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The Argument For An AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) Buyout Just Got Stronger

The Argument For An AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) Buyout Just Got Stronger
Written by
Chris Sandburg
Published on
September 21, 2017
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On September 11, as part of this piece, we put forward what we saw as a pretty strong validation of the rumor that AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) was set to be bought out by Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ).As we said at the time, these sorts of rumors are not something we usually pay too much attention to but given the parties involved, and the previous links between said parties, we felt that there may be some validity to the suggestions outlined.Fast-forward 10 days and things have gotten even more interesting.For anybody that missed our previous coverage of AVEO, the validation of the potential buyout was, for us, rooted in the existing links between Jazz and AVEO via a European-based healthcare distribution company called EUSA Pharma. Basically, AVEO had just picked up European approval for its lead development asset, a drug called tivozanib, in a target indication of advanced renal cell carcinoma.The company that is set to market and distribute the drug in Europe is EUSA by way of a distribution agreement signed back at the end of 2015. Under the terms of the initial 2015 agreement, EUSA agreed to pay AVEO up to $388 million in R&D funding and milestone payments plus royalties. AVEO Daily ChartThe latest news reported by the company is rooted in the same asset, but this time based on an investigation into the potential safety and efficacy of the drug when used in combination with Bristol-Myers Squibb Co (NYSE:BMY)'s blockbuster oncology asset, Opdivo.The program will be called TiNivo and it is a phase 1/2 trial set up to investigate the above-mentioned combination. As per this release, EUSA has opted into the trial on a licensee basis and, on the back of this opting in, will pay AVEO $2 million by way of an upfront cash payment to fund R&D.So why is this a big deal right now and what does it have to do with our expectations that there might be some validity to the rumor that Jazz is pitching to acquire AVEO?Well, Jazz owns EUSA.At the time of our previous coverage, the licensing deal that was signed back in 2015 was just coming into play for the companies involved (since tivozanib had just been approved in Europe) and this was an intriguing link that served to tie AVEO and Jazz together, supportive of a potential buyout.Fast forward to this week and we learn that not only are EUSA and AVEO partnered up on a distribution deal for tivozanib in the RCC indication but that the two are now in bed together on a combination asset trial in the same indication, with the addition of one of the biggest drugs in the world to the active regimen.In other words, there are now two very good reasons that Jazz might want to acquire AVEO.With a potential $388 million earmarked as milestones from the former to the latter (through EUSA, of course, but that's largely irrelevant) there's real financial incentive for Jazz to want to buy the company outright. Whatever price the company pays, it can write-off around $350 million (assuming very conservatively that $38 million has already been transferred as development cost) from the acquisition price tag in future royalties that it's no longer going to have to pay.Additionally, now the asset is approved in Europe, there's validation in place that supports a near-term US approval (there's an ongoing trial right now targeting exactly that) and, longer term, a potential combination administration green light as part of an Opdivo first-line cocktail.This is all highly speculative, of course, so keep that in mind. With that said, however, it's just about feasible enough to justify a position on any biotech trader or investor's radar.Check out our previous coverage of this one here.We will be updating our subscribers as soon as we know more. For the latest updates on AVEO, sign up below!Image courtesy of Håkan Dahlström via FlickrDisclosure: We have no position in AVEO and have not been compensated for this article.

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