News on trends and issues in the biopharm and pharmaceutical industry. Commentary on current events,clinical pipelines, facility expansions, competition, technology, legal and economic matters. M&A and licensing activity across the globe.
I am a Director of Research and Devopment for a leading supplier to biopharmaceutical producers. The views expressed are mine. I do not speak for any company or corporation.
"A Man of true science uses but a few hard words, and those only when none other will answer his purposes; whereas the smatterer in science thinks that by mouthing hard words he proves that he understands hard things" -- Herman Melville
Pfizer isn't in great shape given its current pipeline potential and residence in a high tax jurisdiction. Pfizer's CEO Read says that US companies are at a tremendous competitive disadvantage with the high US rates. Accordingly, he says Pfizer is on the prowl for any acquisitions that could improve their value -- AstraZeneca inbcluded. He further stated that Pfizer was financially responsible when it stopped its bid earlier this year at $117 B -- but he didn't rule out going back after AZN. Many analysts are betting that's still the case. See Fierce Pharma and Bloomberg.
Will it be Humira (reigning Champ) or Sovaldi as top selling drug in world in 2014? After Qtr2, it's shaping up to be a neck and neck race to the best selling title. In the second Qtr, Sovaldi outsold Humira $3.48 B to $3.29 B -- but at the half year mark Humira still has a slight lead at $5.93 B to $5.75 B. According to FactSet Research, their analysts predict Humira will still hold the title at year's end edging Sovalid $12.1 B to $11.8 B. Neither drug will likely reach the all-time Lipitor record of $12.9 B. See Pharmalot blog.
Ok folks. We can't get our way just holding our breath and stamping our feet to avoid paying for hepatitis C treatments. You see because we have pent up demand and lots and lots and lots and lots of people infected -- there is a HIGH initial cash outlay to treat and CURE these folks. We don't like that. We didn't plan for it in our earnings projections for 2014 or 2015. So as a leading private health care insurer, we'll just tell you that we're gonna have to raise your premiums $300 per person in the health care system AS A WHOLE for the NEXT 5 years to pay for this.
According to Bloomberg, that list would include Perrigo Co., in Ireland and Actelion Ltd, in Switzerland.Both would offer US acquirers the chance to redomicile to friendlier tax environs and cut their corporate rates by up to 1/3. It's all the rage you know having already been done by the likes of Actavis, Jazz, Alkermes, Endo Helath and yes Perrigo. Not to mention recent deals by AbbVie, Mylan, and the failed (but not quite dead yet) Pfizer grab for AZ.
For his part, Actelion CEO Clozel says he's not worried -- emphasized by today's Q2 earnings announcment that the company saw sales go up 17% YoY. Clozel makes his case that its much better for his shareholders to stay independent and continue to count their money. Of course, Shire's Ornskov said the exact same thing publicly up until the moment he agreed to sell Shire for a 49% premium. See Forbes and Fierce Pharma.
Well, yesterday Allergan beat Valeant to the punch so to speak when it announced that it would be cutting 1500 (primarily) R&D discovery jobs and not filling 250 open positions in a cost cutting move aimed at boosting shareholder value = code for keeping out of Valeant's takeover clutches. Analysts hailed the move as great for Allergan shareholder value regardless of their motives.
Valeant cried foul sounding like an orchestra of scorched cats. With Bill "Activist Investor" Ackman taking to the airwaves to decry the move as 'Valeant-lite' and presumably less filling. Ackman also said he was 'scared to death' that Allergan's CEO Pyott would make good on his threat to buy someone for cash to avoid any need for board approval -- and thus make itself less attractive to Valeant. Valeant's CEO Pearson said a "non-value creating deal" could push his company's offer lower or cause them to walk. Ah, Michael -- that would be the intent don't you see.
I'm pretty sure that Pyott doesn't want Pearson to buy. See Fierce Pharma.
Unless you were in a cave with some Japanese soldiers, you know that AbbVie and shire completed their deal in principal on Friday past. Thus the companies will combine with AbbVie paying out about $55B amd Shire shareholders will now own about 25% of the new combined entity. AbbVie will also partake in a share buy back program to boost things further, presumably paid for in part by its reduced tax rate to 13% and the $1.3 B in savings that should provide -- presuming Congress doesn't move to stop it before then. Ok, you can stop laughing now about any Congressional accord leading to an actual Bill. See Bloomberg and Fierce Pharma.
