M&A Heats Up Specialty Pharma Market


From DCAT Value Chain Insights (VCI)

By Patricia Van Arnum posted 11-03-2015 14:28

  

Shire's proposed $5.9 billion acquisition of Dyax, a company specializing in drug development for rare diseases, is the latest deal in the specialty pharmaceutical market. In making the announcement, Shire reiterated its interest in acquiring Baxalta, the recent biopharmaceutical spin-off of Baxter, in a proposed deal originally valued at approximately $30 billion. DCAT Value Chain Insights (VCI) examines recent mergers and acquisitions (M&A) in the specialty pharmaceutical market.

These deals follow other noteworthy M&A, such as Endo International's acquisition of Par Pharmaceuticals and Valeant Pharmaceuticals' acquisition of Salix Pharmaceuticals as well as a series of bolt-on acquisitions among specialty pharma players. So which companies have been most active and how have they improved their product and manufacturing positions?

Shire on the move
In a move to strengthen its rare-disease product portfolio, Shire has agreed to acquire Dyax Corp., a biopharmaceutical company developing plasma kallikrein (pKal) inhibitors for treating hereditary angioedema (HAE), for $37.30 in cash per Dyax share, for an aggregate upfront consideration of approximately $5.9 billion. Dyax shareholders may receive additional value through a non-tradable contingent value right (CVR) that will pay $4.00 in cash per Dyax share upon approval of Dyaz's DX-2930 in HAE, representing a potential additional $646 million in aggregate contingent consideration.

DX-2930 is a Phase III-ready, fully humanized monoclonal antibody targeting pKal and is Dyax's most advanced clinical program. DX-2930 has received fast track, breakthrough therapy, and orphan drug designations by the FDA and has also received orphan drug status in the European Union. It is expected to enter Phase II clinical trials by year-end 2015. If approved for the prevention of Type 1 and Type 2 HAE, DX-2930 could generate estimated annual global sales of up to $2.0 billion, according to estimates from Shire. Dyax also has a commercial drug, Kalbitor, which is approved for HAE acute treatment in patients 12 years of age and older and whichrepresented an early innovation in HAE treatment.

The deal would add to Shire's HAE portfolio, which includes Firazyr and Cinyrze. It also continues a series a recent acquisitions by Shire. Earlier this year, it acquired NPS Pharma for $5.2 billion and with that gained Natpara (parathyroid hormone), a new molecular entity approved in the US to control hypocalcemia (low blood calcium levels) in patients with hypoparathyroidism, a rare disease that affects approximately 60,000 people in the United States.

In 2014, Shire acquired Meritage Pharma, a privately held company, for an upfront fee of $70 million and additional contingent payments based on the achievement of development and regulatory milestones. With the acquisition, Shire acquired the global rights to—and undertaken the further development of—Meritage’s Phase III-ready compound, oral budesonide suspension (OBS), a drug for treating adolescents eosinophilic esophagitis (EoE), a rare, chronic inflammatory gastrointestinal (GI) disease. Shire obtained the rights to acquire Meritage in connection with its $4.2 billion acquisition in 2014 of ViroPharma, a company specializing in developing drugs for rare diseases. Also, earlier this year, Shire acquired Foresight Biotherapeutics Inc. for $300 million to add to its eye-care business. With the acquisition, Shire acquired the global rights to FST-100 (topical ophthalmic drops combining 0.6% povidone iodine (PVP-I) and 0.1% dexamethasone), a therapy in late-stage development for treating infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. Also in 2014, to strengthen its gastrointestinal drug pipeline, Shire acquired Lumena Pharmaceuticals, Inc., a biopharmaceutical company with rare-disease pipeline assets with a focus on liver disease. The move also provided a fit with Shire’s acquisition of Fibrotech, which brought pipeline programs to address unmet patient need in other fibrotic conditions, including renal impairment. In 2013, Shire made three key acquisitions (Lotus Tissue Repair, Premacure, and SARcode Biosciences), which also built the company's position in specialized and rare diseases

With its announced acquisition of Dyax, Shire reiterated its interest in acquiring Baxalta, the biopharmaceutical company spun off from Baxter earlier this year. In August 2015, Shire made an approximate $30 billion proposal to acquire Baxalta, a move that Baxalta has thus far rejected. Shire's move to acquire Baxalta came after AbbVie terminated a proposed acquisition of Shire for approximately $55 billion in October 2014. “I am also confident that our M&A expertise and the ongoing strength of our business will enable rapid and effective integration following the closing, as demonstrated by the success of our NPS and ViroPharma acquisitions. Even with this transaction, we will continue to have the financial firepower to pursue other value-added strategic acquisitions, including Baxalta,” said Shire Chief Executive Officer Flemming Ornskov, in a company statement.

