The Pharma Pulse: Mergers and Acquisitions
Mergers and acquisition in the pharmaceutical and life-sciences sector have been a mixed bag in the first half of 2021. The total value and number of deals increased exponentially compared to mid-year 2020 levels, but there have been no mega deals in the pharma/ biotech subsectors. What is expected in the second half of 2021?
Mid-year review: M&A
The first half of 2021 saw a continued return to normal deal activity for the pharmaceutical and life-sciences (PLS) sector with strong deal volume, according to a PwC analysis. PwC includes four sub-sectors in the PLS sector: pharmaceutical, biotech, medical devices, and other (CRO/CDMO services). In 2021, through mid-May, the total value of M&A in the PLS sector was $123.3 billion, a 410% increase compared to mid-year levels in 2020 with 201 deals, a 101% increase compared to mid-year levels in 2020, according to the PwC analysis.
Although the total deal value and number of deals were up in the first half of 2021 (through mid-May 2021), absent were large-scale deals with the exception being in the CRO/CDMO subsector. The CRO/CDMO space experienced notable deal value in the first half of 2021, highlighted by the PLS sector’s two largest deals of the year to date: Thermo Fisher Scientific’s pending $20.9-billion acquisition of the CRO, PPD, and ICON’s pending $12-billion acquisition of the CRO, PRA Health Sciences.
“A variety of factors have limited the number of large, transformational deals at this point in the year,” points out the PwC analysis on M&A activity PLS sector through mid-May 2021. “Still, sector participants continue to look to M&A to innovate and maximize the potential of their portfolios. In the second half of the year, we expect M&A activity to continue to be a focus for the sector. Large pharmaceutical companies have strong balance sheets, and capital continues to be readily available. Biotech funding continues to trend well, pushing valuation up. Special purpose acquisition companies (SPACs) have continued to move toward the mainstream as a viable alternative to traditional M&A, and IPOs [initial public offerings] continue to be a hotspot for investors and companies looking for the capital needed to fuel growth.”
Through mid-May (May 2021), there was not a mega deal in the pharma subsector, but the industry could see a large deal in the second half of 2021. “Despite the subsector’s largest deal of the year to date being $7 billion, we believe there is still a strong likelihood of at least one transformational deal happening before the end of the year,” according to the PwC analysis. “We expect a continued flow of bolt-on acquisitions as companies seek to innovate in traditional therapeutic areas while enhancing their presence in the cell- and gene-therapy space, a market that has experienced extensive investment in recent years.”
The absence of mega deals also marked the biotech subsector. “While the biotech subsector did not see any mega deals in the first half of 2021, we see the potential for several deals in the $5 billion to $15 billion range in the second half of the year,” according to the PwC analysis. “Market volatility has limited M&A within the biotech subsector while many smaller industry participants have looked to IPOs and SPACs as ways to gain access to capital while maintaining control. This is in contrast to the types of deals that have historically been the more common path to liquidity.”
Key deals announced or closed in the pharma and biotech subsectors through mid-May 2021 include: Jazz Pharmaceuticals’ $7.2-billion acquisition of GW Pharmaceuticals; Horizon Therapeutics’ $3.0-billion acquisition of Viela Bio; Amgen’s $1.9-billion acquisition of Five Prime Therapeutics; and Nordic Capital’s acquisition of Advanz Pharma. Other deals include: Merck & Co.’s $1.85-billion acquisition of Pandion Therapeutics; Sanofi’s $1.45-billion acquisition of Kymab; and Lilly’s $1.04-billion acquisition of Prevail Therapeutics. Highlights of these deals (full company acquisitions) are outlined below.
Jazz Pharmaceuticals’ $7.2-billion acquisition of GW Pharmaceuticals. In May (May 2021), Jazz Pharmaceuticals, a Dublin, Ireland-based bio/pharmaceutical company, completed its $7.2-billion acquisition of GW Pharmaceuticals, a London-based cannabinoid-based drug developer. GW’s lead product is Epidiolex (cannabidiol), an oral drug for treating certain refractory childhood epilepsies. Launched in the US in 2018 and in certain European markets in late 2019, the drug posted 2020 global sales of $511 million. Some analysts are bullish on the drug and have projected near-term blockbuster status (defined as sales of $1 billion or more). GW’ is focused in neuroscience and oncology and has pipeline assets to treat sleep and movement disorders, psychiatric-based disorders, hematology disorders, and solid tumors.
Horizon Therapeutics’ $3.0-billion acquisition of Viela Bio. In March (March 2021), Horizon Therapeutics, a Dublin, Ireland-based bio/pharmaceutical specializing in rare autoimmune and severe inflammatory diseases, completed its $3.0-billion acquisition of Viela Bio, a Gaithersburg, Maryland bio/pharmaceutical company also specializing in rare autoimmune and severe inflammatory diseases. Viela Bio was formed in 2018 as part of a spin-off from AstraZeneca, specifically from MedImmune, AstraZeneca’s global biologics arm, which spun out out six molecules from its early-stage inflammation and autoimmunity program into an independent biotech company, Viela Bio. That relationship netted Viela Bio’s first drug approval by the US Food and Drug Administration in 2020: Uplizna (inebilizumab-cdon) for treating neuromyelitis optica spectrum disorder (NMOSD), a rare, severe, autoimmune disease that attacks the optic nerve, spinal cord, and brain stem, which leads to loss of vision and paralysis. As part of Horizon’s acquisition of Viela Bio, AstraZeneca divested its 26.7% stake in Viela Bio for $776 million.
