U.S. Tax Overhaul Makes Biotechnology Players Hungry For Big Deals

Industry analysts are predicting that 2018 will turn out to be a banner year for merger and acquisition activity in the biotech/pharma sector, with up to $200 billion in assets changing hands.


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Industry analysts are predicting that 2018 will turn out to be a banner year for merger and acquisition activity in the biotech/pharma sector, with up to $200 billion in assets changing hands.
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U.S. Tax Overhaul Makes Biotech Players Hungry For Big Deals

Industry analysts are predicting that 2018 will turn out to be a banner year for merger and acquisition activity in the biotech/pharma sector, with up to $200 billion in assets changing hands.

U.S. Tax Overhaul Makes Biotechnology Players Hungry For Big Deals

By The BF Staff
From the March/April 2018 Issue

An $11-billion burst of biotechnology bids in just four days in January fueled expectations of a 2018 surge in life science deals as large drugmakers shop for promising assets from smaller rivals.

In a Reuters report by consultancy EY and law firm Baker McKenzie both predicted a significant rise in mergers and acquisitions (M&A) this year, helped by U.S. tax changes that may lift big companies’ appetite for deals.

The mega-deal fireworks show earlier this year included Celgene’s $7-billion agreed takeover of Impact Biomedicines; Novo Nordisk’s $3.1-billion offer for Ablynx; and Takeda Pharmaceutical’s plan to buy TiGenix for $630 million. This follows a relatively subdued 2017, when life sciences M&A totaled around $200 billion, dominated by Johnson & Johnson’s $30-billion purchase of Actelion and Gilead’s $12-billion acquisition of Kite.

EY has projected that this year’s deal value will exceed $200 billion, given companies’ increased balance sheet strength. There also is substantial pent-up demand, with 60 percent of life sciences executives surveyed in October 2017 planning to actively pursue M&A in the next 12 months, compared with 46 percent in April 2017.

Baker McKenzie, meanwhile, has predicted global healthcare M&A could rise 50 percent in 2018, with North America accounting for well over half of transactions. Driving the demand is the increasingly pivotal role of biotech firms in discovering the drugs of tomorrow.

“I believe you will see a higher proportion of innovation at an industry level—and also at Novo Nordisk—coming from external resources,” Novo’s Chief Financial Officer Jesper Brandgaard told Reuters.

U.S. drug approvals hit a 21-year high in 2017, with 46 novel medicines winning a green light and a growing share of new products coming from younger biotech companies.

For large drugmakers, as well as big biotech businesses like Gilead and Celgene, small and innovative upstarts are now a vital source of experimental drugs with which to top up in-house development pipelines.

Pricing pressures on established medicines for conditions like diabetes and respiratory disorders, as well as patent expiries on yesterday’s blockbusters, are driving big players into niche disease areas where biotech groups often excel, according to Edison analyst and former fund manager Andy Smith.

Although bankers say the U.S. tax overhaul and particularly a lower tax rate for the repatriation of cash held offshore has so far had limited impact on deal negotiations, they believe companies may decide to allocate more cash to M&A in 2018.

FREDERICK, MD: EPICENTER OF BIOTECHNOLOGY GROWTH

Frederick, MD is a thriving bioscience community. Home to Fort Detrick (the leading medical research laboratory for the U.S. Biological Defense Research Program), the Frederick National Laboratory for Cancer Research (operated by Leidos Biomedical Research) and several global vaccine giants, Frederick boasts a cluster of eminent research and bio-manufacturing facilities that have made the area a hub for innovation in the life sciences.

biotechnology
Frederick, MD is home to some of the nation’s largest life science firms,
including AstraZeneca (above), ThermoFisher Scientific and Lonza, companies
that employ a total of nearly 1,600 people. (Photo: Frederick, MD)

Frederick County’s reputation for innovation benefits from the presence and technology focus of local research institutions housed at Fort Detrick, a key driver in growing the County’s advanced technology and bioscience industries. Businesses enjoy strong biotechnology transfer opportunities from the federal labs at Fort Detrick and the National Cancer Institute. Patents invented by Frederick County residents are growing faster in the County than at either the state or national level for further evidence of an innovative economy.

