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Biotech Frenzy Grips JP Morgan Conference

Pharmaceuticals: An exuberant meeting portends a busy year for deal-making

by Lisa M. Jarvis
January 16, 2015 | A version of this story appeared in Volume 93, Issue 3

Value of biotech deals more than doubled in 2014. SOURCES: Datamonitor, S&P Capital IQ, IMS Research, Ernst & Young
A bar graph showing the value of pharma deals dating back to 2004.
Value of biotech deals more than doubled in 2014. SOURCES: Datamonitor, S&P Capital IQ, IMS Research, Ernst & Young

Coming off of a record year for mergers and acquisitions (M&A), this week’s JPMorgan Healthcare Conference—arguably the drug industry’s most important investor event—was the busiest, most exuberant meeting that most life sciences veterans could recall. Spirits were high, and activity was bustling as companies showcased their plans for 2015, even as some investors voiced concern about when the party will end.

Before a single CEO gave a presentation at the San Francisco event, executives’ phones were pinging with alerts of acquisitions. In the biggest deal, Shire said it would pay $5.2 billion to buy fellow rare disease specialist NPS Pharmaceuticals.

Shire’s CEO, Flemming Ornskov, told attendees that acquiring NPS “was very high on our priority list in 2014” but that those ambitions were put on hold after AbbVie made a $54 billion takeover bid for Shire. AbbVie walked away from the deal after a change in U.S. rules took away the tax benefits, leaving Shire with a $1.6 billion breakup fee.

NPS bolsters Shire’s gastrointestinal disease franchise with Gattex, a treatment for short bowel syndrome, and with Natpara, a hormone replacement therapy for hypoparathyroidism that is under FDA review. If approved, as expected, later this month, Natpara could bring in peak annual sales of as much as $2 billion, analysts say.

Deals proliferated during the week of the JPMorgan Healthcare Conference in San Francisco

◾ Shire to pay $5.2 billion to acquire rare disease firm NPS

◾ Roche to pay $1.3 billion for a majority stake in genetic testing firm Foundation Medicine

◾ Biogen to pay $200 million up front and up to $475 million in milestones to acquire pain drug firm Convergence

◾ Tekmira to acquire hepatitis B drug firm OnCore in deal that values combined company at $750 million

◾ Roche spends up to $750 million to license a β-lactamase inhibitor from Meiji Seika and Fedora

◾ Merck & Co. puts up $100 million in deal with messenger RNA firm Moderna

◾ Janssen licenses Vedanta drug candidate for inflammatory bowel disease for up to $241 million

Another deal came from Canadian RNAi drug firm Tekmira Pharmaceuticals, which bought the start-up OnCore Biopharma. The $375 million purchase aims to transform Tekmira into a hepatitis B virus (HBV) drug powerhouse.

OnCore’s provenance was key to the deal. It was started in 2012 by three former Pharmasset executives who were instrumental in the discovery and development of the hepatitis C treatment Sovaldi, which last year had the drug industry’s most successful launch ever.

OnCore has assembled a variety of potential HBV treatments, the most advanced of which is a second-generation cyclophilin inhibitor on track to start Phase I studies in the second half of the year. Tekmira plans to begin human tests of its own HBV therapy, TKM-HBV, this quarter.

Meanwhile, Roche announced that it will pay $1.3 billion for a majority stake in the genomics firm Foundation Medicine, which develops genetic tests that allow drugs to be matched to a patient’s tumor type. Foundation also scored at least $150 million in R&D funding over the next five years.

Biogen Idec joined the M&A mania, agreeing to acquire Convergence Pharmaceuticals, an England-based developer of pain medications, for $200 million plus milestones. The centerpiece of the deal is CNV1014802, a calcium channel blocker in Phase II studies to treat a rare nerve disorder that causes facial pain.

Industry watchers expect last week’s M&A frenzy to set the tone for the year. A recent report from the consulting firm Ernst & Young showed that biopharmaceutical companies’ “firepower”—their ability to do deals on the basis of the strength of their balance sheets—was at a high last year.

In such a hot environment, attractive assets do not come cheap: Shire, for example, is paying a 51% premium over the value of NPS stock before rumors of the deal emerged. With so many companies aggressively looking for acquisitions, “it’s unlikely you’re going to uncover bargains,” said Glen Giovannetti, global life sciences leader at Ernst & Young.

But the lingering question last week was how long the boom can last. Venture capitalists specializing in life sciences worry that success is attracting investors who don’t specialize in the sector and who might drive valuations up to an unsustainable level.

“There’s no doubt this is the best market I’ve seen,” said Stephen Bloch, general partner at the venture capital firm Canaan Partners. But he cautioned, “I truly believe this is a bubble.”


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