Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

After watching its major stock index fall 21.7 percent in 2016, biotech both needs and expects some optimism-building deal action at the J.P. Morgan Healthcare Conference, which began on Monday in San Francisco. 

But Takeda Pharmaceutical Co. Ltd.'s purchase of cancer drugmaker Ariad Pharmaceuticals Inc. for about $4.66 billion -- at a 75 percent premium to Ariad's Friday share price, according to Monday's announcement -- was an unexpected kick-off. 

Tokyo-based Takeda is taking on a lot of trouble at a hefty cost. For one thing, it is jumping into the teeth of the U.S. drug-pricing debate. Ariad became a target of criticism when Senator Bernie Sanders castigated it for increasing the list price of its blood-cancer drug Iclusig four times in 2016.

And Takeda is making a big bet on Ariad's top pipeline asset, the lung-cancer drug brigatinib, which is a late entrant in a crowded class. 

The deal has some appeal; it adds near-term revenue, and brigatinib will ideally secure a bigger global presence in a new type of cancer for Takeda. But to justify this price, a whole lot has to go right.

Rescue Op
Takeda's deal bails out Ariad shareholders, who have had a rocky ride over the past few years
Source: Bloomberg

Ariad is a case study in the warped mathematics of drug pricing. Major side effects forced Ariad to pull Iclusig off the market in 2013 at the FDA's request, less than a year after its approval. It only got back on the market in early 2014 in a much smaller group of patients.

Yet Ariad managed to continue growing sales totals by hiking Iclusig's list price, from around $115,000 a year when launched to nearly $200,000. It's the most expensive drug in an already expensive group, where the most commonly used therapy, Gleevec, recently went generic. 

Outlier
Iclusig is the most expensive drug in a group used to treat a certain subset of patients with blood cancer. The price jumped after side effects led to a restriction on who could receive the drug
Source: Bloomberg Intelligence/First DataBank

Bernie Sanders is seeking information on Ariad's pricing practices. The company recently disclosed a subpoena from the U.S. Attorney in Massachusetts about its relationship with groups that help cancer patients afford its drugs and its own efforts to help patients. Ariad's share price was one of the hardest-hit when President-elect Donald Trump said in a Time interview that he was going to "do something" about high drug prices. 

Ongoing trials may find new uses for Iclusig, and analysts see its sales growing to $352 million in 2021 from around $170 million this year. But its side effects and pricing will always be a major drag on prescriptions. Takeda will have to balance the benefits of the drug's pricing with potential damage to its reputation; it may choose to curtail Ariad's aggressive price-hike schedule or even roll back previous increases. 

But Iclusig won't make or break this deal on its own. The big prize is brigantinib, which could be approved as early as this April. Takeda believes the drug could have annual sales surpassing $1 billion. That's bullish; analysts see the drug hitting $444 million in 2022, with the highest prediction at $886 million that year. 

Crystal Ball
Estimates of the potential of Takeda's new lung cancer drug -- which is promising but entering a crowded class -- vary substantially
Source: Bloomberg

Brigatinib has shown promising trial results in the subset of lung-cancer patients it targets. But the drug is late to market behind medicines from Roche Holding AG and Novartis AG, both tough competitors. A fight for market share may limit the drug's potential, and Pfizer Inc. has a third-generation version of this type of drug coming down the pipeline. 

The size of this deal and the optimism it represents are good signs for the sector. But that will be cold comfort for Takeda if it ends up with nothing for its billions but a pricing controversy and a drug that never lives up to its blockbuster billing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net