Last week, thousands of registrants gathered in San Francisco, California for the JP Morgan Healthcare Conference (JPMHC) to hear 25-minute presentations from 364 life science companies. For industry executives and investors, deal activity emanating from the annual event typically serves as a good barometer for the rest of the year.
Adding to an already hectic schedule of one-on-one meetings during the week, the success of JPMHC has spawned numerous satellite events, such as Biotech Showcase, OneMedForum, New Paradigms Conference, and China Forum. The latter event provides further evidence that China is emerging as an important component of the international biotechnology landscape, as 16 China-based life science companies also presented during an inaugural China Track at JPMHC.
In between offsite meetings, we roamed the familiar halls of the Westin St. Francis Hotel to assess the mood among participants and also monitored online media commentaries throughout the event. In general, the plane flights and networking receptions were crowded as usual, industry observers “Tweeted” a sense of optimism, and attendees appeared more upbeat than in 2010. However, we once again sought to construct a less subjective assessment by analyzing year-over-year statistics from the conference.
Accordingly, we extensively reviewed press releases issued by biotechnology companies during JPMHC from 2009 to 2011, with a particular focus on identifying the number of mergers and acquisitions, licensing and partnering transactions, and financing deals announced each year during the four-day event.
Merger and Acquisitions
Back in 2009, several large M&A transactions were announced during JPMHC. That year, four M&A transactions with an aggregate value of $702 million were disclosed during the first two days of the event. The largest deal went to Cephalon, Inc. (CEPH), which announced a $100 million option agreement providing the company with an opportunity to purchase all outstanding capital stock of Ception Therapeutics, Inc., a privately held biopharmaceutical company, for an additional $250 million.
Despite ongoing discussions between Sanofi-Aventis (SNY) and Genzyme Corporation (GENZ), only one significant M&A transaction was announced during JPMHC in 2011, marking the second year in a row with a paucity of deals. Finland-based Biotie Therapies Corp., a drug developer focused on central nervous system and inflammatory diseases, announced that it is acquiring Synosia Therapeutics Holding AG in an all-share deal that values the private Swiss company at approximately $125 million. Synosia Therapeutics Holding AG is a biopharmaceutical company focused on developing and commercializing a portfolio of CNS product candidates licensed from Roche Holding AG (RHHBY.PK), Novartis AG (NVS), and Syngenta AG (SYT).
Table 1. Select M&A Transactions Announced During JPMHC from 2009-2011 ($ in millions)
Licensing and Partnering
In 2009, 10 strategic licensing and/or partnering transactions with an aggregate value exceeding $2.4 billion were announced during JPMHC. The transactions included a $1.1 billion deal between ZymoGenetics, Inc. (ZGEN) and Bristol-Myers Squibb Company (BMY), a $500 million deal between Peptimmune, Inc. and Novartis AG (NVS), a $396 million deal between Micromet, Inc. (MITI) and Bayer AG (BYERF.PK), and a $200 million deal between FORMA Therapeutics, the Novartis Option Fund, to develop inhibitors for an undisclosed protein-protein interaction target in the field of oncology, among others. Interesting to note, Bristol-Myers Squibb later acquired ZymoGenetics Inc. for $885 million in cash during September 2010.
In 2010, there were only six transactions totaling $314 million announced at JPMHC, driven primarily by a $290 million agreement between privately held KaloBios Pharmaceuticals, and Sanofi Pasteur, the vaccines division of the Sanofi-aventis, for the development and commercialization of KB001, an investigational new biologic for the treatment or prevention of Pseudomonas aeruginosa infections.
In 2011, three major licensing and/or partnering transactions totaling more than $3 billion were announced during JPMHC, although three-quarters of the total value came from a single agreement:
- Eli Lilly and Company (LLY) and Boehringer Ingelheim announced a $2.4 billion global agreement to jointly develop and commercialize a pipeline of oral diabetes agents and basal insulin analogues. The alliance also includes the option to co-develop and co-commercialize Eli Lilly’s anti-TGF-beta monoclonal antibody.
