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.”

Martin Shkreli [via Getty]

Pris­on­er #87850-053 does not get to add drug de­vel­op­er to his list of cred­its

Just days after Retrophin shed its last ties to founder Martin Shkreli, the biotech is reporting that the lead drug he co-invented flopped in a pivotal trial. Fosmetpantotenate flunked both the primary and key secondary endpoints in a placebo-controlled trial for a rare disease called pantothenate kinase-associated neurodegeneration, or PKAN.

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We­bi­nar: Re­al World End­points — the brave new world com­ing in build­ing fran­chise ther­a­pies

Several biopharma companies have been working on expanding drug labels through the use of real world endpoints, combing through the data to find evidence of a drug’s efficacy for particular indications. But we’ve just begun. Real World Evidence is becoming an important part of every clinical development plan, in the soup-through-nuts approach used in building franchises.

I’ve recruited a panel of 3 top experts in the field — the first in a series of premium webinars — to look at the practical realities governing what can be done today, and where this is headed over the next few years, at the prodding of the FDA.

ZHEN SU — Merck Serono’s Senior Vice President and Global Head of Oncology
ELLIOTT LEVY — Amgen’s Senior Vice President of Global Development
CHRIS BOSHOFF — Pfizer Oncology’s Chief Development Officer

A premium subscription to Endpoints News is required to attend this webinar. Please upgrade to either an Insider or Enterprise plan for access. Already have Endpoints Premium? Please sign-in below. You can contact our Subscriptions team at help@endpointsnews.com with any issues.

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Brian Kaspar. AveXis via Twitter

AveX­is sci­en­tif­ic founder fires back at No­var­tis CEO Vas Narasimhan, 'cat­e­gor­i­cal­ly de­nies any wrong­do­ing'

Brian Kaspar’s head was among the first to roll at Novartis after company execs became aware of the fact that manipulated data had been included in its application for Zolgensma, now the world’s most expensive therapy.

But in his first public response, the scientific founder at AveXis — acquired by Novartis for $8.7 billion — is firing back. And he says that not only was he not involved in any wrongdoing, he’s ready to defend his name as needed.

I reached out to Brian Kaspar after Novartis put out word that he and his brother Allen had been axed in mid-May, two months after the company became aware of the allegations related to manipulated data. His response came back through his attorneys.

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Hal Barron. GSK

GSK's Hal Bar­ron her­alds their sec­ond pos­i­tive piv­otal for cru­cial an­ti-BC­MA ther­a­py, point­ing to a push for quick OKs in a crowd­ed field

Hal Barron has his second positive round of Phase III data in hand for his anti-BCMA antibody drug conjugate belantamab mafodotin (GSK2857916). And GSK’s research chief says the data paves the way for their drive in search of an FDA approval for treating multiple myeloma.

It’s hard to overestimate the importance of this drug for GSK, a cornerstone of Barron’s campaign to make a dramatic impact on the oncology market and provide some long-lost excitement for the pharma giant’s pipeline. They’re putting this BCMA program at the front of that charge — looking to lead a host of rivals all aimed at the same target.

We don’t know what the data are yet, but DREAMM-2 falls on the heels of a promising set of data delivered 5 months ago for DREAMM-1. There investigators noted that complete responses among treatment-resistant patients rose to 15% in the extra year’s worth of data to look over, with a median progression-free survival rate of 12 months, up from 7.9 months reported earlier. The median duration of response was 14.3 months.

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UP­DAT­ED: An em­bold­ened As­traZeneca splurges $95M on a pri­or­i­ty re­view vouch­er. Where do they need the FDA to hus­tle up?

AstraZeneca is in a hurry.

We learned this morning that the pharma giant — not known as a big spender, until recently — forked over $95 million to get its hands on a priority review voucher from Sobi, otherwise known as Swedish Orphan Biovitrum.

That marks another step down on price for a PRV, which allows the holder to slash 4 months off of any FDA review time.

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Bob Smith, Pfizer

Pfiz­er is mak­ing a $500M state­ment to­day: Here’s how you be­come a lead play­er in the boom­ing gene ther­a­py sec­tor

Three years ago, Pfizer anted up $150 million in cash to buy Bamboo Therapeutics in Chapel Hill, NC as it cautiously stuck a toe in the small gene therapy pool of research and development.

Company execs followed up a year later with a $100 million expansion of the manufacturing operations they picked up in that deal for the UNC spinout, which came with $495 million in milestones.

And now they’re really going for it.

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Video: Putting the AI in R&D — with Badhri Srini­vasan, Tony Wood, Rosana Kapeller, Hugo Ceule­mans, Saurabh Sa­ha and Shoibal Dat­ta

During BIO this year, I had a chance to moderate a panel among some of the top tech experts in biopharma on their real-world use of artificial intelligence in R&D. There’s been a lot said about the potential of AI, but I wanted to explore more about what some of the larger players are actually doing with this technology today, and how they see it advancing in the future. It was a fascinating exchange, which you can see here. The transcript has been edited for brevity and clarity. — John Carroll

As­traZeneca’s Imfinzi/treme com­bo strikes out — again — in lung can­cer. Is it time for last rites?

AstraZeneca bet big on the future of their PD-L1 Imfinzi combined with the experimental CTLA-4 drug tremelimumab. But once again it’s gone down to defeat in a major Phase III study — while adding damage to the theory involving targeting cancer with a high tumor mutational burden.

Early Wednesday the pharma giant announced that their NEPTUNE study had failed, with the combination unable to beat standard chemo at overall survival in high TMB cases of advanced non-small cell lung cancer. We won’t get hard data until later in the year, but the drumbeat of failures will call into question what — if any — future this combination can have left.

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Why would Am­gen want to buy Alex­ion? An­a­lysts call hot­ly ru­mored takeover un­like­ly, but seize the mo­ment

A rumor that Amgen is closing in on buyout deal for Alexion has sparked a guessing game on just what kind of M&A strategy Amgen is pursuing and how much Alexion is worth.

Mizuho analyst Salim Syed first lent credence to the report out of the Spanish news outlet Intereconomía, which said Amgen is bidding as much as $200 per share. While the source may be questionable, “the concept of this happening doesn’t sound too crazy to me,” he wrote.