2018 was a landmark year for pharma, biotech sector; 2019 looks even better
In 2018, each month PharmaCompass published PharmaFlow — a compilation of all the major deals in the industry that took place in the preceding month. We begin 2019 with our annual compilation of the deals of 2018, packed with some exciting trends for the future.
Undoubtedly, 2018 was a landmark year for dealmaking in the pharmaceutical and biotech sector. As per our analysis, each month of the year saw over 100 deals in the sector.
It was also a big year for venture capital investments. Data shows annual venture capital investments across all sectors surpassed US$10 billion for the first time in 2018, since the dot-com era of 2000. The pharma and biotech sector, in particular, saw approximately 700 venture capital deals, reaching US$ 17 billion in value — making 2018 the biggest year for venture capital deals in the sector.
As the future strategy of major pharmaceutical companies came into question and the drug pricing debate dominated news headlines, companies like Novartis, Sanofi, GSK and Takeda announced deals that will fundamentally transform the way they do business in the future.
The biggest deal of 2018 turned out to be Cigna’s acquisition of Express Scripts
As the healthcare shakeout in the United States continued, the largest deal of 2018 proved to be health insurer Cigna Corporation’s acquisition of pharmacy benefit manager (PBM) Express Scripts Holding for around US$ 67 billion. When the deal was announced, the acquisition was considered to be in response to the increasing frustration over drug pricing. The deal is expected to give the two companies substantial bargaining power over drug prices in the US.
Healthcare spending has been rising rapidly, accounting for an estimated 18 percent of the US economy in 2017. PBMs, such as Express Scripts, negotiate drug benefits for insurance plans and employers. The deal could help Cigna compete with players like CVS Health Corp and UnitedHealth Group Inc.
A year of new CEOs charting
out new strategies at Big Pharma
The year clearly belonged to the new CEOs, who were busy charting new directions for their drug companies. In March 2018, Andrew Witty, former CEO of GlaxoSmithKline who retired from the British drug major in 2017, announced he was taking a leadership role in managing drug benefits of UnitedHealth’s Optum division, a PBM group and healthcare analytics company which has 140,000 staffers around the world.
Andrew Witty’s replacement at GSK, Emma Walmsley, had a busy year as she worked on developing a future course for the company which ended with her announcing a split of the company.
In March, GSK bought out Novartis International AG’s stake in a healthcare joint venture for US$ 13 billion. The deal came just days after GSK walked away from a US$ 20 billion auction for Pfizer’s consumer health unit, where it had emerged as the clear frontrunner.
GSK will hold 68 percent stake in the joint venture and Pfizer the remaining 32 percent. Within three years of closing the deal, GSK intends to de-merge the consumer division through a UK stock market listing, splitting the company into two separate businesses — one focused on consumer products and one on prescription medicines and vaccines.
Walmsley said: “Ultimately, our goal is to create two exceptional, UK-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers.”
By spinning off the JV, the two pharmaceutical behemoths can focus on prescription medicines, which tend to be more profitable, though carry a higher risk.
On the prescription medicines side, GlaxoSmithKline struck a deal to acquire Tesaro, the maker of the ovarian cancer drug Zejula, for US$ 5.1 billion in cash. The acquisition will vault GSK into the commercial oncology market.
Novartis’ Narasimhan refocuses on prescription drugs: GSK’s Walmsley wasn’t the only new CEO revamping the structure of the company. Novartis’ CEO Vas Narasimhan’s spent the year getting the company to refocus on prescription drugs by announcing its plans to spin off Novartis’ — the eye care business — into a separately traded standalone company and buy back up to US$ 5 billion in stock. Alcon was purchased in 2011 for , under the regime of former Novartis boss Daniel Vasella.
The pharma giant said the planned spinoff would enable both Novartis and Alcon to focus fully on their respective growth strategies and create a global leader in eye-care devices.
In addition, in a bid to secure its leadership position in gene therapy, Novartis struck a deal to acquire Illinois-based AveXis, a clinical-stage gene therapy company working to develop treatments of rare and life-threatening neurological genetic diseases for US$ 8.7 billion.
