Deal-depressed third quarter leaves nowhere to hide

Megadeals flattered the biopharma M&A scene in the first half of 2019, but the numbers took a nose dive in the third-quarter.

First, the good news for deal bankers and investors: in dollar terms 2019 is already the biggest year for biopharma M&A since 2015, the peak of the biotech boom.
But the bad news is that the $182bn spent on acquisitions so far this year has mainly been down to the Bristol-Myers Squibb-Celgene and Abbvie-Allergan megadeals. There were no big-ticket buys in the third quarter, exposing an M&A market that looks decidedly stagnant.
Indeed, the last time so little was spent on acquisitions was the first quarter of 2013. This analysis only looks at drug makers, and excludes medtech companies or genomics specialists. It also includes minority and majority stake purchases, business unit acquisitions and option deals, as well as whole company takeouts.

Perhaps the third-quarter numbers represent a collective pause after the spending spree of early 2019. And at least the number of deals, if not their value, ticked up again.
But with only 36 purchases in the most recent quarter, still one of the smallest quarterly deal counts in recent memory, there could be renewed worries about the underlying level of M&A activity (Biopharma set for a big buyout year – on dollar terms at least, July 9, 2019).
Perhaps buyers are waiting for valuations to fall even lower before they bite. The likes of Biohaven and Uniqure have been touted as takeover targets this year, but still do not look like bargains.
Desperation can force an acquirer’s hand, however. A case in point is Lundbeck’s $2bn purchase of the migraine player Alder Biopharmaceuticals, the biggest deal of the third quarter. The Danish group needed a reasonably priced CNS asset, and Alder, with its fourth-to-market CGRP inhibitor and a sinking valuation, fitted the bill.
This was only one of three third-quarter deals to hit the billion-dollar mark: the others were Gilead’s R&D deal with Galapagos, which included a $1.1bn equity investment to take Gilead’s stake in the group to 22%, and Vertex’s purchase of the type 1 diabetes player Semma, a risky early-stage bet on which the jury will be out for some time.

Biggest M&A deals announced in Q3 2019
Date announced	Acquirer	Target	Status	Value ($bn)
September	Lundbeck	Alder	Open	2.0
July	Gilead Sciences	Galapagos*	Closed	1.1
September	Vertex	Semma	Open	1.0
September	Swedish Orphan Biovitrum	Dova	Open	0.9
September	Novartis	IFM**	Open	0.8
*Cost of acquiring a 22% stake as part of a licensing deal. **Option deal: the value relates to maximum takeout price, including an upfront fee that was not disclosed. Source: EvaluatePharma;.

The lacklustre third quarter could be a blip, but there is still time for the whole of 2019 to fall short, given that several big deals have not yet been sealed amid a clampdown from the US Federal Trade Commission on acquisitions seen as anticompetitive.
Doubts about Roche’s $5bn purchase of Spark are growing after that takeout was recently delayed yet again on antitrust concerns; the offer has now been extended until October 30. Meanwhile, the Abbvie-Allergan tie up was hit by a second request for information last month. It is unclear what the sticking points are, and Allergan had already said it would offload its pancreatic insufficiency drug Zenpep and its investigational anti-IL-23 MAb brazikumab, a potential rival to Abbvie’s Skyrizi.
At least the Bristol-Celgene purchase now looks likely to go through, after Bristol sold Celgene’s psoriasis blockbuster Otezla to Amgen in August, though the debt-exchange part of the deal was delayed by 10 days today.
Investors will hope that M&A activity picks up towards the tail end of this year, but a further slump could raise fears that the lull will continue into 2020 – particularly if regulators continue to bare their teeth.
https://www.evaluate.com/vantage/articles/data-insights/ma/deal-depressed-third-quarter-leaves-nowhere-hide

