Scrip asks...What does 2023 hold for biopharma? Part 2: M&A and Partnering
Big pharma has cash and biotech needs it
Deal-making between big pharma and biotech looks set to rise with a looming patent cliff increasing the need for the former to replenish its pipelines. Meanwhile, biotechs need partners to help them advance amid the ongoing big freeze on raising cash on public markets.
Conditions look ripe for an uptick in M&A this year after a fairly quiet 2022, while other types of strategic deals are also expected to increase in the face of a challenging funding situation for biotech.
In this second installment of our annual series, we asked more than 40 industry leaders and other stakeholders to comment on their expectations around mergers, acquisitions and partnering in 2023.
“During 2022, there was a common question of ‘have we reached the bottom yet?’ as we saw company valuations drop dramatically, corporate ambitions shrink and, sadly, valued employees laid off as companies reacted to the challenging macroeconomic environment. Overall, that didn’t seem to translate 1:1 to an increasing volume of deals done across biopharma,” noted Richard Wilson, senior vice president, primary focus lead – genetic regulation – Astellas Gene Therapies. “I’m expecting we might see an uptick in deal-making in 2023, as larger organizations think that the time is right to start making more moves. That’s not been as big a driver for us at Astellas as we’re not trying to ‘time the market’ but, generally speaking, M&A feels poised to heat up a little more.”
“From an M&A perspective, we are expecting deal volume to increase in 2023 with corporate-led M&A leading the way,” said Andrew Harrow, a partner in global law firm Goodwin’s life sciences group.
He went on: “Biopharma valuations have fallen, both in the private and public markets, and pharma companies are still sitting on plenty of cash; further, the need to fill their product pipelines remains. All of this, and the fact that the capital markets are still probably not a viable alternative option for most companies, should lead to an increase in M&A activity across the market.”
While Harrow’s summary of the situation reflected the broad view among many of those who shared their predictions and many foresaw an increase in deal-making, there were differences of opinion around the likelihood of outright M&A versus partnering deals, and others highlighted specific nuances they expected to see.
Bibhash Mukhopadhyay, managing partner of venture capital fund Sound Bioventures, anticipated “an uptick in M&A and partnering in general, at all levels of capital spend (few millions to multi-billions), all across the biotech ‘food chain’.” He noted that the decline in the number and value of deals in 2022 had created “pent-up demand in 2023.” He thought there would be a “fertile environment for both large ticket M&A (Alexion/AstraZeneca -type deals) and scientific partnering activities,” adding that large pharma and biotech would “eye acquiring commercial franchises that will be EPS [earnings per share] accretive.”
“M&A continues to be a focus – the drive to acquire impressive pipeline opportunities that can impact patient communities,” observed Gil Bashe, managing partner, chair global health at Finn Partners and a member of the incubators, accelerators and equity committee of the Prix Galien Award. “Many companies are sitting on vast sums of capital. While the economic tumult will lead some to watch their cash flow, others will see this as an opportunity to jump in and acquire. Biopharma has seen this before and M&A will be hot.” But commenting on a phenomenon that exploded during the pandemic, he noted: “However, SPACs are not the golden ticket once expected.”
Sarah Howell, CEO of reformulation specialist Arecor Therapeutics plc, was also bullish. “I believe that we will see a surge in M&A in 2023 after a quiet 2022,” she said. “Pharma are sitting on significant capital reserves and the model of accessing external innovation is still very much alive!”
“Big pharma will always be scanning the radar to add new assets, especially as some of the checkpoint inhibitors and treatments for diabetes and autoimmune conditions lose patent protection during the next few years.” Dave Mehalick, Coeptis Therapeutics
Dave Mehalick, CEO of cancer cell therapy developer Coeptis Therapeutics Holdings, Inc., agreed: “I believe M&A activity in 2023 will soar, despite rising interest rates. Big pharma will always be scanning the radar to add new assets, especially as some of the checkpoint inhibitors and treatments for diabetes and autoimmune conditions lose patent protection during the next few years. A lot of companies raised money at a time when valuations took off, so there may be some activity among smaller companies. Smaller-cap[italization] companies may merge as a matter of survival to stay aloft. The question now is about showing progress in product development that would entice partners to help fund programs or make outright acquisitions. But at the end of the day, I think we will be flying through some interesting skies well into 2024.”
