Our Take: Pharma companies sign spate of deals before year-end
Several leading pharmaceutical companies sealed deals with smaller firms in mid-December, setting the stage for what analysts are predicting could be a rebound in M&A activity in 2021.
The largest of the deals was the definitive agreement that Gilead Sciences signed to acquire the privately held German biotechnology firm MYR GmbH for approximately $1.4 billion in cash.
MYR developed bulevirtide, a first-in-class treatment for chronic hepatitis delta virus (HDV). The European Medicines Agency conditionally approved the drug last July, and it is currently marketed under the brand name Hepcludex in France, Germany, and Austria. MYR expects to submit a New Drug Application to the FDA for accelerated approval of bulevirtide in the second half of this year, according to the press release announcing the acquisition. If the FDA approves the drug, Gilead has agreed to make a milestone payment of approximately $365 million.
The companies noted that HDV is the most severe form of viral hepatitis, and it occurs only as a co-infection in patients who have hepatitis B.
Meanwhile, Novartis signed a definitive agreement to purchase Cadent Therapeutics, a privately held biopharmaceutical firm based in Cambridge, Mass. The Swiss drug firm agreed to pay $210 million up front and up to $560 million in potential milestone payments.
Novartis had already licensed an investigational depression therapy in Cadent’s NMDAr program in 2015. With the acquisition, Novartis will gain full rights to Cadent’s pipeline, which includes a drug in development for schizophrenia and another that is being assessed as a treatment for movement disorders. The transaction is expected to close in the first quarter.
Rather than building on an existing relationship, Eli Lilly is using its acquisition of New York City-based Prevail Therapeutics to establish a gene therapy program at the company. Prevail’s focus is on neurodegenerative conditions such as Parkinson’s disease, Alzheimer’s disease, and amyotrophic lateral sclerosis, or ALS.
Under the definitive agreement the two companies signed, Lilly will pay an estimated $880 million in cash at closing and approximately $160 million upon the timely regulatory approval of a drug in Prevail’s pipeline, according to the news release announcing the acquisition. That transaction is expected to close in the first quarter as well.
Merck also agreed to spend a considerable sum, though its agreement with San Diego-based biotechnology firm Janux Therapeutics is a licensing agreement and not an acquisition.
The companies will collaborate on the development of novel drug candidates for immuno-oncology. Specifically, they will use Janux’s proprietary Tumor Activated T Cell Engager (TRACTr) technology to engineer drug candidates directed against two cancer targets that Merck will select.
Merck received an exclusive license to the products and intellectual property resulting from the collaboration and will fund the research. Janux said in the announcement that it will be eligible to earn as much as $500.5 million per target in upfront and milestone payments, along with royalties.
Our Take: While it looks like M&A volume in 2020 will end up being on par with 2019 or perhaps slightly higher, the total value of 2020’s M&A transactions is likely to be lower than the previous year’s, according to GlobalData Healthcare. The only really large acquisitions we saw completed in 2020 were AbbVie’s $85.7 billion purchase of Allergan in May and Gilead’s purchase of Immunomedics for $21 billion in October. AstraZeneca announced its plans in December to acquire Alexion Pharma for $39 billion, but that transaction won’t close until later this year.
PwC says it’s optimistic that the year ahead will bring “a return to normal” for the pharmaceutical and life sciences sector, with total M&A deal activity ranging from $250 billion to $275 billion. The firm said the pharma subsector could see at least one “transformational” deal similar to the AbbVie megadeal, along with biotech transactions of various sizes.
The general consensus is that biotech firms with products in their pipeline or portfolio for rare diseases, as well as those with a focus on developing gene therapies, will be the top prospects for large drug companies that would rather buy somebody else’s R&D than do it themselves.
BioSpace noted that PitchBook’s projections are for biotech and pharma venture capital activity to exceed $20 billion in 2021.
The wild card, of course, is what course the pandemic will take. Some analysts are basing their forecasts on the expectation (or at least the hope) that the recently authorized vaccines and those yet to be authorized will have tamed COVID-19 by midyear or so.
And, to a lesser extent, the Biden presidency could affect some deal-making decisions — though clearly there are far more urgent matters to keep the new administration busy.
