Maybe AstraZeneca plc's top-heavy payout of $15.2 billion for MedImmune Inc. doesn't entirely change the way biotech firms are valued, but the deal made public last week is enough to send analysts back to their drawing boards.
The overseas pharma giant - likely spurred at least in part by bids from other MedImmune suitors - agreed to pay $58 for each MedImmune share, a fat premium to the price since April 12, when MedImmune put itself on the market. Since the $37.84 close on April 11, MedImmune's stock price has risen 49 percent, and AstraZeneca's offer represents a 53 percent above that. Many had pegged the likely takeout price at around $15 less than AstraZeneca is paying.
MedImmune's top-line, first-quarter earnings, also disclosed earlier this month, estimated the earnings per share at between 62 cents and 67 cents, vs. the consensus guess of 48 cents, probably the outcome of lower expenses during the same period last year. Full results are expected May 3, but meanwhile the firm said revenues would land between $553 million and $558 million, helped by worldwide sales of Synagis (palivizumab), for respiratory syncytial virus - due to rise an estimated 9 percent to 10 percent, reaching the range of $505 million to $509 million. Analysts at CIBC World Markets boosted their full-year Synagis estimates from $1.14 billion to $1.19 billion, based on the first-quarter sales.
Well before the AstraZeneca merger became known, MedImmune was making moves to sharpen its focus in buyer-tempting ways. The firm in November sold all Cytogam rights to ZLB Behring, a subsidiary of the Australian firm CSL Ltd. for $50 million up front and another potential $70 million in milestone payments. Cytogam is an intravenous immune globulin enriched in antibodies against cytomegalovirus, used to prevent CMV infection during organ transplants.
But even with the satisfying Synagis sales - helped by a 6 percent price hike - and tightened efforts, MedImmune to many doesn't seem worth the dollars AstraZeneca intends to pay. The pipeline is still early stage, with a half dozen Phase I/II programs in cancer and inflammation. FluMist, MedImmune's nasal-spray influenza vaccine, brought in only $56 million last year.
On May 28, the firm is expected to hear from the FDA on a label expansion for CAIT-V, the refrigerator-stable form of FluMist approved in January to prevent flu in people ages 5 to 49. MedImmune wants the label to include children younger than 5. About 500,000 doses of FluMist went unsold during the past flu season, and CAIV-T might not win marketing clearance in time for the next season of disease. Ditto Numax, another antibody for RSV, for which MedImmune aims to file a biologics license application by the end of the year; analysts had targeted the first half.
Like most pharma, AstraZeneca needs a pipeline. Its "purple pill" heartburn remedy Nexium (esomeprazole) reaped more than $5 billion last year, and the schizophrenia drug Seroquel (quetiapine fumarate) pulled in $3.4 billion. MedImmune will not add to that pipeline near term, but there is precedent for buyouts of biotechs that might take time to ripen. Witness Merck & Co. Inc.'s acquisition early this year of Sirna Therapeutics Inc. at a 102 percent premium, disclosed last fall. The move gave Merck a platform technology, like the earlier purchase of Abmaxis Inc. and GlycoFi Inc., for $80 million and $400 million, respectively. From Abmaxis, Merck got monoclonal antibody capability, and from GlycoFi's glycoengineering.
The cost accepted by AstraZeneca for MedImmune - about a 21 percent premium even over the April 20 closing price, 66 times the consensus earnings per share for this year, and 11 times estimated 2007 sales - has some industry watchers revising their opinions of such firms as Cephalon Inc. and Celgene Corp.
Analyst Russell McAllister with Merriman Curhan Ford told BioWorld Financial Watch he was "a little more concerned about my 'sell' rating" on Cephalon as a result of the MedImmune news, but he has no plans to change it. Shares of Celgene, a larger firm than MedImmune with a market cap of $22 billion, took an upward ride on the AstraZeneca news, as did Gilead Sciences Inc.
Celgene earlier this month said preliminary results from a trial testing Revlimid (lenalidomide) in combination with low-dose dexamethasone (sold by Merck as Decadron) in patients with newly diagnosed multiple myeloma suggests a survival advantage, as compared to those receiving Revlimid plus the higher, standard-dose of dexamethasone. The Eastern Cooperative Oncology Group's Data Monitoring Committee reported results.
Revlimid, an analogue of thalidomide, first was approved in December 2005 for patients with transfusion-dependent anemia due to certain kinds of myelodysplastic syndromes. The drug received a second approval the following year for multiple myeloma. Celgene markets 15-mg and 25-mg capsules for MM, used in combination with the steroid dexamethasone for patients who have received at least one prior therapy. Therapy begins at the higher dose, but can be reduced.
Analyst Matthew Osborne with Lazard Capital Markets noted earlier this month that Celgene's Phase III SWOG trial (also known as S0232) with Revlimid plus dexamethasone vs. dexamethasone alone for front-line MM was suspended in the wake of the ECOG study, halted because of the survival advantage noticed in the Revlimid low-dose dexamethasone arm. Protocol most likely will be amended to substitute low-dose for standard dose, Osborne wrote in a research report.
"Enrollment in this study was slow anyway, as it was difficult to enroll patients to dexamethasone alone," Osborne noted. "Of the 500 patients expected to enroll, at this point, we expect only half have enrolled." Results from the SWOG study, at this halted point, would supplant data from the ECOG trial and would suffice for the supplemental new drug application filing, in his view. Osborne expects a submission later this year and an expanded label for front-line MM in 2008. The drug already is being used off label in that setting, which Lazard figures into its estimate of $498 million in revenues from Revlimid this year - possibly an alluring factor for product-hungry pharma.