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Largest biotech and pharma deals – 2019 recap & 2020 outlook

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2020 has started off strong in the world of biopharma partnerships. Already, Nurix have struck a $2.6 billion deal with Sanofi for a proprietary drug discovery platform, and Astex Pharmaceuticals and Taiho Pharmaceuticals announced a $2.6 billion deal with MSD (Merck & Co.) for exclusive worldwide rights to therapies being developed for oncological indications. But as much as we enjoy speculating about the deal trends for this new year, let’s first take a look at how the 2019 deal landscape closed off.

Top deals and highlights in 2019

2019 was an eventful year in the world of biotech and pharma deals, comprising strategic and unexpected transactions that have contributed to the consistently dynamic industry landscape. Looking at the top transactions from the past year, the top 10 M&A deals (see table 1) achieved an aggregated value of around $245 billion. At the same time, the top 10 partnership deals (see table 2) totaled at an aggregated value of approx. $49 billion. Compared to 2018, we can confidently say that 2019 was a year of high value deals. As a matter of fact, the aggregate values of both deal types yielded a year-over-year increase of $129 billion and $14.5 billion, respectively.

Celgene and Bristol-Myers Squibb (BMS) kicked down the doors of 2019 with the announcement of the second largest pharmaceutical acquisition deal in history; only $16 billion less than Pfizer’s acquisition of Warner-Lambert for $90 billion back in 1999. The second largest acquisition of 2019, valued at $63 billion and also considered one of the top 10 valued acquisitions of all time, is AbbVie’s acquisition of Allergan. This strategic move allowed AbbVie to diversify and expand its revenue base and leadership in immunology, hematologic oncology, medical aesthetics, neuroscience, women’s health, eye care and virology.

Beyond the deal value size, our analysis indicated that eight of the top ten valued acquisitions in 2019 included portfolios of marketed therapies and pipeline candidates within neuroscience, rare diseases, and of course, oncology. Other exciting news included Takeda’s foreign takeover of Shire, securing Takeda’s spot in the list of top 20 global pharmaceutical companies by market cap. Takeda is, however, not the only Japanese pharmaceutical company on the list after Astellas making their second largest deal ever by acquiring Audentes, expanding their territory in the world of gene therapies.

Shifting our focus towards partnership deals, the top 10 largest deals have values ranging from $2-14 billion. Chinese companies have made it to the list on both the licensee and licensor side, aligning with earlier predictions of how the 2019 licensing landscape would evolve on that side of the globe. We can also see Big Pharma strategically in-licensing both precision healthcare as well as gene therapy assets and expertise.

The top 2019 partnership deal spot is won by the marketed therapy Otezla®, in-licensed by Amgen from Celgene for a total of $13.4 billion. Otezla® is used in the treatment of inflammatory diseases such as psoriatic arthritis and plaque psoriasis. Market exclusivity for the product is set to expire in 2023, but the therapy is being developed for several additional indications. Japanese pharma Takeda hasn’t exclusively been playing the acquisition game, but has also made an appearance on the top partnership deals list by out-licensing Xiidra® to Novartis for a potential $5.3 billion. Another noteworthy company in the space is Gilead, with two appearances in the list of top 10 partnership deals by size, with deals struck in oncology and rare diseases.

Outlook of 2020

There are several emerging factors that have potential to pave the way for industry growth in 2020.

Regulatory changes

It will be important to keep an eye on the U.S. FDA’s organizational changes as well as its new leadership. Earlier announcements have for example unveiled plans of establishing a new office to improve review processes of new drugs. More specifically, the FDA ex-commissioner Scott Gottlieb revealed that the agency will focus on creating more structured approaches to the evaluation of biomarkers, while developing a standardized approach to using personalized medicine and digital data. This is an essential step towards enabling the growing landscape of personalized medicine and will hopefully reduce the current regulatory uncertainty. Together with the rise of digital technologies in healthcare, these regulatory improvements will most likely lead to an increase in deals within the precision medicine space. In particular, we expect to see precision oncology companies continuing to be acquired by Big Pharma, as we have seen with recent acquisitions of Array Biopharma and Loxo Oncology.

