Sobi: CTI Acquisition Looks Like a Decent Fit but Doesn’t Appear To Create Value

We’re not making any changes to our SEK 252 fair value estimate for Sobi following the announcement that the firm plans to expand its hematology business with the acquisition of CTI BioPharma. Sobi will acquire CTI for $9.10 per share ($1.7 billion), a 95% premium to the firm’s prior month’s average price, with the deal expected to close in the third quarter. The acquisition brings myelofibrosis drug Vonjo into the firm’s hematology portfolio. Vonjo was approved in early 2022 in the U.S. and is poised to serve myelofibrosis patients who also have severe thrombocytopenia (low platelet counts), creating a parallel to Sobi’s own thrombocytopenia drug Doptelet and a pathway to strong leverage and higher margins. The drug already serves 1,000 patients with this rare blood disorder, with more than $20 million in sales in the fourth quarter, and at least another 5,000 could be good candidates for therapy in the U.S. We assume that the drug will not face generic threats over the next 10 years, as management expects U.S. protection through 2034 (beyond orphan drug exclusivity expected to last until 2029). We’re more cautious modeling sales outside the U.S., where we think Sobi could need data from a confirmatory phase 3 study for approval, and it could be several years before this data is available. We think Sobi is paying a fair price for CTI, although we don’t think this serves to help Sobi build a moat, as we think the price already incorporates an assumption of improved operating leverage with Sobi’s hematology sales force. We think the deal will reduce Sobi’s EBITA margin for 2023 but increase margins starting in 2024, with long-term margins rising into the high 30s.