Complementing efforts of federal labs are a number of major life science employers including AstraZeneca, ThermoFisher Scientific and Lonza who represent nearly 1,600 jobs. Numerous successful small and mid-sized companies engaged in a range of testing, product development and manufacturing contribute to a total number of over 80 cutting-edge bioscience companies—enabling the Frederick region to outperform the nation in terms of bioscience business growth.

Frederick is the northern anchor of the I-270 Technology Corridor in Maryland, which is one of the largest bioscience clusters in the U.S. With close proximity to the National Institutes of Health, Johns Hopkins Hospital and the National Cancer Institute-Frederick, this location gives companies unparalleled access to some of the most cited researchers and top influencers in the world.

Less than an hour from both Washington, D.C. and Baltimore, it also offers close proximity to federal regulatory agencies. Frederick County is also part of the BioHealth Capital Region Initiative to be a Top 3 Biotech Hub by 2023.

From Incubation to Acceleration

The Frederick Innovative Technology Center, Inc. (FITCI), named one of the largest incubators and accelerators by the Baltimore Business Journal in 2017, offers biotech and life science entrepreneurs over 20,000 square feet of space with 35 offices, 16 wet labs and state-of-the-art services geared towards accelerating biotech entrepreneurs.

Several success stories have bloomed from FITCI whose graduates have grown into becoming bioscience leaders. Akonni Biosystems who commercializes microarray-based systems, leads venture capital funding in Frederick County with institutional investments totaling over $17 million. RoosterBio successfully transitioned from start-up to a thriving stem cell manufacturer and was recently awarded a multi-million dollar grant from a DOD-sponsored consortium and U.S. Army partners.

Frederick County is home to a well-educated workforce that is growing. Frederick County’s percentage of residents with Bachelor’s degrees or above is 41 percent and exceeds the State of Maryland rate of 39 percent.

Access to four quality higher education facilities ensures that an available biotechnology and life science workforce remains top-notch. The County’s higher education institutions—Mount Saint Mary’s University, Hood College, and Frederick Community College have supported the growing need for higher education in biotechnology fields. The Frederick Center for Research and Education in Science and Technology (CREST) is a Maryland-approved regional higher education center whose mission is to provide a science, technology and engineering (STEM)-based research hub to meet the needs of regional employers.

Throughout efforts to attract and retain top talent, bioscience companies in Frederick benefit immensely from the desirable local quality of life. In addition to readily-available & quality education and health resources, Frederick boasts a vibrant Downtown, featuring a uniquely living, breathing historic district. The beautiful, two-and-a half century old streets lay stage to a thriving arts & entertainment scene and a wide-range of award-winning, independent restaurants. In recent years, prompted by the success of Frederick-based Flying Dog Brewery, the local craft beverage community has gained national recognition. Despite offering a full-range of urban conveniences, nationally-known outdoor destinations—including the Appalachian Trail and the Potomac River—lay just minutes away. This unique combination of amenities has earned Frederick County numerous national accolades for its high quality of life, which, in turn, continues to fuel the many growth opportunities for business.

Frederick’s strategic location, easy access to world-class bioscience facilities, lower relative cost of business, and a readily available high-quality workforce have set the right conditions for bioscience companies to grow and thrive.

For information on locating or expanding a business in the Frederick area, visit the City of Frederick Economic Development at www.businessinfrederick.com and/or Frederick County Office of Economic Development at www.discoverfrederickmd.com.

