The solid performance of the healthcare sector over the past year has been enhanced by mergers and acquisitions, licensing, and other forms of deals in the sector. This most recent deal in the sector may not be the biggest when compared to traditional M&A, but it could prove to be a pivotal move for these two companies.
Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) and announced the completion of a synthetic royalty deal through financing from PDL BioPharma, Inc. (NASDAQ: PDLI). Under the terms of the deal Ariad will receive $100 million in cash –$50 million upon the deal execution and an additional $50 million in one year. In exchange for this, PDL will receive a mid-single digit royalty on future sales of Ariad’s drug Iclusig until PDL receives a fixed internal rate of return.
As an option, Ariad can receive an additional $100 million at any time between 6 and 12 months from the date of agreement, on comparable terms.
The question that 24/7 Wall St. wants to address here is simple to ask, but will not be simple to get to an answer on — Is it ARIAD or PDL that really wins here?
What investors will want to know is that Iclusig is already approved in the U.S., EU, Australia, Israel, Canada and Switzerland. In the U.S., Iclusig is listed as a kinase inhibitor indicated for the following:
- Treatment of adult patients with T315I-positive chronic myeloid leukemia (chronic phase, accelerated phase, or blast phase) or T315I-positive Philadelphia chromosome positive acutelymphoblastic leukemia (Ph+ ALL).
- Treatment of adult patients with chronic phase, accelerated phase, or blast phase chronic myeloid leukemia or Ph+ ALL for whom no other tyrosine kinase inhibitor (TKI) therapy is indicated.
As for PDL, it will initially receive 2.5% of the worldwide net revenues of Iclusig until the one year anniversary of the closing date, at which time the royalty increases to 5.0% of the worldwide net revenues of Iclusig and remains until December 31, 2018. Beginning January 1, 2019 and thereafter, the royalty rate will increase to 6.5%, subject to an additional increase to 7.5% if PDL’s funding exceeds $150 million.
If PDL does not receive payments equal to or greater than the total amount funded on or before the fifth anniversary of each of the respective fundings, Ariad will pay PDL the difference between the amounts funded by PDL and the amounts paid to such date.
Now investors have to consider what Iclusig revenues have been, and what they could be ahead. Also, ARIAD ended its March quarter with roughly $304 million in cash and equivalents.