“In our sector there are positive indicators of a return to M&A activity and a willingness by big pharma to put their significant cash reserves to work – particularly given that a number of imminent patent cliffs will force decisions to refill the pipeline and revitalize revenue streams,” commented Jack Bailey, CEO of cancer drug firm G1 Therapeutics Inc.
“In the last couple of years, major biopharma companies have done well relative to the general economy due to the fact that health care is an inelastic need, and many companies saw economic benefits from producing treatments for COVID-19,” said Ying Huang, CEO of Legend Biotech Corp., another cancer cell therapy developer. “Those companies are now looking to invest the cash they’ve earned into new drug candidates and fill up the pipeline. In the next 5-10 years, there will be a number of loss of exclusivity events on major products. Once a company loses patent exclusivity, its cash flow could diminish very quickly. Many big pharma companies now need to go to market with new products that have exclusivity protection and market opportunity, which makes M&A very attractive.”
“Given the challenging fundraising environment that 2022 brought, especially to smaller start-up companies, I believe there will be a lot of opportunities for value plays in 2023.” Anu Hoey, Fountain Therapeutics
As Anu Hoey, chief operating and business officer of degenerative disease-focused Fountain Therapeutics, pointed out, those big pharma giants will have a wide choice available. “Given the challenging fundraising environment that 2022 brought, especially to smaller start-up companies, I believe there will be a lot of opportunities for value plays in 2023. M&A activity could ramp up as there are many companies with unique technologies and attractive valuations.”
And the impetus comes not just from potential buyers, noted Marc de Garidel, CEO of cardio-renal drug development firm CinCor Pharma, Inc.: “As cash resources become scarce and 25% of public biotech companies need to refinance themselves within 2023, a number of biotech companies will have to downsize, merge with each other, or get bought by bigger players. Larger companies will be able to pick their choices as their preference is to acquire late-stage de-risked assets.”
Editor's note: As we went to press,CinCor announced it was to be acquired by AstraZeneca in a deal worth $1.3bn in up-front cash plus up to another $500m in a contingent value right.
For Robert Tansley, a partner at UK regional venture capital investor Cambridge Innovation Capital, “the combination of low public market valuation coupled with shortening cash runways in a difficult fund-raising environment will lead to consolidation. The strength of large pharma balance sheets will facilitate significant acquisition in 2023 and we expect to see some eye-catching numbers. However, it is likely to be a buyers’ market and a focus on quality.”
“We could see bargain deals with public biotech companies that don’t have enough cash to sustain operations.” Petra Jantzer, Accenture
The strengthening of big pharma’s hand was also underscored by Michael Tusche, Co-CEO of oncology company Treadwell Therapeutics, Inc. “Although the early-stage pipelines at big pharma still seem relatively bare, they hold more of the cards than they did before,” he said. “Small companies are turning to strategics in the face of a challenging fundraising environment. He agreed with de Garidel that “we’re likely to see more deals for later-stage, de-risked assets,” a view also shared by Chris Hollowood, CEO of Syncona Investment Management Ltd, a life sciences investment company, who foresaw “substantive M&A remaining focused on later-stage assets.”
As Petra Jantzer, senior managing director and global life sciences lead at Accenture, observed, “Inorganic growth is as complex as ever. As the landscape evolves, late-stage targets will likely become ripe for opportunistic M&A. We could see bargain deals with public biotech companies that don’t have enough cash to sustain operations. There will also be some competitive acquisitions of late-stage biotech companies at a high premium, as we’ve seen with Amgen’s acquisition of Horizon Therapeutics with a premium of approximately 47.9% to the last closing price.”
