Mergers and acquisitions are expected to be a key theme in the pharmaceutical industry in 2023.
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2022 M&A activity in the life sciences sector failed to meet expectations, but Amgen’s recent $26.4 million buy-out of Horizon Therapeutics may be a sign of bigger things to come.
PwC certainly thinks so, predicting a total deal value in the $225 billion to $275 billion range across all subsectors. The firm credits this anticipated upswing to a somewhat stabilized economic outlook, a need to close medium-term pipeline gaps, the resolution of the U.S. midterm elections and a better understanding of the impacts of the Inflation Reduction Act.
PwC predicts:
- An average deal size of between $5 billion and $15 billion
- A focus on oncology and immunology
- A secondary focus on CNS, cardiovascular and vaccines
- A significant premium on therapeutic area leadership
The Would-Be Acquiree
While 2022 was a difficult year for financing, a number of companies came to maturity, either completing Phase II trials, receiving regulatory approvals or achieving positive proof of concept.
“As [these companies] think about their path forward, whether that’s to go it alone versus to be acquired, incrementally, going it alone is harder,” Christiana Bardon, M.D., co-managing partner at BioImpact Capital and portfolio manager at MPM Capital told BioSpace in an interview. “Therefore, the M&A opportunities seem incrementally more attractive if you have a post-proof of concept asset.”
And on the other side, “if it’s post-proof of concept, an acquirer would be more likely to pull the trigger at that attractive rate.”
In terms of M&A, pharmaceutical companies are looking for “big indications; diseases that have large populations,” Bardon said. “We think Provention Bio is very attractive, from that perspective.”
Provention is the owner of TZIELD, the first FDA-approved disease-modifying drug to delay Stage 3, type 1 diabetes.
Another indication that fits this definition is nonalcoholic steatohepatitis (NASH), Bardon said. On Monday, Madrigal Pharmaceuticals reported much-anticipated positive data from the Phase III MAESTRO-NASH biopsy trial of resmetirom, an oral thyroid hormone receptor (THR) beta-selective agonist.
Speaking prior to the announcement, Bardon said, “If that drug is positive, that would be a fabulous candidate for very big indication. As well, it’s an oral drug, which also makes it attractive.”
A couple of psychiatric drugs also made Bardon’s list of hot M&A targets: Karuna Therapeutics’ KarXT, which could potentially be the first treatment addressing the negative symptoms of schizophrenia, and Axsome Therapeutics’ oral N-methyl D-aspartate receptor antagonist, which recently showed positive data in Alzheimer’s-associated agitation.
In the IgA Nephropathy space, Bardon highlighted Chinook Therapeutics and Calliditas Therapeutics.
For orphan indications, “the two most exciting companies are Sarepta for [Duchenne muscular dystrophy] and Reata Pharmaceuticals for Friedreich’s ataxia,” she said, adding that both Sarepta’s SRP-9001 and Reata’s omaveloxolone “have the chance to really change the course of illness for patients.”
BioSpace’s George Budwell and Heather McKenzie offer their top M&A picks for 2023.
Heather McKenzie
Karuna Therapeutics
Karuna hits on one of PwC’s top focuses – KarXT’s apparent efficacy in treating the negative symptoms of schizophrenia could place the biotech firmly in a leadership position in this challenging space.
Neurotherapeutics is also picking up speed as a therapeutic space, according to Voyager CEO Al Sandrock.
An approval for KarXT would also offer potential buyers a uniquely important patient population. While not extremely prevalent – the World Health Organization estimates that 20 million people worldwide are stricken with schizophrenia - its costs to the global healthcare system are substantial. A 2016 study published in The Lancet placed schizophrenia among the world’s top 15 causes of disability.
Eli Lilly could be a contender for Karuna. For one thing, it might want its drug back, now that Karuna seems to have made it work. Lilly once gave up on KarXT due to tolerability issues, and Karuna is helmed by former Lilly executives. Current CEO Steve Paul, M.D. is the former EVP for science and technology and president of Lilly Research Laboratories.
Biogen and Jazz Pharmaceuticals could also have interest in Karuna.
However, the company may be planning to stand pat as its own entity – at least for now. Earlier this month, Karuna announced that Bill Meury would succeed Paul on January 3. Additionally, as an FDA submission for KarXT could come as late as mid-2023, potential suitors may be inclined to wait for the ultimate verdict.