Venture cash gets even more concentrated

In terms of venture cash, living up to last year was always going to be a hard task. The latest figures indicate that 2019 will fall well short of 2018, but the grand total brought in by young drug developers should still look healthy compared with the years before that.
However, this headline number masks a potentially worrying trend: the number of rounds continues to fall, and reached a five-year low in the third quarter of 2019. This concentration of more wealth into fewer hands looks like bad news for start-ups and, perhaps, the biopharma ecosystem as a whole.
This analysis includes only developers of human therapeutics, excluding sectors such as medtech or diagnostics. But it echoes a trend seen in medtech for some time: a widening gap between the haves and have-nots, which has led to a shrinking pool of M&A targets.
While some might argue that more selective venture funding could strengthen the biopharma talent pool by weeding out weaker players from the start, it is unclear whether this is indeed the case – or whether funnelling cash towards the hottest sectors means valid opportunities in less fashionable fields are missed.
A look at the biggest fundraisers in the third quarter neatly illustrates how one sector, oncology, is gobbling up a massive share of the cash: six of the top 10 rounds involved cancer companies.
The list was headed up by the German mRNA and cell therapy specialist Biontech, which brought in a whopping $325m in July; the group is preparing to float this week in an IPO that could raise the company a further $250m and give it $4.5bn valuation.

Top 10 VC rounds of Q3 2019
Company	Investment ($m)	Round	Location	Specialism
Biontech	325	Series B	Germany	Oncology
D&D Pharmatech	137	Series B	S Korea/US	CNS/fibrosis
AM-Pharma	133	Series F	Netherlands	Kidney disease
Lepu Biotechnology	130	Series A	China	Oncology
Achilles Therapeutics	127	Series B	UK	Oncology
Recursion Pharmaceuticals	121	Series C	US	AI drug discovery
Nkarta Therapeutics	114	Series B	US	Oncology
Passage Bio	110	Series B	US	Rare CNS diseases
Kronos Bio	105	Series A	US	Oncology
IGM Biosciences	102	Series C	US	Oncology
Source: EvaluatePharma.

Another of the third quarter’s big VC winners, IGM Biosciences, has already managed to go public. The company has just taken its first candidate, an anti-CD20 bispecific antibody, into the clinic.
And investors are not avoiding high-risk, early-stage companies, at least not those in the right areas. The preclinical groups Nkarta Therapeutics and Kronos Bio are looking at natural killer cells and historically “undruggable” cancer targets respectively. And one of only two CNS players to make the top 10, the gene therapy specialist Passage Bio, is yet to enter the clinic.
While the current set-up benefits the few rather than the many, the headline figures in the third quarter could have been worse for start-ups: after two consecutive quarters of falling cash there had been fears that the slump might continue (Venture investing dips again for biopharma, July 11, 2019).
Instead, it looks like 2019 will follow the pattern – if the outlier of 2018 is excluded – of venture activity dipping mid-year and rising again in the latter half.
The bonanza seen last year was probably not sustainable. But, if the downward trend continues, groups in neglected areas could find it even harder to raise cash. It will be a while until the ramifications of this shift become clear.

Annual biopharma venture investments
Date	Investment ($bn)	Financing count	Avg per financing ($m)	No. of rounds ≥$50m	No. of rounds ≥$100m
9M 2019	10.2	278	38.3	84	26
2018	17.3	415	44.1	129	38
2017	12.1	442	29.9	72	16
2016	9.7	442	23.4	48	13
2015	11.0	514	22.5	56	13
Source: EvaluatePharma.

https://www.evaluate.com/vantage/articles/data-insights/venture-financing/venture-cash-gets-even-more-concentrated

Goldman: Sell Puma, Clovis on Company-Specific, Competitive Risks

Belying the popular notion that oncology biotechs are lucrative investment options,Goldman Sachs is taking a bearish stance on Puma Biotechnology Inc PBYI 19.41% and Clovis Oncology Inc CLVS 9.16%.

The Analyst

Analyst Paul Choi downgraded Puma from Neutral to Sell and reduced the price target from $24 to $8.
The analyst reiterated a Sell rating on Clovis shares and lowered the price target from $13 to $3.