Stephen Rosen, head of law firm Cooley's London corporate practice, thought a “key theme for 2023 will be asset differentiation – it is no longer sufficient to be just buying future pipeline, something often seen particularly where companies have an asset that fails and therefore needs replacing. This next wave of M&A will see companies really focus on their core assets and look at targets and opportunities that can help move these core assets to the next level and beyond. This is attracting greater investor attention and we expect this to strengthen in 2023 and drive some of the M&A activity for companies with strong balance sheets.”
Rosen sees “a rebound in M&A as highly likely in 2023 and certainly in the early parts of the year,”, noting that “a number of companies have not raised enough funding to give them a meaningful runway through 2023 and beyond. Their boards will be looking at M&A to ensure that they, and their investors, can secure the best price possible before buyers start to use a declining cash runway as a reason to reduce the valuation.”
For Jantzer, “bio-platform deals are also expected to continue, with ecosystem growth pathways being utilized more often – in the form of partnerships or M&A – to access capabilities such as AI/ML [artificial intelligence/machine learning]. Balancing opportunism with discipline will be essential as biopharma, like all other players, requires a greater return on capital than before.”
Another trend envisioned by Goodwin’s Harrow is “some consolidation of companies in the form of mergers of equals or investors seeking to combine portfolio companies as companies attempt to benefit from synergies and/or expand development pipelines as an alternative to organic growth.”
Amarin Corporation plc’s CEO Karim Mikhail had a similar take: “Looking at the current M&A and partnering ecosystem, it is clear that, especially for smaller biopharmaceutical companies who are constrained by their cash position, many will need to come together to fund late-stage R&D, regulatory submissions, achieve pricing, reimbursement and market access and efficiently launch and commercialize their products.”
Tony Crisman, a managing director in Chicago at investment bank Lincoln International, tipped “the outsourced pharma services industries to remain a M&A hot bed as the biopharma sponsors will continually look to increase outsourcing across the board to optimize spend and create efficiencies.”
Meanwhile, Cooley’s Rosen flagged up another area of likely acquisition activity. “Large pharma will continue to go through a refocusing exercise, which is very likely to lead to disposals of assets/businesses that are deemed to be non-core,” he predicted.
The sharp decline in biotech companies’ market capitalizations could also drive some other new trends in 2023 acquisitions.
“Biotechs will always need capital and, given the current challenging environment to raise funds, alternative methods need to be considered,” pointed out Dan O’Connor, CEO of antibody drug conjugate developer Ambrx, Inc. “There are numerous public biotech companies with significant amounts of cash, trading at negative enterprise value, which would seem to create opportunities for strategic thinking.”
“Given the choppiness in the public markets, we see 2023 as a potential premium year for a number of the private equity funds that will look to take companies off the public markets.” Stephen Rosen, Cooley
“Given the choppiness in the public markets, we see 2023 as a potential premium year for a number of the private equity funds that will look to take companies off the public markets. As cash has tightened and follow-on fundraisings have become more difficult, we think that there are a number of companies with potentially great assets that will attract PE interest given the depressed nature of public company stock prices,” suggested Cooley’s Rosen.
For Sound Bioventures’ Mukhopadhyay, “the dark horse of M&A will be the SMID-CAP [small- to mid-sized market capitalization] publicly traded biotech that has one or two core drug franchises generating robust cash flow that wants to diversify its pipeline and will look among venture funded biotechs to acquire.”
But it was Pierre Jacquet, managing director and vice chairman of L.E.K. Consulting, who had the most radical prediction, arguing that the circumstances are ripe for a possible return to big pharma mergers.
