FDA Approves Biogen’s Alzheimer’s Drug

FDA approves Biogen Alzheimer’s drug, says benefits outweigh risks

The FDA approved Biogen’s (BIIB) Aduhelm to treat patients with Alzheimer’s disease.

“This approval is significant in many ways. Aduhelm is the first novel therapy approved for Alzheimer’s disease since 2003.

Perhaps more significantly, Aduhelm is the first treatment directed at the underlying pathophysiology of Alzheimer’s disease, the presence of amyloid beta plaques in the brain.

The clinical trials for Aduhelm were the first to show that a reduction in these plaques – a hallmark finding in the brain of patients with Alzheimer’s – is expected to lead to a reduction in the clinical decline of this devastating form of dementia,” the FDA said in a statement.

Eli Lilly announces Alimta label expanded by FDA, Stockwinners
Eli Lilly is a partner with Biogen

It added, “We ultimately decided to use the Accelerated Approval pathway – a pathway intended to provide earlier access to potentially valuable therapies for patients with serious diseases where there is an unmet need, and where there is an expectation of clinical benefit despite some residual uncertainty regarding that benefit.

Brain of an Alzheimer patient

In determining that the application met the requirements for Accelerated Approval, the Agency concluded that the benefits of Aduhelm for patients with Alzheimer’s disease outweighed the risks of the therapy.”

The FDA said in its approval statement: “Additionally, FDA is requiring Biogen to conduct a post-approval clinical trial to verify the drug’s clinical benefit. If the drug does not work as intended, we can take steps to remove it from the market. But hopefully, we will see further evidence of benefit in the clinical trial and as greater numbers of people receive Aduhelm. As an agency, we will also continue to work to foster drug development for this catastrophic disease.”

STIFEL

Stifel analyst Paul Matteis reiterates his Buy rating on Biogen shares following the FDA granting accelerated approval of aducanumab, now to be called “Aduhelm,” for the treatment of Alzheimer’s disease.

Approval based on amyloid plaque as a “surrogate” is “definitely unexpected” and appears to be a way for FDA to work around the contentious advisory committee meeting, argues Matteis, who adds that the approval “is a big win.” How investors will risk-adjust revenues that are modeled after completion of a Phase 4 trial and how insurers will treat access for a drug approved based on a biomarker are “highly interesting” questions that will now “be debated at a materially higher stock valuation,” added Matteis. Biogen shares remain halted for trading at midday following news of the FDA approval.

JEFFRIES

Jefferies analyst Andrew Tsai said news of Biogen (BIIB) being granted FDA approval for aducanumab is likely to spark investor enthusiasm across all Alzheimer’s names and he believes the longer-term setup for Athira Pharma (ATHA) looks more attractive now. Given what he views as “the FDA tailwind,” he would buy on strength as he believes the FDA’s aducanumab decision “clearly has a positive readthrough” to Athira, whose Phase I data suggests ATHA-1017 could produce “a profound cognitive benefit” in Phase 2/3 studies expected to read out in 2022, Tsai tells investors.

In that context, he thinks a 25%-50% short-term move for Athira shares “seems reasonable” relative to the company’s current market cap.

Shares of Biogen (BIIB) remain halted while Eli Lilly (LLY), who has an Alzheimer’s disease drug in its pipeline, is up 4% to $210.78 following the news.

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Canadian Pacific approaches Kansas City Southern again

Canadian Pacific says prepared to re-engage with Kansas City Southern

Canadian Pacific (CP) sent the following letter to the Surface Transportation Board in response to the Kansas City Southern (KSU) Board of Directors’ decision to terminate the Merger Agreement with CP:

Canadian Pacific wants to merge with Kansas City Southern

“I am writing on behalf of the Canadian Pacific Applicants in this proceeding to advise the Board and Interested Parties of the CP Applicants’ intentions in light of Kansas City Southern’s decision to terminate the merger agreement between CP and Kansas City Southern and to enter a merger agreement with Canadian National Railway.

For the reasons explained below, CP intends to proceed to prepare and file its Application in this docket seeking Board authority to control KCS and its U.S. rail carrier subsidiaries.

The decision of KCS’s board of directors to designate CN’s offer a “superior proposal” reflects the extreme price CN has offered KCS in order to extinguish CP’s proposed transaction,2 coupled with CN’s undertaking to attempt to absolve KCS and its shareholders of the regulatory risks associated with CN’s proposed acquisition through the use of a voting trust. In order to neutralize the regulatory risks posed by CN’s proposed transaction from the perspective of KCS’s shareholders,

CN’s agreement to acquire KCS is conditioned on CN’s ability to acquire KCS shares in advance of receiving Board approval to control KCS via the use of a voting trust.

