Investing in Health Can Be a Gamble - Hold 'Em, Fold 'Em, Walk and Run Away
Biogen (BIIB) finally got an M&A deal over the goal line with last Friday's news of the Reata Pharmaceuticals (RETA) acquisition for $172.50 per share in cash.
The $7.3 billion deal represented a 59% premium to the prior day's closing price and is expected to be accretive in 2025. BIIB is in dire need of near term growth as they announced an 11% workforce reduction on the 2Q earnings call and a $20 million loss from their high profile profit share agreement with Alzheimer's drug Leqembi. RETA's Skyclarys is the first and only drug approved for the rare neurological disorder Friedreich’s Ataxia (FA). The deal appears fully valued at >5x 2030 RETA consensus revenue estimates, but recent launches of similar first / best in class orphan products suggest uptake will be rapid. RETA estimates there are ~5,000 FA patients in the US and the list price of Skyclarys is ~$370,000.
Generally commercial stage M&A news would help rally other companies in the group, but Apellis Pharmaceuticals (APLS) continues to fall on the retinal vasculitis cases observed a couple of weeks back. APLS shares have now shed $7 billion of market cap, eclipsing the $5.9 billion total acquisition price.
Astellas Pharma (4305 JP) paid for competitor Iveric (ISEE) earlier this year. Urogen Pharma (URGN) injected some thermal energy into binary event investing in the sector with a ~150% rally following bladder cancer data that came in well ahead of expectations. Analysts and KOLs described the data as "practice changing" with updated street revenue estimates now eclipsing $1 billion.
Unfortunately, Mersana Therapeutics' (MRSN) UPLIFT trial in Platinum-Resistant Ovarian Cancer patients failed to meet the primary endpoint and sent shares down >70%. MRSN will discontinue the program and is trading at a negative enterprise value (EV), down >$1 billion in market capitalization from mid-June.
A couple of SMID cap launches continue to impress with both Argenx's (ARGX) Vyvgart and Kiniska Pharma's (KNSA) Arcalyst significantly beating 2Q consensus estimates. Vyvgart is on track to break $1 billion in 2023 revenue while Arcalyst is tracking towards >$230 million.
Creative destruction continued with Homology Medicines (FIXX) announcing an 87% workforce reduction and plan to seek strategic alternatives. Shares rallied on the news as they had been plumbing the depths of deeply negative EV territory. FIXX was a 2018 IPO that traded above $1 billion market capitalization before all the equity value was wiped out.
Just as in the legend of the gambler, you've got to know when to hold 'em, know when to fold 'em know when to walk away and know when to run.