Welcome to another edition of Pathfinders. I'm your host, Joe Coletti, and in this episode, we’re diving into the fast-moving world of biotech M&A and its evolving impact on strategic value creation.
Recently, at our annual Global Healthcare conference, we convened a panel of industry veterans – Ted Love, the former CEO of Global Blood Therapeutics, Marc de Garidel, the former CEO of CinCor, and Abbas Kazimi, the Chief Business Officer of Nimbus – to exploring the shifting dynamics shaping a new era of dealfow across the industry.
The conversation – moderated by three of our leading biotech analysts, Greg Renza, Brian Abrahams and Luca Issi – began with a significant regulatory development. A lawsuit by the Federal Trade Commission to block Amgen's $27.8 billion acquisition of Horizon Therapeutics, which raises potential concerns about a wider crackdown on consolidation. Let’s dive right into the debate with Gregory Renza’s opening question.
The FTC news that came across yesterday with concerns about the blockage or the lawsuit for the Amgen horizon acquisition. So, we're going to start there, maybe fresh off some of these concerns that the impact of product bundling of diversification but but also monopolistic intention per the FDA. Mark, I just want to start to you in light of this perhaps rattling the sector and the inner workings of this in what was the largest deal last year for Amgen for Horizon? How are you processing this information? What is your interpretation of the concerns that are at play when it comes to FTC? And what are the implications?
Marc :- Well, I would say on the one hand, it's not a complete surprise that the FTC as strictly as looked at this with the current administration at at big transaction. And there was a word out there that said, you know, she wants to go that above 60 billion, it would be no transaction. So this was the sort of unspoken rule. I mean, with with Amgen 28 billion, so it's obviously lower. But I think, you know, part of it is related to what you highlighted this question of bundling, and application to commercial products. So on one end, it's clear, it's not great news. At the same time, we'll say for biotechs, while developing drugs, phase one, phase two, and even I think phase three, I would be a bit less nervous than the market has been at least in the last two days. But I think overall, it's, it tells me Yes, last transactions are going to be difficult and especially on commercial products. This being said, also, Amgen is a bit, it's not really entrance responsibility to PBMs. Were actually, you know, the ultimate sort of decision maker in making the margins and deciding which drug to take. So, you know, if I were Amgen, modestly, I would go back to the FTC and say, I'm not designing, you know, which drug gets gets on, you know, prescribing and on the formulary, and it's, you know, the PBMs who basically decide so we'll see
Mark mentioned something very interesting, just about the the, the implications to the early stage look of drug development. That's where you sit. What are your views on some of the antitrust concerns that as you evaluate the strategic landscape?
abbas :- First of all, I think they had no option, they really had to exercise their muscle, they've been talking about it for a long time. Make a case study out of Amgen, and I think investors right now are reacting, assuming the case is going to hold up in court. It's, it's an interesting case, let's see holds up. Where we look at this as a small, early stage developer, and drugs, I think this is a good shift for small mid caps, because now you're going to take less pressure from pharma looking at, you know, market and approved assets and start pushing it down. There were a number of deals with significant value last year in phase two, phase three that were executed. So, you know, given our relationships with pharma, who we talked to, very regularly, I think, number one, will it deter them, it'll probably put a little bit of a pause. But that pause has been there for the past three years. And number two, they'll probably start deploying capital, which they have to as Mark highlighted, and start looking at more diligently some of the earlier stage developers, you know, avoid the approved and marketed assets start getting relationships early on, that might drop value, you might not have the 74 billion or $20 billion takeouts, but again, you know, to be determined valuation, but earlier stage, you know, celebration for the pipeline, ultimately matters.
Ted, how are you digesting this?
TED :- So I think, you know, as Abbas said, there was a lot of motivation and desire to do something. I think the ongoing kind of dispute between Regeneron and Amgen about the PCs K nine and how they're leveraging their commercial could be a little bit behind this. But my bet would be that this is not going to hold up. It's really not the role of the FTC to really be determining things like bundling as a basis for blocking emergence. I think it's, it's creative, it shows this desire to try to block mergers. But you know, you need to do it for valid reasons. And I'm I suspect that this is not ultimately going to be viewed as a valid reason.
