The analysis of biopharma dealmaking trends by Clarivate Analytics at last year's J.P. Morgan Healthcare Conference (JPM) suggested the industry would continue to evolve rapidly as targeted therapies reshuffled the oncology space and other broad therapeutic areas – especially neuroscience and anti-infectives – faced clinical and financial headwinds. The challenge going forward, concluded Laura Vitez, commercial insights manager with Cortellis, and Jamie Munro, global practice leader, portfolio and licensing, both of Clarivate Analytics, was to generate value from deals in the face of rising costs for drug development, pushback on pricing and a shift in focus from M&A to other types of business development (BD).
Bristol-Myers Squibb (BMS) Co.'s $74 billion bid for Celgene Corp. – which, if it closes, will become the largest M&A in biopharma history – "made for a fascinating opening" to JPM19, Munro said, especially given Celgene's historic placemark as the initial presenting company in the Grand Ballroom of the Westin St. Francis Hotel. Those duties were shared this year during a fireside chat by Giovanni Caforio, BMS chair and CEO, and Mark Alles, Celgene's chair and CEO. (See BioWorld, Jan. 4, 2019.)
Some $2.5 billion in expected savings by 2022, or roughly 13 percent of pro forma combined spend, from the deal "speaks to significant portfolio rationalization and head count reduction," Munro told BioWorld. "Interesting times."
Indeed, the 2019 biopharma dealmaking pace grew more frenzied on JPM's opening day, as Eli Lilly and Co. – cited by analysts as a pharma under pressure following the BMS salvo – plunked down $235 per share in cash, or about $8 billion, for Loxo Oncology Inc. to bring aboard targeted cancer assets that include recently approved Vitrakvi (larotrectinib) and a pipeline of near-term candidates. (See story this issue.)
Lilly, of Indianapolis, fell roughly in the middle of 2018 dealmaking volume – combined M&As, licenses, joint ventures and research deals – for the top 30 pharmas in 2018, according to Clarivate data, well behind front-runners Roche Holding AG, Novartis AG, Merck & Co. Inc., Johnson & Johnson, Astrazeneca plc and Pfizer Inc. Its Loxo pick-up could help address the pressure to generate internal investment and create shareholder value that Lilly was likely to feel in the wake of BMS-Celgene, Munro said.
Although "every year is interesting," 2018 was notable for its BD predictability, he added. The number of deals in the life sciences space declined to 4,014 from 4,522 in 2017, yet total deal size increased to $428 billion from $392 billion the previous year, suggesting that "people are willing to pay if the deals deliver," he said.
M&A deal value lagged the 10-year zenith of $347 billion achieved in 2014, but back-to-back years of growth in aggregate M&A dollars – combined with the early 2019 blockbuster deals – suggested the stage is set for a breakout year.
In adjusted dollars, the average and median size of licenses also hit 10-year highs of $371 million and $101 million, respectively.
"Since 2014, the uptick in overall licensing activity has been pretty significant," Munro said.
By therapeutic area, oncology continued its stranglehold on licensing arrangements, with 515 deals, and the sector's top 10 transactions focused on immuno-oncology (I-O), according to Munro. In comparison, 183 licenses were inked in 2018 for neurology/psychiatric assets as the second highest category, with 129 for infectious disease agents.
In terms of licensing transactions that exceeded $1 billion, 14 of 29 focused exclusively on cancer assets and seven exclusively on neurology. Fifteen deals focused on cell/gene therapy or oligonucleotides, but pacts involving oncolytic viruses also appeared for the first time among major BD plays.
Seven of the top 20 up-front cash payments in 2018 licensing transactions were for discovery-stage deals in neurology (three), oncology (two) and autoimmune/inflammation (two). The largest up-front discovery deal was Biogen Inc.'s $1 billion, 10-year extension for its partnership with Ionis Pharmaceuticals Inc., which included a $375 million up-front payment and $625 million for the purchase of approximately 11.5 million Ionis common shares at $54.34 apiece, or a premium of about 25 percent. (See BioWorld, April 23, 2018.)