HUDSONALPHA INSTITUTE: GENOMICS BIOTECH HUB

“Biotech”, “startup” and “international corporate expansion”—all popular terms in this exponential information age of disruption and entrepreneurship, though not commonly found all in one place. But at HudsonAlpha Institute for Biotechnology (HudsonAlpha) and its campus in Cummings Research Park (CRP), Huntsville, AL, bioscience spinouts and seed companies share space with established life science enterprises, such as Eurofins subsidiary Diatherix | Eurofins Clinical Diagnostics.

biotechnology
The 152-acre HudsonAlpha Biotech Campus is centered on a 1.32-mile
double helix path and park open to the public for walking, running, biking
and skating. (Photo: HudsonAlpha)

Locating on the biotech campus offers life sciences companies of any stage or size access to the cutting edge of biotechnology and flexibility to grow. Since nonprofit HudsonAlpha has a mission to foster the success and growth of bioscience companies, it is neither an ordinary incubator nor landlord. More than 30 life sciences companies currently reside on campus, taking advantage of its collaborative culture and its proximity to on-site cutting-edge research and world class sequencing capabilities.

Qualifying life sciences companies can lease a single workstation, a single lab, a suite of offices, or any combination of space within two buildings on campus. A third building, currently preleasing, is scheduled to open later in 2018. Unlike many incubators, HudsonAlpha does not require an equity stake in its resident Associate Companies and also does not aim to graduate them out in order to bring in new companies. Rather, the economic development team there works like a mini-chamber for its current tenants to bring them business programming and resources, networking events, and best of all space to expand as companies need it.

“Our goal is to provide assistance to the bioscience companies of all sizes that locate on the HudsonAlpha campus, by supporting growth in increments and durations that fit the business of biotech,” says VP for Economic Development, Carter Wells. Programming focuses on: 1) access to capital, 2) business operations, 3) regulatory issues and compliance, 4) IP assessment and protection, 5) preparation for acquisition/merger, and 6) partnerships.

Sites on the campus are available to bioscience companies seeking headquarters, space for advanced manufacturing, and research and development (R&D) in an established genomics biotech cluster. Worldwide, many in big pharma, like Bayer and J&J, have established their own “farm-team” style incubators in order to continuously bring new ideas. HudsonAlpha offers the same innovative environment to biotech corporations seeking to benefit from new IP and discoveries.

Superior shared spaces and full services leases, make locating at HudsonAlpha the first of many simple choices that allow biotech management teams to spend their time and effort on and in the business. CEOs find that rather than spinning wheels coordinating adequate Internet bandwidth, or finding impressive space for meetings with potential investors, they can spend time on solid pitch decks, effective business models and critical reimbursement considerations.

“Many times when a company first contacts me, they are seeking 2500 square feet, but I am pleased to lease them only a single workstation or lab. Once they have seen the campus, the shared conference rooms, library, auditorium and classroom, startups and early stage companies realize they can spend their funding on progressing the science and product instead overhead,” says Amy Sturdivant, Director of Business Recruitment.

Companies located at HudsonAlpha work in many subsectors of life sciences including: providing biospecimens to research scientists; offering diagnostic services to physicians and patients; medical devices; and developing and testing biopharmaceuticals.

“When I came from California, I found everything was here that I needed and more. We have been able to take the promise of our patents and attract the buyers we need to move our company forward and on to the next idea,” said Randall Moreadith, PhD, MD, MBA, Serina Therapeutics.

Bioscience companies on the HudsonAlpha campus enjoy a collaborative environment alongside world class researchers in a genomic medicine clinic, and a high-energy team solely focused on providing genomic literacy to students, teachers and the public. Human, plant and animal genomics are the focus of the faculty on campus who came to Huntsville, Alabama from Stanford, Emory and Vanderbilt to name a few.

HudsonAlpha leaders recognize that the Institute will create the most value for society when working with partners who have complementary expertise or access to medical and educational communities across the country and world that are not routinely accessible. Breakthrough discoveries in medicine rely on combining HudsonAlpha’s genomics expertise with medical practitioners’ experiences and unique patient groups.

