Ep. 10 15JUN2020 

Jeff Cranmer: Welcome to BioCentury This Week. I'm Jeff Cranmer, Executive Editor, BioCentury and I'm joined by my colleagues  

[00:00:07]Simone Fishburn: Simone Fishburn, Editor in Chief  

[00:00:09]Steve Usdin: Steve Usdin, Washington Editor  

[00:00:11]Amanda Micklus: Amanda Micklus, Senior Biopharma Analyst 

[00:00:14]Jeff Cranmer: Amanda will be discussing her analysis of M&A momentum in the face of the COVID-19 crisis, a little later in the podcast. But, first let's touch on FDA, which moments ago revoked the Emergency Use Authorization for hydroxychloroquine. Steve, you've been following this closely over the past few weeks. Are you surprised?  

[00:00:37] Steve Usdin: I'm not sure that I'm surprised.  I think that it was definitely the right move for them to do it. A lot of people would say that it was past due. 

[00:00:45]Simone Fishburn: Steve, what impact do you think that's going to have? I mean, there's a whole bunch of trials in progress and still recruiting for chloroquine and hydroxychloroquine. What impact do you think, if any, the withdrawal of the EUA is going to have on them?  

[00:00:59]Steve Usdin: Well, technically it doesn't have to have any effect on them. 

[00:01:05] There's no reason why those trials couldn't continue, but I think that it's going to be very difficult to enroll anybody in a trial of either of those drugs now, when FDA has come out and said that it's very unlikely that they're going to work. And I think that IRBs are going to rethink whether it's even appropriate to allow those trials to continue. 

[00:01:26]Jeff Cranmer: What is the early approval of hydroxychloroquine, or not approval, but authorization, important distinction there, and then FDA now revoking it. What can we expect for the first vaccines that might come before FDA?  

[00:01:43] Steve Usdin: Well, you know, there's a huge amount of angst right now among senior officials in the government and FDA, CDC and other agencies and former government officials about what FDA is going to do in terms of granting emergency authorization to COVID-19 vaccines. The concern is that as soon as there's a clear efficacy signal, FDA will come under immense political pressure to authorize widespread use of these vaccines. And they'll do that before there is sufficient safety data to ensure that there are aren't unexpected or rare safety events. 

[00:02:23] That's a huge concern because these vaccines are going to be given to potentially millions, tens of millions, maybe even hundreds of millions of people, and rare safety events take some time to become clear and they take large amounts of exposure before you can know that they're likely to happen and to characterize them. So premature authorization of widespread use of a vaccine could really, really pose serious public health consequences. And if there are adverse events that people don't expect, it could create a tremendous loss of confidence, not only in COVID-19 vaccines, but in vaccines in general. So, I think there's a real concern that this could be really disastrous.  

[00:03:10] It's one thing to withdraw Emergency Use Authorization for a therapeutic like hydroxychloroquine. I think it's a completely different thing to withdraw Emergency Use Authorization for a vaccine, because a therapeutic, like hydroxychloroquine, is going to be used principally for use in hospitalized patients who were under a doctor's care. Those are sick patients, and you're giving them something with the hope that it's going to make them better. Vaccines are given to large numbers of healthy people and the withdrawal of an Emergency Use Authorization for a vaccine could create chaos. I think that that's something that FDA is going to have to be cognizant of. And my hope is that all of the talk about very, very early authorizations of COVID-19 vaccines are being motivated by political concerns that will dissipate after the election.  

[00:04:09] Jeff Cranmer: Sounds good there, Steve. Another thing I know you've been tracking closely is the ACTIV consortium. Now ACTIV, stands for Accelerating COVID-19 Therapeutic Interventions and Vaccines. It's a public-private partnership, that's pulling U.S. Government resources and resources of biopharmas around the world to discover and develop drugs and vaccines.  

[00:04:36] They've just selected their first wave of therapies. Steve, what did they pick? 

[00:04:41]Steve Usdin: So basically they've decided that they're gonna start four master protocols this summer. Two in late June and two in July. One of the master protocols that's going to start this summer focuses on immune modulator drugs, and then a second one will focus on anti-coagulants and there's a possibility for us that the two will be combined at some point and they'll have combination trials of immune modulators and anti-coagulants. And then two other master protocols they're starting this summer are for monoclonal antibodies they could be used either as prophylaxis to prevent people from getting infection, or as therapies for hospitalized patients to help them get over the infections more quickly. 

