Brace yourselves, pharma watchers. With the annual J.P. Morgan Healthcare Conference around the corner, some major biopharma deal announcements could hit the headlines, just as Bristol-Myers Squibb unveiled its $74 billion Celgene buyout and Eli Lilly its $8 billion Loxo Oncology takeover last year.
Those announcements kicked off a year marked by record-breaking biopharma mergers and acquisitions, and signs point to a busy 2020, thanks to a growing deal appetite among major drugmakers, according to one group of analysts.
Plus, there's increasing political scrutiny of the drug industry, the looming presidential election and intensifying antitrust scrutiny. That pressure is “likely contributing to a mentality of ‘get it done now or possibly not at all’ among large companies,” the analyst wrote in an investor’s note on Dec. 23.
Who could be snatched up by those hungry pharmas—conceivably as soon as the JPM conference kicks off Monday? SVB Leerink's Geoffrey Porges counts 20 top targets, mostly in oncology and rare diseases, with estimated prices between $1 billion to $10 billion.
Big firms and perennial sources of buyout buzz like Alexion and Seattle Genetics also made the list, though. Porges noted rare disease-focused Alexion, maker of Soliris and Ultomiris, could be worth as much as $32.5 billion. Targeted oncology specialist Seattle Genetics, which recently won FDA approval for Astellas-partnered antibody-drug conjugate Padcev, could go for $29.7 billion.
Smaller shops include Biohaven, whose oral CGRP migraine drug rimegepant's moving closer to the FDA finish line—and already triggering M&A chatter. There's FibroGen, probably thanks to its potential blockbuster launch of anemia drug roxadustat. Recent gene therapy deals, marked by Roche's acquisition of Spark Therapeutics and Astellas' proposed Audentes Therapeutics buy, could spread to uniQure, as rumors have it that the biotech is looking for a sale.
The likely shoppers
Despite the spending spree last year, large biopharma companies still have enough dry powder to make $10 billion-and-up M&A moves. Industry-wide restructuring to focus more on specialty drugs means they have the incentive to do so, Porges said.
The 20 largest biopharma companies are worth about $2.84 trillion and ginned up revenue of $641 billion in 2018 with an expected growth rate of 5% to 6% for 2019. Their combined 2018 earnings of $255 billion means they could pay down their total debt of $474 billion with less than two years of EBITDA, Porges noted.
Those companies could “easily deploy sufficient capital to acquire 100% of the mid-cap biopharma companies over $10 billion in value, in one year,” he said.
As was the case in 2019, oncology and rare diseases will remain the two hot therapeutic areas for M&A deals moving forward, Porges figures. “[W]ith the scarcity of assets in these areas and the grassroots nature of innovation in rare diseases, M&A is the only way for large companies to build portfolios,” he said.
Which companies could be most active in dealmaking? Gilead Sciences and Sanofi, for two, and others like Amgen, Biogen, Novartis, Merck & Co., Eli Lilly and Pfizer might step up as well, Porges predicted. These firms share one commonality—they’re either already restructuring or in need of it.
Who needs it most?
For Porges’ top picks—Gilead and Sanofi—their new CEOs are actively pushing for changes.
Since officially joining Gilead from Roche in 2019, Daniel O’Day has quickly revamped the big biotech’s entire C-suite, the most recent change being the promotion of former chief BD officer, Andrew Dickinson, to the CFO role. That move “highlights the crucial importance that M&A and partnerships likely have in Gilead’s capital allocation strategy,” RBC Capital Markets analyst Brian Abrahams said in October.
As for Sanofi, CEO Paul Hudson has already laid out a restructuring plan. It includes retreating from the under-pressure cardiovascular and diabetes business, which already saw the French pharma shake up its collaboration with Regeneron on slow-progressing PCSK9 heart drug.
Consumer health is now a standalone unit within the group, a move that’s widely viewed as a prelude to a sale or spinoff. At the same time, Hudson recently said he plans to “manage the business to double down where we need to, but also be profitable.”
Other companies Porges listed as “moderate” in M&A activities early 2020 are in similar positions. Amgen just wrapped up a major overhaul that leaned heavily on internal efficiency rather than making deals. It just welcomed Peter Griffith as its new CFO and splashed out $13.4 billion for Celgene’s psoriasis drug Otezla.
Biogen has been under constant investor pressure to pursue deals given the uncertainty around its high-profile Alzheimer’s drug aducanumab. As Merck relies more heavily on Keytruda, shareholders have been questioning its life beyond that star PD-1. The New Jersey pharma has made two oncology-focused acquisitions in 2019, shelling out $1.1 billion upfront for Peloton Therapeutics and $2.7 billion for ArQule.
Eli Lilly is boosting its presence in oncology, too, while Novartis CEO Vas Narasimhan has put the Swiss pharma on a clear track focused on innovative medicines. Pfizer CEO Albert Bourla is also shifting the New York company’s portfolio to specialty drugs and new launches, having agreed to unload its established medicines business Upjohn to Mylan.
“These newly restructured diversified specialty biopharma companies require a constant stream of new products, technologies and development programs to maintain investor confidence in the durability of the growth outlook in their core franchises,” Porges said. Let the dealmaking begin.