 |
Bruce Harington |
Yesterday was a very big day for biotech M&A as three large deals were announced:
- Roche acquired gene therapy company Spark Therapeutics for $4.8bn – a premium of 138%
- Ipsen acquired rare disease biotech Clementia Pharma for $1.3bn – a premium of >75%
- General Electric sold their biotech division to Danaher for $21bn
The Spark deal is the one that will have caught the most attention from investors because of the huge size of the premium and because it relates to gene therapy. Gene therapy has been a particularly interesting part of the biotech sector, however a large portion of the market has remained sceptical because many say that the science (and the therapy business model) is early stage and still somewhat unproven. The view from many sceptics is that gene therapy stock valuations are excessive relative to their stage of development. Clearly the fact that Roche is willing to pay a premium of 138% for an “expensive and overhyped” gene therapy stock is eye catching and should cause some of such sceptics to re-evaluate their views.
This deal comes after Novartis paid $9bn for another gene therapy business, AveXis, last year at a 70% premium. Two multi-billion high premium deals show that big pharma companies are willing to put big value behind gene therapy. It is also noteworthy that Spark is now the fourth company to be acquired in the gene therapy and cellular therapy space (the others being Juno and Kite). This represents a large portion of the public universe which comprises around 20 companies in total.
So after a subdued last 2 years for M&A, is 2019 poised for strong activity levels? January got off to a good start with the largest ever biotech merger deal when Bristol-Myers announced it would acquire Celgene for $74bn. Eli Lily and Loxo Oncology also announced an $8bn merger.
Importantly prior to the start of this year only Novartis, Celgene, Sanofi and Takeda had really been active in M&A over the last few years, despite there being around 20 big cap biopharma businesses that can do these kind of M&A deals. The others had been oddly quiet up until the end of 2018. You have now, however, seen deals from Eli Lilly, Bristol Myers, GlaxoSmithKline, Merck, Roche, Ipsen, and Danaher. The list of large cap pharma businesses doing deals is clearly widening which may force others (Pfizer, J&J?) to act before some of the best assets are taken.
It is also interesting to note the nature of these deals. Spark and Clementia were acquired for drugs that have not yet been approved by the FDA. There was a view in the market that only clinically de-risked drugs would be bought because strategic M&A managers at the big pharma businesses do not want to take career risk by buying something that might not get approved. Only Novartis had announced deals for earlier stage drugs (e.g. AveXis). The deals for Spark and Clementia show that others besides Novartis are now also willing to go out a little bit more on the risk spectrum.
Finally, it may be an obvious point but the size of the premiums is notable. Per Bloomberg, the average biotech M&A premium over the last 5 years has been 56.5%. For this year so far (across 5 deals) the average premium is 78.6%. The growing size of these premiums likely says something about the demand for good biotech assets versus the supply of such assets. We continue to expect more M&A in biotech given the challenges faced by big biopharma which force them to acquire new, more innovative drugs.