Pointing out that a majority of the biggest companies are facing significant losses of exclusivity for major blockbusters in the 2025-2027 time frame, he said “the biotech pool of external innovation is not big enough to fill all the revenue cliffs and loss of exclusivity faced by big pharma in the mid-term.” He said that companies would be hard pressed to find a target company or “string of pearls” to fill such a large gap, noting that “there are not many options left in the $10bn-$30bn market cap” field, and although there are “more opportunities in the $1bn-$10bn market cap class, there are not a lot of them with the potential of generating significant annual revenues to fill the pharma gaps within the necessary time frame. The problem is that big pharma has cliffs of $10bn or more.”
Jacquet anticipated that we might see a merger of companies trading in the $70bn+ market capitalization range as there is a lack of substrates from the biotech space to fill larger pharma revenue gaps.
“Bearing in mind biotech wilderness periods can last for years, I think we should expect more licensing deals and only the same trickle of acquisitions in 2023.” Andy Smith, Equity Development
As life sciences/health care analyst at Equity Development and Scrip’s Stock Watch columnist Andy Smith put it, “Most biotech commentators are wondering what's holding up big pharma buying biotechs now we're more than a year from the last peak. Pharma, on the other hand, on their earnings calls say that there is no rush and that valuation expectations are still too high. Bearing in mind biotech wilderness periods can last for years, I think we should expect more licensing deals and only the same trickle of acquisitions in 2023.”
Lincoln International’s Crisman took a similar view. “With the IPO window closed, there are going to be limitations on capital raising and strategic alternatives for smaller biotech companies. This argues for more M&A; however, the recent steep valuations as well as the recent acquisition spree will put a chill on aggressive biopharma consolidators as they integrate assets and manage balance sheets,” he warned. “This means more activity through partnerships, carve-outs and joint ventures is likely.”
“M&A between peers will remain slow, as publicly held biotechs are trading at low valuations. Too, the style of many recent biotech IPOs are such that the companies went public very early, which will give pharma some time to see whether the technologies play out – M&A will be slow there, as well,” predicted Russell Potterfield, CEO and executive chairman of Endevica Bio, which is focused on developing a peptide therapeutic for cachexia.
The rationale for more M&A in biopharma is clear: biotech needs money, which big pharma has, while big pharma needs new product innovation, which biotech has. Nevertheless, previous years’ predictions of big increases in M&A have not played out, and industry participants are not unanimous in believing they will in 2023, either.
And although Danish small molecule developer Galecto Inc.’s CEO Hans Schambye acknowledged that “the very low valuation of many biotechs and the empty pipelines of most big pharma companies will ultimately result in an increase in M&A activity from the very low level we are seeing right now,” he observed that “pharma seems to be stuck in a situation where there is too much to choose from and they are afraid to be misled by the low valuations.” He warned: “They will need to overcome this to compensate for their low internal R&D efforts.”
“Despite low valuations for many companies with promising assets, pharma has not been on a buying spree. In fact, the volume of M&A has dropped substantially over the past 12 months and the average deal size has been in decline over the past few years. The low valuations combined with the consistent nature of pharma to be risk-averse creates resistance to M&A activity on both sides,” said Brian Wiley, chief business officer at immuno-oncology company Portage Biotech Inc. “As a result, partnering will likely remain the preferred option for deals despite the high likelihood of rising valuations in 2023 … Overall, while the number of M&As could increase simply because the current number is so low, the overall trend will favor partnering with robust early financial terms.” Nevertheless, “orphan and rare disease will likely remain an attractive area for M&A due to stability around exclusivity and pricing,” he added.
Goodwin’s Harrow expected “pharma companies to continue to push for alternatives to outright M&A – be that licensing/asset transactions, option deals or collaborations/strategic partnerships – allowing pharma to access, or have a first option over promising assets and/or programs without having to pay the large upfront payments that have become a feature in many deals in recent years.”
While the funding downturn could drive M&A, it is also a potential catalyst for more partnering.
“We believe that the strategic commitment of pharmaceutical companies to partnerships is a trend that will continue in 2023 and beyond. Science is evolving so rapidly that most pharmaceutical companies do not have all the capabilities needed to create new technology platforms. Therefore, the introduction of drug development technologies and know-how through partnerships is essential for innovation,” stated Yoshitsugu Shitaka, chief scientific officer at Astellas Pharma, Inc.