[00:05:23]Simone Fishburn: So, I actually think that there's a couple of really interesting things that you uncovered here, Steve. One, of course, everything here is a master protocol. I think it's going to be interesting to watch how much master protocols really make a difference in developing therapies for COVID. Maybe that'll catch on afterwards. 

[00:05:43]And then, the other thing is the choice of their targets, because they haven't actually gone through the antivirals. I'm assuming that they believe that that's maybe -- and, you know -- underway by enough other companies that are targeting immune modulators. And this is a really important part of the disease pathology. People should keep their eye out for these. 

[00:06:04] On the one hand it's TNFs that they're looking for -- CTLA-4, CCR2, CCR5 -- and other inflammatory cytokines, like IL-6. These are behind the inflammation that leads to ARDS, the damage that it actually caused later in the disease and that is actually often responsible for death. And so, antivirals is one thing, but actually looking at the host immune system is really important. And I think it's interesting that they've gone and put so much emphasis on that, you see the chemokine receptors are also implicated in runaway inflammation and CTLA4 is an immune checkpoint protein that people most probably have heard of for cancer, it puts a break on the T cell response and that's what clears the virus. I think that's actually really interesting that they went in that direction. And we should be seeing more and more trials coming out with that. But there's certainly an urgency. And of course they are also testing a couple of neutralizing and monoclonal antibodies against the virus. We don't know the molecules if I understand correctly, Steve, but they've got some interesting targets there.  

[00:07:07]Steve Usdin: Well, one of the things actually that's surprising, honestly, and, I think a little bit disappointing about the way that ACTIV is organizing itself is that there isn't very much transparency. The only reason that we know what the targets are and the fact that they're doing these master protocols at all, is because somebody leaked documents to me that outlined what their strategy is. They still haven't publicly disclosed what they're going to do, what their rationale or even what their criteria is for selecting the agents that they're moving forward. 

[00:07:38] I think that the other thing that they have discussed, and I think that's going to be very important about this is that these master protocols are going to be done at a very large scale and I think they're going to be done efficiently. They're going to avoid the problems that we're seeing in the United States and around the world where there's just a ton of underpowered trials of marginal agents that are crowding out the larger trials that need to be done of the most promising agents. So, ACTIV in a way, they're trying to organize the innovation ecosystem to produce quick results of the things that they think are the most promising.  

[00:08:17] Jeff Cranmer: Let's change gears now and turn to Amanda, who's been patiently waiting for her chance to jump in here. Last week she completed an analysis of M&A momentum in the face of COVID-19. So she looked at, public company acquisitions this year and compared it with, M&A over the last 10 years. 

[00:08:39]Now, Amanda, one thing that I think you saw was that there are some signs that a new dip could be forming for public biopharma acquisitions. Both in terms of deal value and the number of deals. How did you arrive at that take away?  

[00:08:57]Amanda Micklus: We did an analysis on acquisitions going back to 2009 immediately after the financial crisis, so that we could take a pulse of the momentum leading up to another crisis, the crisis that we're in, which is COVID-19. And when looking at the data, we noticed that there are two different four year windows where the total deal value has gradually increased and those two windows are 2012 to 2015. And then again in 2016 to 2019. So, as part of this project, we dug a little bit deeper into both of those windows to see what were the similarities and what were the differences? But just going back to your question about this, potential trial in 2020, if we just look at the most recent four year window, which was 2016 to 2019, the median valuation over that four year time period is $28 billion deal value, but in the last two full years, 2018 and 2019, the total acquisition value for both of those years was actually $50 billion. 

[00:10:13] So, it's quite a high benchmark. So, if 2020 wants to maintain that momentum, the full year total we'll need another, $42 billion. So right now we only have $8 billion in total deal value in 2020. So, if we want to reach that momentum that we've seen for the past two years, we're going to need quite a bit more in deal value. 

[00:10:39] And as far as the median value, as I said, the median value for that most recent four year time period is $28 billion. And, currently, we'll need another $20 billion to even reach the median value. So, what we could see, as you pointed out is a new trial, but it's still early to tell, because this data was, through may of 2020. 

[00:11:03] So there's still quite a few months left in the year to meet that momentum.  

