BIO-Europe Biopharma Deals and Financing eBook by Informa Pharma Intelligence

BIO-Europe Biopharma Deals and Financing eBook

Contents Introduction

How Has COVID-19 Influenced Investment Trends?

Biopharma Deal Value, Volume Tumbled Substantially During First Half

Interview: Why Biotech Companies Should Be Confident About Deals Despite Coronavirus

Newly Launched Eir Ventures To Target ‘Early Nordic Opportunities’

IPO Update: High-Flying Biopharma IPOs Average 77.1% Return Through Q2

Boehringer’s Philosophy Of Deal-Making: A Conversation With Ioannis Sapountzis And Scott DeWire

Back To Business: Deal-Making On The Other Side Of COVID-19

Biopharmas Manage To Deal During Pandemic

Is Disruption Just A Young Pup’s Game?

2 / September 2020

Introduction Imagine describing the global situation in 2020 to investors and executives in the pharma and biotech field in 2019. It would probably take them a while to get over their incredulity, but if they could bring themselves to envisage the scale of disruption and risk inflicted on human society, business, economics and health the whole world over, I bet they would also anticipate a major impact on biopharma deal-making and financing. With that in mind, the resilience of biotechnology and associated activities is quite remarkable. It has not only been those engaged in finding treatments, preventions and diagnostics for the novel coronavirus that have been active: companies across the spectrum â&#x20AC;&#x201C; with the usual strong showing from oncology â&#x20AC;&#x201C; have secured lucrative partnership deals and completed IPOs. Admittedly, M&A values have declined, but comparisons are skewed by 2019 mega-deals, and deal volumes have taken a much smaller dent. Meanwhile public market listings are flourishing, and VC fundraising in the first half of 2020 almost matched the full-year total for 2019. This selection of 2020 coverage from Scrip and In Vivo provides rich insights into the attitudes and trends around deals and financing, two major engines of innovation and growth for the biopharma universe, in this most extraordinary pandemic period. Eleanor Malone Editor In Chief, Europe | Scrip, Pink Sheet, In Vivo, Generics Bulletin Informa Pharma Intelligence

3 / September 2020

ÂŠ Informa UK Ltd 2020 (Unauthorized photocopying prohibited.)

How Has COVID-19 Influenced Investment Trends?

BY LUCIE ELLIS Executive Summary Health care funding in the first half of 2020 reached $10.4bn, according to a mid-year report from Silicon Valley Bank, nearly matching 2019’s full-year record. As well as the COVID-19 pandemic though, other global events, such as the US election, could become distractions in the second half of the year.

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The first half of 2020 has been unprecedented in more ways than one. The first six months produced the largest two-quarter investment period ever for venture-backed health care companies, according to a recent report from Silicon Valley Bank (SVB). Biopharma saw increased investment versus 1H 2019, “despite financial market turbulence and negative impacts to many companies due to COVID-19,” SVB said in its Mid-Year Report 2020, Health Care Investments And Exits. “A flurry of venture capital (VC) fundraising in 1H 2020 nearly eclipsed 2019’s full-year record, building on a three-year trend of increased allocation to health care,” said SVB analysts (see Exhibit 1). They also noted a number of VCs focused on biopharma had closed new funds in the first half of 2020, “on average 30% larger than their last funds.” Notable VC firms that closed new funds between January and June 2020 include: Flagship Pioneering, Deerfield, Arch Venture Partners, Atlas Venture and Lightspeed.

Exhibit 1. Health Care Venture Capital Fundraising Year-On-Year

Source: Silicon Valley Bank Nooman Haque, managing director of life sciences and healthcare at SVB’s UK branch, told In Vivo that the year so far was a tale of two quarters, where Q1 seemed ordinary and Q2 had more activity. He said that while some people date the COVID-19 pandemic from when regions outside of China started to lock down in March, investors in health care had visibility of what was coming. He said specialist investors and health care companies were likely preparing earlier, which could be a factor in the high number of investments in the first half of the year. “I don’t want to overstate the impact of COVID-19 on that, but clearly, that’s been a large part of the story.” He said companies had pivoted on their plans for 2020, sensing possible issues in the capital markets later in the year, and likely bringing forward funding rounds where possible. Aside from the pandemic though, Haque said

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investors in general, were being pushed towards “riskier” assets and more were looking to biotech. “They’re losing money if they invest in so called ‘safe’ assets, because of a zero or negative yield environment in some countries. This has pushed investors out onto the risk spectrum.” Haque added that biotech and healthtech were not as “fringe” investment sectors anymore, which was also having an overall effect on the industry. “Biotechnology is in the news now. I haven’t been in an Uber for a while, but I have in the past had a conversation about CRISPR with an Uber driver! When things like that become more mainstream, it is a sign that biotech is not a fringe asset class anymore.” Haque said there had been a cultural shift in the last few years, whereby early-stage biotech had become a more mainstream investment opportunity.

In 2020 so far, investment dollars have remained stable, with more deals than 1H 2019. Still, SVB is predicting a trend of more, smaller series A rounds in 2020. “While we continue to see many $50m+ series A deals, a number of venture firms have recently launched collaborations to help academic labs transition from science projects to venture endeavors. We anticipate this will lead to more small seed/series A investments by traditional venture investors in 2020,” the SVB report noted. What’s Trending? While 1H 2020 had been extremely active for private financing rounds, Haque noted that this would likely slow in the second half.

However, 2020 should still end up as a record year for health care investing. He highlighted the upcoming US election, and ongoing Brexit procedures in the UK and Europe as just two macro events that could slow financing activities in the second half. “Elections are always distracting to a certain extent.” For start-ups in the first half, oncology remained the top target with more series A rounds for companies active in cancer R&D than any other indication or technology (see Exhibit 2). “Oncology always tops tables, but CNS has seen a resurgence this year,” Haque said, adding that “anti-infectives have bounced this year and been quite hot.”

Exhibit 2. Series A Rounds in 1H 2020 By Top Indications

Source: Silicon Valley Bank Healthtech investments remained steady in the first half of 2020 but showed an 18% increase in deals versus the same period in 2019. In a change of events, alternative care, which includes companies providing virtual care during COVID-19, 6 / September 2020

raised more than $2bn in 1H 2020, leading all healthtech subsectors. Haque said the key question around virtual care technologies was how much of it would stick as © Informa UK Ltd 2020 (Unauthorized photocopying prohibited.)

the pandemic eased. But he is optimistic. “Over the last few years, a lot of these companies have had the opportunity to test their platforms on early adopters. They have been able to iron out a lot of the wrinkles. So, it is almost perfect timing because the platforms are resilient, and they work quite well.” He added that the non-early adopters had been pushed to engage with digital health technologies because of COVID-19. “I think, on the whole, the experience has been positive. If companies can get the economic model right, I think a lot of patients it will stick to digital experiences. Clearly some people will go back to wanting to physically see their GP if they can, but there will continue to be restrictions for some time.” Haque also said, “I can’t imagine going back anytime soon to the days of crowded GP waiting

7 / September 2020

rooms full of people infecting each other whilst they’re waiting to see someone to help them get better.” Looking ahead at the rest of 2020, he noted, “I think we could all be surprised by financing activity as we try to understand the effect of companies’ accelerated plans. A lot of companies now have two to three years of cash, which suggests they won’t need to come to the market again for quite some time.” Haque said over the next six months he would be keeping an eye on a few key metrics: clinical updates and plans for follow-on funding rounds from later-stage companies, as well as start-ups and the sentiment for new business ventures in light of the pandemic. These metrics will give clues to the future health of the biotech and healthtech sectors.

Biopharma Deal Value, Volume Tumbled Substantially During First Half

BY JOSEPH HAAS Executive Summary A PwC analysis finds biopharma aggregate deal value declined 87% during the first half compared to the second half of 2018; deal volume dropped 17%. The pandemic was a cause, but not the only factor.

The biopharmaceutical industry has fared better than many others during the COVID-19 pandemic, but it hasn’t escaped disruption. A new PwC analysis shows that deal-making decreased precipitously during the first six months of 2020, both by aggregate value and volume. In a survey of deals valued at $15m or higher, PwC analysts found just $3.3bn in total big pharma deal value during the second quarter of 2020, even though the total number of deals rose from 19 during the first quarter to 22 during the second. Aggregate deal value in big pharma during the quarter was the lowest since the first quarter of 2018, the firm’s mid-year 2020 Global Pharma & Life Sciences Deals Insights report notes. “Key industry players are focusing resources internally right now and not on inorganic growth,” PwC stated. “As many companies redirect

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resources towards developing vaccines and treatments for COVID 19, they have also begun planning for how to respond to disruptions in supply chains and maximizing the potential of their limited capital resources.” In addition to uncertainty caused by the pandemic, it cited a need by big pharma to digest the large volume of deals made in prior years. There has been significant consolidation in big pharma in recent years – highlighted in 2019 by the Bristol-Myers Squibb Company/ Celgene Corporation and AbbVie Inc./Allergan plc mergers – and PwC anticipates that large pharma companies will seek smaller deals and divestiture opportunities as they attempt to manage their portfolios in a volatile business environment. Divestment activity also will be driven by a continued emphasis on narrower therapeutic focus and core competencies, the report asserts. Across the four life sciences sectors – pharma, biotech, medical devices and “other,” which includes over-the-counter medicines, animal health and contract manufacturing and research – PwC recorded $35bn in aggregate deal value during the first half of 2020, down 87.2% from the second half of 2019. They counted 99 total deals during the six-month span, with volume down 16.8% from second-half 2019. Karen Young, PwC’s US pharmaceutical and life sciences assurance leader and one of the report authors, said other factors such as general economic uncertainty and the upheaval of an election year were factors in these declines. PwC has predicted some decline in life science sector deal-making coming into 2020, she added, since 2019 saw a substantial amount of large deals valued at $5bn or more. (Also see “Two MegaMergers Were Just The Highlights Of A Year Of Major Deals” - Scrip, 15 Jan, 2020.)