On May 17, the Board ruled in Finance Docket No. 36514 that CN’s proposed acquisition of KCS is subject to the 2001 Major Merger rules, and, accordingly, that CN’s proposed use of a voting trust requires formal STB approval under 49 U.S.C. Section1180.4(b)(4)(iv).

The Combined network covers Gulf of Mexico to Pacific Ocean

The Board explained that it would “take a more cautious approach to a voting trust” in the CN proceeding and that its “consideration of whether the proposed use of a voting trust in a potential CN-KCS transaction is ‘consistent with the public interest’ would be informed by argument on both the potential benefits and costs of such use.”

CP believes that CN cannot demonstrate that its proposed use of a voting trust would be “consistent with the public interest” for reasons CP has already summarized and will address further in its comments on CN’s proposal in Finance Docket No. 36514, once CN refiles its motion seeking Board approval and the Board establishes a comment period.

Because STB Voting Trust Approval is a condition to closing, were CN unable to use a voting trust, CN’s proposed acquisition of KCS could not be consummated. KCS would then face the choice of whether to renegotiate the CN-KCS merger agreement in order to proceed with CN without the use of a voting trust.

Were KCS presented with the question of how to proceed following a decision by the Board not to approve CN’s proposed use of a voting trust, CP anticipates being available to engage with KCS to enter into another agreement to acquire KCS.

CP expects that such an agreement would be in substantially the form of the merger agreement previously entered into by CP and KCS, which was previously noticed in this docket and reviewed by the Board in connection with its approval of CP’s proposed voting trust agreement.

Accordingly, CP intends to proceed forward with the preparation of its Application in this docket seeking Board authority to acquire control of KCS.

CP believes that pursuing its Application is in the best interests of both KCS and the public so that the pro-competitive CP/KCS transaction can proceed to be reviewed by the Board and – in the event KCS’s agreement with CN is terminated or CN is otherwise unable to acquire control of KCS – a potential acquisition of KCS by CP could be implemented without undue delay, all in accord with the rulings and processes already established by the Board in this docket.

CP looks forward to establishing that its acquisition of control of KCS would be consistent with the public interest.”

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Merger in the railroad space!

Canadian Pacific to buy Kansas City Southern in $29B deal

Canadian Pacific Railway (CP) and Kansas City Southern (KSU) announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately $29B, which includes the assumption of $3.8B of outstanding KCS debt.

The transaction, which has the unanimous support of both boards of directors, values KCS at $275 per share, representing a 23% premium, based on the CP and KCS closing prices on March 19, 2021.

Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held.

Following final approval from the Surface Transportation Board, the transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico, and Canada.

Canadian Pacific Rails

Joining seamlessly in Kansas City, Mo., in America’s heartland, CP and KCS together will connect customers via single-network transportation offerings between points on CP’s system throughout Canada, the U.S. Midwest, and the U.S. Northeast and points on KCS’ system throughout Mexico and the South Central U.S.

While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company will be a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people and generating total revenues of approximately $8.7 billion based on 2020 actual revenues.

Combined Companies Rails

The combination is expected to be accretive to CP’s adjusted diluted EPS in the first full year following CP’s acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter.

To fund the stock consideration of the merger, CP will issue 44.5 million new shares.

The cash portion will be funded through a combination of cash-on-hand and raising approximately $8.6B in debt, for which financing has been committed.

As part of the merger, CP will assume approximately $3.8B of KCS’ outstanding debt.

Following the closing into trust, CP expects that its outstanding debt will be approximately $20.2B. Pro forma for the transaction, CP estimates its leverage ratio against 2021E street consensus EBITDA to be approximately 4.0-times with the assumption of KCS debt and issuance of new acquisition-related debt.

In order to manage this leverage effectively, CP will be temporarily suspending its normal course issuer bid program, and expects to produce approximately $7B of levered free cash flow over the next three years.

CP estimates its long-term leverage target of approximately 2.5x to be achieved within 36 months after closing into trust.

The combined company will remain committed to maintaining strong investment grade credit ratings while continuing to return capital for the benefit of shareholders.

