TheChek News Flow

No Satellite of Love for T-Mobile

For T-Mobile US, it may still take two to tango.

After Sprint's decision last week to shelve a plan to bid for its rival, T-Mobile shareholders who had counted on an offer are scanning for other potential suitors. T-Mobile rejected a request to see its books from French telecom operator Iliad, calling the latter's $15 billion offer for a 56.6% stake too low.

One possible contender: Dish Network. But a deeper look at the satellite company's balance sheet suggests a deal might be hard to swing.

Owning T-Mobile could help Dish put its wireless spectrum holdings to use if the combined company can invest in building a network based on Dish's airwaves. Dish would avoid the regulatory hurdles that quelled Sprint's ambitions.

But Dish and T-Mobile are both issuers of high-yield debt. They would risk their credit ratings if a deal has a big cash component and the combined company has leverage of more than five times trailing earnings before interest, taxes, depreciation and amortization, according to Moody's. And Deutsche Telekom, which owns 67% of T-Mobile, would likely want cash.

Moody's lays out three scenarios, including Dish paying all cash for a 51% stake in T-Mobile, buying Deutsche Telekom's stake for 70% cash and 30% stock, or buying all of T-Mobile for 50% cash and 50% stock. All utilize most of the companies' cash and Moody's also assumes an enterprise value for T-Mobile of $53 billion, or $37 a share plus gross debt, no cost savings and $6 billion to participate in the government's auction for broadcast spectrum. The upshot: the combined company's leverage would reach between 5.6 and 5.8 times Ebitda.

Dish Chairman Charlie Ergen is likely attuned to this dilemma. On a conference call last week, he spoke admiringly of T-Mobile but spent more time extolling the potential of Sprint. T-Mobile investors looking for a deal partner should probably take the hint.

European pharma to emerge as consolidators as US targets release key clinical data
• AstraZeneca and GSK could look at InterMune
• Incyte, Pharmacyclics and BioMarin also watched
• Sanofi could eye BioMarin in 2016
European pharmaceutical firms looking to add to their portfolios could take advantage of a slew of US assets releasing late-stage clinical data and a calmer cross-border M&A market due to a possible clampdown on US tax inversion deals, bankers and analysts said.

UK-based AstraZeneca [LON:AZN] and GlaxoSmithKline [LON:GSK], which have spent the first half of the year reorganising their portfolios, could now look to the US in an effort to replenish and enhance existing pipelines, the bankers and analysts said.

Roche [VTX:ROG] and Sanofi [EPA:SAN], which are both on the hunt for acquisitions, could also be sounding out targets across the Atlantic to add advanced technologies and new orphan drug development science, one banker and analyst suggested.

US firms in the USD 5bn-USD 10bn size range would be affordable and provide European bidders with long-term revenues, two bankers and two analysts said. They named InterMune [NASDAQ:ITMN], BioMarin[NASDAQ:BMRN], Incyte Corporation [NASDAQ:INCY] and Pharmacyclics [NASDAQ:PCYC] as targets within this range.

Jazz Pharmaceuticals [NASDAQ:JAZZ] and Salix Pharmaceuticals [NASDAQ:SLXP], which are both UK-headquartered, also fall within this deal range, but European pharma would have to compete with US bidders willing to pay a tax inversion premium, one of the analysts said.

UK giants on the prowl

AstraZeneca and GSK, which have both undertaken strategies that have led them to focus on respiratory disorders, can better reap revenue if they have a presence across the gamut of respiratory indications, the analyst and banker said.

An acquisition of US-based InterMune, which has filed pirfenidone for idiopathic pulmonary fibrosis (IPF) for approval with the US FDA and is awaiting a response in 4Q14, would be a good fit for either AstraZeneca or GSK, they said.

GSK is developing a greater interest in the IPF space, a consulting physician said, while in May this year, AstraZeneca told this news service it was exploring more activity in IPF in its attempts to expand its respiratory portfolio.

GSK declined to comment. AstraZeneca did not return a request for comment.

There are not many firms specifically looking at IPF, so only players with an existing respiratory franchise would pay the price required to do a deal, the banker added. But, the asset would also interest players in inflammatory and orphan diseases, meaning that there would be many firms actively looking at InterMune, a second banker said.

