Pfizer’s Biohaven deal may open era of ‘pharma M&A’

With biotech stocks in the dumps, investors have been hoping for deals to revive the sector, but lately merger-and-acquisition activity has been anemic. Finally, Pfizer announced it will buy Biohaven Pharmaceutical Holding Company Ltd, a nine-year-old company that makes treatments for migraines, for $11.6 billion.
The deal, which gives Pfizer an oral drug already on the market and a nasal spray for migraines that is nearing commercialisation, puts some of its gargantuan store of Covid-19 cash to good use. Perhaps it also will be a harbinger of more biotech dealmaking ahead.
Shares of Pfizer rose as much as 2.6% before pulling back some, signalling that investors are optimistic that the deal could be the first of many in the sector. Biohaven’s shares were up 70% to $142. Pfizer, which bought a 2.6% stake in the biotech in November, is offering $148.50 a share for the rest of the company.
Big pharma companies generally are sitting on so much cash, they could buy up the entire small- to mid-cap biotech sector, according to Jefferies analyst Michael Yee. That’s in part because companies such as Pfizer, Moderna, Regeneron and Gilead Sciences have earned so much money selling Covid-19 vaccines and antivirals.
On the flip side of the M&A equation, biotech stocks have suddenly become much cheaper. A recent Bloomberg analysis found that nearly 200 biotech companies were trading below cash; their reserves are worth more than their market value. And that was before, when the biotech index fell to one of its lowest points in the past decade.
This would normally create the perfect environment for a pharma feeding frenzy. But there’s an ongoing problem: a mismatch between what many of these biotech firms are selling — often early-stage assets — and what many big pharma companies want to buy — already marketed or soon-to-be-marketed products. Another mismatch, as my colleague Chris Hughes noted at the start of the year, has been the difference between what biotech firms believe they are worth and what big pharma and the market think.
Some realism might finally be setting in. In
the past two months, a stream of public and private biotech firms have announced layoffs, and one company, microbiome-focused Kaleido Biosciences, has shut down.
Last month, Checkmate Pharmaceuticals, which has a cancer immunotherapy in mid-stage clinical trials, sold itself to Regeneron for $250 million, a low price that seemed to reflect its dwindling options.
Even as biotech companies become more affordable, it’s critical that big pharma companies make only the most prudent additions to their drug pipelines. Investors might be frustrated by the lack of activity in the sector, particularly for the companies with Covid windfalls, but they’ll also be unhappy if companies overpay for shaky science.
“Biotech has this toxic situation right now where when firms win really big, we demand that they grow and often push them to make very expensive mistakes in the search for this growth,” says Craig Garthwaite, director of the Program on Healthcare at Northwestern University’s Kellogg School of Management. A case in point is Gilead, which has been overpaying for assets in its quest to become a leader in oncology.
Pfizer, with the most cash at its disposal, seems to be resisting those pressures. The company plans to add $25 billion in “external science” by 2030. But on a call with investors, Aamir Malik, Pfizer’s chief business innovation officer, reiterated a message that Albert Bourla, the chief executive officer, has voiced in recent months: The company is looking only for assets that strengthen existing therapeutic areas, “not deals where the primary driver is cost synergy.”
Biohaven puts a dent in those aspirations, as the company’s migraine portfolio could add more than $6 billion in annual revenues. A smaller deal announced last month for ReViral, which is developing antivirals for respiratory syncytial virus, is expected to account for another $1.5 billion of the external-science target.

—Bloomberg

Lisa Jarvis is a Bloomberg Opinion columnist covering biotech, health care and the pharmaceutical industry. Previously, she was executive editor of Chemical & Engineering News