With the $20 billion that biopharma slapped down on Monday for deals, it might seem the much-predicted M&A for 2018 has now begun.
It certainly seems that way; so far big biotech Celgene Corp. has spent a dizzying amount for two small biotechs that flesh out its pipeline a bit, while French pharma Sanofi has tiptoed past the $10 billion mark to up its game in hemophilia.
But at least one analyst was left asking whether these acquisitions were more quantity than quality. Lumping in the spattering of acquisitions at the end of 2017, Evercore ISI analyst Steven Breazzano and colleague Josh Schimmer published a note on Monday morning questioning the attractiveness of this M&A bonanza.
“We’ve been intrigued by the acquisitions which punctuated the end of 2017 and the start of 2018, and quite a few investors have questioned both the specific assets and purchase prices of the announced deals, including today’s SNY/BIVV and CELG/JUNO,” they wrote.
"The acquisitions in December 2017 of RXDX and SCMP certainly were also surprises, as was CELG/Impact — as these weren’t most investors’ ‘most likely to be acquired’ candidates (although BIVV and JUNO were on some). Many investors also still question the GILD/KITE acquisition from middle 2017," they continued.
Surprising isn’t necessarily a negative — and for all those hoping M&A would begin ticking up once the year-end tax cuts passed, it seems they got their wish.
Yet, it’s no secret that both Celgene and Sanofi have been struggling.
Investors have been crying for Celgene to do something, anything, to spur growth for quite some time. And Sanofi’s flailing diabetes business has left investors feeling like they are just kicking its dying drug, Lantus, as follow-ons have mostly just sputtered.
For both of these companies, acquisitions are a matter of survival. (No one thinks that Sanofi's cholesterol disappointment Praluent will suddenly start selling and replace the nearly 20% of revenues that company gets from Lantus.)
But the choice of acquisition targets for both these companies could certainly be called odd. No one will deny that CAR-T is hot right now and has definitely shown some impressive clinical results, but it’s still way too early to tell if these revolutionary cancer drugs will be adopted as the norm.
Despite the green light from the FDA for CAR-T treatments from Novartis AG and Gilead Sciences, the jury is still out on the commercial prospects. In this world of payer power, a Food and Drug Administration OK doesn't guarantee success.
That raises the question of why Celgene went with Juno Therapeutics Inc. over bluebird bio Inc. The big biotech had partnerships with both companies.
But Juno is the one with the major setback in its rearview; in its very short corporate history, the biotech was forced to shelve its lead product after patient deaths. Juno may be on a slightly different path now, but only the data will tell.
And Jefferies analyst Michael Yee emphasized in a note on the acquisition that "longer-term this is a deal hinged on CELG's confidence in going 'all in' on cell therapy over the next 5-10 years," and whether more than just its lead asset JCAR17 plays out.
One could argue bluebird was by far the safer bet. Although Celgene may be betting Juno will be the next big comeback story.
Moving on to Sanofi’s grab of the Biogen spin-out Biovertiv. The biotech has two slow and steady growing hemophilia products, as well as a small, early-stage pipeline. No one would call Aprolix or Eloctate standout successes, particularly as we enter an age of unprecedented innovation in hemophilia. Therapies like Roche’s newly approved Hemlibra and the spate of gene therapies in the pipeline promise to be major disruptions to this market over the next two years.
Sanofi CEO Olivier Brandicourt quietly stated on a call with analysts that Sanofi is not worried by these innovations – it wasn’t particularly convincing or reassuring. Could Sanofi’s geographic reach and commercial might give these drugs the bump they need? Maybe.
Does Sanofi know something about that early stage pipeline that the rest of us can’t see? Possibly.
Even the Gilead-Kite acquisition could be called into question. Gilead investors were undeniably relieved that the big biotech finally bought something. As hepatitis C revenues continue to drop and the cash stockpile grew, investors were getting restless. Kite certainly isn’t going to give Gilead a swath of new pipeline assets. And CAR-T, well, we still don’t know if that’s going to be the latest acronym to go the way of the PCSK9s.
The latest M&A trends have left investors rejoicing, and also scratching their heads a bit.
But the Evercore ISI analysts said it best: "We may never [know] why of all the companies to acquire, this was deemed to be the right one."