Biopharma Boom Fosters Deal Spree
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Biopharma boom fosters deal spree Valuations and volume are up in a buoyant year for biopharmaceutical dealmaking. From tax inversions to gene therapy and, of course, immuno-oncology, 2014 and early 2015 featured plenty of wheeling and dealing. BY CHRIS MORRISON Table 1. Top 10 acquisitions announced in 2014. lthough it was a record year for biophar- Deal Value maceutical dealmaking—a year that A included more than $200 billion worth Actavis acquires Allergan $66 billion of mergers and acquisitions—one could argue Actavis acquires Forest Laboratories $22.8 billion that the most interesting and dramatic deals reportsBCIQ; Company of 2014 were the ones that never happened. Merck & Co. acquires Cubist Pharmaceuticals $9.5 billion Those almost-deals, mega-mergers in hot pur- Roche acquires Intermune $8.3 billion suit of corporate-friendly tax climates to drive margin expansion of the combined entities, Mallinckrodt acquires Questcor $5.7 billion were eventually thwarted by recalcitrant targets Merck & Co. acquires Idenix $3.7 billion or the slow-to-materialize posturing of the US Treasury. They were massive and oxygen con- Otsuka acquires Avanir $3.5 billion suming, and their failures set up rebound deals that, though smaller, are no less intriguing. Forest Laboratories acquires Aptalis $2.9 billion The failed $117 billion and $53 billion Endo acquires Auxilium $2.6 billion takeovers of AstraZeneca by Pfizer and Shire by AbbVie, respectively, tell only part of the Johnson & Johnson acquires Alios $1.75 billion story of 2014’s massive dealmaking binge. Data courtesy of Biocentury’s BCIQ Database. All acquisitions are of biopharma companies with patented prescription pharmaceutical focus (excludes devices, diagnostics, OTC, generic-only deals). Those attempted deals, like most of the past few years’ larger biopharma deals, were driven and enabled by the previous decade’s Among industry’s busiest dealmakers are that could mount from a combined commercial patent expirations and poor R&D productivity. a small handful of newly minted large pharma and R&D portfolio. The overtures became public Currently, however, R&D productivity is companies such as Actavis and Valeant Pharma- when, in April of that year, Pfizer upped its bid seemingly rebounding. A friendlier regulatory ceuticals, proponents of inorganic growth and in the face of disinterest from the AstraZeneca climate has taken root, rewarding innovative dwindling internal R&D spending. These compa- board. Pfizer’s final offer of £69 billion ($117 bil- molecules for unmet needs with speedier-than- nies join traditional big pharma players hungry lion at the time) was rejected in May, and UK law ever reviews. Investor enthusiasm for the sector for simultaneous growth and therapeutic focus, put a damper on further speculation, for a time. remains at an all-time high, and a renaissance sharpening competition for bolt-on, revenue- AbbVie initially fared better in its attempt to of exciting new technologies and biological driven acquisitions. At the same time, large bio- take over Shire. After an initial $46 billion offer, understanding may be in the offing. Even with tech companies are using partnership and acqui- the companies eventually agreed to a £32 billion the ever present focus on shareholder returns sition strategies to build new growth franchises ($53.3 billion at the time) deal in June 2014, and deal synergies, more partnerships and where one new successful drug could still move before the US Treasury, in an attempt to dissuade buyouts today seem to be driven by the promise the revenue needle. At Celgene, for example, the companies from relocating their headquarters of biotech innovation. most talked-about pipeline project is the phase 2 abroad to avoid paying US taxes, announced new That innovation can be sparked by regulatory Crohn’s disease hopeful GED-0301, an antisense policies that would have made the deal prohibi- incentives or by technological advances. drug program landed in an April 2014 deal for tively expensive. The deal was scuttled in October Thanks in part to extra marketing exclusivity for a whopping $710 million up-front payment plus 2014, and Shire walked away the richer, having qualifying drug candidates, the past 18 months $1.9 billion in potential milestones. received a breakup fee of $1.6 billion. have seen a resurgence of dealmaking in the AbbVie’s pass at Shire was about more than its anti-infectives area, including in the one-time Big pharma’s big-game hunts tax-friendly location. The big pharma company’s wasteland of antibiotic development. The US At the end of the last decade major pharma- need to diversify away from its reliance on its priority review voucher program, which lets ceutical companies, impacted by the financial autoimmune powerhouse Humira (adalimumab, drug sponsors jump the regulatory queue and crisis and concerned by the imminent loss of the world’s best-selling drug, with worldwide sales may be expanded through the upcoming 21st