Healthcare asset manager Innoviva buys another biotech at a bargain price

Dive Brief:

• Innoviva, a holding company that owns royalties to three GSK respiratory drugs, said Monday it is buying La Jolla Pharmaceutical for $149 million. When the deal is completed, Innoviva will own two marketed drugs used to treat patients hospitalized with infections.
• Per deal terms, La Jolla investors will receive $5.95 a share, a premium of 70% above their average trading price over the last month, along with an additional 28 cents a share for the divestiture of an unspecified “non-core asset,” Innoviva said. That price is well below the $32 figure La Jolla shares reached in July 2018,  before it reported the initial few months of sales for its first approved drug.
• Innoviva has now made two biotech acquisitions and three strategic transactions involving anti-infectives or hospital medicine since June. Prior to the La Jolla deal, the company bought the portion of Entasis Therapeutics it didn’t already own and made a $45 million investment in Armata Pharmaceuticals.

Dive Insight:

Hospitals and doctors are in need of new medicines to combat drug-resistant bacteria strains. Development of new anti-infective drugs has been slow to materialize, however. Sales of new treatments are slow to ramp up because they’re considered last-ditch options for severely ill patients, giving drugmakers little incentive to invest in research.  

Biotechs developing novel antibiotics have struggled, too. Small companies like La Jolla, Entasis, Paratek Pharmaceuticals and Siga Technologies have brought new treatments to market, for instance, but the commercial barriers they’ve faced have led to struggles drawing the attention of investors and holding their valuations. 

La Jolla has two marketed drugs, both of which are used in hospitalized patients with infections. Giapreza, which the Food and Drug Administration approved in 2017, treats low blood pressure in patients with septic shock, a condition associated with major infections. Three years later, La Jolla acquired Xerava, a marketed drug for abdominal infections, when it bought Tetraphase Pharmaceuticals.

A drug approval is meant to be a turning point for a biotech company and point the way towards sustainable profitability. La Jolla hasn’t gotten there, however. While an initial boost in sales and licensing revenue related to Xerava led to a $19 million profit in 2021, the company lost $2 million in the first three months of 2022 and had $44 million in cash remaining at the end of the quarter.  

Innoviva, meanwhile, traces its roots back to a biotech company called Theravance that was aligned with GSK on three lung drugs. The company split in two nearly a decade ago. Part of that biotech retained the Theravance name and has since won approval of a respiratory drug called Yupelri. The remainder became a company dedicated to managing the royalties derived from the GSK drugs. That company is now known as Innoviva and using those royalty streams to acquire other assets. 

Those royalties provided Innoviva with $392 million in revenue and $369 million in profits in 2021. The company had $202 million in cash and $484 million in long-term investments at the end of the year, giving it ample resources to acquire La Jolla and Entasis.  

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