I note that some posters are of the view that NEU will outlicense trofinetide while others are leaning towards the view that there will be a buyout of the company. From a pharma perspective, there is a case for and against both. Here’s some food for thought.
LICENSING
Although more than 90% of pharma say that they are interested in acquiring CNS assets, statistics show that CNS is actually one of the least popular therapeutic areas for acquisition. However it is one of pharma’s most popular therapeutic areas for in-licensing. The favouring of licensing over acquisition of CNS assets is likely the result of the historically high failure rate in CNS drug development’s and pharma’s aversion to risk. Thus, CNS assets are typically in-licensed rather than acquired, with pharma mitigating risk through a milestone-based payout model. (1)
Acquisition of clinical-stage biotechs by pharma is actually quite rare. Pharma prefers acquisition of more established biotechs with at least one marketed product. There have been a few multi-billion dollar acquisitions of clinical-stage biotechs in the past couple of years but these have typically occurred post-Phase 3, either just prior to NDA submission or while awaiting FDA approval. For mid-stage assets, pharma seems to prefer licensing to acquisition. (2)
Although in-licensing can be more expensive for pharma in the long run (for example, if all development, regulatory and sales milestones are met and substantial royalties are paid on a blockbuster drug), the upfront capital requirement is much less.
BUYOUT
Although initial payments are much higher, if a drug is highly successful, pharma can bag a bargain through acquisition.
In Neuren’s case, its second asset NNZ-2591 can be seen as a competitor drug to trofinetide. Both compounds have been identified as potential treatments for autism related disorders and NNZ-2591 is known to have demonstrated superior results to trofinetide in the treatment of Fragile-x in preclinical testing. Why pay top dollar to license trofinetide and risk Neuren or another company developing NNZ-2591 in competition? Acquisition of the company would resolve this problem.
Biotechs with first-in-class or best-in-class assets in highly desired areas of therapeutic interest (as is Neuren’s case), which have the interest of multiple parties, are said to be favoured candidates for acquisition rather than licensing. (3)
With respect to acquisition pricing, data for US and EU bio/pharma M & As from 2010 to 2014 shows the average premium paid to acquire a Phase 2 asset company was 89% and 80% for a Phase 3 asset company. The highest premium I’ve found paid for a Phase 2 listed biotech in a deal worth > $500 million was a 239% premium paid by Merck in its $3.9 billion acquisition of Idenix in 2014. Merck had a special plan for Idenix’s lead asset. It wanted to take on Gilead in the hep C market by combining Idenix’s lead drug with two of its own Breakthrough therapy designated drugs in development, for a triple-drug regimen that could potentially cure most types of hepatitis C in less than two months. It was a potentially lucrative strategy as Gilead’s revenue from hep C in 2014 was $12.4 billion. (2,4)
Another possibility, and an option that pharma may possibly favour, is a structured acquisition, also known as an M & A with earn-outs. The structured acquisition is essentially a hybrid of a licensing deal and a standard acquisition and has increased in popularity in recent years. This structure permits the buyer to offer the seller a deal with much higher headline value, but it simultaneously mitigates risk for the buyer by making a substantial portion of the purchase price contingent on the success of later-stage clinical trials, regulatory approval and commercial development. Structured acquisitions can be attractive to both parties but are more complex than standard acquisitions, potentially vulnerable to later dispute over contingent payments and have more typically been used for acquisition of private rather than public companies. (5)
The following are some examples of structured acquisitions:
Cubist Pharmaceuticals acquired privately-held Calixa Therapeutics in 2009. Calixa’s lead compound, an injectable antibiotic, was in Phase 2 at time of acquisition. Cubist paid an upfront of $92.5 million, with $310 million payable upon achievement of certain development, regulatory and commercial milestones. The novel antibiotic received FDA approval in December 2014. (5)
Eli Lilly acquired privately-held Alnara Pharmaceuticals in July 2010, with $180 million paid upfront and up to $200 million contingent on milestones. Alnara’s lead product was under review by the FDA at the time of acquisition. The FDA failed to approve Alnara’s drug and Eli Lilly onsold it three years later for an undisclosed sum. (5)
French Sanofi acquired listed US company Genzyme in 2011 for $20.1 billion (a 48% premium). Contingent value rights (CVRs) were issued to Genzyme shareholders. The CVRs were able to be publicly traded. Genzyme shareholders were to receive up to $3.8 billion extra if certain sales and manufacturing targets were met and if Lemtrada, Genzyme's experimental treatment for multiple sclerosis, made it to market and achieved certain sales (Lemtrada received approval from the FDA on second review in late 2014). (5, 6)
BioMarin acquired Dutch Prosensa, a Phase 3 clinical-stage public company for $840 million (at a 55% premium) in 2014. Prosensa’s lead orphan drug asset, drisapersen, had completed a Phase 3 without demonstrating statistical significance. BioMarin paid $680 million upfront with a further $80 million contingent upon FDA approval of drisapersen by May 2016 and another $80 million contingent upon EU approval by February 2017. An NDA was quickly submitted in a race to beat a rival medicine to approval. Drisapersen is now awaiting an FDA decision but rejection by an FDA Advisory Committee suggests that approval is unlikely. (7)
Novartis acquired privately-held Australian biotech, Spinifex Pharma in June 2015, in order to obtain Spinifex’s post-Phase 2b treatment for PHN. Novartis paid US $200 million upfront, with a further US$500 million in payments contingent upon clinical and regulatory milestones being reached. (8)
Amicus Therapeutics acquired Scioderm, a privately- held US biotech in August 2015 in a deal potentially valued at up to $950 million. Amicus paid $229 million upfront, which included $125 million in cash and $104 million in shares. A further $361 million was contingent on clinical and regulatory milestones being met and another $257 million on meeting of sales milestones. Scioderm had one product, Zorblisa, a mid-Phase 3 topical therapy for the treatment of Epidermolysis Bullosa (EB), a paediatric orphan disease. Zorblisa had already received Breakthrough Therapy designation and may be eligible to receive a priority review voucher from the FDA. In this case, Amicus has agreed to also pay Scioderm shareholders the lesser of $100 million or 50% of the proceeds. (9)
Shire acquired listed biotech Dyax Corporation in November 2015, for $5.9 billion, which represented a 35% premium to Dyax’s shareprice. Shire offered a further nontradable contingent value right that is set to pay a further $646 million if Dyax’s Phase 3-ready orphan drug, DX-2930, which has already achieved breakthrough designation, is approved. Dyax already has one drug on the market. (10)
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