AveXis’ lead is a neurology-targeted treatment based on virus-mediated gene therapy — AVXS-101. It has the potential to be the first one-time gene replacement therapy for spinal muscular atrophy (SMA), a disease which results in early death or lifelong disability with considerable healthcare costs.
The patient population for SMA is about 23,500 people in established markets and the US launch of the drug is expected in 2019.
A year of mega deals such as
Takeda-Shire, Sanofi-Bioverativ, Celgene-Juno
Japanese drug maker Takeda Pharmaceutical’s first non-Japanese CEO, Christophe Weber, had envisioned the future of the company as a global pharmaceutical giant with its roots in Japan, along with becoming a leader in gastroenterology, neuroscience, oncology and rare diseases.
Major deals were also announced by Sanofi in the early part of the year as the French drugmaker it had closed a deal to acquire spinout Bioverativ, a maker of drugs for hemophilia, for almost US$ 11.6 billion. didn’t stop at the Bioverativ buy. In January 2018, almost immediately after the Bioverativ buy, it company Ablynx for US$ 4.8 billion (Euro 3.9 billion), beating Denmark’s . Ablynx had earlier rejected a US$ 3.2 billion (Euro 2.6 billion) offer from Novo Nordisk.
Ablynx specializes in the research of novel drugs based on nanobodies (which are found in the immune systems of llamas and alpacas). Ablynx partners with several of the world’s largest pharmaceutical companies.
The leading dealmaker in the United States in value terms turned out to be Celgene. Like Sanofi, Celgene was very active in January 2018 as the firm announced the acquisitions of Juno Therapeutics and Impact BioMedicines. Celgene acquired Juno for US$ 9 billion.
Juno is a pioneer in the development of CAR (chimeric antigen receptor) T and TCR (T cell receptor) therapeutics with a broad, novel portfolio evaluating multiple targets and cancer indications. This acquisition will add to Celgene’s lymphoma program — JCAR017. Regulatory approval for JCAR017 in the US is expected in 2019. With this acquisition, Celgene hopes to deliver a new CAR-T with a year.
In January, also for US$ 7 billion, a startup that had bought Sanofi’s cast off drug, fedratinib — a kinase inhibitor that has shown promise as a potential treatment for myelofibrosis. Myelofibrosis is a group of rare cancers of the bone marrow in which the marrow is replaced by scar tissue and is not able to make healthy blood cells.
San Diego-based Impact Biomedicines had bought fedratinib — cast off drug — in 2013. Fedratinib was a flop for Sanofi as patients began to develop a dangerous neurological condition tied to vitamin B deficiency called Wernicke’s encephalopathy. As a result, the US Food and Drug Administration (USFDA) put a clinical hold on it in 2013 and Sanofi ultimately shelved the effort. However, in late 2017, Impact Biomedicines began convincing regulators that patients can be protected from the lethal side effects of fedratinib.
Not all Big Pharma deals
The year saw several hard decisions taken across the industry. German drug major Bayer revealed plans that include retrenching 12,000 employees the world over between now and the end of 2021. Importantly, it plans to restructure its drug R&D business and cut 900 research staffers, with another 350 jobs likely to be slashed at a plant in Wuppertal (Germany).
And German employees are expected to bear a “significant part” of the job losses, the company said.
The 12,000 jobs represent just under a tenth of Bayer's current worldwide workforce.
Meanwhile, there was also news that investment firm Elliott (run by billionaire Paul Singer) might push Bayer to split up its crop and pharma businesses.
Even though the Nasdaq Biotechnology Index tumbled almost 14 percent in the last quarter of 2018, which saw reduced dealmaking and questions being raised about where investments will be made in the future, 2019 has started off with a bang.
The deal is far costlier than -. After factoring in debt, the value of the deal balloons to about US$ 95 billion. According to data compiled by Refinitiv, this is the largest healthcare deal on record.
In addition, Eli Lilly (which had a muted 2018) snapped up a tiny startup — — for in cash.
These are strong indicators signaling an active 2019 for the biopharma sector. This year, there is a lot more talk about mega-mergers and optimism around cell therapy and related techniques. This year, therefore, is poised to an even bigger year for the drug industry.