And speaking of valid reasons, from the eyes of a seller, which is where you all have been in the recent past. Selling a company can be a very complicated decision, multifactorial in addition to just governmental concerns, you're factoring the stage of the company, the external capital environment, even investor perceptions, in addition to just the nature of your portfolio. How did you know it was the right time to sell your respective companies or or respective assets? And maybe Ted starting with you on GBT?
TED :- Well, the number one consideration honestly, it's the price You know, I would always tell people that, you know, if you run a public company, it's not your company, it's, it's, it's the investors company. And you're really trying to make sure that you do your best to represent the shareholders in the company, most of whom have no interactions with you directly. So I, the number one thing has to be the price. We were also I think, as a company at a stage where we were globalising the commercialization of the product. And we were building that footprint, step by step in a very methodical way, and also a constrained way, quite frankly. So there was a rationale to create a relationship with a multinational, like Pfizer that could immediately pre existing infrastructure make those products available. In particular, one of the things that was emotionally exciting, I think, for me, was at Pfizer, under Albert's leadership had already created a commitment to make their drugs available at costs to I think, the 45 poorest countries in the world. Some of those countries, of course, have sickle cell. So it was a great fit from the perspective of return for the shareholders. At a time when the market was very tough. And shareholders were having a hard time getting good returns. But it was also I thought, great for the patients in terms of putting the products into a company, which had more muscle and more resources to make the products available more rapidly.
One quick follow up, Mark, for me. I think there's a perception or I would argue a dogma from investors that companies don't get bought before a big binary crater is a big binary upcoming, and so no farmer will be interested above it, they want to see how that big binary play out. However, in your case, that wasn't the case, right? AstraZeneca was willing to actually transact ahead of a big binary. So here's just maybe talk about that is this perception from investor not the right way to think about it. And most important, what really gave conviction AstraZeneca to make an offer, despite a binary was upcoming.
marc :- But again, these just wait for Big Pharma is to wait for the data, and then you know, and then by you, because in the end, they are, you know, they have cash, too, they are risk averse. And three, they don't like to carry too much on the cost, right? Because when if they do it too early, they have to do it, and the more it does, and then the internal teams have to decide which drugs are going to push. And you know, it's actually you know, you're gonna up speak to Big Pharma, they will tell you, you know, you kill, it's much easier to kill external projects, that internal projects.
Abbas, on the question of when to sell as as the panel is acknowledging strategic love data. So for early stage assets, how are you securing that value, and maintaining leverage?
abbas :- So we had a whole different experience as a private company. So you know, price is obviously a conversation, but for us, the way we're set up as Nimbus, so we just celebrated our 14 year history as a privately held. So most banks hate us because we haven't jumped on that IPO train. And we've thought about it twice. But each time we've had an m&a and the way we're set up is each asset is a bespoke subsidiary. It's so naturally, there's going to be an inflection point where we assume there'll be an m&a or we continue developing. I think first and foremost mark to your part, we believe in the asset to enough to keep capitalising and getting it to the right point. In parallel. We've been engaged with pharma for years, even from target selection throughout the process. So there was never a moment where you have to hire a hay banker and then run a quote unquote process you have been notifying farmers along the way
marc :- Well, not too much to add, yes, interest rates were part of the uncertainty and, you know, COVID, and all these things. So, you know, it's, you know, it's an educated judgement from, especially again, when you're in a public company with the board to say, you know, what do you do you have, you know, an offer, potentially, which you wish is now, and then you have the risk of execution, the risk of raising, again, more and more capital, and there are maybe different circumstances and so on. And ultimately, you know, in our case, we'll have to wait until the end of the phase three, still a risk that, you know, the drag may fail, not so much because of the drug didn't work, but you know, exaction issue in a way a clinical trial was done by a small company. So I think this is a tension so I don't know if there is really a magic formula for it. You know, these are again, I think judgement calls are different, you know, depending upon, you know, where investors are, and I mean, think, okay, is we had the race was about 600 million before. So we had also a great cash position, which, by the way, we didn't talk about that this is actually also an important thing when you when you if you want to sell, because you're in a much greater position, if you have plenty of cash in your bank. Because otherwise, again, Big Pharma is saying they continue to announce and they are saying, you know, these guys are going to run out of cash at some point, or they're going to freak out, and then we'll offer you a low price. And then you know, what do you do you then you're in trouble and you have to sell? So, you know, these are part of the consideration. But it's not that that is easy. But the more uncertainty you are obviously, the more the ball is tempted to sell relatively quickly, if the offer is, you know, good, already very good return to the investors.
