Who’s in line for the next big mega-merg­er? Morn­ingstar hand­i­caps the odds among the top play­ers

The M&A deals we’ve al­ready seen in Q1 have whet­ted an­a­lysts’ ap­petite for much, much more. And Morn­ingstar has come up with its break­down of the top buy­ers like­ly scour­ing the in­dus­try for takeovers — as well as the top tar­gets.

And more mega-merg­ers, they say, are very much on the ta­ble in 2019.

Lack of growth through 2022 at Am­gen and Gilead, in com­bi­na­tion with healthy ex­pect­ed cash flows and fair fi­nan­cial health, gives them the de­sire and am­mu­ni­tion for large-scale deals, al­though the best pair­ings (Am­gen/As­tra and Gilead/Re­gen­eron) are made less like­ly by the strong val­u­a­tions of their in­tend­ed tar­gets. J&J, Mer­ck, and Pfiz­er al­so have the abil­i­ty and de­sire to bol­ster their port­fo­lios with big­ger deals, and their shares are rel­a­tive­ly strong cur­ren­cy; we think the Mer­ck/Lil­ly fit is strong enough to counter Lil­ly’s high­er val­u­a­tion, and Pfiz­er could con­sid­er buy­ing Bris­tol af­ter the Cel­gene ac­qui­si­tion if val­u­a­tions re­main com­pelling, as this would great­ly ex­pand its on­col­o­gy port­fo­lio and pipeline. No­var­tis could raise enough cash to do a large deal fol­low­ing the Al­con spin-off and the po­ten­tial sale of its stake in Roche, and Ab­b­Vie could be an in­ter­est­ing fit for its on­col­o­gy and im­munol­o­gy port­fo­lios. We think Ab­b­Vie (sig­nif­i­cant debt, un­der­val­ued shares) and Roche (strong pipeline, fo­cused on on­col­o­gy tuck-ins) will stick to small­er deals, and Sanofi is like­ly to con­tin­ue its rare-dis­ease fo­cus with So­bi (the oth­er half of Biover­a­tiv’s busi­ness) and Bio­Marin (rare dis­ease with gene ther­a­py ex­per­tise).

Now for the tar­gets in play:

Ab­b­Vie, Am­gen, and Gilead are present on both our ac­quir­er and tar­get lists, as they have sig­nif­i­cant growth is­sues but al­so com­pelling pipelines and, in the case of Ab­b­Vie and Gilead, are un­der­val­ued. We think Bio­gen could be a tar­get for a num­ber of firms, as its neu­rol­o­gy fo­cus, strong pipeline, and un­der­val­ued shares would make it a very large-scale tuck-in ac­qui­si­tion. Bio­Marin is small enough to be ac­quired by any of the oth­er names, and its rare-dis­ease fo­cus and gene ther­a­py are ar­eas of high in­ter­est in the in­dus­try. Re­gen­eron isn’t a per­fect fit with all firms, and its shares look fair­ly val­ued, but strong Eylea cash flows, po­ten­tial block­buster sales in pain, and a large, ear­ly-stage on­col­o­gy pipeline could be ap­peal­ing, par­tic­u­lar­ly as Re­gen­eron and Sanofi have re­cent­ly de­fined their im­muno-on­col­o­gy col­lab­o­ra­tion and giv­en Re­gen­eron full rights to sev­er­al pro­grams.

There’s been plen­ty of crit­i­cism of the mega-merg­ers that oc­curred a decade or more ago. But Morn­ingstar says things could be dif­fer­ent this time around:

Strate­gi­cal­ly, while megamerg­ers of­ten fail to see the cost syn­er­gies laid out at the deal’s an­nounce­ment and can be cost­ly for R&D pro­duc­tiv­i­ty, we think they do put firms in a bet­ter po­si­tion to fight con­sol­i­da­tion among pay­ers and PBMs, if done smart­ly. That is, gain­ing ac­cess to a larg­er port­fo­lio of drugs in a giv­en ther­a­peu­tic area gives a drug firm more lever­age to ne­go­ti­ate prices on drugs in that port­fo­lio, as deny­ing one drug could mean high­er prices for the re­main­ing port­fo­lio. Firms with­out a clear ther­a­peu­tic area fo­cus may al­so be more like­ly to do deals.

Novotech CRO Ex­pands Chi­na Team as Biotech De­mand for Clin­i­cal Tri­als In­creas­es up to 79%

An increase in demand of up to 79% for clinical trials in China has prompted Novotech the Asia-Pacific CRO to rapidly expand the China team, appointing expert local clinical executives to their Shanghai and Hong Kong offices. The company is planning to expand their team by 30% over the next quarter.

Novotech China has seen considerable demand recently which is borne out by research from GlobalData:
A global migration of clinical research is occurring from high-income countries to low and middle-income countries with emerging economies. Over the period 2017 to 2018, for example, the number of clinical trial sites opened by biotech companies in Asia-Pacific increased by 35% compared to 8% in the rest of the world, with growth as high as 79% in China.
Novotech CEO Dr John Moller said China offers the largest population in the world, rapid economic growth, and an increasing willingness by government to invest in research and development.
Novotech’s 23 years of experience working in the region means we are the ideal CRO partner for USA biotechs wanting to tap the research expertise and opportunities that China offers.
There are over 22,000 active investigators in Greater China, with about 5,000 investigators with experience on at least 3 studies (source GlobalData).

