Astex deftly positions itself as a must-have asset

At a time when frothy US biotech valuations have become the norm it must be comforting to see that some buyers are still willing to match investors’ untempered exuberance. Step forward Japan’s Otsuka Holdings.

Of course, Otsuka faces a massive problem in the imminent patent expiry of its best-selling drug, the antipsychotic blockbuster Abilify. Astex Pharmaceuticals had clearly identified a motivated buyer, and thanks to the canny disclosure of near meaningless clinical trial data it managed to extract a top-dollar valuation.

The $8.50-per-share cash offer agreed this morning values Astex at $807m, or $886m including options, warrants and stock-based deferred acquisition consideration. Astex said it had put itself up for sale through Jefferies and had contacted several companies, but in the end Otsuka’s bid came out on top.

The news explains Astex’s unscheduled announcement last month of immature data from an uncontrolled phase II trial of its most important pipeline project, SGI-110. With Astex stock up from around $2 two years ago the group needed a boost to justify a premium-priced takeover, and the surprise release did the trick: the shares climbed 24%.

This was despite the fact that the remission data from the partially enrolled trial actually said little about the study’s chances of success or SGI-110’s potential as a follow-on to Astex’s only marketed drug, Dacogen.

Dacogen is marketed for myelodysplastic syndromes (MDS) in the US, where it lost patent protection in May, and for elderly acute myelogenous leukaemia (AML) in the EU (Astex gets more time and money for pipeline adventures, October 1, 2012). Unlike Dacogen, SGI-110 is wholly owned by Astex.

2012 sales peak

EvaluatePharma’s consensus forecasts suggest that Otsuka’s prescription drug sales peaked last year at $7.9bn, and are expected to fall to just $5.0bn by 2018. Dacogen will bring some additional revenue, but this is small relative to expectations that must be pinned to Astex’s R&D pipeline.

That pipeline is squarely focused on the hot area of oncology – a field in which Otsuka is relatively weak at present. However, as EvaluatePharma’s “merge companies” tool shows, only two Astex projects beyond Dacogen feature in consensus forecasts: SGI-110, a hypomethylating agent, and the Hsp90 inhibitor AT13387.

The above analysis also shows that the combined risk-adjusted NPV of the three Astex assets is $1bn – only slightly above the value of Otsuka’s bid.

The Japanese company therefore seems happy to buy into sellside expectations for Astex and build hopes of a significant return around R&D successes; on an unadjusted basis the Astex NPV rises to $2.4bn, but we are still some way off seeing whether this is realistic.

SGI-110 is in three phase II studies, but the most important data point – irrespective of what has been dribbled out so far – is presentation of the AML/MDS trial at the American Society of Hematology meeting in December. This could inform the design of a phase III trial, for instance, but it is still far too early to say whether SGI-110’s safety and efficacy can match Dacogen’s.

Meanwhile, AT13387 is in phase II trials in Alk-positive non-small cell lung cancer and prostate cancer that might yield data next year. Development of Hsp90 inhibitors is littered with setbacks.

Valuation surprise

These risks make it particularly surprising that Astex has managed to achieve a near-$1bn takeover valuation – at a time when the Japanese yen stands against the US dollar at lows not seen for four years.

Interestingly, Astex started out as a UK company and scored some significant licensing deals, but its private backers chose a 2011 takeover by SuperGen – giving rise to the current business – in preference to an IPO.

Nevertheless those keen to view the Otsuka deal as a rare success for UK biotech need to bear in mind that it would probably not have been possible without a US listing.

To contact the writer of this story email Jacob Plieth in London at [email protected] or follow @JacobEPVantage on Twitter