Is Puma off the cancer M&A list? With Nerlyx marketing deal, some investors think so

Puma Biotech has been a permanent subject of takeover gossip. But whatever M&A hope investors previously had for a buyout, a European Nerlynx licensing deal may have shattered it.

The Los Angeles biotech is licensing HER2 breast cancer med Nerlynx’s commercialization rights in Europe and part of Africa exclusively to Pierre Fabre for an upfront payment of $60 million, the company said on Monday.

Puma’s stock fell nearly 9% Monday that day on the news. The reason? As analysts from J.P. Morgan, SVB Leerink and Cantor Fitzgerald observed, investors are concerned that the deal reduced the possibility of a takeover.

“While the terms of the deal for this region appear reasonable, we believe some investors may be disappointed with an additional licensing agreement that could further reduce the strategic value of Nerlynx to a potential acquirer,” SVB Leerink analyst Thomas Smith wrote in a Monday note to clients.

In fact, Pierre Fabre is the sixth partner Puma has tapped for Nerlynx marketing, leaving the U.S. and Japan as the only remaining major markets, Smith said. Back in February 2018, the company licensed Greater China rights to CANbridge Life Sciences, right after granting Medison Pharma the Israeli rights. And that's not to mention that a part of the drug's sales will go to its original licensor, Pfizer, as royalty payments.

The cancer specialist has been a constant target of M&A speculation dating at least back to around mid-2017 when Nerlynx won an FDA advisory committee recommendation. At first, industry watchers pegged the time after approval and before launch as the perfect time for a takeover.

Nerlynx’s green light, to prevent breast cancer recurrence in women previously treated with Roche’s Herceptin, further fueled the rumor, especially as the label turned out cleaner and broader than expected (i.e., not restricted to hormone-receptor positive patients), despite some questions raised during the AdCom meeting.

“[I]t has long been explicitly clear that there is potential for the company to be acquired, given Nerlynx is an unencumbered oncology asset with >$1B in commercial sales potential,” Cowen analyst Chris Shibutani wrote in July 2017.

RELATED: Puma to price new cancer med Nerlynx at a higher-than-expected $10K per month: report

But rather than waiting until September as previously expected, Puma immediately launched the drug in the U.S., triggering the interpretation that an acquisition was not imminent. “We’d tend to agree that if a deal was only days or weeks away, it’s hard to understand why the company would push ahead with commercialization,” RBC Capital analyst Matthew Eckler wrote at the time.

In early 2018, the buyout rumor was again revived when a negative EU opinion looked likely. That January, Puma said a negative trend vote from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency would likely translate into a “no” on Nerlynx’s application, scheduled for February.

Puma’s stock took a hit on the news. But Almington Capital president John Engle, in a Seeking Alpha post, maintained that the drug’s U.S. market still represented a lucrative opportunity, and a beat share price made the company look quite attractive for a buyout.

And then, late in the year, GlaxoSmithKline made a $5.1 billion acquisition of Tesaro which, like Puma, had a marketed product—PARP inhibitor Zejula—and a commercial team. The move again stirred up M&A buzz among industry watchers.

Now, a buyout seems unlikely, at least in the eyes of some investors. But after talking to Puma CEO Alan Auerbach, Cantor analysts said that “the likelihood of potential M&A remains about the same.” Management pointed to other companies such as Pharmacyclics and Medivation that did deals in Europe for royalties and were also acquired afterward, according to Cantor.

Meanwhile, based on Pierre Fabre’s existing breast cancer sales team and experience in negotiations with EU payers, Cantor reasoned that “[t]he logic for doing an EU partnership was to get better economics than building a sales force itself.”