal and the Bern­stein team not­ed that Take­da is one of those “se­ri­ous” com­pa­nies, not like­ly to do some­thing like this for the fun of it. That’s a good point: Take­da keeps things but­toned down tight. Now that they’ve start­ed, Bern­stein im­plies, they’re go­ing to want to fin­ish it. But should they?

Bern­stein’s take:

The num­bers: Fi­nan­cial­ly, the deal looks stretched. The com­bined debt of the two com­pa­nies is $22B and their EBIT­DA is $11B. Thus as­sum­ing $500M in cost re­duc­tions and (4x net debt/EBIT­DA) Take­da could fi­nance a Shire bid of £40/$170 ($52B mar­ket cap) with $24B cash and $28B eq­ui­ty. This means Take­da will be pay­ing more than its mar­ket cap and give Shire share­hold­ers 40% own­er­ship of the com­bined com­pa­ny.

Bot­tom line: Most Shire share­hold­ers will sell for a 20-25% pre­mi­um, giv­en the un­clear hori­zon for stock re­cov­ery. The chal­lenge, most would want to lim­it ex­po­sure to Take­da post deal and this would be a stum­bling block mov­ing for­ward. We ex­pect the pub­lic an­nounce­ment ahead of ap­proach­ing Shire prob­a­bly has to do with man­age­ment re­luc­tance to con­sid­er eq­ui­ty-heavy ~£40/$170 of­fer and start­ing a di­a­log with share­hold­ers on this is­sue.

Wild cards: We ex­pect most large phar­ma com­pa­nies have a take­out mod­el of Shire and the Take­da’s an­nounce­ment will force them to make a de­ci­sion whether they want to step up. PFE and AB­BV (cov­ered by An­der­son) are the names ref­er­enced most of­ten. How­ev­er, nei­ther is a per­fect suit­or (and both have been dis­cussed as hav­ing pref­er­ence else­where).

Up to now Take­da CEO Christophe We­ber has been hap­py to fo­cus on bolt-on deals, rang­ing from TiGenix to Ari­ad, at $5 bil­lion. This is a whole oth­er league he’s play­ing in now.

“Take­da is just des­per­ate to beef up its pipeline, and they’ve been do­ing small bits of ac­qui­si­tions on the biotech side,” Fu­miyoshi Sakai, a Tokyo-based an­a­lyst at Cred­it Su­isse Se­cu­ri­ties, told Bloomberg. “But how they are go­ing to fi­nance $40-some bil­lion? That’s an­oth­er one.”

Ouch.

Pe­ter Welford

Pe­ter Welford at Jef­feries had this to say:

The num­bers: We note Take­da’s cur­rent mar­ket cap is around $42bn, which com­pares to Shire’s c.$47bn but $66bn EV in­clud­ing $19.1bn Net Debt at YE2017. Hence, we pre­sume Take­da would need a sig­nif­i­cant eq­ui­ty raise to ac­quire Shire, sug­gest­ing a “merg­er” is per­haps bet­ter ter­mi­nol­o­gy, which may raise hur­dles to the suc­cess­ful com­ple­tion of any fu­ture deal.

Bot­tom line: We see the pos­si­ble strate­gic fit giv­en the Japan­ese phar­ma’s fo­cus ther­a­peu­tic ar­eas of on­col­o­gy, gas­troin­testi­nal and neu­ro­science, with Shire bol­ster­ing the lat­ter two fran­chis­es. Fur­ther­more, Shire’s lead­ing glob­al po­si­tion in rare dis­eases would like­ly be at­trac­tive for most large phar­ma/biotech, par­tic­u­lar­ly giv­en the long du­ra­tion as­sets in im­munoglob­u­lin and en­zyme re­place­ment ther­a­py. How­ev­er, giv­en the on­go­ing com­plex in­te­gra­tion of Bax­al­ta since June 2016, an ac­qui­si­tion at this time car­ries in­cre­men­tal risks, in our view.

Wild cards: Shire has six WW Phase III pro­grammes on­go­ing, no­tably SHP621 for EoE, SHP647 in IBD, marib­avir for CMV, plus soon SHP607 for pre-term in­fant com­pli­ca­tions. We be­lieve many of these are un­der­ap­pre­ci­at­ed and could dri­ve longer-term up­side.

I’ll keep up with the com­ments as they come in. But one thing is clear: This is no slam dunk for Take­da, no mat­ter how se­ri­ous they are. And there are com­pa­nies out there who could change this dis­cus­sion in a heart beat.


