Pharmaceutical mega-deals are en vogue again. Though not
official, rumor is that Pfizer intends to acquire AstraZeneca for $100B, and deal
engine Valeant has gone hostile on Botox maker Allergan with a ~$45B bid. As if that weren’t enough for what was supposed to be a quiet Easter weekend, double-digit billion
figures are being moved across the table in an asset swap between Novartis and GSK.
The motivations for all these deals are essentially the
same: squeezing out short-term profits by slashing R&D. Valeant is an interesting example as it never
pretended to be in the R&D game in the first place. Instead, it exists on the notion that R&D
is inefficient and risky and financial engineering through M&A instead of drug development is the only
way to Big Pharma bliss. Considering its
spectacular rise to a ~$50B market cap company and a relentless increase in its
share price, it has the goods to show for it.
Pfizer, on the other hand, like all Big Pharmas likes to
tout its R&D prowess webcast after webcast, R&D day after R&D day, but in fact is the worst
offender when it comes to squeezing profits from slashing R&D. In just 5 years following its acquisition of
Wyeth, the R&D budget of the combined companies has been cut in half. AstraZeneca is partly a juicy target because
it was forced to be more risk-taking in its R&D as it gained the reputation to be the
Big Pharma with the least innovative and effective R&D.
As a consequence of this, AstraZeneca has become one of the
most active Big Pharma in RNA Therapeutics with deals in antisense (ISIS),
microRNAs (Regulus), RNA modulation (PTC Therapeutics), and most famously the 2013 $240M upfront mRNA Therapeutics deal with Moderna.
Unfortunately/fortunately, depending on whether you think
Big Pharma involvement in RNA Therapeutics is a good thing or not, the other
two deal protagonists from this weekend, Novartis and GSK are also amongst the Big 4 Pharmas in RNA Therapeutics (Sanofi/Genzyme being the 4th).
In addition to cost savings by cutting R&D outright, RNA
Therapeutics deals could also be affected by Big Pharmas becoming pre-occupied
with re-organizing. This is based on
experience as the narrative is that when Pfizer acquired Wyeth in 2009, Wyeth
had by far the superior RNAi development effort, but that this fell victim to the acquisition. Similarly, when
Roche acquired Genentech the same year, RNAi Therapeutics quickly fell down the
priority list.
What deals may be canceled or at least delayed as a result
of these developments?
mRNA delivery is the first one that comes to mind as I
believed AstraZeneca to be under pressure to do something in this area after
having spent probably $300M on mRNA Therapeutics by now.
We have already heard about Novartis which had been another top pick for a delivery deal to go with its target picks from
Alnylam.
Fortunately, RNA(i) Therapeutics is in a different position
from what it was in 2009. Cashed up and
with robust, clinically validated technologies, a number of companies do not
depend on dilutive Big Pharma deals any more- at least for now. Let the deals therefore
happen. They will only accelerate the
demise of the old pharmaceutical model to be replaced by innovative biotech
companies.
