Pharma Dealmakers, Sidelined in Pandemic, Are Ready for Comeback
Pharma Dealmakers, Sidelined in Pandemic, Are Ready for Comeback
(Bloomberg) -- Bankers and executives flooded an old San Francisco hotel this past January for the drug industry’s premier event for networking, hobnobbing and doing deals.
Six months later, in the middle of the Covid-19 pandemic, the JP Morgan Annual Healthcare Conference, with its crowded panels and presentations, finger food and seas of suits, feels like a distant memory. But that doesn’t mean mergers are dead.
As pharmaceutical companies search for Covid-19 treatments and vaccines, they’re also reverting to proven business strategies focused on lucrative therapies for cancer and rare diseases -- and finding ways to explore tie-ups without having to meet in person.
Bloomberg reported this week that AstraZeneca Plc’s chief executive officer floated the idea of exploring a merger to his counterpart at Gilead Sciences Inc. in a phone call last month, raising the possibility of the health-care sector’s largest deal ever. Though the companies aren’t in formal discussions, the mere suggestion of a megamerger demonstrates the pandemic hasn’t curbed an appetite for deals.
“We’re trying to get more back to a business-as-usual” approach to deals, said Lonnie Moulder, a founding general partner at Tellus BioVentures, a biotech investment fund focused on early-stage companies. “Most of pharma is saying the initial shock, most of that initial distraction, is over.”
While both Gilead and AstraZeneca are in the thick of Covid-19 research, they’ve also been sharpening their focus on cancer treatments in recent years. Gilead has made small deals centered on immunotherapy, a particularly hot corner in oncology, while bringing to market remdesivir, the first drug specifically approved to fight the coronavirus.
For AstraZeneca, the lung-cancer therapy Tagrisso has become its top-selling drug, and is expected to account for nearly 16% of its revenue this year, according to data compiled by Bloomberg.
“Astra’s strong oncology portfolio has minimal direct overlap with Gilead’s mostly development-stage oncology pipeline,” said Morningstar Investment Service analyst Karen Andersen in an email. The companies likely wouldn’t require major divestitures in order to complete a merger, she said.
The New Normal
If the pandemic hasn’t caused a significant strategic shift for drugmakers, it has made connecting with other companies and new capital that much more difficult. A big midyear biotechnology conference said it expects high turnout for its virtual meeting this week, a sign that bottled up investors and executives are eager to hear from one another.
More than 7,000 attendees from 64 countries have signed up the event hosted by the Biotechnology Innovation Organization, a Washington-based industry trade group, in order to replicate in virtual form the elbow-rubbing conference environment that’s so conducive to the exchange of capital.
In place of swanky dinner parties and spontaneous hotel run-ins between CEOs, the BIO meeting is boasting online addresses from headliners like Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, and Chief Executive Officer Stephane Bancel of Moderna Inc., the developer of the leading U.S. vaccine candidate.
But the real action is likely to take place in the 25,000 closed-door meetings BIO says are expected to happen around the conference.
Jelena Vukasinovic, CEO of Lena Biosciences, an early-stage maker of cell-culture technologies, has set up more than two dozen meetings on Zoom, Google Hangouts and other virtual platforms. She said the company is meeting with BIO Digital attendees from as far away as Japan to Australia in hopes of finding capital and new collaborators.
Though there’s the occasional Internet bandwidth issue—or toddler stumbling into the room—the connections are invaluable, Vukasinovic said, especially amid the pandemic.
“You need to make sure your value proposition resonates with the person you’re talking to, and that’s really hard for small businesses in this situation” Vukasinovic said.
Stable Value
After months of market tumult caused public biotechnology valuations to plummet, shares hit all-time highs in late May. The SPDR S&P Biotech ETF is up 59% since reaching a low on March 16. The renewed stability makes it a good time to get back into the M&A game, said Moulder of Tellus BioVentures during a BIO Digital panel on Monday. Moulder, a co-founder of Tesaro, sold the cancer-drug maker to GlaxoSmithKline Plc in 2019.
“Biotech valuations were fluctuating all over the place,” he said. Big companies looking for takeover candidates were either salivating “or saying uh-oh, nobody is going to sell off of a 30% decline in a month.”
Global M&A volumes are down 52% in annual terms so far this year to $673 billion. But between the peaks and valleys of market volatility, health care has been a bright spot for deals. Though biopharma hasn’t seen the megamergers that marked 2019, there’s been activity in cancer and rare disease.
In March, Gilead agreed to buy Forty Seven Inc. for $4.9 billion to advance into one of the most lucrative areas of drug research: cancer treatments that harness the immune system to fight tumors. In May, Alexion Pharmaceuticals Inc. struck a $1.4 billion deal to buy Portola Pharmaceuticals Inc., a maker of experimental treatments for bleeding disorders.
Alexion Chief Financial Officer Aradhana Sarin told Bloomberg in May that the company’s business development pursuits were not disrupted by thepandemic. Though stay-at-home orders may have affected how deals are clinched -- Alexion held management meetings with Portola virtually, rather than face-to-face -- it didn’t change their outlook on the therapies at the heart of the transaction.
“I don’t know what’s going to happen for the rest of the year in the industry,” Sarin said, “but I expect health-care M&A to continue.”
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