Amgen’s $1.9-billion acquisition of Five Prime Therapeutics. In April (April 2021), Amgen completed its $1.9-billion acquisition of Five Prime Therapeutics, a South San Francisco, California-based company developing immuno-oncology and targeted cancer therapies, for approximately $1.9 billion. Five Prime’s lead asset is bemarituzumab, in Phase II development, for treating certain forms of advanced gastric or gastroesophageal junction (GEJ) cancer. Bemarituzumab is designed to block fibroblast growth factors (FGFs) from binding and activating FGFR2b by inhibiting several downstream pro-tumor signaling pathways and potentially slowing cancer progression, according to information from Amgen. Bemarituzumab is being developed in gastric and GEJ cancer as a targeted therapy for tumors that overexpress FGFR2b. Amgen is also evaluating the potential for bemarituzumab in other cancers that overexpress FGFR2b.
Nordic Capital’s acquisition of Advanz Pharma. Earlier this month (June 2021), the private equity firm, Nordic Capital, closed on its previously announced acquisition of Advanz Pharma, a specialty bio/pharmaceutical company with operational headquarters in London. Nordic Capital had announced the acquisition in January (January 2021). The equity purchase price of Advanz Pharma was approximately $846 million. Including debt, the deal was valued at approximately $2 billion.
Merck & Co.’s $1.85-billion acquisition of Pandion Therapeutics. In April (April 2021), Merck & Co. completed its $1.85-billion acquisition of Pandion Therapeutics, a Watertown, Massachusetts-based company developing bispecific antibody therapeutics for autoimmune diseases. Merck had announced the acquisition of Pandion in February 2021. Pandion is advancing a pipeline of precision immune modulators. Its lead candidate, PT101, is an engineered IL-2 mutein fused to a protein backbone designed to selectively activate and expand regulatory T cells for treating ulcerative colitis and other autoimmune diseases. Earlier this year (2021), Pandion announced that PT101 had completed a Phase Ia clinical trial. The company’s pipeline also includes PD-1 agonists in development for numerous autoimmune diseases.
Sanofi’s $1.45-billion acquisition of Kymab.In April (April 2021), Sanofi completed its acquisition of Kymab, a Cambridge, UK-based biopharmaceutical company, in a $1.45-billion deal ($1.1 billion upfront and up to $350 million in milestones). Kymab’s lead product is KY1005, in Phase IIa development, for treating atopic dermatitis and with potential therapeutic application in multiple diseases caused by immune dysregulation. It is a monoclonal antibody that targets OX40L, a regulator of the immune system. The company is also developing KY1044, in Phase I/II trials for treating advanced solid tumors as a monotherapy and in combination with Roche’s Tecentriq (atezolizumab), an anticancer drug. The company is also developing KY1043, an immune checkpoint inhibitor for treating cancer and for which the company expects to file an investigational new drug application in 2021.
Lilly’s $1.04-billion acquisition of Prevail Therapeutics. In January 2021, Eli Lilly and Company completed its acquisition of Prevail Therapeutics, a New York-based company developing gene therapies, in a $1.04-billion deal ($880 million upfront plus one non-tradable contingent value right worth up to $160 million). The deal was announced in December 2020. Prevail’s lead gene therapies in clinical development are: (1) PR001 for patients with Parkinson’s disease with GBA1 mutations and neuronopathic Gaucher disease, which occurs in newborns and infants and is characterized by neurological complications due to the abnormal accumulation of glucocerebroside in the brain; and (2) PR006 for patients with frontotemporal dementia with GRN mutations. Prevail’s preclinical pipeline includes PR004 for patients with specific synucleinopathies, as well as potential adeno-associated viruses-based gene therapies for Alzheimer’s disease, Parkinson’s disease, amyotrophic lateral sclerosis, and other neurodegenerative disorders.
Looking ahead: regulatory reviews
One issue for the bio/pharmaceutical industry as a whole to keep on its radar are regulatory reviews for M&A. Earlier this year (2021), the US Federal Trade Commission (FTC) and its counterpart competition enforcement agencies in the US and abroad launched a working group, the Multilateral Pharmaceutical Merger Task Force, to identify concrete and actionable steps to review and update the analysis of pharmaceutical mergers. In addition to the FTC, participating groups in the task force are Canada’s Competition Bureau, the European Commission Directorate General for Competition, the UK’s Competition and Markets Authority, the US Department of Justice’s Antitrust Division, and Offices of State Attorneys General in the US. As part of the process to re-evaluate the approach taken for regulatory review of pharmaceutical M&A, the task force is seeking public comment to inform its review of how to best update approaches to analyzing the effects of pharmaceutical mergers. Public input is due by June 25, 2021.
That input will further inform the task force in deciding on new or refreshed approaches in evaluating anticompetitive effects from pharmaceutical mergers, acquisitions, joint ventures, and consolidation. The task force will explore what evidence may be relevant to determine whether a merger gives rise to competition concerns and, where applicable, sustain a challenge should the agencies seek to block these mergers in the future. The task force, likewise, will consider potential remedies to resolve competition concerns, such as the feasibility and effectiveness of divestitures under new or refreshed approaches.