Nearing a US FDA decision on what could become the first pill for low testosterone, Lipocine on Friday adopted a shareholder rights plan in what looks like a clear message to the market that it is at risk of a low-ball takeover, in spite of Valeant’s neutralisation as a buyer of speciality assets.
The Utah-based group is not yet a hostile takeover target, but with a lead asset in the sex hormone space it could become one around the regulator’s decision deadline in late June – witness Valeant’s takeout of Sprout Pharmaceuticals the day after approval of Addyi. No slouch in dealmaking, Endo International is active in the “low T” space and has probably sized up Lipocine already.
Investors took the hint, with shares up 8% to $14.22 in early trading today. On Friday the stock rose 29% after the FDA set a June 28 PDUFA date and said it would not convene an advisory committee to review the application for LPCN 1021.
The rights plan – a “poison pill” defence strategy against a hostile takeover on the open market – gives investors a preferred purchase right of a single share for each one that they own. It would be triggered in the case of 15% of shares coming under ownership of a single party.
It is no surprise that Lipocine’s management sees itself as a worthy target – notwithstanding that every small biotech does – as it has managed to develop and submit a project that represents a step forward in testosterone deficiency, an admittedly shrinking space.
Should Lipocine get an FDA nod, it has the potential to take market share from Endo, AbbVie, Bayer and Allergan, although AbbVie’s Androgel was the only one of these to push blockbuster numbers of late – analysts from Landenburg Thalmann estimate 2020 sales of $640m for LPCN 1021. Endo, however, is the only one with multiple products in this space, including the implant Testopel it acquired with Auxilium Pharmaceuticals earlier this year, injectable Aveed, and transdermal gel Testim.
This makes Endo an odds-on favourite to be considering a move on Lipocine. The Pennsylvania-based speciality pharma has spent $10.8bn this year alone on acquisitions, and, as it could be in play itself with the collapse of Mylan’s attempt on Perrigo, it might need to bulk up.
But aside from the possibility of a drawn out bid triggered by Lipocine’s poison pill, a bid would also depend on any buyer’s appetite for regulatory risk.
Better a pill than a gel?
Treatments for testosterone deficiency have been beset by safety worries, first from the risk that accidental contact with topical gels can cause virilisation in children and then from concerns that the therapies can increase the risk of heart attacks. The former risk has meant that patients need to take steps to keep children and women from touching the skin where gel has been applied.
The top-selling product in this space, AbbVie’s Androgel, peaked at $1.2bn in sales in 2012, long before its patent expiry earlier this year, because of the safety issue, although the cardiovascular concerns have probably been more of a drag on revenue (“Low-T” makers escape calls for broad safety trials but the damage is done, September 18, 2014).
Nevertheless, a pill would reduce the risk of secondary exposure, and the FDA’s decision to forgo an advisory committee suggests that it is sufficiently acquainted with the safety profile to make up its own mind. This does not, of course, mean that the agency will approve it, but it removes one element of surprise from the regulatory calendar.
It was assurance enough for Lipocine to protect its low T pill with a poison pill. A defence plan will not keep buyers from calling, but it could very well keep the discussions civil.