BioPharm Executive: A Look at Who's Next In the Life Sci M&A Boom
August 31, 2016
By Karl Thiel for BioSpace.com
The dog days of summer aren't the usual time for anticipating a wave of corporate activity, but that's exactly what has been happening in August. Ever since Pfizer was rudely awakened from its dreams of a tax inversion—via a $160 billion megamerger with nominally Dublin-based Allergan —pundits have been anticipating the company's next move. That came just days ago when the pharma giant announced a $14 billion acquisition of Medivation , its prostate cancer drug Xtandi and a its promising oncology pipeline.
Since then, Pfizer has also snapped up AstraZeneca 's portfolio of commercial and developmental antibiotic and antifungal compounds, for over $1.5 billion.
To be sure, these deals are small potatoes in comparison to Pfizer's Irish fantasies, but they have set off speculation that other companies—particularly the losing bidders in the Medivation deal—will soon look for alternative purchases. That could mean that Gilead , AstraZeneca, Sanofi , Celgene , and Merck —and possibly others—will be getting out their checkbooks.
Who might they be buying? Earlier this month, shares of Biogen spiked on rumors that it had gotten serious interest from both Merck, Allergan, and possibly others. But other companies that have been a source of speculation for a long while—from BioMarin to Vertex to Celgene itself, not to mention any number of smaller, development-stage companies, are now seen as being in play.
That would in many ways be a welcome course-correction for 2016. Year-to-date, there has been about $93 billion worth of pharma and biotech deal-making, according to a Wall Street Journal assessment. That's tracking way, way behind 2015—which ended at $334 billion—or indeed any of the past three years. And it's no secret that one reason for the market's cool reception to biotech stocks this year has been plummeting M&A activity, which was perhaps driving the bull market more than any other single factor.
The Nasdaq Biotechnology Index (and the ETFs that track it, like the IBB) are still down sharply for the year, but have rallied since the end of June. Whether that continues will depend to a considerable degree on whether some of these hypothetical M&A deals actually happen.
So far, the predicted deals haven't come through. And at the moment it looks like the biotech rally has lost some of its momentum—although that could reverse on a dime if a notable deal does indeed materialize. But the market doesn't move on M&A alone.
Et tu, I/O?
The other thing driving biotech stocks, of course, is the progress of new products. But perhaps the hottest commodity of the past decade, cancer immunotherapy, has proved troublesome this summer. In July, Juno Therapeutics was knocked back on its heels after revealing three—no make that four--patient deaths in clinical trials for its CAR-T therapy. While curing blood cancers is an arduous business and severe immune response is part of the process, these outcomes show that even successful CAR-T therapy may need considerably more fine-tuning.
Then in August came the news that Bristol-Myers Squibb 's immuno-oncology blockbuster Opdivo failed to help patients in a first-line lung cancer setting. That was a surprising outcome—particularly since Opdivo is already approved in non-small-cell lung cancer following chemotherapy. Bristol's stock dropped 16% in a single session, more the outcome you'd expect of a mid-sized biotech than a big pharma that traces its lineage to the nineteenth century. But it shows that the expectations built around I/O drugs were and perhaps still are overblown.
Bristol's chief rival Merck has benefited from its rival's misfortunes—which makes some sense because Merck already has some positive results locked down for Keytruda in first-line treatment of lung cancer. Yet that trial was conducted differently, with Merck requiring patients to have much higher levels of PD-L1 expression. Keytruda clearly has an edge for now, but how I/O is used in lung cancer remains an open question.
For CAR-T, the questions are even more open. Juno's chief rival Kite Pharma initially dropped in sympathy, but ultimately rallied—in part, perhaps, because a clinical hold on Juno was quickly lifted, and in part because Juno sloppily revealed the extent of the patient deaths piecemeal, spreading out the bad news. It's far from clear, however, how specific the problems experienced with JCAR015 are to that therapy, to Juno, or to CAR-T more broadly.
The consensus that we're on the cusp of a new therapies based around CAR-T and other emerging I/O strategies—as well as gene therapy, gene editing, and more—has felt a little strained lately. Some positive, high-profile clinical news would reignite investors and perhaps even grease the wheels for more M&A. But even Biogen's better-and-earlier-than-expected success with nusinersen so far hasn't caused anyone to pull the trigger.
-Karl Thiel
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