With nearly a quarter of the activity announced in March focused on COVID-19, the first quarter of 2020 appears to be on target to beat the deal and M&A values of two of the last three years, although it remains behind 2019.
Despite the uncertainty of the coronavirus pandemic, let alone the upcoming U.S. presidential election, the industry has fared relatively well in terms of dealmaking so far this year, even as the markets have plummeted and partnering events have moved to a virtual format. In fact, deals should logically increase as the pandemic takes its toll on the economy, according to a biopharma executive who responded to a recent J.P. Morgan survey.
While no deals during the first quarter made the biopharma top 20 list, there were 13 total with projected values of $1 billion or more. The largest deal, projected at $2.72 billion, fell about $1 billion shy of making the list. That deal was done in late February when Cambridge, Mass.-based Biogen Inc. signed with Brisbane, Calif.-based Sangamo Therapeutics Inc. to develop ST-501 for tauopathies, including Alzheimer’s disease, ST-502 for synucleinopathies, including Parkinson’s disease, and additional undisclosed targets for neurological diseases.
The 13 high-money deals were an increase over last year’s first quarter, which had 10, and the first quarter of 2018, which had nine. The combined values of the deals were $22.99 billion in 2020, $25.6 billion in 2019 and $21.6 billion in 2018. In the first quarter of 2017, eight deals brought in a combined total of $12.6 billion.
The number of those billion-dollar-plus deals this past quarter is tied with the fourth quarter of 2018 for having the most in a single quarter within the last three years. The 13 deals in Q4 2018 were valued at $24.8 billion.
A total of 452 deals (licensings, collaborations and joint ventures) occurred in the first quarter of 2020 and had a combined projected value of $39.97 billion. That compares to 446 in the first quarter of 2019 with a value of $45.3 billion. While it is a slight increase in the number of deals, it is a 12% drop in deal value.
Broken out by month, January stood out with 185 deals that had an overall projected value of $20.3 billion. In February, 111 deals reported $7.5 billion, while in March 156 deals reported $12.1 billion.
A total of 37 deals in March, nine in February and four in January were focused on COVID-19, which is caused by the SARS-CoV-2 virus and was declared a pandemic by the World Health Organization on March 11. The number of COVID-19 deals in March represent about 24% of the total for that month.
The largest coronavirus deal, worth $135 million, was between Shanghai-based Fosun Pharmaceutical Industry Development Co. Inc. and Mainz, Germany-based Biontech SE to develop and commercialize a COVID-19 vaccine using mRNA technology in mainland China, Hong Kong and Macau and Taiwan.
‘Deals should logically increase’
To measure the impact of the pandemic on the biopharma industry, J.P. Morgan Research released results on March 30 of a survey of employees at more than 100 biotech companies. In terms of dealmaking, it showed that around 57% of respondents expected COVID-19 to have a moderately significant impact on business development activities, while 32% predicted a very significant impact.
“We expect COVID-19 to impact business development in the near-term, based on both travel/interaction restrictions as well as market volatility, making it more difficult to arrive at deal terms,” the J.P. Morgan report stated. “We also believe that the reset in smid cap valuations and need for capital could lead to increased activity in the not-too-distant future.”
A respondent in a business development strategy position at a company with less than a $1 billion market cap said: “Long term financial impact will be significant to some biotech companies. Smaller companies may need to get creative” by joining forces to save cash. “Development will be slowed for a period of time but will in time be fine.” Positives, the respondent said, include “finding new ways to work and possibly being more efficient.”
An executive vice president-level respondent from a similarly sized company said business development deals should logically increase as capital becomes scarcer. And a high-level executive at a company with a market cap of between $1 billion and $5 billion said that while business development impact is unclear, there has been “lots of shopping recently (large pharma reconnecting) but it’s not certain if they’ll be willing to execute large deals in this environment.”
M&As slumping or surging
Only time will tell the impact the pandemic has on the M&A environment, but the number and value of biopharma acquisitions already appear to be somewhat slumping in the first quarter of 2020. A total of 29 M&As were completed with a combined projected value of $45.16 billion. That compares to 56 valued at $80.6 billion in the first quarter of 2019.
Looking at the first quarter of 2020 month by month, January had the highest number of completed M&As at 13 ($19.5 billion value) and March had the highest value at $22.7 billion (eight completed). There were eight M&As completed in February with a value of about $3 billion.
Nearly half of the 2020 first-quarter value, and nearly all of the March value, comes from Washington-based Danaher Corp.’s acquisition of Boston-based GE Healthcare on the last day of the quarter. It had the highest projected value at $21.4 billion, which is about $8 billion below the amount needed to make BioWorld’s top 10 biopharma M&A list. Seven other completed M&As during the first quarter of 2020 were valued at more than $1 billion and included the $9.7 billion buyout by Basel, Switzerland-based Novartis AG of The Medicines Co., of Parsippany, N.J., in early January. That acquisition ranks No. 16 on the top M&As of biotech developers list.
The eight M&As valued at more than $1 billion each during the first quarter compare to only four in last year’s first quarter. Notably, a large portion of the $80.6 billion value then was the result of a mega-deal: Tokyo-based Takeda Pharmaceutical Co. Ltd.’s $62.32 billion acquisition of Dublin-based Shire plc. Removing the top deals in both first quarters leaves 2020 ahead with nearly $24 billion, a 33% surge over the $18 billion in 2019.