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Astellas-Audentes Deal Likely to Ignite More Acquisitions

Are UniQure (NASDAQ:QURE), Ultragenys (NASDAQ:RARE) and Sarepta Therapeutics (NASDAQ:SRPT) among the next dominoes that could fall as Big Pharma looks to acquire companies with expertise in gene therapy? Speculation has heated up after the announcement that Astellas Pharma (ALPMY) will pay $3 billion to buy Audentes Therapeutics (NASDAQ:BOLD).

SVB Leerink analyst Mani Froohar thinks more takeovers are in the making. Yahoo Finance reported that in a note to clients, Froohar said the latest deal "may signal big pharma's optimism towards M&A (mergers and acquisitions) and that the gene therapy sector remains an appealing hotbed for innovative and value-creating targets." He added two more companies to the list of potential acquisition candidates: BioMarin Pharmaceuticals (NASDAQ:BMRN) and Solid Biosciences (SLDB).

Tokyo-based Astellas is paying a lofty price for Audentes, more than twice what the latter's shares were trading at before the deal was announced. Company President and CEO Kenji Yasukawa thinks it will be well worth it. He said the Audentes pipeline complements Astellas' product portfolio and will help the company reach its goal of becoming a leader in gene therapy. Citi analyst Hidemaru Yamaguchi agreed. He told The Pharma Letter that although the deal looked expensive, it was a positive move for Astellas because Audentes had "cutting-edge gene therapy modalities."

Evidently, investors aren't concerned by the premium Astellas paid. The company's shares are trading near their 52-week high of just over $17. On the other hand, that's just about where the stock was at five years ago.

Of the potential targets named, BioMarin would probably be the most expensive, while Solid Biosciences would be the cheapest.

Market cap of gene therapy companies

  • UniQure: $2.9 billion
  • Ultragenys: $2.5 billion
  • Sarepta: $8.2 billion
  • BioMarin: $14.4 billion
  • Solid Bio: $0.2 billion

The deal will enable Astellas to set up a new genetic regulation unit led by a neuromuscular disease gene therapy that is set to be submitted for approval next year, according to an article in FierceBiotech.

In addition to the Audentes therapies under development, Astellas gains an important asset: the former's manufacturing capabilities. Audentes has substantial production capacity that Astellas thinks will enable it to quickly advance programs and make treatments reliably at scale, according to the FierceBiotech article. That bonus makes other gene therapy companies with manufacturing facilities more appealing.

Christopher Raymond and his colleagues at Piper Jaffray emphasized the value of the manufacturing assets in a note to investors. "We've long viewed the scarcity value of Audentes' fully integrated manufacturing and broad product portfolio as highly attractive," he wrote.

Astellas joins a growing list of companies eager to add gene therapies to their portfolio. In the past two years, Biogen (NASDAQ:BIIB), Novartis (NYSE:NVS) and Roche (RHHBY).have made deals to beef up their capabilities in the field.. Raymond said other members of Big Pharma seeking to get into the game are likely looking at three companies: BioMarin, UniQure and Sarepta.

Disclosure: The author has no positions in any of the stocks mentioned in this article.

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This article first appeared on GuruFocus.