Only two 2018 licenses exceeded that up-front threshold. The largest was the BMS outlay of $1.85 billion – $1 billion in cash and the remainder through an $850 million share purchase – in its I-O arrangement with Nektar Therapeutics Inc. to evaluate NKTR-214 with Opdivo (nivolumab) or Opdivo plus Yervoy (ipilimumab) in registration-enabling trials in more than 20 indications across nine tumor types. The second was the $800 million up-front cardiovascular play by United Therapeutics Corp. for Arena Pharmaceuticals Inc.'s prostacyclin receptor agonist ralinepag in pulmonary arterial hypertension. (See BioWorld, Feb. 15, 2018, and Nov. 16, 2018.)
Buyers still impose 'a degree of rationality'
Across the universe of licensing deals, however, most up-front payments fell well below $100 million.
"Although total deal value is rising, we're not actually seeing that when we look at the up-front portion," Munro said, suggesting that buyers still impose "a degree of rationality" in negotiating terms.
Although ex-U.S. dealmaking remains dwarfed by activity within the States, Chinese biopharmas showed a healthy appetite for inter-regional buyside deals in 2018, Munro said, with the aim of expanding the country's access to innovative medicines.
"As with everything with China, the growth was quite significant," he observed. The largest such transaction, Munro said, was the potential $722 million, including $20 million up front, bispecific antibody platform deal that provided Beigene Ltd. with rights to the Azymetric and EFECT platforms from Zymeworks Inc. along with global development and commercialization rights for up to three additional bispecific antibodies. For up to $430 more, including $40 million up front, Zymeworks also sent rights to its HER2-targeted bispecific antibodies ZW-25 and ZW-49 in Asia (excluding Japan), Australia and New Zealand to Beigene. (See BioWorld, Nov. 28, 2018.)
"The China story is something we predicted, and now it's coming to the fore," Munro said.
The biopharma IPO story that played out during 2018 also was remarkable. The number of initial offerings in 2018 represented back-to-back gains from 2016, through still falling short of the 10-year high in 2014, and valuations reached their highest point ever. Venture capital action remained equally strong, pushing private investment in drug discovery and development to approximately $17.4 billion after three years of robust growth. (See BioWorld, Oct. 18, 2018, and Dec. 10, 2018.)
"VCs are showing a willingness to invest in companies with attractive assets and an attractive value proposition," Munro pointed out.
The output from biopharma dealmaking also suggested a positive return, as FDA approvals for new molecular entities hit an all-time high of 59, marked by an exclamation point in late December with nods for Stemline Therapeutics Inc.'s Elzonris (tagraxofusp) – the first drug indicated to treat the rare bone marrow and blood disease blastic plasmacytoid dendritic cell neoplasm – and Alexion Pharmaceuticals Inc.'s Ultomiris (ALXN-1210, ravulizumab), the long-acting C5 complement inhibitor to treat adults with ultra-rare blood disorder paroxysmal nocturnal hemoglobinuria. (See BioWorld, Dec. 24, 2018, and BioWorld Insight, Dec. 31, 2018.)
But, "for the first time ever, we saw more orphan approvals than non-orphan approvals, and the number of large pharmas that gained approval for their drugs fell, as well," Munro pointed out.
The movement toward orphan drug designation, even in cancer drugs, has become a stampede, with the consequence that a growing number of approvals are targeting smaller patient populations. Although many drugs subsequently reach greater numbers of patients through supplemental approvals – incremental growth in patients eligible for treatment with Keytruda (pembrolizumab, Merck & Co. Inc.) is a noteworthy example in oncology, Munro said – it remains to be seen whether the universe of patients who will benefit from new drug approvals can be sustained in light of the sharp uptick in orphan drug approvals.
Of note, the number of regulatory rejections for drug applications is declining, he added, so the success rate is growing "as companies are better informed" about their prospects for advancing late-stage assets. (See BioWorld Insight, Dec. 24, 2018.)
"That's a good thing for the industry," Munro said. "It shows the regulation process is working quite well."
But submissions also are falling, "so we shouldn't expect to see a repeat in 2019 of this bumper crop of approvals that we've seen in 2018," he cautioned.