Pharma's M&A 'firepower' wanes as biotech's waxes

A shifting merger and acquisition (M&A) landscape is making the deal environment more competitive and complex, finds an Ernst & Young report.

The lowdown: Ernst & Young consultants recently calculated a 'firepower' index to measure companies' capacity to fund transactions, based on their cash and equivalents, existing debt, debt capacity and market capitalization. Big pharma's firepower fell by 23% between 2006 and 2012, from around US$850 billion to US$650 billion, they found. Over the same period, big biotech's firepower rose by 61%, from around $100 billion to $160 billion, and specialty pharma's rose by 20%, from around $50 billion to $60 billion. As shown in the figure, these changes leave big pharma with a diminishing overall share of the M&A firepower.

“This shift in firepower — from big pharma to big biotech and specialty pharma — has powerful implications,” write the consultants. The number of companies that can pay up to $20 billion for an asset has swelled, and as a result “the relative increase in demand for assets in the US$5 billion–US$20 billion range could raise premiums ... for such targets”.

The full report — called “Closing the gap? Big pharma's growth challenge and implications for deals” — is available online at go.nature.com/caffqj.

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Figure 1

Redrawn from Ernst & Young report “Closing the gap? Big pharma's growth challenge and implications for deals”.

Breakthrough drug programme debuts

Vertex receives the first 'breakthrough drug' designations, and application volume is on the rise.

The lowdown: With the introduction of the US Food and Drug Administration Safety and Innovation Act (FDASIA) last summer, the FDA was committed to creating a 'breakthrough drug' programme to expedite the development and review of drugs for serious or life-threatening diseases that may offer substantial improvement over existing therapies, based on preliminary clinical evidence. “The programme is to really highlight drugs that are game changers,” said John Jenkins, Director of the Office of New Drugs at the FDA's Center for Drug Evaluation and Research. Sponsors who are granted the designation are entitled to increased interaction with the FDA to ensure the drug development programme is streamlined and clinical trials are optimized for efficiency.

The first beneficiaries of the programme are Vertex's ivacaftor and its combination of VX-809 plus ivacaftor, the company disclosed at the J. P. Morgan meeting in San Francisco. Ivacaftor is already approved for cystic fibrosis in patients with at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene, but the new designation could accelerate its approval into other patient groups as well.

As of mid-January, the agency had received a total of 16 applications for breakthrough drugs. Only the 2 from Vertex had been approved as Nature Reviews Drug Discovery went to press; 3 others had been rejected and 11 were still pending.

Draft guidance on the programme is due to be published by the end of 2013. But already, one key element is becoming clear: “[Companies] are really going to have to adjust their manufacturing plans,” says Jenkins. A company might hypothetically be able to complete the clinical trials needed to support an application in 1 year, he explained, but this is of little benefit if it does not plan to build a production plant for 3 years.

SGLT2 moves

J&J's canagliflozin wins an advisory vote, and Lilly/Boehringer Ingelheim's empagliflozin scores its first Phase III successes.

The lowdown: Sodium-dependent glucose co-transporter 2 (SGLT2) inhibitors, diabetes drugs that block glucose reabsorption in the kidneys, took a hit last year when the FDA rejected Bristol-Myers Squibb (BMS)/AstraZeneca's dapagliflozin and requested additional clinical data. The first-in-class agent was subsequently approved by the European Medicines Agency, but competitors could win the day in the United States.

Independent experts voted 10 to 5 in favour of approval of Johnson & Johnson (J&J)'s canagliflozin in an FDA advisory meeting in January, although experts raised questions about the lack of long-term safety data and the use of the drug in patients with renal failure. Panellists voted 9 to 6 against approval of dapagliflozin when it was up for review in 2011, by contrast, noting possible breast and bladder cancer risks with the drug. The FDA is due to rule on canagliflozin by the end of March.

Barclays capital analyst Anthony Butler and his colleagues note that sales expectations for the drug are low, at around $800 million in peak sales.

Shortly before the panel meeting, Boehringer Ingelheim and Lilly released top-line Phase III data for their SGLT2 inhibitor, empagliflozin. The drug met its primary end point — change in haemoglobin A1c from baseline compared to placebo — in four trials, in which the drug was tested as a monotherapy or as an adjunct therapy in different diabetes patient populations. Empagliflozin “shows comparable efficacy and safety to dapagliflozin”, Barclays analysts wrote. Boehringer Ingelheim and Lilly anticipate filing the drug later this year in both the United States and European Union.

BMS and AstraZeneca plan to resubmit their dapagliflozin by mid-2013.