After reaching an all-time high of $357 billion in 2019 (as of November 30), life sciences mergers and acquisitions (M&A) are unlikely to surpass that record combined value this year—but the number of deals is likely to bounce back from a year-over-year drop, EY has concluded in a report whose release today was timed to coincide with the first day of this year’s J.P. Morgan 38th Healthcare Conference.
Cell and gene therapy developers are expected to carry out a growing number of those deals, EY concluded in its 2020 Firepower Report: How will deals done now deliver what the health ecosystem needs next? The report noted that deal volume declined 14% year-over-year and is 29% below the average for the previous five years. One reason why, was a gap between deal values expected by buyers and offered by sellers, an outgrowth of relatively strong capital markets that swelled the valuations of potential acquisition targets.
But the market in 2019 also became subject to sharp rises and falls. The resulting volatility explains why close to 60% of smaller and mid-sized biotechs are trading below their 12-month average share price. That volatility is expected to continue into 2020, as the U.S. elections prompt politicos to debate the need to curb prescription drug prices.
Market volatility, plus a continuing desire by buyers to focus growth on specific therapeutic areas, is expected to drive additional M&A deals in 2020, Ambar Boodhoo, EY Americas Life Sciences Transactions Leader, told GEN.
“Either we take the view that they were overvalued, and now is the right price, or now is a better time to buy. This may create opportunities here for others to come in and buy,” Boodhoo said.
During 2019, The dollar value of deals was swelled by four “megamergers” with a combined value of $231 billion, accounting for nearly two-thirds of 2019’s total. Boodhoo said 2020 is unlikely to see the four megamergers that took place during 2019:
- Bristol-Myers Squibb’s $74 billion buyout of Celgene, completed November 20.
- AbbVie’s $63 billion acquisition of Allergan, set to close during the first quarter.
- Danaher’s $21.4 billion purchase of GE Life Sciences’ biopharma business, also expected to be completed in the first quarter.
- Pfizer’s combining its Upjohn off-patent branded and generic established medicines business with Mylan to form a new spinout company called Viatris, a deal expected to close in mid-2020.
According to EY, megamergers in the tens of billions of dollars will likely give way to more and smaller “bolt-on” purchases, with smaller medical technology developers and large biotechs stepping up their deal activity while pharma giants scale back on M&A. EY defines bolt-on deals as small to medium-sized acquisitions that account for less than 25% of the buyer’s market capitalization.
Driving cell, gene therapy deals
One area where deals are expected to increase during 2020 is cell and gene therapy development.
Cell and gene therapy deals are expected to rise in combined value in 2020, though the increase is unlikely to be as sharp as has been seen the past five years. EY records an 880% jump to $49 billion in the 12 months ending November 30, 2019, compared with just $5 billion in deals in 2014-15. During that period, the New York Stock Exchange rose 58% while NASDAQ jumped 69%.
“We may end up with larger numbers in dollars, but we may not have the same percentage increase as we’ve seen in the past,” Boodhoo said.
“The cell and gene therapy field right now is in the early stages of maturity and company formation,” he continued. “Companies are taking various tacks of: Do we go into that field? Some companies are buying organizations that already have a product in the market or are in very, very advanced stage. Unfortunately, those come out to be very expensive from a purchasing perspective.”
Other companies, according to Boodhoo, decide instead to buy cell and gene therapy developers with early-stage assets that may be less expensive, but has a high level of risk attached to them.
“We believe that that may be one that as the technology matures, and as we get more through the regulatory framework, we likely will see more deals,” he said.
A driver of cell and gene therapy deals, Boodhoo added, is the growing number of candidates advancing through an increasing number of clinical trials. In the U.S., the FDA has helped advance that activity through its accelerated approval pathway, outlined in final guidance published last year, “Expedited Programs for Regenerative Medicine Therapies for Serious Conditions.”
However, much of the clinical trial activity in the space is occurring in Asia—especially China, where the number of trials is four to five times that of the U.S. and Europe, where laws intended to restrict genetically modified organisms (GMOs) have had the effect of discouraging cell and gene therapy development.
“I think that as more of these clinical trials come out and they start showing more positive signs, it is more likely that we will end up with the larger [pharma companies and some of the biotechs] going out and either buying these entities with proven technologies, or taking some sort of collaboration engagement with these entities,” Bodhoo explained.
Beyond the clinical trials and the clinical success of these drugs and delivery systems, a driver of future deals in cell and gene therapy is the need to address manufacturing bottlenecks, stemming from the personalized nature of the therapies compared to larger-scale traditional biopharma manufacturing, Boodhoo said: “You may have some activity that is focused on the manufacturing and distribution logistics/supply chain of these drugs as they come to market.”
Efforts to address that need drove two large deals completed in 2019: Catalent’s $1.2 billion acquisition of Paragon Bioservices, and Thermo Fisher Scientific’s $1.7 billion purchase of Brammer Bio.
“People are thinking about how we can expand and build that depth and breadth, especially given the activity of companies like Thermo Fisher and others that have presence in cell and gene therapy already,” Boodhoo said.