Week of February 27, 2017 | Vol. 6, Issue 7
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Merck swallows $2.9B write-down of experimental hep C drug as market plummets
The situation is so bad that less than three years after shelling out $3.9 billion to buy Idenix and its hepatitis C drugs, Merck is taking a $2.9 billion charge on one of the acquired compounds still in clinical trials, uprifosbuvir (MK-3682)
Merck took the write-down after estimating the potential market value of the drug to be just $240 million, it
revealed Thursday in an SEC filing. "The Company determined that recent changes to the product profile, as well as changes to its expectations for pricing and the market opportunity, taken together constituted a triggering event," Merck said in the filing. The charge, which will amount to $1.9 billion after tax considerations, slashed its
previously reported fourth-quarter earnings per share from 42 cents to a loss of 22 cents.
There is little doubt the problem is more related to the hepatitis C market than it is to uprifosbuvir. The population of treatable patients has beem diminishing rapidly since the market leader, Gilead, turned what was once a chronic disease into a curable one with its drugs Sovaldi and Harvoni, which together brought in about $20 billion in sales in 2015. Add in payers demanding deep discounts and it's clear any future entrant to the hep C market will face challenges.
Merck won a major patent battle against Gilead in December 2016 when a federal jury ordered Gilead to pay 10% royalties-$2.54 billion, the largest patent-infringement verdict ever-on Sovaldi and Harvoni to Merck. That is likely to be locked in appeals indefinitely, however, and will not do much to solve bigger problems, namely the contracting market.
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Carl Icahn Takes Stake in Bristol-Myers Squibb
Activist investor's move, on the same day as board shake-up, adds pressure to the drugmaker
The same day
Bristol-Myers Squibb
Co. shook up its board to satisfy one activist investor, the drugmaker was faced with another: Carl Icahn, whose interest is fueling speculation the company could soon be put on the auction block.
The appearance of Mr. Icahn, an investor with a history of pushing for deals among pharmaceutical companies, surprised Bristol-Myers executives, who had just avoided a potential fight with activist hedge fund Jana Partners LLC and are still reeling from a costly stumble in the company's effort to develop the next big cancer treatment.
It isn't clear how big a stake Mr. Icahn has bought, but the investor sees a valuable drug portfolio that could attract a takeover, according to people familiar with the matter. Still, the shares rose 0.4%, reversing earlier declines, after the purchase was reported by The Wall Street Journal. The report came just hours after Bristol-Myers announced it would
add three directors to its board and repurchase $2 billion in stock
, moves it negotiated with Jana Partners. Should Mr. Icahn help spur a sale of the company, the purchase would reshape the landscape among a group of companies racing to develop new science for attacking cancer, a market that could be worth billions. It's far from guaranteed there will be any sale of Bristol-Myers; the potential obstacles are formidable. For one thing, it isn't clear whether Bristol-Myers is a willing seller, and there's only a small handful of companies that could afford a price tag likely to exceed $100 billion. Bristol-Myers currently has a market value of more than $90 billion.
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Below are summaries and charts with the past week's transactions from the different healthcare sectors. For a detailed table showing data for each industry transaction click on any of the charts or use the download link above. Total transaction values are provided in USD millions.
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Pharma & Biotech
5 transactions totaling $103
million
Supplies, Equipment & Services
13 transactions totaling $1,077 million
Healthcare IT & Managed Care
3 transactions totaling $- million
Healthcare Facilities & Distributors
21 transactions totaling $491 million
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Pharma & Biotech
12 private placements totaling $151 million
Supplies, Equipment & Services
12 private placements totaling $57 million
Healthcare IT & Managed Care
5 private placements totaling $31 million
Healthcare Facilities & Distributors
0 private placements totaling $- million
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Pharma & Biotech
5 public offerings totaling $1,695 million
Supplies, Equipment & Services
5 public offerings totaling $3,191 million
Healthcare IT & Managed Care
2 public offerings totaling $- million
Healthcare Facilities & Distributors
1 public offering totaling $12 million
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 Each week, w
e provide updated trading
comps for leading comp
anies from numerous healthcare subsectors.
To the right you will see a high-level breakdown of median revenue and EBITDA multiples for each of the specific subsectors
For a complete trading comp analysis (including the individual equities that comprise the subsectors), click on the table to the right or use the download link from the top of this newsletter.
Note: data reflects prior week close.
