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.

BiTE® Plat­form and the Evo­lu­tion To­ward Off-The-Shelf Im­muno-On­col­o­gy Ap­proach­es

Despite rapid advances in the field of immuno-oncology that have transformed the cancer treatment landscape, many cancer patients are still left behind.1,2 Not every person has access to innovative therapies designed specifically to treat his or her disease. Many currently available immuno-oncology-based approaches and chemotherapies have brought long-term benefits to some patients — but many patients still need other therapeutic options.3

Pfiz­er’s Doug Gior­dano has $500M — and some ad­vice — to of­fer a cer­tain breed of 'break­through' biotech

So let’s say you’re running a cutting-edge, clinical-stage biotech, probably public, but not necessarily so, which could see some big advantages teaming up with some marquee researchers, picking up say $50 million to $75 million dollars in a non-threatening minority equity investment that could take you to the next level.

Doug Giordano might have some thoughts on how that could work out.

The SVP of business development at the pharma giant has helped forge a new fund called the Pfizer Breakthrough Growth Initiative. And he has $500 million of Pfizer’s money to put behind 7 to 10 — or so — biotech stocks that fit that general description.

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Stephen Isaacs, Aduro president and CEO (Aduro)

Once a high fly­er, a stag­ger­ing Aduro is auc­tion­ing off most of the pipeline as CEO Stephen Isaacs hands off the shell to new own­ers

After a drumbeat of failure, setbacks and reorganizations over the last few years, Aduro CEO Stephen Isaacs is handing over his largely gutted-out shell of a public company to another biotech company and putting up some questionable assets in a going-out-of-business sale.

Isaacs —who forged a string of high-profile Big Pharma deals along the way — has wrapped a 13-year run at the biotech with one program for kidney disease going to the new owners at Chinook Therapeutics. A host of once-heralded assets like their STING agonist program partnered with Novartis (which dumped their work on ADU-S100 after looking over weak clinical results), the Lilly-allied cGAS-STING inhibitor program and the anti-CD27 program out-licensed to Merck will all be posted for auction under a strategic review process.

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Gilead re­leas­es an­oth­er round of murky remde­sivir re­sults

A month after the NIH declared the first trial on remdesivir in Covid-19 a success, Gilead is out with new results on their antiviral. But although the study met one of its primary endpoints, the data are likely to only add to a growing debate over how effective the drug actually is.

In a Phase III trial, patients given a 5-day dose of remdesivir were 65% more likely to show “clinical improvement” compared to an arm given standard-of-care. The trial, though, gave little indication for whether the drug had an impact on key endpoints such as survival or time-to-recovery. And in a surprising twist, a 10-day dosing arm of remdesivir didn’t lead to a statistically significant improvement over standard of care.

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Ken Frazier, AP Images

Why Mer­ck wait­ed, and what they now bring to the Covid-19 fight

Nicholas Kartsonis had been running clinical infectious disease research at Merck for almost 2 years when, in mid-January, he got a new assignment: searching the pharma giant’s vast libraries for something that could treat the novel coronavirus.

The outbreak was barely two weeks old when Kartsonis and a few dozen others got to work, first in small teams and then in a larger task force that sucked in more and more parts of the sprawling company as Covid-19 infected more and more of the globe. By late February, the group began formally searching for vaccine and antiviral candidates to license. Still, while other companies jumped out to announce their programs and, eventually and sometimes controversially, early glimpses at human data, Merck remained silent. They made only a brief announcement about a data collection partnership in April and mentioned vaguely a vaccine and antiviral search in their April 28 earnings call.

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Mark Genovese (Stanford via Twitter)

Gilead woos fil­go­tinib clin­i­cal in­ves­ti­ga­tor from Stan­ford to lead the charge on NASH, in­flam­ma­to­ry dis­eases

With an FDA OK for the use of filgotinib in rheumatoid arthritis expected to drop any day now, Gilead has recruited a new leader from academia to lead its foray into inflammatory diseases.

Mark Genovese — a longtime Stanford professor and most recently the clinical chief in the division of immunology and rheumatology — was the principal investigator in FINCH 2, one of three studies that supported Gilead’s NDA filing. In his new role as SVP, inflammation, he will oversee the clinical development of the entire portfolio.

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Hill­house re­casts spot­light on Chi­na's biotech scene with $160M round for Shang­hai-based an­ti­body mak­er

Almost two years after first buying into Genor Biopharma’s pipeline of cancer and autoimmune therapies, Hillhouse Capital has led a $160 million cash injection to push the late-stage assets over the finish line while continuing to fund both internal R&D and dealmaking.

The Series B has landed right around the time Genor would have listed on the Hong Kong stock exchange, according to plans reported by Bloomberg late last year. Insiders had said that the company was looking to raise about $200 million.

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Len Schleifer (left) and George Yancopoulos, Regeneron (Vimeo)

Eyes on he­mo­phil­ia prize, Re­gen­eron adds a $100M wa­ger on joint de­vel­op­ment cam­paign with In­tel­lia

When George Yancopoulos first signed up Intellia to be its CRISPR/Cas9 partner on gene editing projects 4 years ago, the upstart smartly ramped up its IPO at the same time. Today, Regeneron $REGN is coming back in, adding $100 million in an upfront fee and equity to significantly boot up a whole roster of new development projects.

And they’re highlighting some clinical hemophilia research plans in the process.

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Fangliang Zhang (Imaginechina via AP Images)

The big mon­ey: Poised to make drug R&D his­to­ry, a Chi­na biotech un­veils uni­corn rac­ing am­bi­tions in a bid to raise $350M-plus on Nas­daq

Almost exactly three years after Shanghai-based Legend came out of nowhere to steal the show at ASCO with jaw-dropping data on their BCMA-targeted CAR-T for multiple myeloma, the little player with Big Pharma connections is taking a giant step toward making it big on Wall Street. And this time they want to seal the deal on a global rep after staking out a unicorn valuation in what’s turned out to be a bull market for biotech IPOs — in the middle of a pandemic.

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