Biogen has agreed to spend at least $5.6 billion to diversify its lineup of immune system-regulating drugs through an acquisition of fellow Massachusetts-based biotechnology company Apellis Pharmaceuticals.
The deal, announced Tuesday, has Biogen paying $41 in cash for every outstanding share of Apellis, reflecting a 140% premium to the latter’s closing share price Monday. Apellis investors will also receive nontransferable contingent value rights, or CVRs, that could be worth an additional $4 per share. The transaction has been approved by the boards of directors of both companies.
Apellis’ research focuses on “C3,” a key protein involved in the “complement” part of the immune system, which acts as the body’s first line of defense against pathogens and damaged cells. When overactive, the complement system can attack healthy tissues and give rise to a vast range of diseases. Apellis is working to combat this with drugs specifically designed to inhibit C3.
If completed, the buyout would give Biogen a handful of early-stage research projects as well as two products, Syfovre and Empaveli, that entered the market between 2021 and 2023. Syfovre treats geographic atrophy, an eye disease driven, at least in part, by a frenzied complement system that damages and destroys retinal cells. Empaveli, meanwhile, is used for a few rare disorders that affect the blood and kidneys.
“The opportunity to bring in two early launch commercial assets into the portfolio, from a growth perspective, is really important to us,” Robin Kramer, Biogen’s chief financial officer, said in an interview.
Paul Matteis, an analyst at the investment bank Stifel, argues that the deal is surprising, yet also “makes strategic sense” when considering Biogen’s interest in rare kidney diseases and non-neurology specialty drug markets. Two of the company’s most closely watched research programs are litifilimab and felzartamab, which, respectively, are in late-stage testing for various kinds of lupus and uncommon kidney illnesses.
“That said, our biggest question here is around the value paid ... and what one needs to believe in terms of revenue potential to make this deal look cheap,” Matteis wrote in a note to clients Tuesday.
The analyst explained that the consensus on Wall Street is that Apellis revenue will reach $1.5 billion in 2030. If that pans out, the deal’s upfront multiple is about 3.5 times revenue. That’s “not crazy at all” to Matteis, though hitting that mark “may be ambitious” as it requires annual Empaveli sales to exceed $600 million along with a “durable uptick in the growth rate for Syfovre.”
Apellis was profitable for the first time last year, recording net income of $22 million on nearly $690 million in product revenue. Syfovre contributed $587 million to that total, a dip of about 4% from the year prior.
Under CEO Christopher Viehbacher and a reshaped leadership team, Biogen has used dealmaking to grow the immunology and rare disease portions of a research pipeline that, historically, leaned heavily into neuroscience.
To that end, Biogen had been mulling an acquisition of Apellis for more than a year, according to Kramer. It ultimately pulled the trigger for several reasons, including the immunology “crossover” between the two companies and the Apellis team’s expertise in nephrology, which should be valuable as Biogen prepares to launch felzartamab.
“Where we landed, it's in consideration of that intrinsic value,” Kramer said. “Looking at other metrics, such as multiple of revenue, we believe we fall straight in the middle of the pack as it relates to the transaction price.”
Lisa Walter, an analyst at RBC Capital Markets who covers Apellis, wrote in a note to clients that her team views the deal as good for the company given its share price has fallen by about a third this year.
Overall, “we see synergy between kidney asset Empaveli and [Biogen’s] nephrology portfolio, and Syfovre could potentially perform better in the hands of a larger company,” she wrote.
Hitting the sales milestones to trigger the deal’s CVR “might be challenging,” Walter added, though a pre-filled syringe version of Syfovre could gain approval before too long and help lift the franchise.
The CVR is structured so Apellis investors would receive $2 per share if Syfovre achieves $1.5 billion in annual global net sales in any calendar year between 2027 and 2030, plus an additional $2 per share if the drug reaches $2 billion in annual global net sales in any of these calendar years.
If those thresholds aren’t met, investors could still take home $4 per share if Syfovre generates $2 billion in annual global net sales in 2031.
