Valeant goes hostile with bid for ISTA


Valeant Pharmaceuticals has proven itself to be a most prolific dealmaker again in 2011, easily outpacing big pharma in number and total value of M&A transactions. Its hostile offer for ophthalmic specialist ISTA Pharmaceuticals marks the eighth time this year the Canadian group has pulled out its chequebook in an attempt to expand sales, a spending spree rapidly approaching $3bn.

ISTA represents the sort of target Valeant likes: a specialty pharma with well-established brands and a well-defined geographic and therapeutic focus. The size of the offer, $314m, suggests an opportunistic strike – taking advantage of the California company’s market slide following the failure of dry-eye candidate Remura in July – when compared to the $450m estimated NPV of ISTA's marketed products. Thus Valeant may well need to up its offer slightly to secure its latest target.

Spurned offer

Valeant’s bid announced Friday follows ISTA’s spurning of a friendly offer at the same price following the failure of dry-eye candidate Remura, the latest extension of its bromfenac sodium pain-relief franchise that includes the recently launched Bromday (ISTA shedding tears on Remura failure, July 29, 2011). At $6.50 a share, it represents a 67% premium over Thursday’s closing price, although it does not appear to fully account for the value of ISTA’s already marketed products.

EvaluatePharma NPV Analyzer data suggests the value of ISTA's marketed products is around $450m, implying a higher value per share of $9.38. Thus the stock market losses following the failure of Remura, which was being tested as a dry-eye drug, appear to have been overdone, making ISTA vulnerable to an opportunistic play from a value shopper such as Valeant (Valeant must deliver on growth promises as deals continue to flow, July 18, 2011). ISTA shares were trading at $6.85 early today, suggesting that some investors think the offer price may rise.

The company launched once-daily Bromday in November 2010 and converted all prescriptions from twice-daily Xibrom earlier this year. Bromday loses market exclusivity in 2013 but in the pipeline is Prolensa, for the same post-surgical indication, which the company says has the lowest number of adverse events of any bromfenac sodium product it has tested for post-cataract pain. Market exclusivity on Prolensa, which has already reported positive phase III data, would expire in 2016, assuming an FDA approval late next year or early in 2013.

Equity analysts covering ISTA have a mixed view of the company. Auriga initiated coverage of the firm in October and set a $7 price target, in the range of Valeant’s offer; SunTrust Robinson Humphrey set a much more ambitious target of $11 and RBC at $12, more in line with ISTA’s board’s views which puts greater value on pipeline performance and resilience of its marketed products against generic competition.

Buying spree

If this bid is successful, it would be the seventh acquisition of the year for Valeant and its fifth biggest – the largest is its recently announced A$625m ($621m) purchase of privately held iNova, a specialty and OTC company with a focus in Australia, New Zealand, Southeast Asia and South Africa. Cephalon was the one major deal that got away this year, snatched by Teva in a $6.8bn deal, almost $1.1bn more than Valeant was prepared to pay (Teva strives to meet growth targets with Cephalon buy, May 3, 2011).

Should the ISTA bid succeed, Valeant will have paid out $2.84bn in the year in buyouts, a strategy that appears to be pleasing investors – shares are up nearly two-thirds in 2011, and edged up 1% to $47.16 on Friday following the news. Unlike many of its purchases this year, however, ISTA is mostly US-focused, making it a more risky bet in that it increases the company’s exposure to the uncertainties of reimbursement in the US market, analysts at Canaccord Genuity write.

Valeant shows no sign of let-up in its buying spree. The hope must be that it proves just as successful at integrating all these companies, across diverse geographic and therapeutic areas, as it is in securing them in the first place.

Big Pharma M&A Activity 2011
Deal Value ($m) Deal Count
 Johnson & Johnson  21,300  2
Valeant Pharmaceuticals  2,837 8
 Amgen  1,215  2
 Roche  615  3
 Bristol-Myers Squibb  475  1
 Novartis  470  1
 Merck & Co  430  1
 Pfizer  50  2
 GlaxoSmithKline  39  1
 Bayer  -  1
 Boehringer Ingelheim  -  1
 Eli Lilly  -  1

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