Biotech M&A Heating Up, But Only One Oligo Company In-Play

The M&A activity in biotech has picked up additional steam this week with Celgene buying CAR-T player Juno Therapeutics for $9B and Sanofi buying blood disorder biotech Bioverativ for $11B (the latter shining a positive light on the recent Alnylam-Sanofi deal restructuring). And according to insiders, an unusually high number of additional deals are being finalized following the JP Morgan conference.

RNAi, ASO, genome editing, gene therapy platforms not in-play

Although another CAR-T player, Kite Pharmaceuticals, got acquired late last year by Gilead for $12B and both Juno and Kite had been billed as CAR-T platform plays, these acquisitions are unlikely to read through to gene-targeted platform technologies that are more broadly applicable across disease areas.  These include RNAi, antisense oligo, genome editing, and traditional gene therapy.

This is because the CAR-T acquisitions were driven by the desire of the acquirer to add near-term revenue growth to the topline while strategically positioning themselves in the blood cancer arena.  Of course, the underlying CAR-T platform technology will continue to be further utilized, but it is the near-term revenue streams from their drug sales that justify the multi-billion price tags to the bean-counters inside these companies and like-minded investors.  

These deals therefore do not signal to me a willingness of Big Pharma and Biotech to shell out $3B or so that they would have to acquire companies like Editas, Sangamo, and CRISPR in genome editing or Arrowhead and Dicerna in RNAi in the current marketplace.  This may also be informed by their experience in the RNAi space a decade ago when companies like Merck and Roche made large investments in the platform only to literally die in their hands while it was much smaller, nimbler pure-play companies that have now advanced the technology to commercial maturity.   

Also, more so than a decade ago, Big Pharma/Biotech has adopted a model where they focus on a few disease categories such as oncology, cardiometabolic, or the CNS, in a modality-agnostic fashion.

Target-based technology access 

Accordingly, when technology access for early-stage product development is sought, large companies prefer to partner on a limited number of targets.  This is illustrated by a range of deals over the last year or so such as in the RNAi (Dicerna-Boeheringer for NASH, Arrowhead-Amgen for cardiovascular disease) or genome editing (Sangamo-Pfizer CNS deal) spaces. 

In some cases, such deals may cover multiple targets in the same tissue using the same delivery technology.  These include deals such as the one by Editas Medicine with Allergan in ophthalmology.  

And only in rare cases such as the partnership between CRISPR Therapeutics and Bayer are multiple targets spread across multiple disease types (blood disorders, blindness and congenital heart disease) and may be largely unknown at the signing of the deal.  Such multi-target deals, however, have become less likely as the cost of capital for raising money on the Street has gotten lower and the market caps of these companies commensurately have increased.  At that point, it is advisable for the platform company to forego upfronts and near-term milestone payments that pale relative to their market caps and instead retain maximal low-hanging-fruit target-picking flexibility. 

Only Ionis Pharmaceuticals in-play

According to the above, only Alnylam and Ionis Pharmaceuticals with multiple important drug candidates about to be approved over the next 3-4 years would fulfill the requirement for adding needle-moving near-term revenue growth to a large acquirer.  With a $13B market cap already and a power-hungry management to build the most successful biotech company in history, I do not see large companies ultimately offering the ~$40B it would likely take for a successful bid for the company.

By contrast, Ionis Pharmaceuticals with a market cap of $6B and a likely more robust stream of oligo drugs hitting the market (Spinraza for SMA last year, Inotersen for TTR amyloidosis and an ApoCIII-lowering drug this year alone) appears to me a more realistic target despite its history of engaging in multiple partnerships with a number of large pharmaceutical companies, partly in an effort to make it a less appealing takeover target.

The likely acquirer would be Biogen, of course.  When Ionis and Biogen initially partnered to address in early 2012 on what has become the SPINRAZA blockbuster, Biogen quickly learned how powerful and widely applicable antisense technology could be for addressing CNS disorders.  In less than 2 years, the companies would sign another 3 partnerships ultimately covering numerous targets in the CNS which is where Biogen has gone on to firmly stake its future on.  

