ThromboGenics Bid Seen on Eye Drug Treatment: Real M&A

ThromboGenics NV, the Belgian drugmaker that has already more than doubled in a year, is poised to reap even more for investors with suitors drawn to the sales potential of its exclusive new eye treatment.

ThromboGenics surged more than 140 percent in the last year for the third-biggest gain in the Stoxx Europe 600 Index as its first drug gained U.S. approval and went on sale this week. Analysts project the eye injection, the first of its kind for a vision-destroying condition previously treated by surgery, will drive an almost threefold revenue increase in the next three years, a bigger gain than 91 percent of its biotechnology and pharmaceutical peers, according to data compiled by Bloomberg.

With the drug Jetrea also offering the potential to treat other eye conditions in conjunction with existing medicines, ThromboGenics could attract large pharmaceutical companies with established ophthalmology divisions, said KBC Securities NV. Novartis AG, which bought the rights to market Jetrea outside the U.S. and has signaled an interest in pursuing deals, is among the most likely acquirers, according to Deutsche Bank AG. Petercam SA estimates the 1.6 billion euro ($2.2 billion) company could fetch at least a 32 percent premium in a takeover.

“ThromboGenics has a product that could be of interest for larger companies,” Jan De Kerpel, an analyst at KBC in Brussels, said in a telephone interview. Jetrea is “unique in what it does. It’s in a niche area, which is a dream from a marketing perspective. It can easily be added to the top line without too many investments in production or sales teams.”

Jetrea Rollout

When asked about a possible takeover, ThromboGenics Chief Executive Officer Patrik De Haes said the company was focused on the U.S. rollout of Jetrea.

“The success of the company and the value of the company is directly related to a successful launch in the United States,” De Haes said in a phone interview. “All the rest is background music, we don’t hear it.”

Jetrea won U.S. clearance in October for use in treating people with vitreomacular adhesion, or VMA, a condition in which a gel inside the eye that deteriorates with age sticks too strongly to the retina, harming vision. The treatment, now on sale in the U.S., separates the gel from the retina, restoring sight and averting surgery, which had been the only treatment.

Jetrea won the backing of European regulators, ThromboGenics said in a statement today. If approved by the European Commission, Novartis will market the drug after buying the rights to non-U.S. sales of the therapy last March.

Surging Shares

As Jetrea cleared regulatory hurdles, ThromboGenics shares more than doubled in the past 12 months, touching a record closing high of 47.17 euros on Jan. 9.

Today, ThromboGenics rose as much as 4.8 percent, before closing at 43.84 euros, down 3.3 percent from yesterday.

About 500,000 people in the U.S. and the major European markets may benefit from Jetrea, ThromboGenics has said. The Heverlee, Belgium-based company is also developing Jetrea for use in conjunction with other therapies for eye conditions in which VMA is thought to play a role.

“Ophthalmology is an attractive area to be in at the moment; it’s really a new area for pharma,” Peter Welford, an analyst at Jefferies Group Inc. in London, said in a phone interview. With Jetrea, “the fact that it is the only drug currently to treat this disease is clearly a benefit. It’s highly profitable as a drug because it’s a specialist indication. Whenever you’re talking about an unmet medical need where the only treatment is surgery, it’s a pretty attractive market to be in.”

Sales Potential

Analysts project ThromboGenics’s revenue will climb to 221 million euros in 2015 from an estimated 75.2 million euros in 2012, a more than 193 percent jump, according to data compiled by Bloomberg. That compares with a median 24 percent pace among pharmaceutical and biotechnology companies worldwide with at least $1 billion in market value, the data show.

“For any party looking at ThromboGenics as a potential target, the launch and the revenues associated with that are very important,” Joep Muijrers, a partner at Life Science Partners in Amsterdam, said in a phone interview. Life Science Partners holds ThromboGenics shares.

With Jetrea currently facing no competition and the drug potentially complementing other therapies, ThromboGenics would be attractive to a pharmaceutical company with an eye-care business, such as Novartis, Pfizer Inc. or Regeneron Pharmaceuticals Inc., said KBC’s De Kerpel, who estimates global sales for Jetrea could reach 800 million euros a year by 2020.

Complementary Treatment

Novartis, Pfizer and Regeneron all market drugs for wet age-related macular degeneration, or AMD, a leading cause of blindness in the elderly. About one-in-three patients don’t respond to the drugs, possibly because they also have VMA, De Kerpel said. Gaining Jetrea would add a product that may, by resolving VMA, improve patients’ response to drugs that treat AMD, boosting sales.

The marketing deal with Novartis makes it the most likely acquirer, De Kerpel said.

“Novartis already has an option for the company,” De Kerpel said in a phone interview. “Anybody else who would want ThromboGenics leaves the European market and the rest of the world market on the table.”

Buying ThromboGenics would give Novartis a product that could help Chief Executive Officer Joe Jimenez expand sales at the Swiss company’s Alcon eye-care division.

Plugging Gaps

Novartis bought Alcon in stages for about $50 billion starting in 2008, betting eye care held faster growth prospects than pharmaceuticals. Jetrea could help plug a revenue gap when two of the division’s products, Travatan and Pataday, lose patent protection in the next two years, said Tim Race, an analyst at Deutsche Bank in London.

“They bought it when it was growing very strongly, and growth hasn’t been quite as strong since,” Race said in a phone interview. “Jetrea is a ‘nice-to-have.’”

Joan Campion, a spokeswoman for New York-based Pfizer, said in an e-mail that the $198 billion company doesn’t comment on speculation. Representatives for Regeneron didn’t respond to e-mails requesting comment. Tarrytown, New York-based Regeneron has a market capitalization of $16.3 billion.

Eric Althoff, a spokesman for Basel, Switzerland-based Novartis, declined to comment on the $179 billion company’s potential interest in ThromboGenics. CEO Jimenez said earlier this month at the JPMorgan Chase & Co. health conference in San Francisco that the company was considering “bolt-on” acquisitions ranging “between $2 billion and $4 billion.”

Expensive Shares

After the run-up in ThromboGenics’s stock, and with sales of the new drug still unproven, the shares are expensive, said Samir Devani, an analyst at Nomura Holdings Inc. London.

“At the current valuation, the market is already paying for future blockbuster sales of the product,” Devani said in an e-mail. “We’d need to see more concrete sales uptake and positive data in supplementary indications before getting more enthusiastic.” Among six analysts who cover the stock tracked by Bloomberg, he’s the only one to rate it a sell.

At yesterday’s closing price, and taking net cash into account, ThromboGenics was valued at 34.6 times its earnings before interest, taxes, depreciation and amortization during the previous 12 months. Even without building in a takeover premium, that’s higher than the median Ebitda multiple of about 22 for biotechnology deals of $1 billion or more, according to data compiled by Bloomberg.

‘Speculative Element’

Still, the company has the potential to increase Jetrea’s peak sales by at least another 500 million euros by expanding its use to include other treatments, KBC’s De Kerpel said. ThromboGenics is expecting results in the first half of the year for a trial of the drug in patients with wet AMD.

Guy Lerminiaux, chief investment officer for equities at Brussels-based Petercam, which holds ThromboGenics shares among its 14 billion euros in assets under management, said that even after the surge in ThromboGenics’s stock, the prospect of a buyout is what keeps the firm interested in the shares. Lerminiaux reckons the company could draw bids of at least 60 euros a share in a takeover.

“We are holding because there is indeed that speculative element,” Lerminiaux said in a phone interview. “That’s the main reason not to sell or to reduce the position.”

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