From the Dyax acquisition, Shire anticipates that it will realize operating synergies of $50 million starting in 2017 and growing to at least $100 million in 2019. Shire, which is headquartered in Dublin, Ireland, says that the transaction constitutes a Class 2 transaction for the purposes of the UK listing rules and, as such, Shire shareholder approval is not required. The transaction has been unanimously approved by the boards of directors of both Shire and Dyax and is expected to close in the first half of 2016. The transaction is subject to approval by Dyax shareholders and customary closing conditions and regulatory approvals.

The transformational deal, however, if it comes to fruition is Shire’s proposed $30 billion acquisition of Baxalta, which Baxalta has thus far rejected. The proposed transaction would be structured as an all-stock transaction to maintain the tax-free nature of Baxalta’s July 1, 2015 spinoff from Baxter, in which Baxalta launched as a separate, independent $6 billion biopharmaceutical company. Baxalta shareholders would own approximately 37% of the combined Shire group. After the close, Shire would initiate a share buy-back program to repurchase, within two years, up to 13% of the combined post-transaction shares outstanding.

If the deal were to proceed, the combined entity is projected to deliver product sales of $20 billion in 2020 with several $1 billion franchises in rare diseases. It would have more than 30 new product launches planned with approximately $5 billion incremental sales potential by 2020. The therapeutic focus of Baxalta is in hematology, immunology, and oncology .Baxalta’s portfolio includes a variety of additional differentiated therapies for the treatment of bleeding disorders and chronic and acute medical conditions, including hemophilia A, hemophilia B, acquired hemophilia, inhibitor treatments, primary immunodeficiency (PID) and alpha-1 antitrypsin deficiency. Baxalta is also investing in new disease areas, including oncology, as well as emerging technology platforms, including gene therapy and biosimilars. Baxalta said it plans to launch 20 new products by 2020. Over the past two years, Baxalta has received seven new approvals and currently has four products under regulatory review across its three areas of focus. Overall, Baxalta has more than 40 programs in development, 13 of which are in late-stage development. Baxalta’s therapies are available in more than 100 countries and it has advanced biological manufacturing operations across 12 facilities, including recombinant production and plasma fractionation. It has 16,000 employees worldwide.

In seeking to acquire Baxalta, Shire is moving forward with a strategic focus formed in 2013, when the company repositioned itself as a specialty biopharmaceutical company with a primary focus on specialized and rare diseases. The company named a new CEO, Flemming Ornskov, on April 30, 2013. Ornsko set forth a new strategic focus for Shire, which included integrating three separate segments (Specialty Pharmaceuticals, Human Genetic Therapies, and Regenerative Medicine) into four business units based on the therapeutic area of the company’s in-line products (rare disease, neuroscience, gastrointestinal, and internal medicine) and also in ophthalmics to support the development of Shire’s ophthalmic pipeline candidate as well as created a single R&D unit with a focus on rare diseases. In November 2013, Shire announced that its preclinical pipeline would focus only on rare diseases, and it discontinued other programs that were not within that purview.

Shire's product and manufacturing positions
Shire posted 2014 revenues of $6.02 billion; product sales accounted for 97% of total revenues, or $5.83 billion. The company’s lead product is Vyvanse (lisdexamfetamine dimesylate), a drug to treat attention deficit hyperactivity disorder (ADHD), which had 2014 revenues of $1.45 billion, and which was also approved earlier this year in the US for treating binge eating. Its other top-selling products (products with sales in excess of $500 million are more) in 2014 were: Lialda/Mezavant (mesalamine) for induction and/or remission of ulcerative colitis (2014 revenues of $633.8 million); Elaprase (idursulfase) for treating Hunter Syndrome (2014 revenues of $592.8 million); Cinryze (C1 esterase inhibitor [human]) for routine prevention of hereditary angioedema, a rare genetic disorder caused by the deficiency of C1 esterase inhibitor, a protein in the blood that helps prevent swelling (2014 revenues of $503.0 million); and Replagal (agalsidase alfa) for treating Fabry disease ($500.4 million).

