Bioverativ Inc (NASDAQ:BIVV), spun out of Biogen Inc. (NASDAQ:BIIB) less than a year ago, drew an $11.6 billion bid from Sanofi SA (ADR) (NYSE:SNY) on Jan. 22, a 64% premium over its closing price on Jan. 19.
The bid, $105 per share, could be just the start of a shopping bonanza as big pharma companies seek to grow their drug pipelines through acquisitions of smaller biotech companies.
Even before the deal was announced, analysts were looking for other companies that might draw similar interest from larger drug companies. The first names to fall out were companies that have already drawn rumored interest, like Juno Therapeutics Inc (NASDAQ:JUNO), Jounce Therapeutics Inc (NASDAQ:JNCE) and Sorrento Therapeutics Inc. (NASDAQ:SRNE). And we already have a winner!
The danger, that these buyouts may not pay off, is not something the buyers want to hear about right now, but investors should.
CAR-T Before the Horse
Most of the candidates for acquisition are working on immunotherapies against cancer, replacing T-cells that no longer function with new cells customized to the genetics of the patient.
Chimeric Antigen Receptor Therapy (CAR-T) involves transferring new T-cells into patients which are engineered to be compatible with the patient’s existing immune system but fight specific types of cancer. So far only two therapies have been approved, last-ditch efforts in advanced cancers, but the approach looks promising.
Juno Therapeutics took the wildest ride last week, rising from $45 per share to $66 per share on Jan. 17, then falling over the next three trading days until word came out Jan. 22 that Celgene Corporation (NASDAQ:CELG) would indeed pay $9 billion for the portion of the company it does not already own.
That $9 billion price comes to $87 per share, and Juno was over $86 per share in pre-market trading after the announcement.
The danger, as I wrote on Jan. 17, is that CAR-T is a risky therapy. You’re using chemotherapy to create an environment in which new T-cells will be accepted. Patients can die from that chemotherapy, and lawyers are standing by for the bereaved families.
Attention is already turning to Jounce, up almost 12% on January 19, and Sorrento, up 68% so far in 2018. Both are working on immunotherapies, in different ways. Jounce has a monoclonal antibody called JTX-2011 in a Phase II trial. Sorrento is working on CAR-T as well as biosimilars for existing drugs.
It is this last point that should slow the gold rush. As more cures come to market, competition should drive prices down. Already, pharmacy benefit managers controlled by insurers like United HealthGroup Inc (NYSE:UNH) and Aetna Inc (NYSE:AET), which is being acquired by CVS Health Corp (NYSE:CVS), are gearing up to fight efforts to price drugs based on the expected value of a patient’s life.
The Costs of Healthcare
It is unsustainable to expect an unlimited draw from a limited pool of funds.
Healthcare funds are necessarily limited, and drug deals are being done today on the assumption that a single compound, curing a single disease, should entitle its maker to a substantial portion of that patient’s lifetime earnings. People get sick more than once during their lives.
A coalition of major hospital groups are already gearing up to fight high drug prices, making their own versions of generic drugs that companies have turned into monopolies, with monopoly profits.
As multiple cures appear for specific conditions, the buyers are going to gain some market power, and the prices paid for the producers of some of these miracle cures may appear, in retrospect, to have been exorbitant.
But that’s a story for another day.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.