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But not all prognostications expected a dealmaking downturn in 2020. EY forecast $300bn in deal-making this year, with an emphasis on five therapeutic areas: oncology; cardiovascular and metabolic disease; immunology, infectious disease; and central nervous system disorders. (Also see “2020 Could Spell The End Of MegaMergers, For Now” - In Vivo, 19 Feb, 2020.) KPMG anticipated a targeted deal-making environment in 2020, with heightened focus on cell and gene therapies as well as on personalized medicine. “Certainly, the pandemic is one cause of derailing the deal activity during the period that we’re in,” she told Scrip. “I think companies are focused on trying to figure out what the timing is and what the long-term impact is from an economic perspective. We predicted as we came into the new year that we would see a decline in deals, [but] it’s pretty significant at this point.” Only two deals with values of $5bn or greater were made during the first half of 2020, Young pointed out, and both happened during the first quarter. These included Gilead Sciences, Inc.’s buyout of Forty Seven Inc., valued at $5bn, and a non-pharma acquisition of Qiagen NV by Thermo Fisher Scientific, valued at $11.8bn. (Also see “Gilead Calls Forty Seven Buyout Complementary To Kite, Other IO Efforts” - Scrip, 2 Mar, 2020.) and (Also see “Thermo Fisher Scientific Announces $11.5Bn Buyout Of Qiagen” - Medtech Insight, 6 Mar, 2020.) There were four deals valued at $5bn or greater during the last six months of 2019, the report notes. Full year 2019 saw seven M&A deals with valuation above $5bn, including the Bristol/Celgene and AbbVie/Allergan mergers, valued at $74bn and $63bn, respectively. (Also see “BioMarin’s Hemophilia Gene Therapy Still Works After Four Years, But Effects Tail Off” - Scrip, 18 Jun, 2020.)

and (Also see “AbbVie Pounces On Chance To Buy Revenues In $63bn Mega-Deal For Allergan” Scrip, 25 Jun, 2019.) The third most expensive deal of the year was an asset acquisition, not a merger: Amgen, Inc. paid $13.4bn to buy the autoimmune drug Otezla (apremilast) from Celgene in August, a divestiture required for the Bristol/Celgene combination. (Also see “Amgen’s $13.4bn Otezla Buy Helps Bristol/Celgene Merger Close By YearEnd” - Scrip, 26 Aug, 2019.)

The pandemic itself drove hectic deal-making in its early weeks, as companies partnered to develop vaccine and therapeutic candidates and set up supply and distribution channels for whatever COVID-19 products eventually emerged. (Also see “Deal Watch: Coronavirus Collaborations Reflect Industry’s Full Press Pandemic Response” - Scrip, 27 Mar, 2020.) Informa’s Biomedtracker lists 104 partnerships driven fully or partially by the pandemic between 24 February and 27 July.

The Gilead takeout of Forty Seven would only be the eighth largest biopharma M&A deal if it occurred during 2019.

During the virtual BIO 2020 meeting, biopharma deal-making executives said that while the COVID-19 pandemic had changed some of the ways deals were negotiated, deals were still getting done, both ones driven by the pandemic and by other rationales. (Also see “Biopharmas Manage To Deal During Pandemic” - Scrip, 9 Jun, 2020.) Some of the changes that proved to be time- and resource-efficient, such as fewer in-person meetings, may be here to stay, the speakers suggested.

Tracking quarterly deal-making data, PwC observed 49 life sciences deals during the first quarter of 2020, with an aggregate value of $24.4bn. But that value dropped significantly during the second quarter, when 50 deals equated to a total value of $10.6bn.

Source: PwC Analysis

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PwC anticipates an increased appetite for M&A activity during the second half of 2020, however, as companies address challenges ranging from changing supply chain realities and needs, questions about availability of capital, and regulatory and political uncertainty. Companies may be gradually getting back to thinking about the strategies they were planning before the pandemic hit, Young said. “We think that there’s still a lot of activity going on behind the scenes, companies are evaluating and prioritizing programs as well as prioritizing resources in order to decide to either take a little longer and see how they come through this or take action when the value gets to the right level,” she explained. “Organizations are continuing to watch the market, and we think activity will start to pick up as people get more comfortable with the timeline, what the economy is going to look like, and whether a vaccine will start to open up the market as well.” One driver of deal-making, according to PwC, will be a continuing need for biopharma companies to make divestitures both to narrow their therapeutic focus and also to obtain cash flow. The COVID-19 pandemic may only have increased the need for some companies to prioritize their

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operations and focus on a more limited R&D effort, the report asserts. “It’s a need to prioritize resources,” Young pointed out. “We’d say divestitures allow that opportunity to get more capital to an organization to spend elsewhere and to be more comfortable in the current marketplace about how to manage through this. There are other costs and expenditures that are putting pressure on development as well as pressure on being innovative and proactive in the market.” Private equity firms have a vital role to play in the divestiture arena, and these largely stayed on the sidelines during the first six months of this year. Young attributed that somewhat to private equity waiting for more favorable valuation, with the pandemic possibly making some companies more eager to sell off assets. Looking at pharma and biotech separately, PwC reports that biotech saw a steep drop-off in deal volume (about 57%) during the first half of 2020, while deal volume remained level for pharma. Both sectors saw aggregate deal valuation plummet, however. Deal values declined by 56% in the pharma sector and by 74% in biotech.

Source: PwC Analysis Big pharma, including specialty and generic drug firms, likely will seek out smaller deals during the second half of 2020, the report predicts, with companies actively managing their portfolios in a fluctuating business environment. Specialty and generic firms will continue to feel pressure to increase their product portfolios via deal-making, PwC noted, but larger deals including major M&A may be difficult as companies want to preserve capital in an uncertain environment. High valuations have been a perennial compliant and remain a limiting factor in biotech M&A, Young said. The sector saw valuations decrease early during the pandemic but then recover quickly. (Also see “Mid-Sized Pharmas Mostly Seeing Valuations Rise During Pandemic” - Scrip, 22 Apr, 2020.) Capital has also been easy to come

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by, and initial public offerings have been robust. (Also see “Interview: Why Biotech Companies Should Be Confident About Deals Despite Coronavirus” - Scrip, 14 Jul, 2020.) Differences on valuation between would-be buyers and sellers remain a problem going forward, she added. “Underlying assets within those biotechs have been strong, driving high valuations,” she explained. “There’s been strength in the capital markets, so we continue to see these high values. It probably will be harder to get [biotech M&A] transactions done if people are trying to be disciplined, so we expect more of the same.” “Maybe, we’ll see some growth and maturity at some of these biotechs before they get acquired,” Young asserted.

Interview: Why Biotech Companies Should Be Confident About Deals Despite Coronavirus

BY ELEANOR MALONE Executive Summary Fundraising in the life sciences sector has been booming even as firms in many other industries are struggling to stay in business. Goodwin’s David Mardle is upbeat about the sector’s ongoing prospects – although M&A deals are currently proving tricky to complete.

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Biotech always needs money – lots of it – and to get that money it must convince investors that there is a good chance of a profitable exit. It would therefore stand to reason that at a time of stock market retraction and a global recessionary environment, the sector would face a funding crunch. However, in both public and private markets, money is flowing into biotech. The world is beset by significant macro issues – from the pandemicrelated supply chain challenges and economic recession to Brexit – but “by and large biotech ignores these: they don’t really drive any material behaviors in biotech,” David Mardle, a UK-based partner in the technology and life sciences practice of global law firm Goodwin, told Scrip.

Goodwin has advised on $500m in life science company financings in the first half of 2020, including Calliditas Therapeutics AB’s upsized $90m initial public offering (IPO) on NASDAQ in June; Novo Holdings A/S’s $40m lead investment into Exscientia Ltd.’s $60m series C funding in May, and NodThera Limited’s $55m series B equity financing, also in May. “People are saying: ‘if anything [COVID-19] is just highlighting the need for more health solutions’,” noted Mardle. “Those times when people said they just did not wish to invest in biotech, those times are gone for good.” The coronavirus has thrown the spotlight on biotech and pharma companies: does Mardle believe life sciences valuations are displaying bubble characteristics as companies scramble to develop therapies, vaccines and diagnostics? Pointing out that much of the recent investment has been in companies doing non-COVID related work, Mardle said: “I think biotech will stay strong: all the indications are that this is an expanding opportunity.” Public And Private Financing Hold Strong Biotechnology went into the pandemic in an advantageous position, in terms of financing. “There’s been an awful lot of money raised in recent years, which has been partly deployed, but there is still capital searching for homes,” said Mardle. “That’s healthy when you have an environment like this, because it means for the right opportunity the capital is there: it’s already raised.” Companies and investors have adapted well to lockdown restrictions to continue fundraising business as usual. “Take the recent IPOs. They managed to do it on a virtual roadshow. They didn’t fly around the world, but apart from that, it was as normal a process as it would have been pre-COVID. So the US public investors are not shying away from the sector.”