The first home COVID-19 test that requires no lab testing and can be bought without a prescription has been authorized for use in the U.S. The FDA granted an emergency use authorization (EUA) to the Ellume COVID-19 Home Test on Dec. 15. FDA Commissioner Stephen Hahn, M.D., stated in a press release that the authorization “is a major milestone in diagnostic testing” for the disease. Dr. Jeff Shuren, director of the FDA’s Center for Devices and Radiological Health, noted that the test, “like other antigen tests, is less sensitive and less specific than typical molecular tests run in a lab,” but added that its ability to be used at home and return results quickly — in as little as 20 minutes — means “it can play an important role in response to the pandemic.” Testing is done with a nasal swab and results are provided via a smartphone app. The test is authorized for use in individuals ages two years or older, including those who are asymptomatic. Ellume, an Australian company, said it is expanding its manufacturing efforts and supply chain within the U.S., with the goal of delivering 20 million tests to the U.S. within the first half of 2021. CNBC reported that Ellume’s CEO said the test could be available in U.S. drugstores as soon as mid-February.
Separately, the FDA also issued an EUA for Abbott’s BinaxNOW COVID-19 Ag Card Home Test, an antigen test similar to an Abbott test authorized in August for use by trained professionals. The at-home test requires a prescription but can be used by individuals ages 15 years or older with physician assistance via a telehealth visit. Adults can perform the nasal swab test on children as young as 4 years.
CMS finalized a rule designed to encourage value-based drug pricing by making it easier for state Medicaid programs, commercial payers, and drugmakers to enter into agreements that tie prescription drug payments to patient outcomes and evidence-based measures. The rule updates the decades-old Medicare Drug Rebate Program with revisions to the average manufacturer price and “best price” reporting requirements. For instance, payers and drug manufacturers will be able to establish bundled contracts, and drug companies will be able to issue multiple best prices rather than just one. The changes will take effect in January 2022.
Centene Corp. completed its acquisition of Pantherx, a specialty pharmacy based in Pittsburgh that specializes in orphan drugs and rare diseases, on Dec. 30, just two weeks after announcing the signing of a definitive agreement. The St. Louis-based insurer said Pantherx and its management team would continue to operate independently as part of Centene’s Envolve Pharmacy Solutions, which also includes an integrated pharmacy benefit manager. Financial details of the acquisition were not disclosed. Earlier in December, Centene completed its acquisition of Apixio, a health care analytics company that uses artificial intelligence to analyze patient data for use in more targeted patient care.
Tenet Healthcare entered into a definitive agreement with FastMed Urgent Care to sell its urgent care business for $80 million. The agreement includes all of Tenet’s 87 urgent care centers, which operate under the brands CareSpot and MedPost and are located predominantly in Florida and California. FastMed currently has 104 urgent care facilities in North Carolina, Arizona, and Texas. Dallas-based Tenet said in a press statement that the deal, which is subject to regulatory approval, is expected to close in the first quarter. Earlier in December, Tenet agreed to buy majority interests in up to 45 ambulatory surgical centers from SurgCenter Development for approximately $1.1 billion in cash.
In separate news, Methodist Le Bonheur Healthcare will not be acquiring the two St. Francis Hospitals, affiliated physician practices, and six MedPost urgent care centers in the greater Memphis, Tenn., area from Tenet, according to a Dec. 23 filing with the Securities and Exchange Commission. In November, the Federal Trade Commission and the Tennessee attorney general’s office sought to block the $350 million deal in court on the grounds that it would result in higher prices and fewer options for care in the Memphis market.
Highmark Health and Google Cloud announced a six-year partnership in which the Pittsburgh-based insurer will rely on Google Cloud’s analytics, artificial intelligence, and other technologies to develop the Living Health Dynamic Platform, the organizations said in a news release. The platform will power Highmark Health’s Living Health model, which is designed to change the way health care delivery operates, they explained, by offering “seamless, simpler, and smarter interactions with patients” and freeing clinicians “from time-consuming administrative tasks while providing them with timely data and actionable information about each patient.”
Humana will launch its own Primary Care First model on July 1, the insurer announced in a press statement. The model is based on CMS’ model with the same name and is part of Humana’s value-based program portfolio. It will expand access to coordinated primary care for members of certain Humana Medicare Advantage (MA) plans. Qualifying in-network primary care groups that participate in the model will be offered a prospective capitated payment each month for achieving quality and outcomes-based measures.
Intermountain Healthcare and UnitedHealthcare have established an ACO to improve outcomes for UnitedHealthcare’s MA members in Utah. Primary care physicians who participate in the ACO will coordinate care for their UnitedHealthcare MA patients with support from Intermountain and Castell, the company that Intermountain created in mid-2019 to help providers transition to value-based care. Support will include care management, care coordination, network services, and documentation teams, Intermountain said when it announced the new ACO. UnitedHealthcare will provide Intermountain with enhanced support and patient-level data about its members’ underlying medical conditions, treatment and medication history, and “future care needs.”