While life sciences-focused mergers and acquisition activity in 2020 was expected to dip, at least a bit due to the pandemic—as compared to 2019 pace—this turned out not to be the case at all. There is an intense race to develop vaccines and therapies targeting the novel coronavirus and with governments pumping money into subsidized ongoing efforts, such as the approximately $15+ billion put into just several firms thanks to the U.S. Government (Operation Warp Speed, BARDA, NIH, DOD, etc.). This primed the pump for intense deal making in 2020, a white hot year despite a horrific pandemic. Moreover, the ongoing and underlying fundamentals for health care sectoral growth continue unabated if not intensified by the pandemic, from aging populations, growing numbers of chronic conditions, greater incomes in places such as Asia and India, to ongoing technological (including biologic) innovation from gene editing and targeted regenerative therapy to the impact of artificial intelligence in the drug discovery process. Frankly, an eruption of innovation coupled with vast pools of capital and many restless, well-capitalized companies (“Pharma”) seeking competitive advantage will make for fertile grounds for life sciences deal making in 2021 and beyond.
Pharma Better Keep Up
With the ongoing specter of patent cliffs, pricing scrutiny (from payer and government) and competition (a growing number of new FDA submissions for commercialization come from small to mid sized biotech) to new forms of participant (such as private equity investing directly in drug development), the established pharmaceutical company ecosystem and individual companies (Pharma) remains on their toes as they must continuingly scrutinize, asses and bolster the research and development pipeline for future growth prospects.
Of course, traditionally small to mid-sized biotech drive early-on initiative and innovation, driving new investigational products through IND (investigational new drug) application and into the various phases of clinical research but in a pivot from the past, an increasing number of them take the compounds and therapies all the way to the commercialization finish line.
Yes, Schumpeterian creative-destructive forces are at work and they will impact the global clinical trials arena. While large pharma will capitalize on present strengths, they must continue to make calculated bets for future success. Now that they are in various stages of strategic shifts and pivots toward establishing leading precision targeted, high-value, new treatment platforms, they understand medicine will be more directed, specific and targeted to the specific patient’s health needs.
Pharma understands that mounting forces are changing the leverage dynamics toward the payer—and ultimately various markets’ demand for value. For example in the United States, over 120 million residents are now covered by some form of public payer coverage plan. And payers will increasingly seek to institutionalize value-based care throughout the system. While in many countries universal or some form of public access (and price breaks) are a way of life, Pharma could count on U.S. markets to compensate. Could that be at risk? While China represents a huge potential upside (after all the Chinese government is trying in some ways to liberalize its drug development rules), plenty of risks exist working there. All of these trends dovetail with other confluence of market and societal forces to drive ongoing innovation, disruption and deal making.
Hence Pharma in some ways becomes more and more the financier supporting a myriad of innovations from digital health to disruptive new therapies to breakthrough discovery using artificial intelligence the companies must use their robust balance sheets to invest, buy or merge. After all they outsource over 50 percent of their research now to contract research organizations (CROs) as they concentrate their focus and optimize their operations. Although some may take a contrarian approach, at least in select therapeutic areas, and actually become more hands on.
These companies have lots of cash (Pfizer $10+ billion cash and $186.1 billion market cap; Johnson and Johnson $25.4 billion cash and $416.5 billion market cap) as just some examples. They will continue to mobilize the right teams in the right way on the right course of action to identify the most promising process, system and technology disruptions promoting more enduring opportunities over the next years.
As technology continues to advance, transformation in the health sector relentlessly continues thanks to heretofore not feasible utility cloud computing services to the commodification of big data and artificial intelligence, (machine learning, natural language processing, etc.) to ubiquitous smart phone and device coupled with process disruption and lots of available capital lead to new forms of firm, often classified in the “Healthtech” of Digital Health” and medicine category that larger companies must monitor like a hawk. After all, with such disruptors, how can they impact the care of patients…the ultimate customer?
COVID-19 only accelerated a movement involving a confluence of telehealth, remote patient monitoring and network technologies coupled with provider groups, and even payers leading to emergent players that may affect health care delivery and overall care.
How do drug companies embrace and interact with these unfolding dynamics? Each major pharmaceutical group has organized various digital, innovation and transformation groups—often aligning with therapeutic lines in a bid to identify, monitor and track corporate development targets, from investments prospects to intel to better help them understand emerging trends and players that could become targets. Ultimately, the drug company acquirer may seek to capture a technology, a position facing the patient in a particular therapeutic line or of course control of a disruptive early stage therapeutic product via investment or outright acquisition.
New financiers move into the market as well as sophisticated investors in some way possibly give pharma a run for the money to invest in and develop novel therapies. Think of Deerfield Management’s $130 million injection into University of Michigan and another $130 million into Columbia University. While Blackstone, which manages over $430 billion, acquired life science investment house Clarus to make direct bets in biotech companies.
Other novel based investment models involve vendors in the value chain, such as Germany-based Evotec, a drug discovery services firm that set up “Autobahn Labs” to invest in, and control drug development IP with major universities such as University of California, Los Angeles.
Pandemic Doesn’t Slow Anything Down
Anticipate more big deals as Pharma corporate development, therapeutic lines and their deal maker partners both seek to make strategic moves and respond to their competitors efforts. Already in the pandemic era by the end of 2020, AstraZeneca let the world know of its intention to buy Alexion for $39 billion to access its pipeline plus a $500,000 per annum antibody therapy treatment for a rare disease known as paroxysmal nocturnal hemoglobinuria, a product known as Soliris.
How about Gilead’s acquisition of Immunomedics (developer of antibody-drug conjugate) for $21 billion while Bristol Myers Squibb picked up Myocardia, a cardiovascular drug focused player, for $13.1 billion.
Most recently, TrialSite reported on the Jazz Pharmaceuticals acquisition of GW Pharmaceuticals, the first approved cannabidiol-based medicine for $7.2 billion. Or there is Bayer’s deal to buy gene therapy leader AskBio for up to $4 billion.
These drug sponsors will continue executing smaller more strategic deals to enhance or extend their intellectual property realms into existing or new areas from regenerative therapy to cell therapy and oncology. While supporting the rebuilding of pipeline, examples include the Sanofi pick up of Kymab in a deal worth up to $1.45 billion (monoclonal antibody called KY1005) or Gilead’s deal with Forty Seven targeting the monoclonal antibody product known as magrolimab for $4.9 billion opening up pipeline involving a number of cancer targets. Just in November, Merck acquired OncoImmune for a COVID-19 therapy.
Call to Action: TrialSite works with a handful of investors to identify not only opportunity but also risks. Although the focus is on clinical trial accessibility and transparency from the perspective of the trial site, that offers a unique vantage point into the world of research. About 5% of TrialSite’s sizeable following represent investment groups.