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Indeed, 14 biopharma companies completed IPOs on NASDAQ in June alone, and the first half/second quarter tally was 29. “Our US public market team is very busy,” said Mardle. He conceded that some companies have had to delay funding events and existing investors have had to tide them over to allow for delays to non-COVID trials that were occasioned by the pandemic and its associated lockdowns. However, “early fears that some trials might have to be canceled altogether have not really played out, at least as yet: there’s been some delay but not outand-out cancellation,” he said. Biotech companies also tend to have longer cash runways than they used to. “We have moved on from the model of 15 years ago when companies were funded to the next event, and then funded a bit more. A lot more companies now fund for success. They raise a big round at the start, and they often then go back to the same investors. There is stability.” Furthermore, new money is entering the sector. “When fund managers are looking at what their next fund is going to be exposed to, very few of them are saying we do not wish to look at health in the broadest context. Most are also saying they want to be in new medicine: in patient outcomes rather than simply patient care. That means that when the established names go out to raise more money, the funds they raise will be bigger and they will come from more diverse limited partners.” Mardle’s advice to biotech firms therefore is to “be confident. Financing appears to be very robust. If you had a good proposition before COVID, you had a good chance of being funded and COVID has not changed that. Of all the sectors we are involved in, this is the healthiest in terms of funds available and opportunities to raise funds.”

Where’s The Exit? But even if “the trend pre-COVID was to hold assets longer and let them grow bigger and bigger before a sale,” at some point investors will want to realize their gains.

When it comes to asset auction processes, “all the same players are saying they are interested and having a look” but “it’s not moving at quite the pace that a good process ideally does, or at the pace it was moving pre-COVID.”

Aside from a public market listing or making the difficult transition from R&D to become a commercial business, the main way that biotech firms crystallize their value for investors is through a sale to big pharma. On this front, Mardle has observed more challenges.

This reticence among potential buyers has had the knock-on effect of making potential sellers wary of putting themselves on the market. “When you get those two things happening in tandem it becomes a self-fulfilling prophecy and deals don’t get done,” Mardle pointed out.

“Be aware that transactions are always quite difficult to get over the line even in the very best of times, and lockdown has made it trickier because it’s given people more reasons not to engage,” he warned. “We know buyers are still active and that they are looking at companies because we are involved in quite a few deals. But getting them over the line to commit to buy something is where the question mark is.”

Nevertheless, he thinks the situation unlikely to persist. “A deal will get done in this environment where there haven’t been opportunities for faceto-face engagement, and once that’s happened people will think ‘OK, unless I do this, I’m potentially going to lose out. Therefore, I’m going to have to jump this psychological hurdle and get on with it.’ It’s really a question of when this plays out. Is it the next three months, or three months later?”

Part of this is about the challenges of being unable to do the physical due diligence that is customary in M&A deal-making, such as meeting management and visiting facilities. People are becoming more comfortable with video conferencing as a way of conducting predeal conversations. “It will become second nature but in the first months of COVID it has been quite a novelty and it has had an impact,” he said. As for site visits, “people have been using drones to go into the facilities,” he said. “It’s not quite the same, but it’s better than nothing.” However, visiting sites using a drone is unlikely to satisfy a potential acquirer enough to close a deal. “They’re using it as helpful information so that when they can get to see the company in person they will be better placed to move more quickly.”

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Meanwhile, even if “as a general community they are not moving quickly on opportunities to buy,” buyers in contrast are much more comfortable with joining funding syndicates or entering into collaborations with biotech which includes some financing element. “The one announced between Evox and Eli Lilly is a great example.” (Also see “UK’s Evox Gets Lilly Onboard For CNS Exosome Collaboration” - Scrip, 9 Jun, 2020.) Overall Impact On the overall impact of the coronavirus pandemic on biotech deal making and financing, Mardle observed that the next 3-6 months would be the hardest to predict. The disruption to the usual conference and partnering circuit – the last major opportunity for companies to network with investors was the annual J.P. Morgan Healthcare conference in San Francisco in January – may not

have affected deals being done in the first half, but “it probably has had an impact on the timing of future deals because it takes time to build that trust up.” “If we don’t have a second spike and people are back on aeroplanes by Christmas, you

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may not even see a blip at all. It may be as if it never happened for the biotech community, performance wise. But if we do have a prolonged period of this sub-optimal way of doing things, it’s bound to have some impact. It’s just very difficult to predict where it will fall and how extreme it will be.”

Newly Launched Eir Ventures To Target ‘Early Nordic Opportunities’

BY STEN STOVALL Executive Summary The Nordic region’s vibrant life sciences ecosystem will be the chief focus for newly created Eir Ventures, a strategic partnership and investment company.

Nordic investment fund Eir Ventures has just launched, armed with €76m ($85m) that mangers say will be invested in innovative life science companies in the region to advance cutting-edge therapies and technologies there that might otherwise not get the attention they deserve. The new Nordic life science venture fund was officially created this month with the support from an investor syndicate comprising Saminvest, the European Investment Fund (EIF), Vækstfonden, Novo Holdings, as well as additional private investors. “We expect to invest around two thirds of the fund’s money in the Nordic region, with the remainder going to prospects in the US and EU,” said Stephan Christgau, a managing partner at Eir Ventures. The plan is to gradually expand the fund’s investment fire power to €100m ($112m) via future closing rounds.

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Eir Ventures has been set up by an experienced and successful team of life science investors and has offices in Sweden’s capital Stockholm and the Danish capital Copenhagen. Headquartered in Sweden, Eir Ventures will be particularly interested in innovations from the Nordic region’s leading universities and incubators. Christgau, a Dane, told Scrip that the Nordic region – comprising the three Scandinavian countries of Denmark, Sweden, Norway as well as Finland and Iceland – is regularly ranked as one of the most innovative areas in Europe, supported by a stable business environment and an envious track record of medical innovation and world-class life science expertise. “But the region is severely underserved with professional venture capital. Eir Ventures sees this as a unique opportunity that it will leverage,” said Christgau, who joined Eir Ventures after 12 years at Novo Holdings where he helped to establish company creator Novo Seeds. “The basic premise for this fund is this imbalance between an abundance of investment opportunities and the lack of specialized life sciences capital in the region,” he added. Aside from just-launched Eir Ventures, there are only five other specialized life sciences investors in the Nordic region: HealthCap Sweden, Hadean Ventures, Copenhagen-based Sunstone Life Science Ventures, as well as Novo Holdings and Lundbeckfond Ventures. The new fund would invest in a range of prospects. These would include ‘seedling’ early-stage start ups. “But the majority of the investment would follow a general venture capital approach of backing groups having at least a

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proof of principle with an exit horizon in Phase II, but we’d also have an appetite in areas where you can go earlier because there is a Phase I exit opportunity, especially in the CNS area where you see good opportunities with early stage assets,” explained Andreas Segerros, a Swede, who is also a managing partner of the newly created financing entity. Eir Ventures will be agnostic when it comes to therapeutic areas. “That said, you need to understand the trends on the buyers’ side. Also, while oncology is an extremely hot area, it is also overcrowded,” Segerros said. He said the Nordic region consistently displayed strengths in varied scientific modalities. Eir Ventures views Finland as ‘a hidden gem’ of health data, with a 100% population penetration of electronic health records. Norway is emerging as a life science nation producing world-leading research in oncology, among other things. “Denmark meanwhile thrives by having a big pharmaceutical industry sector. Sweden, where I am from, lack one after losing both Pharmacia and AstraZeneca. But there are clusters that can be leveraged within the two countries, with southern Sweden and the greater Copenhagen area being one big cluster,” Segerros said. Regional synergies in the life sciences sector could be boosted with the joined-up approach that Eir Ventures hopes to promote through its investment approach. “There is a movement underway in the region to take a more collaborative approach and we hope that Eir Ventures, by having partners from both countries, we can help to finally bridge the gap between the two countries and overcome nationalistic barriers that have so far helped to block such approaches,” Segerros said.

He added: “As a regional investor we will have a responsibility to thoroughly search for rough diamonds that might not otherwise have their value realized.” Danish counterpart Christgau echoed that message, saying, “Eir Ventures are the first life sciences fund to have offices both in Copenhagen and Stockholm. That sounds simple, but it goes to

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the heart of the matter. No other fund has done that. “We have a conscious goal of linking the Nordic region, despite the fact it comprises separate countries and separate ways of doing many things. We have a very credible shot at being a truly Nordic investor,” he concluded.

IPO Update: High-Flying Biopharma IPOs Average 77.1% Return Through Q2

BY MANDY JACKSON Executive Summary The performance of 29 biopharma firms that launched IPOs during the first half of 2020 is staggering compared with 28 drug developers that went public in the first half of 2019 with a 10% average return.

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The market for initial public offerings by biopharmaceutical firms during the second quarter of 2020 was exceptional in many ways, including the remarkable rebound in June when 14 companies went public in the US after the COVID-19 pandemic closed the IPO window in March. Despite the ongoing uncertainty related to the novel coronavirus, 28 drug developers and a buyer of pharmaceutical royalties went public during the first half of 2020 and generated an average return of 77.1%. While the first half of 2019 was a fairly healthy quarter for biopharma IPOs, the performance of companies that went public during the first half of this year is staggering in comparison. And despite the unknowns surrounding COVID-19 – including whether the US will be able to reverse the recent rise in cases while other countries see their numbers fall – Renaissance Capital expects the good times to continue.

