Valeant nabs Dendreon for $400M

Valeant will gain rights to Provenge and certain other assets

Lloyd Dunlap
LAVAL, Quebec—Valeant Pharmaceuticals International Inc. announced recently that it had been advised by Dendreon Corp. that no additional qualified bids have been received by the bid deadline provided by the court-approved bidding procedures for the sale of substantially all of Dendreon’s assets. A hearing at which Dendreon and Valeant were to seek the required court approval of the sale was scheduled for Feb. 20, with Valeant expected to close the transaction very soon thereafter.
 
Pursuant to the terms of the agreement, Valeant will acquire the worldwide rights to Dendreon’s Provenge (sipuleucel-T) product and certain other Dendreon assets. Provenge is an immunotherapy designed to treat men with advanced prostate cancer by taking the body’s own immune cells and reprograming them to attack advanced prostate cancer. The product was approved by the U.S. Food and Drug Administration (FDA) in April 2010 and realized revenues of approximately $300 million in 2014. Provenge was approved by the European Medicines Agency in 2013.
 
Dendreon has been a debtor under chapter 11 of the U.S. Bankruptcy Code since November 2014. The asset purchase agreement constitutes a “stalking horse bid” in a sale process being conducted under Section 363 of the U.S. Bankruptcy Code. As the “stalking horse bidder,” Valeant would have been entitled to a break-up fee and expense reimbursement if it ultimately did not prevail as the successful bidder at a subsequent auction for Dendreon’s assets. Valeant’s role as a stalking horse bidder, and the sale itself, are subject to approval by the Bankruptcy Court.
 
“We believe that oncology has similar characteristics to our current therapeutic portfolios, such as strong growth, high durability, strong patient and physician loyalty and a terrific reimbursement regime,” stated J. Michael Pearson, Valeant’s chairman and CEO. “We have not previously found an economic way to enter this market, but with the unique dynamics of this situation, we believe that this transaction will create significant shareholder value.”
 
Earlier, Valeant entered into an amended and restated stalking horse asset purchase agreement to acquire the worldwide rights to Dendreon’s Provenge product and certain other assets of Dendreon. In response to competing bids, Valeant raised its offer to $400 million in cash for the assets, which realized combined revenues of approximately $300 million in 2014.
 
As events transpired, there was no auction, as Valeant made the only bid for the Seattle company.
 
It was in late January that Valeant bid $296 million to set the baseline for a potential auction. Indications were that one would indeed likely come, with Dendreon’s lawyers noting in court papers that “several bidders” wanted more time to put together potential offers. Shortly thereafter, Valeant kicked up its offer to $400 million. Whether that cooled off any potential counter-bids or whether the interest among other potential buyers wasn’t what the lawyers thought, no one emerged to challenge Valeant’s bid.
 
For a while, Dendreon was a potential jewel in Seattle’s biotech community, with the company getting the first FDA approval for a cell-based cancer immunotherapy in 2010. Provenge required extracting cells from a patient, shipping them to a processing center, genetically engineering them and shipping them back to be reinfused into the patient—a logistical challenge, to be sure, but one the company seemed to have a handle on.
 
Then things went wrong, with marketing woes and concerns over the $93,000 price tag and how that might be reimbursed. So Provenge’s launch had an albatross around its neck early on. Dendreon's debt grew, and other new prostate cancer drugs happily took their place in the market at Dendreon’s expense, among them Zytiga and Xtandi.
 
Provenge generated $300 million in sales last year. Abiraterone, by comparison, generated $1.07 billion in the first half of 2014 alone.
 
Valeant’s business model has long been to buy other drug companies to grow its portfolio rather than spend a lot developing its own pipeline. But the Dendreon purchase surprised some market watchers, partially because Valeant is taking a totally different tack than it did with its attempt to acquire Allergan. While Allergan was considered a high-quality pharmaceutical firm with lucrative products, Dendreon is quite the opposite.
 
But analysts’ opinions were far from uniformly negative. Jefferies analyst David Steinberg raised estimates and his price target on Buy-rated Valeant to $179 (from $149) following updated fiscal 2015 guidance from the company. Steinberg commented on positive fiscal year 2015 forecasts with regard to revenue and earnings per share (EPS), and despite “substantial headwinds” that are expected to reduce revenues and EPS by about $300 million, relative to prior views after the third quarter of fiscal 2014, “New product launches, spearheaded by Jublia, are taking center stage.”
 
Analyst Louise Chen at Guggenheim noted several positives from a recent Valeant conference call: CEO compensation is even more aligned with shareholder value now and the CEO signed a five-year contract, plus the company is said to be well positioned for strong organic growth in 2016, with seven or eight product launches and “best products” that include Vesneo, Brimonidine, Ultra platform and Emerade. She added that Jublia peak sales could be $750 million or more, though Valeant’s expectation is $300 million to $400 million for now.
 
Valeant made a much bigger deal after this one, as DDNews was going to press. Read more on that on in our April issue.

Lloyd Dunlap

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