How the pandemic helped secure a rare cancer drug for Menarini

The leadership at Stemline had been in negotiations with one company for over a year, when they got a surprise note out of Italy: Menarini, the century-old, Florentine pharma company wanted to know if they’d be interested in a partnership on their new drug.

They sat down, four of them at a table at the BIO International Conference in Philadelphia in June 2019, two business execs from Stemline and two from Menarini. At the time, Stemline’s rare cancer drug had been approved in the US for 6 months and the tiny New York biotech was figuring out how to move from a research group to a commercial one. They had sold $5 million in the first quarter that year and would sell $13 million in the second.

A marketing application was also sitting before regulators in Europe, where Stemline had little evident footprint. And although, when asked by a Cowen investor that May whether their plan was to go it alone on the continent, CEO Ivan Bergstein had given a terse “yes,” Menarini’s grasp of those countries was enticing.

So the road to Menarini’s $677 million acquisition of Stemline last week began as many do: A discussion for a “regional partnership” between a pair of complementary players, a drug licensed over to a company that could best sell it. Soon, though, Menarini would eclipse the company Stemline had been talking to for over a year — who wouldn’t even get a shot to bid — and, according to an SEC document, buy the biotech in a deal sealed in part because the pandemic had cast a pallor on the stock’s immediate future.

After a July email reiterating Menarini’s interest not only in marketing in Europe but also Asia and Latin America, conversations picked up again in the fall, when Menarini CEO Elcin Barker Ergun told representatives she was interested in commercial-stage oncology companies. PJT said they had relationships with several, including Stemline. Although they had one other drug still in testing, Stemline was essentially a one-drug company. Despite brief controversy over a trial death, the company managed to gain swift approval for a therapy called Elzonris after showing complete response rates as high as 54% in small trials. A CD123-targeted cytotoxin, the drug is approved for a rare form of cancer that affects natural killer cells, with other indications such as AML potentially coming.

Executives from the two companies met again in November, at a BIO conference in Hamburg, Germany, to discuss the company’s commercial progress in the US and plans for Europe. With some aid from PJT, a meeting was set up for the two CEOs at the JP Morgan Healthcare Summit in San Francisco.

There, Barker Ergun and Bergstein discussed not only a partnership, but a potential acquisition. The next month, they executed a confidentiality agreement first discussed over the summer. Menarini hired Goldman Sachs.

Bergman told the board they had two offers: A potential buyout from Menarini and a potential stock-for-stock merger with another company, listed in SEC documents as Party A. Stemline set up a meeting with Party A and gave Menarini access to limited non-public information, but withheld more private information until an offer came they felt warranted access.

On March 30, after a pair of Stemline presentations on Elzonris, the Menarini offer came: $10 per share. Although that was actually 79 cents less than Stemline’s stock on January 2, the company’s stock had fallen steadily over the prevailing three months, because of the pandemic and for other reasons. By then there was a 127% premium on the company’s $4.40 stock price that day.

Stemline was surprised. The board expected more, believing that the company’s shares were depressed by the pandemic. The offer, they agreed internally, wasn’t even good enough to grant Menarini exclusivity.

On April 5, a day after Stemline told Menarini they would need to up its offer, Party A — who had been told at the end of March that they should submit a written proposal — emailed Bergstein to say they were still interested and preparing an offer.

Two days later, Menarini countered with $11.00 per share and a CVR for the first commercial sale of Elzonris in Europe, should it come before 2022. Stemline countered at $12.50 per share and a $1 CVR.

Menarini, through Goldman Sachs, proposed $11.50 per share with a $1.00 CVR — at that point a 120% bump on the $5.23 Stock price.

On April 11, Stemline’s board and management discussed the proposal. In 3 days, they also had a phone call scheduled with Party A, but the board doubted whether that company was a credible buyer who could put up a cash offer. Goldman Sachs had also added that, in their professional opinion, they did not believe Menarini would go beyond the $11.50 proposal, and Stemline worried that prolonged negotiations could jeopardize the deal. The board told Bergstein to tell Party A they were moving on. They authorized an exclusivity agreement with Menarini.

On May 4th — after turning down a last request for time from Party A — they agreed to the final deal. Given the pandemic-driven offer, at least one analyst believed a better one could come through. In that event, there’s a $27.5 million termination fee to the deal.

“We model ELZONRIS peak sales of $250-$350MM. A 3x multiple suggests $14-20/sh value,” Cowen’s Boris Peaker wrote. “Given the valuation, we believe there is a possibility of a better offer.”

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