“Entering the third quarter, a lot still depends on the broader markets, which remain volatile and vulnerable to unexpected developments such as renewed COVID-19 outbreaks and trade issues,” the IPO-tracking firm said in its second quarter US IPO market review. “With a backdrop of strong returns and the IPO window finally flung open, there is substantial appetite for IPOs to price during the [third quarter] and avoid the uncertainty over the US presidential election and a possible second wave of COVID-19 in the fall.”

The positive performance of this year’s IPOs was seen almost across the board during the first half of 2020. There were 25 companies trading in positive territory and four in negative territory as of 30 June versus last year, when 13 companies were in the black as of the end of the first half of 2019, 14 were in the red and one traded flat.

Renaissance noted that health care was the dominant industry for IPOs in the second quarter, with 24 out of 39 first-time offerings in the quarter. That’s not surprising, since the Nasdaq Biotechnology Index is up 13.5% year-to-date as of 30 June versus a 12.1% rise for the broader Nasdaq and a 4% decline for the S&P 500.

• In 2020, eight companies’ stock prices ended 30 June at more than two times their IPO values and one closed at five times its IPO price; another five companies’ stocks gained more than 50%, but less than 75%, while five closed more than 75% higher than their IPO values but less than 100%.

Biopharma companies launched 29 IPOs during the first half of the year, including 20 in the second quarter, raising a total of $7.2bn (see table below). These numbers include Royalty Pharma, which does not develop drugs but lends money to therapeutics firms in exchange for a portion of royalties from sales of their products. After an initial $2.18bn raised by Royalty and certain investors when the IPO launched on 16 June, the firm ultimately raised $2bn and shareholders that also sold stock in the offering raised $500m by the time the offering closed on 18 June. (Also see “Royalty Pharma Nears Biopharma Record Take With $2.18bn IPO” - Scrip, 16 Jun, 2020.)

• In 2019, two companies’ stock prices doubled as of 30 June versus their IPO values; two gained more than 50%, but less than 75%; and only one rose more than 75% but less than 100%.

When limiting the 2020 tally only to companies that develop drugs, the 28 biopharma firms that have gone public in the US so far this year have raised $5.2bn – a still-impressive total compared with the 28 drug developers that went public during the first half of 2019 and raised $3bn. (Also see “IPO Update: 28 Biopharma Companies Raise $3bn, Provide An Average 10% Return” - Scrip, 28 Jun, 2019.)

“After coronavirus volatility caused the slowest April and May since the Great Recession [of 20072009], IPO activity roared back in June, buoyed by stellar returns,” Renaissance said in its second quarter report. “During the quarter, nearly every IPO upsized or priced above the midpoint [of proposed price ranges], and IPOs averaged a 38% first-day pop, and a 61% return from offer.”

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In terms of the scope of biopharma IPO performance through the first half of their respective years:

• In 2020, seven companies raised $100m to $200m, 12 raised $200m to $300m and three raised $300m or more. The average per biopharma IPO was $249.1m or $186.5m excluding the $2bn raised by Royalty Pharma. • In 2019, nine companies raised $100m to $200m and two raised $300m or more. The average per biopharma IPO was $105.7m.

“Health care made up two-thirds of activity, driven by high-flying biotechs, which are largely insulated from the pandemic,” the investment adviser said. Renaissance noted that even without Royalty Pharma’s IPO, the second quarter was the largest quarter since 2011 for biotech IPO fundraising. Three companies added themselves to the biopharma IPO queue via SEC filings submitted on 26 June: • ALX Oncology Holdings Inc. in Burlingame, CA, which raised a $105m series C venture capital round in February, said in its filing that it will raise up to $100m in an IPO to fund clinical development and manufacturing activities for its CD47 checkpoint inhibitor ALX148. (Also see “Venture Funding Deals: ALX Oncology, Transcenta Break $100m Barrier With Recent Rounds” - Scrip, 3 Mar, 2020.)

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• Emeryville, CA-based Berkeley Lights Inc., which provides cell biology insights to enable its customers’ development of antibody therapeutics, cell therapies and synthetic biology, also said it wants to raise up to $100m in a forthcoming IPO. (Also see “Showcasing Its Pandemic Response Drug Discovery, Berkeley Lights Prepares For IPO” - Scrip, 1 Jul, 2020.) • Pandion Therapeutics Inc. in Watertown, MA intends to raise up to $75m in its planned IPO. The company, which is developing modular proteins and bifunctional antibodies for autoimmune diseases, closed an $80m series B round on 1 April. (Also see “Finance Watch: iTeos, Pandion And Aspen Show COVID-19 Hasn’t Slowed VC Deals Yet” - Scrip, 1 Apr, 2020.) See page 23 for table on Second Quarter 2020 IPO Performance

Second Quarter 2020 IPO Performance The 29 biopharma firms that went public in the US during the first half of this year generated a 77.1% average return and raised $7.2bn. Excluding Royalty Pharma, which raised $2bn, 28 drug developers brought in $5.2bn and had an average return of 77.3%.

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ÂŠ Informa UK Ltd 2020 (Unauthorized photocopying prohibited.)

Boehringer’s Philosophy Of DealMaking: A Conversation With Ioannis Sapountzis And Scott DeWire

BY JOSEPH HAAS Executive Summary The German pharma’s top business development execs explain how they balance IO and targeted cancer therapy in their portfolio, views on major M&A and how to make deals during a global pandemic.

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In an interview with Scrip, Boehringer Ingelheim International GmbH’s top business development executives offered their views on conducting transactions amid a pandemic, why a company usually focused on partnerships has bought three cancer biotechs in recent years, and how it generally views major M&A. Having been with the family-owned firm for about 15 years, Ioannis Sapountzis has graduated from leading US business development and licensing to overseeing BI’s global deal-making activity. (Also see “Boehringer Ingelheim’s Partnering Focus: An Interview With Ioannis Sapountzis” - Scrip, 30 Jun, 2017.) Stepping into his shoes earlier this year to head up US business development and licensing was Scott DeWire, a five-year veteran of BI.

In a posting on BI’s website heading into BIO 2020, DeWire discussed BI’s efforts to help grow local biotechnology ecosystems in the US and internationally. He said he is often asked for advice by young entrepreneurs at the company’s Grass Roots Initiatives events, which are designed to develop biotech hubs through mentoring, an academy and a competition. (Also see “Big Pharma BD Execs Tell Start-Ups: Don’t Be Afraid To Ask Us For Help” - Scrip, 28 Feb, 2020.) “I always say the same thing: Focus on what it is that you do better than anybody else,” DeWire said. “Don’t try to do it all. Just figure out what your secret sauce is, what’s your value proposition, and then put all your effort there. If you can clearly define that, then please get in touch with me and we can talk further about partnering to develop the next generation of breakthrough medicines.” In past conversations, Sapountzis told Scrip that BI’s deal-making sweet spot is partnering on early innovation, but that doesn’t mean the company doesn’t do M&A too. (Also see “BI’s Business Development Focus Remains On Early Collaboration” - Scrip, 20 Jun, 2018.) Making the deal structure fit BI and the partner’s needs is the company’s ultimate goal in business development. Sapountzis and DeWire discussed that idea and more in a wide-ranging interview on 9 June, which has been edited for brevity. Q: BI has had a particularly busy year of dealmaking. Why is that? A: Sapountzis: I think 2019 was an outstanding year for BI period, on all fronts, beyond the external innovation front. You’ve seen our increased deal-making and it’s also true that we have continuously grown our emphasis on external innovation. Now, about 50% of our pipeline

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comes from external innovation and last year, in particular, we were successful in making a large number of deals that were in preclinical or early clinical development stage. That has been the result, I think, of three things: One is our continued effort to identify the best opportunities that are out there; the second is a strategic initiative to become more of a partner of choice in the world; and the third one is making sure that collaboration and bringing together like-minded people and strengthening the concepts that a partner has identified to BI has become front-and-center to every scientist in our organization. I think it’s a bit of a cultural change, it’s getting the right processes and then also getting the right assets, so all of these together have helped us in the last year and early this year to be very active. A: DeWire: What you’re seeing is steady progression in increasing our partnering activity. This is building on several years of realizing that we need to partner with the outside world, bring all these great minds together scientifically. We are increasing our internal metrics for working with partners on the outside and 2019 was an exceptional year when we were able to not only identify good partners but then act on those partnerships and bring them to transaction. We hope for 2020 and 2021 to be just as productive as 2019. Q: One of your noteworthy deals recently was the acquisition of Northern Biologics Inc. (Also see “BI Strengthens Research Efforts In IO Stromal Biology And Retinal Disease” Scrip, 14 May, 2020.) My sense from talking in the past is that BI has been more inclined toward partnering than toward acquisition. Has that changed at all, and if you are more interested now in acquisitions, is BI is

looking for bolt-ons or even possibly largerscale acquisitions? A: Sapountzis: We are agnostic to transaction type as long as it’s the right asset. Actually, when an acquisition is the right thing to do, we do it. Here, it’s really about not acquiring a company to buy ourselves sales or buy ourselves out of some near-term challenges we may face. We buy a company because it makes sense to have the asset, to make sure that we build something together. If M&A is the transaction type that is right for the project, right for the partner and right for BI, then we’re not shy at all on executing an acquisition. A: DeWire: What you’ve heard in the past is that we prefer a partnership model but we’ve done three acquisitions in three years in the oncology space, between ViraTherapeutics GmbH, a company with an oncolytic virus out of Innsbruck, Austria; Amal Therapeutics SA, a cancer vaccine company based in Geneva, Switzerland; and now Northern Biologics, more of a myeloid- and stromal-targeting NME type of company backed by Versant Ventures and based in Toronto. (Also see “Boehringer Ingelheim To Boost Cancer Immunology Portfolio with Novel Cancer Vaccines “ - Scrip, 16 Jul, 2019.) That said, we make the deal structure fit whatever’s best for the partnership. In the first two examples I gave, those are platform technologies that we see could be deployed broadly across a number of different types of tumor indications, aimed at a number of different antigens. In those cases, an acquisition made sense because we wanted to capture all of the know-how, keep the team and the feeling together to execute on those platforms.

