While experts expected 2017 to be a banner year for dealmaking in the post-election world, it turned out to be a bit of a dud.
The year saw just two major acquisitions — Johnson & Johnson's $30 billion grab of Actelion and Gilead's $12 billion takeover of Kite Pharma — and only slightly more than half a dozen deals over $1 billion. Deal totals were far off the highs of 2014 and 2015.
Uncertainty around issues like tax reform and the prospect of pricing controls under President Trump, who blasted pharma on the campaign trail for high prices, kept companies on the side lines.
But new clarity in Washington, including what looks like a tax bill set to pass by year's end, has the potential to remove the overhang and will likely free up overseas cash for a number of big pharmas and biotechs, making M&A much more plausible in 2018.
With cash in hand, pharma is in dire need of refilling their pipelines. Hot areas include gene editing, the liver disease NASH, immuno-oncology and rare diseases. Expect companies that specialize in these spaces to be of particular interest to acquirers.
Here are BioPharma Dive's picks for the companies you need to watch in 2018 (in alphabetical order):
1) Allergan plc
Before Brent Saunders was best known for his ill-conceived deal with the Saint Regis Mohawk Tribe, the Allergan CEO was known as a closer. Saunders was at the helm of a long line of successful acquisitions.
In just recent years he was at the top spot of Bausch + Lomb when it was sold to Valeant Pharmaceuticals; Saunders then became the head of Forest Labs when it was picked up by Actavis; and took over the mantle at Actavis before it was sold to Allergan; he later oversaw the $40 billion sell-off of Actavis generics to Teva Pharmaceutical Co. Ltd.
Now that the company is set to face generic competition for the eye drug Restasis, Saunders will be looking for a sale. The company has been building up its R&D platform and has created expertise in six therapeutic areas, including dermatology (and the blockbuster Botox), eye care, gastroenterology, women's health, CNS and anti-infectives. Each piece of the Allergan puzzle could fetch a pretty penny and bolster a number of other big pharma pipelines.
2) Alnylam Pharmaceuticals Inc.
Alnylam Pharmaceuticals is nearly fifteen years old and has yet to bring a product to market. But the biotech, which focuses on gene silencing technology called RNA interference, is on the precipice of its first approval.
The company announced in mid-December that it had completed its Food and Drug Administration filing for patisiran, a treatment for an inherited, progressive disease that is characterized by protein misfolding.
RNAi drugs have had a long and winding road to get to this point. Alnylam has been there from the beginning. RNAi was once the hottest area in biotech, but some trial flops meant big pharma no longer wanted anything to do with the technology.
Fast-forward fifteen years and Alnylam could be on the verge of biotech superstar status.
The company already started attracting attention with comments CEO Joe Maraganore made recently about how it plans to handle drug pricing. He said the company would not put in place price increases beyond the cost of inflation.
Making the biotech particularly attractive, though, is its ability to outperform the competition. Results reported earlier this year from RNAi competitor Ionis Pharmaceuticals were not as strong as the data for patisiran.
3) BioMarin Pharmaceuticals Inc.
In December, BioMarin Pharmaceuticals reported promising updated study results from its small mid-stage trial of its gene therapy for hemophilia A. Blood clotting protein Factor VIII levels were boosted to near-normal levels for a majority of patients after a one-time infusion. The data outshined gene therapy competitor Spark Therapeutics, sending Spark shares down.
Both gene therapy and hemophilia are particularly hot spaces right now. Any company that can get its gene therapy technology to work will stand out as a takeover target. And the bleeding disorder is a keen area of interest for a number of big companies right now.
Beyond its prospects in hemophilia, BioMarin already has an attractive portfolio of already-marketed rare disease drugs and another currently pending Food and Drug Administration approval. Analysts anticipate the biotech reaching nearly $3 billion in revenue by 2020.
“BioMarin offers the greatest growth potential…the company's strong entrenchment in rare disease drug development should lead to strong pricing power and higher valuation in the stock price,” said Morningstar analyst Karen Andersen, who notes that the biotech trades at more than a 20% discount to Morningstar's fair value estimate.
4) Bristol-Myers Squibb Co.
Rumors began to swirl early in 2017 that Bristol-Myers Squibb could be an attractive target for one of its pharma peers. Now that a tax overhaul looks near the finish line, it puts to rest some of the uncertainty that the Trump Administration caused when taking office. The tax plan will likely free up billions in cash that many big pharmas stashed overseas.
We haven't seen any mega-mergers since the Pfizer/Wyeth and Merck/Schering-Plough tie-ups in 2009. But now that both of those acquisitions seem to be bearing fruit, the industry is poised to see some major deal activity in 2018.
