The biopharmaceutical industry experienced a remarkable surge in strategic consolidations, with notable deals such as Pfizer-GBT, Amgen-Horizon, GSK-Bellus, Merck-Prometheus, and Pfizer-Seagen making waves. The momentum in M&A activity is being driven by several key factors, as Gregory Renza, M.D. Senior Biotechnology Analyst, explains.
“With robust balance sheets and patent cliffs pending, we’re seeing big pharma exhibit quite bullish sentiment this year,” says Renza. “Moreover, improved policy clarity has also bolstered momentum into the small and mid-cap space, all of which enhances the prospects of companies advancing their programs and drive towards positive trial results.”
Anticipating the next wave of acquisitions
In the wake of Pfizer's colossal $43 billion acquisition of Seagen and Amgen's substantial $27.8 billion acquisition of Horizon, there is speculation about the possibility of further major acquisitions over the next six to 18 months. “Larger pharma is seeking to integrate new innovations into existing treatment areas and expand into new domains,” explains Renza, “sometimes through acquisitions that may not seem immediately logical or obvious.”
The compelling narratives surrounding these deals hint at the potential for further partnerships and acquisitions, ushering in a new era with far-reaching implications. These evolving dynamics underscore the need for companies to adapt and diversify their offerings. The quest for innovation has led to a willingness to explore unconventional partnerships and acquisitions, as firms recognize that transformative breakthroughs can arise from unexpected sources.
This openness to unconventional deals further contributes to the potential for a surge in major acquisitions, as companies pursue differentiated growth to secure their positions in an ever-evolving market.
A standout acquisition
The Pfizer/Seagen acquisition, one of the most notable transactions this year, garnered significant attention from investors and the broader market. This deal served as an intriguing test, evaluating both the fundamentals of the sector and the uncertain macro environment, with additional factors such as post-COVID normalcy and evolving government policies influencing price and asset value dynamics.
The scarcity of high-quality, proven assets like Seagen’s portfolio further added to the compelling narrative surrounding the acquisition, attracting the interest of potential acquirers and other targets with comparable or adjacent technologies.
“The interest from other players besides Pfizer also underscored the importance of strategic collaborations preceding outright ownership, and the drive among innovators to address significant health challenges – including the battle against cancer and the quest for effective treatments for rare and underserved diseases,” says Renza. “The demand for managing chronic conditions and preventative measures remains high, which underscores the value of innovation that addresses both present and future healthcare needs.”
The evolution of innovation
Other recent transactions, such as GSK’s acquisition of Bellus, provide further insights into how this pursuit of innovation is likely to evolve and influence M&A activity. “The acquisition of Bellus by GSK revolves around the potential of an undefined market, specifically chronic cough,” explains Greg. “While strategic interest and M&A activity have been observed in rare diseases, small markets, and established commercial portfolios, what distinguishes this acquisition is the uncharted nature of the market. Bellus is bringing a late-stage asset to GSK, but further development and construction are still required.”
This signals a promising appetite among industry players to invest in innovation, not only in well-understood diseases but also in novel approaches that address unmet needs in areas lacking established infrastructure but supported by data.
“In both the US and Europe, there is a discernible narrative where major pharmaceutical companies are pursuing acquisitions of smaller firms, exemplified by AstraZeneca's acquisition of CinCor and Sanofi's acquisition of ProventionBio,” continues Renza. “GSK has also demonstrated a well-defined strategy in recent years, concentrating on later-stage programs nearing market readiness. A lot of these trends and strategies within the industry are fundamentally driven by innovation.”
“We’re in a position where larger global players are well organized around key therapeutic areas and innovations, so when science and value are proven, they’re ready deploy their resources and help to potentiate that opportunity.”
Gregory Renza, M.D., Senior Biotechnology Analyst
Big pharma’s focus for future acquisitions
When considering the next wave of potential acquisitions, it’s clear that big pharma is actively seeking opportunities in various areas of interest. One particularly promising field is oncology, where significant potential for further advancements exists. The expanding knowledge surrounding the immune system is also a driving force behind increased activity in this sector.
“There is also a focus on exploring psychosocial factors within society, along with a wave of innovation in neurology,” says Greg. “Environmental factors related to cardiometabolic areas have also garnered attention. It’s also important to consider the impact of reasonable policies and flexible regulatory procedures within the industry. All of these factors are major contributors to the synergistic collaboration that accelerates both the pace of drug development and the extraction of value from strategic activities.”
Shifting valuations
As we enter the second half of the year, there are also signs of a potential shift in valuations within the M&A landscape. Strategic activity in this realm is often likened to a pendulum that oscillates back and forth. Investors are keen on seizing opportunities during market upswings while remaining cautious about chasing deals when the pace slows down.
While some early-stage companies that went public in recent years may have encountered setbacks, many of them continue to progress their programs and actively seek funding to fuel their growth. This dynamic creates the potential for future inflection points on the horizon that could attract further interest from investors and industry players.
“If the markets start to behave more fundamentally,” says Renza, “good data will be rewarded. On the flip side, we may also see funds steer away from data that might be mixed or uncertain or even negative. Above all of that, I do think there have been enough positive catalysts and M&A activity of late to help small-to-mid caps appreciate and bring biopharma to the forefront of investors’ minds. We're in a fortunate position where larger global players are well organized around key therapeutic areas and innovations, so when science and value are proven, they're ready deploy their resources and help to potentiate that opportunity.
Can Biotech M&A sustain or accelerate pace?
The pace of biotech M&A has always been closely intertwined with drug development, making deals just as significant as scientific breakthroughs. M&A activity remains an integral part of value creation in the biopharmaceutical industry. The ongoing need for such strategic initiatives underscores their intrinsic importance in the pursuit of innovation and delivering meaningful advancements to patients.
“The state of innovation remains strong,” says Renza. “Big pharma still has the clout to get drugs through approval and onto market. Small pharma still has a nimble and innovative culture that helps them focus on new avenues of research. With so many great small and mid-cap biotech firms out there, there’s potential for further change.”
One final aspect that should never be underestimated when it comes to deals is the perspective of the Federal Trade Commission (FTC) regarding acquisitions and consolidation. As numerous deals continue to make headlines, it’s reasonable to anticipate heightened scrutiny around antitrust considerations, particularly with the larger transactions that are currently taking place.
“It will be critical to watch how FTC proceedings for Amgen, Horizon Therapeutics, Pfizer and Seagen all play out from this standpoint,” concludes Renza. “After all, this is a sector and ecosystem that advances with external innovation and deal flow – antitrust is always on our minds but it’s more important than ever in the current climate.”