- Privately held Epizyme, Inc. announced a strategic alliance with GlaxoSmithKline plc (GSK) that could be worth over $650 million. Epizyme is involved in the discovery and development of small molecule histone methyltransferase inhibitors, a new class of targeted therapeutics for the treatment of genetically-defined cancer patients, based on breakthroughs in the field of epigenetics. Epigenetics refers to the regulation of genes with mechanisms other than changes to the underlying DNA sequence and such processes are widely believed to play a central role in the development and progression of almost all cancers.
- Takeda Pharmaceutical Company Limited (TKPHF.PK) and Zinfandel Pharmaceuticals, Inc. announced an exclusive, worldwide licensing agreement regarding Zinfandel’s TOMM40 assay as a biomarker for the risk of Alzheimer’s disease, including potential use of the assay in combination with pioglitazone in high-risk older adults with normal cognition. Pioglitazone is the active ingredient currently marketed in Takeda’s ACTOS (pioglitazone HCl). Under the terms of agreement, Zinfandel will receive an upfront payment of $9 million and subsequent payments of up to $78 million for development milestones from Takeda.
Table 2. Select Licensing and Partnering Deals Announced During JPMHC from 2009-2011 ($ in millions)
While the quantity of public and private financing transactions announced during JPMHC has remained essentially flat from 2009-2011, the aggregate dollar value increased more than 60% in 2011. Note that we excluded the $500 million convertible senior note transaction announced by Dendreon Corporation (DNDN), as it occurred after the market closed last Thursday (the last day of JPMHC).
Table 3. Select Financing Transactions Announced During JPMHC from 2009-2011 ($ in millions)
|Acclarent, Inc. (private)||$26.00||Cell Therapeutics, Inc. (CTIC)||$30.00||NextWave Pharmaceuticals (private)||$45.00|
|Akorn, Inc. (AKRX)||$25.00||VentiRx Pharma (private)||$25.00||Cell Therapeutics (CTIC)||$25.00|
|Singulex, Inc. (private)||$19.00||BIND Biosciences, Inc. (private)||$11.00||Civitas Therapeutics||$20.00|
|Chiral Quest (private)||$13.00||Cyclacel Pharmaceuticals (CYCC)||$7.20||Rib-X Pharmaceuticals (private)||$20.00|
|Mithridion, Inc. (private)||$2.90||Rosetta Genomics Ltd. (ROSG)||$5.10||Acadia Pharma (ACAD)||$15.00|
|Soligenix, Inc.||$2.28||Advanced Cardiac Therap (private)||$5.00||Celsion Corporation (CLSN)||$9.00|
|Alseres Pharmaceuticals (ALSE.PK)||$1.00||BioLeap, Inc. (private)||$5.00||VAXIMM AG (private)||$8.00|
|EntreMed, Inc. (ENMD)||$2.50||NeoGenomics, Inc. (NGNM.OB)||$3.00|
|Mithridion, Inc. (private)||$1.25|
At the start of 2009, we provided a positive outlook for the biotechnology industry. Most of the drivers supporting our favorable view remain intact for 2011, such as the record number of products in clinical trials and annual industry R&D investment, improving access to capital, brisk pace of industry consolidation and licensing transactions, and attractive valuations among many small- and mid-capitalization companies, which we believe should continue to outperform their larger industry peers in 2011.
The +60% year-over-year increase in the aggregate value of financing transactions announced during JPMHC in 2011 supports our improving access to capital thesis, offset in part by the fact that both the quantity and value of M&A and licensing/partnering transactions during the period were below 2009 levels [excluding a single agreement for $2.4 billion in 2011]. Using 2010 as a guide, the mixed bag of activity emanating from JPMHC is simply the pause that refreshes and activity should accelerate throughout the year.
Looking beyond JPMHC, the key risk to our positive outlook in 2011 relates to the number of U.S. Food and Drug Administration drug approvals, which declined in 2010 and is more than 50% below the high of 56 new approvals in 1996 despite the fact that legislation passed in 2008 gave the FDA more money and resources. There is no discounting the negative impact of clinical and regulatory setbacks on the psyche of biotechnology investors, as evidenced by the greater than 10% decline in the NASDAQ Biotech Index in late February 2009 following a spate of high profile disappointments.
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