Smart investment? Valeant set to find out

On 3 September 2012, Valeant Pharmaceuticals, Canada’s largest publicly traded drug maker, entered into a definitive agreement to purchase Medicis Pharmaceutical at a cost of $2.6bn. The deal, which is expected to be completed in early 2013 after approval by Medicis shareholders and regulatory clearance, would involve Valeant’s acquisition of all Medicis’s outstanding common stock at $44 each, a 39.4% premium to the closing share price of $31.60 per share on 31 August.

"The Medicis deal brings Valeant’s total cost of acquisitions so far in 2012 to about $3.5bn."

The Medicis deal brings Valeant’s total cost of acquisitions so far in 2012 to about $3.5bn, as the company has already made about 15 purchases in 2012, including Natur Produkt, Probiotica Laboratórios and OralPharma in Russia, Brazil and the US respectively. Furthermore, the company has made about 50 acquisitions since 2008. GlobalData analysis suggests that acquisitions outside Canada, particularly in Europe and emerging markets such as Brazil, are aimed at increasing global presence and establishing Valeant as one of the biggest players in the dermatology market. This is unsurprising bearing in mind the recent increase in biotech and pharmaceutical companies’ interest in emerging markets such as India, Brazil, and Singapore as economies that could potentially boost revenues. In the second quarter of 2012, the EU and emerging markets made up 50.7% ($2.5bn) of Valeant’s $5bn revenue – a 460 basis point increase from 46.1% ($2.4bn) of its $5.1bn revenue in Q1 2012. Although Medicis does not currently play in any geographic market new to Valeant, its products and clinical pipeline will further strengthen Valeant’s growing arsenal in dermatology and potentially increase its revenues in subsequent years.

Pfizer acquires OTC rights for AstraZeneca’s Nexium

On 13 August 2012, Pfizer announced the agreement of a deal with AstraZeneca for exclusive global marketing rights to the over-the-counter (OTC) version of AstraZeneca’s blockbuster proton pump inhibitor (PPI) Nexium (esomeprazole). In addition to receiving an upfront payment of $250m from Pfizer, AstraZeneca will continue to market the prescription version of Nexium, and be eligible to receive milestone and royalty payments from Pfizer based on launch and sales of the OTC version. Furthermore, Pfizer will be granted first refusal on the non-prescription rights to AstraZeneca’s Rhinocort Aqua (budesonide), a nasal pump spray for treating hayfever and dust mite allergies. Both companies are also exploring the idea of a partnership to convert other AstraZeneca prescription drugs to OTC medicines. Pfizer expects to begin marketing OTC Nexium in 2014 (after obtaining FDA approval), which is also when the drug’s prescription version loses patent protection.

Nexium was the world’s fifth-best-selling medicine last year, with global revenue of nearly $8bn and is popular for being regarded in TV commercials as ‘the purple pill’ that stops heartburn for 24 hours. Despite being hurt by generic competition (revenue from Nexium fell 13% to $949m in Q2 2012), it was AstraZeneca’s second-largest seller in Q2 2012.

GlobalData believes that both companies stand to gain immensely from this deal. It would potentially help Pfizer expand its consumer health business, as it continues a restructuring process targeted at strengthening its core drug business and divesting its infant-formula and animal-health businesses. The arrangement would also help AstraZeneca continually obtain revenue from one of its top sellers despite generic competition.

Alnylam achieves RNAi milestone

Alnylam Pharmaceuticals, a Cambridge-based biotechnology firm, has received a $3.2m milestone payment from GlaxoSmithKline (GSK) as part of its ongoing collaboration to use Alnylam’s RNA interference (RNAi) technology to develop GSK’s cell-culture-based influenza vaccine. While almost all other viral vaccines (such as mumps, measles and polio) are currently produced via cell culture, influenza vaccines have been resistant to cell-culture-based manufacturing due to insufficient virus yield and quality. GSK hopes to use Alnylam’s VaxiRNA platform to overcome these challenges. The proprietary VaxiRNA technology uses RNAi to silence genes that limit or prevent the production of vaccine antigens.

