Will Mitsubishi's High Offer Price For CNS Target NeuroDerm Deter Others?
Executive Summary
Japan's Mitsubishi Tanabe Pharma is offering to buy Israeli CNS specialist NeuroDerm for $1.1bn and the 79% pre-rumor stock price premium may put off other potential suitors.
Searching to replenish its drug pipeline, Japan's Mitsubishi Tanabe Pharma Corp. has "zeroed in" on NeuroDerm Ltd.'s promising stable of CNS assets, offering to buy the Israeli target for $1.1bn in cash, a price some analysts think will ensure no competing counter-offers materialize.
Terms of the transaction, backed unanimously by NeuroDerm’s board of directors, is $39 per share in cash, implying an equity value of some $1.1bn and a premium of 79% over the unaffected price on June 9, 2017 of NeuroDerm’s ordinary shares on the NASDAQ stock market before rumors of a possible deal began to circulate, and a 17% premium over the closing stock price on July 21. Assuming no hiccups, NeuroDerm said it expects the takeover transaction to close in the fourth quarter.
NeuroDerm’s key focus is on Parkinson's disease, where it has three clinical-stage product candidates in development which offer a solution for almost every Parkinson’s disease patient, from moderate to the very severe stage of the disease. It's lead drug-device combination product ND0612 is in Phase III for Parkinson's disease and has recently had positive trial data.
"Given the significant premium offered and existing shareholder agreements, we regard a counter bid to perhaps be unlikely." – Jefferies analysts
Explaining its reasoning to agree to the sale, NeuroDerm's CEO Oded Lieberman in a statement said Mitsubishi Tanabe Pharma "has demonstrated development and commercialization expertise in the field of neurology and we are confident that the combination of their resources and the robust data supporting ND0612, our Phase III Parkinson’s disease product candidate will help make this important new therapy available as broadly and rapidly as possible."
Counterbid Would Be Expensive
"Given the significant premium offered and existing shareholder agreements, we regard a counterbid to perhaps be unlikely," analysts at Jefferies said in a reaction note.
"Our $42 per share NPV [net present value] sum-of-the-parts valuation is just above the $39 offer, suggesting the consideration fairly reflects the Phase III execution, regulatory - notably drug-device challenges and US Orphan Drug competition - and commercial launch risks," the analysts added.
A counterbid could possibly be attracted from a suitor that has an extremely optimistic view of NeuroDerm, however.
Jefferies said that a "best case" scenario for ND0612 would give the Israeli biotech fair value of more than $75 per share, representing a $2bn valuation for the target company, on the assumption of $1.7bn worldwide peak sales.
"If we assume more modest $1bn worldwide peak sales, the de-risked ND0612 NPV suggests fair value at around $34 per share, excluding potential cost synergies available to an acquirer if leveraging an existing neurology salesforce," Jefferies said, adding that an end-2018 regulatory filing for ND0612 looks probable.
"US comparative pharmacokinetic studies of ND0612 for a bioavailability pathway should be a lower risk route to approval, in our view, that has been endorsed by FDA and incorporates the competing product [from AbbVie Inc.] Duopa's (carbidopa/levodopa enteral suspension) Orphan Drug Exclusivity, suggesting to us the agency may regard ND0612's superior safety and patient benefit to be self-evident."
Parkinson's disease is a progressive motor system disorder which results from the loss of dopamine-producing brain calls. There is no cure for the disease and various medications are used to relieve its symptoms, primarily levodopa combined with carbidopa.
In March, the FDA approved Newron Pharmaceuticals SPA's Xadago (safinamide) once daily Parkinson's disease drug as adjunctive treatment to levodopa/carbidopa in patients experiencing "off" episodes. It will compete with Teva Pharmaceutical Industries Ltd.'s Azilect (rasagiline).
Established in 2003, NeuroDerm is based in Rehovot, Israel. It says its levodopa and carbidopa (LD/CD) product candidates have completed Phase IIa clinical trials, and include ND0612L and ND0612H for the treatment of patients with moderate and advanced Parkinson’s disease. It is also developing ND0701, a subcutaneously delivered apomorphine formulation for patients who suffer from moderate to severe Parkinson’s disease and who do not respond well to LD/CD; and ND0801, which is in a Phase IIa clinical trial for the treatment of cognition disorders associated with CNS diseases, such as ADD/ADHD, Alzheimer’s disease, and schizophrenia.
Founded in 1678, Mitsubishi Tanabe Pharma is headquartered in Doshomachi, Osaka, "the birthplace of Japan’s pharmaceutical industry", the company says.