[00:11:07] Simone Fishburn: Right, we'd need a fairly sort of active second half of the year, because we're well under halfway the benchmark. But one thing, Amanda, maybe you could just dig into, because you saw a different behavior actually on premiums, the median premiums. 

[00:11:21]Amanda Micklus: Yeah, so as part of this analysis, we wanted to see what were the similarities and differences in these two, four year windows that we noticed. And what we found was that in the earlier time period, from 2012 to 2015, there was a median premium on public M&A of 45%. And then, when we look at that second window, which is  2016 to 2019, that medium premium actually jumped, more than 20%. So it jumped up to a 68% and, even more in, 2020 alone the medium premium is already above the overall median. So, the median premium just for this year is 96%. It's important to keep in mind though that there's five deals in this data set of public company acquisitions. So it's a smaller data set. And, four of those five deals had, premiums in the range of 70% to 145%. So, it's skewing a little higher. But as far as, premiums on public M&A, it looks to be, trending upward.  

[00:12:35] Jeff Cranmer: What's driving that, Amanda?  

[00:12:38] Amanda Micklus: So another slice of data that we looked at that may be driving that, Is the stage of the lead asset at the time of the acquisition. 

[00:12:47] And what may be occurring is that there's a growing appetite for clinical assets. So, we looked at, the volume of deals done over this time period and split it into the proportion of whether or not the lead asset was in pre-clinical studies, clinical trials, or if it was marketed and what we found was that proportion of volume of acquisitions of clinical companies has actually risen since 2013. And even more, we also looked at the median premiums on the deals split out by the stage at deal signing. And what we found was that the companies that had clinical compounds or programs have gotten higher premiums, actually, than companies with marketed or approved products. So, one of the drivers of that maybe that those higher premiums that we're seeing are companies wanting to acquire these clinical stage, products, more so.  

[00:13:54] Jeff Cranmer: Do you think the appetite for this can be maintained this year? 

[00:13:59] Amanda Micklus: So, right now, we've seen an increase in clinical stage, our clinical company acquisitions since 2015 and the median deal volume over that time period was seven deals. And in 2020, so far, we've only had one deal.  

[00:14:18] Simone Fishburn: You mean like clinical company, right? 

[00:14:20]Amanda Micklus: Yes. So, only one of those clinical deals so far? So if we want to maintain that, or reach that median we'd need six more deals, but, in 2019 there were nine clinical acquisitions and we only have one in 2020. So, we'll need at least eight more deals to maintain that momentum of clinical acquisitions and again, as Simone pointed out, we're still in the early part of the year right now and I think that could be perfectly achievable.  

[00:14:49] Simone Fishburn: I think a couple more interesting things that came out of Amanda's research, first of all, the peak years were 2015 and 2019, I don't need to remind you all that those were both pre-election years in the U S of course. Actually, the numbers with those two windows that Amanda described were really similar, really interesting, how many deals and what valuations and so on. But, one of the differences we saw is that, in the second window, so leading up to 2019 there were more deals. So, the number of billion dollar deals or billion plus dollar deals was pretty similar, but of the smaller deals, they skewed higher. So for deals under a billion dollars, leading up to 2019, there were six deals in that class, with an average of $591 million. Which is about 30% of the total, the first window had had fewer of those. 

[00:15:42] So, I think talking about making those numbers, it'll be interesting. We may have more deals, that are still in the sub billion dollar category, but, quite substantial. And you know, may get the numbers there. So, that was an interesting thing and I think another point that Amanda brought out is she overlaid the pattern of values against the S&P 500, but against the NBI, the biotech indices. And while they did go up with the same sort of two window pattern as the NBI, you know, in the first window deal values rose 600%, where the NBI rose 280%. The second deal values rose 234% where the NBI rose 53%. So, it is sort of even out performing it isn't just being dragged along with the market, deals are being driven. 

[00:16:33] And as Amanda pointed out in the second window, that was driven by companies that had reached clinical development. So we will be watching that through this year to see if that's a trend that continues, or if the industry is sort of pressing reset and starting a new baseline that we'll be measuring. 

[00:16:52]Jeff Cranmer: It sounds like the BD folks out there need to get busy if they're going to save 2020. That's all we have time for this week. Thanks to Amanda, Simone and Steve.  

[00:17:03] All of BioCentury's coverage of the Coronavirus crisis is available at biocentury.com/coronavirus. And all of our podcasts are available at our website on Spotify, Stitcher, Apple and Google.