The acquisition of Epizyme promising for Ipsen, but in the medium term

By acquiring Epizyme, Ipsen gets its hands on Tazverik (tazemetostat), an innovative anti-tumor (EZH2 inhibitor) which has already obtained approval from the FDA (American health authorities) and has benefited from an accelerated procedure (fast track) in the indication of relapsed or refractory follicular lymphoma. The drug is authorized as third-line (after failure of the reference drug and second-line treatments). It is also in clinical phase III, as a second line, in combination with two flagship cancer drugs, rituximab (Roche) and lenalidomide (Celgene).

The French laboratory also acquires the oral SETD2 inhibitor, which has also obtained an accelerated procedure from the FDA and which is in a Phase I/Ib trial to treat relapsed or refractory multiple myeloma or diffuse large cell lymphoma.

Ipsen will launch a takeover bid for all Epizyme shares at a unit price of $1.45, which represents a premium of 144% compared to the average closing price of Epizyme over the last 30 sessions preceding the offer. To this price is added a complement, a guaranteed value certificate (CVG) of $0.30 per share, which will be settled when Tazverik reaches 250 million in global sales by 2026 and $0.70 when the FDA grants its green light for the marketing of Tazverik in combination with rituximab and lenalidomide by 2028.

Ipsen, which estimates that it will have a strike force of 3.5 billion euros by 2024, will finance the operation through its cash and available lines of credit.

Short-term dilutive effect

Seven partnerships were finalized in 2021, most of them in the preclinical phase except those signed with Genfit and Irlab (in clinical phase III and IIb) and investors were waiting for an acquisition at a less early stage to compensate for the expected erosion of sales of the flagship product (40% of group sales) Somatuline, which is facing the arrival of generics in the United States. This is indeed the case. The transaction corresponds to Ipsen’s strategy to replenish its product portfolio, in niche indications, with high added value, in oncology and in rare diseases. Relapsed or refractory follicular lymphoma affects approximately 20,000 patients in the United States. The operation is also performed in the advanced clinical phase.

However, it was not welcomed by the market as it is expected to have an adverse effect on earnings per share until 2024 (estimated around 10% in 2023 and 2024), with biotech being loss-making while sales peak , by all indications, $800 million is still a long way off.

The medium-sized acquisition is far less risky than the 2019 $1.3 billion takeover of Clementia Pharmaceutical, which was a flop after biotech product palovarotene failed to convince . The strategy is relevant and in line with expectations. But, in the short term, the expected decline in sales of Somatuline, admittedly included in the group’s forecast for 2022, could accelerate in the United States in the second half with the arrival of generics from the Indian giant Cipla, creating a psychological effect negative on the value.

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