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After a year flush with big deals, pharma M&A watchers have been downright spoiled. But with major drugmakers stuck in slow-growth mode—and biotechs outperforming the market in terms of stock price—big players may be looking for smaller “bolt-on” acquisitions in 2020, rather than the massive mergers of the past year.

Instead of going after the likes of Celgene—or even Otezla, the $13.4 billion psoriasis drug Amgen picked up as a byproduct of that deal—major pharmas will likely downsize their transactions to more closely resemble the $2.5 billion Sanofi agreed to pay for biotech Synthorx earlier this week, Bloomberg reported, citing an investor note from JPMorgan analyst Chris Schott.

In 2019, pharma’s average M&A price was $16 billion—a jump from the $13 billion average from the year before. But a couple of factors could drive a downward trend as pharma focuses on snagging biotechs, Schott said.

For one, major pharmas have seen slow growth or even a decline in their stock prices while biotechs, on the whole, have outpaced their bigger counterparts. And big players have already shown a clear interest in adding relatively small-dollar biotech acquisitions, even paying rich premiums to lock them down. Just look at the Synthorx buy and Merck & Co.’s agreement last week to purchase ArQule for $2.7 billion.

In Sanofi’s case, the drugmaker paid a remarkable 172% premium—$68 per share—on Synthorx’s Friday closing price. But in return, it picked up IL-2 immuno-oncology candidate THOR-707, a candidate Sanofi R&D chief John Reed said could “become a foundation of the next generation of immuno-oncology combination therapies.”

For ArQule, the maker of midphase BTK inhibitor ARQ 531, Merck offered a 100% premium on the biotech’s share price at $20 per share. Merck cited ARQ 531 as the focal point of the deal but also highlighted ArQule’s other assets, with Merck Research Labs President Roger Perlmutter praising the work the biotech has done to build out its pipeline.

“ArQule’s focus on precision medicine has yielded multiple clinical-stage oral kinase inhibitors that have novel and important properties,” Perlmutter said in a statement. “This acquisition strengthens Merck’s pipeline with the addition of these strategic assets including, most notably, ARQ 531, a compelling candidate for the treatment of B-cell malignancies.”

Of course, another reason Big Pharma could be wary of major transactions is the flak some of the biggest deals of the past year have received from regulators.

In November, the Federal Trade Commission (FTC) voted 3-2 on party lines to approve Bristol-Myers Squibb’s $74 billion merger with Celgene pending the divestiture of psoriasis med Otezla, which Amgen picked up for $13.4 billion in a separate deal.

The FTC argued that the acquisition “would harm consumers in the U.S. market for treatments taken orally for moderate-to-severe psoriasis” if approved without the Otezla sale. Without naming it, the agency pointed to Bristol’s phase 3 TYK-2 inhibitor BMS-986165 as “the most advanced oral treatment” that could compete directly with Otezla.

Industry watchers expressed shock at the forced divestiture when it was first unveiled in June, noting that BMS-986165, yet to report phase 3 data, is still a risky project and belongs to a different drug class from Otezla.

But Bristol isn’t alone in facing regulator scrutiny: In September, the FTC filed a “second request” for information on AbbVie’s $63 billion merger with Allergan. The request followed repeated calls from consumer groups to “carefully examine” or even outright block the deal on antitrust grounds.

Aiming to sail through its antitrust evaluation, Allergan volunteered to sell two drugs, brazikumab and Zenpep. Brazikumab belongs to the same IL-23 inhibitor class as AbbVie’s Skyrizi, and both are eyeing the inflammatory bowel disease market. Zenpep and AbbVie’s Creon are both pancreatic replacement enzymes.

By Kyle Blankenship

Source: Fierce Pharma