Bristol puts Mirati out of its misery

It might have come two years later than investors had hoped, but Mirati, a company that had a mission to get acquired, has been acquired. However, Bristol Myers Squibb’s $4.8bn takeover, revealed last night, will offer little comfort either to established Mirati shareholders or to those short-term chancers who had swooped on Thursday when rumours of a buyout by Sanofi broke.

That’s because the Sanofi rumour had already sent Mirati stock up 45%, wiping out Bristol’s implied premium, and meaning that the $58 per share Bristol is offering up front actually represents a discount to Friday’s $60.20 close. Meanwhile, two years ago, when unfounded takeover talk was rife, Mirati was trading at over three times today’s levels.

That said, the deal that ultimately emerged is another lesson for investors about the importance of being disciplined in the face of excessive exuberance. It’s possible that even back in 2021 Mirati was attracting takeover interest, but at valuations its management deemed unacceptably low at the time.

Rudderless

It’s only now, with Mirati rudderless after the departure of its chief executive David Meek, that the depressed market has forced a more realistic view.

However, other triggers have happened too – not least Thursday’s scathing adcom over Amgen’s Lumakras, an event that might have removed one perceived overhang from Mirati’s share price. Even though the adcom seems unlikely to see Lumakras pulled from the market immediately, it reduces the threat that drug poses to Mirati’s rival KRAS G12C product, Krazati.

That’s not to say that there won’t be other threats, such as Roche’s divarasib, which in August put up impressive lung and colorectal cancer data, and the RAS(ON) inhibitors being developed by Revolution Medicines. But perhaps Mirati’s valuation had fallen to a point at which Bristol felt comfortable with the risks, and the possibility of Sanofi launching a buyout bid, whether real or perceived, focused the mind.

A more fundamental point is that Mirati does seem to be being bought for Krazati after all. A theory that had recently gained ground was that Mirati’s PRMT5 inhibitor MRTX1719 was emerging as the more interesting asset; however, the structure of the Bristol deal makes it clear that Krazati is the basis for the $4.8bn up front that the deal carries in immediate equity value.

Most of the value of MRTX1719 is captured instead as a contingent value right (CVR), which will give current Mirati holders another $12 per share only if a filing for that PRMT5 asset is accepted by the FDA, specifically for treating no later than third-line NSCLC, and not more than seven years after the takeover deal closes. 

The CVR lives on

Those fond of the technical details of acquisition will note that the CVR is an increasingly popular instrument to bridge a valuation gap between buyer and seller. This year alone CVRs have been used in Coherus’s takeout of Surface Oncology, while outside cancer they have featured in acquisition deals between Novartis and Chinook, AstraZeneca and Cincor, Chiesi and Amryt, and Ipsen and Albireo.

For Bristol the Mirati deal comes after last year’s $4.1bn takeover of Turning Point, another small-molecule player with a lung cancer focus. It’s also important that Mirati boasts a KRAS G12D inhibitor, MRTX1133, and a SOS1 inhibitor, MRTX0902, while Bristol’s presence in SHP2 inhibition, another part of a KRAS combo strategy, comes via a licensing deal for BridgeBio’s BBP-398.

The table below shows that Bristol has been quietly building up a presence in hot areas of oncology, but has made few big punts since its 2019 takeout of Celgene. Today's deal suggests that the big pharma has long been interested in one of the most hyped targets of recent years, KRAS inhibition – and that the price has now become right to swoop.

Notable Bristol Myers Squibb oncology deals

Source: OncologyPipeline.