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.”

Pfiz­er lays off em­ploy­ees at Cal­i­for­nia and Con­necti­cut sites

Pfizer has laid off employees at its La Jolla, CA, and Groton, CT sites, according to multiple LinkedIn posts from former employees.

The Big Pharma confirmed to Endpoints News it has let go of some employees, but a spokesperson declined to specify how many workers were impacted and the exact locations affected. Earlier this month, the drug developer had confirmed to Endpoints it was sharpening its focus and doing away with some early research on areas such as rare disease, oncology and gene therapies.

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Late Fri­day ap­proval; Trio of biotechs wind down; Stem cell pi­o­neer finds new fron­tier; Biotech icon to re­tire; and more

Welcome back to Endpoints Weekly, your review of the week’s top biopharma headlines. Want this in your inbox every Saturday morning? Current Endpoints readers can visit their reader profile to add Endpoints Weekly. New to Endpoints? Sign up here.

I hope your weekend is off to a nice start, wherever you are reading this email. As for me, I’m trying to catch the tail of the Lunar New Year festivities.

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Jake Van Naarden, Loxo@Lilly CEO

Lil­ly en­ters ripe BTK field with quick FDA nod in man­tle cell lym­phoma

Eli Lilly has succeeded in its attempt to get the first non-covalent version of Bruton’s tyrosine kinase, or BTK, inhibitors to market, pushing it past rival Merck.

The FDA gave an accelerated nod to Lilly’s daily oral med, to be sold as Jaypirca, for patients with relapsed or refractory mantle cell lymphoma.

The agency’s green light, disclosed by the Indianapolis Big Pharma on Friday afternoon, catapults Lilly into a field dominated by covalent BTK inhibitors, which includes AbbVie and Johnson & Johnson’s Imbruvica, AstraZeneca’s Calquence and BeiGene’s Brukinsa.

Filip Dubovsky, Novavax CMO

No­vavax gets ready to take an­oth­er shot at Covid vac­cine mar­ket with next sea­son plans

While mRNA took center stage at yesterday’s FDA vaccine advisory committee meeting, Novavax announced its plans to deliver an updated protein-based vaccine based on new guidance.

Vaccines and Related Biological Products Advisory Committee (VRBPAC) members voted unanimously in favor of “harmonizing” Covid vaccine compositions, meaning all future vaccine recipients would receive a bivalent vaccine, regardless of whether they’ve gotten their primary series.

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Eliot Forster, F-star CEO (Rachel Kiki for Endpoints News)

F-star gets down to the wire with $161M sale to Chi­nese buy­er as na­tion­al se­cu­ri­ty con­cerns linger

With the clock ticking on F-star Therapeutics’ takeover by a Chinese buyer, the companies are still scrambling to remove a hold on the deal from the US government’s Committee on Foreign Investment in the United States.

F-star and invoX Pharma said they are “actively negotiating” with CFIUS “about the terms of a mitigation agreement to address CFIUS’s concerns regarding potential national security risks posed by the transaction.”

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CBER Director Peter Marks (Susan Walsh/AP Images)

FDA ad­vi­so­ry com­mit­tee votes unan­i­mous­ly in fa­vor of bi­va­lent Covid shots re­plac­ing pri­ma­ry se­ries

The FDA’s Vaccines and Related Biological Products Advisory Committee (VRBPAC) voted unanimously in favor of “harmonizing” Covid vaccine compositions, meaning all current vaccine recipients would receive a bivalent vaccine, regardless of whether they’ve gotten their primary series.

The vote marks an effort to clear up confusion around varying formulations and dosing schedules for current primary series and booster vaccines, as well as “get closer to the strains that are circulating,” according to committee member Paul Offit, professor of pediatrics at the Children’s Hospital of Philadelphia.

Rodney Rietze, iVexSol CEO

Bris­tol My­ers, Charles Riv­er join Se­ries A fund­ing for iVex­Sol

Massachusetts-based iVexSol has secured funding to the tune of $23.8 million in its latest Series A round. The new investors include Bristol Myers Squibb, manufacturer Charles River Laboratories and Asahi Kasei Medical.

iVexSol is a manufacturer of lentiviral vectors (LVV), used in making gene therapies, and this latest round of fundraising brings its total Series A total over $39 million, which will be used to recruit more employees and bolster its technology.

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John Rim, Samsung Biologics CEO (Samsung/PR Newswire)

Sam­sung Bi­o­log­ics spells out ex­pan­sion plans in South Ko­rea and US

The CDMO arm of one of South Korea’s largest conglomerates has posted its year-end results and plans for 2023, which include new construction.

Samsung Biologics netted north of KRW 3 trillion ($2.4 billion) in 2022 revenue and an operating profit of KRW 983.6 billion ($799 million), which the company touted on Friday as “record-high earnings.” The revenue boost was 55% compared to 2021.

No­var­tis' ap­proved sick­le cell dis­ease drug fails to beat place­bo in PhI­II

Novartis’ sickle cell drug, approved in 2019 and branded as Adakveo, has failed an ongoing Phase III, according to preliminary results.

The Swiss pharma giant unveiled early data from the ongoing STAND Phase III study on Friday, saying that crizanlizumab showed no statistically significant difference between the drug at two different dose levels compared to placebo in annualized rates of vaso-occlusive crises that lead to a healthcare visit over the first year since being randomized into the trial.