Growing gene and cell therapy space

Oncology remains the top therapeutic area in terms of deal activity levels. A position taken from hypertension in 2010 and held ever since. We can only speculate which area that will be the next contender, however, we would argue that the gene and cell therapy market might get interesting. 2019 saw the market launch of four gene and cell therapies that resulted in a collective total sales of $2 billion after a decade of several launched and withdrawn advanced therapy medicinal products (ATMP). This means that the gene and cell therapy market is starting to establish itself with the most deal growth expected within cardiovascular, muscular, and neurological disorders.

Pressed drug pricing

In line with 2019, drug pricing is also an important issue on the radar for 2020. Legislative proposals have been made to address how to lower prescription drug costs in the US, among which is a proposal to establish a US federal agency that would oversee drug pricing. The coming elections could have a huge impact in how these legislative proposals will proceed. Looking at the current administration, Bernstein analyst Ronny Gal believes that the current administration will take minimal action on drug costs this year. Despite taking this news into consideration, the long-term fate of healthcare pricing reduction is still unknown. And taking things a step further, the resulting impact of pricing reduction is also a bit of a brain teaser. On one hand, pricing reduction will most likely have a negative impact on valuations, likely causing deal volume and/or deal sizes to decrease. However, lower drug pricing may also affect the buying power of licensees/acquirers due to negatively impacted cash flow. Simplifying a bit, the resulting deal landscape will in the end be dependent on the ratio of licensor/acquired valuation decrease to licensee/acquirer cash flow decrease.

Expanding biosimilar market

Beyond 2020, the decade might see an expanding biosimilar market caused by a row of biologic patent expirations. It is unclear how this expanding market will impact global deal making. On the one hand, this expansion could impact the pricing of biologics via the classical post-exclusivity market takeover route; on the other, opinions on whether biosimilars are on par with leading biologics in terms of safety and efficacy still remain discordant. This particularity gives originators significant pricing power, illustrated by Humira®’s country-specific discounts from 2019. It will be curious to see this dynamic play out in the launch of other biosimilars, and their influence on the attractiveness of new biologics. Global deal frequency, especially in regions such as Latin America, may grow, however deal sizes might decrease. Building upon previous predictions from 2019, we also expect to see China continuing their growth as a key player within the pharmaceutical industry in the coming decade, partially driven by reformed priority review and approval process that allows domestic drug developers to compete with multinational counterparts. With these changes we expect a more levelled global playing field in the world of biopharma deals, with an increase in both frequency and size of deals that involve Chinese companies.

By: Robert Ljungberg, Business Analyst

Table 1. Top 10 M&A deals (Pharma and biotech)

Acquired (Acquirer)  Deal value Assets involved Date (announced or completed) Source
Celgene (Bristol-Myers Squibb) $74 billion Includes leading franchises in oncology, immunology and inflammation, and cardiovascular disease Completed: Nov 20, 2019 Link
Allergan (AbbVie) $63 billion Majority acquisition, includes leading franchises in immunology, hematologic oncology, neuroscience and virology Announced: Jun 25, 2019 Link
Shire (Takeda) $62 billion Includes treatment in gastroenterology, neuroscience, oncology, rare diseases and plasma-derived therapies Completed: Jan 8, 2019 Link
Array (Pfizer) $11.4 billion Includes small molecule medicines for the treatment of cancer Completed: Jul 30, 2019 Link
The Medicines Company (Novartis) $9.7 billion Includes a potentially transformational investigational cholesterol-lowering therapy Announced: Nov 24, 2019 Link
Loxo Oncology (Eli Lilly) $8.0 billion Includes a pipeline of highly selective potential medicines for patients with genomically defined cancers Completed: Feb 15, 2019  Link
Tesaro (GlaxoSmithKline) $5.1 billion Includes major marketed products such as Zejula (niraparib), an oral poly ADP ribose polymerase (PARP) inhibitor currently approved for use in ovarian cancer Completed: Jan 22, 2019 Link
Spark (Roche) $4.3 billion Includes a gene therapy pipeline for genetic diseases, including blindness, hemophilia and neurodegenerative diseases Completed: Dec 17, 2019 Link
 BTG (Boston Scientific) $4.2 billion Includes specialty pharmaceutical business comprising of acute care antidotes to treat overexposure to certain medications and toxins Completed: Aug 19, 2019 Link
Audentes (Astellas) $3 billion Includes AT132, which is being developed for XLMTM, a life-threatening, rare neuromuscular disease Announced: Dec 2, 2019 Link

