M&A in­fla­tion just pushed the av­er­age bio­phar­ma val­u­a­tion to a scary new peak

John Roun­tree

The con­sul­tants at No­va­sec­ta have been crunch­ing the num­bers on bio­phar­ma M&A for the past few years and con­clud­ed that a lot more of these deals are weigh­ing in so heav­i­ly in­flat­ed now that many buy­ers would be bet­ter off look­ing for oth­er ways to grow their busi­ness­es and their pipelines.

Look­ing at each deal as a mul­ti­ple of rev­enue for the ac­quired com­pa­ny, the Lon­don-based con­sul­tan­cy says that the me­di­an val­ue of a buy­out last year was 39 times rev­enue. Com­pare that to a me­di­an 19 times rev­enue in 2015 and 8 times rev­enue in 2014, and you get a point­ed pic­ture of the fresh peak that’s been cre­at­ed in val­u­a­tions.

Ze­ro­ing in on the amount paid rel­a­tive to sales rev­enue was a good proxy for rep­re­sent­ing the in­creas­ing amount that com­pa­nies are pay­ing for all their new as­sets, both on the mar­ket or still in the clin­ic. In an email ex­change, No­va­sec­ta Man­ag­ing Part­ner John Roun­tree tells me:

•The mul­ti­ple com­bine the two things go­ing on in M&A, one is the amount you have to pay to ac­quire a cer­tain amount of rev­enue, which is clear­ly up, and the sec­ond is that when rev­enue is low­er (i.e. most­ly pipeline val­ue) you are tak­ing more risk and bet­ting on the hope that your ac­qui­si­tion will pay off.

•To get a good-sized sam­ple and long-term trend we al­so looked at two co­horts of deal-mak­ing – 2009–2011 and 2014-2016 (five years lat­er).  This part of our analy­sis clear­ly shows that the mul­ti­ples are up across the board, so even when the com­pa­ny is not tak­ing on the risk of ear­ly-stage hope, they are al­so pay­ing much more for on-mar­ket rev­enue.

•So we don’t ex­plic­it­ly val­ue the ear­ly-stage pro­grams, this is in the eye of the be­hold­er, the is­sue is that ac­quir­ers are pay­ing more than they used to for ear­ly-stage gen­er­al­ly across the board.

That as­sess­ment may al­so help ex­plain why 2016 fell far short of over­all M&A ex­pec­ta­tions, as some com­pa­nies you’d ex­pect to be in the buy­er col­umn — hel­lo, Gilead — have steered clear of ac­qui­si­tions.

Any­one look­ing for spe­cif­ic ex­am­ples of how this trend is play­ing out in par­tic­u­lar deals need on­ly look at Al­ler­gan’s buy­out of To­bi­ra or Pfiz­er’s $14 bil­lion Medi­va­tion ac­qui­si­tion, which in­clud­ed a big share of a mar­ket­ed drug as well as a promi­nent ex­per­i­men­tal med. J&J’s prospec­tive ac­qui­si­tion of Acte­lion will do noth­ing to pop this par­tic­u­lar bub­ble.

“The bot­tom line is that the era of cheap cap­i­tal since 2008 has led to a sig­nif­i­cant in­fla­tion in deal val­ues across the board,” Roun­tree adds, “which can be great for the ac­quired com­pa­ny share­hold­ers but ques­tion­able for the ac­quir­er’s share­hold­ers.

“Our con­clu­sion is that though some deals will end up be­ing great for both par­ties, many are at over-in­flat­ed prices, and the ac­quir­ing com­pa­nies would do bet­ter to fo­cus on fix­ing their own shops and en­ter­ing in­to part­ner­ships where they need ex­tra ca­pa­bil­i­ty rather than ex­pen­sive M&A.”

Don’t look for the end of this trend in 2017 as Big Phar­ma waits for Pres­i­dent-elect Don­ald Trump to fol­low through with a high­ly an­tic­i­pat­ed move to al­low the multi­na­tion­als to repa­tri­ate bil­lions in over­seas cash.

“Our sense is that 2017 is un­like­ly to see a de­crease in the prices paid, per­haps they will go high­er yet: there is a lot of mon­ey in the ecosys­tem seek­ing the high re­turns that suc­cess­ful in­no­va­tion can cre­ate,” notes Roun­tree. “The price of rev­enue-gen­er­at­ing deals will be­come pro­hib­i­tive due to lack of sup­ply, ex­cept for those with ex­treme­ly strong bal­ance sheets or very pa­tient share­hold­ers or both.”

Biotech in­vestors and CEOs see two paths to growth, but are they equal­ly vi­able?

The dynamic in the biotech market has been highly volatile in the last few years, from the high peaks immediately after the COVID vaccine in 2021, to the lowest downturns of the last 20 years in 2022. This uncertainty makes calling the exact timing of the market’s turn something of a fool’s errand, according to Dr. Chen Yu, Founder and Managing Partner of TCG Crossover (TCG X). He speaks with RBC’s Noël Brown, Head of US Biotechnology Investment Banking, about the market’s road ahead and two possible paths for growth.

