Furtive whispers and a bidding war: Inside Astellas' $3B buyout of Audentes

When Astellas earlier this month unveiled a $3 billion Audentes buyout, it touted the biotech's gene therapy candidates as a fifth pillar of its future business plan. But big moves have small beginnings, and in Astellas' case, it all started with a furtive meeting in San Diego.

On Oct. 1, according to an SEC filing, Claudia Mitchell, Astellas' senior VP of product and portfolio strategy, had a brief message for Audentes CEO Matthew Patterson: We have an offer you might like to hear. 

To be sure, Astellas and Audentes had previously talked about partnership opportunities for Audentes' X-linked myotubular myopathy (XLMTM) gene therapy AT132. They'd met in June at Audentes' San Francisco headquarters. But Mitchell's whispered assurance at the Cell & Gene Meeting on the Mesa––just two days before Patterson's planned dinner with Astellas CFO Naoki Okamura––represented a major escalation in those discussions. 

The following day, Patterson met with Ulf Tollemar, Astellas’ VP and primary focus lead on genetic regulation, who outlined for Patterson the drugmaker's planned play for gene therapies and its expressed "desire to work" with Audentes in that field.

On Oct. 3, during dinner with Okamura, Astellas played its hand––the drugmaker planned to offer a written proposal to acquire Audentes after the meeting's end. 

RELATED: Astellas inks $3B Audentes buyout to expand in gene therapy

But the initial offer at $50 per share wasn't to Audentes' liking, according to the drugmaker's retelling of the deal. Audentes saw its genetic regulation therapies as far more valuable, particularly with AT132 going in front of U.S. and European regulators in 2020. 

So, Audentes' board decided to solicit bids from three "global pharmaceutical companies"––dubbed A, B and C in Audentes' telling––and play some hardball with Astellas. Patterson duly told Astellas the offer was too stingy. In fact, the CEO said, Audentes wasn't interested in selling at all.

Meanwhile, though, Company C had reviewed Audentes' business plan, and on Oct. 16, it said it wanted to make an offer. And that put Audentes in play.

Five days later, Astellas upped its offer to $55 per share, but that still didn't hit Audentes' magic number of $60 per share. Okamura told Patterson to counter. 

Company C came through with its own offer Oct. 25, but at just $49 per share, it was even lower than Astellas' first one. Still, to "maintain a competitive dynamic" and keep Company C on the level with Astellas, Audentes opened an online portal on Oct. 29 for due diligence materials and sent a draft merger agreement ahead. 

Astellas didn't like the bidding triangle that was emerging, so it when it came back with a $60 per share offer Oct. 31, there was one caveat: You only negotiate with us. No such luck though; Audentes turned down the exclusivity agreement and went back to work on Company C. 

In fact, over the course of the next few weeks, Audentes worked the phones to try to stoke the bidding war. Company C agreed on Nov. 22 to up its offer to $55 per share, but Audentes said it would need to add at least $3 per share to stay in the game at all.

Three days later, Audentes played its final hand to Company C: We need to hit at least $60 per share or we take the other offer.

And that decided it: Company C backed away, and on Dec. 2, Audentes' board unanimously agreed to Astellas' $60 bid.

In its SEC filing, Audentes' board made the case that Astellas' offer at a 110% premium "provides immediate and certain value and liquidity and does not expose them to any future risks related to Audentes’ business or financial markets generally." 

RELATED: Astellas jumps into gene and cell therapy production with $255M investment

Those future risks were a major consideration for Audentes, which outlined the "prospective risks" of remaining independent in its filing. Among those, Audentes noted that it currently has zero approved products and that most of the therapies in its pipeline are in the early stage of development. 

Moreover, Audentes' cited the "considerable uncertainties" surrounding the manufacturing of those therapies and said it the company would likely need to pursue a commercial partnership to make its therapies financially viable. 

On the manufacturing end, Astellas will likely be a worthwhile partner after the Japanese drugmaker invested $255 million in late 2018 to boost its cell and gene therapy capacity. The company lined up some new projects in October of that year, including investing ¥5.0 billion ($44.2 million) on a clinical supply and early commercial manufacturing facility, both in Japan. It says it will also invest ¥14.0 billion ($123.6 million) to relocate and outfit a new R&D facility in the U.S.

With the deal, Astellas will join a growing list of companies to envision gene therapies in their future. Over the past two years, companies including Biogen, Novartis and Roche have struck deals to add gene therapies and associated infrastructure, driving up the value of other startups active in the field.

The Audentes buyout is expected to close in the first quarter of 2020. 

Editor's note: This story has been updated to correct a mistake. Claudia Mitchell is Astellas' senior VP of product and portfolio strategy.