AstraZeneca’s Ardea Purchase May Be First of New Deals

AstraZeneca to Buy Ardea Biosciences for $1.26 Billion
A taxi passes by the AstraZeneca headquarters in London. Photographer: Suzanne Plunkett/Bloomberg

AstraZeneca Plc’s $1.26 billion purchase of Ardea Biosciences Inc., its biggest acquisition in five years, may be the first in a series of deals for the company as it tries to counter looming generic competition.

AstraZeneca is in talks with several companies about possible licensing accords and acquisitions, said Shaun Grady, head of business development, in a telephone interview today. The company would consider acquiring late-stage assets outside its research and development focus on cancer, diabetes and gastrointestinal ailments, he said.

The U.K.’s second-biggest drugmaker is seeking new products as generic competitors challenge its top-selling medicines. After experiencing setbacks in developing treatments for depression and cancer, the company last week won the backing of a European regulatory panel for approval of an experimental diabetes drug. With Ardea, it gains a drug called lesinurad, which is in the third -- and most advanced -- phase of clinical tests for patients who have too much urea in their blood.

“We’re building some momentum here in R&D,” Martin Mackay, head of research and development, said in a telephone interview today. “I would be disappointed if we didn’t announce further deals by the end of this year. We’ve taken our hits but we’re turning a corner.”

AstraZeneca fell 1.8 percent to 2,815.50 pence at 3:01 p.m. in London, where the company is based. The stock has dropped 5.4 percent this year, compared with a 1.6 percent gain in the Bloomberg Europe Pharmaceutical Index. Ardea had dropped 25 percent in the last year before today. The shares jumped 51 percent to $31.57 in Nasdaq Stock Market trading.

Deal Premium

AstraZeneca will pay $32 a share for Ardea, the London-based company said in a statement today. That’s 54 percent above Ardea’s closing price on April 20. Excluding the cash on Ardea’s books, the purchase values the company at $1 billion. Of 16 similar deals in the last six years, the average premium paid was 41 percent, according to data compiled by Bloomberg.

Chief Executive Officer David Brennan hasn’t announced an acquisition of more than $1 billion since buying MedImmune Inc. in 2007 for about $15.2 billion, and the company says it’s not looking for another deal of that size.

The planned takeover of Ardea “looks pretty sensible,” said Justin Smith, an analyst with Oriel Securities Ltd. in London. “It doesn’t look like they overpaid.”

Ardea Shareholders

Ardea, based in San Diego, was incorporated in 1994. The U.S. company’s biggest shareholder is Baker Brothers Advisors LLC, an investment firm founded by Felix and Julian Baker. Felix Baker sits on Ardea’s board.

In addition to lesinurad, Ardea is developing an early experimental compound for the same ailment. The U.S. company has a partnership with Bayer AG of Leverkusen, Germany, to develop two cancer treatment combinations, for tumors of the liver and pancreas. The therapies are in mid-stage testing.

“Combination drugs are the future in cancer therapy,” Elmar Kraus, an analyst with DZ Bank AG in Frankfurt, said in a phone interview. “A phase III drug is always a good buying argument for a pharma company, even if gout is not one of the major indications.”

For Ardea, AstraZeneca paid “fair value” because it brings with it a late-stage clinical asset, Mackay said. He said he expects to submit Ardea’s experimental gout treatment for approval in the U.S. and Europe in the first half of 2014.

Rival Gout Drugs

Takeda Pharmaceutical Co. said on April 11 it agreed to buy closely held URL Pharma Inc. for $800 million to gain a new gout treatment. Savient Pharmaceuticals Inc. makes Krystexxa, and the FDA is reviewing Regeneron Pharmaceuticals Inc.’s Arcalyst injection for prevention of gout flares in patients initiating uric acid-lowering therapy.

“There is competition in this space but we think there is a real unmet need, particularly in emerging markets, which is a thrust for us,” Mackay said.

Ardea’s lesinurad may generate $194 million in sales by 2016 if approved, according to the average of three analyst estimates compiled by Bloomberg. Savient’s Krystexxa, which won U.S. approval in 2010, may have 2016 sales of $226.5 million, the average of four estimates. Revenue from Regeneron’s Arcalyst may reach $53.4 million next year, the average of two estimates. U.S. regulators are scheduled to decide whether to approve Arcalyst by July 30.

Industry Takeover Bids

AstraZeneca joins U.K. rival GlaxoSmithKline Plc and Switzerland’s Roche Holding AG in pursuing purchases to fuel growth. Human Genome Sciences Inc. rejected a $2.6 billion offer from Glaxo, based in London.

Roche said today that its $6.7 billion bid for Illumina Inc., a maker of gene-mapping tools, expired. The Basel, Switzerland-based drugmaker is in talks with the research centers of three universities that want to sell their gene-sequencing technologies to Roche, Der Sonntag newspaper reported, without saying where it got the information.

Grady declined to comment about whether one of the companies AstraZeneca is talking to is Amylin Pharmaceuticals Inc., which is said to be seeking a buyer.

Two of AstraZeneca’s biggest-selling drugs, Nexium for ulcers and antipsychotic medication Seroquel, lose patent protection by 2014. Nexium and Seroquel generated about $10.3 billion of sales last year and accounted for 30 percent of revenue. The drugmaker recently saw the failure or delay of experimental drugs for diabetes and ovarian cancer.

Smaller-scale acquisitions and licensing seem to be the best options for AstraZeneca given the company’s weak pipeline and the attractiveness of maintaining its share buybacks, Mark Belsey, an analyst with WestLB AG in London, said in an e-mailed comment. The company has to make sure it doesn’t overpay for such deals, Belsey said.

AstraZeneca announced April 3 it would share in the development of five drug candidates from Amgen Inc., the world’s biggest biotechnology company. The experimental products are monoclonal antibodies, proteins that mimic those naturally produced by the body’s immune system, and will be studied in inflammatory diseases.

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