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For Northern Biologics, it just turned that even though it was more of an asset-centric deal when the two parties came together, acquisition of those programs and the Northern Biologics entity is what made sense for both sides. We’re definitely open for licenses, options, things like that, but really when those opportunities arise, we make the business structure fit the situation. A: Sapountzis: To your question of whether we’d do largescale M&A, recently there was some talk about Gilead Sciences Inc. maybe being acquired AstraZeneca PLC. (Also see “AstraZeneca Gilead Merger Intriguing But Unlikely” - Scrip, 8 Jun, 2020.) There is no notion for us that would say “let’s not think about this.” What we want to continue to do is make the deals that are right for the company, that fit to our strategy and that are not driven by short-term goals that we want to achieve. In everything we do in terms of partnering, we want to achieve a broader goal. We had a large-scale acquisition in the past, not in our pharmaceutical business, but a couple of years ago, we swapped our consumer health business to Sanofi for their animal health business, building real champions in each of those pockets where we alone as two companies holding portfolios in animal health and consumer health were not able to have the critical mass. (Also see “Sanofi Adds Consumer Brands, Grows Footprint With Boehringer Ingelheim Deal” - Pink Sheet, 28 Jun, 2016.) it made perfect strategic sense for us. If we So, find an opportunity that makes perfect sense for BI, I wouldn’t say that this is not the type of transaction that we would entertain. It should always be driven by the value that we think the deal could create for patients, why BI should be involved in this and continue to maximize the value of the opportunity.

Q: We’ve heard that as more business development is being done virtually during the pandemic, it’s created some efficiencies and industry is getting better at doing business this way. (Also see “Biopharmas Manage To Deal During Pandemic” - Scrip, 9 Jun, 2020.) How has COVID-19 affected BI in deal-making? A: DeWire: The short answer is that there are pros and cons to the COVID-19 situation for deal-making. With the Northern Biologics deal, we had set the negotiation process just barely in motion around the Christmas holidays of 2019, we’d met with the CEO and the business officer and determined that maybe this was a good thing that we wanted to do. And then right after JP Morgan, we got out of that frenzy and the COVID-19 situation set in. For us, we were able to push that deal through terms negotiation, internal alignment and the various contracts that had to be negotiated and agreed to by the end of April all by phone. We didn’t even do much Zoom there. One positive was that everybody’s availability was just fantastic because we’re all working at home; time zones were really the only limiter, people on both sides were quite flexible, there were some advisers for the other side on the West coast and we had legal and contract help from the European side, so we were spanning nine hours of time zones, but everybody made it work around their work-from-home, work-life balance and things moved very quickly in terms of availability. Now, there are certain things you can’t do over the phone, like site visits, manufacturing audits. Northern Biologics was using a CRO to make its clinical supply of material and we had to essentially put that audit on hold until after signature. Things like that you can’t do, but we

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were able to push ourselves a lot on how we could do a deal virtually. Virtual data rooms, off-site calls. So, there were definitely pros and cons. I would say overall, our deal flow at BI has been steady through COVID-19, and I think this is reflected in the industry too. It’s likely that a lot of the COVID-related deals helped buttress those figures but even with that, there’s been a lot of deal-making across the industry during this time. It really hasn’t slowed down much. A: Sapountzis: It’s also difficult to predict how effective digital meetings like BIO will be for continuing to allow us to conduct initial conversations. BI is very science-driven when it comes to selecting our opportunities, so we participate in a lot of scientific conferences. Scott would have been at ASCO in other years, now he was stuck in front of a computer watching presentations. A: DeWire: From a business development perspective, virtual ASCO wasn’t quite [the same] because so many of the meetings that the business development people have are surrounding the event rather than at the seminars or poster sessions. Usually, during my time at ASCO, I’m running back and forth between three or four hotels and coffee shops and meeting people, and I’m lucky if I get to attend one actual seminar. So, the fact that all the seminars went off virtually just fine, I think that’s just great that they were able to adapt that, but I’m a little more skeptical on the business development side. Q: Last year, BI did a deal with Yuhan Corp. in non-alcoholic steatohepatitis (NASH). (Also see “Boehringer Adds Yuhan’s FirstIn-Class Dual Agonist To NASH Portfolio” - Scrip, 1 Jul, 2019.) There’s some upheaval

in that space lately – Genfit SA had its disappointing Phase III data readout and now Intercept Pharmaceuticals Inc. has seen it timelines for approval pushed back. (Also see “Intercept’s NASH Approval Timeline Shuffled Again With FDA Delay” Scrip, 22 May, 2020.) Does BI sense an even greater opportunity in NASH now? A: Sapountzis: I think we are all cognizant that a lot of the drugs that have been initially studied in NASH may not have been built up with a scientific value proposition, with lab work and screening and then bringing all of that understanding forward. Those were assets where we saw potential in NASH, but they were not designed to help NASH patients in the first place. With the latest developments, we see that some of these fibrotic, inflammatory and steatosis concepts that they tried to address may not yield the benefit that we all wish to see in those patients. What we see more now is combination concepts or early-stage concepts that address specific mechanisms that we think underly the disease. That’s where BI sees a great opportunity, where our portfolio is built to address all the critical points of NASH, either through combined molecules like in the Yuhan deal or combining individual concepts and addressing fibrotic, inflammation and steatosis components of the disease and through that providing a powerful, meaningful effect or cure in patients. (Also see “Boehringer Ingelheim Confident Of A Happier Ending In NASH Than HCV” - Scrip, 5 Jan, 2018.) For us, it’s not really about winning near-term but about bringing much needed therapies to patients and we are committed long-term to this.

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While Yuhan was an important partnership, in January, we did a second one in Asia with Enleofen Bio Pte. Ltd. where we partnered on an interleukin-11 antibody, also a central node in fibrotic diseases. We think this has a lot of potential in many diseases including NASH, but also beyond NASH in fibrotic diseases of the lung or the gut. Q: In cancer, what does the acquisition of Northern Biology and its work in stromal biology add to what BI already was doing in immuno-oncology? And what is your philosophy on how you split your cancer R&D focus between IO and non-IO approaches? A: DeWire: We continue to be focused [on] what we call cancer’s big four – the four undruggable targets that we think could have the most impact for patients and address the most unmet need. These are MEK, KRAS, p53 and beta-catenin. (Also see “Boehringer Ingelheim Snaps Up Lupin’s MEK Inhibitor For Difficult-To-Treat Cancers” - Scrip, 4 Sep, 2019.) We continue to be very focused there on cracking those targets using new technologies, things like PROTACs [proteolysis targeting chimera] to get at some of these protein-protein interactions and degrade some of these proteins. On the IO side, we’re looking to go after the segment of patients who are unaddressed by current checkpoint therapies, current approved IO therapies … a cold-to-hot-tumor strategy. (Also see “Deal Watch: Vir Partnering With Alnylam, WuXi On Coronavirus Treatments” Scrip, 5 Mar, 2020.) There are many different arms of our IO strategy – one is to increase myeloid cell activity. This would be your novel immune antigen-presenting cells and one of the assets from Northern Biologics is in this myeloid

space. Another arm of that is this tumor stromal concept – the idea that surrounding certain tumor types there is a mass of extracellular matrix that almost forms a wall or a net around the tumors. This is both a physical barrier in that it’s hard to get immune cells through and it’s an immunosuppressive barrier too. The idea with the lead program from Northern Biologics is this an anti-periostin antibody that will disrupt this tumor stroma and allow penetration of the right immune cells to get in there and do their job. We think there’s a lot to be gained overall in our cancer strategy of having these two arms – the targeted therapies and IO – and reaping the benefits of smart combinations between those two, so that’s an area of synergy that we’re always looking for. Q: What can you tell us about the recent deal with CDR-Life and the emphasis on retinal disease? [On 13 May, BI obtained worldwide license rights to compounds derived from CDR-Life’s antibody fragment platform against a specific target for geographic atrophy, a condition caused by age-related macular degeneration. The Swiss biotech can earn up to €475m (about $531m) under the deal.] A: Sapountzis: This is one of the new areas of interest at

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BI that we have highlighted this year. It’s an area of interest where we’re building on our strength in diabetic retinopathy and how we have been working from our diabetes franchise into those diabetic complications, [which] has now become a more dedicated, committed path to strengthen our retinal health portfolio internally, but also through partnerships. We have an emerging pipeline of clinical-stage assets, preclinical and research stage built through internal discovery and also through partnerships and we want to continue to apply the knowledge that we learned and take a holistic research approach into what targets the key mechanisms and the pathogenesis of those retinal diseases. There, I think, with our partner CDR-Life, we found a great molecule and program that we think will bring benefit to patients in geographic atrophy, one of the five focus areas that we have selected to focus our efforts on in retinal health. There was another deal last year with Inflammasome Therapeutics Inc. also going in the direction of retinal health for intravitreal drug delivery. (Also see “Deal Watch: Another Delay For Roche/Spark, While FTC Ups AbbVie/ Allergan Merger Scrutiny” - Scrip, 3 Oct, 2019.) It’s an ongoing process and we will continue to work and collaborate with companies in the retinal space.