 

Table 2. Top 10 partnership deals (Pharma and biotech)

Licensee (Licensor)  Deal value (deal breakdown) Asset of interest; latest development stage at deal signing; indication  Date Source
Amgen (Celgene) $13.4 billion (complete asset acquisition) Otezla® (apremilast); marketed; inflammatory diseases Completed: Nov 21, 2019 Link
AstraZeneca (Daiichi Sankyo) $6.9 billion ($1.35 billion upfront, $3.8 billion in regulatory and milestone payments, and $1.75 billion in sales-related milestone payments) DS-8201 (trastuzumab deruxtecan); phase 3; HER2-expressing breast and gastric cancers Announced: Mar 28, 2019 Link
Gilead (Galapagos) $5.4 billion ($4.0 billion upfront, $1.1 equity investment, and $0.3 billion in milestone payments) GLPG1690 and filgotinib; phase 3 and pending approval; idiopathic pulmonary fibrosis and rheumatoid arthritis Completed: Jul 14, 2019 Link
Novartis (Takeda) $5.3 billion ($3.4 billion upfront, $1.9 in milestone payments) Xiidra® (lifitegrast ophthalmic solution); marketed; dry eye disease Completed: Jul 1, 2019 Link
GlaxoSmithKline (Merck KGaA) $4.2 billion ($0.3 billion upfront, $0.6 billion in development milestone payments and $3.3 billion in commercial milestone payments) M7824 (bintrafusp alfa); phase 2; PD-L1 expressing advanced non-small cell lung cancer Announced: Feb 5, 2019 Link
Nanjing Chia Tai Tianqing Pharmaceutical Company NJCTTQ (Abpro) $4 billion ($60 million in near-term R&D funding, plus potential milestones payments and royalties) DiversImmune and Multimab (platform); preclinical; immuno-oncology candidates in ophthalmology and autoimmunity Announced: Feb 28, 2019 Link
Undisclosed (WuXi Biologics) $3 billion Manufacturing contract for the undisclosed party’s vaccine product Announced: May 20, 2019 Link
Gilead Sciences (Nurix Therapeutics) $2.3 billion ($45 million upfront, up to $2.3 billion in milestone payments) Targeted protein degradation drugs; oncology and other challenging diseases Announced: Jun 19, 2019 Link
Swedish Orphan Biovitrum AB Sobi (AstraZeneca) $2.3 billion ($1.5 billion upfront, $20 million in cash per year for three years, $0.47 billion in sales milestone payments, $0.29 billion in regulatory submission and development milestone payments) U.S. rights to Synagis® (palivizumab); marketed; prevention of serious lower respiratory tract infection (LRTI) caused by respiratory syncytial virus (RSV) Completed: Jan 24, 2019 Link
Genentech (Skyhawk) $2 billion (undisclosed upfront and up to $2 billion in milestone payments and royalties) SkySTAR™ technology platform (small molecules that modulate RNA splicing); oncology and neurological diseases Announced: Jul 16, 2019 Link

2019 investment update – who are the gen(e)ius investors placing bets on gene therapy companies?

