Drugmakers’ deal making will plow ahead despite antitrust scrutiny, analysts say
PA Consulting life sciences expert Stephen Morehouse discusses the pharma and biotech M&A outlook for the second half of 2023.
The article notes that the brisk pace of biopharmaceutical deal making seen in the first half of this year may only accelerate in the months ahead, even as regulators take a hard look at some of the bigger deals, analysts say.
While the Federal Trade Commission’s recent challenge to Amgen Inc.’s acquisition of Horizon Therapeutics PLC rattled the industry, it has done little to curb the appetite among drugmakers for deals that can fill gaps in their pipelines and prop up growth as they face patent expirations in the coming years that put more than $225 billion in revenue at risk, analysts and consultants say.
Ultimately, that may contribute to even more deal making later in 2023, which was already shaping up to be a healthy year for mergers and acquisitions in the sector, analysts say. Biopharma companies spent more than $80 billion on M&A in the first half of this year, according to Evaluate Pharma, putting 2023 on track to be the liveliest year for deals since 2019. The median size of deals announced in the second quarter was $386 million, according to a William Blair report, up about 5% from the same period a year earlier.
One major impetus for big pharma companies to continue striking deals is that more than $225 billion worth of revenues could be affected as blockbuster drugs go off patent through 2028, according to the William Blair report. AbbVie Inc.’s blockbuster rheumatoid-arthritis drug Humira, for example, one of the top-selling drugs of all time, lost U.S. exclusivity at the start of this year, triggering a rush of biosimilar competition. Drugs that have gone off patent so far in 2023 have a sales value of about $37.7 billion, according to William Blair.
The looming “patent cliff” isn’t the only force driving continued deal making, analysts and consultants say. Biotech companies have often struggled to raise money lately, whereas some big pharmaceutical companies have tons of cash that they need to put to work.
Stephen said: “Cash is in conservation mode for some biotech companies,” making offers from big companies more attractive. “When times are desperate, for some big companies this becomes a feeding frenzy,” he said.
Provisions in last year’s Inflation Reduction Act designed to rein in drug prices, meanwhile, put additional pressure on drugmakers to find new sources of growth, Stephen said. The new legislation may also affect the types of deals that get done, some analysts say. Under the law, biologics — pharmaceutical products made from living cells or organisms — are exempt from Medicare drug-price negotiation for at least 11 years, versus seven years for small-molecule drugs, a distinction that may make small-molecule drugs targeted to the Medicare population less valuable, analysts say.
Some analysts also saw positive news for biopharma deal making in a federal judge’s ruling Tuesday clearing the path for Microsoft Corp.’s acquisition of Activision Blizzard Inc.
Pfizer’s deal for Seagen, which accounts for a large chunk of the sector’s M&A so far this year, is still under FTC review. The companies refiled the merger documents in mid-June, and a 30-day window for the FTC to respond to the companies expires Friday night.
Stephen added that in the months to come, big pharmaceutical companies are likely to continue shopping for immunology and oncology assets, as well as investments in cardiology, neuroscience, obesity, diabetes and the fatty-liver disease known as NASH, for which there are currently few treatment options. “That’s where pharma is headed, looking for those gaps of unmet need,” he said.