A Licensing Agreement Won’t Protect This Biotech From A Takeover

Puma Biotechnology‘s (PBYI) licensing agreement for breast cancer drug Nerlynx won’t inhibit takeover interest for Puma, an analyst said Tuesday as shares tumbled following the deal.


Early Tuesday, Puma said it will allow Medison Pharma to commercialize Nerlynx in Israel where it is not yet approved. Nerlynx is used in the U.S. to treat breast cancer in patients with a specific genetic condition that makes them more susceptible to cancer.

Investors, though, are seemingly keyed in on whether Puma will be acquired, RBC analyst Kennen MacKay said. Takeover interest in biopharma has spiked recently. Celgene (CELG) is planning to buy Juno Therapeutics (JUNO). Sanofi (SNY) is buying Bioverativ (BIVV) and Ablynx (ABLX).

“Importantly, we do not see this partnership removing mergers and acquisition interest for Puma, which we view as critical to the bull thesis on the stock,” he said in a note to clients.

Under terms of the deal, Puma will receive upfront and milestone payments as well as double-digit royalties on Nerlynx sales in Israel.

“Our new agreement with Medison demonstrates our commitment to bringing Nerlynx to patients around the world while continuing to focus our commercial resources on the U.S. market,” Chief Executive Alan Auerbach said in a written statement.

But MacKay called the deal “largely incremental.” In Israel, there are about 4,500 breast cancer cases diagnosed annually vs. about 250,000 in the U.S. Of those, only about 20% of patients have the specific gene amplification required for Nerlynx use.

MacKay sees a potential for peak sales of $860 million for Nerlynx. He expects Nerlynx to bring in $20 million in fourth-quarter sales, below the consensus view for $21 million.

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Puma has struggled with Nerlynx recently. Earlier this month, European authorities said it was unlikely they would approve Nerlynx for use in some breast cancer patients when it comes to a vote next month. Shares toppled by a third that day.

By the closing bell on the stock market today, Puma slid 4.6% to close at 65.75, after falling as much as 9.7% in earlier trades.

Biotech stocks collectively dipped 1.3%, though some were down more after Amazon (AMZN), Berkshire Hathaway (BRKB) and JPMorgan Chase (JPM) announced a collaboration to cut down on costs of health care in the U.S.


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