Thrust & Parry: CVT And Gilead Look To Lock Out Astellas With Planned Merger

Gilead’s surprise $20 per share bid tops Astellas’ $16 per share offer, highlights Gilead’s increasing focus on cardiovascular space.

Market reaction was mixed but CV Therapeutics and Gilead threw a shock into the current pharma/biotech merger and acquisition frenzy as Gilead sought to trump Astellas' months-long bid to acquire CVT with its own bid of $20 per share. The deal's estimated total value is $1.4 billion.

Gilead is one of the wealthier U.S. biotechs, with $3.24 billion in cash and equivalents on hand at the end of 2008. While its focus has traditionally been on antivirals - it markets the HIV therapies Atripla and Truvada - it has also built a budding cardiovascular franchise centered around its pulmonary arterial hypertension drug Letairis (ambrisentan). Sales of that medicine grew five-fold from 2007 to 2008, bringing in $112.9 million last year alone.

In addition the company has a promising Phase III drug for resistant hypertension called daruesentan. Some analysts predict the drug eventually could reach blockbuster status, although J.P. Morgan's Geoff Meacham said in a March 12 note that Gilead's best strategy would be to partner U.S. rights.

Buying CVT is therefore a good strategic fit because it provides Gilead with a ready-made cardiology sales force and two additional marketed cardiovascular products: Ranexa (ranolazine) and Lexiscan (regadenoson), an injectable imaging agent for cardiac stress testing.

"Gilead is essentially buying a sales force for darusentan via Ranexa, but they only get 10 percent of Lexiscan," noted Leerink Swann analyst Joseph Schwartz in an interview.

That's because in the U.S., Lexiscan is already partnered with Astellas. Since November, Astellas has repeatedly pursued CVT because of its own desire to bulk up in cardiovascular products (¹ (Also see "CV Therapeutics Again Declines Astellas $16 Per Share Purchase Offer" - Pink Sheet, 20 Feb, 2009.)). In tandem with the announcement of the Gilead offer on March 12, CVT's board announced its approval of the friendly bid and again rejected Astellas' $16 per share offer.

News of the offer boosted CVT's stock price 24 percent to $21.04 at the market's closing March 12. Industry analysts consistently have predicted that to land CVT, Astellas would need to raise its offer price, which has remained unchanged since November.

Schwartz is one of many on Wall Street who believes the Japanese pharma may remain in the running for CVT, potentially launching a bidding war between two cash-rich suitors for the Palo Alto, Calif., biotech. In a March 12 note, he predicted Astellas might counter with an offer of $22 to $24 per share for CVT. Both companies say they would pay cash for CVT, with Astellas having more than $5 billion on hand.

"I think they're both very well-heeled," Schwartz said. "It comes down to motivation and who wants [CVT] more. We've always thought the revenue synergies make a lot of sense for Astellas on the Lexiscan side as well as the Ranexa side."

Future rights to Lexiscan remain unclear

Lexiscan remains an odd point in either potential deal - currently CVT receives a 10 percent royalty on U.S. sales from Astellas. But the 2000 deal in which Astellas' predecessor Fujisawa got U.S. rights to the imaging agent included a "standstill" agreement that would void the deal if Fujisawa or an affiliate tried to buy stock in CVT beyond that specified in the deal.

On Feb. 27, Astellas turned up the heat on CVT, turning its offer into a tender to CVT shareholders, while also filing a lawsuit in Delaware Chancery Court seeking to overturn both the "standstill" agreement and a poison pill that CVT's board extended for one year just before it was set to expire this February (² (Also see "Astellas Turns Up Heat On Bid To Acquire CV Therapeutics" - Pink Sheet, 27 Feb, 2009.)).

It remains unclear whether Astellas' actions have placed it in breach of the 2000 contract, which could mean full rights to Lexiscan return to CVT. Astellas wants both Ranexa and full rights to Lexiscan to increase its U.S. presence, and Schwartz noted Astellas thinks the market for Lexiscan eventually could surpass that for Astellas' other cardiac imaging drug, Adenoscan . CVT holds ex-U.S. rights to Lexiscan and plans to file it for EU approval this year.

By contrast, Foster City, Calif.-based Gilead, which earned $4.67 billion from its antiviral franchise last year, sees CVT's specialty sales force of about 170 reps as a way to jump-start a potential 2010 launch of darusentan. Phase III data for the endothelin receptor antagonist are expected in second-quarter 2009.

In a March 12 note, Leerink Swann's Bill Tanner said adding CVT's marketing team to Gilead's would give it a specialist sales forces of between 250 and 300 reps. The deal indicates Gilead is positive about the upcoming data on darusentan, he added.

During a same-day investor call, Gilead Executive VP, Commercial Operations, Kevin Young noted CVT's current call audience includes about 20,000 cardiologists, with most being medical, non-interventional cardiologists. "That big bulk are our prime target audience, always were, for darusentan," he said.

Gilead began its move into the cardiovascular space with the $2.2 billion purchase of Myogen in 2006, bringing in Letairis, which won FDA approval in 2007 and competes with Actelion's Tracleer (bosentan) in the pulmonary arterial hypertension space (³ [See Deal]). Phase III data on studies to expand Letairis' label to include idiopathic hypertension are expected in the second quarter.

Gilead plans include "re-launch" of Ranexa

During the call, Gilead CEO John Martin said his firm would re-launch Ranexa, to build on its expanded label, which includes first- and second-line angina therapy and a claim that it can reduce hemoglobin A1c levels in diabetes patients. Net sales totaled $109.3 million in 2008, and Astellas has argued it could improve on those numbers with its U.S. market expertise.

Gilead declined to offer a sales goal for the drug, but noted it currently is used by about 75,000 U.S. angina patients, while the total market is about 10 million patients. The drug likely would only capture a portion of that market, Gilead President John Milligan conceded, because of existing generic angina drugs.

J.P. Morgan's Meacham estimates 2009 sales of $175 million for Ranexa, increasing to $337 million by 2012. Through a partnership with Italy's Menarini Group, CVT will earn royalties on EU sales of Ranexa, which recently was launched in the UK and Germany.

If the Gilead/CVT deal goes through, CVT would become a wholly owned subsidiary of Gilead, which says the transaction would become accretive to earnings in 2011. CVT's board unanimously endorsed the Gilead offer and recommended that shareholders tender their shares. A closing date for the tender offer has not been set, but Gilead expects it to close during the second quarter.

The perils of going hostile

CVT's repeated rejection of Astellas' low-ball offer plus the possibility of 100 percent ownership of Lexiscan likely lured Gilead to take a deeper look at CVT, resulting in the white knight offer. Certainly, its friendly offer points to the difficulties in effectively launching a hostile bid.

Even if a hostile M&A deal turns friendly, white knight involvement can provide pitfalls for the eventual winner as Genzyme learned in its 2006 purchase of stem-cell firm AnorMED. Genzyme initially bid $380 million for the Canadian biotech, which sought and got a friendly bid of $515 million from Millennium. In what was dubbed "the battle of Boston" Genzyme ultimately prevailed, but at a much higher price tag of $580 million (⁴ (Also see "Genzyme Breaks a Biotech Taboo: The Hostile Bid For AnorMED" - In Vivo, 1 Nov, 2006.)).

Potentially protecting Gilead's interests is a break-up fee, which the company called a standard fee in the 2 percent to 4 percent range.

-Joseph Haas ([email protected])