Takeda’s $5.2bn takeout of Ariad Pharmaceuticals dents the hypothesis that biotechs with declining valuations will be the chief M&A targets of 2017.
Ariad’s doubling in price over the course of 2016 defied sector-wide trends, which saw biopharma shares tumble in January and never recover. It helps that the target had a marketed, if toxic, oncology product and a second one queued for an approval decision within months. Still, Takeda is placing a big bet with a payout that is double that of a sellside-derived valuation of Ariad’s assets.
The consensus puts sales of the marketed drug Iclusig at $314m and the candidate brigatinib at $324m in 2022, resulting in a net present value of $1.1bn and $1.2bn respectively – combined, less than half of the price Takeda has paid. With the deal coming as an all-cash package with no contingency payments, Takeda obviously believes that it can squeeze more growth from these two agents than Ariad could.
Iclusig, of course, had at one time been forecast to reach blockbuster numbers in chronic myeloid leukaemia and Philadelphia chromosome-positive acute lymphoblastic leukaemia, but that was before the US FDA yanked it from the market after reports of vascular occlusion in at least 35% of patients.
A more restrictive label and a risk-management programme allowed Iclusig back on the market, but the outlook has become more modest.
Back in time
It is significant, however, that Takeda paid $24 a share, more than what Ariad was worth in the weeks leading up to a month of negative news on Iclusig (Ariad’s nasty surprise gives the sellside pause for thought, October 9, 2013).
The higher payout could be justified by the hope that brigatinib will be able to progress to first-line Alk-positive non-small cell lung cancer, from the second-line position in which it is now under review. This would put it head to head with Pfizer’s Xalkori, which, while a significant product, is still forecast to fail to record blockbuster numbers by 2022.
The second-line Alk-positive space is crowded, with alectinib and Zykadia already approved, so brigatinib will likely have to fight for every point of market share. It has a good chance of doing this as its data look positive next to the other two, with an objective response rate measured at up to 67% next to Alecensa’s best of 48% and Zykadia’s 55%.
In first-line disease the Alta 1L trial is expected to complete enrolment in 2018, so little can be said about its promise here until then.
Takeda’s move will do little to reverse the reputation of Japan’s big pharma groups overpaying for biotech assets. This 75% premium is the highest of the 10 biggest deals recorded by a Japanese company.
|Top 5 Japanese M&A deals of the past 10 years|
|Announcement||Acquiring company||Target||Deal type||Status||Deal value ($bn)||Premium (day before announcement)|
|Apr 2008||Takeda||Millennium Pharmaceuticals||Acquisition||Closed||8.8||53%|
|Jan 2017||Takeda||Ariad Pharmaceuticals||Acquisition||Open||5.2||75%|
|Mar 2010||Astellas Pharma||OSI Pharmaceuticals||Acquisition||Closed||4.0||55%|
|Jun 2008||Daiichi Sankyo||Ranbaxy Laboratories||Majority stake||Closed||4.0||31%|
|Source: EvaluatePharma/EP Vantage|
Then again, when Takeda paid a 53% premium to acquire Millennium Pharmaceuticals for $8.8bn in 2008 it made an even bigger bet, that Velcade would become a blockbuster and that Ninlaro would succeed in the clinic. That deal has probably come close to paying off. Takeda needs a repeat.