On the face of it Allergan’s $639m acquisition of Vitae Pharmaceuticals marks a return to the good old days of chunky premiums being paid for biotechs with clinical assets. Taking a longer view, however, it is harder to be optimistic.
The $21 a share takeout price is 159% above Vitae’s close yesterday, but you do not even need to go back two years to see the company trading even higher. It is just as well that Vitae’s key investors were willing to accept that today’s biotech market is no longer enjoying unbridled exuberance.
In this regard, the Vitae takeout mirrors that of Raptor on Monday. Both Raptor and Vitae had suffered in the market downturn of the past 12 months, and have agreed to be bought out at a price that not so long ago would have seemed unthinkable.
Certainly, the sellside might have expected more; the combined NPV of Vitae’s two clinical-stage assets, VTP-43742 and VTP-38543, based on risk-adjusted consensus forecasts created by EvaluatePharma, outstrips the takeout price at $732m.
For Allergan the attraction is obvious. Vitae’s two clinical assets are in its dermatology sweet spot, and additionally target some novel pharmacology pathways.
VTP-43742 is the biopharma industry’s most advanced ROR-gamma inhibitor; it is in phase II for psoriasis, based on the finding that this nuclear receptor causes CD4+ T cells to produce the inflammatory cytokine IL-17, and that excessive activity of ROR-gamma has been implicated in autoimmune conditions.
Interest in this mechanism was the reason behind AstraZeneca’s $123m acquisition of the private company Orca in February 2015. Vitae’s second asset, VTP-38543, is a topical liver X-receptor beta agonist in phase II for atopic dermatitis.
Earlier this year VTP-43742 generated strong proof-of-concept data, but liver enzyme elevations in a 700mg group put a damper on the celebrations, with Vitae scrapping plans to look at even higher doses (Some life left in Vitae's psoriasis pill, March 18, 2016).
That safety signal marked the bottom of Vitae’s stock price decline, which had picked up speed a year earlier with the failure of a third project, the phase I Bace inhibitor BI 1181181, prompting the Alzheimer's disease treatment's abandonment by Vitae’s partner Boehringer Ingelheim.
In hindsight that provided a perfect buying opportunity for investors, though others who had been holding on since early 2015 will be less pleased. Vitae had floated two years ago at $8 – curiously, at a discount to the average $11.53 per share value of its pre-IPO financings.
If dermatology, and not Alzheimer's, was always the attraction then Allergan has been patient and has picked its moment well.