Back To Business: Deal-Making On The Other Side Of COVID-19

BY BEN COMER Executive Summary COVID-19 has introduced new challenges (and more attorneys) into the biopharma deal-making environment, but experts say the fundamentals for deal activity point toward a rebound. Companies that adapt quickly to changes – in communication, due diligence and deal structure – will make successful connections in a time of social distancing.

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Things often look rosier in the rear-view mirror, but it’s hard not to feel nostalgic about 2019. Biopharmaceutical innovation commanded a premium, to say the least, and company valuations last year helped create an all-time high in total deal value for the sector, at over $350bn globally. In the first three months of 2019, there were $147bn worth of transactions globally, compared to about $22bn during the first three months of 2020, Arda Ural, Americas Industry Markets Leaders for Health Sciences and Wellness at Ernst & Young LLP (EY), told In Vivo. That precipitous drop is not entirely due to the onset of the global coronavirus pandemic, but then, it did not help matters. Biopharmaceutical company valuations looked grim in March 2020, as did the major US stock indexes; both have since regained a remarkable amount of ground. The NASDAQ Biotechnology Index was up 28% from 9 June 2019 to June 9 2020, despite a declared recession in the US and mass unemployment. “It’s like the market

doesn’t believe that the economy is as bad as it is – it’s really bad – but the market reaction is really interesting,” said Brian Teras, a partner at Arnall Golden Gregory LLP (AGG), in an interview with In Vivo. “When you see several fairly large [biopharma] deals getting announced in recent weeks, I think that’s a good sign. Even a month or two ago, we weren’t seeing those kinds of deals.”

senior partner and chief business development officer at Flagship Pioneering. Lonnie Moulder, founding partner at Tellus BioVentures LLC, said that data reviews, conference calls, negotiations, information exchanges and many other things can be done virtually, but agreed with Hartman that “a transaction of size will need a meeting of the principals” in person.

One thing COVID-19 has not changed is biopharma’s fundamental need to grow its bottom line, either through internal pipeline progress or, lacking that, through acquisitions or partnerships. As an industry critical to the health and wellbeing of people all over the world – an “essential business” if there ever was one – the biopharma sector has proven resilient in past recessions. In 2020, biopharma has a unique opportunity to shine amid the current crisis, by way of safe and effective therapies and vaccines to treat COVID-19. Finding ways to effectively communicate internally and externally, to complete deals and other transactions virtually if necessary, and to explore new deal structures and options, have become key competencies for deal-making, in all therapeutic areas. Successful collaboration in support of developing and manufacturing COVID-19 treatments, and distributing them effectively across the globe, will require an acceptance of new risks. The trade-off is an unprecedented opportunity to save lives, build trust and improve the industry’s long-suffering reputation.

Hartman noted the face-to-face process Spark Therapeutics Inc. and Roche CEOs used prior to Roche’s $4.8Bn acquisition of Spark in 2019, meeting multiple times in Philadelphia. “Big transactions are make or break for the big pharma CEO … for that person to sit across the table and see the decision-maker and know that person is engaged is very important psychically.” On the other hand, a face-to-face may not be necessary in every case. Roche’s research collaboration deal with Arrakis Therapeutics Inc., announced in April, included a $190m payment upfront. The companies “made a point of saying that all the final negotiations had been done over Zoom, which is something that would have been unimaginable six months ago,” said Teras.

Communicating In The Zoom Era Experts disagree about the extent to which video conferencing can replace face-to-face meetings in all situations, but there is consensus around the usefulness of virtual tools. Even so, “some people will want to look a CEO in the eye and discuss a transaction,” said Alan Hartman, a partner at Centerview Partners, during a panel at the 2020 BIO Digital conference. “Body language is very difficult to read in a video,” added Prakash Raman,

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Previous relationships between companies or individuals involved in a deal can also help overcome distances, by way of trust, according to EY’s Ural. “If you know the person, you have history, maybe you interacted with them on another asset, at the same company or at a different company, that is very important,” said Ural. “The ability to communicate with potential buyers is unique in this industry – it’s incredibly powerful to have a sense of who the other players are,” said Hartman on the BIO panel. “It helps on the sell side (biotech side) to really understand who those parties are that are showing real insight. Almost all the deals that fail are between companies that haven’t shared insights over time. Companies can know one another, before you’re in that small

focused timeframe of evaluating a deal.” With more time and experience, perhaps video conferencing will begin to enable the kind of chemistry and trust that seems to come easier with face-to-face meetings. “We’ll continue to get better at virtual communication,” said Moulder. But if a pharma CEO is not ready to get on a plane and meet a biotech CEO, countered Hartman, someone else will. “Then that pharma CEO might decide to go the next time,” said Hartman. Several speakers on the BIO panel noted the importance of internal communication with members of the corporate board of directors, particularly in the run-up to a deal or transaction. “I can’t overemphasize the importance of ongoing communication with your boards,” said Raman. “Here’s what we’re trying to do, here are potential partners, and then nurturing relationships at potential partnering companies … communication is key,” he said. “It helps seal the deal.” Due Diligence And Contracting Challenges As a key element of M&A go and no-go decisions, manufacturing capabilities represent a unique challenge. Buyers need a level of comfort and need to know where the manufacturing sites are located, if they are up to standards, and whether they can be transitioned internally, said Raman. “Seeing the physical space is really important.” That can sometimes be accomplished through video live-streaming, but conversations with site staff and the inclusion of manufacturing staff in diligence conversations is important. “Companies may also be able to use local representatives – not a key person from headquarters – but there may be someone nearby that could potentially visit in person … that can be helpful,” said Raman. Hartman noted that manufacturing inspections, and the ability to do them virtually, would differ depending on a product’s mechanism of action, whether it was a small versus large molecule or gene therapy.

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Ural described handheld cameras and manufacturing site walk-throughs as a remedy for travel restrictions, but noted that data and trust become more critical as a result, and communications become more challenging. “Sometimes it’s a hurdle or a nuisance, but in deal-making, if the fundamentals are there, we will continue, because the need for innovation continues.” Innovation in contracting and deal structure are other tools dealmakers are using to de-risk transactions. Alexion Pharmaceuticals Inc.’s deal to acquire Portola Pharmaceuticals Inc., announced in May this year, demonstrates “the impact of what’s going on with references in the documents, lawyers getting a hold of them, and adding references to pandemics and exceptions for pandemics,” said AGG’s Teras. “In the Alexion agreement there’s specific carve-out language in the typical covenant between signing and closing, about conducting your business in the ordinary course, for things related to COVID-19. That allows the target seller to take certain actions if they deem it necessary to respond to the health and safety of their employees, which I thought was very interesting, because in other industries, for deals that were signed before the pandemic, that has been one way buyers are trying to get out of these deals by saying you weren’t acting in the ordinary course because you took certain actions.” In addition to protecting employee health, other events could potentially cause material adverse changes, such as a delayed clinical trial, a postponed FDA PDUFA date due to the agency’s focus on COVID-19, or a newly launched product commercialized with limited sales support, for example, could have serious implications for deal-making. “If you weren’t paying attention to the legal language in the contracts, now is a great time to read those,” said Ural. “Your contract covenants, basically the footnotes in those contracts, all of a sudden become very

important.” Ural added that the onus is on the legal professionals to consider all angles. “You need to frame the uncertainty to better control it,” said Ural. (Also see “How To Obtain Effective Relief When A Global Pandemic Disrupts Your Supply Chain” - In Vivo, 27 May, 2020.) COVID-19 may also lead to more research and collaboration agreements that give buyers a look at the technology before deciding how far in they want to go. In an option structure, for example, a buyer typically pays an upfront payment as consideration for the option, with the ability to decide down the road if they want to go through and purchase the entire company. “In this uncertain time, those kinds of deal structures are certainly going to be explored. Flexibility is really the important point,” said Teras. Companies may also get more creative with contingencies, in terms of structuring earn-out payments based on financial targets or milestone targets, to help bridge the uncertainty gap. That process could also help smooth over disagreements about valuation, said Teras, by creating a “prove it” scenario. “There’s every reason to think that will continue.” Silver Lining Opportunities Many uncertainties remain, including potentially disruptive supply chain actions, such as mandatory “onshoring” of certain products or

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ingredients, not to mention the development of an effective COVID-19 vaccine, manufactured at risk and distributed in unprecedented amounts. In the next six to 12 months, says Ural, there will continue to be transitory impacts to deal-making. With respect to deal making in the third and fourth quarters of 2020, many industry stakeholders are voicing positive predictions. “I’m fairly optimistic about the third and fourth quarters, I think we’ll see deals start to come back more, especially in life sciences,” said Teras. “And then by 2021, we may be back to normal.” The current moment, as an opportunity for the industry, is historical; the tragic loss of life due to the COVID-19 crisis, which continues to infect new patients, is the leading unmet need, and one that biopharma companies can address directly. “I think the industry has an opportunity right now to change and shape its perception as the driver of innovation in the US and in the world,” said Ural. “So far, I think the industry has been behaving very responsibly in pre-competitive and non-competitive spaces … when you read CEO interviews or listen to them, you see that tone. And when I talk with [biopharma] presidents and CEOs, they also indicate that this is not about just changing the way we make profits, but there’s also a focus on showing the world how we are finding cures and managing this crisis.”

