Dealmaking in 2017 points to winning trends for near-term opportunities

No one likes to see the indicators for dealmaking slow down. For one thing, it is hypothesis generating: Is the market stalled? Is it a slump? Is it the beginning of the end? Is it the start of a new cycle?

To get a handle on what is working in life science partnering, participants at BIO-Europe^® 2017 took a deep dive into deals of the past year looking for trends, and for signs of success that point the way forward.

During the session "What the deals of 2017 mean for 2018," executives Ben Thorner from Merck Sharpe & Dohme (MSD), Barbara Sosnowski of Pfizer, Ji Li from BeiGene, and Paul Hadden of HealthCare Royalty Partners talked about key drivers that led to headline-grabbing partnering agreements over the past year, and expanded the discussion to include near-term opportunities emerging in China.

Setting the context, panel session moderator Sam Ulin from ClearView Healthcare Partners noted that while there has been a cooling off in licensing and M&A from the peak performance of 2015 and 2016, the drop in activity in 2017 still remains high measured against the past 10 years.

"These are not bad numbers we are seeing year-to-date and we are in a very strong position, still eclipsing performance in past years," he said.

"The funding environment is still positive with cash that is looking to go places. There has been persistent innovation and early-stage investment that will come to fruition.  I think we are looking at a net upturn for 2018," he said.

In the past, Pfizer has skewed the charts in M&A with monster deals, such as the USD 68 billion acquisition of Wyeth in 2009. And the company almost did it again.

"We don't shut our eyes to those opportunities," said Barbara Sosnowski, the VP for External R&D Innovation at Pfizer. "We did try to do a couple mega-mergers with AstraZeneca and Allergan, and for reasons beyond our control, we were not able to do those deals. Instead we have been focused on the innovative side, investing earlier. Entering the gene therapy space has been a very bold step for the company.  We have done a range of different types of deals, which has put us in the forefront of a highly innovative area.

"The movement started with Spark Therapeutics for its adeno-associated virus (AAV)-based vector therapy, and then the ball started rolling. It is very disruptive technology, yet we also see how impactful and valuable this type of therapy can be. Instead of putting our toe in the water, we jumped in. We acquired Bamboo, which gave us several more AAV assets, and also brought us a 11,000 square foot manufacturing facility. Then we did a deal with Sangamo Therapeutics. Along the way we have closed smaller deals, such as 4D Molecular Therapeutics," she said.

"We have over the last seven years expanded the breadth of deal structures that we can do, making Pfizer more nimble. On the early side we have made huge efforts in trying to fund very innovative areas of research, beyond standard research agreements or option license deals," she said.

The Senior VP for Business Development and Licensing at MSD, Ben Thorner, said that while dealmaking activity may have slowed in the past year, what he called a natural ebb-and-flow cycle, "yet with all the dollars flowing in I remain very optimistic about what we are going to see going forward. We are looking for extraordinary opportunities to synergize with a pipeline we have in a deal space that is extraordinarily competitive."

He highlighted the acquisition in September 2017 of the German biotech, Rigontec, for its retinoic acid-inducible gene I (RIG-I) pathway immune agonist. While MSD holds a leadership position in immuno-oncology with PD-1 with over 350 combination studies underway, there remains an unmet need among patients who do not respond to this therapy, for whom RIG-I may hold a hope.

Beyond acquisitions, he said there are limits to how much a single pharma company can do, which has led to MSD striking global peer-to-peer co-development/co-commercialization deals, "where working together makes more sense than competing as we can create more value together than one can do alone."

He cited the example of the agreement with AstraZeneca on Lynparza PARP inhibitor, a development program that could expand quite broadly, and a deal with Pfizer that has advanced three New Drug Applications (NDAs) by combining products, Pfizer’s ertugliflozin with MSD's Januvia.

"Here jointly developing data sets to show what the combined products can do, and then rolling out the results across the planet, ends up being much more capital efficient and ends up being more valuable for both our companies."

The Executive VP and Global Head of Business Development for BeiGene, Ji Li detailed the complexities behind the deal closed in late summer with Celgene.

"We believe we need a partner to maximize the value of our PD-1 inhibitor, which is the backbone for immunotherapy. Celgene emerged as our partner of choice because they are open and flexible about the deal structure. Within the PD-1 agreement, we continue to retain a lot of the value, in oncology applications globally, in geographies of Asia, and the ability to conduct combination studies," he said.

"In the other half of the deal, they put their faith in us for transferring their China business to us, their portfolio as well as their commercial team on the ground. This became highly attractive for us, and while we had other conversations, this offer became so compelling we believe we cannot afford to pass up on the opportunity. The financials matter, of course.  But deals that allow us to build capacity also matter a lot, as we have been building capabilities from discovery to development to manufacturing to commercial," he said.

"For those who have been paying attention, the China FDA has introduced some astonishing reforms that will completely change how drugs will be both developed and commercialized in the country. The CFDA is exposing domestic companies to international competition, and we believe that we are very well positioned," he said.