Amgen to hold Praluent Ransom to keep drug on market

Amgen, Sanofi and Regeneron are negotiating a settlement. Amgen wants to save the inflammation business unit of Enbrel and near term launch of dupilumab/Sarilumab would keep Amgen in derm/rheum and give them near term revenue growth. Looks like Amgen has the upper hand and looking to be aggressive and take a nice ransom from both companies in order to keep Praluent on the market. If Sanofi/Regeneron lose the appeal, they will have to concede more to keep praluent on market. Amgen is now looking to delay the outcomes data release since they have the upper hand in this battle.

Given the time sensitive nature of appeals, Sanofi/Regeneron can gamble and get the injunction repealed with no cost. They could negotiate with Amgen now and get unfavorable terms. Or if they wait to negotiate after losing the appeal, they will get the worst terms. Amgen can basically ask whatever it wants then, or they will block the praluent all together.

Furthermore, if Sanofi/Regeneron Praluent is allowed to stay on market. Amgen will have terms and conditions that dictate the competitive environment such as contracting, pricing, promotions, and lifecycle management that will prevent Praluent from being a market leader and blindsiding Amgen. Basically, Amgen will get the set the rules of the game and pick rules that favor Amgen.

Amgen R&D team and BD will be looking at all Regeneron pipeline programs to see which ones they want the rights to. Amgen is mostly interested in inflammation and oncology assets.

 

I don't disagree at all with what you said. Would you mind sharing what type of role you have just in general and with which company? You sound legit and on point.

 

REGN will not let go of dupi for Praulent in any way shape of form. Future market for dupi is about 10x who could be expected for Praulent even under ideal circumstances. REGN could give them sarilumab and it might be worth it. At best, sari is worth about 100 M in today's RA market at peak. I actually expect AMGN to ask they get a permanent ban on Praulent and make REGN eat the loss. Remember, the only real revenue for REGN (aside from selling transgenic mice at 1 M each pair) is Eylea and it has competition coming...

 

Consider this; 1) 2017 is the year that the poison pill at REGN goes away 2) Without Praulent, REGN is beat way down compared to 2 years ago when they were trading near $600 3) Amgen has LOTS of cash and needs to buy someone to extend their product lines. 4) The biggest internal stock owners at REGN are multimillionaires many times over and all over 50 5) All of the REGN product and research areas are complimentary to AMGN and they could sell Praulent off if they bought REGN

 

This might happen as after Trump allows for ex-US cash repatriation lower tax rate, Regeneron value will be at an all time low and Amgen will have the keys to drivIng it's value with praluent. Amgen buys Regeneron for cheap, takes the asset it wants and then sells praluent. They can withhold praluent a outcome data until repatha entrenched and then sell it off to Astrazenca or Pfizer.

 

what is impact of all this on the launch of Dupi and that sales force that was just hired?

 

Depends if Amgen gets Dupi rights. They already have interest since Enbrel Derm is a dying breed. If they get Dupi, then you will be fired.

 

Nice write up! Agree with the business interests and market segment expansion / preservation efforts/ past actions of Amgen with Roche and Onyx. There are a few pieces of assumptions that needs to occur prior to an all out Amgen purchase of Regeneron.

For Amgen to complete the purchase,

1. AMGN needs to raise tremendous amount of cash. They currently hold approximately $4.5 Billion USD in cash/equivalents. Even if that doubled, there's still not enough funding for a cash purchase. Cash/share acquisitions complicates the process especially with SNY, Gilead, among other companies expansion interests.

or

1A. Regeneron's value decreases drastically. That won't happen since the PCSK9 industry has been/is a money pit. Even if the cholesterol reduction outcomes data shows tremendously positive results, the COGS of a sterile injectable upends tablets. Payer uptake may increase slightly, just not enough to tip the scale with current available treatments.

So, yes, a possibility but still very, very unlikely.

 

The court has already ruled on that point, and the remedy is a sale injunction. Amgen had to prove that the patent was infringed and that they suffered irreparable harm not compensable by money damages. They succeeded on both points so a royalty as the remedy is off the table unless Amgen decides to voluntarily give up their big win (fat chance of that happening).

The hurdles on appeal are very high. Sanofi has to prove that the jury reached the wrong verdict, which doesn't mean that they just have to convince the appellate judges themselves, they have to prove that no reasonable jury could hear the same evidence and reach the same result. It doesn't matter if a different jury would reach a different conclusion, the hurdle is to prove that there is no jury composed of reasonable people would reach the same conclusion. The other out is to prove clear legal error on behalf of the district court judge. Again it is not the case that Sanofi just needs to convince a different judge to rule differently, they have to prove the lower court judge was flat out wrong and misapplied the law. That doesn't happen often in commercial cases like this, and even less often in the Delaware circuit.

So, either we lose Praluent from the portfolio in thirty days, or we pay Amgen a punitively high royalty that will mean that Sanofi will have to raise prices way above that of Repatha (think double), or Regeneron/Sanofi win on appeal. Meanwhile, the damages pile up with each script written so this can't go on for long without being resolved.

