Varian goes internal with $1.6bn Sirtex deal
Very nice work by Sirtex: despite its radioactive microspheres having failed to improve survival in patients with two kinds of liver tumours Sirtex has somehow persuaded Varian Medical Systems to acquire it for A$1.6bn (US$1.3bn). The A$28-per-share all-cash deal will see Varian pay a 49% premium to yesterday’s closing price, and a forward enterprise multiple of 18.6x, for a company that last year swung to a $26.3m net loss.
True, the beads, called SIR-Spheres, are approved in all major markets, and buying the technology will enable Varian to move into interventional oncology while fitting well enough with the buyer’s other radiotherapy ranges. But SIR-Spheres languish as salvage therapy, with all Sirtex’s efforts to move them up the treatment sequence having come to naught.
Back of the queue
SIR-Spheres are resin microspheres between 20μm and 60μm in diameter, impregnated with the radioactive isotope yttrium-90. Tens of millions of the particles are released into the hepatic artery via a catheter in the femoral artery; they become lodged in the capillaries that surround liver tumours, which are – in theory – destroyed by the radiation.
The spheres are approved as a treatment for unresectable liver metastases from colorectal cancer, though studies presented at last year’s Asco meeting failed to show a survival improvement, knocking Sirtex’s shares down 28% to A$10.75 in May when the abstracts were released. And the company’s try at expanding approval into hepatocellular carcinoma ended poorly last April after no survival boost over Bayer’s Nexavar was seen in the Sarah trial (Sirtex trial miss means beads could stay as back-up, April 25, 2017).
With Bristol-Myers Squibb’s Opdivo on course to become the new standard of care if it is approved as a first-line therapy this year Sirtex’s chances of making a mark in hepatocellular carcinoma will diminish further. The company is instead prioritising reimbursement and boosting doctors’ awareness of the microbeads now it is in what Morgan Stanley analysts call its “post-clinical trial era”.
Sirtex posted a net loss for financial 2017 of A$26.3m on sales of A$234m, though in prior years it has turned a profit. It swung from a net profit of Aus$53.4m in 2016 to a loss owing to “a disappointing financial performance” and a significant decline in volume growth as measured by dose sales, the company said.
The Varian deal implies an enterprise value for Sirtex of Aus$1.5bn. With forecast 2018 Ebitda of Aus$75-85m, this means the acquisiton was contracted at an enterprise multiple of 18.6x.
Remarkably, considering its less-than-stellar clinical and financial performance Sirtex seems to have conducted a sort of auction. The company said that in late 2017 it received a number of unsolicited acquisition proposals, and as well as engaging with these parties it also put feelers out to other groups “to test potential interest in submitting alternative proposals”. After assessing its apparent multiplicity of offers it plumped for Varian’s.
Companies with anticancer bead technologies of various kinds do seem to be popular acquisition targets. In 2010 BTG spent £177m (US$283m) on Biocompatibles, maker of both drug-eluting microspheres that deliver chemotherapies to tumours and embolisation beads, which contain no drug but are designed to simply block the blood vessels feeding tumours.
BTG followed this deal with the purchase three years later of Nordion’s Targeted Therapies division for $200m, thus acquiring Therasphere (BTG’s acquisition flurry underlines medtech interest, May 23, 2013). This technology is similar to Sirtex’s, being yttrium-90-impregnated microbeads – this time made from glass rather than resin. Of all the companies that may also have been interested in Sirtex, BTG seems like one of the likelier candidates.
Having spent less than half a billion dollars on these acquisitions, BTG gained revenues from its bead technologies of US$122m in the year ended March 31 2017. With Sirtex’s sales for 2017 coming in at US$190m Varian’s decision to spend US$1.3bn looks pretty generous.