Raptor faces up to its new reality

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Big pharma is desperate to buy to restock its pipelines, but not all biotechs are Medivation. This is the stark reality that Raptor investors must accept after their group sold itself to Horizon Pharma today for 25% less than where it was trading just a year ago.

True, the intervening 12 months have seen the biotech market cool off, and as a rare disease player Raptor was never going to attract bids from big pharma. But it is surprising that one of the most affordable orphan players did not generate more interest, even after bulking up with a product acquisition of its own.

That acquisition brought in the antibiotic Quinsair, adding to Raptor's in-house rare disease drug Procysbi, indicated for nephropathic cystinosis. Despite boasting these two marketed rare disease drugs, however, Raptor has agreed to be bought out for just $800m.

Maxed out

Raptor’s problem was that it had probably maxed out on Procysbi, with half the available US patients treated already. In Europe some pharmacists are dispensing Cystagon, the cheap, established drug for the condition, in their own enteric coating to mimic Procysbi.

Almost exactly a year ago Procysbi failed in a small trial in paediatric fatty liver disease. Raptor's resulting share price crash looked overdone, but in hindsight it showed a market realisation that the group had got as much out of Procysbi as it was going to (Latest failure makes Raptor more affordable, September 14, 2015).

From trading at over $15 per share at the peak of the biotech boom last year Raptor fell precipitously. Horizon’s $9-per-share bid gives investors a premium to yesterday’s close of $7.45, which already represented a 43% run-up year to date.

However, longer-term Raptor holders are unlikely to be thrilled that management could not find a more generous buyer than Horizon, which is fast gaining a reputation for buying assets on the cheap; last December Horizon shelled out $510m for Crealta to get its hands on the grout drug Krystexxa, after spotting an opportunity in the product’s disastrous launch.

That said, on a call today Horizon management drew a distinction between Krystexxa’s “inadequate launch plan” and Raptor’s marketing of Procysbi, which it called fantastic. There would be no sharp change of strategy here, the group said, adding that it would continue trying to switch Cystagon patients to Procysbi.

What Horizon gets from Raptor ($m)
Forecast sales
2016 2022 NPV
Procysbi  119 322 1,026
Quinsair 1 27 56
Source: EvaluatePharma.

Horizon expects Procysbi revenue to peak at $300m – in line with sellside consensus, as computed by EvaluatePharma. Quinsair is sold in the EU and Canada, and the group said it did not expect to sell it in the US, where FDA feedback is still awaited.

As well as scoring a good price, Horizon has got itself two marketed assets that fit well with its existing orphan disease portfolio, which includes Actimmune, Buphenyl and Ravicti. The takeout will be funded mostly through debt – a common theme in today’s low interest rate environment.

Since Horizon already carries some $850m of gross debt the big question now might be how much flexibility it still has for further acquisitions.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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