Christmas Gift for Investors in Ignyta Inc (NASDAQ: RXDX)

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Ignyta Inc (NASDAQ: RXDX) has been acquired by Swiss pharma giant Roche Holding Ltd. (SWX: RO) at a generous 74% premium to its Thursday price, giving Igynta’s shareholders reason to cheer in advance of the festive season.

Shares in Ignyta, a San Diego-based biotech firm founded in 2011, have been on a steady ascent since November 2016, in line with positive news flow surrounding its entrectinib drug, a targeted cancer treatment for tumors with specific genetic signatures, irrespective of where they form in the body.

According to Friday’s announcement, which sent Ignyta’s shares up by a whopping 72.67% to $26.85, Roche will fully acquire Ignyta paying $27 per share in cash, implying a transaction value of $1.7 billion.

Boards of both companies have approved the deal. The Ignyta board will recommend to the company’s shareholders that they should tender their shares to Roche, who will “promptly commence a tender offer.”

Ignyta Inc (NASDAQ: RXDX)’s Cancer Pipeline Eyed by Roche

“Ignyta has been singularly focused on developing precisely targeted therapeutics guided by diagnostics for patients with rare cancers,” said Ignyta’s Chairman, CEO, and Co-Founder, Jonathan E. Lim.

Meanwhile, Roche is facing patent expiry on many of its blockbuster cancer drugs. The company’s major oncology drugs are Avastin, Herceptin and MabThera/Rituxan, which will lose patent protection in 2018, 2019 and 2020 respectively. The company therefore needs to rebuild its presence in the oncology segment with new products that will not face competition from biosimilars.

Its decision to acquire Ignyta may also have been influenced by Bayer AG (ETR: BAYN)’s November transaction of $400 million for rights to Loxo Oncology, Inc. (NASDAQ:LOXO)’s larotrectinib and  LOXO-195 drugs.

Loxo, a rival to Ignyta,  said last week that it had initiated submission of a rolling New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for its larotrectinib drug, which similarly aims to treat cancer based on the genetic signature of a tumour rather than its location in the body.

Roche could also be concerned that competitor Merck & Co., Inc. (NYSE: MRK) obtained  FDA approval in May 2017 for its pembrolizumab (Keytruda) drug for treating a cancerous mutation regardless of its origin in the body. The approval has been described as a “watershed moment for oncology.”

Susan Desmond-Hellman, CEO of the Bill and Melinda Gates Foundation and former top Genentech official, twitted at the time:

Daniel O’Day, CEO Roche Pharmaceuticals said: “The agreement with Ignyta builds on Roche’s strategy of fitting treatments to patients and will allow Roche to broaden and strengthen its oncology portfolio globally.”

In its filing relating to the transaction Roche clarified under the head of ‘HR Matters’ that “the principal focus of this transaction is the growth opportunity we see in a successful approval and launch of entrectinib globally, not job cuts or cost synergies.”

It also said in the filing that its experience and scope of operations in the oncology market, including its strength in diagnostics and precision medicine, would ensure a successful worldwide launch of entrectinib.

On why it chose to go for the more expensive acquisition route compared to the Bayer-Loxo transaction, Roche chose not to comment on the specifics of that deal but said it believed that Ignyta’s precision medicine approach was “fully aligned with Roche’s strategic focus on personalized healthcare.”

Ignyta Inc (NASDAQ: RXDX): What Next

Ignyta is expecting to submit two NDAs (TRK an ROS1) in 2018, and a commercial launch in both indications in 2019.

The transaction with Roche is expected to close in the first half of 2018.