Biopharma M&A has seen a sharp decline so far this year, both in terms of monetary value and total transaction count, amid a COVID-19 business slowdown. But is the health crisis changing how companies think about their dealmaking strategies?
Not necessarily, according to a panel at this year’s BIO event.
“The appetite for merger and acquisition or any externalization activities is not significantly adjusted at Takeda as the result of current health disruption,” Evan Lippman, head of corporate development for Takeda's global business development unit, said.
Lippman suggested that the discrepancy in deal activity between this year and historical records may be attributable to the “human element” of M&A and the initial uncertainty over COVID-19.
M&A is a labor-intensive activity that requires a lot of diligence, evaluation and collaborative effort across several organizations, he said, adding that COVID-19 may have shifted the timeline of that process.
However, despite the pandemic, the monthly numbers of licensing deals inked this year until May were quite stable compared with those in the past two years, according to Evaluate Pharma’s analysis of BioPharm Insight data.
As Horizon Therapeutics' chief strategy officer Andy Pasternak sees it, while some early interactions can be done remotely—a lot of first contacts during M&A negotiations come via email or a phone call, anyway—and some clinical data can be obtained via a virtual data room, it gets trickier “when you talk about larger transactions that involve acquiring commercial assets and manufacturing facilities.”
Horizon just snatched up Curzion Pharmaceuticals and gained the small biotech’s investigational oral selective lysophosphatidic acid 1 receptor antagonist, now dubbed HZN-825, for just $45 million in a heavily backloaded deal.
But COVID-19 is hurting clinical trial enrollment and has delayed some data readouts. When the target doesn’t have a completed data set available, there may be a way to structure the deal to cater to that situation, said Stephanie Leouzon, head of the European unit of investment service firm Torreya.
“It is a greater risk, and it’s not always the case that, in our experience, acquirers are willing to move without more certainty,” Leouzon added. “They’d often rather pay more for more certainty than take a data-driven risk.”
Nicholas Franco, chief business development officer at Johnson & Johnson’s Actelion, argued that contingent value right (CVR) can come in “as a potential way to bridge the gap between the initial acquisition and a data point that’s going to come in in the near future.” That’s what Bristol Myers Squibb did with its Celgene takeover, in which $9-per-share of CVR is tied to the successful, on-time FDA approvals of Zeposia, ide-cel and liso-cel.
But Franco did acknowledge that he’d also prefer to wait for the data especially if it’s the core asset that’s driving the transaction.
COVID-19 has also created much volatility in the stock market, making it difficult to assign value to a company while at the same time arguably creating some easy targets that now look more vulnerable.
“The conversations I’ve had with potential acquirers suggests that people are trying to find the right way to look at evaluation and not necessarily assume that just because a company might be at a relative low that that’s the only thing that they should look at,” Leouzon said. “People don’t want to seem to be predatory, and they definitely want to find a way to create good value for both sides.”
Rather than just 20-day or 60-day trading, a buyer can look at an even longer-term view of how a public company has traded over time, Franco said, suggesting that it’s still good clinical trial data that’s triggering M&A, not necessarily stock valuation. J&J’s view of acquisitions has not changed, he said.
Overall, the panelists agreed that there might be more licensing and structured transactions than M&A deals in the short term, but those large biopharma deals are merely delayed rather than canceled.