Reata Pharmaceuticals
The FDA granted priority review for Reata’s omaveloxolone in Friedreich’s ataxia in May. In the U.S., there are currently no approved therapies for FA, a progressive, life-shortening neuromuscular disease.
The FDA initially assigned a PDUFA date of Nov. 30, but later extended it to Feb. 28, 2023.
Besides omaveloxolone, Reata also has programs in chronic kidney disease, including diabetic CKD, CKD caused by Alport Syndrome and CKD caused by polycystic kidney disease (PKD).
CKD is an attractive therapeutic space that comes with a large patient population. Its prevalence in the U.S. is around 13%, and studies have shown this percentage rises in those with type 2 diabetes and cardiovascular diseases.
Potential buyers include:
- AstraZeneca, which lists cardiovascular, renal and metabolism (CVRM) as one of its top focus areas.
- Novo Nordisk, which has a significant focus on both type 1 and 2 diabetes as well as cardiovascular disease.
- Sanofi, which has a history in PKD. The French pharmaceutical discontinued development of venglustat in autosomal dominant PKD in 2021 after a pivotal Phase II/III trial failed to meet futility criteria.
Amylyx
Boston-based Amylyx secured one of the FDA’s biggest approvals of 2022 when the regulator green-lit AMX0035 (Relyvrio) in September for ALS.
While Amylyx hasn’t received much attention as a potential M&A target, the company could be a dark horse target for the following reasons:
- ALS is a top neurodegenerative therapeutic target, for which Relyvrio is one of just three approved medicines.
- Co-CEO Justin Klee told BioSpace in October that Amylyx wants to study Relyvrio in other neurodegenerative diseases. There are few things more attractive to a potential buyer than a pipeline in an (approved) product.
- AMX0035, which is also being studied in both Alzheimer’s and Wolfram syndrome, is Amylyx’s only investigational product – potentially indicating a need to raise more money for growth.
- Run by first-time founders, Amylyx could use the commercialization expertise of a Biogen or a Novartis. Perhaps even a Roche or a Pfizer.
George Budwell
Alnylam Pharmaceuticals
With a market cap of nearly $30 billion at the time of this writing, RNA interference (RNAi) pioneer Alnylam Pharmaceuticals could be the largest buyout in the pharmaceutical space in 2023. The gene-silencing drugmaker stands out as a top buyout candidate mainly because of its unique and diverse platform of RNAi therapies.
Alnylam currently sports four FDA-approved therapies:
- Onpattro for polyneuropathy in hereditary ATTR amyloidosis
- Givlaari for acute hepatic porphyria
- Oxlumo for primary hyperoxaluria type 1 in all age groups
- Amvuttra for the treatment of ATTR amyloidosis with polyneuropathy
In addition, Alnylam’s pipeline is home to several high-value late-stage candidates such as Onpattro for ATTR amyloidosis, fitusiran for hemophilia (partnered with Sanofi) and cemdisiran for IgA nephropathy.
The RNAi drugmaker’s mid-stage pipeline also targets a diverse array of noteworthy indications like NASH, type 2 diabetes and hypertension.
Price may be a sticking point in a buyout scenario, however. Alnylam’s stock is presently trading at more than 15 times 2023 projected sales. An acquirer, in turn, would have to be convinced that the biotech’s RNAi platform will continue to be a game-changer for a variety of hard-to-treat diseases.
Pfizer and Novartis are the two most likely suitors for the RNAi pioneer.
Madrigal Pharmaceuticals
After its aforementioned late-stage win in NASH, Madrigal might be the industry’s most obvious buyout candidate.
Specifically, the drugmaker’s thyroid hormone beta selective agonist, resmetirom, hit both of its co-primary endpoints and a key secondary endpoint in the Phase III MAESTRO-NASH biopsy trial in December.
What’s the big deal? NASH, an advanced form of fatty liver disease, has no FDA-approved treatments. Moreover, the condition is the fastest-growing cause behind liver transplantation in the U.S. right now.
Wall Street thus believes that a safe and effective NASH drug might be able to achieve more than $8 billion in sales annually. Overall, the NASH therapeutic market is forecast to grow into a $35 billion-a-year space by the decade’s end.
With a market capitalization of $4.95 billion at present, Madrigal might prove too cheap to ignore for the industry’s top liver disease players such as Merck, Pfizer and Gilead Sciences.