The Thesis

Smid-cap oncology biotech stocks, especially those with exposure to precision oncology and targeted therapy, have nearly doubled year-to-date, Choi said in a Tuesday note. (See his track record here.)
Yet Puma and Clovis have meaningfully underperformed, with investor expectations having worsened further, the analyst said.
Choi said he sees potential for further downside due to underappreciated company-specific and competitive risks.

Puma Faces Headline Risk From Rival Breast Cancer Drug

Competitive data from Seattle Genetics, Inc. SGEN 2.82%‘s tucatinib at the end of 2019 creates a challenging setup for Puma’s Nerlyx, for which the next potential driver is likely to be in HER2+ metastatic breast cancer, the analyst said.
“We believe that even if tucatinib is not differentiated on efficacy, it may garner more market share on greater tolerability based on mCRC data shown at ESMO.”
Goldman Sachs reduced its 2025 sales estimate for Puma by 25% on a lower expected uptake in the metastatic setting and slower international adoption of Nerlynx.

Diminished Top-Line Outlook, Investment Seen As Overhangs On Clovis

With respect to Clovis, Choi projects risk to longer-term consensus estimates that have baked in meaningful growth driven from Rubraca’s use in prostate cancer and a frontline/combo use with PD-1s.
Following AstraZeneca plc AZN 0.7%– Merck & Co., Inc. MRK 0.49%‘s Lynparza PROfound prostate and PAOLA-1/PRIMA first-line maintenance ovarian data, Goldman reduced its peak Rubraca sales estimate by 25% on lower expected share in prostate and ovarian.
“Given the diminished topline outlook and continuing investment in rucaparib label expansion, we see the high cash burn and convertible debt burden continuing to be overhangs on the stock,” Choi said.
https://www.benzinga.com/analyst-ratings/analyst-color/19/10/14560896/goldman-recommends-selling-puma-biotech-clovis-oncology-cites-company-specific-comp

As docs ditch primary care to become hospitalists, MedPAC warns of shortage

• The number of hospitalists has increased nearly 50% between 2010 and 2017, according to a new report by the Medicare Payment Advisory Commission (MedPAC).
• Many primary care physicians (PCPs) are apparently abandoning that specialty in order to become hospitalists, who can expect better pay and more predictable work hours.
• Nevertheless, MedPAC concludes that access to primary care physicians by Medicare enrollees remains adequate — for now.

Hospitalists — physicians typically trained in internal medicine but who only attend to patients while they’re in hospitals — began populating the healthcare landscape in the 1990s. But only in the past decade have they really become a significant component of inpatient care.
According to the newly released MedPAC report, the number of hospitalists nationwide grew from 32,427 in 2010 to 48,407 in 2017. During that same period of time, the proportion of internal medicine residents who decided they wanted to become hospitalists grew from 9% to 19%.
This has put a damper on the growth of primary care physicians. According to new data from MedPAC, about one in five physicians it previously considered to be a PCP was actually a hospitalist. As a result, the number of PCPs practicing in 2017 were cut from 186,193 to 140,290, a drop of 25%. Therefore, growth in the number of PCPs was negligible — up less than 5,000 between 2010 and 2017. Their overall numbers actually contracted by 0.6% between 2016 and 2017, according to MedPAC.
Still, the commission does not see the glacial growth in primary care physicians over much of the past decade to be a cause for alarm. According to its surveys of Medicare beneficiaries, the “revised counts of PCPs do not change the conclusion that beneficiary access to care has remained adequate” and that access remains as good or better than the population of privately insured Americans.
According to MedPAC data, the number of encounters between each PCP and Medicare enrollee dropped from 4.1 in 2013 to 3.7 in 2017, a reduction of about 10%. It appears physician assistants and nurse practitioners are picking up the slack. Each Medicare beneficiary had 1.8 encounters with those clinicians in 2017, up from 1.1 in 2013, an increase of more than 60%. Encounters with specialist physicians and other practitioners barely budged during that time.
But that doesn’t mean MedPAC is unconcerned about the current trends with PCP growth. It concluded its report noting the “flat or declining trend in PCPs reinforces the Commission’s concern about (the) future pipeline.”
https://www.healthcaredive.com/news/medpac-warns-pipeline-concerns-more-primary-care-docs-become-hospitalists/564434/

Amag Pharma down on petition to remove Makena from U.S. market

AMAG Pharmaceuticals (AMAG -3.5%) is under modest pressure on below-average volume in apparent reaction to a petition filed with the FDA by the consumer advocacy group Public Citizen requesting the removal of Makena (hydroxyprogesterone caproate injection) from the U.S. market. The agency first approved the drug, under accelerated review status, in February 2011 to reduce the risk of preterm birth in at-risk pregnant women.