HudsonAlpha faculty investigators currently collaborate with more than 700 researchers and clinicians around the world in projects that will ultimately advance scientific understanding, improve human health, promote agriculture and protect the environment.

HudsonAlpha’s biotech campus is surrounded by a community of talented, skilled and intelligent individuals motivated to apply knowledge in ways that create tangible benefits. Engineering in North Alabama propelled rockets into orbit, landed men on the moon and sent information-seeking probes into deep space.

For more than 50 years, Huntsville has applied its expertise to aviation and missiles at the U.S. Army’s Redstone Arsenal, and has accomplished great feats for NASA and the Army. HudsonAlpha is applying the same passion and drive to the promise of genomics and use of biotechnology to improve the way we approach health and disease.

Cummings Research Park, the second largest research park in the United States, co-locates Fortune 500 companies with local and international businesses specializing in a range of high-tech industries: aerospace and defense, hardware and software development, engineering, research and development, along with the Biotech Campus at HudsonAlpha.

Huntsville is home to major employers in several sectors. Included in the mix of companies are Lockheed Martin, Northrup Grumman and Boeing (aerospace and defense), Adtran (telecommunications and information technology) as well as internationally recognized life sciences and research companies, such as Aviagen and Nektar.

Biosciences are a priority for the city of Huntsville, Madison County, the state of Alabama. HudsonAlpha is continuously working with the economic development partners to strengthen policies and incentives for the life sciences industry. Alabama already offers tax incentives and training well worth evaluating for growing life sciences companies.

According to Mayor Tommy Battle, City of Huntsville, “in Huntsville, you can do your research, development, engineering and manufacturing all in the same location. This systems approach is why Huntsville continues to be on the radar for companies looking to innovate and create.”

LOUISIANA’S RESEARCH CENTERS FUEL BROAD BIOTECH GROWTH

The eureka moment for Lowry Curley came in a chain reaction.

A postdoctoral researcher in biomedical engineering, Curley and his Tulane University professor, Michael J. Moore, had completed over 100 interviews with pharmaceutical industry executives. Moore’s “nerve-on-a-chip” model showed in vitro human tissue, in lieu of animal subjects, could speed drug trials. Moore and Curley also could foresee regenerative remedies for ALS, MS and other neurological diseases.

But for now, what resonated with pharmaceutical firms is the potential for Nerve-on-a-Chip® to predict trial drug effectiveness on human subjects in a matter of weeks. A National Science Foundation I-Corps™ grant funded the customer discovery mission in early 2014.

“At the back end of those interviews, we realized there was a need out in the market for our product,” said Curley, now the CEO of AxoSim Technologies. He and Dr. Moore, the chief science officer, founded the firm in June 2014. They opened in temporary Tulane space, outgrew it, moved to the New Orleans BioInnovation Center in 2016, and have expanded again in the downtown incubator, now employing 11 life sciences professionals.

“Tulane is a fantastic partner,” Curley said. “They provided, first, the freedom to explore this idea without there being any issues with that. And once it was obvious there was life to this, they worked with us to make sure the intellectual property is in place while taking care of Tulane’s responsibilities.”

AxoSim embodies what Louisiana leaders have been aiming for in the past generation: a coupling of higher education research and business accelerators to create a fertile hub of biotech players. Famed for energy, manufacturing and agribusiness industries, Louisiana now is flexing a new kind of muscle on the biotech front.

The New Orleans BioInnovation Center, one of three life science labs built with state funds, operates in BioDistrict New Orleans, a 1,500-acre downtown corridor buoyed by billions of dollars in new capital investment. Those investments include a federal Veterans Affairs hospital and a new University Medical Center operated by LCMH Health in partnership with LSU Health Sciences Center and the Tulane University School of Medicine. Beyond the district, Ochsner Health System operates multiple New Orleans medical campuses as Louisiana’s largest private healthcare company. A new Louisiana Cancer Research Center and Xavier University’s College of Pharmacy also enhance the city’s destination healthcare status.

