Top five oncology takeover targets for 2010 - analysis

This article is provided to FT.com readers by Pharmawire—a news service focused on providing insight into the most price sensitive issues in the global pharmaceutical market. www.pharmawire.com
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As oncology assets continue to be snatched up, several deal-making sources interviewed by Pharmawire have formulated a list of the top five M&A targets.

Seattle Genetics (NASDAQ:SGEN)

This highly touted company will see several data events this year, and with positive news, its chances to remain independent will likely erode. The two larger catalysts expected include the results from a Phase IIb lintuzumab (SGN-33) trial in elderly acute myeloid leukemia patients, anticipated in 2Q/3Q10. The second event is data on brentuximab vedotin (SGN-35), Seattle’s pivotal trial in relapsed/refractory Hodgkin’s lymphoma, which is projected for the second half of the year.

Seattle Genetics is developing brentuximab vedotin in collaboration with Millennium/Takeda (TYO:45020), which has rights to commercialize the drug ex-US.

However, a first source said even if lintuzumab has less than ideal data, suitors would remain interested in the asset. It would be the results of SGN-35 that could make Seattle more “vulnerable” to a deal, the source said. Even though Seattle is not entirely unencumbered due to its Takeda relationship – a sign that usually complicates any acquisition – the source downplayed this collaboration.

A second source said that Seattle has been firmly on the radar screens for some time, especially as there has not been any negative data thus far. He did caution that most oncology targets have a high EBITDA, which has kept many acquisitions on the sidelines. Still, he acknowledged that Eli Lilly (NYSE:LLY), Takeda and Celgene (NASDAQ:CELG) would be attracted to Seattle. The first source said GlaxoSmithKline (NYSE:GSK) and Sanofi-Aventis (NYSE:SNY) could show interest.

Allos (NASDAQ:ALTH)

The street has been bullish on the potential for positive 3Q10 Phase II top-line data from Allos’ non-small cell lung cancer trial for Folotyn, which sources consider will be an M&A trigger. The company already has Folotyn approved in patients with relapsed or refractory peripheral T-cell lymphoma (PTCL).

Allos, which is 30% - 40% owned by Warburg Pincus, has not apparently retained a bank as of yet, the first and a third source confirmed.

Last year, the industry generally brushed off Allos as an M&A play after Celgene acquired rival Gloucester Pharmaceuticals. Gloucester competed with Allos on PTCL, as well as cutaneous T-cell lymphoma. At the time of the acquisition, Gloucester was said to have been more attractive than Allos due to Gloucester’s ability to use lead drug Istodax in multiple oncology indications, whereas Allos was seen as more niche.

The first source said the Gloucester auction was considered quite a “frantic” process due to pricing discrepancies, but was confident that Allos’ chances for a takeout are strong. Those suitors in the Gloucester process would vie for Allos, he noted. Takeda, Bristol Myers Squibb (NYSE:BMY), and Novartis (NYSE:NVS) would find it appealing, he added. Meanwhile, a leading Allos shareholder said that rumors circulated that Celgene outbid Eli Lilly on Gloucester. Eli Lilly could subsequently pursue Allos.

Abraxis BioScience (NASDAQ:ABII)

In March, Abraxis BioScience announced that its lead drug Abraxane met its primary endpoint in a Phase III lung cancer trial. This positive news lifted the company way above the radar. Subsequently in April, this news service reported that Abraxis had retained Goldman Sachs and Lazard to explore a sale.

The third source said data being released at ASCO in June will be a catalyst for “something or nothing” regarding M&A. The company expects to present the randomized Phase III trial of Abraxane with carboplatin vs. standard Taxol and carboplatin as first-line therapy at the scientific meeting.

Abraxane works as an alternative to Taxotere, and could help a company that does not have “critical mass” in oncology but a “presence,” the second source said.

However, a deal never seems to materialize with Abraxis, as the company previously ran two processes and failed to sell itself. Suitors and deal-makers have all agreed that skepticism has been rampant due to the large valuation and inflated negotiation tactics from chairman and CEO Patrick Soon-Shiong.

Genzyme (NASDAQ:GENZ) Oncology Assets

In early May Genzyme announced that it plans to pursue strategic alternatives for its genetic testing, diagnostic products and pharmaceutical intermediates businesses. Still, sources said they believe that these would be relatively small deals, and one even deemed the assets “non-core.”

The company’s more “biotech” drugs appear to be the core and attractive assets, a fourth source noted. Genzyme cites in public documents that its biotech drugs comprise orphan products, including Fabrazyme, Aldurazyme, Myozyme, and cancer drugs Campath and Leukine.

A fifth source said the company should consider selling or spinning out more core platforms, and that the hematology and oncology unit would be a strong idea. The fourth source noted that biotech companies such as Amgen (NASDAQ:AMGN) and Celgene would be seeking to get their hands on these types of assets.

According to a recent annual SEC filing, the company’s hematology and oncology unit generated USD 300m in 2009, which more than doubled from the year before.

Dendreon (NASDAQ:DNDN)

The perennial oncology target, Dendreon has been working with JPMorgan to seek an ex-US partnering or M&A strategy, reported first by this news service. Most corporations were waiting for Dendreon’s Provenge approval before proceeding with any type of transaction. Now that Provenge has been approved in advanced prostate cancer, this opens up opportunities but also raises some questions.

Although a sixth source said suitors remain more bullish on Dendreon, the first source said that with a takeover premium added to a USD 5bn plus market cap, any acquisition would be deemed “hefty”. The source also noted that Dendreon has made it clear that it is not in a rush to strike a deal. Management also assured investors in a recent conference call that partnering talks are being held up, as the company has decided to approach European regulators on reimbursement independently.

Despite M&A talks, it looks as if suitors have preferred a minority stake or co-promotion deal to mitigate any potential risks. What has arisen since Provenge’s approval is whether Dendreon can provide supply with demand. The company is attempting to alleviate manufacturing capacity constraints, as new facilities are being built to manufacture and supply Provenge. Analysts have guided to 4Q10 as a date when a likely collaboration event would take place.

It’s worth noting that the company has added Ian Clark CEO of Roche’s Genentech unit, and Pedro Granadillo, a retired executive from who served with Eli Lilly in regards to global manufacturing and human resources.

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