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).

A New Fron­tier: The In­ner Ear

What happens when a successful biotech venture capitalist is unexpectedly diagnosed with a chronic, life-disrupting vertigo disorder? Innovation in neurotology.

That venture capitalist was Jay Lichter, Ph.D., and after learning there was no FDA-approved drug treatment for his condition, Ménière’s disease, he decided to create a company to bring drug development to neurotology. Otonomy was founded in 2008 and is dedicated to finding new drug treatments for the hugely underserved community living with balance and hearing disorders. Helping patients like Jay has been the driving force behind Otonomy, a company heading into a transformative 2020 with three clinical trial readouts: Phase 3 in Ménière’s disease, Phase 2 in tinnitus, and Phase 1/2 in hearing loss. These catalysts, together with others in the field, highlight the emerging opportunity in neurotology.
Otonomy is leading the way in neurotology
Neurotology, or the treatment of inner ear neurological disorders, is a large and untapped market for drug developers: one in eight individuals in the U.S. have moderate-to-severe hearing loss, tinnitus or vertigo disorders such as Ménière’s disease.1 With no FDA-approved drug treatments available for these conditions, the burden on patients—including social anxiety, lower quality of life, reduced work productivity, and higher rates of depression—can be significant.2, 3, 4

Joe Jimenez, Getty

Ex-No­var­tis CEO Joe Jimenez is tak­ing an­oth­er crack at open­ing a new chap­ter in his ca­reer — and that in­cludes a new board seat and a $250M start­up

Joe Jimenez is back.

The ex-CEO of Novartis has taken a board seat on Century Therapeutics, the Versant and Bayer-backed startup focused on coming up with a brand new twist on cell therapies for cancer — a field where Jimenez made his mark backing the first personalized CAR-T approved for use.

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Can we make the an­tibi­ot­ic mar­ket great again?

The standard for-profit model in drug development is straightforward. Spend millions, even billions, to develop a medicine from scratch. The return on investment (and ideally a tidy profit) comes via volume and/or price, depending on the disease. But the string of big pharma exits and slew of biotech bankruptcies indicate that the model is sorely flawed when it comes to antibiotics.

The industry players contributing to the arsenal of antimicrobials are fast dwindling, and the pipeline for new antibiotics is embarrassingly sparse, the WHO has warned. Drugmakers are enticed by greener pastures, compared to the long, arduous and expensive path to antibiotic approval that offers little financial gain as treatments are typically priced cheaply, and often lose potency over time as microbes grow resistant to them.

The FTC and New York state ac­cuse Mar­tin Shkre­li of run­ning a drug mo­nop­oly. They plan to squash it — and per­ma­nent­ly ex­ile him

Pharma bro Martin Shkreli was jailed, publicly pilloried and forced to confront some lawmakers in Washington riled by his move to take an old generic and move the price from $17.50 per pill to $750. But through 4 years of controversy and public revulsion, his company never backed away from the price — left uncontrolled by a laissez faire federal policy on a drug’s cost.

Now the FTC and the state of New York plan to pry his fingers off the drug once and for all and open it up to some cheap competition. And their lawsuit is asking that Shkreli — with several years left on his prison sentence — be banned permanently from the pharma industry.

UP­DAT­ED: Ac­celeron res­ur­rects block­buster hopes for so­tater­cept with pos­i­tive PhII — and shares rock­et up

Acceleron $XLRN says that its first major trial readout of 2020 is a success.

In a Phase II study of 106 patients with pulmonary arterial hypertension (PAH), Acceleron’s experimental drug sotatercept hit its primary endpoint: a significant reduction in pulmonary vascular resistance. The drug also met three different secondary endpoints, including the 6-minute walking test.

“We’re thrilled to report such positive topline results from the PULSAR trial,” Acceleron CEO Habib Dable said in a statement. The company said in a conference call they plan on discussing a Phase III trial design with regulators.

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Amber Saltzman (Ohana)

Flag­ship's first ven­ture of 2020 is out, and it's all about sperm

A couple years ago, Amber Salzman got a call as she was returning East full-time after a two-year stint running a gene therapy company in California.

It was from someone at Flagship Pioneering, the deep-pocketed biotech venture firm. They had a new company with a new way of thinking about sperm. It had been incubating for over a year, and now they wanted her to run it.

“It exactly fit,” Salzman told Endpoints News. “I just thought I had to do something.”

Pfiz­er ax­es 6 ear­ly to late-stage can­cer stud­ies from the pipeline — with one oth­er cut for sick­le cell dis­ease

Pfizer trimmed a group of 3 R&D programs using their PD-L1 Bavencio — partnered with Merck KGaA — in their latest pipeline cull.

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UP­DAT­ED: In­cyte scores much need­ed PhI­II suc­cess — and of course it’s de­liv­ered by rux­oli­tinib

Incyte’s efforts to breathe a second life into ruxolitinib — its JAK inhibitor sold in pill form as Jakafi — has been greeted with clear, if preliminary and unsurprising, Phase III success.

Topline data from the TRuE-AD2 cements ruxolitinib’s foundational importance for Incyte, and gives analysts hope that there might yet be room for growth in a pipeline that’s suffered multiple R&D setbacks.

Stephen Hahn, AP

The FDA un­veils a new reg­u­la­to­ry frame­work to speed along gene ther­a­pies, re­ward­ing the lead­ing play­ers

Bioregnum Opinion Column by John Carroll

The emphasis at the FDA over the past 5 years or so has been on assisting drug developers as much as they can to speed up regulatory reviews and push more drugs into the market. And they are now crafting a final set of regulations aimed at flagging through a whole new generation of gene therapies in clinical testing at a rapid clip.

In a set of 6 prospective guidances posted on the FDA web site Tuesday morning, FDA commissioner Stephen Hahn committed the agency to staying flexible in handing out designations that are critical to gaining early approvals for drugs that claim to be once-and-done but don’t have anything close to the data needed to prove it.

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