Today, Shire also announced spectacular Quarterly results. These included a 32% jump in operating income with a 20% jump in revenue. Sales increases were driven by Shire's drugs, Vyanase (20%), Intuniv (11%), Replagel (14%), Vpriv (9%), Elaprase (2%), and Lialda/Mezavant (4%). Cinryze for HAE, acquired through its purchase of ViroPharma, rose a hearty 37%, and Shire's own HAE drug Firazyr rocketed up 80%.
Shire's CEO Ornskov acknowledged he received a $9.9 M Golden Hello from the deal. He will lead the merger and head the Rare disease division within AbbVie. It was also hinted that he will likely be added to the running for next AbbVie CEO when Gonzalez calls it quits. The rest of Shire senior management and board members that stay on (approx. 30) also will receive $22.9 M in bonuses. Not a bad day's work. See PharmaTimes and in-Pharma Technologist.
Allergan today announced it would be cutting 1500 from its workforce and also 250 vacant positions as it continues to raise the stakes in its battle to resist takover by Valeant and its own Bill "Activist Investor" Ackman. The cuts will be largely born by the discovery units in allergan R&D. Of course, if Valeant bought Allergan then it most certainly would cut the discovery units in R&D, and probably also heavily in the clinical units of R&D. Such is the Valeant Way.
So in this case, one could quote/paraphrase Mr. Spock and Captain Kirk by saying, "The needs of the many (whole of Allergan) outweigh the needs of the few (poor Schmucks losing their jobs). But one might also consider, The needs of the few (Allergan management and board) outweigh the needs of the many (poor Schmucks losing their jobs). See Fierce Biotech, First Word Pharma and The Motley Fool.
Tuesday, Fed Chairman Janet Yellen remakred that biotech stocks were oversold. Almost instantly (and predictably), Nasdaq iShares Biotechnology Index plunged 4%. I wouldn't mind except I own a lot of biotech and pharma stocks.
But co-founder of Arch Ventures, Robert Nelson, does mind and reminds investors to never never pull on Superman's cape, spit into the wind, or listen to professors about the stock market. Fed's Yellen is a biotech buzzkill. Investors should recognize that and act accordingly. See Herper in Forbes.
Yesterday there was a report in Fierce Pharma regarding India placing price caps on a large number (>100) of big selling diabetes and heart drugs. These caps have hurt Sanofi's local sub already as it is a big player in these therapeutic areas. Their stock has already dropped 10% on the Bombay Exchange. But worse yet, Sanofi -- according to analysts -- could see revenue drops up to 9.5% and drops in profits by as much as 30%.
According to Fierce, India expanded price controls from 74 to 652 drugs last summer and their sales fell by almost 8% as a result (though volumes may be up). When Pharma tried to make up the price difference by cutting the margins it offered to its distribution network, they rebeled by cutting orders.
This is yet another indication that the rules will change for pharma in many emerging economies. These same markets are perhaps NOT the saving grace they were envisioned to be when Big Pharma eyed them as fertile marketing zones with a burgeoning middle class ready to be treated.
We also see this morning that Sanofi apparently approached Abbott and Mylan about buying some of its older portfolio products in EU. In fact, they even talked to some private equity groups to spin these off. These products are no longer growing fast and are considered a distraction. Selling would give Sanofi some cash and they could focus their attention on more growth areas in their business.
The products would yield rought $3 B in revenues for whomever bought them and for Mylan in particular would bolster its portfolio and EU presence even further on top of the Abbott deal it did yesterday. Selling mature products is becoming the rage for Big Pharma as they try to cut costs, intensify focus, and move to higher growth areas. A similar deal of old for old occurred earlier this year between GSK and Novartis as each company dumped perceived weakness to build the others strength. It's all the rage and we should see more. So get that garage sale money ready. See Fierce Pharma and Bloomberg.
News today is that US Treasury Secretary Jacob Lew has asked the Congress to cut off tax inversion deals with new legislation -- AND -- to make that retroactive to May 2014. This news apparently scared some AbbVie and Shire investors enough to drive their shres down slightly after AbbVie effectively announced they would be acquiring Shire to achieve such a tax reduction end.
Is there a hope in hell that Democrats and Republicans would agree on any topic in 2014? No chance. This effort will fall flat and no such bill should be considered a matter of concern prior to next year. Even then, it will not be retroactive to cover these deals. So Mylan and Abbott should be safe as well. See Bloomberg and First Word Pharma.
Mylan CEO Heather Bresch had openly worried about it being the last US based generics company who did not have a foreign domicile for tax purposes. She needn't worry anymore. Mylan snapped up Abbott's generic drug business outside the US -- mainly in Europe -- in a $5.3 B stock deal. Abbott will retain 21% ownership in the new company that will be domiciled in The Netherlands for tax purposes.