The milestone payment comes during a challenging time for Alnylam. Its ambitious ‘5×15’ programme hopes to develop RNAi therapies for five diseases with a high unmet need (including haemophilia, hypercholesterolemia and refractory anaemia) by 2015. Earlier, the company announced positive phase I results concerning its therapy for transthyretin (TTR) amyloidosis, a progressive neurodegenerative disease caused by protein deposits, as well as promising preclinical results for its haemophilia treatment. These findings raised Alnylam’s stock price over 150% to $18.76 a share, but a pending lawsuit could cause shareholders to worry. Tekmira Pharmaceuticals Corporation, a Vancouver-based biotechnology company, alleges that Alnylam exploited their collaboration for commercial gain. The patent litigation, which heads to trial in October, threatens to hinder Alnylam’s ability to commercialise its 5×15 initiative. Alnylam is especially susceptible to any delay in 5×15-associated revenue since it has no marketed therapies. While Alnylam possibly struggles to transition from commercial platforms to therapies, a successful influenza vaccine methodology could alleviate investor concerns in the short term.

GSK acquires HGS in a $3bn deal

GlaxoSmithKline (GSK) acquired Human Genome Sciences (HGS) on 16 July 2012 for $14.25 a share. On an equity basis, this deal was worth about $3.6bn; however, the final deal size was approximately $3b net of cash and debt. GSK paid a premium of 99% from when it offered its initial private offering of $13/share in April. HGS was trading at $7.17/share prior to that. GSK believes they will be able to realise $200m in cost synergies from the deal.

"The acquisition of HGS gives GSK full rights to three main drugs: Benlysta (belimumab), albiglutide, and darapladib."

The acquisition of HGS gives GSK full rights to three main drugs: Benlysta (belimumab), albiglutide, and darapladib. The catalyst of the deal, of course, is Benlysta. As the first approved therapy for systemic lupus erythematosus in more than 50 years, there were high hopes for its sales. Unfortunately, as the FDA noted during the approval process, only 30% of lupus patients saw a benefit in clinical trials, and adverse events due to the depressed immune response were higher in Benlysta-treated patients. Consequently, sales have disappointed in its first year on the market. Benlysta did see a 77% increase in sales during Q2 of 2012; however, after only reaching revenues of $31.2m in the same quarter, sales remain substantially below what was originally forecast.

Big Pharma swoop on BioMarin imminent?

On 2 August 2012, BioMarin Pharmaceuticals (BMRN) announced its Q2 2012 financial results, posting a 12.1% increase in total revenue to $124m from $110.6m in the same quarter of 2011. GlobalData ascribes this growth to a significant increase in sales from two of the company’s currently marketed products, Aldurazyme and Kuvan.

"BioMarin’s financial performance will further increase the possibility of a buy-out by GSK."

GlobalData believes BioMarin’s financial performance will further increase the possibility of a buy-out by GlaxoSmithKline or Shire Pharmaceuticals, two UK companies with a strong presence in rare diseases. GSK would likely edge out Shire in a deal that could be worth up to $7bn (significantly more than BioMarin’s current $4.4bn market cap). As we approach the patent cliff and many blockbuster drugs go off patent, major pharmaceutical companies such as GSK (whose Advair, a blockbuster drug responsible for 34% of its revenue in 2011, goes off patent in 2013) have resorted to mergers and acquisitions as a quick way to recoup the associated revenue loss and strengthen their product pipeline. BioMarin has a promising product pipeline with a significant number of compounds in late-stage development to reduce its over-dependence on Naglazyme, which accounts for more than 60% of its yearly revenue. Therefore, it is unsurprising that it is being courted by a Big Pharma company such as GSK. In addition, BioMarin’s need for working capital and funds for R&D makes it susceptible to a buy-out.