Molding that medical intelligence into commercial biotech firms is Aaron Miscenich’s mission. The BioInnovation Center president helms an incubator that hosts 30 startups, including AxoSim. Since 2011, the 66,000-square-foot center has assisted over 200 startups, created over 350 high-wage jobs and helped young firms access more than $93 million in capital.

“We want to do whatever it takes to grow the companies,” said Miscenich, who hosts venture capitalists, industry experts and regulatory advisers to aid tenant growth. “I think the more people who can be exposed to these startups, the better. That’s what it’s really all about.”

One tenant, LaCell, ethically harvests stem-cell tissue from adult liposuction procedures. The company’s stem cell therapeutics are being applied to regenerative treatments for burns, ulcers and diabetes. Not surprisingly, the technology was born from research at Louisiana’s leading biomedical campus, the Pennington Biomedical Research Center in Baton Rouge.

On a busy Baton Rouge business corridor, Pennington sprawls across 222 acres where over 500 employees perform research work. Funded by a $125 million gift from philanthropist C.B. Pennington, the biomedical center opened in 1986 with a focus on obesity, diabetes, genomics, nutrition, neurobiology and cancer. The work of Pennington researchers has been cited in scientific literature 128,000 times, has attracted four National Institutes of Health (NIH) research centers, and drawn 300 institutional partners from 24 countries.

Some 85 pharmaceutical companies and 21 food and beverage companies have turned to Pennington for faculty expertise, with the center leveraging that expertise to attract $1.08 billion in federal, state and private funds.

“As the pandemic of chronic disease and obesity garners more attention internationally, Pennington Biomedical is well-positioned to be a leader in clinical research on those issues, as well as discovering new treatments, and providing outreach to support healthier lifestyles,” Pennington Executive Director John Kirwan said.

In Northwest Louisiana, India-based Dr. Reddy’s Laboratories employs more than 200 professionals in Shreveport, and the company ranks among the Top 10 generic drug companies in the U.S. Leveraging research by Shreveport’s LSU Health Sciences Center, Embera Neurotherapeutics has attracted $15 million in NIH funding for addiction treatments.

In Baton Rouge, Esperance Pharmaceuticals has accelerated technology discovered by Pennington researchers to form a strategic alliance with Houston-based MD Anderson. The goal? Treating ovarian, breast and other cancers through cellular-level therapies. Other Louisiana pharmaceutical companies, both employing more than 100, include Merck Animal Health in Baton Rouge and AlfaSigma, a nutritional treatments manufacturer in Covington.

The breadth of Louisiana’s biotech sector, largely generated by research centers, encourages Lowry Curley of AxoSim, the New Orleans BioInnovation Center firm. Louisiana may be overshadowed by some biopharma hubs, he said, but it offers something more.

“The benefits, the cost of living, the culture and the intangibles we love that are here, aren’t necessarily in Boston or San Diego,” said Curley, whose company has attracted $2.5 million in federal grants so far, including one to study how anti-gravity in space affects “nerve-on-a-chip” technology. “Our hurdles are access to capital, but I think that’s getting to be a little easier for out-of-state investors to feel comfortable about. And the good thing is a lot of its virtual: Our customers don’t seem to care where we are.”

A CRADLE FOR INNOVATION IN IOWA

From cloud computing to biorenewables, Iowa has reinvented itself as a cradle for innovation.

The word innovative is thrown around liberally these days—it’s almost a prerequisite when describing a tech wunderkind or ambitious entrepreneur of any merit. But if you ask Debi Durham, director of the Iowa Economic Development Authority (IEDA), the most inventive and problem-solving people she knows were innovating long before it was a buzzword. Those people are farmers.

“If you look at the yields these farmers are getting from their land and the added value they’re providing, this is an extremely innovative group of people,” says Durham. “Really, there isn’t a more innovative group.”