Analysts again hailed this as a good deal for both parties. Abbott is freed from low growing generics and can concentrate its investment elsewhere. Mylan pickes up about $2 B in product sales, cuts its tax rate ultimately to the teens, and also picks up commercial infrastructure to better exploit opportunities in Europe to complement its US operations, and expanding work in developing countries like India.
The deal will boost Mylan sales from $7 B to $9 B and add about $0.25 per share in 2014. With the stock swap, Mylan will also conserve its cash for its current buy back program to further bolster its price per share. This type of merger and tax inversion deal is now termed a "spinversion'. Cute perhaps, but effective.
Yesterday's reports all seem to affirm that Abbvie will acquire shire for approximately $53.7 B which represents nearly a 42% premium over Shire's share price before AbbVie's interest became public. The cash and stock deal will leave Shire's current shareholders with about a 25% ownership in the combined company. Analysts hail it as a good deal for both.
Shire shareholders will be enriched. AbbVie will pick up a more diversified portfolio of orphan and rare disease drugs to make it less dependent on its mega-blockbuster Humira. AbbVie can also achieve its tax inversion goal and reduce its rates from 22% to about 13% and save $1.3 B in the process. Not a bad day's work. The deal is down to finalizing the non-financial details and likely will conclude swiftly now.
We learned another lesson in UK takeover law yesterday when AbbVie was forced to retract any statements about key shareholders backing its current bid to acquire Shire. Why? Apparently, you can't just say this stuff in the UK unless you have it in writing from the aforementioned shareholders. Oops! Who knew? Apparently not AbbVie CEO Richard Gonzalez or his advisors.
Analysts used the news (in my view) to trumpet that AbbVie needs to raise its price further to about 55 pounds per share or $55.4 B total to REALLY interest the shareholders and get the deal done. We'll see shant we, we'll see. See First Word Pharma and Bloomberg.
Press leaks from those ubiquitous "unnamed sources" indicate that Allergan is ready to announce budget cuts at its next earnings release, along with chops to the most "unpromising" portions of the R&D program, and also a plan whereby Senior management compensation will be more tightly tied to hitting some of those financial goals it laid out in response to Valeant unwanted takeover bid. Hmmm! One might ask oneself, why isn't this the norm for Allergan (or anyone else)? Why does it take a takeover threat -- especially one from such a ruthless cutter of R&D -- to spur management to do things it probably should do anyway?
No doubt these changes might well be positive ones for Allergan;s operation and for its shareholders. No doubt, these changes still would be much less severe than what Valeant might impose if it gains control. But why so late in the game? Somebody has to be asking that question right? See Fierce Biotech and Bloomberg.
Bill "Activist Investor" Ackman announced his six new candidates to vie for position on the Allergan board. This is moving. Now, Ackman and Valeant CEO M. Pearson need only garner 25% of existing Allergan shareholder's votes to call a special meeting. At that time, they can offer their Band of 6 versus the current Allergan Board. If all goes to their plan, the pair will have a friendly board to accept the $53 B buyout offer that Valeant has on the table for Allergan.
Pearson says they are almost there with their 25%. He says, somewhat arrogantly, "Both sides know how this will come out" if he gets to the special election. It shouldn't be too much longer here either. See Fierce Pharma.
Decision Resources has a new report that says cancer mAbs and immunotherapies will grow rapidly from its revenues of $1.1 B in 2012 to reach $9 B in 2022. Growth will be heavily fueled by anti-CTLA-4 and the newer anti-PD-1/PD-L1 immune checkpoint inhibitors. Companies that will really benefit from this include BMS, Roche, AZ and Merck who are expected to garner up to 85% of this share. Combination therapies with these drugs and chemotherapeutic agents will also add to the impact. See PharmaTimes.
AbbVie today upped its bid for Shire from $46 B to $51.5 B. The offer included $38.41 per share in cash, and 0.8568 shares of AbbVie for each Shire share. Many analysts had predicted that AbbVie could get this deal done if they breached the $51 B mark. Now others are saying it will take $55 B. AbbVie for its part has spoken to the top 20 or so shareholders of Shire stock and likely has a better read. AbbVie has also indicated a willingness to go hostile if required. We'll see. I doubt Shire will get away at this point. AbbVie appears powerfully motivated to do its tax inversion with this deal, and its CEO Gonzalez says it can lower its tax rate to around 13%. Plus its offer represents a 75% premium over Shire's shareprice at the time AbbVie's interest became public. It's just a matter for the bean counters and lawyers now. See Fierce Biotech, First Word Pharma, and Bloomberg.