TED :- Yeah, what Mark, I agree with what you're saying is, don't put yourself in a position where you need to sell the company. Yeah. Because that is the position of weakness, and that will likely be taken advantage of.
abbas :- Yeah, I think we had the same thought process. We we actually, in the middle of all this negotiation, we actually financed ourselves. So I think most pharma was surprised that we brought on Bain Capital SP has led that rounds, RA capital BvF. For all investors, they re opt in so the middle of right after Bristles approval that Monday morning, we announced them that are financing. Pharma was okay. Clearly, you're excited about your data, there's something trending so that naturally just started pushing their enthusiasm to engage, right? So the ability to continue accessing capital in whatever format is private or public, really kind of sends a message to the farmer partners that there is clearly belief here to continue moving to asset and try to get your hands on.
A lot of us have been grappling with the potential implications of the inflation Reduction Act, the IRA on the space overall. I'm curious how significantly to potential acquirer. What's your sense as to how significantly potential acquirers of your respective companies or assets, scrutinise the potential impacts that the IRA might have to try out your revenue prospects maybe about starting with you and going down the line?
abbas :- Look for us with that particular programme? Inflammation immunology. It wasn't a negotiation tactic. Yeah, right. It wasn't what I think where we are today. And now that we've exited that asset, you know, we have a, you know, an HPK one programme from you oncology, you're starting to see pharma, start talking about IRA. Now, if I really kind of push the narrative with my colleagues at VRO, Sanofi and others, they're all going to keep their ear to the ground and see where Ira eventually goes. Humbly, in my opinion, right now, it's a good negotiation tactic, because no one really knows where it's going to end up. So it's a good way to start pounding down on term sheet evaluations, versus fundamentally saying we know what it's going to end up like, I think we'll have to wait for the next year to see where it resolves. I have a board with RA capital. So Peter Schinsky is quite loud about the IRA. So we are evaluating how it impacts our overall portfolio. But for now, I just think it's again, a to be known and TBD overall.
TED :- I think the like Abbas said, we don't really know what the long term impacts will be. What I'm very confident of is that some of the things are going to change, I actually think the 9-12 year disparity is going to change, it's going to change as long as Biden is president.
There, there is enough of an understanding that at some point, this whole thing will collapse, if you stress it too much. And I know people in Congress who understand that not everyone does, but there are enough people that do that, I don't think 12 will go to nine, I think nine will go to 12. There's a lot in the implementation that is being worked through right now. And in my conversations with CMS, again, they seem interested in trying to make sure that they don't totally interrupt innovation, people will still want to protect innovation, I think people still want to protect the leadership that we have in this country, for really making great therapies for serious diseases that continue to be, you know, continue to be a problem.
Maybe, maybe if I can ask Brad's question slightly differently. Is this net positive or net negative in terms of the number of deals that we're going to see? I think on one side, you can argue the assets of some of the biotech companies now are developing and I understand this case by case now let's valuable because the NPV is coming down with the IRA. However, on the other side, you can argue, well, pharma companies can no longer rely on Serotonin or Devo and some of the bigger cash cows that have been generating a lot of revenue. So will that be an incentive for them to actually access external information and actually do more deals? So at the end of the day, you think it's gonna be he's gonna drive more deals in the sector or less the other sector? What are your thoughts? Maybe let's start with you, Ted.