“As a category, partnering should see benefits, as smaller companies with good (or even great) technology will more likely choose to partner with larger companies rather than enter a slow IPO market in the first half of 2023,” said Endevica Bio’s Potterfield.
“We will continue to see big pharma tapping into smaller biotechs for partnerships, and potentially more co-development collaborations between biotechs to better navigate the current economic climate.” Miquel Vila-Perelló, SpliceBio
“Considering big pharma is sitting on record cash reserves, one could expect increased M&A activity – but that was also the case in 2022 and it has been one of the slowest years for M&A since 2018,” observed Miquel Vila-Perelló, CEO and co-founder at gene therapy company SpliceBio, S.L. “Notwithstanding, we will continue to see big pharma tapping into smaller biotechs for partnerships, and potentially more co-development collaborations between biotechs to better navigate the current economic climate.”
Daniel de Boer, CEO of Dutch RNA therapy developer ProQR Therapeutics N.V., agreed. “M&A and partnering will continue to be a critical aspect of the biopharma sector, as it has in recent years. Partnering, especially, has the potential to really pick up in 2023, allowing smaller biotech companies to expand their offerings and progress pipeline candidates through key development milestones with the backing of a larger company.”
“From the perspective of the smaller biotech, there will be more of an appetite to partner assets in order to take molecules forward into the clinic without having to raise a large amount of capital,” pointed out Fountain Therapeutics’ Hoey.
Partnering rather than M&A could be better for both sides. “Partnering will allow pharma to invest in novel approaches without as much financial risk. Partnering deals with substantial upfronts and/or equity investments will provide an excellent opportunity to monetize assets without having to sell at an unfavorable valuation,” commented Portage Biotech’s Wiley. “It will also be attractive for many small to midsize companies that have multiple assets in the pipeline where an M&A is not likely to work. Partnering will also include an increase in preclinical assets, but the preferred stage for partnering will remain early clinical development after initial clinical proof-of-concept.”
“Innovation is at a peak, biopharma funding is at a low, and the patent cliff is about to hit. These factors will result in a lot more partnering in the sector in 2023. So, for biotech companies, 2023 may not be the year of M&A, but the silver lining is that pharma still has the cash and the desire to support the development of new drugs. In 2023, they may not be as open to acquiring, but they will partner to help biotechs cross the chasm and get to that next inflection point,” said Antoine Papiernik, chairman and managing partner at European life sciences venture capital firm Sofinnova Partners.
“The biotech market downturn has accentuated the importance of good science and strong clinical data, whilst highlighting the important role that partnerships and M&A have in bringing innovative treatments to patients. In 2023, partnering will likely grow as deal terms improve for pharma companies, but I can see substantive M&A remaining focused on later-stage assets,” commented Syncona’s Hollowood.
Susan Conroy, CEO of TheraKind, a company that aims to improve medicine adherence through more patient-friendly dosing options for difficult-to-treat groups, foresaw that “biopharma companies [would] embark on more collaborative projects, sharing technologies in order to create more innovative new products in a de-risked manner.”
“We will start seeing more cross-sector convergence. Companies from different fields of science and technology that haven’t worked together before will be merging their capabilities.” Marcus Schindler, Novo Nordisk
In a similar vein, Marcus Schindler, executive vice president for research and early development and chief scientific officer at Novo Nordisk A/S, said: “We will start seeing more cross-sector convergence. Companies from different fields of science and technology that haven’t worked together before will be merging their capabilities.”
Astellas Gene Therapies’ Wilson highlighted that the need for access to development and commercialization infrastructure and know-how could drive partnering in fast-growing, relatively young areas of biotech: “In gene therapy, we see more opportunity ahead for smaller companies seeking access to the later-stage capabilities and manufacturing capacity of larger organizations; partnerships are often the way to really unlock the value of many early-stage programs that are in the biopharma pipeline at this time.”