Adding a premium, InterMune could fetch USD 5bn with a potential 10-15% upside if the US FDA approves the drug, pushing the price tag to up to USD 5.5bn - a deal that both GSK and AZ could comfortably afford, the analyst and banker said. With only one product in the late-stage pipeline, one would assume USD 1.5bn-USD 2bn peak sales are needed for InterMune to reach a value of USD 4bn-USD 5bn for a sale, an industry M&A lawyer said.

Bidders have so far refrained from moving in on InterMune, given the regulatory risk associated with pirfenidone's FDA approval quest. But, now that it has been approved in the EU and Canada, buyers are more willing to acquire, the third healthcare banker said.

US regulatory risks have been minimised with recent positive Phase III data presented at the American Thoracic Society (ATS) in May, physicians told this news service. The potential for pirfenidone to be studied in other fibrotic diseases in the lung or other organs are a long way from materialising, the consulting physician said. While GSK and AstraZeneca could find this potential an added bonus, such a possibility would not be compelling enough for non-respiratory focused pharma players, the analyst and banker agreed.

Furthermore, pirfenidone is unlikely to become a blockbuster that justifies its value with only one drug and preclinical candidates years away from success, an IPF physician said. Analyst forecasts of pirfenidone sales have varied from USD 600m to more than USD 1bn.

Intermune’s attraction would be to gain an established IPF sales force and revenue in Europe with the expectation of a US launch in 1H15, the physician said.

Competition from Boehringer Ingelheim’s IPF drug nintedanib, which saw positive Phase III results presented at ATS in May, could also dampen pirfenidone’s market uptake, according to a previousBiopharm Insight report. Boehringer’s existing powerful global respiratory sales force will be hard to compete with, the M&A lawyer added. As both drugs have similar mechanisms of action, uptake will be dependent on marketing execution, said a second consulting physician.

The attractive risk of new science

Roche - which recently snapped up Danish gene silencing company Santaris Pharma for USD 450m - and Sanofi - whose notable acquisition of Genzyme gave it a considerable presence in rare diseases, could both see BioMarin a potential target, one of the bankers and analysts said.

While BioMarin has “interesting science,” any predator would be buying into the company’s future potential, the analyst said. Additionally, Sanofi may be entertaining various options but might not have the appetite for any substantial M&A deals until 2016, the M&A lawyer said.

BioMarin's pipeline readouts are scheduled for June 2015. Its PARP inhibitor (BMN-673) for genetically defined cancers is likely to be an attractive proposition for Roche, the banker suggested. Roche has paid down its Genentech acquisition debt, which will allow it to finance its thirst for technology-driven acquisitions, he added.

Oncology products and companion diagnostics - as would be the case if Roche acquired Pharmacyclics to marry up the Gazyva (obinutuzumab) drug to its diagnostic - remains a core expertise and acquisitive interest for the Swiss giant, one of the bankers said.

Sanofi and Roche could not immediately be reached for comment.

Gapping down
In reaction to disappointing earnings/guidance: INTX -15.9%, GALE -15%, DNDN -14.2%, ATHX -12.1%, GCAP -9.8%, CALL -9.7%, MM -9.5%, BDE -8.6%, NUAN -7.7%, ALTV -6.9%, CXDC -6.6%, FLO -5.7%, CBPX -5.6%, WILC -5.4%, FST -5%, CZR -4.8%, GERN -4.7%, GNVC -3.7%, MTZ -3.6%, INO -3.3%, APP -2.2%, REN -1.5%, AEY -1.3%, CYNI -1.1%, .

Select oil/gas related names showing early weakness: TOT -1.3%, RDS.A -1.2%, BP -0.5%.

Other news: EPZM -41.4% (still checking, presenting at conf today), TKMR -7.4% (following 15% move higher), HCLP -5.1% (announced the commencement of an underwritten secondary public offering of 3,260,870 common units representing limited partner interests in the Partnership by Hi-Crush Proppants LLC), TCAP -3.9% ( announces commencement of public offering of 4 mln shares of common stock), SFM -3.7% (announces commencement of public offering of 15 mln shares of its common stock by affiliates of Apollo Global Management (APO) and certain other stockholders of the co), BPL -3.3% ( to offer 2.6 mln limited partnership units ), RSH -3.1% (mentioned cautiously at UBS-- thinks turn around efforts have been hampered), INSM -2.9% (commenced an underwritten public offering of $80 million of its common stock. All of the shares of common stock in the offering are to be sold by Insmed), RXN -2.9% (announced the launch of a public offering of 10,000,000 shares of its common stock held by certain funds affiliated with Apollo Global Management, LLC), INSM -2.9% (announced that it has commenced an underwritten public offering of $80 million of its common stock. All of the shares of common stock in the offering are to be sold by Insmed), MILL -2.7% (announces resignation of President David Voyticky), CMCM -1.8% (enters into share purchase agreement with a subsidiary of Tencent (TCEHY) to acquire an additional ~ 22.2% equity interest in Moxiu Technology (Beijing) for total consideration of RMB30 mln in cash), HTZ-1.6% (discloses that it will be unable to file its (June) Quarterly Report within the five day extension provided by Rule 12b-25(b)), REN -1.5% (still checking), LOCO -1.3% (negative mention on Mad Money), MNKD -1.2% (pulling back following yesterday's gain), DNOW -0.9% (following late insider buy disclosure -- CEO disclosed purchase of 7,900 shares at $30.74 worth $242,846 ).

