After something of a slow year in 2022, mergers and acquisition (M&A) activity is ramping back up in the pharma and biotech sector. There have been several especially large M&A deals in the past few months. Examples include Pfizer’s (NYSE:PFE) $43 billion acquisition of Seagen, and Merck’s (NYSE:MRK) $11 billion purchase of Prometheus Biosciences. In December 2022, Amgen (Nasdaq:AMGN) said it would scoop up Horizon Therapeutics for almost $28 billion.
What’s fueling the M&A uptick?
Factors driving the uptick include an upcoming patent cliff from 2026 to 2029, pricing pressure from the U.S. Inflation Reduction Act and lower equity valuations, according to Moody’s Health Care Quarterly: April 2023.
For instance, the Amgen acquisition of Horizon could help the firm offset a potential $30 billion sales shortfall it may face as a result of growing biosimilar competition in the coming years.
Jeffries analyst Michael Yee recently wrote in an investors note that the another factor driving the M&A trend is dwindling stock prices and the restricted funding climate for biotech startups.
Companies with higher potential for significant M&A activity include Bristol-Myers Squibb (NYSE:BMY), Merck & Co. and Royalty Pharma (Nasdaq:RPRX), according to Moody’s analysis. The financial services company concluded that AbbVie, Biogen and Gilead Sciences have moderate M&A potential. Amgen, Lilly (NYSE:LLY), Johnson & Johnson (NYSE:JNJ) and Regeneron Pharmaceuticals (Nasdaq:REGN) fall within the bracket of lower potential for significant acquisitions.
- Graph showing a recent surge in M&A deal in recent months. Note that the Q2 has just begin in this image.
Additionally, Moody’s projects that Viatris appears poised to pursue acquisitions to bolster its growth rate. The generics company, founded in 2020, recently picked up two ophthalmology companies for roughly $700 million without needing additional debt. The ratings firm noted that Viatris has moderate financial flexibility for acquisitions through free cash flow.
The Deloitte Navigating Uncertainty: 2023 M&A Trends Survey, which was compiled in late 2022 and compiled feedback from a variety of industries, noted stagnation and uncertainty as key themes. That Deloitte survey, however, found reason for optimism in M&A deals, owing to their potential to drive “new growth opportunities, process improvements, supply chain shortening, and internal restructuring.”
Pharma M&A activity has been sporadic in recent years
In the past several years, M&A deal making has remained fairly consistent, with some periods of increased activity followed by occasional dips. The most notable dip occurred in early-to-mid 2022. There was a relatively large increase in pharma deal-making in Q1 2023.
Over the years, the pharma sector has seen a series of major deals. Some of the largest deals in recent history include Pfizer’s $43 billion acquisition of Seagen in 2023, Amgen’s $27.8 billion acquisition of Horizon Therapeutics in 2022 and AstraZeneca’s $39 billion acquisition of Alexion Pharmaceuticals in 2020. These mega-deals exemplify the trend of major pharmaceutical companies seeking to expand their portfolios and establish a foothold in high-growth therapeutic areas.
- A scatter plot of pharma M&A deal sizes showing trends in major acquisitions from 2018 to 2023.
The highest premium paid by a pharmaceutical company in a recent acquisition was observed when AstraZeneca purchased LogicBio Therapeutics, shelling out a considerable 667% premium in October 2022.
The heat map illustrates the number of pharmaceutical M&A deals per quarter from 2018 to 2023. This graphic provides an overview of the fluctuations in deal frequency over time. August 2020 proved to be an especially fertile period for mergers and acquisitions within the pharma sector, with a total of 15 deals taking place during that month.
Visualizing pharma M&A activity
Heatmap of M&A activity in the pharma sector from 2018 to present.
The current uptick in M&A activity highlights the importance of strategic growth and consolidation for drug makers navigating a challenging landscape. With factors such as patent cliffs, pricing pressures and evolving regulations continuing to influence the industry’s future, it is probable that M&A will continue to play a core role in the transformation of the sector.
Filed Under: Biologics, Drug Discovery, Drug Discovery and Development, Oncology, Regulatory affairs, Special Feature