David Kirn, CEO of genetic medicines company 4D Molecular Therapeutics Inc., pinpointed a trend he expected to see gain momentum in 2023: “There are many different business models for emerging biopharmaceutical business, and we’re continuing to see an evolution. One model, in particular, I think we will see more of is the ‘build-to-buy’ business model involving financing from big pharma leading to successful acquisitions.
“This model allows a start-up company and a single investor, a larger pharma company, to work together for a period of time after initial funding of the start-up by the pharma company, before the start-up company is acquired by the pharma company at a pre-negotiated price. Securing a big pharma investment in a build-to-buy model will provide initial funding and can be very advantageous to start-ups in 2023 and beyond.”
“One of the keys to success is to look at each collaboration with a customized approach so that it’s a win-win for everyone, applying the best insights and capabilities of each partner to make important advances for patients.” John Lepore, GSK
John Lepore, senior vice president and head of research at GSK plc, homed in why big pharma companies like his need to partner with both academia and biotechs, and how important it is to take a carefully tailored approach for every separate collaboration to get the most out of it. “Partnering is a core component of our R&D approach, which is focused on the science of immunology, genetics and genomics, and application of advanced technologies. We have strong collaborations across academia, such as our partnership with UCSF and UC Berkeley at our Laboratory for Genomics Research, the Institute of Molecular and Computational Medicine at Oxford, and our functional genomics collaboration with the Broad Institute. We also access cutting-edge technologies and differentiated assets through collaborations with biotech, such as our oligonucleotide collaboration with Wave Life Sciences Ltd. and our infectious disease collaboration with Vir Biotechnology, Inc.,” he noted.“Our approach is to work with best-in-class companies and institutions that complement our internal capabilities. One of the keys to success is to look at each collaboration with a customized approach so that it’s a win-win for everyone, applying the best insights and capabilities of each partner to make important advances for patients.” (Also see "Wave Banks $170m Upfront In GSK Oligonucleotide Deal, Analysts Back Shift To Partnership Model" - Scrip, 14 Dec, 2022.)
“For small biotech companies to partner with big pharma, it is important that a shared, like-minded ambition exists within the partnership, which can help introduce game-changing development programs that benefit more patients in a much more efficient manner,” said Judy Chou, CEO of San Francisco-based immunology specialist AltruBio Inc., who noted that “partnerships have become essential in modern-day drug development for the pharmaceutical/biotech industry. It is extremely difficult for a single company, no matter big or small, to successfully complete the lengthy process of bringing a drug from bench to bedside without a partner. A key trend in 2023 is the ability for companies to streamline the use of resources, which for big pharma, presents a great opportunity to identify, invest in and develop innovative technologies with true breakthrough potential. Among the innovative technologies, the programs with clinical data demonstrating proof-of-concept to complement preclinical studies addressing the mechanism of action will stand out. The proof-of-concept clinical data helps translate the basic science into clinical applications and de-risk the investment, ultimately leading to the acceleration of the drug development process. The projects with this feature are most likely to be the focus for M&A and partnership in 2023.”
For Endevica Bio’s Potterfield, the environment could change over the course of the year and capital markets could re-open further down the line. “If inflation will come under control, we expect that the IPO market will warm back up in the back half of 2023 – and we’ll effectively see multiple evolutionary phases through the course of the year. We think that the back half of 2023 would be a good time to partner – and, should partnering options turn out to be limited, the middle of 2024 will be a great time to IPO as the US heads into a presidential election cycle and inflation-reduction policy shifts from 2022 and 2023 settle out in the markets.”
Hot Therapeutic Areas
“In terms of focus areas for M&A, we think that oncology will continue to lead the way,” predicted Rosen of Cooley. “We are also starting to see interest around genomics and that is one to watch in 2023.”