Analyst comments: WHX -5.8% (downgraded to Underperform at Raymond James), TCK -2.7% (downgraded to Sell from Neutral at Goldman), CSX -0.7% (downgraded to Neutral from Outperform at Macquarie), SWN -0.7% (downgraded to Mkt Perform from Outperform at BMO Capital Mkts)
.

Gapping up
In reaction to strong earnings/guidance: APRI +19.3%, SUPN +17%, SUPN +17%, INSY +15.8%, ERB +12.2%, DTSI +11.1%, TRAK +9.9%, CUI +9%, KATE +8.7%, STRI +6.8%, (also announces strategic relationship with the Zhenfa Energy Group), UCP +5.3%, SOL +4.6%, AER +4.2%, BTX +4.2%, NOAH +3.6%, UNTD +2.9%, ICUI +2.8%, ONTY +2.6%, PUK +2.2%, VAL+2.1%, MR +1.8%, FXEN +1.8%, ARRY +1.7%, ONVO +1.7%, TRVN +1.3%, TRQ +0.9%, GNMK +0.8%, HALO +0.7%, .

M&A news: FRF +40% (to be acquired by Tiptree Financial (TIPT) for $10.00 per share).

Select financial related names showing strength: BCS +1.4%, ING +0.9%, DB +0.5%.

Other news: ICPT +48.8% (discloses results from FLINT trial of obeticholic acid in nonalcoholic steatohepatitis), APRI +19.3% (enters into common stock purchase agreement with Aspire Capital), CNAT +10.7% (ICPT sympathy), STRI +6.8% (announces strategic relationship with the Zhenfa Energy Group), EXAS +5.7% (announces the FDA has approved Cologuard, the co's noninvasive, stool DNA colorectal cancer screening test), SMG +5.4% (declared special one-time cash dividend of $2/share; approves new share repurchase authorization of $500 mln; increases quarterly dividend to $0.45/share), SSNI +4.3% ( initiated with a Outperform at Northland Capital), BWP +3.5% (positive mention on Mad Money), CEMP +3.1% (announced the initiation of a Phase 3 clinical trial, called Solitaire-U, of a single 1000 mg dose of oral solithromycin in patients with uncomplicated Neisseria gonorrhea and chlamydia infections.), ONTY +2.6% (announced acquisition of Alpine Biosciences for ~ 9.3 mln shares of common stock ($27 mln value)), ATLS +2.3% (positive mention on Mad Money), CNSL +2.2% (to replace TAYC in the S&P SmallCap 600), CIE +2.1% (Paulson & Co discloses 10.1% passive stake in 13G filing), TSL +1.9% (to develop 49.9MW solar power plant in UK), ETE +1.4% (positive mention on Mad Money), CSIQ +1.3% (modules to power 44 MW North Carolina solar farms), OPK +1% (announced Rayaldee Phase 3 trial met primary endpoints; top-line data from second identical pivotal Phase 3 trial expected in Sep 2014; NDA submission to the FDA on track for end of 2014).

Analyst comments: SKUL +6.1% (upgraded to Hold from Underperform at Jefferies), NBG +4.3% (upgraded to Buy from Neutral at Citigroup), SUNE +2.4% (reinstated with a Buy at Goldman), BC +2.1% (upgraded to Strong Buy from Mkt Perform at Raymond James), DF +2% (upgraded to Outperform from Neutral at Credit Suisse), ANF +1.9% (upgraded to Buy from Hold at Stifel), FSLR+1.5% (added to Focus List at Citigroup), KSU +0.6% (upgraded to Neutral from Underperform at Macquarie
)