MSC Nordics

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.

By: Robert Ljungberg, Business Analyst

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

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

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.

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