TED :- I think you dropped more deals, actually. Because if you think about it, in many ways we were acquired because of COVID. I mean, ironically, Pfizer had this massive run up in revenues, kind of like you lay it head back in the hepatitis days, and you saw what happened to Gilead when those revenues went away? Well, you know, Pfizer is not done. I mean, they know that this COVID revenue is gonna go away. And it needs to be replaced. And you know, they've been very open, that they think it's about $30 billion of revenue that they need to replace, looking out to 2030. And they were very clear to us, they thought we we could close about 10% of that hole. They're very clear with Cgn that they felt that Cgn could close about a third of that hole 10 billion, and they need to fill that hole. And the one thing that, you know, I used to explain to our employees during the acquisition, you know, Pfizer is not going to give you stock. They're gonna give you money. In biotech companies, the scarce item is money. In in, in Big Pharma, that's not the scarce, they've got money. So they need to continuously be deploying their money to make sure that they keep the revenue train going. So I think that if I were running a big pharma company, Ira would be if it certainly wouldn't be discouraging me from using money. money to grow my revenues in the future, it would probably be inspiring me that I really got to do it.
We've, we've heard about I&I, and we were hearing about rare disease, approach and commercialization needing to build globally. These are from the eyes of the seller, if you will, from the eyes of the buyer. What are the things that pharma wants? What do you sense, larger companies are are looking for these days? And we're thinking indication, the question is also around products, is it platform? What are the degrees of derisking? Mark, let's go to you.
marc :- I would say, you know, the first again, because of what they describe, some of them are going to see it also COVID or the patent expiration, 25 to 30, you know, a very unpleasant period, if they don't replace their portfolio, so they need to, you know, they need to do things to, you know, to massively have an impact on the top line. So it's not a $500 million dollar product that they are interested in. So they are interested in detail in blockbusters. So the proof is demonstrated that if you have a great drug that has potential to be blockbuster, where there is an unmet medical need, it's differentiated, you know, you'll find you'll find the, you know, the beat, the bigger because that's, that's what they need, you need the differentiation. They have the power, you know, they have the infrastructure, the commercial to fully exploit it, which shows you the small company door. That's, that's why I think they are they are probably much more open, at least in the last 12 months, I would say, even terms of therapeutic areas. And so I think in general, chronic treatment, I think is back, you know, a lot was oncology. Okay, you know, quick, quick win. And not long studies, you treat, you know, but oncology, again, and where I gather is not to discourage, because in oncology, just your plenty of opportunities. But my sense is the market is fragmenting itself a lot. So de facto, the, the market size is shrinking for the assets in terms of for for Big Pharma.
abbas :- Yeah, I think, look, there's a transition, you're seeing a lot more inflammation, deals, metabolisms, hot Glip ones a Hollywood drug, the Hollywood drug, that means there's gonna be a lot of money put there, and everyone's now working on something in that round. What we noticed was, there's number one, what they're looking for partners is de risk as much as possible. I think, in our space and small molecules, it's also ability to scale up manufacturing, right? How many synthesis steps does it take to get this compound to a point where you can run multiple doses and a phase three to try it out. So they're really pushing diligence on, you know, it's chemistry really sound in the world of small molecule, it's it's IP. So that has to be completely put together and package and so I would say, you know, between clinical development plans, the data you have to date, CMC and IP, you spend a lot of time diligence in those areas, just to make sure the handoff happens. And now they have a runway look, I think going back to the IRA, the nine year window, if you have a good IP strategy, start filing those extensions, you can start adding on four or five years more. So we started noticing that as a big narrative as well of like, what is your IP expansion strategy, combination strategy, you start dominating that space. So I think Pharmas diligence standards have been raised, rightfully so they've been a lot of burns, in the past few years, as well as deals have gone through,
I guess one of the things we've been thinking about here is big, big farmers is clearly flush with cash, as you said, that's not a that's not a scarcity for them, right. They're in need of pipeline breath. Valuations still look relatively depressed amongst smitten small cap companies versus what they used to be. You all obviously got major deals done. We're starting to maybe see some hints of more m&a happening, but we haven't necessarily seen the big uptick. I think a lot of folks were expecting. Why do you think that is? Why aren't we seeing more? Do you think it's valuation sensitivity, a lack of quality assets out there a predilection towards just focusing on investing in internal r&d? Why do you think there's that disconnect? Maybe Ted, starting with you.