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This year’s numerous gene therapy acquisition and licensing deals, market approvals and other regulatory milestones indicate a great future for this innovative field. The field’s  shown major advances in 2019 and has a forecasted growth of 24% CAGR over 2018-2024. But it’s certainly not for the faint-hearted since a gene therapy’s path to market is lined with challenges in everything from efficacy data and manufacturing to regulatory and pricing uncertainties. There are, however, a number of risk-thirsty investors ready to encourage gene therapy innovation that have placed significant capital into this lucrative field. Curiosity drew us in, and we’ve dug into the challenges as well as the who’s who of the investors in the gene therapy space.

It wasn’t until 2007 that the EU agreed on a shared regulation on advanced therapies in a directive called EC 1394/2007 spurring a real change in the space. Prior to this, the lack of an EU-wide regulatory framework had long hampered the growth of gene therapies and led to divergent national approaches. The new directive was designed to enable patients’ access to products by ensuring free movement of gene therapy technologies within Europe by centralizing the marketing authorization procedure, adapting technical requirements to the particular characteristics of these products and by creating special incentives for smaller companies (SMEs). Although these improved regulations have made a difference for the commercialization in different countries, there are still many complex development challenges remaining before one can claim success.

Key challenges come in varying shapes and forms

The first bottleneck involves the unique logistical manufacturing challenges associated with gene therapies. As opposed to traditional biologics, the manufacturing of gene therapies requires a more complex process and numerous supporting technologies. Due to this complexity, some developers establish own manufacturing capabilities as opposed to contracting with CDMOs and nearly half of cell and gene therapy companies (48%) plan to conduct at least parts of their manufacturing in-house. For those choosing to outsource, securing contract manufacturing slots very well in advance is a necessity since the available slots with adequate CDMOs are few.

Another key challenge, which is highly connected to manufacturing, is the future price of the treatment. The hefty price tag for gene therapies has created requirements for alternative payment models to ensure sustainable healthcare resource utilization. Nevertheless, no payment model has been appointed the gold standard for gene therapies and there are disagreements in the industry on how to define the value of gene therapies. Some claim that the potential societal benefits should be accounted for as part of the value of gene therapies and that governmental bodies therefore should take a bigger role in the reimbursement, while other vouch for pay-for-performance on annuity models. The only certainty at this point is that pricing is a concern for all gene therapy developers as well as investors.

It appears that irrespective of the challenges that could introduce skepticism in any investor, gene therapy companies continue to be funded, even in the early phases. In fact, the life science investment landscape has changed in the recent years with more innovative approaches being introduced over the entire development chain. This has forced VC firms to move from low-risk, low-return late stage portfolios to a broader range of development phases. The changing landscape has certainly caused a decline in the proportion of venture capital invested in the gene therapy field and also opened to the entry of other actors. VC’s is still, however, constituted as a linchpin in terms of big gene therapy investments.

“Manufacturing becomes question one, two and three when getting to know a gene therapy company for the first time”

So, what attracts investors to place money into gene therapy companies?

Big pharma companies are eager to expand their portfolios to include cell and gene therapy assets. As a result, we have recently seen a flood of news activity about high valued partnership and acquisition deals. For example, Novartis acquired AveXis for $8.7B in 2018 and Roche acquired Spark Therapeutics for $4.8B in early 2019 – these being only two examples of acquisition deals with big price tags. Gene therapy stocks have also been soaring during the year, which provides confidence for other investors to follow. Altogether, it’s the hefty price tags and big potential deals awaiting these companies that makes the gene therapy space an intriguing opportunity for risk-thirsty investors.

For investors ready to take their bets on gene therapy, due diligence is an important part when deciding upon an investment. With manufacturing being the main bottleneck for gene therapy development at the moment, investors look closely at a company’s manufacturing plan. Patrick Rivers from Aquilo Capital Management even explained it as “manufacturing becomes question one, two and three when getting to know a gene therapy company for the first time” in a panel discussion at the Alliance for Regenerative Medicine’s Cell and Gene Therapy Investor Day earlier this year. For companies in this space, it certainly is exciting to understand which investors are currently the most active and willing to place their bets on high-risk gene therapies.

