Pharmacquired: What would a Clovis takeout look like?
There's a saying in the pharmaceutical industry that companies aren't usually sold, they're bought. Patrick Mahaffy knows the notion all too well, having served as the CEO of two companies purchased by big biotechs.
Mahaffy, who sits at the helm of Clovis Oncology, isn't opposed to that list growing either. "Everybody knows where to find me," he said last month at the J.P. Morgan Healthcare Conference, responding to a question about a potential acquisition of his company. "I am not an empire builder. I don't have a dream of dying ... at 107 years old with my Clovis hat on."
Those comments, combined with the recent takeover of one of Clovis' main rivals, Tesaro, have put investors on the lookout for a deal. In Credit Suisse's latest quarterly biopharma investor survey, responders picked Clovis more than any other drugmaker as the most likely to get acquired in 2019.
But what would a Clovis acquisition look like if it comes to fruition? While difficult to predict within the complex process of dealmaking, some Wall Street analysts suspect the acquirer would need to check a few boxes.
First, it would most likely be a big pharma with enough capital to finance such a deal. While Clovis' stock value is far below the $96 per share seen in the summer of 2017 and even further from its historic high of nearly $117 per share, biotechs as a whole are still fetching hefty premiums.
RBC Capital Markets analyst Kennen MacKay told BioPharma Dive it wouldn't be surprising to see Clovis go for 4 to 6 times consensus estimates on peak sales. The latest year available on FactSet for projections on Rubraca sales is 2024. Using that year as a reference point and MacKay's multiplier, Clovis could yield a deal value of $3.5 billion to $5.2 billion.
Second, the big pharma suitor would likely have a presence in oncology but lack access to a type of targeted cancer therapy called a PARP inhibitor. Clovis owns one of the four PARP drugs on the U.S. market with Rubraca — which accounts for all of the biotech's sales revenue and essentially all of its pipeline value, at least by Wall Street estimates.
Under such parameters, several companies wouldn't make the best fit as a potential Clovis acquirer. Biogen and Allergan, for instance, don't have oncology pipelines. Conversely, AstraZeneca and Pfizer already have their own marketed PARP inhibitors, as does GlaxoSmithKline through its recent Tesaro buyout.
Other big pharmas got their hands on PARP inhibitors by inking collaborations. Merck & Co. has an agreement in place to jointly develop and commercialize AstraZeneca's Lynparza in combination with Keytruda. Johnson & Johnson, meanwhile, entered a deal with Tesaro back in 2016 that allowed it to develop and commercialize Zejula for patients with prostate cancer.
AbbVie also owns a late-stage PARP inhibitor named veliparib, though the drug's string of clinical failures raises questions about its marketing prospects.
RBC's MacKay couldn't name potential Clovis suitors, but he did note that Bristol-Myers Squibb and Celgene aren't in positions to acquire Clovis either because they're in the process of completing a mega-merger.
And while not ruled out, it would be a bit unexpected to see interest in Clovis from Gilead Sciences or Amgen, considering much of their work in oncology has been in blood cancers, whereas PARP drug research has focused on solid tumors.
More likely suitors
One of the more undervalued pieces of Clovis' business, according to SVB Leerink analyst Andrew Berens, is that the company still holds ex-U.S. rights to Rubraca.
As such, Berens argues the best fit for a Clovis suitor would be a pharma with a global footprint and the ability to leverage the European market — where Rubraca's label is on more equal footing with those of Lynparza and Zejula.
Roche is one company that fits the bill. Berens noted how the Swiss pharma giant doesn't have a PARP inhibitor in its pipeline. Yet Roche is familiar with Rubraca since it's sponsoring a Phase 1 study testing the PARP drug in combination with Tecentriq.
Roche's Genentech has also collaborated with Clovis in the past. Now, plenty of deals happen between drugmakers that have never worked together — research and consulting firm Frost & Sullivan noted to BioPharma Dive that, of the roughly eight acquisitions worth more than $5 billion which happened last year, just two involved companies with prior partnerships.
Still, such agreements can create certain catalysts for a transaction.
"Being a collaborator does improve not just the familiarity with the process, but essentially the transfer," said Nitin Naik, Frost & Sullivan's life sciences global vice president, in an interview. "You're already pretty familiar with the portfolio, the assets and the due diligence."