Jak Knowles, president and CEO of Affini-T Therapeutics, Inc., thought immuno-oncology would be particularly busy in partnering terms. “The novel and differentiated approaches we’re seeing to address complex problems in the space are particularly conducive to collaboration. As we’ve done with Metagenomi in partnering to add gene-editing capabilities to our next generation of T-cell therapies targeting oncogenic driver mutations, I anticipate that others will be looking to add tools and capabilities to support the development of potentially curative therapies for cancers with the highest unmet need.”
“I fully expect M&A and business development will continue to play a critical role in 2023 in women’s health.” Kevin Ali, Organon
For Lisa Ricciardi, president and CEO of Cognition Therapeutics, Inc., companies in the Alzheimer’s arena could be hot property in 2023. “Transitioning from a decade or more where Alzheimer’s disease was a virtual no-fly zone for business development, we expect dramatically increased interest in companies which have read-through from the lecanemab data showing that targeting amyloid is clinically effective and approvable from a regulatory perspective,” she commented. “We expect high interest in companies utilizing oral small molecule approaches to deliver effects similar to anti-amyloid antibodies but in a manner that is more cost-effective and less burdensome for society.”
Kevin Ali, CEO of Organon, the women’s health company spun out of Merck & Co., Inc., highlighted his area as one to watch for deal-making in 2023. “Society is beginning to wake up and recognize that the health of women is not a niche area and can no longer be ignored. I fully expect M&A and business development will continue to play a critical role in 2023 in women’s health because partnerships are an important solution – and in some ways the only solution – to dramatically accelerate research across the many areas where new innovation is desperately needed. It’s clear this is an area that is ripe for investment. Besides the fact that women comprise half of humanity, they control 80% of US health care dollars. Yet today, just 4% of all health care R&D spending is focused on research for women’s conditions. What is less recognized is that it is an area that is also ripe for returns. According to a recent study, a $300m dollar investment into research focused on women would yield a $13bn economic return.”
“We expect to see a surge in deals in TPD technology, where the development of new technologies is rapidly accelerating.” Yoshitsugu Shitaka, Astellas Pharma
Astellas Pharma’s Shitaka thinks targeted protein degradation is an important field to watch: “In terms of specific technology areas, we expect to see a surge in deals in TPD technology, where the development of new technologies is rapidly accelerating. The reason for this is that TPD has the potential not only to access targets that have been considered undruggable, but also to reduce the emergence of resistance and toxicity, which has created issues in conventional small-molecule drug discovery. As for new technologies in the TPD field, the application of E3 ligase binders armed with more beneficial properties in efficacy and safety to drug discovery is being actively considered. In addition, an increasing number of biotech companies are developing new technologies that can break down cell membranes and extracellular molecules that are inaccessible by conventional TPD, and Astellas is paying close attention to this trend.”
Platform companies that offer multiple shots on goal are in favor currently. For Accenture’s Jantzer, “bio-platform deals are also expected to continue, with ecosystem growth pathways being utilized more often – in the form of partnerships or M&A – to access capabilities such as AI/ML [artificial intelligence/machine learning]. Balancing opportunism with discipline will be essential as biopharma, like all other players, requires a greater return on capital than before.”
Takeda Pharmaceutical Co. Ltd.’s global oncology president Teresa Bitetti also highlighted AI and digital technology. “Some of the most ground-breaking health care innovation we’ve seen in recent years has been a result of biotech and pharma partnering, whether through collaboration or M&A. Though health care has historically lagged behind other industries in the widespread adoption of digitalization, there’s incredible opportunity for us to increase our strategic investments and catch up,” she said.
“To do so, we must focus our partnership efforts on platforms and technologies that advance data and digital solutions, in addition to those that further science. As we enter 2023, I am particularly eager to watch the industry, including us at Takeda, identify and establish partnerships with companies at the forefront of digital- and tech-based innovation that will allow us to more seamlessly address the evolving needs of both health care providers and patients.”
