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).

Hal Barron, GSK

Break­ing the death spi­ral: Hal Bar­ron talks about trans­form­ing the mori­bund R&D cul­ture at GSK in a crit­i­cal year for the late-stage pipeline

Just ahead of GlaxoSmithKline’s Q2 update on Wednesday, science chief Hal Barron is making the rounds to talk up the pharma giant’s late-stage strategy as the top execs continue to woo back a deeply skeptical investor group while pushing through a whole new R&D culture.

And that’s not easy, Barron is quick to note. He told the Financial Times:

I think that culture, to some extent, is as hard, in fact even harder, than doing the science.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,200+ biopharma pros reading Endpoints daily — and it's free.

Michel Vounatsos, Getty Images

UP­DAT­ED: Stay tuned: Bio­gen’s num­bers are great — it’s their wor­ri­some fu­ture that leaves an­a­lysts skit­tish

Biogen came out with an upbeat assessment of their Q2 numbers today, discounting the arrival of a key rival for its blockbuster Spinraza franchise. But the top execs remain grimly determined to not say much anything new about the sore points that have dragged down its stock, including the future of its big investment in Alzheimer’s or how it plans to invest the considerable cash that the big biotech continues to reap.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,200+ biopharma pros reading Endpoints daily — and it's free.

Why wait? Cel­gene re­struc­tures a big Jounce pact — ze­ro­ing in on new I/O path­way with $530M deal and bump­ing ICOS

Celgene’s business team isn’t waiting for the big merger with Bristol-Myers Squibb to go through before syncing its strategy with the new mother ship.

Tuesday evening the big biotech unveiled a $530 million deal — $50 million in upfront cash — to amend their alliance with Jounce Therapeutics $JNCE to gain worldwide rights to JTX-8064, an antibody that targets the LILRB2 receptor on macrophages. Their old, $2.6 billion deal is being scrapped, leaving Jounce with a pipeline that includes the lead drug, the ICOS-targeting vopratelimab.

PACT Phar­ma says it's per­fect­ed the tech to se­lect neoanti­gens for per­son­al­ized ther­a­py — now on­to the clin­ic

At PACT Pharma, the lofty goal to unleash a “tsunami” of T cells personalized for each patient has hinged on the ability to correctly identify the neoantigens that form something of a fingerprint for each tumor, and extract the small group of T cells primed to attack the cancer. It still has a long way to go testing a treatment in humans, but the biotech says it has nailed that highly technical piece of the process.

UP­DAT­ED: My­ovan­t's uter­ine fi­broid drug looks com­pet­i­tive in PhI­II — but can they van­quish mighty Ab­b­Vie?

Vivek Ramaswamy’s Myovant $MYOV has closely matched its positive first round of Phase III data for their uterine fibroid drug relugolix, setting up a head-to-head rivalry with pharma giant AbbVie as the little biotech steers to the market with a planned filing in Q4.

Here’s how Myovant plans to prevail over the AbbVie $ABBV empire.

In the study, 71.2% of women receiving once-daily relugolix combination therapy achieved the clinical response they were looking for, compared to only 14.7% in the control arm. The data comfortably reflected the same outcomes in the first Phase III — 73.4% of women receiving once-daily oral relugolix combination therapy achieved the responder criteria compared with 18.9% of women receiving placebo — which will reassure regulators that they are getting the carefully randomized data that qualifies for the FDA’s gold standard for success.

Lit­tle Mar­i­nus sees its shares eclipsed as the Sage ri­val fails to com­pare on PPD in PhII

The executive team at Sage $SAGE have skirted another potential pitfall on its way to racking up a big future for its depression drug Zulresso.

Little Marinus Pharmaceuticals $MRNS had sought to challenge the Sage drug with an IV formulation — followed by an oral version — of ganaxolone for postpartum depression. But researchers say their Phase II study failed to positively differentiate itself from a placebo at 28 days — leaving them to hold up “clinically meaningful” data within the first day of administration compared to the control arm.

Roche cuts loose Tam­i­flu OTC rights, hand­ing Sanofi the keys as the phar­ma gi­ant dou­bles down on Xofluza

Roche set out to make a better flu medicine than Tamiflu as that franchise was headed to a generic showdown. Now they’ll see just how well Xofluza stacks up against the mainstay drug after handing off over-the-counter rights in the US to Sanofi.

Sanofi $SNY says it will now step in to negotiate a deal with the FDA to steer Tamiflu into the OTC market, a role that could well involve new studies to ease passage of the drug out of doctor’s hands and into the consumer end of the market. And the French pharma giant will have first dibs over “selected” OTC markets around the world as they push ahead.

Aca­dia is mak­ing the best of it, but their lat­est PhI­II Nu­plazid study is a bust

Acadia’s late-stage program to widen the commercial prospects for Nuplazid has hit a wall. The biotech reported that their Phase III ENHANCE trial flat failed. And while they $ACAD did their best to cherry pick positive data wherever they can be found, this is a clear setback for the biotech.

With close to 400 patients enrolled, researchers said the drug flunked the primary endpoint as an adjunctive therapy for patients with an inadequate response to antipsychotic therapy. The p-value was an ugly 0.0940 on the Positive and Negative Syndrome Scale, which the company called out as a positive trend.

Their shares slid 12% on the news, good for a $426 million hit on a $3.7 billion market cap at close.

Endpoints News

Basic subscription required

Unlock this story instantly and join 55,200+ biopharma pros reading Endpoints daily — and it's free.

Some Big Phar­mas stepped up their game on da­ta trans­paren­cy — but which flunked the test?

The nonprofit Bioethics International has come out with their latest scorecard on data transparency among the big biopharmas in the industry — flagging a few standouts while spotlighting some laggards who are continuing to underperform.

Now in its third year, the nonprofit created a new set of standards with Yale School of Medicine and Stanford Law School to evaluate the track record on trial registration, results reporting, publication and data-sharing practice.