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Aytu BioScience and Neos Therapeutics Merge

Aytu, Neos Therapeutics enter all-stock merger agreement

Aytu BioScience (AYTU) and Neos Therapeutics (NEOS) announced that they have entered into a definitive merger agreement pursuant to which Neos will merge with a wholly owned subsidiary of Aytu in an all-stock transaction.

Upon the effectiveness of the merger, Neos stockholders will be entitled to receive 0.1088 shares of common stock of Aytu for each share of Neos common stock held, after taking into account the one-for-ten reverse split of Aytu’s common stock that was effected on December 8.

The transaction will result in Neos stockholders owning approximately 30% of the fully diluted common shares of Aytu.

The all-stock transaction is valued, on a fully diluted basis, at approximately $44.9M based on the 10-day volume weighted average price of Aytu stock for the period ended December 9.

The combined entity will have an increased footprint in the prescription pediatric market, an established multi-brand ADHD portfolio addressing the $8.5B ADHD market and combined revenue scale.

For the 12-month period ending September 30, Neos generated $57M in revenues. On a combined pro-forma basis for this same period, Aytu and Neos’ aggregate net revenue is over $100M.

In addition, this merger facilitates operational and commercial synergies that can be harnessed to accelerate the path to profitability for the combined entity, with estimated annualized cost synergies of approximately $15M beginning FY22.

The combined company will be led by Josh Disbrow, CEO of Aytu and will be headquartered in Englewood, Colorado.

The board of the combined company will consist of six members designated by Aytu and two members designated by Neos, including Neos CEO and director Jerry McLaughlin and Neos director Beth Hecht.

The merger is currently expected to close by Q2 of 2021, subject to certain approvals by both Aytu and Neos stockholders and the satisfaction of other customary closing conditions.

As part of the transaction, Aytu has agreed to provide Neos with access to up to $5M cash for working capital needs for the period prior to the closing of the merger.

In addition, upon closing of the merger, $15M in principal of Neos’s existing senior secured debt facility with affiliates of Deerfield Management will be repaid, and Deerfield has agreed to allow the remaining debt under the facility to remain outstanding with the combined company following the merger.

Indebtedness under Neos’s existing ABL agreement with Encina Business Credit will also remain outstanding.

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IHS Markit sold for $44 billion

S&P Global, IHS Markit to merge in all-stock deal

S&P Global (SPGI) and IHS Markit (INFO) announced they have entered into a definitive merger agreement to combine in an all-stock transaction which values IHS Markit at an enterprise value of $44B, including $4.8B of net debt.

Under the terms of the merger agreement, which has been unanimously approved by the boards of both companies, each share of IHS Markit common stock will be exchanged for a fixed ratio of 0.2838 shares of S&P Global common stock.

Upon completion of the transaction, current S&P Global shareholders will own approximately 67.75% of the combined company on a fully diluted basis, while IHS Markit shareholders will own approximately 32.25%.

Serving a global customer base across financial information and services, ratings, indices, commodities and energy, and transportation and engineering, the pro forma company will provide differentiated solutions to the workflows of many companies.

Combined, the two companies will provide solutions across data, platforms, benchmarks and analytics in ESG, climate and energy transition.

The pro forma company will have 76% recurring revenue and expects to realize 6.5%-8% annual organic revenue growth in 2022 and 2023, balanced across major industry segments.

The combined company will target 200 basis points of annual EBITA margin expansion.

The transaction is expected to be accretive to earnings by the end of the second full year post-closing.

The combined company expects to deliver annual run-rate cost synergies of approximately $480M, with approximately $390M of those expected by the end of the second year post-closing, and $350M in run-rate revenue synergies for an expected total run-rate EBITA impact of approximately $680M by the end of the fifth full year after closing.

The combined company expects to generate annual free cash flow exceeding $5B by 2023, with a targeted dividend payout ratio of 20%-30% of adjusted diluted EPS and a targeted total capital return of at least 85% of free cash flow between dividends and share repurchases.

Both companies expect to maintain their current dividend policies until the close of the transaction.

Following closing, the company will be headquartered in New York with a presence in key global markets across North America, Latin America, EMEA and Asia Pacific.

The leadership team will comprise senior leaders from both organizations.

Ewout Steenbergen, executive VP and CFO of S&P Global, will serve as CFO of the combined company.

Ewout Steenbergen will serve as CFO of the new company

The transaction is expected to close in the second half of 2021, subject to, among other things, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, other antitrust and regulatory approvals, and other customary closing conditions.

The transaction requires the approval of shareholders of both S&P Global and IHS Markit and is not subject to any financing conditions.

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