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.”

Regeneron CEO Leonard Schleifer speaks at a meeting with President Donald Trump, members of the Coronavirus Task Force, and pharmaceutical executives in the Cabinet Room of the White House (AP Photo/Andrew Harnik)

OWS shifts spot­light to drugs to fight Covid-19, hand­ing Re­gen­eron $450M to be­gin large scale man­u­fac­tur­ing in the US

The US government is on a spending spree. And after committing billions to vaccines defense operations are now doling out more of the big bucks through Operation Warp Speed to back a rapid flip of a drug into the market to stop Covid-19 from ravaging patients — possibly inside of 2 months.

The beneficiary this morning is Regeneron, the big biotech engaged in a frenzied race to develop an antibody cocktail called REGN-COV2 that just started a late-stage program to prove its worth in fighting the virus. BARDA and the Department of Defense are awarding Regeneron a $450 million contract to cover bulk delivery of the cocktail starting as early as late summer, with money added for fill/finish and storage activities.

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Donald and Melania Trump watch the smoke of fireworks from the South Lawn of the White House on July 4, 2020 (via Getty)

Which drug de­vel­op­ers of­fer Trump a quick, game-chang­ing ‘so­lu­tion’ as the pan­dem­ic roars back? Eli Lil­ly and Ab­Cellera look to break out of the pack

We are unleashing our nation’s scientific brilliance and will likely have a therapeutic and/or vaccine solution long before the end of the year.

— Donald Trump, July 4

Next week administration officials plan to promote a new study they say shows promising results on therapeutics, the officials said. They wouldn’t describe the study in any further detail because, they said, its disclosure would be “market-moving.”

— NBC News, July 3

Something’s cooking. And it’s not just July 4 leftovers involving stale buns and uneaten hot dogs.

Over the long weekend observers picked up signs that the focus in the Trump administration may swiftly shift from the bright spotlight on vaccines being promised this fall, around the time of the election, to include drugs that could possibly keep patients out of the hospital and take the political sting out of the soaring Covid-19 numbers causing embarrassment in states that swiftly reopened — as Trump cheered along.

So far, Gilead has been the chief beneficiary of the drive on drugs, swiftly offering enough early data to get remdesivir an emergency authorization and into the hands of the US government. But their drug, while helpful in cutting stays, is known for a limited, modest effect. And that won’t tamp down on the hurricane of criticism that’s been tearing at the White House, and buffeting the president’s most stalwart core defenders as the economy suffers.

We’ve had positive early-stage vaccine data, most recently from Pfizer and BioNTech, playing catchup on an mRNA race led by Moderna — where every little sign of potential trouble is magnified into a lethal threat, just as every advance excites a frenzy of support. But that race still has months to play out, with more Phase I data due ahead of the mid-stage numbers looming ahead. A vaccine may not be available in large enough quantities until well into 2021, which is still wildly ambitious.

So what about a drug solution?

Trump’s initial support for a panacea focused on hydroxychloroquine. But that fizzled in the face of data underscoring its ineffectiveness — killing trials that aren’t likely to be restarted because of a recent population-based study offering some support. And there are a number of existing drugs being repurposed to see how they help hospitalized patients.

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RA Cap­i­tal dou­bles down on Sid­dhartha Mukher­jee's vi­sion for a new cell en­gi­neer­ing ap­proach, lead­ing Vor's $110M Se­ries B

Vor Biopharma is muscling up.

CEO Robert Ang, who was reluctant to divulge the headcount when discussing his move from Neon Therapeutics to Vor last August, readily offered that the team has grown from 6 to 50 in less than a year. The biotech is moving to a larger office on Cambridge Parkway Drive in weeks, giving it more space to complete the IND-enabling work and manufacturing scale-up — conducted by a CDMO partner — in preparation for clinical trials planned for the first half of 2021.

Shoshanna Shendelman, Applied Therapeutics CEO (Applied Therapeutics)

A lit­tle biotech slaps back at a 'crim­i­nal' short at­tack, vow­ing to pur­sue a pros­e­cu­tion of their case

As short attacks go, Biotech Research Partners’ assault on Applied Therapeutics’ “cherry picked” data and a variety of so-called red flags didn’t cause a whole lot of damage. Ahead of the July 4 holiday, its shares $APLT were dinged and showed signs of quick recovery.

But that didn’t stop an incendiary response, as the biotech swung into action bright and early Monday morning.

Applied Therapeutics accused the authors of the short report of manipulating graphs and figures, misrepresenting data and included factual misrepresentations — all of which added up, in their view, to fraud.

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Bill Haney, Dragonfly CEO (Dave Pedley/Getty Images for SXSW)

A boom­ing Drag­on­fly is tak­ing its TriN­KETs to Copen­hagen as the lat­est Bris­tol My­ers pact spurs ex­pan­sion plans — out­side the US

Bristol Myers Squibb is making a habit out of collaborating with the crew at Dragonfly, adding their 3rd deal in a series that now will take them into newly charted R&D territory. And the fast-growing team at the Cambridge-based biotech is adding a facility in Copenhagen for its next growth spurt, where the government is making it easy to recruit scientists internationally as the U.S. throttles back.

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Covid-19 roundup: Left out no longer, No­vavax se­cures largest Warp Speed deal yet: $1.6B

It looks like Novavax won’t be left out of Operation Warp Speed after all.

A month after the Gaithersburg, MD biotech saw its shares tumble when it was left off the first reported list of finalists for the White House’s Covid-19 vaccine accelerator, HHS and the Department of Defense have announced a $1.6 billion deal to scale up their Covid-19 candidate. It is the largest deal HHS has announced yet, eclipsing the $1.2 billion deal the administration reached with AstraZeneca in May.

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Cel­lec­tis slammed af­ter pa­tient dies and FDA slaps a hold on their tri­al for an off-the-shelf CAR-T for mul­ti­ple myelo­ma

Cellectis was slammed after the market close on Monday as the biotech reported that the FDA demanded it hit the brakes on their MELANI-01 trial for their off-the-shelf cell therapy UCARTCS1A after one of the patients in the study died of treatment-related cardiac arrest.

The multiple myeloma patient had previously been treated unsuccessfully with various therapies, noted the biotech, and had been given dose level two (DL2) of their allogeneic CAR-T.

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Pfiz­er re-ups on Mis­sion Ther­a­peu­tics col­lab­o­ra­tion, lead­ing a $15M round and grab­bing first dibs on DUBs

Seven years after Pfizer first invested in Mission Therapeutics, a biotech that researches selectively inhibiting deubiquitylating enzymes (DUBs), the pharma giant is re-upping its commitment to the company in another sign of confidence in the field of protein degradation.

Pfizer’s VC arm is heading up a $15 million round, announced Monday morning, and increasing its overall stake in Mission. Pfizer is also entering into a licensing agreement that would give it first dibs at negotiating exclusivity after accessing certain DUB inhibitors and screening them for their potential as drugs.

UP­DAT­ED: Im­munomedics spells out PFS ben­e­fit of Trodelvy in mTNBC, hunt­ing a full OK just weeks af­ter ac­cel­er­at­ed ap­proval

By the time the FDA finally granted an accelerated OK for Immunomedics’ Trodelvy, we already got a very strong hint that their confirmatory Phase III study in metastatic triple-negative breast cancer was a success.

That’s because the independent data safety monitoring committee recommended that the trial be stopped early. But just what pointed them to the conclusion was still unclear.

“We do not know the totality of their decision other than it’s pretty evident that the primary endpoint was met; otherwise they could not request to halt the study,” Behzad Aghazadeh, the executive chairman, told Endpoints News at the time.