On the manufacturing front, Shire’s manufacturing facilities are in Cambridge and Lexington Massachusetts. The Cambridge site also includes warehouse facilities. The Lexington site also includes laboratories, warehousing, and distribution operations. The company also has a warehousing and distribution facility in Florence, Kentucky, a warehousing facility in North Reading, Massachusetts, and laboratory and office space in Sao Paulo, Brazil. Its other offices are in: Dublin, Ireland; Wayne, Pennysylvania; Basingstoke, UK; Nyon, Switzerland; and Exton, Pennsylvania (secured through its acquisition of ViroPharma). The prioritization and rationalization of Shire’s development portfolio meant that many of the R&D programs that were being run from Basingstoke, UK ceased, which resulted in R&D roles in Basingstoke being eliminated and some positions being re-located. In addition, in 2013, the company announced plans to re-locate its international commercial hub from Nyon, Switzerland to Zug, Switzerland. In October 2013, Shire also announced that it will discontinue the construction of new manufacturing facility in San Diego and also closed its site in Turnhout, Belgium.

Shire sources active pharmaceutical ingredients (APIs) from third-party suppliers for Vyvanse (lisdexamfetamine dimesylate), Intuniv (guanfacine), Adderall XR (mixed salts of a single-entity amphetamine product), Lialda (mesalamine), Forsenol (lanthanum carbonate), Pentasa (mesalamine), Xagrid (anagrelide), Cinryze (C1 esterase inhibitor [human]), and Firazy (icatibant). Shire has in-house manufacturing capability for Replagal (agalsidase alfa), Elaprase (idursulfase), and Vpriv (veglucerase alfa) at its protein-manufacturing plants in Cambridge and Lexington, Massachusetts. As of its 2014 annual filing, the company had dual sources of API for Vpriv, Vyvanse, Adderall XR, Lialda, and Pentasa and was qualifying a second source for Intuniv. The company has two locations approved for the purification of Replagel drug substance. On the finished product side, Shire sources from third-party manufacturers the following products: Vyvanse, Intuniv, Adderall XR, Lialda, Pentasa, Forsenol, Equasym (methylphenidate), Cinryze, and Xagrid. As of its 2014 annual filing, the company had dual sources for finished product manufacturing for Elaprase, Replagal, Vpriv, and Vyanese and was developing a second source for finished product manufacturing for Lialda.

Other deals in specialty pharma
Another important deal in the specialty pharmaceutical market in 2015 was Endo International’s acquisition of the specialty pharmaceutical company, Par Pharmaceutical Holdings, Inc., for $8.05 billion, including assumption of Par debt. The deal, which closed in September 2015, provides Endo with a growing generics portfolio that Endo said would put it among the top five as measured by US sales. The Par portfolio includes nearly 100 products in multiple dosage forms and delivery systems, including oral solids, oral suspensions, injectables, and high barrier-to-entry products. Endo's combined US Generics segment, which includes Par Pharmaceutical and Qualitest, will be named Par Pharmaceutical, an Endo International Company and will be led by Paul Campanelli, former chief executive officer of Par Pharmaceutical, who will also be part of Endo's executive leadership team.

Par offers a pipeline consisting of more than 200 abbreviated new drug applications (ANDAS), 115 of which were filed with the FDA as of December 31, 2014. Approximately 33% of the filed ANDAs are potential first-to-file or first-to-market opportunities, and 75% of the overall development portfolio consists of Paragraph IV and first-to-file programs. It is expected that the Par R&D pipeline could generate approximately 20 to 25 ANDA filings each year in 2015, 2016, and 2017, according to Endo. Endo reported 2014 revenues of $2.88 billion. Its US generics business is the company's largest segment, which posted revenues of $1.14 billion in 2014. US branded pharmaceuticals accounted for $969 million, devices ($497 million), and international sales ($270 million).