Biopharmas Manage To Deal During Pandemic

BY JOSEPH HAAS Executive Summary M&A activity faces numerous hurdles during the COVID-19 pandemic but companies are finding different ways to negotiate, conduct due diligence and get deals completed, BIO 2020 speakers said.

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Biopharma deal-making has continued at a steady pace during the novel coronavirus pandemic – helped by frequent transactions related to COVID-19 – but the industry also is getting more used to the limitations imposed by social distancing, speakers said on panel at BIO’s digital meeting. The drivers underlying deal-making remain unchanged – big pharma and other players need new pipeline assets and remain very interested in novel technologies – Prakash Raman, senior partner and chief business development officer at Flagship Pioneering, said during a session on what companies are looking for in acquisitions. Although not billed as a session specific to the impact of the pandemic, much of the discussion centered on how deals are being negotiated and finalized in this different environment for business.

While some experts had predicted a slowdown in deal activity just a couple months ago, new expectations of business development running under new conditions reflects the quickly changing dynamics of the pandemic. (Also see “COVID-19 And M&A: Multiple Scenarios In Store As World Adapts” - Scrip, 21 Apr, 2020.) Partnerships were fast to form around coronavirus interventions, with reports of companies starting work before having final contracts signed. (Also see “Deal Watch: Coronavirus Collaborations Reflect Industry’s Full Press Pandemic Response” - Scrip, 27 Mar, 2020.) Fundraising has also proved resilient, following an initial pause in activity. “I think we are going to evolve the way we actually get deals done,” Raman said, noting that limitations on meeting in person are leading to more efficient processes. “People are going to figure out a way to make sure that the right deals get done. I’m very bullish – I think at the end of the day, pharma needs pipeline deals and biotech is the one that’s going to provide them.” Some In-Person Meetings Still Necessary If face-to-face meetings remain limited for the next six to 12 months, “clearly, we’ll continue to get better at this,” said Lonnie Moulder, founding partner at Tellus BioVentures LLC. Still, he thinks in-person meetings between the principals in a deal generally need to happen to close a deal. Those meetings are needed in most cases to reassure each side of a transaction that its partner is mission-driven, doing the right things and proud of what they are doing, he explained. “When that understanding was there, it just felt as if a deal could get done, so I think that’s a critical stage.” Raman concurred, noting that body language is especially difficult to read on a video call. “More importantly, who actually takes the trouble to fly over to be part of the management team discussion is also very important, a sign of how interested they are,” he added. “To me, all of those

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things are sort of lost in this current environment.” But to facilitate deal-making during social distancing, maybe fewer meetings of principals will take place, Raman said, perhaps waiting until the deal is near the finish line. Due diligence will remain a challenge for finalizing deals during a time of social distancing, Moulder said, but it won’t be the rate-limiting factor as solutions can be found. “We need to figure out how do you inspect manufacturing labs,” he noted. Although not related to M&A activity, he said two of his portfolio companies recently had to qualify manufacturing sites. “We were doing it virtually,” Moulder explained. “They had filmed everything in their facility and then we actually had walk-throughs with cameras.” Alan Hartman, a partner at Centerview Partners, agreed that there is a limit to what can be done from a distance. With a large transaction, many things can be done virtually, but not all, he said. “At some point, somebody wants to look this seller CEO in the eye and have those kinds of discussions.” With the initial days of the pandemic over, the industry is starting to get back to business as usual, while still working under some of the restraints imposed by COVID-19, Hartman said. Interest remains strong in scientific advances and clinically de-risked, pre-launch assets, particularly in areas such as oncology and rare diseases, he pointed out. But “things that [acquirers] weren’t interested in before [are faring] even worse today,” Hartman said. “Companies in the middle of a launch – we all know how difficult that is for companies. Companies that were about to start a pivotal trial but have had to delay, that [results in] delayed interest.”

Positives: More Access, Time To Reflect There have been at least a couple of positives resulting from the changed way of doing transactions, the speakers agreed: time to be more reflective and greater access to decision makers with most people working out of their homes. “I think the one good thing that has come out of COVID is that the key decision makers are not on planes, trains and automobiles all of the time, and they seem to be more available for calls,” Raman said. “Setting up longer-term calls or key calls seems to be a little bit easier.” But at the same time, if current circumstances have affected the urgency of a potential deal, maybe the opportunity to slow down the process and think it through more could be a benefit, Moulder asserted. “Having a meeting between principals may be more difficult,” he said. “If there isn’t a reason to move now, now would be a good time, I would suggest, to really be reflective. We run like crazy operationally to get things done. … Right now, because there are some things we are unable to do, why not be a bit more reflective and think about the strategy and engage in one-on-one discussions with the board and the management team.” “I think companies don’t do enough of that, they’re always running at like 100 miles per hour,” Raman added. “But this is an opportunity where you can actually take stock of what you have and where you think you want to be. I don’t think we really support companies to do that as well as they could.”

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Another factor that isn’t going to drive or slow down deal-making, Hartman said, is the biotech valuation fluctuations seen during the pandemic, as many companies’ perceived value declined in March but then rebounded strongly afterwards. Declines in the 30% range were seen early on, but now the Nasdaq Biotechnology Index is up more than 10% for the year, he noted. (Also see “Finance Watch: Investors Bet Billions On Big Biopharma Offerings” - Scrip, 29 May, 2020.) “This sense that biotech is expensive [or] biotech is cheap, that doesn’t really drive transactions,” he asserted, conceding that his opinion is based on talking to colleagues, not hard data. “What drives transactions is pharma’s need for new products … their need, their ability to go acquire things because of their great cash flow.” Another hurdle for M&A deals, Hartman said, is getting antitrust approvals from the US Federal Trade Commission and its foreign counterparts. So far, that process does not seem to have transitioned over to a virtual model as easily as other parts of deal-making, he said. And delays in a quickly evolving sector like life sciences can have a major impact on valuations, he added. “That’s another risk that’s sort of out there on the rise and people will have to manage through,” Hartman said. “But I’m bullish that everyone in the life sciences arena will find ways to make that happen.”

Is Disruption Just A Young Pup’s Game?

BY JOANNE SHORTHOUSE Executive Summary Big pharma has faced many evolutions to the pharma playbook of old. New technologies such as wearables introduce behavioral change to patients, while e-commerce giants such as Amazon seek a piece of the Rx action. The health care industry has done a reasonable job of weathering the storm inflicted on its core business model over the years, but it has yet to be a true disruptor. As the world marches on is pharma’s choice to disrupt, or inevitably be disrupted for good?

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How does disruption differ from innovation? Both concepts are too alike to be unrelated, some might say two sides of the same coin. Many companies, in all industries, are innovating in their lane. However, to be a true disruptor means emanating an idea or technology to build a continued operational advantage over competitors. When we think of disruptors in any industry we think of nimble companies that bring real change, not only in the way society thinks but in the way that it acts. Think of Netflix or Amazon; both concepts have revolutionized consumer behavior with technology at the core of its offering. To create this kind of change takes expertise, influence and most often financial backing.

Large pharma companies have the monetary advantage in this respect. But is the operational disadvantage of a big pharma behemoth that it cannot move fast enough, or think fast enough to bring about disruptive change in the way drugs are developed and patients interact with health care providers? It is not so much a case of asking ‘Is there life in the old dog yet?’, but ‘Is there life in the big dog yet?’. Or is disruption just a young pup’s game?

In a recent blog, Peter Behner, EY’s global health sciences and wellness strategy and transactions leader, wrote that small companies are more efficient drug developers than larger organizations, and that externally sourced products are increasingly more lucrative than homegrown ones. “Biopharma leaders should embrace this trend and refocus their internal innovation efforts in favor of more aggressive business development,” he said.

Of course, large pharma companies lack the inclination to create disruption from within when they have the financial backing to acquire companies with a culture to create lasting change. The externalization of innovation is a longstanding strategy, with some believing that to be successful, big pharma needs to accelerate this approach.

Large pharma is actively supporting this switch to externalization and many companies have begun to experiment with external innovation models such as corporate venture capital funds, incubators and innovation centers in biotech hubs. According to EY figures, from 2014 to 2018 biopharmaceutical companies spent an average of $100bn on M&A annually. In 2019, the value for M&A was even higher, north of $250bn.

Topline Findings From A Powerful Pairing Report

At the dawn of the pharma industry – 100 years ago when pharma companies and pharmacies were petri dishes for disruptive action – it created behavioral change in patients. Today, the thing that once allowed pharma to accelerate has now become its biggest constraint: size.