Public Citizen says that the drug’s effectiveness is unproven, citing the results from a 2018 Phase 3 study, PROLONG, that failed to show a statistically significant treatment benefit compared to placebo.

https://seekingalpha.com/news/3504556-amag-pharma-4-percent-petition-remove-makena-u-s-market

Polio-Like AFM in Kids: Is a Virus to Blame?

Acute flaccid myelitis (AFM) appears to have a viral etiology, but exactly which virus is causing the polio-like illness remains unknown, according to an analysis of pediatric cases reported to the CDC from 2015 to 2017.
Among 193 children with confirmed AFM, 79% reported a respiratory or febrile illness from 2 to 7 days before limb weakness set in, and the cases tended to cluster in the late summer or fall, reported Tracy Ayers, PhD, of the CDC in Atlanta, Georgia, and colleagues.

Although no single pathogen was identified as the driving force behind these cases, viral pathogens were found in almost half of patients (47%), with coxsackievirus A16 detected in the cerebrospinal fluid and serum of one patient and enterovirus D68 — the most predominant pathogen detected in the 2014 outbreak — detected in serum of another, they wrote in Pediatrics.
Together, these findings “strongly suggest a viral etiology, including [enteroviruses],” the authors stated.
AFM, a rare condition characterized by acute onset of focal limb weakness and spinal cord gray matter lesions, was classified as such during the 2014 outbreak, in which 120 individuals contracted the disorder from August through December of that year.
AFM made national news in 2018, with a total of 228 confirmed cases in 41 U.S. states, and four confirmed cases in 2019. The spike in reported cases in 2018 was so dramatic that the CDC announced they would start tracking AFM cases.
Importantly, 143 cases (74%) in this study occurred in 2016, “fitting within the larger epidemiological context of a biennial pattern of AFM outbreaks in the U.S. documented from 2014 to 2018,” wrote Samuel Dominguez, MD, PhD, of Children’s Hospital Colorado in Aurora, and colleagues, in an accompanying commentary.

However, myelitis in the grey matter of the spinal cord has been associated with poliovirus, non-polio enteroviruses, flaviviruses, and autoantibody conditions, Dominguez and colleagues noted.
“As such, a single etiology to explain all cases of the clinical syndrome of AFM at all times would not be expected,” they wrote.
Although enterovirus D68 appears to be the most likely driving force behind AFM, widespread enterovirus circulation makes it difficult to establish a causal relationship when collected from nonsterile sites, the authors reported.
“Serologic evidence of widespread infection with EV-D68, even before the first notable increase of AFM in 2014, suggests that if EV-D68 was the primary cause of AFM in 2014 and 2016, other factors must play a role in the development of this rare outcome,” they wrote.
AFM outbreaks need to be analyzed separately from the “background noise” of endemic AFM, Dominguez’s group wrote. Developing intrathecal enterovirus antibody tests for cerebrospinal fluid could also improve the ability to diagnose cases, they added.

All cases in this analysis were confirmed to be AFM by an expert panel of pediatricians and neurologists. The CDC requested sterile site and nonsterile-site specimens from each of the patients with confirmed AFM, which were tested for poliovirus, enteroviruses, rhinoviruses, and parechoviruses.
Overall, 305 incidents were reported from 43 states, of which 193 pediatric cases were confirmed. Children tended to be white (53%) and male (61%) with a median age of 6 years.
Across the 3-year study period, the majority of cases occurred from August through November (61%). In 2016 when the number of cases peaked, 88% of cases occurred from August through November, the authors reported.
At the time of limb weakness onset, one-third of patients had cranial nerve findings (33%), quadriplegia (36%), or required mechanical ventilation (33%), the authors reported. Over one-quarter presented with an altered mental status at this time (28%).
Poliovirus was not detected in any cases, and enterovirus D68 was found in about one-quarter of confirmed cases from 2015 through 2017 (24%), although it was also found in patients with misclassified AFM.