Clovis could also be a fit for Eli Lilly, which just shelled out $8 billion to acquire another targeted cancer drug developer, Loxo Oncology. The Indianapolis-based pharma remains on the hunt for additional oncology assets, according to company leadership.
"You'd have to expect that we will continue to be looking in oncology and immunology ... two areas where there's just a lot of opportunity. But all of our therapeutic areas are open for us," Joshua Smiley, Lilly's chief financial officer, said on an earnings call in early February. "And when we can find the best assets, really we've got the balance sheet and cash flow capacity to act."
Lilly didn't respond to a BioPharma Dive request for comment.
Roche declined to comment about a potential Clovis deal, though a spokesperson did write in an emailed statement that, in general, the Swiss pharma is "constantly evaluating market opportunities for small to medium-size acquisitions, which can strengthen our current business. The guiding principle is to seek partners that will complement or reinforce Roche's in-house assets and expertise."
Berens added that potential Clovis acquirers wouldn't just be based in the U.S. or Europe. Though he didn't give specific names, he said Asian companies with oncology franchises could be interested as well.
Clovis declined to answer a BioPharma Dive request for comment, explaining that it doesn't comment on M&A strategy outside of planned company updates.
Barriers to a buyout
When GSK bought Tesaro, it made Clovis the sole independent biotech with a marketed PARP inhibitor. And while there's still considerable interest in the PARP class, the rarity of Rubraca doesn't guarantee Clovis will receive deal interest.
"It's not necessarily true, but it often is true that one sale may engender other sales," Barbara Kosacz, international head of the life sciences practice at law firm Cooley, told BioPharma Dive. "Now, that is assuming [the process] was competitive. Sometimes there's kind of like one buyer for one seller."
That was the case with Tesaro. GSK was the only pharma to submit a formal bid over a roughly 18-month period when the biotech was conducting a strategic review. Clovis shares dipped close to 15% once Tesaro disclosed more details about its acquisition.
And a shallow buyer pool isn't the only challenge to a Clovis takeout.
Rubraca's composition of matter patent expires in the U.S. in 2020. Clovis has stated the patent could be extended until the fourth quarter of 2023, and analysts expect another patent covering a salt formulation of Rubraca will hold until the early 2030s. Though small, the near-term threat to Rubraca's exclusivity may weigh on the minds of potential acquirers.
"If you're only looking at it on the surface ... and only looking at composition of matter as the intellectual property lifespan, then that would definitely be a detraction on this molecule versus some others," RBC's MacKay said.
There's also the issue of PARP inhibitors not having measured up to the market expectations Wall Street set for for the class as it was developing. Lynparza, Zejula and Rubraca are each far from blockbuster status, with Clovis' drug the weakest by revenue.
All three drugs hold indications for the maintenance treatment of adults with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. But Rubraca was the last to secure such an approval, which is one of the reasons why carving out market share has been a difficult task for Clovis.
Additionally, Rubraca is already behind Lynparza and will likely soon be behind Zejula too in securing an approval in the first-line maintenance setting for those cancers. Such an outcome could create a bigger headache for Clovis.
According to Berens, the question becomes: What happens to drugs with downstream indications once competitors get approved in the front-line setting? A "shadow over Clovis" is whether doctors will use another PARP inhibitor if a patient's cancer progresses after first-line PARP maintenance therapy, he noted.
"That being said, doctors may very well use all three of these drugs very similarly," Berens countered, "as long as the payers won't restrict access to one or the other."
Where Rubraca is stepping out of rivals' shadows is in a certain type of metastatic castration-resistant prostate cancer. There, the drug recently scored positive Phase 2 data — potentially putting it on track to get an approval for the indication ahead of Zejula and Lynparza. The company expects to submit an application to the Food and Drug Administration for Rubraca in BRCA-mutant advanced prostate cancer in late 2019, a timeline which makes the drug "highly competitive," according to Clovis leadership.
Clovis is also testing Rubraca in other cancers such as breast, non-small cell lung and bladder.
"The drug is a good drug," Berens said. "It should be desirable for someone to find a place in their portfolio for it."
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