Christophe We­ber. Bloomberg via Get­ty Im­ages

Brent Saunders [Getty Photos]

UP­DAT­ED: Ab­b­Vie seals $63B deal to buy a trou­bled Al­ler­gan — spelling out $1B in R&D cuts

Brent Saunders has found his way out of the current fix he’s in at Allergan $AGN. He’s selling the company to AbbVie for $63 billion in the latest example of the hot M&A market in biopharma.

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Novotech CEO Dr. John Moller

Novotech CRO Award­ed Frost & Sul­li­van Best Biotech CRO Asia-Pa­cif­ic 2019

Known in the in­dus­try as the Asia-Pa­cif­ic CRO, Novotech is now lead CRO ser­vices provider for the grow­ing num­ber of in­ter­na­tion­al biotechs se­lect­ing the re­gion for their stud­ies.

Re­flect­ing this Asia-Pa­cif­ic growth, Novotech staff num­bers are up 20% since De­cem­ber 2018 to 600 in-house clin­i­cal re­search peo­ple across a full range of ser­vices, across the re­gion.

Novotech’s ca­pa­bil­i­ties have been rec­og­nized by an­a­lysts like Frost & Sul­li­van, most re­cent­ly with the pres­ti­gious Asia-Pa­cif­ic CRO Biotech of the year award for best prac­tices in clin­i­cal re­search for biotechs for the fifth year. See oth­er awards here.

Richard Gonzalez testifying in front of Senate Finance Committee, February 2019 [AP Images]

Ab­b­Vie's $63B buy­out spot­lights the re­turn of ma­jor M&A deals — de­spite the back­lash

Big time M&A is back. But for how long?

Over the past 18 months we’ve now seen three ma­jor buy­outs an­nounced: Take­da/Shire; Bris­tol-My­ers/Cel­gene and now Ab­b­Vie/Al­ler­gan. And with this lat­est deal it’s in­creas­ing­ly clear that the sharp fall from grace suf­fered by high-pro­file play­ers which have seen their share prices blast­ed has cre­at­ed an open­ing for the growth play­ers in big phar­ma to up their game — in sharp con­trast to the pop­u­lar bolt-on deals that have been dri­ving the growth strat­e­gy at No­var­tis, Mer­ck, Roche and oth­ers.

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UP­DAT­ED: In sur­prise switch, Bris­tol-My­ers is sell­ing off block­buster Ote­zla, promis­ing to com­plete Cel­gene ac­qui­si­tion — just lat­er

Apart from revealing its checkpoint inhibitor Opdivo blew a big liver cancer study on Monday, Bristol-Myers Squibb said its plans to swallow Celgene will require the sale of blockbuster psoriasis treatment Otezla to keep the Federal Trade Commission (FTC) at bay.

The announcement — which has potentially delayed the completion of the takeover to early 2020 — irked investors, triggering the New York-based drugmaker’s shares to tumble Monday morning in premarket trading.

Celgene’s Otezla, approved in 2014 for psoriasis and psoriatic arthritis, is a rising star. It generated global sales of $1.6 billion last year, up from the nearly $1.3 billion in 2017. Apart from the partial overlap of Bristol-Myers injectable Orencia, the company’s rival oral TYK2 psoriasis drug is in late-stage development, after the firm posted encouraging mid-stage data on the drug, BMS-986165, last fall. With Monday’s decision, it appears Bristol-Myers is favoring its experimental drug, and discounting Otezla’s future.

The move blindsided some analysts. Credit Suisse’s Vamil Divan noted just days ago:

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The top 15 mega-deals in bio­phar­ma: Ab­b­Vie and Bris­tol-My­ers ac­qui­si­tions stir fresh de­bate over what's too big to buy

The debate over what’s too big to buy in biotech is back. A number of top analysts went right after AbbVie’s rationale for the Allergan deal today, just as Bristol-Myers Squibb stirred immediate debate over the worth and wisdom of acquiring Celgene.

To help provide some added context to this discussion, we asked DealForma chief Chris Dokomajilar to look over the past decade of major M&A in biopharma to decipher the top 15 plays.

The new numbers, unadjusted for inflation, harken back to the days of the Pfizer-Wyeth buyout and Merck’s decision to absorb Schering-Plough — both triggered in 2009. The heat over those acquisitions made the big pharma mega-deal highly unpopular for most everyone — except Pfizer — as industry leaders swore off almost all but the handy bolt-on acquisition.

Until recently.

