HAMBURG, Germany – Despite the biotech industry's recent record-breaking run in terms of fundraising and new drug approvals, the ongoing drug pricing controversy is acting as a drag on biotechnology investment. Since the debate started to heat up about four years ago, the Nasdaq Biotechnology Index is down 14%, while the S&P 500 Index is up by 46% during the same period, David Thomas, vice president, industry research at the Biotechnology Innovation Organization (BIO), told delegates attending the opening plenary session at BIO-Europe. "Something is clearly holding back investors in our space," he said.
The latest bills circulating around Washington would, if passed, potentially harm the biotechnology industry, he said. And policy makers appear to be quite comfortable with the prospect. "We're hearing policy makers saying 'We're fine with less innovation, we're fine with less new medicines for patients, as long as prices come down,'" he said. Such a scenario would have global consequences, given the centrality of the U.S. market to the entire industry. Increasing government oversight into U.S. investors' overseas transactions is also starting to take effect, particularly in the venture capital space.
Those factors have not yet weighed on dealmaking within the industry. "I predict we're going to get very close to where we were last year," Thomas said. In 2018, emerging companies entered 160 R&D-stage out-licensing deals worth at least $10 million. For the present year, the running total – up to the start of the present month – is 126. "We are seeing a pick-up in clinical-stage deals," he said. That is reflected in the larger deal sizes. This year's running total for up-front payments, $11.9 billion, is already well ahead of the $9.1 billion that changed hands in 2018 and is set to create a new record.
This year's total was swelled by two mega-deals, Gilead Sciences Inc.'s $5 billion deal with Galapagos NV, which included a $1.1 billion equity investment, and Amgen Inc.'s $2.7 billion pact with Beigene Ltd., which took the form of a 100% equity investment and which will underpin the joint development of 20 cancer drug candidates. (See BioWorld, July 16, 2019, and Nov. 6, 2019.)
The largest comparable deals in 2018 were smaller – although by the industry's historical standards they were still whoppers. They included Bristol-Myers Squibb Co.'s immuno-oncology alliance with Nektar Therapeutics Inc., which involved $1 billion up front plus another $850 million in equity, and Biogen Inc.'s 10-year antisense drug development pact with Ionis Pharmaceuticals Inc., which involved $375 million up front plus another $675 million in equity investment. The pharma industry's current focus on large-scale licensing of R&D-stage assets is reflected in a drop in outright M&A activity targeting the same asset class. So far this year, there has been no acquisition of an emerging company to involve $5 billion up front, Thomas said, whereas three such deals were completed last year – Celgene Corp.'s $9 billion takeover of CAR T developer Juno Therapeutics Inc., Novartis AG's $8.7 billion acquisition of gene therapy developer Avexis Inc., and Sanofi SA's $5 billion (rounding up from $4.8 billion) takeout of nanobody pioneer Ablynx NV. In total, 30 deals completed in 2018 took in a combined $32.7 billion up front. The running total for 2019 comes to just $10.7 billion split across 24 deals.
In contrast, there has been a much bigger emphasis – in dollar terms at least – on acquisitions of what could be called "newly emerged" companies – that is firms with a recent regulatory approval under their belts and less than $1 billion in sales. Thomas logged seven such deals so far this year, with a combined value of $25 billion up front. Those include Pfizer Inc.'s $11.4 billion buyout of oncology firm Array Biopharma Inc., Eli Lilly and Co.'s $8 billion acquisition of Loxo Oncology Inc., another cancer drug developer, and, assuming it eventually gets through regulatory scrutiny, Novartis' $4.8 billion acquisition of gene therapy firm Spark Therapeutics Inc. "Arguably, this is where pharma has found opportunity in 2019," Thomas said.
Moreover, the industry retains the firepower to continue that de-risked, bolt-on M&A strategy. Thomas identified 48 public companies that fall into the category of having a recent approval and sales of less than $1 billion. They have a combined market valuation of $100 billion. Even allowing for the large premiums attached to many M&A deals, the industry is capable of digesting all of them. The top 22 pharma firms have $200 billion in cash between them. Of course, Thomas said, it's their choice whether they spend their funds on M&A or on other transactions, be they mega-mergers, franchise swaps or share buybacks.
Big pharma's position in the ecosystem it has long dominated is changing, as drug development becomes more scientifically complex and the tools used to support drug development become more sophisticated. The industry has learned – albeit to varying degrees – how to engage in external R&D collaborations. Now it's faced with the opportunities – and threats – that accompany the emergence of digital technologies and the encroachment of internet firms like Google and Amazon into health care. The companies who will be successful in the next 25 years will be those who have "inhaled" precision medicine, Friedrich von Bohlen, CEO of Heidelberg, Germany-based Molecular Health GmbH, told delegates during the opening plenary. "Roche to me were the forerunner," he said. But the future will involve an increasingly dense analysis of individuals' health and disease data and new – and as yet unknown – models for data sharing and monetization to incentivize individuals to share their information. Computing is essential to that transformation to a truly preventive vision of health care – but it is not the main driver. "I think the real transformation is not computing. I think the real transformation is biology," he said.
Understanding how individuals progress from a healthy to a disease state will be key to developing a better understanding of disease and developing better therapies. The availability of physical patient samples, housed in biobanks, has been a real change, said Jane Osbourn, chair of the U.K.'s Bioindustry Association, during the same session. "I think the interesting piece of the jigsaw that's missing is we have to start engaging with people who are well, to start gathering that data earlier," she said. Even though there is now much greater complexity in drug development, that should not necessarily be reflected in what is delivered to the patient, said Werner Lanthaler, CEO of Hamburg-based Evotec. "We have to stay simple," he said during the same session. That means not giving patients drugs that do not work or, worse still, that do not work but have a negative effect on the patient. "That's where we need to be better at diagnostics," he said.
The iPhone offers a good example of packaging a huge amount of technology into a device that can be used by anybody, Paul Stoffels, chief scientific officer at Johnson & Johnson, of New Brunswick, N.J., said during the same session. The pharmaceutical industry has, through extensive collaboration, steadily simplified and improved HIV therapy over the past 25 years. Stoffels identified HIV and tuberculosis drugs as being among the most important life-savers during that time, noting that two-thirds of humanity still do not have access to biologics. That's why drug companies must retain small-molecule drugs in their portfolios. "We have to stay relevant for the world," he said.
The meeting continues Tuesday.