Looking deeper into this landscape, an analysis of the investment rounds taken place in Europe and the U.S. in 2019 was done to find the most active investors in gene therapy based on the largest number of rounds participated. Our proprietary database-based research covered corporate loans, private equity, venture capital as well as placements from private individuals. Below, we have listed five of the most active VC firms in the gene therapy space together with some of their gene therapy investments in 2019.

  • Alexandria Venture Investments
    Alexandria Venture Investments has been recognized by Silicon Valley Bank as the most active biopharma investor by new deal volume during 2017-2018 and continued with a high pace in 2019 with 22 investments to date in rounds ranging from $7M to $191M. The VC’s portfolio is focused on innovative life science, technology, and ag-tech companies developing breakthrough technologies and therapies. The VC has invested in advanced therapy medical products throughout the development life cycle including as early as preclinical stage. An example is the investment in Immusoft, a company developing an immune system programming candidate that is nearly in Phase 1. Additionally, Alexandria Venture Investments was part of 2019’s Series C round of $104M for Encoded Therapeutics to push their preclinical programs and develop new treatments for severe genetic disorders.
  • Boxer Capital
    Boxer Capital has a wide portfolio across multiple therapeutic indications, and this VC firm invest in both public and private biotech companies throughout the business life cycle. Acting as a lead or co-investor in rounds ranging between $23M and $142M (2019), Boxer Capital is a strong VC in the field of emerging biotech. In 2019, Boxer Capital have among others invested in Poseida Therapeutics, a company that develops both cell and gene therapies with a lead candidate in Phase 1. Boxer Capital has previously also invested in AveXis, a company developing a proprietary gene therapy that halts disease progression of spinal muscular atrophy and was acquired by Novartis in April 2018 for $8.7Bn.
  • OrbiMed
    OrbiMed has been part of 28 investment rounds this year – in eight as a lead investor. The investment rounds have ranged from $3.6M to $150M. OrbiMed’s strategy is to invest across the global healthcare industry in all stages of business life cycle. This VC has invested in both Series A as a lead investor and Series B in Passage Bio’s, a company developing a portfolio of six life transforming AAV-delivered therapeutics. In 2019, OrbiMed also invested in the promising gene therapy company Repare Therapeutics. This company has developed and deployed a proprietary, high-throughput, genomic and chemo-genomic synthetic lethal screening platform which harnesses the power of CRISPR/Cas9 genome editing to identify promising new targets.
  • Perceptive Advisors
    Perceptive Advisors is a privately-owned hedge fund sponsor. The VC invests in transformative technologies in the life science industry. In 2019 so far, this VC took part in 23 investment rounds ranging from $15M to $299M. One of these investments was Oncorus, a company developing oncolytic virus programs which are currently in preclinical phase. Perceptive Advisors also recently invested in a Series C for Avidity Bioscience and also as a co-investor with Boxer Capital in the Series C financing round for Poseida Therapeutics.
  • Versant Ventures
    Versant Ventures invests mainly in biotech companies focused in drug discovery and has also an in-house scientific team working independently to validate novel academic discoveries as potential new companies. In 2019, the VC participated in placement rounds ranging between $15M to $115.5M. One of the investments in 2019 was in Coda Biotherapeutics, a company with a chemogenetic platform that aims to control the activity of neurons to treat neurological diseases. Versant Ventures have also been co-investor in previously mentioned Passage Bio and Repare Therapeutics.

Final thoughts

Today, investors claim that manufacturing has a big impact on their due diligence when assessing a gene therapy company. Many companies are, however, being reluctant to give away too granular information about their proprietary manufacturing methods since it’s regarded as their “secret sauce”. That may seem like a rational reason; however, it adds risk through unknowns. This also brings added complexity to financing agreements since it’s important for investors to understand the scalability and the manufacturing setup. Daring to break the status quo might just be the successful way of differentiating in the competitive space; showing investors that there is a scalable manufacturing plan and the pricing challenges are being considered. It’s just not enough to have a breakthrough therapy, managing the investor base is just as imperative for survival and, hopefully, lucrative success.

 

By: Axel Desaix, Business Analyst at MSC