M&A slows to a trick­le in 2017, but Big Phar­ma could be on deck for mega deals

Free-flow­ing cash for star­tups, sky-high val­u­a­tions, and un­cer­tain­ty about tax re­form led to un­ex­pect­ed stag­na­tion in M&A this year. But big deals could be on the hori­zon as large phar­ma­ceu­ti­cal com­pa­nies get squeezed to de­liv­er top line growth.

Af­ter a lack­lus­ter 2016 (thanks to un­cer­tain­ty in an elec­tion year), many ex­perts in the in­dus­try pre­dict­ed — with Pres­i­dent Trump firm­ly seat­ed in the White House — that we would see an uptick in merg­ers and ac­qui­si­tions in 2017. They were wrong. Be­sides Gilead’s near­ly $12 bil­lion move on Kite, 2017 was rather qui­et on the M&A front, ac­cord­ing to a new re­port by Eval­u­atePhar­ma’s EP Van­tage.

Ex­perts are now won­der­ing if ac­quir­ers are on stand­by, wait­ing to see what will hap­pen with tax re­form be­fore mov­ing for­ward on big pur­chas­es. And it makes sense. It’s es­ti­mat­ed that big phar­ma and biotech has rough­ly $171 bil­lion held in oth­er ter­ri­to­ries to avoid the 35% cor­po­rate tax rate here in the US. If that mon­ey can come back over thanks to repa­tri­a­tion, then these com­pa­nies will have a lot more play mon­ey to take shop­ping.

Oth­er rea­sons for the slow­down in M&A this year could be climb­ing val­u­a­tions of small and mid-sized bio­phar­mas — es­pe­cial­ly in hot ar­eas of de­vel­op­ment. Some­times those big buy­outs came back to bite the buy­ers (look­ing at you, Medi­va­tion).

One of the per­haps most in­ter­est­ing rea­sons for the slow M&A could be the in­dus­try’s rel­a­tive­ly easy ac­cess to cap­i­tal. As you can see in the chart be­low, ven­ture cap­i­tal­ists have been giv­ing out big­ger chunks of cash to com­pa­nies — rem­i­nis­cent of the boom times of 2014. When com­pa­nies can raise their own mon­ey for more ex­pen­sive, lat­er-stage de­vel­op­ment, then they’re less like­ly to look for buy­ers. On top of big ven­ture deals, the IPO mar­ket has been hot this year, with even pre­clin­i­cal com­pa­nies go­ing pub­lic with rel­a­tive suc­cess.

But this deal hia­tus, both in 2016 and 2017, is like­ly putting pres­sure on big phar­mas, the Van­tage re­port says. Com­pa­nies re­ly­ing on old­er drug fran­chis­es are par­tic­u­lar­ly im­pli­cat­ed.

“Com­pa­nies that re­ly on lega­cy prod­ucts in ar­eas like di­a­betes or heart dis­eases are in huge trou­ble,” Lon­car In­vest­ments CEO Brad Lon­car told EP Van­tage. “In these ar­eas, pay­ers have the pow­er. This might mean we see M&A, and that would be the top in­gre­di­ent for hav­ing a good 2018.”

These large phar­ma­ceu­ti­cal com­pa­nies are the ones that saw some less-than-stel­lar fi­nan­cial per­for­mance ear­li­er this year. Missed ex­pec­ta­tions for the growth prospects of Cel­gene and Bio­gen, for ex­am­ple, caused a sig­nif­i­cant sell­off.

The EP Van­tage re­port spec­u­lates that poor fi­nan­cial per­for­mance of some big play­ers could mean bar­gain prices for some M&As down the road.

“So if val­u­a­tions of big cap biotechs re­main de­pressed, and progress on tax re­form emerges, then per­haps 2018 will see more, larg­er deals. Pfiz­er is still most fre­quent­ly named as an en­thu­si­as­tic big buy­er – fa­vorite tar­gets for the ru­mor mill cur­rent­ly in­clude Bris­tol-My­ers Squibb and Bio­gen. And ex­ec­u­tives from oth­er large play­ers – Mer­ck & Co and Gilead for ex­am­ple – have re­cent­ly made it clear that they are look­ing around.”

In short, this re­port in­di­cates that small and mid-stage com­pa­nies will con­tin­ue to see high val­u­a­tions, easy ac­cess to cash, and a friend­ly IPO mar­ket — as long as un­fore­see­able macro­eco­nom­ic fac­tors don’t tank the mar­ket. Large-cap com­pa­nies, how­ev­er, may see shrink­ing val­u­a­tions, af­ford­able price tags, and more sig­nif­i­cant con­sol­i­da­tion (should tax re­form go their way).

Tal Zaks, Moderna CMO (Moderna via YouTube)

UP­DAT­ED: NI­AID and Mod­er­na spell out a 'ro­bust' im­mune re­sponse in PhI coro­n­avirus vac­cine test — but big ques­tions re­main to be an­swered

The NIAID and Moderna have spelled out positive Phase I safety and efficacy data for their Covid-19 vaccine mRNA-1273 — highlighting the first full, clear sketch of evidence that back-to-back jabs at the dose selected for Phase III routinely produced a swarm of antibodies to the virus that exceeded levels seen in convalescent patients — typically in multiples indicating a protective response.