 

1. Amgen has over $30B in ex-US cash. A Trump tax holiday makes this possible.

2. The drug can be sold while the appeals process takes place for another 12-18 months. How many doctors want to put new patients on the drug now? If the ruling is upheld, which is likely, then Regeneron would have to back pay harm during those 12-18 months. After these appeals, there are no more courts. Supreme court won't hear these cases. By then a Trump appointee will likely support the current ruling.

3. SEC would say that Amgen cannot have acquire Regeneron if the drug was allowed on market. If the ruling holds, then there is no conflict. Amgen still would be the only company with the rights to bring it back to market. Depressed value of Regeneron makes it a bargain for them acquire Dupi and Sari, then sell off the rest of the pipeline and then rights to Praluent.

4. Overturning this will be very tough. Like in football the call on the field needs needs irrefutable evidence to overturn. In this case, there were 2 rulings (March 2016 and Jan 2017) on both patent points.

This is a sad mistake as the only choice that is left is to pick your poison. Amgen will surely not be benevolent and being run by an HBS ex-Morgan Stanley investment banker (over 25 years) in Bob Bradway, maximizing deals is his forte.

 

It's funny how much information Cafe Pharma can provide investors although its not entirely reliable. I've met and interacted with Bob Bradway in a previous life and knowing him, he will not hesitate to take every penny from Regeneron even it puts Regeneron out of business. He's ruthless and he was paid higher bonuses to do so. It's Regeneron's management's mistake in his view if the company is raped by him. This will allow him to build his legacy at Amgen. He doesn't need the money, he just wants the bragging rights to feed his ego. When he sits with his million-billionaire friends, taking Regeneron to the town is how he shows he still has a big dick. Don't expect any charity.

 

So... let me see... what you're saying is Bradway's a greedy Wall St. maniac, which is really no different than REGN Leadership (Bradway may be more intelligent vs. REGN Leadership combined, I'll give you that).

We still need to work out the numbers. Even with the expected debacle of PCSK9 by REGN, we're still worth $38B as of Friday. With the current AMGN cash holdings of $4B+$30B (of foreign cash/equivalent holdings, a Big IF), sums up to $38B.

Standard pharma acquisitions run anywhere from 3x-5x the market cap, which by Friday's numbers factor to, around $120B to $200B price tag....

Unless you're counting on the PCSK9 debacle to reduce REGN market cap to approximately $10B??..

Trust me, A-hole or not, Wall St. Maniac or not, REGN Leadership started from a 10 people company and know very, very, VERY (did I say very?) little. They now walk, talk, give direction, prance, shit like "leaders" (but they're really just hillbillies nobody hired 20 years ago...) Sorry to digress..

IN any case, PCSK9 is a lost cause, and REGN will just give up the molecule and still maintain a $300+/share, $30B market cap based on Friday's numbers (Pro-Forma with Sari+Dupi+Mice Husbandry)....

A suitor will need a lot more money than $40B, which allows companies like Gilead, PFE, ..... but unlikely AMGN.

I do like your analysis but need to point out the numerical flaws. Please show me your math as I'm always curious.

PS -

There are synergies in the acquisition - you've proved that point.

 

Regeneron current stock value reflects a belief in a 6%-20% royalty rate with the drug still in Regeneron's hands. The stock will drop dramatically if the assumption is changed to complete removal of the product.

Amgen doesn't need pure cash to acquire Regeneron. There is stock and financing to cover gaps. Amgen is gunning for complete removal as they have the most to benefit with praluent off market and the greatest leverage to acquire and raid Regeneron for their benefit.

 

Sure, AMGN will likely get Praluent off the market or receive significant royalties. Most likely off the market. Still, there are uphill battles with payers and statins.

Let's say REGN gives up Praluent entirely, most of the current revenues occur from Eylea. The share price includes "hype" from Sari, Dupi, "Super-mice" mating/selling, Fusi is on clinical hold....., and sums to at the least $225/share. That's still over AMGN's cash holdings.

AMGN may make a bid and then larger companies with longer (needier acquisition plans) will swoop the deal.

REGN is in a bad place but I still think an AMGN acquisition is a possibility and unlikely.

 

You can't run an excel model here but if you run a model for Regeneron. Take out all sales of praluent and calculate the enterprise value with a WACC of 8.0% and you should see a ~25% reduction depending on your Praluent PCSK9 forecast.

 

Bigger needier companies cannot add 25% of value that Amgen can with the rights to Praluent in the US market.

 

A huge factor missing in all of this speculation is that Sanofi owns around 24 percent of Regeneron with limit
Of up to 30 percent. Sanofi would have enough votes on the board to block any acquisition.
Eventually Sanofi will be the company acquiring Regeneron.

 

Yes, the 3x to 5x market cap potential purchase price factors in any synergies with existing market channels associated with cardiovascular, dermatology, rheumatology, industrialization capabilities/facilities, among other factors. Otherwise, for a suitor with zero synergy REGN is worth about $12B - $20B.

 

We mentioned them as SNY in earlier posts. Good point and yes, the 2017 contract expiration allows SNY to purchase more shares of REGN. Board members like to line their pockets and at the end, money talks.

Let the best negotiator find the "treasure" behind door number 2!