Genentech plunked down $725 M upfront (an unusually large amount for them) to buy Seragon and its lead drug for breast cancer. They are touting the new technology as potentially "redefining the standard of care for hormone positive breast cancer".
The new approach is called SERD -- selective estrogen receptor degraders. Current therapies try to block the estrogen receptor in receptor positive breast cancer patients but eventually the patient becomes resistant, and in some cases the treatment may then speed the disease. SERDs work by actually degrading the receptors and thereby block their signalling abilities. The Seragon lead SERD is called ARN-810. The fact that Genentech is willing to pay so much upfront tends to confer it legitimacy, especially in the very hot oncology arena. See Xconomy, Fierce Biotech, and Bloomberg.
Ok. We've been debating for a while now whether to use the International Proprietary Name (INN) or a distinct new name for biosimilars. Not surprisngly, the innovator companies (pharma and biotechs) want to see a new name distinct from that of the originator drug. The biosimilar producers want the INN. This appears to be about either erecting a further hurdle to substitution by requiring a unique name or making that process easier which is predicted to speed adoption of biosimilars in the US.
Now we have a coalition of 32 major pharmacies (Walgreens, National Assn of Chain Drugs groups), health insurers (CVS Caremark and Express Scripts), unions (AFL-CIO and AFSCME), pension plans (CaLPERS) and the American Health Insurance Plans trade association asking FDA to use the INN. Their clear objective in askng is to speed adoption and save costs to the whole healthcare system. So that's the latest salvo in this burgeoning battle. See Pharmalot in WSJ.
Let's just wrap up this week with summaries on where we stand with various M&A activities -- with focus mainly on AbbVie and Shire, and Valeant and Allergan.
AbbVie CEO Richard Gonzalez is making the rounds talking about the strategic value a succesful Shire acquisition would bring to AbbVie and its shareholders. Mainly, he's focusing on how Shire's portfolio will help fill out that of AbbVie -- which is very dependent on Humira (57-60% of sales) -- with high value rare disease and orphan drugs. The influx of sales coupled with a gain of Ireland's more favorable tax status will allow AbbVie to invest more in R&D and will also throw off cash that could be sent directly to shareholders in dividends. Unlike Pfizer-AZ, there will be no need to consider staff cutbacks. AbbVie is keeping it all upbeat and seems to be trying to avoid any pitfalls of the failed Pfizer-AZ bid (replete with missteps re tax inversions, R&D cutbacks, budget cuts, etc). Most importantly tactically, Gonzo has refrained from ruling out a hostile bid should it come to that and is already polling major investors. See Fierce Biotech, PharmaTimes and Bloomberg.
Shire's CEO, Flemming Ornskov, is also takng to the road to hype the value of letting Shire remain independent and charting its own path to prosperity. He notes the company has grown from $19 B market cap when he was hired to its nw $44 B cap. He has consistently characterized the AbbVie bid as undervalued and used that as the basis of 3 prior rejections up till now. Further, he has all but promised Shire's shareholders that the company will rocket to $10 B in sales by 2020 without any takeovers -- just based on growth of exisiting drugs (up to $7 B) and its current pipeline (another $3 B). Analysts watching from the sidelines indicate that AbbVie could get this doen by raising their offer about 10% from $46.5 B to $51 B or so. See Fierce Biotech.
Next on the hit parade is Valeant and Allergan saga. It seems that CEO Pearson has been able to line up a few more biggie's amongst Allergan shareholders and now can count on Paulson & Co (and its 6 million shares) to back its play to acquire Allergan by calling for the special shareholders meeting. This will allow it to (hopefully for Valeant view) replace Allergan board members with friendly conspirators. In addition to Paulson, T. Rowe Price (9th biggest) is also said to be backing Valeant's play. If Valeant can get to the special meeting, they should prevail in their hostile takeover. See Fierce Pharma.
But not too fast, maybe. It seems US Senate is getting into the act peripherally. Seven US Senatorsare asking to federal regulators to look into potential impact of Valeant's hostile takeover of Allergan. The've asked FTC and DOJ to look into anti-competitive effects of proposed deal. They have also expressed worry of negative effects on drug pricing. Since we're talking about Congress, this is largely NOISE I presume but could have small chance of throwing wrench in Valeant's works. I would not hold my breath though. See Bloomberg.