In CDC laboratories, 32 of 90 children with upper respiratory specimens were positive for enterovirus and rhinovirus (36%) and 15 of 77 kids with stool samples were positive for enterovirus and rhinovirus (19%), the authors reported.
Also, in non-CDC laboratories, 61 of 151 children who had respiratory specimens tested were positive for enterovirus and rhinovirus (46%) and 22 of 78 patients with stool samples were positive for enterovirus and rhinovirus (52%), they added.
The number of cases to be reported in the study period across the U.S. could be underestimated as AFM is not a nationally notifiable condition, and has a range of clinical severity, the authors reported. Also, enterovirus surveillance is limited by geographic variability and an inability to determine type-specific trends by year, they added.
“Enhanced AFM surveillance with focused analysis of distinct signals from outbreak periods is essential to targeting the development of specific therapeutics and preventive vaccines to combat this potentially devastating neurologic condition,” according to Dominguez and colleagues.

Ayers and co-authors disclosed no relevant relationships with industry.
Dominguez disclosed no relevant relationships with industry. A co-author disclosed support from the National Institute of Allergy and Infectious Diseases.

• Primary Source

  Pediatrics

  Source Reference: Ayers T, et al “Acute flaccid myelitis in the United States: 2015-2017” Pediatrics 2019; 144(5):e20191619.

• Secondary Source

  Pediatrics

  Source Reference: Messacar K, et al “Acute flaccid myelitis surveillance: a signal through the noise” Pediatrics 2019; 144(5): e20192492.

https://www.medpagetoday.com/pediatrics/generalpediatrics/82613

Red meat study sees major pushback

A recent guideline published in the Annals of Internal Medicine is getting some serious blowback from medical professionals. That’s because the guideline stated adults can continue eating red and processed meat without much harm to their health, arguing that previous research showing health harms from these products is weak.
The guideline went against decades of research pointing to negative health impacts from consumption of red and processed meat, including higher risks of cancer, heart disease and other ailments.
Now, some medical experts are slamming the guideline after many headlines claimed the study puts red meat back on the table for many Americans. One Harvard University professor, Walter Willett, called out the researchers for “ignorance” by not utilizing “major parts of the available evidence,” he told Market Watch. Other groups, including the American College of Cardiology, have spoken out about the study, stating it was “alarmed” by the “reckless” findings.
And there is another major problem with the study published in Annals: the researcher leading the study, Bradley Johnston, PhD, an epidemiologist at Dalhousie University in Canada, did not disclose he actually had ties to the meat industry. The study had more than a dozen researchers on its publication, and Johnstone was among those who declared no conflicts of interest. However, Johnstone has a history of these types of studies looking to discredit health guidelines––paid for by industry trade groups with interests in the matter, The New York Times reported.

Specifically, Johnstone was the author of a study that looked to undermine evidence that advised people to eat less sugar. An industry trade group supported by major companies like McDonald’s, Coca-Cola and Pepsi, International Life Sciences Institute, paid for that study, which was published in December 2016. A major beef processor, Cargill, was also a member of ILSI, and the group has been accused by the World Health Organization of trying to undermine public health interests, the NY Times reported.
The money for the sugar study was given in 2015, allowing Johnstone to report no conflicts of interest within the past three years for the most recent red meat guideline. ISLI is not listed as funding the recent red meat study.
Johnstone has also backtracked slightly on his previous sugar study, saying he was “naïve” to work on the sugar guidelines, the NY Times reported. Editors at the Annals of Internal Medicine have also defended their decision to publish the red and processed meat study.
https://www.healthexec.com/topics/leadership/red-meat-study-sees-major-pushback