The defensive anti-chain engulfs Ariad
When Credit Suisse analysts yesterday wrote that Ariad Pharmaceuticals would make a good fit with Baxalta’s orphan drug haematology-oncology focus you might have been excused for asking, what haematology-oncology focus?
True, Baxalta has made an effort to license in some minor cancer projects, but surely its most important problem right now is fighting off a takeover approach by Shire. It is as a defence against Shire that Ariad should be viewed, something that now puts Ariad under pressure to act to prevent it in turn from being bought out on the cheap.
In this respect Ariad and Baxalta face a similar need to demonstrate that staying independent would offer investors a better return than would an immediate cash payout from an acquirer. Speculation that Baxalta was in talks to buy Ariad had emerged on Friday.
Ariad is particularly vulnerable to a low-ball takeover right now, its chief executive, Harvey Berger, having in April announced his intention to retire this year. One answer for Ariad could be to name a new chief executive at last – something that would send a signal to investors that it had a standalone strategy, and to the markets that it was not for sale after all.
For its part Baxalta had only existed as a standalone entity for a month when the Shire approach emerged (Why Shaxalta could run and run, August 4, 2015). While it is true that Baxalta already has excellent defences against a hostile takeover, the risk of its own investors agreeing to an only slightly better bid must also be considered, especially in a suddenly uncertain market.
Ariad is one of very few biotechs with a marketed oncology drug, Iclusig, and a market cap within a $2bn window, even after its 42% surge on Friday. However, Iclusig appears not to be going anywhere fast, and its only notable R&D asset, the phase II Alk inhibitor brigatinib, targets a relatively small slice of the NSCLC market that is currently controlled by Pfizer’s Xalkori and fast becoming crowded.
Baxalta’s early oncology presence rests on three licensed in projects: CTI Biopharma’s not particularly promising Jak inhibitor pacritinib, Sigma-Tau’s marketed pegaspargase formulation Oncaspar, and Merrimack’s nanoformulation of irinotecan MM-398, recently filed for pancreatic cancer.
It is true that if Baxalta is trying to build a presence in oncology it is playing catch-up in a highly competitive field, so it can hardly expect to pick up top-quality assets on the cheap. But it should also be remembered that a defensive move to buy an asset in which Shire might not be too interested is one way of warding off its predator.
Where does this and the past couple of weeks’ global financial market turmoil leave Shire’s indicative bid?
Beyond Baxalta’s rejection of what it called a highly conditional proposal there has been no formal progress, but since Shire went public on August 4 Baxalta has slipped 6% while Shire has lost 15%. An all-stock proposal once valued at around $29bn is now worth below $27bn, equivalent to an 18% premium to Baxalta’s share price on August 3.
If the deal falls apart Shire would itself again become vulnerable to takeover – say by Allergan – and in need of a new defensive move of its own.
With Chinese market instability causing macroeconomic chaos, and no one able to predict what the rest of the year will bring, playing who blinks first is becoming a dangerous game.