Finally, a short piece from Herper's column in Forbes regarding Eli Lilly's insulation from takeover threat. The gist is that despite Lilly's lagging size and tough sledding in past few years, it is still largely protected from any takeover attempts due to an Indiana State Law that would make any hostile takeover complicated and expensive for an acquirer. Basically, it allows a State to block such takeovers of its large companies to prevent job and tax losses. Since its passage in 1986, no hostile takeover has occurred in Indiana -- and the Supreme Court upheld the law in 1987. Case closed for now. See Forbes.
A couple different stories from the Fierce publications today. The first (based on EY's report) indicated that overall R&D spend for biotechs in 2013 was up by 14% to $29.1 B (unfortunately sales only up 10%). Remarkably the spend was up 20% in the US biotechs. Of course, funding was up too. Biotechs in North America and Europe raised $31.6 B -- a 10% jump -- as the IPO and VC markets recovered for them. This was the best haul since 2003. Unfortunately, for the moment, the drug failure rate in the VERY expensive phase III remains at more than 40%.
A second article gives Evaluate Pharma's prediction that BIG Pharma will lose market share through 2020 even as the overall market grows 5%. They predict however that companies like Eli Lilly and AbbVie will actually fall out of the top 10 companies by sales. They will be replaced by Gilead and Novo Nordisk. Further the number of Big Pharma players with as much as 5% total share will fall from today's 5 to only 2. The real movers/winners? EP predicts only 4 companies will achieve greater than 8% CAGR during that span and they are - BMS (8%), Biogen Idec (13%), Gilead (12%) and Novo (8%). Biogen is expected to add a whopping $8.4 B to its current $5.0 B and Gilead will add $12.9 B to its current $23.7 B.
Other big guys will have pedestrian performance in comparison -- Pfizer ($2.8 B), AZ ($2.5 B) and Merck ($2.1 B). The AZ number here sure doesn't track with management's projection in fighting off the Pfizer bid. Even Pfizer plus AZ here is only an $5.3 B increase for the combined company. Not too exciting if you believe this forecast.
I don't know if the biotech's listed here with high sales growth correlate to the Big R&D spenders or not but it is worth a look. See Fierce Biotech and Pharma.
The short answer. We don't know. But rumors hold that AbbVie is preparing a fourth -- again sweetened -- offer to acquire the Ireland-based maker of rare and orphan disease drugs. What we do know as follows:
AbbVie made its original offer at $67.34 per share which rose to $78.87 per share in cash & stock ($46.5 B total) and they were rejected as undervalued
AbbVie would like to cut its taxes in Shire's Ireland domicile -- another tax inversion deal
AbbVie would like to acquire Shire's rare disease portfolio (about $5 B in sales) to diversify itself away from being mostly a Humira company (57% total revenue)
Shire says the offer doesn't give its sharholders fair value for the future
Shire says it will raise its sales from about $5 B to more than $10 B by 2020 without any acquisitions to supplement revenue
Allergan, Amgen, Biogen Idec, Bristol Myers Squibb, Merck and Pfizer have all been listed by analysts as companies who might also be interested in buying Shire
So, AbbVie better get busy if it hopes to get its fourth offer in before the calvary charge starts! Under British takeover law, they have until July 18th to make another offer.
When we last left Shire, is was busily preparing itself to fend off unwanted advances from Allergan in the latter's bid to fend off unwanted advances from Valeant. Today we hear that Abbvie has joined the chase for Valeant? No. Allergan? No. Shire? Yes!!!
Apparently Shire has also turned down not 1, not 2 but 3 separate bids from Abbvie -- the last being worth about $46.5 B in cash and exchanged AbbVie shares. In a now familiar refrain, Shire's board said that AbbVie's bids significantly undervalued the company -- even at a 23% premium over yesterday's close. Shire stock price has doubled this past year, and they are now predicting that their sales will double this year -- so they may be right. They says that Shire will offer its shareholders much better value as an independent company.
Analysts have chimed in that AbbVie while perhaps benefitting from additional Shire products to lessen its own dependence on Humira -- which accounts for 57% of the company's sales -- still has little in common with Shire as a whole. They see it as a deal largely benefitting from cost cutting and is another tax inversion strategy. In this case, AbbVie could locate itself to Ireland and its lower tax rates. So we have yet another US company chasing the tax rate gain.
AbbVie may come back with another bid directly to Shire shareholders, but its interest may also spawn other competition amongs other Big Pharma players. Other potential bidders mentioned include Pfizer (who else!), BMS, Merck and AZ plus yesterday's news -- Allergan. Shire is likely to stay busy fending off suitors and may itself be motivated to chase new assets of its own.