Gene therapies are one of the hottest areas of drug research and Astellas, Japan's second-largest drugmaker by sales, is offering $60 per share for San Francisco-based Audentes, a 110% premium to its closing price on Monday.
Citi analyst Hidemaru Yamaguchi said that while the deal looked expensive, it was a positive move for Astellas as Audentes had "cutting-edge gene therapy modalities".
"We thought it was only a matter of time before Astellas entered the gene therapy market," he wrote in a note for clients, adding it had already licensed development rights for a domestic gene therapy in Amyotrophic lateral sclerosis (ALS).
Gene therapies aim to cure diseases by replacing the missing or mutated version of a gene found in a patient's cells with healthy copies. With the potential to cure devastating illnesses in a single dose, drugmakers say they justify prices well above $1 million per patient.
"As a result of this acquisition, Astellas will obtain not only Audentes programs but also it's proprietary manufacturing knowhow in gene therapy," Astellas CFO Naoki Okamura told a briefing in Tokyo. "Internal manufacturing capability is a great strength for companies with multiple programs under development."
Genetic drugs will become a fifth primary focus for Astellas, Okamura said, joining existing business lines in regenerative, immuno-oncology, immunotherapy, and neuro-muscular medicine.
The acquisition marks the second biggest on record for Astellas after its 2010 purchase of OSI Pharmaceuticals Inc for$3.8 billion, according to Refinitiv data. Astellas expects the deal, which is subject to regulatory approval including U.S. antitrust clearance, to close in the first quarter of 2020.
Audentes' investigational drug, AT132, is being developed to treat a rare genetic neuromuscular disorder which results in extreme muscle weakness, respiratory failure and in some cases early death.
Astellas said the companies plan to seek FDA approval for AT312 in mid-2020. The drug has shown promising results in the treatment of X-linked myotubular myopathy (XLMTM) seen mainly in male infants, it said.
Only about 40 boys are born in the United States with the condition each year, so that would yield just $80 million in revenue, said Jefferies analyst Stephen Barker, assuming a maximum price tag for the treatment.
"The $3 billion acquisition price is therefore more likely to be mainly predicated on the firm's technology platform and manufacturing capabilities," Barker wrote in a note.
The deal also marks the latest consolidation in the industry which saw Japan's Takeda Pharmaceutical Co Ltd acquire Britain's Shire for $59 billion.
Shares in Astellas fell 1.1% on Tuesday in Tokyo, underperforming a 0.6% decline in the broader market <.N225>.
The stock's decline was "the natural reaction", said Credit Suisse analyst Fumiyoshi Sakai.
"This is a difficult deal to digest because it deals with gene therapy," Sakai said. "They have to be very square with the investment community about what they're buying."
Morgan Stanley & Co LLC, is Astellas' financial adviser while Covington & Burling LLP is the company's legal counsel.
Centerview Partners LLC is acting as financial adviser to Audentes and Fenwick & West LLP is its legal counsel.
(Reporting by Dania Nadeem in Bengaluru and Rocky Swift in Tokyo; Editing by Anil D'Silva, Edwina Gibbs and Muralikumar Anantharaman)