Moderna execs say plainly that this first stage of research produced exactly the kind of efficacy they hoped to see in humans, with a manageable safety profile.

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Trans­port Sim­u­la­tion Test­ing for Your Ther­a­py is the Best Way to As­sure FDA Ex­pe­dit­ed Pro­gram Ap­proval

Modality Solutions is an ISO:9001-registered biopharmaceutical cold chain engineering firm with unique transport simulation capabilities that support accelerated regulatory approval for biologics and advanced therapeutic medicinal products (ATMP). Our expertise combines traditional validation engineering approaches with regulatory knowledge into a methodology tailored for the life sciences industry. We provide insight and execution for the challenges faced in your cold chain logistics network.

Tillman Gerngross, Adagio Therapeutics CEO

An­ti­body leg­end Till­man Gern­gross is el­bow­ing his way in­to the Covid-19 R&D cru­sade: 'I don’t see this end­ing any­time soon'

One of the most influential — and outspoken — scientists at work in the field of antibody discovery is jumping into the frenzied race to create new therapeutics to treat and prevent Covid-19. And he’s operating with the conviction that the current outbreak now once again spreading like wildfire will create plenty of demand for what he has in mind.

Dartmouth professor and Adimab CEO Tillman Gerngross tells me he’s raised $50 million from a group of close VCs to spin out a new company — Adagio Therapeutics — with a full C-suite team assembled to hire up a staff and keep rolling toward the clinic.

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Norbert Bischofberger, Kronos CEO

Gilead­'s ex-R&D chief Bischof­berg­er heads back to the biotech gi­ant to pick up a pair of late-stage drugs that had been put aside

Norbert Bischofberger knows entospletinib well.

Back during his long, blockbuster run as head of R&D at Gilead, researchers had once held some high hopes for this drug. But to make it work, he and the team felt it would need a new companion diagnostic to identify patients. There was talk of a combo approach to give it more punch. But the market was small, making them wonder if it would be worth going through a lengthy development cycle to get it through a pivotal.

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GSK’s Shin­grix leader Guil­laume Pfe­fer has jumped on board Flag­ship to helm a biotech hy­brid as Afeyan’s lat­est CEO-part­ner

After spending 4 years in a senior post with GlaxoSmithKline’s star team positioning Shingrix for a blockbuster approval, Guillaume Pfefer is headed back to the biotech world — in style.

Pfefer has signed on to join Noubar Afeyan’s busy group of partners at Flagship, and he’s taking the helm of an upstart — which today is being merged with another Flagship startup — with some grand plans of its own. The announcement this morning notes that Pfefer will run Kintai Therapeutics, one of the grads of the Flagship labs.

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Who are the women blaz­ing trails in bio­phar­ma R&D and lead­ing the fight against Covid-19? Nom­i­nate them for End­points' spe­cial re­port

One of the many inequalities the pandemic has laid bare is the gender imbalance in biomedical research. A paper examining Covid-19 research authorship wondered out loud: Where are the women?

It’s a question that echoes beyond our current times. In the biopharma world, not only are women under-represented in R&D roles (particularly at higher levels), their achievements and talents could also be undermined by stereotypes and norms of leadership styles. The problem is even more dire for women of color.

Jeff Albers, Blueprint CEO

Di­ag­nos­tic champ Roche buys its way in­to the RET ti­tle fight with Eli Lil­ly, pay­ing $775M in cash to Blue­print

When Roche spelled out its original $1 billion deal — $45 million of that upfront — with Blueprint to discover targeted therapies against immunokinases, the biotech partner’s RET program was still preclinical. Four years later, pralsetinib is on the cusp of potential approval and the Swiss pharma giant is putting in much more to get in on the commercial game.

Roche gains rights to co-develop and co-commercialize the drug, with sole marketing responsibility for places outside the US and China (where CStone has staked its claim).

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Mer­ck KGaA takes its I/O op­tion on F-star Ther­a­peu­tics; Nephron spends $215M, eye­ing spot in Covid-19 vac­cine chain

→Merck KGaA has taken an early option on an immuno-oncology program developed at F-star Therapeutics. This is their second option in the collaboration. And they added a pair of preclinical discovery programs to the alliance as well.

Any biotech going public these days wouldn’t feel right if they didn’t upsize the offering. And that’s just what Phase I biotech Pandion Therapeutics did. The autoimmune company is now selling 7 million shares, a 1.5 million share bump, for $16 to $18 a share.

Full Bril­in­ta study re­sults show the blood thin­ner re­duces rate of sec­ondary stroke

AstraZeneca once projected its Brilinta drug to peak at $3.5 billion in sales, and though the blood thinner never reached that lofty goal, it received the latest positive signs in a string of recent good news.

The pharma released full details from its THALES study Thursday morning, which measured the effects of Brilinta and aspirin against aspirin alone in treating patients who had an acute ischemic stroke or transient ischemic attack. When taken twice daily with once-a-day aspirin for 30 days, the Brilinta combo reduced the risk of stroke and death by 17 percent, meeting the primary endpoint of the study.