patent exclusivity on blockbuster products, of more than $12.5 billion in 2014) kept it in the www.nature.com/biopharmadealmakers Century Cures legislation, has increased R&D in changed their research and development priori- hunt. Eventually, in March 2015, AbbVie swooped pediatric and tropical disease indications alike, ties. In particular, a greater proportion of fund- in with a $21 billion bid to acquire Imbruvica (ibru- and it has sparked a new kind of deal: selling the ing was allocated to products in later stages of tinib) co-marketer Pharmacyclics. The stunning priority review vouchers themselves. development. These products are close to com- offer apparently trumped those from at least two There have been plenty of bets made on the mercialization and as such represent a more other suitors, including Pharmacyclics’ Imbruvica fruits of experimental platform technologies immediate return on investment. By bringing marketing partner Johnson & Johnson, which only such as gene therapy and RNA-based thera- new products to market, branded pharmaceu- a day earlier reportedly had the deal sewn up. peutic platforms such as RNAi and antisense tical companies aim to offset the $82 billion Flush with its breakup bonus, Shire continued dealmakers RNA, whose times may have finally come. And Datamonitor predicts they will lose due to pat- to have a busy year that included at least five unsurprisingly, given its evident promise, there ent expirations from 2011 to 2014. acquisitions and three alliances, capped by the is continued enthusiasm for all varieties of In January 2014, Pfizer began its quiet attempts $5.2 billion takeout of rare-disease specialist NPS cancer immunotherapy, including small- and to take over UK-based rival AstraZeneca. In addi- Pharmaceuticals in early 2015. large-molecule drugs and cellular therapies tion to AstraZeneca’s UK headquarters, Pfizer had Meanwhile, other big pharma entities entered such as chimeric antigen-receptor T cells (CAR- its eye on the company’s burgeoning, early-stage into asset-swapping agreements that dwarfed biopharma T) and T cell receptors. immuno-oncology programs and the savings most other transactions. GlaxoSmithKline sent B2 its marketed oncology portfolio to Novartis for companies’ dealmaking strategies over the past $16 billion and paid $7.2 billion for Novartis’s 2 years to either build—as companies such as vaccine portfolio in return. Bayer Healthcare Roche and Bristol-Myers Squibb are wont to paid more than $14 billion for Merck’s con- do—an “all under one roof” immunotherapy sumer healthcare business less than 2 weeks solution or partner with peers to pair up candi- later (concurrently the companies signed a co- dates from among the alphanumeric soup of tar- development and co-commercialization deal geted agents (IDOs, CTLA-4s, PD-1s, CDK4/6s, around Bayer’s guanylate cyclase modulators PD-L1s, OX40s and many more) in clinical trials. that called for a $1 billion up-front payment from That deal making has taken place against the Merck). Those deals, at least on the surface, are backdrop of an unprecedented biopharma bull examples of the industry’s largest companies market, one that has seen soaring valuations— embracing some measure of portfolio focus. fueled, of course, by the very prospect of large Other deals were driven by attempts to bolster deals—and more than 100 newly public biotech cost savings. Valeant tried to corner Allergan, companies raising well over $10 billion in aggre- the maker of Botox (onabotulinumtoxinA), with gate initial public offerings and follow-ons. In a series of hostile overtures: an initial bid of short, and particularly in the immuno-oncology $45 billion in cash and stock was raised twice, space, it’s a seller’s market, and although it is to $53 billion, before white-knight acquirer perched at the top of the charts, $850 million up Actavis stepped in with a friendly $65 billion front for a phase 1 oncology drug candidate isn’t offer in November 2014. (That deal, combined the outlier it might initially seem to be. with Actavis’s February 2014 acquisition of Take, for example, the $800 million up front Forest Laboratories for $23.9 billion and the that Bristol-Myers Squibb paid in February 2015 relatively modest $675 million it paid up front to acquire Flexus Biosciences ($450 million in for anti biotic specialist Durata Therapeutics in development milestones could take the near- November, made the erstwhile generic special- term value of that deal to $1.25 billion). Flexus’s ist the year’s biggest spender by far, during a lead candidate, the preclinical small-molecule period that completely transformed the com- IDO1 inhibitor F001287, is Bristol’s only real The market doesn't see pany (Table 1).) prize; besides F001287, the deal netted the big pharma company some related discovery “that the value [of cancer Splurging on immuno-oncology programs. The rest of Flexus’s non-IDO-related Like AbbVie, Pfizer saw more than a tax shelter assets (including clinical-stage candidates) will immunotherapies] isn't in in its corporate quarry.