How does a bio pharma company with no sales, an FDA order to cease trials on its principal drug candidate, and a burn rate that has absorbed nine figures manage to nonetheless exit with a $3.85 billion dollar enterprise value?
The “how to” was explained at the ACG-Boston breakfast meeting, October 23rd, by Ron Renaud, former President and CEO of Idenix Pharmaceutical.
Idenix was doing research in the hot but highly competitive area of infectious diseases, including hepatitis and HIV, relying on small molecule research in an area described by Renaud as “nucleoside chemistry.” Notwithstanding initial backing from MPM Capital, Nomura and corporate partner Novartis (which also purchased 54% of the company in 2003, from then-shareholders, for $255,000,000), and with subsequent raises of an additional $200,000,000, by mid-2013 Idenix nonetheless found itself behind its competition (particularly Gilead, Vertex and Bristol Meyers). The company adopted a strategic plan to build a single pharmaceutical, administered by pill, which would address most forms of type C hepatitis without reliance on Interferon. In late 2013, the company began clinical trials in the face of a patent law suit by Gilead, with first results available about April, 2014.
Suddenly, without final data available but in the light of acquisitions by larger pharmaceutical companies at substantial multiples, in June, 2014 Merck offered a buyout of $24.50 per share in cash, a 239% premium above market; the deal closed on August 6, 2014, with Merck proudly announcing that it had purchased a company which had a portfolio of promising drugs including some major hepatitis C “candidates.”
Certainly timing had a lot to do with the enterprise value received from Merck, coupled with the worldwide incidence of hepatitis C (indicating a significant and continuing global market).
Renaud also particularly credited several specifics for his ability to guide his company to such a robust exit:
Continuous transparent communication with major shareholders, who were thus not spooked by day-to-day developments in the marketplace.
The raising of an additional $100,000,000 in capital from one of its existing major investors at the start of 2014, which allowed the company credibly to state that it intended to develop and market its own pharmaceuticals, and was not available at distress sale prices.
Renaud’s cynical take: nothing drives up the desire to do a deal, or the valuation of that deal, like telling a major pharma company that you are just not for sale.