In January, Japanese pharmaceutical giant Takeda announced it would buy Ariad Pharmaceuticals, in a deal valued at around $5.2bn. The move, designed to enhance Takeda’s oncology portfolio, will give the company two new cancer therapies: the leukemia drug Iclusig (ponatinib), and the investigational drug brigatinib, which is indicated for lung cancer.
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“The addition of Ariad’s innovative targeted therapies and research and development capabilities strengthens and diversifies our oncology business, positioning Takeda for sustainable long-term growth in this priority therapeutic area,” said Christophe Weber, president and CEO of Takeda, after the deal closed in February.
The deal is notable on several counts, not least the generosity of Takeda’s offer. Valued at more than 75% above Ariad’s closing share price, it underscores exactly how far a company will go to acquire a promising cancer drug.
“Given the scarcity of commercial-stage oncology assets, cancer drugs are appealing to Big Pharma with lots of cash, and high prices are being paid for hopeful products,” comments Adam Dion, senior industry analyst at GlobalData Healthcare. “This premium is in line with other past acquisitions in the oncology space, including Pfizer’s purchase of Medivation, and AbbVie’s transaction for Pharmacyclics.”
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A slew of deals
The deal will provide a welcome boost at what would otherwise be a tricky time for Takeda. In 2015, a federal judge overturned one of the company’s key patents, for the blood cancer drug Velcade (bortezomib). Originally due for patent expiry in 2022, Velcade will now face generics competition from late this year. Several other products will follow suit in 2020.
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By GlobalDataTakeda has therefore been seeking ways to stem the upcoming sales erosion. In August last year, the company announced it was scouting for potential acquisitions, predominantly in the US market. Weber, who is French, has said he wishes to make Takeda a truly global pharmaceuticals business, reducing its dependence on domestic sales and investing in research activities abroad.
One early contender was Salix, Valeant’s stomach drug business, but talks stalled in November after a price disagreement. Other deals have proven more successful, including a license agreement with the Belgian cell therapy company TiGenix.
Takeda has also signed a slew of deals since the start of the year, notably with Maverick Therapeutics, Ovid Therapeutics and Exelixis. Most recently, it announced a joint venture with PRA Health, a global Contract Research Organisation (CRO).
“These business development efforts are in concert with Takeda retooling its R&D functions in the US and Japan, to focus on three therapy areas – oncology, gastroenterology, and central nervous system (CNS) – while shutting down or de-prioritising other therapy franchises,” Dion explains.
Ariad’s drugs
In the case of the Ariad deal, the strategic advantages are obvious. Brigatinib, a small molecule targeted cancer therapy, was granted priority review status in November and is expecting FDA approval this April. It has already received a Breakthrough Therapy Designation for treating certain groups of patients with non-small cell lung cancer.
Iclusig, meanwhile, has been approved as an orphan medicinal product. It is used to treat patients with chronic myeloid leukemia (CML) who have not responded to other treatments, and has an ultra-orphan patient population of around 1,000-2,000 patients per year.
Last year, Ariad came under fire for serially raising the prices of Iclusig. Because the drug is highly targeted, and its users have few other options, it retains a certain immunity from conventional market forces. This may well have increased its attractiveness from Takeda’s side.
“Ariad raised the price of Iclusig four times in 2016, and twice in 2015 for a cumulative increase of 27%, bringing the drug’s list price to around $199,000 per year/per patient,” says Dion. “Although the price of the drug was certainly considered in the valuation of the deal, it is not the only factor.”
Following the acquisition, Takeda will be able to sell both drugs in Asia, as well as deepening its foothold in America. The largest JPY pharma company in Asia, it first entered the US market four decades ago, and has had partnerships and subsidiaries there ever since.
“Takeda has substantial resources in the US, and particularly in Massachusetts, the headquarters of Ariad. Takeda will lean on its oncology business (Millennium) to manage the integration and drive product sales,” says Dion.
A wider trend
Takeda’s move is particularly interesting when you place it in its broader context – namely, the recent trend for Japanese companies to set their sights abroad. Historically a rather inward-looking and self-sufficient market, Japan has recently become far more amenable to foreign deals.
“The Japanese pharmaceutical market has been rather stagnant over the past couple years, and the country’s overall economy has been in the doldrums for over a decade,” says Dion. “JPY pharma are therefore expanding overseas to maximise pricing power of their branded drugs. They are acquiring assets and signing licensing agreements to drive revenue growth.”
Indeed, Takeda’s acquisition is just the latest in a tranche of deals of this kind. In the last year alone, Astellas acquired the German biotech company Ganymed Pharmaceuticals along with the US-based Ocata Therapeutics. Otsuka signed a marketing deal with Akebia, and Teijin announced a collaboration with Amgen.
In part, the appetite for expansion derives from patent loss. Takeda is not the only large JPY company preparing for a patent cliff: Daiichi Sankyo will lose its patents on the Olmesartan family in 2017, while Astellas will lose its patents on Vesicare and Tarceva between 2018 and 2020.
On top of this, the Japanese government is pushing to slash the country’s health expenditure. Faced with an ageing population, the country currently spends 11.4% of its GDP on healthcare, significantly above the OECD average of 9%. Recently, the Ministry of Health, Labor and Welfare pushed through major reforms, intended to overhaul the drug pricing system. Most notably, it is promoting the use of generics and urging more frequent price reviews, which could jeopardise pharmaceutical revenues.
Taken together, these factors are creating significant headwinds for the JPY pharmaceutical market, and prompting companies to change tack.
As Dion sees it, the Takeda-Ariad deal points towards some major changes to come, not just for Japanese pharmaceutical companies, but for the pharma industry at large.
“GlobalData believes this deal and others involving JPY pharma could be a bellwether for the biotech industry in 2017. With these companies getting into the mix, the market could be headed for significant consolidation as these companies typically look to grow organically and not through acquisition,” he explains.
