Astellas goes hostile again, OSI the target
One year on from Astellas Pharma’s failed $1bn bid for CV Therapeutics, the hope must be the Japanese company has since been brushing up its hostile takeover skills with news today that, having failed to convince OSI Pharmaceuticals’ board of directors of the value and merit of a tie-up, Astellas is going straight to OSI’s shareholders with a $52 cash per share offer, valuing the company at $3.5bn.
Not content with being one of the most aggressive global pharma groups on the product licensing front last year, Astellas clearly still craves a major acquisition to address its pipeline and patent cliff woes. As such, its move on OSI is hardly surprising (Astellas walks away from CV but hunt for deals likely to continue, March 16, 2009). OSI’s shares opened at $55.45, a 50% gain and a price its shareholders have not seen for five years, suggesting the market is hopeful that either Astellas will have to increase its 40% premium offer, or that a white knight may swoop, as Gilead Sciences did for CV.
OSI has yet to formally respond to Astellas’ offer, although anything other than a standard riposte that it “very significantly undervalues” OSI, as the board previously told Astellas, would be a major surprise.
Astellas will launch its offer tomorrow, and has sufficient cash in the bank - $4.2bn as of December 31, 2009 - to do so without the need for additional finance. The question now for OSI’s shareholders is whether to jump at this opportunity or believe its own board that even greater value could be extracted in the future.
OSI’s major shareholders at the end of 2009 were Wellington Management and T Rowe Price Associates with a combined equity stake of 24%; if these two investors decide to cash in Astellas could be well on its way to clinching the deal, although the prospect of OSI activating its shareholder rights plan, a so-called “poison pill”, remains a significant threat. Unsurprisingly, Astellas is claiming that any poison pill would be unlawful in this situation.
Nevertheless, as long as OSI’s shares continue to trade at around $55, shareholders may be tempted to hold on, although the chances of Astellas raising its offer significantly would appear slim given its refusal to increase its price for CV, leaving Gilead the spoils.
As such, a competing bid, with OSI also likely to respond by saying it will solicit improved offers, could be what investors will hold out for in the hope history will repeat itself.
One company that will be watching events unfold very closely is Roche, the Swiss healthcare giant which co-developed and commercialises OSI’s primary product, Tarceva.
The lung and pancreatic cancer drug is by far OSI’s most valuable product, with global sales last year of $1.2bn recorded by Roche, which generated $359m in net revenues for OSI.
OSI’s Tarceva revenues are expected to rise to $520m by 2014, valuing the drug at $1.53bn to OSI, according to EvaluatePharma’s NPV Analyzer. This represented 71% of OSI’s market capitalisation before today’s huge share price gain.
|EvaluatePharma NPV Analyzer: OSI Pharmaceuticals
|Today's NPV ($m)
|NPV as % of Market Cap (26 Feb 10)
Indeed, with a combined NPV for OSI’s most important marketed and pipeline products of $2.76bn, Astellas’ $3.5bn offer translates into a more modest 27% premium, no doubt a fact OSI’s board will attempt to illustrate to Astellas and its shareholders.
OSI’s board may also try and claim the market is currently undervaluing Tarceva, forecast sales of which have been significantly downgraded since disappointing clinical data for use of the drug as a maintenance treatment for non-small cell lung cancer last year was followed by a negative vote by an FDA advisory committee (OSI's Tarceva miss is Lilly's gain, December 17, 2009).
Since the initial data last May, almost $500m has been wiped off consensus forecast sales for Tarceva in 2014, which have declined 20% to the current estimate of $1.86bn.
The FDA’s final verdict on Tarceva in the maintenance setting is expected by April 18, 2010, and the company and some analysts remain hopeful for a surprise positive outcome.
As to whether there is any “change of control” clause in OSI’s existing deal with Roche, such that the Swiss group could seek to gain full rights to Tarceva should OSI be acquired, remains unclear at this stage and OSI’s formal response may contain details of this should such a clause exist.
Astellas increasingly aggressive
Last year, Astellas was the most active Japanese company on the product licensing front, licensing 10 products with $280m paid upfront for deals with a combined value of $1.45bn. This ranks Astellas in eighth spot in the global league of big pharma companies, ahead of the likes of Pfizer, Eli Lilly and Novartis.
Its biggest single deal was for Medivation’s prostate cancer drug, MDV3100 (Medivation hits another jackpot, October 27, 2009), one of the most valuable deals overall in 2009 (AstraZeneca tops the product deal charts in 2009, February 16, 2010).
However, licensing all these pipeline products does not address Astellas’ more immediate patent cliff and profit margin concerns, hence the desire to seek a company with a blockbuster product and significant other revenues, like OSI’s profits from all sales of DPP-IV diabetes based agents (Why OSI will always win in the DPP-IV diabetes drugs market, November 9, 2007) .
Although the attempt on CV was for a product portfolio in a different therapeutic area, there are still many similarities to this new OSI bid and Astellas will not want to be foiled again by an unwilling target or a white knight.