Bristol-Myers has some unique qualities that would make it an attractive takeout target — most notably, its blockbuster checkpoint inhibitor Opdivo (nivolumab). The drug has been the market-leading PD-1/L1 since this class splashed onto the oncology market. Opdivo would make a crowning jewel for any company with oncology aspirations, and the combo trials that Bristol-Myers is conducting further support its leading position in the space.
Beyond its immunotherapy portfolio, Bristol-Myers has its stake in the cardiovascular treatment Eliquis (apixaban), which is expected to bring in nearly $6 billion in 2018. The drug is partnered with Pfizer, making the New York-based big pharma an ideal acquirer.
5) Incyte Corp.
Incyte has made itself one of the hottest companies in immuno-oncology — partly by standing on the shoulders of giants. Instead of focusing on oncologics that target PD-1/L1, one of the company's lead pipeline drugs is the IDO-1 inhibitor epocadostat. The drug is thought to boost the potential of checkpoint inhibitors. So Incyte has hedged its bets and is testing the drug with both of the market-leading drugs in the space, Merck & Co.'s Keytruda (pembrolizumab) and Bristol-Myers Squibb Co.'s Opdivo (nivolumab) — making epacadostat an incredibly valuable asset.
The company also has its own PD-1 inhibitor, as well as several drugs with other mechanisms of action in the immuno-oncology space.
Beyond its strategic immunotherapy offerings, it already has two marketed products and about a half dozen other targeted therapies.
A recent Mizuho investor survey pegged the company as one of the top four biotech's that the firm's investors think has the highest likelihood of getting bought out.
6) Madrigal Pharmaceuticals Inc.
Madrigal Pharmaceuticals is set to be a rising star in one of the most valuable drug markets of the next decade. The company recently presented strong mid-stage data for its non-alcoholic steatohepatitis (NASH) drug MGL-3196. The drug created a statistically significant reduction in liver fat compared to placebo. The results sent the drug's stock up nearly 100% and pushed its market cap over the billion dollar mark. Evercore ISI analyst called the results “highly compelling” and said the drug could have a “best-in-class profile.”
NASH is an unfortunate side effect of both diabetes and obesity; both populations are growing rapidly and the NASH market is expected to follow closely behind. The disease is expected to become the number one cause of liver transplants and certain types of cancer in coming years. It will also increase healthcare costs significantly. Major companies like Gilead Sciences Inc., Allergan and Novo Nordisk all have a stake in the market.
There have even been a number of acquisitions already in the space, including Allergan's buy of Tobira, Gilead's pick up of Nimbus Therapeutics, and the Conatus deal with Novartis. But both the Tobira drug and the Nimbus drug have had iffy results, meaning these companies may be searching for a backup.
In a move that makes the biotech even more attractive, Madrigal divested assets outside its core therapeutic area of NASH and cardiovascular/metabolic diseases — making it easier for a bigger company to pick up without gaining a set of assets it's not interested in.
7) Spark Therapeutics Inc.
The biotech has been at the top of many takeout lists (including our own) for some time now. Spark Therapeutics gene therapy for blindness is set to garner a green light from the Food and Drug Administration any day now, ushering it into commercial company territory and making it one of the first companies to bring a gene therapy to the U.S. market.
It has also shown that its gene therapies will translate to other disease areas, including the rare blood disease hemophilia. Recent Phase 1/2 data from Spark and partner Pfizer Inc. has investors excited about the prospects of gene therapy.
Acquirers have been taking the wait and see approach. Many companies are interested in the gene therapy space but have been holding off until data has shown the technology is mature enough to pan out.
An approval for Spark's blindness treatment Luxturna will likely get that ball rolling — especially if Spark chooses a savvy pricing strategy.
Don't expect this company to stay out of an acquirer's hands for very long.
8) Sucampo Pharmaceuticals Inc.
Sucampo Pharmaceuticals is a small specialty pharma with a market cap of about $724 million. The company has seen its stock go from about $10 a share to just under $16 over the last few months. And the biotech has struck deals with generic drugmakers to fend off competition to its main earner Amitiza (lubiprostone), a chronic constipation drug.
Amitiza brought in $115 million in the third quarter of 2017 for Sucampo and its partner Takeda Pharmaceuticals, of which the biotech receives a percentage of sales as royalty revenue. Amitiza will not have generic competition until about 2021, when a branded version of the drug will hit the market. Sucampo has struck a deal with generic manufacturers that will give it a piece of the profits from the knock-off, softening the blow of the generic's entrance.
Meanwhile, the company has also been working to shift its fortunes away from Amitiza and toward a more promising future; specifically, orphan drugs.
“[We] do see an undervalued company that is generating free cash flow and has a strong (orphan) pipeline,” noted Maxim analyst Jason Kolbert.
The biotech now has two rare disease drugs moving through its pipeline and is expecting data readouts on both of them in 2018. Should either or both be positive, expect that to increase Sucampo's takeout prospects.