What: Reports that Baxalta (UNKNOWN:BXLT.DL) is interesting in acquiring Ariad Pharmaceuticals (NASDAQ:ARIA) to boost up its oncology exposure resulted in Ariad Pharmaceuticals' shares surging higher by 42% today.
So what: Baxalta is Baxter's recently spun-off biopharma business, and it's been on investors' radar since early August when it came to light that specialty biotech Shire Plc was interested in acquiring it in a deal valued at $30 billion.
Shortly thereafter, Baxalta's board rejected Shire's overture as being too low. If private negotiations are still ongoing, they don't seem to be dissuading Baxalta from pursuing its own acquisition strategy, which appears to be focused on cancer treatment -- Ariad Pharmaceuticals already has one FDA approved cancer drug, Iclusig, on the market, and it's got another therapy making its way through trials.
Ariad's Iclusig is approved for use in previously-treated chronic myeloid leukemia, or CML, patients, and Philadelphia chromosome positive acute lymphoblastic leukemia, or Ph+ ALL, which are two rare indications. Last year, sales of Iclusig totaled $55.7 million. This year, Ariad Pharmaceuticals thinks sales of Iclusig will be at least $130 million.
Ariad Pharmaceuticals would also net Baxalta the drug brigatinib for the treatment of ALK-positive non-small cell lung cancer. In phase 1/2 studies, the overall response rate to brigatinib was 70%, and progression free survival rate was a median 13.4 months. If brigatinib continues to put up that kind of data, Ariad Pharmaceuticals thinks it could file for FDA approval next year.
Now what: Historically, it's been very hard to develop new cancer therapies. In fact, 93% of cancer drugs entering phase 1 trials typically end up in the dust bin, rather than on pharmacy shelves.
Because of the difficult (and costly!) nature of oncology research, it would seem to make sense for Baxalta to acquire a research team that has already been-there-and-done-that. However, it's still not certain whether a deal between Baxalta and Ariad Pharmaceuticals will be struck. If Ariad Pharmaceuticals' board demands too high of a premium, Baxalta may balk.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Baxter International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.