George Komatsoulis, chief data officer of Zephyr AI Inc., which is building AI for use in precision medicine, picked up on the same theme: “Biopharma companies are increasingly using AI and ML to derive insights that will improve outcomes for larger numbers of people via label expansions and better targeting of patients and drugs. I anticipate that they will be eager to partner with companies that can provide the high-quality real-world data and AI/ML expertise needed to expand their portfolios,” he said.
Cancer drug developer Artios Pharma Limited’s chief financial officer Abid Ansari was upbeat about the prospects of renewed vigor in deal-making as travel picks up following the COVID-19 restrictions. “The return of in person conferences such as the J.P. Morgan Healthcare conference will likely have a positive impact on deals taking shape and coming to fruition throughout the year,” he said.
Hernan Bazan, CEO of South Rampart Pharma, which is developing small molecules for pain relief, also commented on the benefits of in-person get-togethers, although he acknowledged the perks of virtual interaction when it comes to partnering. “I think hybrid approaches will continue in 2023. Following the pandemic, my first in-person partnering meeting was BIO in June 2022 (San Diego), and there was palpable excitement to meet face-to-face. Though deals can be done virtually, personal interaction allows a connection to be made when technology and partnering tactics are discussed. Virtual meeting platforms allow for efficient use of time when doing more technical reviews,” he said.
“For these reasons, I feel the hybrid approach is here to stay. I think partnering through option license deals for promising technologies – particularly those with clinically validated mechanisms of action – will continue in 2023. And these hybrid approaches will allow a more ‘real-time’ discussion of progress as M&A and other partnering deals are discussed.”
Several of those we surveyed homed in on what biotechs will need to offer to secure deals. “In order for companies to attract partnering opportunities or M&A, a premium will be placed on data, particularly in indications with a high unmet need that have commercial potential,” commented Keir Loiacono, CEO of BlueSphere Bio, a T-cell therapy developer for cancer.
G1 Therapeutics’ Bailey said: “The quality of data readouts, particularly for late-stage programs, is important, and there are many expected over the coming 12-18 months. As a result, I foresee large pharma companies looking for smaller companies – for both M&A and partnerships – that have existing revenue streams with long patent runways, mature clinical datasets, and/or promising late-stage programs that can drive revenue in the near term.”
“In 2023, educated investors and partners will continue to increase their standards, only selecting assets that can demonstrate a clear differentiation and a credible plan to navigate their end market.” Joris Pezzini, Alira Health
Joris Pezzini, a partner at advisory firm Alira Health, also cautioned that companies need to stand out in terms of quality to survive the downturn. “The current market crisis surely puts a lot of stress on developers and investors, with a tendency to adopt shyer behaviors. This indirectly affects the M&A and partnering ecosystem, as average assets do not make the cut anymore. In 2023, educated investors and partners will continue to increase their standards, only selecting assets that can demonstrate a clear differentiation and a credible plan to navigate their end market,” he explained. “In such uncertain times, a good product is not enough, and successful companies will be the ones investing to clearly understand their ecosystem, paradoxically what most developers cut when the cash is short.”
Meanwhile, industry insiders have drug pricing on their mind, and it could have repercussions in deal-making. “The Inflation Reduction Act (IRA) in the US has already caused pharma and biotech companies to alter development plans, and I anticipate this drug-pricing reform will also play a part in how companies think about their deal-making strategies over the coming years,” said Amanda Micklus Managing Consultant at Citeline Custom Intelligence, who also expected “the macroeconomic impacts we’ve seen in 2022 – challenging public markets, worries about a recession and inflation – to trickle into 2023. M&A and partnering volumes are down in 2022 compared with , and we’re likely to see deal-making numbers continue to be affected by macroeconomic trends in 2023.”
“The key will be understanding how pharma will prioritize M&A and partnering over developing their own internal portfolios and identifying assets and companies that can offer synergies to their current development plans,” said Artios’s Ansari.
Additional reporting by Joseph Haas.