Coming soon … a wave of M&A in biopharma?

By Ethan Popowitz

When done well, mergers and acquisitions in the biopharma industry can lead to valuable outcomes. Industry analysts often report on how consolidation can serve as a powerful force for innovation in biopharma.  

A merger could inject much-needed capital into the development of novel drugs and digital technologies that might otherwise not have launched due to how expensive and risky the development journey can be.  Or selling itself to a large pharma company might be the best way for a small biotech company to get its drug to as many people as possible and avoid having to create a large sales organization from scratch. 

Even though COVID-19 placed an unprecedented degree of pressure on healthcare providers, merger and acquisition activity in the biopharma and biotechnology spaces didn’t slow down much. BioPharma Dive tracked 28 deals in 2020 valued at $50 million or more, only one deal less than in 2019. Companies seemed to bounce back in 2021, as 35 deals reached that $50 million minimum benchmark. And 2022 is shaping up to be another solid year for M&A in biopharma.  

But a quick glance at the news might tell you that the wave of biopharma M&A has slowed to a trickle. This isn’t entirely unfounded, as the first quarter of 2022 saw deal activity hit an all-time low with both the number and size of transactions falling.  

And the outlook for the remainder of the year seems divided. While some experts claim this downward trend will continue, there is an equal number who believe the biopharma industry is ripe for big M&A in the back half of 2022 and in the years to come.  

Ever the optimist, I agree with this growth prediction. Professional services firm PwC suggests a boom in M&A is coming. They offer three possible reasons for this, which I’ve expanded upon below. The three reasons are:  

1. Big Pharma is flush with cash 
2. Biotech valuations have fallen significantly 
3. Major product patents are about to expire 

1. Big Pharma is flush with cash 

The back half of 2022 might see a shopping spree for biopharma’s biggest players.  

Pfizer’s vaults, in particular, could be stuffed with as much as $101.3 billion by the end of 2022. That’s up from $80.7 billion in 2021. Paxlovid and Comirnaty, a COVID-19 oral drug and vaccine respectively, contribute to this spike in revenue. Combined, industry analysts believe these products could be responsible for nearly $54 billion of Pfizer’s revenue for the year.  

Novartis is also seeing solid sales and profit growth in 2022. Contributing to this is Cosentyx, a prescription drug used to treat psoriasis, arthritis and other conditions. Cited as a key growth driver, Cosentyx sales float around $1 billion from quarter to quarter.  

And other pharmaceutical giants like Johnson & Johnson are reporting increases in revenue and high sales, thanks in part to COVID-related vaccines and treatments and other drugs.  

With significant cash on hand, this could translate into busy deal activity in the latter half of 2022. And biotech companies, experiencing low valuations, may be viable targets for M&A.  

2. Biotech valuations have fallen significantly 

According to the Financial Times, valuations and funding for biotechnology companies are at their lowest in recent years. The article goes on to explain that the total enterprise value of publicly traded biotech companies has declined by 70% from February 2021 to May 2022.  

Compounded by a slowdown in IPOs and venture capital funding, and a stock market ‘bloodbath,’ biotech companies are facing an uphill battle to demonstrate the value of their product in the market.  

For biotech companies on the back foot, one possible avenue for survival is to seek partnerships or acquisitions by larger companies. And big biopharma companies are already expressing an interest. Pfizer, for example, is currently acquiring Biohaven Pharmaceuticals to the tune of $11.6 billion. 

Merk & Co. is currently eyeballing Mirati Therapeutics, an oncology company developing therapies with a focus on genetic testing and precision medicine. Meanwhile, GlaxoSmithKline completed its acquisition of Sierra Oncology and Bristol Myers Squibb is in the process of acquiring Turning Point Therapeutics, another leading precision oncology company.  

Genetic testing and precision medicine, particularly for cancer treatment, is one of the hottest areas in all of healthcare right now. Our CEO, Robert Musslewhite, named it one of the top trends in healthcare in 2022 during his keynote at Definitive LIVE! 2022.  

Not only is cancer among the leading causes of death in the U.S., but it costs the country hundreds of billions of dollars every year. The opportunities for innovation in the cancer space are abundant. M&A could possibly help biotech companies get their treatments to market more effectively.  

3. Major product patents are about to expire 

If there’s one thing that haunts the dreams of pharmacy executives, it’s the realization that patents for highly lucrative drugs eventually expire. This could lead to a sharp decline in revenue as competition opens to generic drug makers, known as a “patent cliff.”  

And while a wave of lower-priced generics can be great for consumers, upcoming patent expirations can seriously disrupt the operations of the largest biopharma companies. According to PwC, nearly $180 billion in revenue across the major players in pharmacy will be at risk between 2023 and 2028. This is impacting some of the biggest drugs in the industry, including Humira, Stelara, Cosentyx and Keytruda among others.  

Bristol Myers Squibb may be most impacted by the impending patent cliff. Fierce Pharma reports that 66% of the giant’s revenue comes from drugs that will soon lose market exclusivity. Two of their top drugs, Eliquis and Revlimid, are forecasted to lose more than 80% of their revenues between 2025 and 2030. Biopharma experts are calling this the “most painful period of patent loss for at least 30 years.”  

With so much income at risk, what’s the path to survival? The solution could be acquisitions. And there’s already a precedent for M&A to prepare for inevitable revenue gaps. For example, AbbVie’s acquisition of Allergan in 2019 was motivated by the drug Humira’s patent cliff. 

Merck & Co. will have similar problems to worry about when Keytruda dethrones Humira as the world’s biggest-selling drug in 2023. Generics are already being unveiled, such as PlantForm Corporation’s Keytruda copycat aimed at the Brazilian market.  

Pharmaceutical companies like Pfizer who are flush with cash from selling COVID-19 products may be positioned to make the most impactful deals. With cash generated from Paxlovid and Comirnaty, Pfizer could have more firepower for M&A in the future when the patents on their other drugs, like Xeljanz and Ibrance, eventually expire in the latter half of the decade.  

Market pressure drives change 

While no one can say for sure what the future may hold, today’s biopharma market is rife with uncertainty. Staffing shortages, supply chain issues and rising costs are placing pressure on biopharma companies, healthcare providers and other organizations across the industry.  

For smaller companies, especially those operating in biotech, a merger with a bigger company might be the only way their drugs and products reach the market. And for the biopharma giants feeling the heat, acquiring valuable companies can shore up potentially dwindling revenue streams in the future while diversifying their product offerings. The next 18 months might just be a battlefield between the industry’s biggest players to find the hottest biotech start-up and then get that drug to market as quickly and safely as possible.  

For more information on how companies large and small can benefit from consolidation, read our aptly named blog: “Is M&A the key to survival?” And to get the latest M&A news and the healthcare commercial intelligence you need to adapt to these changes in the market, start a free trial today.