In a smaller acquisition, Endo also acquired a portfolio of branded and generic injectable and established products focused on pain, anti-infectives, cardiovascular and other specialty therapeutics areas from a subsidiary of Aspen Holdings, a South African company that supplies branded and generic products in more than 150 countries. The transaction is expected to expand Endo's presence in South Africa by adding a product portfolio that generated approximately $28 million of revenue during Aspen's fiscal year ended June 30, 2014, as well as a sizeable pipeline of products in various phases of development that are expected to launch over the next several years.

Another deal in the specialty pharma market in 2015 was Valeant Pharmaceuticals International's nearly $16 billion acquisition of Salix Pharmaceuticals, a deal that closed earlier this year. The deal followed Valeant's unsuccessful efforts to acquire the specialty pharmaceutical company, Allergan, in 2014, which was later acquired by Actavis. In acquiring Salix, Valeant won over a bid by rival specialty pharmaceutical company, Endo Pharmaceuticals, to acquire Salix. The move also followed Salix’s decision in 2014 to terminate a merger agreement with Cosmo Pharmaceuticals S.p.A., a specialty pharmaceutical company based in Lainate, Italy.

Salix Pharmaceuticals, headquartered in Raleigh, North Carolina, develops and markets prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases. Salix’s strategy is to in-license or acquire late-stage or marketed proprietary therapeutic products, complete any required development and regulatory submission of these products, and commercialize them through Salix’s specialty sales force. For the year ended December 31, 2014, Salix generated net product revenue of $1.133 billion. Salix’s chief product is Xifaxan (rifaximin) tablets, a gastrointestinal-specific oral antibiotic, which accounted for 36% of the company’s product sales in 2014, or $405.4 million. The next largest product area for Salix is diabetes, specifically for Glumetza/Cycloset, which accounted for 27% of its product sales in 2014, or $308 million. The next largest product area for Salix are drugs for treating IBS (Apriso/Uceris/Giazo/Colazal), which accounted for 20% of its 2014 sales, or $227 million. Zegerid, an immediate-release formulation of the proton pump inhibitor, omeprazole, accounted for 10% of Salix’s product sales in 2014, or $112.6 million.

The acquisition of Salix Pharmaceuticals by Valeant adds to Valeant’s specialty pharmaceutical portfolio. In 2014, Valeant reported revenues of was $8.3 billion, of which 75% were in developed markets and 25% in emerging markets. Its 2014 revenues were bolstered by Valeant’s $8.7-billion acquisition of Bausch + Lomb in 2013 as well as other smaller acquisitions in 2013: Obagi Medical Products, Inc. (a company specializing in topical aesthetic and therapeutic skin-health systems), Natur Produkt International (a specialty pharmaceutical company in Russia), and certain assets from Eisai Inc. (US rights for Targretin (bexarotene) capsules and Targretin(bexarotene) gel 1%, used to treat skin problems arising from cutaneous T-cell lymphoma). In addition, in January 2014, Valeant acquired Solta Medical Inc., a company that designs, develops, manufactures, and markets energy-based medical device systems for aesthetic applications and also agreed to acquire Precision Dermatology, a company specializing in dermatology and topical products. Earlier this year, Valeant acquired the worldwide rights to Dendreon's Provenge (sipuleucel-T) product and certain other assets of Dendreon for $400 million in cash for the assets, which realized combined revenues of approximately $300 million in 2014.

In another deal, Valeant Pharmaceuticals agreed to acquire Sprout Pharmaceuticals, Inc. for approximately $1 billion in cash, plus a share of future profits based upon the achievement of certain milestones. The deal, which is expected to close later this year, follows approval by the US Food and Drug Administration (FDA) of Sprout Pharmaceuticals' for Addyi (flibanserin) for treating acquired, generalized hypoactive sexual desire disorder (HSDD) in premenopausal women. Prior to Addyi’s approval, there were no FDA-approved treatments for sexual desire disorders in men or women. Sprout also has global rights for flibanserin. Valeant said it will register flibanserin internationally. Following the closing of the acquisition, Sprout will remain headquartered in Raleigh, North Carolina and become a division of Valeant. Cindy Whitehead, chief executive officer of Sprout, will join Valeant to lead this division dedicated to the introduction and global commercialization of Addyi, reporting to Anne Whitaker, executive vice president and company group chairman.

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