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There are some odd-looking purple creatures lurking around the halls of AstraZenca lately. The “Phil” character cutouts are purple, personified eosinophils with big buggy eyes and wide mouths, and they’re a part of AZ’s newest awareness effort to help people understand eosinophilic asthma.

The “Asthma Behaving Badly” characters aren’t only on the walls at AZ to show the new campaign to employees, however. The “Phils” are also showing up online on the campaign website, and in digital and social ads and posts on Facebook and Instagram.

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Under bright lab lights, Casey McPherson holds his 6-year-old daughter, Rose. His free hand directs Rose’s gaze toward a computer screen with potential clues in treating her one-of-a kind genetic condition.

Gray specks on the screen show her cells that scientists reprogrammed with the goal of zeroing in on a custom medicine. McPherson co-founded the lab, Everlum Bio, to spark a treatment for Rose — and others like her. A regarded singer-songwriter, McPherson never imagined going into drug development.

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Ying Huang, Legend CEO

Lentivi­ral vec­tor ramp-up: J&J and Leg­end to in­vest $500M in New Jer­sey man­u­fac­tur­ing to sup­port Carvyk­ti

In response to a question on manufacturing scale at Legend Biotech’s R&D day yesterday, the company’s top exec said its partnership with Johnson & Johnson will be doubling its investment in its New Jersey manufacturing center and will be investing a total of $500 million.

With an eye on their BCMA-directed CAR-T therapy Carvykti (cilta-cel), approved in February as a fifth-line treatment for multiple myeloma, Legend CEO Ying Huang said that the ramp-up in production and the decision to manufacture its own lentiviral vectors — currently in shortage worldwide — means they won’t have to deal with that shortage.

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Novartis is turning to a winning coach to talk about Leqvio and the struggles of high cholesterol — including his own. Bruce Arians, the retired NFL head coach of the Arizona Cardinals and Super Bowl-winning Tampa Bay Buccaneers, is partnering with the pharma for its “Coaching Cholesterol” digital, social and public relations effort.

In the campaign, Arians talks about the potential for “great comebacks” in football and heart health. Once nicknamed a “quarterback whisperer,” he is now retired from fulltime coaching (although still a front-office consultant for Tampa Bay), and did a round of media interviews for Novartis, including one with People and Forbes.

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Amy West, Novo Nordisk head of US digital innovation and transformation (Illustration: Assistant Editor Kathy Wong for Endpoints News)

Q&A: No­vo Nordisk dig­i­tal in­no­va­tion chief Amy West dis­cuss­es phar­ma pain points and a health­care 'easy but­ton’

Amy West joined Novo Nordisk more than a decade ago to oversee marketing strategies and campaigns for its US diabetes portfolio. However, her career path shifted into digital, and she hasn’t looked back. West went from leading Novo’s first digital health strategy in the US to now heading up digital innovation and transformation.

She’s currently leading the charge at Novo Nordisk to not only go beyond the pill with digital marketing and health tech, but also test, pilot and develop groundbreaking new strategies needed in today’s consumerized healthcare world.

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Benjamine Liu, TrialSpark CEO

Paul Hud­son and Tri­alSpark's mu­tu­al de­sire to speed up de­vel­op­ment con­verges in three-year, six-drug goal

A unicorn startup that originally set out to hasten clinical studies for biopharma partners dug further into its revised path of internal drug development by linking arms with Sanofi in a pact that the biotech’s CEO said originated from the top.

TrialSpark and the Big Pharma on Tuesday committed to in-licensing and/or acquiring six Phase II/Phase III drugs within the next three years.

“I’ve known Paul Hudson for a while and we were discussing the opportunity to really re-imagine a lot of different parts of pharma,” TrialSpark CEO Benjamine Liu told Endpoints News, “and one of the things that we discussed was this opportunity to accelerate the development of new medicines in mutual areas of interest.”

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Marc Dunoyer, Alexion CEO (AstraZeneca via YouTube)

Up­dat­ed: As­traZeneca nabs a small rare dis­ease gene ther­a­py play­er for 667% pre­mi­um

AstraZeneca is kicking off the fourth quarter with a little M&A Monday for a gene editing player recently overcoming a second clinical hold to its only program in human studies.

The Big Pharma and its subsidiary Alexion are buying out little LogicBio for $2.07 per share. That’s good for a massive 667% premium over its Friday closing price, when it headed into the weekend at 27 cents and just weeks after Nasdaq said LogicBio would have to delist, which has been put on hold as the biotech requests a hearing. It’s one of two biotech deals to commence October, alongside the news of Incyte buying a vitiligo-focused biotech.

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Dave Marek, Myovant CEO

My­ovant board balks as ma­jor­i­ty own­er Sum­it­o­mo swoops in with a $2.5B deal to buy them out

Three years after Sumitomo scooped up Roivant’s 46% stake in the publicly traded Myovant $MYOV as part of a 5-company, $3 billion deal, they’re coming back for the whole thing.

But these other investors at Myovant want more than what the Japanese pharma company is currently offering to pay at this stage.

Sumitomo is bidding $22.75 a share for the outstanding stock, which now represents 48% of the company after Sumitomo bumped its ownership since the original deal with Roivant. Myovant, however, created a special committee on the board, and they’re shaking their heads over the offer.

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