The Boston Consulting Group (BCG) hosted its annual “Value Creation in Health Care” breakfast on Tuesday during J.P. Morgan week in San Francisco bringing together more than 100 senior executives and analysts from various healthcare sectors.
Given it’s the biggest week in biotech and the start of a new year, the hosts surveyed the crowd about their expectations for the year ahead. There was little consensus among the 65 attendees who voted — until the M&A question was raised.
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Not one person said they expect total M&A activity to decline in the coming year, relative to 2017. Just over 12 percent predicted deal activity would be comparable; the rest are expecting some sort of buying spree.
Why?
It’s not rocket science. The tax reform bill that passed late last year slashed the tax rate for companies repatriating cash back into the U.S. from 35 to 14.5 percent. And of all the sectors, it seems biopharma has some of the strongest hoarder genes. Four companies alone – Amgen, Gilead Sciences, Pfizer, and Merck – could reportedly bring back as much $100 billion in cold hard cash.
It should be noted that a large chunk of the incoming funds may go towards share buybacks and dividends if the last tax holiday in 2004 is anything to go by. However, there are other factors at play this time around.
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Big Pharma pipelines are woefully lacking in late-stage assets, and many of their existing assets are losing or have lost patent exclusivity. This problem isn’t new, but the uncertainty prior to the tax bill passing appears to have postponed the ongoing process of pipeline rejuvenation. The total volume and value of M&As in the life sciences fell nearly 20 percent in 2017, according to a new EY report, and Q4 was particularly lacking in biopharma deals.
What kinds of biotechs will be snatched up?
It’s a kid-in-a-candy-store situation. With so much money being brought back by so many companies, nothing is off the table.
At the BCG event, experts noted that the biopharma field is ripe for consolidation. According to the EY report, none of the Big Pharma’s are really that big in relation to the total market for global pharmaceuticals; Pfizer, Novartis, Roche, Sanofi, and J&J’s Janssen each capture less than 5 percent market share. Could mega-mergers gain traction (and stick) this year?
We could see deals between the likes of Pfizer and Biogen, or Pfizer and Bristol-Myers Squibb. Pfizer reportedly has around $25 billion lodged overseas.
At the other end of the spectrum, there are many smaller, strategic targets.
Some of the most successful oncology drugs in recent times are the checkpoint inhibitors, many of which target PD-1 or PD-L1. Unfortunately, they only work in a subset of patients. And from a business perspective, the field is being inundated. Aiman Shalabi, the chief medical officer at the non-profit Cancer Research Institute (CRI), confirmed by email that 50 PD-1 or PD-L1 drugs are currently in development, including three in Phase 3 and five that are now approved.
So how can the manufacturer, be it Merck or Pfizer or AstraZeneca, differentiate their checkpoint inhibitor? The answer to that question – and perhaps the immediate future of oncology – is by combining therapies.
Shortly after the BCG breakfast, Steve Worland, CEO of eFFECTOR Therapeutics, sat down for an interview. Based in San Diego, eFFECTOR is developing novel cancer immunotherapies that regulate the translation of certain messenger RNA.
The startup has apparently seen good results treating patients in early dose-escalation studies. In animal models, its lead candidate has shown even more promise when used in conjunction with an existing checkpoint inhibitor. The team has subsequently launched a human study combining its drug eFT508 with Pfizer’s avelumab (Bavencio), which targets PD-L1. eFFECTOR also signed a collaboration agreement with Merck. It’s a free agent after all.
But what if one of the big PD-1/PD-L1 companies acquires eFFECTOR and its selective translational regulators? Suddenly they own the rights to that particular combination, granting them and their checkpoint inhibitor competitive edge.
Worland said the company still has a lot of clinical work to do before considering a buyout offer, but that kind of exit would make sense.
Image: lushik, Getty Images,
