Gilead Sciences has donned its white knight armour and rescued maiden-in-distress CV Therapeutics with what looks like a knock out $20 a share, $1.4bn bid, plucking the company from the arms of unwanted suitor Astellas Pharma, which had pitched its seduction attempts at a distasteful $16 a share.
For a company best known for its HIV drugs, the acquisition of a pure play cardiology group comes as a surprise, particularly as opinions about the potential of CV’s core product, angina drug Ranexa, differ widely. Gilead is clearly a believer and reckons a re-launch and its deeper pockets will let the drug reach its potential, and further down the line provide a springboard for its own phase III hypertension pill, darusentan. The strategy makes sense; whether the strategy is worth $1.4bn will depend on future sales of Ranexa.
CV launched Ranexa in 2005, but its restrictive label and cautionary language about the drug’s affect on slowing heartbeat held back sales. Last November, based on a broader phase III trial, the FDA approved a new label, for first line treatment of chronic angina, and included information about the reduction of arrhythmias and bradycardia, the reduction of HbA1c in patients with diabetes, and much more benign safety language.
Whilst many analysts predicted a new beginning for the drug, not all were convinced. The drug generated sales of $109m last year, and analysts have predicted sales of $498m by 2014, consensus forecasts from EvaluatePharma show. However, that 2014 figure is derived from a wide range of estimates, from $304m to $879m.
Phenomenal but under resourced
Gilead appears to be siding with the bulls. On a conference call announcing the deal, management described Ranexa as a "phenomenal product with huge potential", but under resourced. Once angina patients are refractory of first line treatments, Ranexa really is the only option Gilead believes, and the group will be focusing on building a specialist product sold specifically to cardiologists.
Consensus forecasts generate an NPV of $871m for Ranexa, which together with CV’s other product, Lexiscan, gives the group a total NPV of $1.25bn. The $1.4bn bid price, which will also contain a premium, suggests that Gilead must at least share the consensus view on Ranexa. If its own forecasts are higher then the group should be happy with the price paid.
Astellas has been wooing CV since last November with a $16 per share bid, and despite emphatic rejection from the board, has steadfastly refused to offer more. CV’s share price this morning, $20.40, marginally above Gilead’s offer, suggests few are anticipating a counter bid.
Considering this takeover hinges on the valuation of Ranexa, it would appear that either Astellas does not share Gilead’s view of the drug’s value, or the Japanese group badly miscalculated its battle tactics.
Hand on heart
With this acquisition Gilead has taken a big step to diversify its portfolio, and has moved much further into the cardiology world. Currently, almost 100% of the group’s sales are derived from its anti-infectives portfolio. Its cardiovascular products comprise the pulmonary hypertension pill Letairis, phase III darunsentan and a phase I hypertension product.
Although Gilead stressed this morning that the success or otherwise of darusentan has no bearing on justifying this takeover, it could certainly take pressure off Ranexa in the years to come.
The hypertension pill is not currently seen as a particularly important growth driver for the company as a whole, sales in 2014 are estimated at $281m. However, on the conference call this morning management made it clear that as a specialist heart product darusentan could be promoted by the same sales force as Ranexa. Two products are better than one, so upcoming phase III results will now take on much greater significance. The first of two phase III trials is due to report in the second quarter of this year.
In early trade Gilead shares were trading 2% lower at $43.11; not a resounding thumbs up from the market but certainly not wholehearted disapproval. Whilst many are likely to wait and see what Gilead can do with Ranexa, positive progress with darunsentan this year would certainly help convince doubters about this move.