If you think that’s corn-fed hyperbole, consider this: Iowa’s rich and proven tradition of excellence in agriculture—coupled with its open-armed welcome of new businesses and new ideas—has made it a fertile hub for cutting-edge industries like biorenewables, the collective name given to enterprises that create products from natural, sustainable materials.

In 2016, then governor—now U.S. Ambassador to China—Terry Branstad signed legislation to establish a biochemical production tax credit, the first-of-its-kind in the nation. For a state whose agricultural landscape already presents an ideal environment for companies that turn biomass feedstock into products, the credit further establishes Iowa as the industry’s preeminent incubator.

The tax credit, which provides up to $10 million annually to companies that produce biochemicals in the state, is slated to run for 10 years. Late in 2016, the USDA issued a report stating “Iowa has invested more in biobased manufacturing capital assets than any other state.”

In business terms, companies come to Iowa for the natural resources and stay for the infrastructure support. Over the past five years, 78 percent of patents issued in the state directly impacted advanced manufacturing, and manufacturing exports grew nearly 80 percent from 2005 to 2015. Perhaps most impressive is the university system: Iowa’s colleges and universities turn out more than 5,300 science, technology, engineering and math (STEM) graduates annually, with over 2,000 engineering graduates.

A natural point of emphasis is biochemicals. Brent Shanks, an Iowa native, is director of the Center for Biorenewable Chemicals at Iowa State University where he heads a team of engineers that researches the processes that turn raw biomass into bio-based chemicals. Shanks and his colleagues have been able to push forward progressive, paradigm-shifting ideas in a remarkably short period of time.

“When we first started working on this area of research around 2001 and 2002, we’d go to our national chemical engineering conferences and almost no one was working in the area. We helped get some sessions going at those national meetings,” says Shanks. “When we went last year to the meeting, there were probably 40 sessions on these topics.”

As a professor at a state university, Shanks appreciates the support he receives from Iowa, which he says has been deliberate in funding research specifically focused on biorenewables. He has helped the IEDA too, contributing to a white paper recommending bio-based chemical production tax credits. Such a symbiotic relationship represents exactly the type of partnerships the state wants to develop, and what makes Iowa an exciting place to do groundbreaking work.

Shanks and his team are currently working with a series of newly discovered molecules, which might not seem like something that touches day-to-day life until you consider the opportunities. “We have one molecule that’s a really interesting mosquito repellent that no one has ever looked at before,” says Shanks. “We have another one that’s a really interesting food preservative. To me, that’s the exciting part about biomass. If you can talk about new molecules, now you’re talking new value propositions to move our society forward.”

The IEDA is particularly focused on fostering private-sector innovation. That explains why Iowa has been able to attract companies typically associated with Silicon Valley. It all starts with wind. Iowa’s farmlands are literally swept by wind, which—when properly harnessed—represents a massive supply of renewable energy.

Tech giants like Apple, Google and Microsoft have taken notice and established large-scale data-server operations in Iowa. (Yes, Iowa’s wind is being used to help power the cloud.) In 2014, Facebook partnered with local utility, MidAmerican Energy, to establish its first facility powered 100 percent by wind energy in the city of Altoona, bringing 75 full-time jobs and hundreds of skilled construction jobs during the continued construction.

“Stewardship that comes from the value of the land is in Iowa’s DNA,” says Durham. “Thirty-five percent of our energy portfolio is renewable, and with new installations coming, we’ll be at 40 percent. That’s a huge calling card to companies, particularly publicly traded ones. I always say that you can find sustainability within the first two sentences of their mission statements.”

The innovations coming from the Hawkeye State leave an impact on the entire country. To keep the advances coming, Durham and her colleagues at the IEDA understand they must keep their focus trained on Iowa.

“The wealth comes from the land,” says Durham. “Through the decades, we’ve always looked at how to add value to the land. Ethanol and biodiesel resulted from that conversation decades ago. Now, we’re taking it to the next level.”

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