Questions about the price tag, the extent of diligence done on intellectual property (IP), and the staying power of Epidiolex (cannabidiol) as well as the potential of other prospects in the acquiree’s pipeline bubbled up during the conference call related to Jazz Pharmaceuticals plc’s whopping takeover of GW Pharmaceuticals plc.
And those questions got answered, leading satisfied onlookers such as Piper Sandler analyst David Amsellem to conclude that Dublin-based Jazz had pulled off “the transformative transaction we were hoping for.”
Dublin-based Jazz is paying $220 per American depositary share – $200 in cash and $20 in Jazz ordinary shares – to take ownership of GW, of London, in a deal valued at $7.2 billion, or $6.7 billion net of GW’s cash. The price represents a 50% premium to GW’s closing price Feb. 2.
“Though the significant pro forma leverage is not lost on us, we believe that the addition of Epidiolex is exactly the kind of differentiated, rare disease-focused asset that solves what has been a vexing issue regarding uncertainty associated with the longer-term trajectory of the oxybate franchise and related implications for sustainable value creation,” Amsellem wrote in a report.
Cleared by the boards of both companies, the deal is expected to close in the second quarter of this year, as Jazz brings aboard the breakthrough therapy Epidiolex, first approved in 2018 for seizures associated with Lennox-Gastaut syndrome (LGS) and Dravet syndrome (DS). Added to the label in 2020 was tuberous sclerosis complex. Epidiolex has reached about $510 million in annual sales within two years of launch.
Cowen analyst Ken Cacciatore was on board, too. “We believe in Jazz's ability to analyze difficult IP situations, which is key to valuing Epidiolex’s durability,” he wrote in a report. “With likely success of nabiximols (that is not factored by the Street), this deal works.”
Bruce Cozadd, chairman and CEO of Jazz, declined to talk in detail about how the agreement took shape, but said the setup “really works for both companies and creates something special. It’s more than Epidiolex,” although Jazz “couldn’t be more excited” about that product, he said, for which GW has conducted “one of the most successful launches in our industry over the last few years.”
Cozadd said some of the value of both companies has been overlooked. “I don’t think investors in Jazz have necessarily focused as much as they should have on our early development capabilities and candidates, and we feel the same is true when you look at GW,” he said. “It doesn’t have to be that we assign a tremendous amount of value to those opportunities. They are more speculative a little farther out in terms of significant cash flow.”
Jazz brings in-house GW’s scientific platform and pipeline of other cannabinoid product candidates, as well as manufacturing expertise. The lineup includes phase III-stage nabiximols, a cannabis extract that contains tetrahydrocannabinol and cannabidiol. Nabiximols is undergoing tests against spasticity associated with multiple sclerosis and spinal cord injury. Earlier-stage GW prospects include cannabinoid products for autism and schizophrenia. Robert Iannone, head of R&D, said Jazz has been “quite interested in this field for some time. The data are truly impressive. We’re really at the beginning of a lot of opportunity to investigate where these mechanisms can be important for patients.”
GW team staying for now
Justin Gover, CEO of GW, said his firm’s pipeline “has been 20 years in the making. What GW brings here is not just the excitement of Epidiolex top-line revenue, but essentially a franchise which has been truly world-leading, a platform business from which first-in-class medicines will come for many years.” Nabiximols is “to some extent, a pipeline in a product,” with “a long exclusivity period and multiple phase III data readouts even in the next 12 to 24 months.”
Jazz’s Cozadd said his company always has prioritized the pipeline as necessary and will continue the practice. “You’ve seen us walk away from some programs historically because we found better opportunities to invest in,” he said, citing the tie-up with Waltham, Mass.-based Immunogen Inc. In December of last year, the latter disclosed in an SEC filing that Jazz had exercised its opt-out rights with respect to IMGN-632, following an internal portfolio review. Immunogen retained all rights to the compound, which received FDA breakthrough therapy designation for relapsed or refractory blastic plasmacytoid dendritic cell neoplasm. Cozadd said his firm made the move “not because [Immunogen doesn’t] have promise there, but we had other, higher priorities.”
Shares of GW (NASDAQ:GWPH) closed at $211.37, up $65.12, or 45%. Jazz (NASDAQ:JAZZ) fell $6.08, selling for $151.21. SVB Leerink analyst Ami Fadia said negative reaction to Jazz came “in response to the price tag, which appears to be rich relative to consensus Street estimates on GW,” but she said in a report that the takeover makes for “an interesting strategic fit with Jazz's neuroscience focus.” Jazz adds the epilepsy space to its existing focus in sleep and oncology.
Riding the wave was Emeryville, Calif.-based Zogenix Inc., with shares (NASDAQ:ZGNX) closing at $21.55, up $1.87, or 9.5%. In June 2020, the FDA gave its go-ahead to Zogenix’s Fintepla (fenfluramine), an oral treatment for patients 2 and older with seizures associated with DS. In February 2020, the company rolled out phase III data in LGS. Mizuho analyst Difei Yang was “incrementally positive on the launch of Fintepla,” saying in a report that the compound “may have a more favorable durability profile in both DS and LGS compared to Epidiolex, and the drug has shown superior efficacy compared to Epidiolex in DS.” Fintepla promotes the release of serotonin and apparently regulates the activity of sigma-1 receptors found on the surface of nerve cells.
The matter of Fintepla surfaced during the conference call. GW’s Gover noted that patients often are taking “one, two, three antiepileptic drugs at the same time” because the condition is so challenging. He described Fintepla as “very different type of product,” high-priced and only approved in DS. “It’s positioned very differently in the market from Epidiolex. We see really little impact. Patients can benefit from multiple products in the space.”
Staffing of the corporate combo will be decided in the next few months. “The GW top management team has agreed to stay at least through integration,” Cozadd said. “Together, we’re going to figure out the best structure going forward. The 2021 goals are pretty clear for both companies.”