The health care industry’s reaction to COVID-19 has been a catalyst to redirecting technology talent towards the sector. In the survey: • 86% of technology professionals said that the health care and pharmaceutical industry’s digital moment has arrived • 83% reported a willingness to work in the health care and pharma industry • 52% see the opportunity to innovate through technology as the top reason to apply for a job in health care • 40% feel they do not have enough industry knowledge • 20% do not feel qualified enough to apply Source: Novartis

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“Pharma companies continue to run very large internal R&D infrastructures, yet the productivity of those lacks what is out in the market, and more and more is being acquired to supplement what is coming through the internal pipelines,” Behner told In Vivo. A pharma company is truly world class at one, two or three things, he believes. “The rest of it is not world class and the reality is that the company is burning a ton of money. Abandon that and start buying. Cut the internal spend and use it for external acquisitions.” Long-term, Behner expects

that the ratio of external to internal innovation will be 70:30, possibly even 80:20. The EY exec talks in terms of a physical pharmaceutical product, but what about digital disruption? Digital Dawn Over the last five years numerous big pharma names have embraced the world of artificial intelligence (AI) with expert partners for the purposes of drug target identification and validation, such as GlaxoSmithKline plc’s 2016 deal with Insilico Medicine; or in target-based and phenotypic type drug discovery like Takeda Pharmaceuticals International GmbH’s multi-year research partnership with Numerate to develop new clinical candidates. Last year Novartis AG announced a multiyear partnership with Microsoft for AI exploration and empowerment. While these deals show the concept of digital disruption is increasingly essential to pharma’s R&D model, few have chosen to step into the field of digital independently. Health care evolution creates the need for new technologies. Personalized medicine, for example, increases the complexity of drug discovery and amount of data required. Insurers now need to know more about drug performance once it is in use. Both instances depend on data availability and analysis. While large companies have been making investments in digital, some have the capabilities to go it alone. In June, Roche Diagnostics’ launched an algorithm, which could improve the speed and accuracy of a lung cancer diagnosis. “This is more about behavioral change,” commented Behner, “but it is reimbursable. I have had conversations

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with several CEOs about this topic and they are clearly extremely interested in this, but not necessarily well-positioned for it. They probably do not have the capabilities to do this today, exceptions duly noted, so they are acquiring these types of products. I think over time, and as we speak, companies are beginning to develop such capabilities.” Many pharmaceutical companies still view themselves as developing a pharmaceutical product, a biological or a chemical that does something in the human body. Digital is a different angle, but it is not just about digital products, there is also the expertise required to build digital infrastructures to support said product. Pharma’s challenge here is to develop a digital health ecosystem and to be able to connect the constituents of that health ecosystem in a patient-centric way. “Pharma companies are building digital infrastructures and departments and electing a chief digital officer, but they are coming from a totally outsourced end, so they are buying everything today, and in the future they might develop some of those things themselves,” said Behner. A Disruptor’s View One company that has disrupted within the digital health care space is Sensyne Health, founded by Lord Drayson, the former minister for science and innovation in the UK government. It is a clinical AI company working in partnership with the UK’s National Health Service (NHS) to develop software products, and conduct machine-learning led medical research to improve patient care and accelerate the development of new treatments.

Nick Scott-Ram, Sensyne Health plc’s chief of strategic development, told In Vivo that the company has created a unique commercial approach to benefit patients, the NHS, and the life sciences industry; a for-profit plc making a positive social impact. “We provide both a financial return to the NHS via equity and a share in revenues, and a patient outcome ‘return’ advancing care delivery and disease research and development,” he said. This is an unusual approach. Patient data is ethically sourced; any analysis of patient data (and hence the company’s access to it) must be pre-approved for each program on a case-bycase basis by the relevant regional NHS Trusts to ensure anonymization and the proposed analysis is subject to appropriate ethical oversight and information governance.

enables it to “remain competitive in this fastmoving area.”

“It’s currently a completely unique model that combines altruism and capitalism, providing improved patient care and generating value from anonymized patient data in an ethical way, providing an attractive return to its shareholders while making a positive social impact and maintaining public trust,” Scott-Ram explained. “We hope the rest of the industry will copy it.”

While Bodson seems to have one foot firmly planted in the value of externalization and internally produced initiatives, he “absolutely” believes that Novartis can be a digital disruptor. To do this, Novartis has made “going big on data and digital” one of its five enterprise priorities and is committed to a company transformation anchored to three ‘what if’ questions:

Sensyne Health is working with three pharma companies: Alexion Pharmaceuticals Inc., Bayer AG and Roche Holding AG. Scott-Ram said he had noticed “strongly increasing interest” from the global pharmaceutical industry in partnering with organizations able to use advanced analytical techniques to analyze large sets of anonymized patient data. “This is driving demand for ever larger population datasets to undertake this research in drug discovery and clinical development,” he said, explaining that the company’s initiatives are designed to increase the size and scope of datasets it has access to, which

• What if we could transform how we innovate in R&D to bring medicines to patients two years faster?

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Industry Inflection Point One large pharma company keen to originate digital evolution and disruption from within its walls is Novartis. It appointed former Amazon executive Bertrand Bodson at the beginning of 2018 as its first chief digital officer, tasked with spearheading digital transformation. Bodson told In Vivo that he is a firm believer in the importance of partnerships, and is keen to “learn and collaborate with the health tech ecosystem at large,” while concurrently building core internal platforms, particularly those that enable Novartis use its data as more of a strategic asset.

• What if we could upend traditional approaches to customer engagement and reach twice as many patients twice as fast? • What if, with an eye to reinvest in R&D, we look at our business operations and ask, could we revolutionize the way we work and reduce our costs by $1bn-2bn?

Answering these questions would require Novartis to transform how it had traditionally worked and challenge itself to better use data science and digital technologies across the board, said Bodson.

joined Novartis to “help us rethink how we engage with patients and so together we can elevate the practice of digital engagement across marketing, medical and patient engagement,” Bodson explained.

“Reimaging medicine with data and digital is certainly a priority at Novartis,” he said. As such, the firm has recently published the report, A Powerful Pairing, which looks at how tech talent now views a career in health care differently post-COVID-19, as opposed to more traditional avenues such as banking. Headline findings from the report showed that 73% of tech executives said their opinion of the health care industry had improved because of the way the sector reacted to the coronavirus pandemic. However, a lack of health care knowledge is the main concern among this group of professionals.

The Internal Disruptor Has the pharma industry moved too far from its 100% internal innovation past that it would be impossible to create an internal disruption engine? Certainly, there will always be companies that have a particularly good pedigree in developing a pharmaceutical product, Regeneron Pharmaceuticals, Inc., for example. But these types of companies will arguably always need the launch credentials and grunt of large pharma partner.

“The fact that 40% tech talent don’t believe they have enough industry knowledge to join us isn’t a big surprise but does highlight an area we need to address if we want to attract high caliber talent,” Bodson told In Vivo. “We have world class scientists; what we need are customerobsessed tech natives who can join us in reimagining medicine with data science and digital technologies. The need to continue to show how we’re committed to bringing diverse expertise together – this is where the magic really happens,” he continued. Joining Bodson’s team in the last two years are execs from IBM, Google and academia, as well as more consumer-focused industries. New recruit, Nestle’s global head of ecommerce Sebastien Szczepaniak, is a “fellow ex-Amazonian” who has

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“I think it’ll always be a mix,” said EY’s Behner. “If you rely 100% on external then you have a quite different type of skill set. I think you need to develop a core competency internally to understand what you are buying. How can you assess the quality and class of the external acquisition if you do not have an internal perspective? You need to have some of that inhouse, you also need to develop a conceptual framework for it in-house, and then buy and supplement.” When asked about the possibility of large pharma companies ending the externalization of disruptive activities such as AI to establish them in-house, Sensyne Health’s Scott-Ram was not confident: “I think pharma is still at a relatively early stage in developing AI and machine learning and is spending much of its time in this area focusing on structuring and contextualizing its data before it can move on to applying AI to it.”

He continued to say that while there is undoubtedly AI expertise being built in-house in pharma, “I think dedicated outsourced teams with very high competence and expertise in AI and machine learning will continue to be attractive as a partner to the pharma industry.” The idea of big pharma reversing years of partnering with R&D engines is unrealistic, companies have been successful in licensing

disruptive products and diagnostics that meet patient needs. However, digital disruption, while it is still largely the territory of specialist companies that partner with big pharma, seems a more likely target for the build up of internal specialisms within the industry. If Novartis’ recent findings are accurate and come to fruition, with more tech natives finding a home within pharma, there might still be a lot to play for in the digital disruption game.

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BIO-Europe Biopharma Deals and Financing eBook

Articles inside

Is Disruption Just A Young Pup’s Game?

Biopharmas Manage To Deal During Pandemic

Back To Business: Deal-Making On The Other Side Of COVID-19

Boehringer’s Philosophy Of Deal-Making: A Conversation With Ioannis Sapountzis And Scott DeWire

IPO Update: High-Flying Biopharma IPOs Average 77.1% Return Through Q2

Interview: Why Biotech Companies Should Be Confident About Deals Despite Coronavirus

How Has COVID-19 Influenced Investment Trends?

Introduction

Newly Launched Eir Ventures To Target ‘Early Nordic Opportunities

Biopharma Deal Value, Volume Tumbled Substantially During First Half