Pharma Dealmaking Recovery Gets Boosted By $85bn M&A Splurge

It is well to be noted that pharma and biotech companies splurged a whopping $85 billion in the first five months of 2023, which itself went on to mark a dramatic recovery when it comes to dealmaking as they look to go ahead with replenishing their drug pipelines. The increase in M&A, vis-à-vis only $35 billion in deals in the same period of last year and $49 billion a year before that, as per one of the investment banks, is being throttled because of large cash reserves that have been amassed by big pharma at the time of the Corona virus and also concerns by investors when it comes to future prospects of growth.

At the beginning of the year, the world’s largest pharma companies happened to hold more than $1.4 trillion in dealmaking firepower, as per an analysis by a consulting giant. There is an expiration of patents stretching to the end of the decade, exposing $200 billion of the top-selling branded drugs to competition that’s generic and squeeze the revenues.

Apparently, Pfizer, Sanofi, and Merck have gone on to lead the M&A revival in 2023 by making announcements of acquisitions worth multibillion dollars, even though dealmaking throughout the other markets has fallen flat because of the rising rates of interest as well as tighter lending at the bank’s end.

A managing director of a global healthcare group opines that all this is indeed a massive turnaround and, in a way, completely opposes the entire trend within the M&A segment. He adds that if they were to maintain the pace for the first few months, they would be on track to attain $215 billion in a year. It is well worth noting that the overall value of biopharma deals was $127 billion last year, compared to $149 billion the year before.

That said, at the Bio International Convention, which happens to be one of the largest biotech conferences in North America, bankers as well as sector analysts and company executives were refraining from celebrating the dealmaking return. They in fact were fretting about the surging threat that the US antitrust regulators have begun going ahead with a crackdown when it comes to the consolidation of the sector.

In May, the Federal Trade Commission went on to cause shockwaves when it went ahead and sued to block Amgen’s Horizon Therapeutics, which was a $28 billion deal that was announced in December 2022 to kick start the nascent recovery of M&A. The FTC also warned of rampant consolidation in the pharma sector that was pushing up costs for patients in its first ruling in almost more than 10 years, looking to block mergers in the sector.

It deployed a novel argument suggesting that this particular transaction could aid Amgen in getting rebates when it comes to its present blockbuster drugs so as to pressurise the insurance companies as well as pharmacy benefit managers to favour Horizon’s couple of monopoly products.

As per Amgen, they are going to fight against the decision in court, but this did not temper the sector-wide concerns that this action would go on to chill the activity pertaining to mergers and acquisitions with smaller biotech firms facing investment challenges. According to the chief executive of an early-stage biotech company that specialises in cell therapies targeting cancer, the blocking of the deal is something that is absolutely uninformed. The fact is that if there is more volatility, it is going to be harder to find investors to invest.

He went on to warn that the US antitrust authorities tougher stand on both the pharma and biotech sectors risks upending a 10-year-old business model that goes on to underpin innovation.

The model goes on to help investors with biotech firms that happen to be looking out for high-risk research in the knowledge that big companies can go on to later buy them and also supply the funds that are needed so as to complete the costly clinical trials and also commercialise novel drugs. The significance of small to mid-sized biotech’s that are also involved in drug development has gone on to grow at a rapid pace in the past 20 years. It is well worth noting that in 2022, the emerging biotech companies will be the ones responsible for a historic 65% of the molecules when it comes to the R&D pipeline sans the involvement of a larger company, which is up from less than 50% when it comes to the 2016 figures and 34% from the 2001 numbers.

Apparently, the biotechs concerned were backed by Seagen as well, whose shareholders went on to back a proposal amounting to a $43 billion takeover from Pfizer, which happens to be the largest ever deal in this sector since the time Allergen was bought in 2019 by AbbVie.

The chief executive of Seagen went on to tell the Financial Times that as and when the FTC takes away the probability of big pharma companies going ahead and acquiring biotechs, funding as well as innovation are soon going to dry up within the sector, and he hopes that the FTC can come to understand how this ecosystem functions.

Notably, the intervention of the FTC, which has gone on to take a tougher step towards M&A under the commissioner, comes during challenging times for the companies pertaining to the biotech landscape, which face capital dearth as well as the biggest shakeup in the US market for decades.

Biopharma companies raised $54.66 billion from funding in 2022, which was, as a matter of fact, a dip of 54% from 2021 and the lowest fund levels raised by the sector since 2016.

The seizing up of the IPO markets, rising interest rates, and the Silicon Valley Bank collapse, which happened to be one of the biggest funders of the biotech sector, mean that several companies are indeed struggling to get cash.

Notably, last week, Merck went on to sue the US government over a new law that gives the federal government the power to negotiate prices as far as some of the most expensive drugs are concerned. As per the drugmakers, they see the drug pricing reforms, which are a crucial part of President Joe Biden’s agenda, as unconstitutional and almost like extortion.

The experts opine that government regulators elevated willingness when it comes to intervening in the industry makes way for uncertainty and also risk for companies that are looking to go ahead with large takeovers.

When it comes to the next test for antitrust authorities, it involves Pfizer’s takeover of Seagen, which is oncology-focused. It is well to be noted that the FTC must go ahead and decide within days whether to go ahead with an extension of the initial time period of 30 days when it comes to the review of the deal, which is apparently at the centre of Pfizer’s endeavours to make a return to growth after a sharp fall in COVID revenues in 2023.