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RECENT INDUSTRY HEADLINES
A Sampling of Relevant Industry Headlines from the Last Week
Below are snippets from relevant industry news articles from the past week presented in chronological order. For additional information or the article's complete text, click the headline link to view the original publication.
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February 21, 2017 -
Wall Street Journal
The Trump administration and House Republicans on Tuesday asked a court for a further delay in a lawsuit over certain Affordable Care Act subsidies, a move that may help assuage insurers debating whether to participate in the health law's 2018 exchanges.
In May, a federal district court
judge ruled that the government was improperly reimbursing insurers
to help them cover discounts they were required to give some low-income consumers, potentially a major blow to the insurers.
House Republicans had brought the legal challenge against the Obama administration in 2014, saying Congress had never authorized the reimbursements.
On Tuesday, the Justice Department and House GOP leadership filed a joint motion to delay action on the lawsuit, now titled House of Representatives v. Tom Price, the
new secretary of health and human services
. The request asked for an indefinite delay with updates every three months, beginning in May, to allow time for a resolution that could include legislative action.
Novartis' Zykadia gets a front-line boost in lung cancer race against Roche
February 24, 2017 -
Fierce Pharma
Novartis isn't letting its crosstown rival get all the regulatory attention when it comes to ALK+ metastatic non-small cell lung cancer.
On Thursday, it moved toward evening the score with nemesis Roche,
winning
an FDA priority review for cancer-fighter Zykadia as a first-line treatment for patients with the disease. It also picked up the agency's breakthrough designation for first-line treatment of ALK+ NSCLC patients with brain metastases.
It's a step in the right direction for Zykadia, which is currently approved for patients who have already failed on Pfizer's Xalkori. Last September, the Novartis med
showed
it could top standard chemo at improving progression-free survival in the front-line setting, hitting secondary endpoints in objective response rate and duration of response, too.
Still, though, it's trailing behind Roche competitor Alecensa, both in the regulatory race and in the sales department. Alecensa picked up a first-line
breakthrough
tag from the FDA last October, and through the first half of last year, it generated $74 million compared with Zykadia's $48 million.
February 24, 2017 - Fierce Pharma
Thursday in New York, former Valeant senior director Gary Tanner and former CEO of now-dead specialty pharmacy Philidor, Andrew Davenport, pleaded not guilty to charges from federal prosecutors, Reuters
reported. The pair was indicted on four counts, including conspiracy to commit wire fraud and conspiracy to commit money laundering.
The U.S. Attorney for the Southern District of New York, Preet Bharara, announced
charges
against the pair last November. According to the FBI special agent handling the investigation, Tanner received $10 million in kickbacks issued by Davenport that were "laundered through a series of shell companies and transactions designed to conceal the illicit payments," DOJ documents said.
The Valeant-Philidor relationship first raised eyebrows in late 2015, when short-seller company, Citron Research, leveled channel-stuffing allegations against the Canadian drugmaker. After Valeant revealed that it had secretly purchased an option to acquire Philidor, an internal investigation turned up $58 million worth of accounting missteps on the part of the Quebec-based company and it severed ties with Philidor-which shut its doors for good.
February 22, 2017 -
Fierce Pharma
While many around the world waited anxiously in November for the U.S. presidential election, so too did pharma execs. In fact, drugmakers essentially pressed pause on dealmaking as 2016 came to a close.
M&A took a dive in the fourth quarter of 2016, a period when biopharma announced just 36 deals for a total value of $5.4 billion, according to a new
report
from life science commercial intelligence firm Evaluate. That compares with 49 deals worth $26.7 billion for the third quarter and 65 deals worth $29.5 billion during the final quarter of 2015. Last year's biggest deal was announced early on, when Shire said in January it'd pick up Baxalta for $32 billion. Following that was Pfizer's $14 billion buyout of Medivation, an acquisition struck after several months of behind-the-scenes activity between Medivation and several would-be buyers.
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As an international, healthcare-focused merchant bank and financial advisory firm, we provide world-class services and capital to middle-market healthcare companies around the globe. We aim to keep our clients well-informed of healthcare news and events. With this additional insight in mind, together, we can recognize trends and opportunities that benefit our clients. We hope that you will reach out to Bourne Partners to help execute your healthcare operational and transactional needs. To learn more about our firm, visit our website or utilize the links below to engage with us on social media.
Sincerely,
The Bourne Partners Team
Bourne Partners
550 South Caldwell Street
Suite 900
Charlotte, NC 28202
704-552-8407
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