As we know today, giving away so fast so much of the upside to the CNS franchise was a mistake on Ionis' part as the CNS has emerged as the area of highest value to the current antisense platform full-stop.  SMA was only the beginning and diseases like Huntington’s, Alzheimer’s, ALS- you name the neurological disorder- suddenly seem within targeting reach.

Still, adding up the royalty payments and milestone payments for such licensed products would add up quite a bit.  In fact, SPINRAZA payments alone would justify Ionis' current market cap as it is growing into a multi-billion annual revenue drug and cornerstone to Biogen's SMA franchise.

Because other Ionis-licensed CNS product candidates would also address the root causes of diseases, they would similarly lend themselves to become cornerstones in new CNS franchises that Biogen is targeting, e.g. ALS.

So when Biogen’s CEO calls M&A valuations being reasonable and not over-stretched as frequently asserted by his colleagues and then goes on to mention recent CNS breakthroughs in SMA (à Spinraza), Huntington’s (watch out for knockdown data from phase I/IIa late Feb/early March), migraine, and multiple sclerosis, I cannot shake the feeling that Ionis will be the target of the big M&A move that everybody is expecting Biogen to make.  $20B and we have a deal. 

it could mean that the company that tried its best in the oligo space not to be an M&A target, Ionis, could be one of the next to be acquired.  

More Reflections on Alnylam-Takeda Deal

Maybe because of recent multi-billion dollar write-offs by the financial industry, the wizards on Wall Street do not consider $100+50M in upfront payments for a non-exclusive, non-dilutive platform alliance deal for just two therapeutic areas and multiple opt-in opportunities worthy of their attention, but this may have been Alnylam’s best deal yet. Congratulations to the entire team at Alnylam that made this possible and for energizing a global and coordinated effort to bring RNAi-based Therapeutics to patients!

With the strong financial position thus secured, for future deals we should expect to see a gradual shift from upfront cash-loaded deals towards those with a focus on the long-term strategic goal of maximizing the upside from the actual sale of RNAi Therapeutics. Opt-in rights, including the option to wait until the rather late stage of phase III trial start and yet gain 50:50 US co-development rights for promising drug candidates, are an important component of that strategy. And while we haven’t heard about the royalty rates, they should be “significant”.

Alnylam’s achievement of pioneering such a wide-reaching platform licensing strategy is both envied but at the same time also respected and admired by its peers, and unprecedented for biotech, including competing nucleic acid platform technologies, and points towards an important part of the future of drug development. In the words of John Maraganore, RNAi has become the big thirst quencher for innovation by the pharmaceutical industry, and Alnylam’s know-how and IP are the beer and tap for that.

Novartis looks to be the next to order a drink from Alnylam’s bar as it is now likely that it will exercise its right to more recent IP and enablement to put it on par with Roche and Takeda. Although the conversion of Novartis’ relationship with Alnylam is on pre-negotiated terms and will not necessarily follow the current $50M price tag per non-exclusive therapeutic area, John Maraganore assured analysts and investors that they were unlikely to be disappointed, especially since double-digit million dollar platform deals do not justify any more Alnylam’s deal efforts. After Novartis, the question then begs as to which US pharmaceutical is keen to gain first access to Alnylam-enabled near-term RNAi Therapeutics opportunities.

For those interested in following further developments in this story including the mechanics of Alnylam’s platform alliances, tomorrow’s special Annual Shareholder Meeting by Tekmira which will seal its reunification with Protiva and whose delivery technology is driving many of these first generation RNAi Therapeutics platform deals, is the place to turn your attention to.

Clarification: In my earlier post, I suggested that the $50M “near-term technology transfer payments” may be due if not as early as tomorrow on the close of Tekmira and Protiva, when Tekmira and Takeda will finalize their relationship. While much of the $50M may still relate to SNALP-RNAi, the company has now guided that the amount will be paid out, largely under the control of Alnylam, within 36 months and I guess could also be partly for tax efficiency purposes.