TED :- I think a lot of the no brainers have already been acquired? Right. I mean, you know, Pfizer is very aggressive, and, and Alba was very clear that they were out there to get products that they could see filling a hole now they're trying to fill a very specific kind of 2030 hole. So I think there has been an effort to go after the obvious plays, but I think there will continue to be because every, I think quarter, there's gonna be another biotech company, which is, you know, like these guys are going to show data cards, and they're going to hit that threshold. So I think it's going to continue, but I think a lot of the ones that were already established kind of sitting on the shelf, like GBT, I think they've been plucked off the shelf.
I know, you've sat in both the big pharmacy, as well as the small biotech seat? What are your perspectives on why we're not seeing more?
marc :- Because people want to see data. I mean, we the uncertainty of the world is very interesting. There is a bit of bad news every morning when you wake up. And and these guys again, I think are becoming more and more risk averse. And they see that there is a bunch of companies that are trading below cash and market cap. So they say, No, you have, you know, I don't know 2000 companies out there that will would love to be the bot. So let's wait to see when the data flips. And before, I think some companies were willing to take the risk because it was more competition or the environment was, you know, the valuation were much higher. So people, but now, you know, it's, you know, they can just wait and see the, you know, the apple fall from from the tree. But then they need to be on the flip side, they need to be faster once they see the data, at least what I've again seen, they are very fast, you know, in the Coffea, Pfizer centres, we got the phase two results. They sent, you know, 55 people, two days, you know, we were 15 people in the company.
Let me go back to Brian's questions why we haven't seen more. We're seeing obviously the field going to small molecules, monoclonal antibodies to now much more complex modalities platform company RNA editing, genetic DNA editing and whatnot. Do you think that that will overall lower the number of transaction that we will see going forward as maybe pharma companies just prefer to partner with these companies in which instead of an outright acquisition just given the complexities around both the science as well as manufacturing any thoughts there from any of you guys?
abbas :- I think you're gonna start seeing smart deals take place not just straight out acquisitions, I think they're gonna start putting back in the 2010 to 15 timeline there were there were smart deals or restructure their licencing with options to buy into I think you're gonna start seeing a little bit of more of those come back to flavour to start de risking, I think putting out cash this early on the all the points Brian mentioned on valuation on, you know, scarcity of assets. I think if you look at all the deals that happen since last summer is home now, they're all extremely competitive. Any Pharma is putting out a lot of time, a lot of teams to go diligence, right? You're rarely hearing that it's either one bidder or two you're hearing plus three or four. And so that means that they're actively deploying stuff the back, I think they're gonna start D Escape. So you're gonna start seeing structure deals. You know, one reason I would add on to the list that Brian mentioned is that while valuations are settling, I don't think some of the biotechs have caught on that if my valuation in the public is x, my deal expectation is why that's not gonna work. And so Pharma can walk away as well, right? If it's not direct enough, and they know that you're going to have a hard time accessing capital from the markets, they know that they have the cash, and eventually your expectations will set. So I will start seeing that back into this year, we're sort of seeing uptake. When everyone's pressured so much, as their expectations start meeting reality and pharma starts freaking out, platform wise, look, this is a last year was tough, maybe a good tough in some sense to kind of clean out some of the early platforms that took too much capital. It's just, we needed that refresh. And so now you're gonna start seeing emerging platforms or tools that may have longer term sustainability. I do think our industry is phenomenal at finding out new modalities, and that needs to be fostered, but fostered thoughtfully, it can't just be, you know, the spread of cash and the 2018 2019 Hay days, it used to be very selective, and very thoughtful. So the cleaning up will continue until I would say Q4, and you're gonna start seeing more engagement with better deal structures put in place.
Outro from Joe:
Thank you for listening to another episode of Pathfinders and Biopharma, brought to you by RBC Capital Markets.
This panel discussion was recorded during our global healcare conference on May 17, 2023. If you'd like to learn more, or continue the conversation, please contact us directly or visit rbccm.com/biopharma.
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