Daniel O'Day [via AP Images]

UP­DAT­ED: Gilead un­leash­es a $5B late-stage cash al­liance with Gala­pa­gos — lay­ing out O'­Day's R&D strat­e­gy

Daniel O’Day is executing his first major development deal since taking over as CEO of Gilead $GILD. And he’s going in deep to ally himself with a longstanding partner.

O’Day announced today that he is spending $5 billion in cash to add new late-stage drugs to Gilead’s pipeline, picking up rights to Galapagos’ $GLPG Phase III IPF drug GLPG1690 alongside adoption of the biotech’s Phase IIb drug GLPG1972 for osteoarthritis. And Gilead is also putting billions more on the table for milestones, gaining options for everything else in Galapagos’ pipeline, with a shot at all rights outside of Europe.

Altogether, Gilead is gaining rights to 6 clinical-stage assets, 20 preclinical programs and everything else being hatched in translation.

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Alk­er­mes adds bipo­lar de­pres­sion to its FDA wish­list; Con­go con­firms first Ebo­la case in large city

→ An ever-ambitious Alkermes $ALKS team plans to add bipolar depression to its list of conditions for ALKS-3831, which it plans to pitch to the FDA in Q4. Alkermes says they were persuaded to add bipolar depression after a pre-NDA meeting with the agency, which came about 7 months after the biotech reported positive data for schizophrenia. The drug is a combo using olanzapine/samidorphan, which they hope will be shown to be as effective as olanzapine without the substantial increase in the risk of weight gain.

Pe­ter Kolchin­sky and Raj Shah raise a $300M fund de­vot­ed to biotech star­tups

Peter Kolchinsky and Raj Shah have another $300 million-plus to play with on the biotech venture side of their investment business. 

The two announced Monday morning that they’ve put together their first pure-play venture fund at RA Capital Management, which has been known to bet on just about every angle in healthcare investing — from rounds to follow-on investments at public companies. This new fund of theirs arrives well into a go-go era of new startup financing, with a particular focus on building new biotechs.

Boehringer buys Swiss biotech in its lat­est M&A deal, go­ing the next-gen can­cer vac­cine route

Boehringer Ingelheim has snapped up a Swiss biotech startup and added their group as a new platform for the oncology pipeline. 

The German biopharma company has bagged Geneva-based AMAL Therapeutics, paying out an unspecified upfront in a $358 million deal — cash, milestones and everything else, all in. Plus there’s 100 million euros on the line for commercial milestones.

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Hal Bar­ron's team at GSK scores a win with pos­i­tive Ze­ju­la PhI­II front­line study — now comes the hard part

Score one for Hal Barron and the new R&D team steering GlaxoSmithKline’s pipeline.

The pharma giant reported this morning that its recently acquired PARP, Zejula (niraparib), hit the primary endpoint on progression-free survival in a frontline maintenance setting for women suffering ovarian cancer — following chemo and regardless of their BRCA status.

GSK bet $5 billion on the Tesaro buyout primarily to get this drug, drawing the shaking heads of biopharma. Why pay a big premium for a drug like this when AstraZeneca was going from strength to strength with Lynparza, ran the argument, having won a hugely important accelerated approval to jump out ahead — way ahead — of the rest of the PARP players? Lynparza — now co-owned by a powerhouse cancer team at Merck — won the first approval in frontline maintenance in ovarian cancer.

Ab­b­Vie beefs up the on­col­o­gy pipeline, bag­ging an up­start STING play­er with its own unique ap­proach

AbbVie isn’t letting its $63 billion buyout of Allergan stop its M&A/deals team from continuing their work.

Monday morning we learned that the pharma giant is snapping up tiny Mavupharma out of Seattle, a Frazier-backed startup that has its own unique take on STING — which is on the threshold of their first clinical trial.

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Billing it­self as the first AI biotech to launch hu­man tri­als, Re­cur­sion adds $121M C round

Billing itself as the first AI biotech with programs in the clinic, Salt Lake City-based Recursion now has a $121 million bankroll to start gathering human data to see if it’s on the right track. 

“We’re trying to build this discovery engine,” Recursion CEO Chris Gibson tells me ahead of the C round news. “We now have the first two programs in the clinic.” And that, he adds, qualifies as a first for any AI establishment “that actually have something in the clinic.”

FDA bats back As­traZeneca's SGLT di­a­betes drug for Type 1 di­a­betes — block­ing a class on safe­ty fears

The FDA has just fired its latest salvo at the SGLT class of diabetes drugs, blowing up some commercial opportunity at AstraZeneca as part of the collateral damage.

The pharma giant reported early Monday that the FDA has rejected its blockbuster drug Farxiga for Type 1 diabetes that can’t be controlled by insulin. And while the pharma giant maintained its usual grim silence in the face of a setback, this one should be easy to interpret.