Published June 26, 2023 | 4 min read
Key Points
- The FTC’s tougher stance on perceived anti-competitive behavior raises concerns about increased scrutiny on consolidation in the biotech industry.
- In the current climate, determining the right moment to sell is heavily influenced by a complex interplay of macro factors and deal dynamics.
- The impact of Inflation Reduction Act (IRA) will also intensify scrutiny of revenue prospects but may also incentivize big pharma to engage in more deal activity.
- Big pharmas drive for significant top-line impact continues to prioritize blockbuster opportunities that address differentiated, unmet medical needs.
In the dynamic world of biotech, M&A continues to hold significant importance in driving strategic value creation. At the recent RBC Global Healthcare conference, industry veterans Ted Love, former CEO of Global Blood Therapeutics, Marc de Garidel, former CEO of CinCor, and Abbas Kazimi, Chief Business Officer of Nimbus Therapeutics, came together to share their perspectives on the post-pandemic era of biotech M&A.
The conversation began with a significant regulatory development – a lawsuit by the Federal Trade Commission (FTC) to block Amgen's acquisition of Horizon Therapeutics for $27.8 billion. The FTC alleges this deal would enhance Horizon's monopoly position in relation to two of its medications (Tepezza, utilized for the treatment of thyroid eye disease, and Krystexxa, used for chronic refractory gout).
However, the implications of the lawsuit extend beyond Amgen, raising concerns about a wider crackdown on consolidation, pricing practices, product bundling, diversification, and any perceived antitrust behaviors.
“On one hand, the FTC’s tougher stance is not entirely surprising,” says Marc de Garidel, acknowledging the FTC’s stated intent to challenge deals more aggressively they deem anti-competitive. “While it’s not great news for the pharmaceutical industry, I do believe biotech firms focused on drug development in phases 1, 2, and 3 should be less nervous than the market has been since the FTC’s announcement. However, it does indicate that bigger transactions, particularly those involving commercial products, may encounter more difficulties in the future.”
Navigating a new regulatory crossroads
Increased regulatory scrutiny on larger scale transactions raises further key talking points from the panel – is this a new hurdle for biotech deal making, or regulatory overreach on one specific deal? Industry commentators may be skeptical that the FTC action will succeed, but there was consensus among our panel that the regulator will continue to escalate antitrust measures within the pharmaceutical industry.
“From our perspective as a small, early-stage drug developer, this shift in scrutiny may work to our advantage,” says Abbas Kazimi. “This could create opportunities for big pharma to engage in more diligent evaluations with companies at an earlier stage in discovery and development. They may not reach the scale of $20-30 billion take-outs, but significant potential lies in the pipeline of earlier-stage assets for big pharmas with capital to deploy.”
Finding the optimal time to sell
In the current climate, determining the right moment to sell a biotech company is a nuanced decision. Alongside regulatory considerations, one must evaluate aspects such as the company's stage, the external capital landscape, investor sentiment, and the composition of its portfolio. The interplay of all these factors shapes the decision-making process, but what are the key factors that make a transaction a reality?
“The primary consideration is the price,” says Ted Love. “As the CEO of a public company, it’s essential to prioritize the interests of the shareholders. That means maximizing the value they receive for their investment. In our case, at Global Blood Therapeutics, we were at a stage where we were expanding the commercialization of our Oxbryta™ product.”
“We were building our footprint but had limited resources. Establishing a partnership with a multinational like Pfizer made sense. They had the infrastructure to swiftly make our sickle cell disease products available globally. They were also committed to providing drugs at affordable prices in some of the world’s poorest countries. Ultimately, you’re looking for an alignment that delivers for shareholders and patients.”
In today’s strategic landscape, a deeper understanding of the interplay between macro factors and deal dynamics is also paramount. How significantly will the rise in interest rates and a less favorable capital window impact the decision-making process?
“As a public company, it’s important to weigh today’s macro factors and make an aggregated judgment,” says Marc. “Evaluating offers, execution risks, and the need for additional capital are all part of the equation. In today’s climate, having a healthy cash position is advantageous when considering a sale, as it strengthens your negotiating position and avoids concerns about running out of funds.”
“It’s important to weigh all of today’s macro factors and make an aggregated judgment. Evaluating offers, execution risks, and the need for additional capital are all part of the equation.”
Marc de Garidel, former CEO of CinCor
The Inflation Reduction Act: Examining the impact
The implications of the Inflation Reduction Act (IRA) are also being carefully considered by potential acquirers. With the IRA leading to a decrease in Net Present Value (NPV), some argue that acquirers may intensify their scrutiny of revenue prospects, potentially resulting in a decline in deal activity.
However, an alternative view suggests that pharma companies, no longer able to rely solely on established revenue streams, may be incentivized by the IRA to engage in more deal activity. Will the IRA ultimately drive more or fewer deals?
“I expect to see more deals,” says Ted Love. “A lot of major pharmaceutical companies have experienced a tremendous surge in revenues from COVID-related products. They are fully aware that revenue will eventually diminish, and they need to find a replacement.”
“To close that gap, they need to consistently deploy resources to ensure a continuous revenue stream. So, if I were leading big pharma, the IRA wouldn't discourage me from using my financial assets to drive revenue growth. On the contrary, it would actually inspire me.”
Big pharma pursues bigger deals
Whether it's mitigating a decline in COVID-related revenues or addressing pending patent expirations, big pharma is driven by the imperative to generate significant top-line impact, with a focus on blockbuster opportunities that address unmet medical needs and offer differentiation. But what are they searching for in terms of indications, products versus platforms, and market de-risking?
“A lot of money is still out there for the next generation of blockbuster ‘Hollywood’ drugs,” says Abbas. “But big pharma is also now looking to de-risk as much as they can. They're raising diligence standards to ensure both the chemistry and the commercial models are sound, and rightly so. Our industry is phenomenal at finding new modalities, but that needs to be fostered thoughtfully in today’s climate.”
