Global Blood Therapeutics Inc (NASDAQ:GBT) is spiking towards the end of the week on the suggestion that it might be an acquisition target for a big pharma name. The company will open the US session on Thursday at a little over $34.20 a share – that’s a 23% premium on its Wednesday open and a more than 130% gain year to date.
So what’s the takeover talk, and what’s in it for both companies? Let’s take a look.
Reports hit press early Wednesday morning that Danish big pharma company Novo Nordisk A/S (ADR) (NYSE:NVO) has approached Global Blood Therapeutics Inc (NASDAQ:GBT) to discuss a potential takeover, and that subsequent to the approach, the latter has brought an investment bank on board to hammer out its options. Before we get into why Novo might want to buy Global Blood, it’s first worth noting that neither company has confirmed the report. Neither has denied it, but it’s not in Novo’s nature to comment either way, so just because the company hasn’t confirmed or denied anything doesn’t really offer any insight.
Anyway, with that said, and working on the assumption that there is credence to the reports, it’s not too surprising. Global Blood has for a while now been the subject of takeover speculation, with its lead development program progressing promisingly and having the potential to generate considerable revenues for the company (or a suitor) if and when it hits the shelves.
For those not familiar with the program, it’s a sickle cell disease drug called GBT440, and it’s currently in development as part of a phase III trial called HOPE. Many analysts thought that a big name would wait until data from this trial became available (expected late this year at the earliest, but more likely next year) before showing their hand. With that said, a couple of big names have been linked with acquisition rumors, and the drug would fit nicely into a range of portfolios, so that one company (Novo Nordisk A/S (ADR) (NYSE:NVO)) might want to get a head start on discussions isn’t an unreasonable suggestion.
So, what’s in it for Novo Nordisk A/S (ADR) (NYSE:NVO)?
The primary asset that Novo would acquire is the above mentioned GBT440. Sickle cell is a really tough disease to treat, and there’s a large unmet need in the space as things stand. GBT440 has shown some real promise in earlier stage studies (efficacy and safety came out as ticked boxes from a pretty wide scale phase II) and it’s got the potential to serve as a preventative asset in the space, as well as a direct treatment asset – something that just isn’t available right now.
The drug works by binding to a certain amount of hemoglobin in the blood (somewhere around 20%) and increasing the hemoglobin’s affinity for oxygen. Studies have suggested that increased oxygenation can delay the process that leads to the sickling of the red blood cells that characterizes the condition, and in turn, through this delay, the clinical manifestations of the sickle cell disease will take longer to materialize, or ideally, not materialize at all.
The trial that will decide its fate (and ultimately, that of Global Blood) kicked off in January – the above mentioned HOPE phase III. Like we’ve said, it’s not going to read out (realistically) until next year, and so until that point, we don’t really know whether the above described MOA is a viable treatment approach. With all currently available information suggesting that it is, however, things look good for Global Blood Therapeutics Inc (NASDAQ:GBT) and its shareholders.
And what’s in it for Global Blood?
Well, the company is currently valued at just shy of $1.5 billion, and that’s with the recent run taken into account, but analysts (Wells Fargo) put peak sales for GBT440 at $2.7 billion annually. This suggests Global Blood Therapeutics Inc (NASDAQ:GBT) will be able to command a premium to its current PPS from any buyer. We expect that anywhere below the above mentioned peak sales is cheap, so based on current price, this infers a minimum of an 80% premium on the company’s current market capitalization. Of course, as the rumors heat up, and especially as the data hits press (and assuming it’s positive) then PPS will likely rise towards this valuation.
If a few companies want to put bids in (and we reckon they will) $2.7 billion looks cheap.
Note: This article is written by Mark Collins and was originally published at Market Exclusive.