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Pharmacquired: Splashy deals believe a shallow pool of heart drugs left to acquire

Two big deals for heart drugs in less than a year might give the impression that more could soon follow.

But what Bristol Myers Squibb did this Monday with its $13 billion bid for MyoKardia, and what Novartis did last November with its $10 billion buy of The Medicines Co., was thin an already shallow pool of biotechs that work on cardiovascular drugs. With relatively few left to pick from, industry followers expect some time to pass before they see a steady stream of M&A.

“There’s a scarcity of assets in cardiology,” said Salim Syed, an analyst at Mizuho Securities USA.This report reveals the major shifts in virtual tech adoption that leaders are making for their trials. Know where the industry is going and stay competitive.

The scarcity stems, in part, from the decisions of venture capitalists, a key group of investors who fund and incubate many of the young biotechs that later get absorbed by large pharmaceutical companies.

Venture firms mostly steered clear of cardiovascular research over the last decade, opting instead to put their money into biotechs focused on cancer, the brain or the immune system. According to data from Silicon Valley Bank, these firms spent a total $534 million on cardiovascular companies in 2019, about 10 times less than the $5.6 billion directed at cancer drug developers.

Jon Norris, a managing director at SVB, said that, in his experience, one reason venture firms have hesitated investing in heart drugs is the often slow, expensive research process. Heart disease studies typically enroll thousands of patients and take years to complete before approval can be considered. Cancer drugs, by contrast, can show an effect much quicker, and be cleared for use with data from just a few hundred patients.

“They have to be able to think about getting to a significant inflection point,” Norris said. “That may be Phase 2 clinical data, that may be having to enroll a Phase 3 trial. And they just can’t afford that.”

This lack of early investment is then reflected in the pipelines of big drug companies, which have become increasingly reliant on smaller biotechs for new products. Cowen & Co. recently analyzed all the projects underway at 20 major pharmaceutical firms, and found that among 891 programs, just 47 were for cardiovascular conditions. That figure was well behind the 97 for central nervous system disorders, 98 for immune system-related diseases, and 335 for cancer and blood illnesses.

Cowen’s analysis also suggests that even the companies with well-established positions in the cardiovascular market, such as AstraZeneca, Bristol Myers and Novartis, have prioritized other areas of drug development. Indeed, the market research firm Iqvia determined that fewer than 300 of the almost 5,000 clinical trials run last year were for heart drugs.

The comparative lack of interest may be indicative, too, of the difficulties drugmakers like Amgen, Sanofi and Novartis have had selling high-profile cardiovascular medicines.

With the attention of would-be acquirers elsewhere, venture capitalists may continue to worry about getting returns on cardiovascular investments.

“It’s very difficult for venture-backed companies to want to go after that market, because they’re just not sure where that M&A possibility is,” Norris said.

And yet, recent takeouts may be able to drum up more interest in heart drugs, as the right assets can clearly fetch a high price and a significant return for investors.

Novartis paid a 24% premium for The Medicines Co. and its experimental drug for high cholesterol. The deal with Bristol Myers, meanwhile, values MyoKardia — itself a venture-backed company — at a 61% premium. In both cases, shares in the companies had risen significantly ahead of the deals.

“The premium paid plays a role in stimulating creativity and productivity,” said Charles Duncan, an analyst at the investment bank Cantor Fitzgerald. “You’ve seen that play out in spades in the last few years in oncology, and just look at the number of oncology companies that have come public in the last 10 years.”

“Now you’re starting to see that, frankly, in neurology, and you will see it in cardiovascular medicine as well.”

Cardiovascular drugmakers are also starting to take a closer look at the genetics behind certain diseases, a strategy that’s driven investment, and led to notable advances, in oncology and neuroscience.

MyoKardia, for example, is trying to create targeted therapies that work best in patients with specific genes. The company’s most advanced drug, called mavacamten, is on track to be filed for approval next year for a heart condition that is usually inherited, and which affects potentially hundreds of thousands of patients across the U.S. and Europe. Cantor Fitzgerald models $2 billion in peak sales for the drug.

Another company, Cytokinetics, is partnered with Amgen on a drug that’s meant to work in a similar way as mavacamten. A study of more than 8,000 patients that evaluated its use in a type of chronic heart failure just produced initial results — but while the drug did appear to have a positive effect on heart failure events, treatment didn’t significantly reduce cardiovascular death. The results sent the biotech’s shares down 42% Thursday morning. 

Mizuho’s Syed said that, had the results been more favorable, he wouldn’t have been surprised to see Amgen pursue an acquisition of Cytokinetics next year. Thursday’s announcement makes that deal less likely, he said, though it still may be possible. Cytokinetics has an important study of a different drug completing next year, results from which might spur interest in the company. 

Amgen could also use another asset in its commercial cardiovascular business, which is currently composed of just its cholesterol drug Repatha, a treatment that hasn’t lived up to once-lofty revenue projections.

“Look at Amgen’s cardiology franchise right now,” Syed said. “It’s non-existent. They have this global sales force for Repatha, but there’s nothing there on the sales front.”

Should the drugs from MyoKardia or The Medicines Co. drive sales in the way their developers hope, it could incentivize the formation of new companies or fuel more dealmaking.

Many cardiovascular diseases are still in need of treatments, which could support further investment. For example, Syed expects there’s a $7 billion market opportunity for whatever company can develop an effective medicine for chronic heart failure with so-called preserved ejection fraction.

“I think that there is going to be additional acquisition activity in this space,” Duncan said. “It may be more limited because there are fewer companies, but success will beget success. Hopefully in the next several years, we’re going to see more activity.”