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Eye­ing a $500M peak sales pot, Almi­rall dou­bles down on le­brik­izum­ab as Der­mi­ra lines up PhI­II

With eyes on what it be­lieves is a $500 mil­lion peak rev­enue op­por­tu­ni­ty in Eu­rope, Barcelona-based Almi­rall has stepped up with $50 mil­lion in cash to take up the op­tion on Der­mi­ra’s IL-13 an­ti-in­flam­ma­to­ry drug le­brik­izum­ab just ahead of the start of Phase III. And there’s an­oth­er $30 mil­lion due as the late-stage pro­gram gets geared up.

That shouldn’t be long from now, as Der­mi­ra ex­pects to be­gin the late-stage tri­al work for atopic der­mati­tis be­fore the end of this year as it fol­lows a trail that ex­ecs in­sist leads to block­buster re­turns. Along the way, they’ll need to take on the 600-pound go­ril­la in atopic der­mati­tis: the IL-13/IL-4 drug Dupix­ent, from Re­gen­eron and Sanofi. Ri­vals al­so in­clude Leo Phar­ma, in its piv­otal with tralok­izum­ab, and Anap­tys­Bio in the hunt with a mid-stage pro­gram for etokimab, pre­vi­ous­ly re­ferred to as ANB020.

Dean Hum. Nasdaq via YouTube

Gen­fit goes to Chi­na with a deal worth up to $228M for NASH drug

Fresh off the high of its Nas­daq IPO de­but, and the low of com­par­isons to Cymabay — whose NASH drug re­cent­ly stum­bled — Gen­fit on Mon­day un­veiled an up to $228 mil­lion deal with transpa­cif­ic biotech Terns Phar­ma­ceu­ti­cals to de­vel­op its flag­ship ex­per­i­men­tal liv­er drug — elafi­bra­nor — in Greater Chi­na.

The deal comes weeks af­ter Gen­fit $GN­FT is­sued a fiery de­fense of its dual PPAR ag­o­nist elafi­bra­nor, when com­peti­tor Cymabay’s PPARδ ag­o­nist, se­ladel­par, fiz­zled in a snap­shot of da­ta from an on­go­ing mid-stage tri­al. The main goal at the end of 12 weeks was for se­ladel­par to in­duce a sta­tis­ti­cal­ly sig­nif­i­cant im­prove­ment in liv­er fat con­tent, but da­ta showed that pa­tients on the place­bo ac­tu­al­ly per­formed bet­ter.

Bris­tol-My­ers star Op­di­vo fails sur­vival test in a matchup with Nex­avar aimed at shak­ing up the big HCC mar­ket

Bris­tol-My­ers Squibb has suf­fered an­oth­er painful set­back in its years-long quest to ex­pand the reach of Op­di­vo. The phar­ma gi­ant this morn­ing not­ed that their Check­mate-459 study com­par­ing Op­di­vo with Bay­er’s Nex­avar in front­line cas­es of he­pa­to­cel­lu­lar car­ci­no­ma — the most com­mon form of liv­er can­cer — failed to hit the pri­ma­ry end­point on over­all sur­vival.

This was a sig­nif­i­cant mile­stone in Bris­tol-My­ers’ tal­ly of PD-1 cat­a­lysts this year. Nex­avar (so­rafenib) has been the stan­dard of care in front­line HCC for the past decade, though Op­di­vo has been mak­ing head­way in sec­ond-line HCC cas­es, where it’s go­ing toe-to-toe with Bay­er’s Sti­var­ga (re­go­rafenib) af­ter re­cent ap­provals shook up the mar­ket.

SQZ, Ery­tech kick off $57M cell ther­a­py part­ner­ship; Jean-Paul Kress lands new CEO gig at Mor­phoSys

→ In a mar­riage of two tech­nolo­gies meant to make cell ther­a­pies more pow­er­ful, SQZ Biotech is team­ing up with France’s Ery­tech Phar­ma for a col­lab­o­ra­tion, with $57 mil­lion re­served for the first project and $50 mil­lion for each sub­se­quent ap­proval (prod­uct or in­di­ca­tion). Hav­ing ac­cess to Ery­tech’s method of fash­ion­ing ther­a­peu­tics from red blood cells, the Cam­bridge, MA-based com­pa­ny said, will am­pli­fy SQZ’s cell en­gi­neer­ing ca­pa­bil­i­ties and al­low them to de­vleop a new class of im­munomod­u­la­to­ry ther­a­pies. Its own tech — so far ap­plied in can­cer but al­so has po­ten­tial in di­a­betes — tem­po­rary dis­rupts the cell mem­brane by squeez­ing the cell, thus cre­at­ing a brief win­dow for tar­get ma­te­ri­als such as anti­gens to en­ter.