Dusseldorf, Frankfurt The market for acquisitions and mergers (M&A) in the pharmaceutical industry is recovering: After a comparatively weak 2022, deals with a volume of more than 95 billion dollars were announced or implemented in the first half of the year. This is the result of an evaluation by the financial data service provider Refinitiv.
This means that the volume of deals in the first half of 2023 increased by 84 percent compared to the same period last year. And market experts are also optimistic for the second half of the year and beyond.
The fundamental trends in the market are positive, and large pharmaceutical companies also have to fill up their drug pipelines, they say. Because many are phasing out blockbuster products – those drugs that bring in more than a billion dollars in sales.
Initially, new developments are protected by patents and bring in a lot of money for the company. But after a few years, copycat drugs are allowed to enter the market and prices fall significantly.
“Companies need new drug candidates in their drug pipelines,” says Christian Klingbeil, a partner in the Deal Advisories department at management consultancy KPMG. And also consistency. In many cases, says Klingbeil, a strategically sensible acquisition helps.
Tim Opler, Managing Director of the Global Healthcare Group at the investment bank Stifel, adds that there are a large number of well-positioned, available companies at the same time. And the prices are under pressure. If the deal volume of the first six months is also reached in the second half of the year, Opler believes that 2023 could be the third strongest pharma M&A year after 2014 and 2019.
>> Read here: Merck boss considers decoupling from China “not feasible in the next two decades”
In view of the broad field of research, large pharmaceutical companies are often dependent on acquisitions or cooperations: With acquisitions, they gain access to young, innovative technologies, for example on a chemical or biotechnological basis. “This is a central element of Big Pharma’s business models,” says KPMG partner Klingbeil.
At the same time, young, research-based companies are dependent on entering into cooperation with large players: “They have no comparable opportunities to effectively design access to approval processes.” In addition, the corporations have other levers for sales and marketing.
The young companies are therefore geared towards selling their developments in order to then be able to put the money back into their research activities. “The big ones have to benefit from the small ones and the small ones from the big ones,” says Klingbeil.
Pfizer plans to pay $42 billion for cancer specialist Seagen
According to Refinitiv, the biggest deal of the year so far is the approximately 42 billion dollar acquisition of the cancer specialist Seagen by the US pharmaceutical company Pfizer. Seagen is pioneering a new class of cancer drugs that the industry sees as showing great promise. This involves so-called antibody-drug conjugates, in which antibodies are coupled with a cytotoxin that can be transported to the tumor cells in a targeted manner.
The Pfizer-Seagen deal is the largest planned pharma acquisition in more than four years, when Bristol Myers Squibb acquired cancer specialist Celgene for $74 billion – the largest M&A deal ever in the pharma industry. Market experts see this as a sign of positive development for the entire segment.
Regulation, interest rates and inflation are slowing down acquisitions
Nevertheless, many large pharmaceutical companies are currently still reluctant, says KPMG partner Klingbeil. There is uncertainty in the market due to inflation, geopolitical risks and regulations: In the USA, for example, the Inflation Reduction Act (IRA) is intended to reduce drug prices, in Europe and Germany there are also regulations that lower prices.
>> Read here: The $50 Billion Opportunity: That’s How Much AI Can Bring to Pharma
The rise in interest rates also makes it more expensive to raise money for deals: “In previous years, it was much easier for companies to make acquisitions because the conditions for raising outside capital were very attractive,” says Klingbeil.
Nevertheless, Klingbeil believes that the trend is towards large-volume transactions. The imminent drop in sales should also ensure this: The US group Merck, for example, for whose $ 20 billion cancer drug Keytruda the first patents will expire from 2028, secured the company Prometheus, which specializes in immune diseases, in the first half of this year for almost eleven billion dollars.
The field of immunology is of particular interest to buyers, observes Stifel expert Opler. Specialists in cardiovascular or metabolic diseases are also in demand. Oncology, i.e. the treatment of cancer, is still a “frontrunner”, says Klingbeil from KPGM: “There’s an incredible amount happening there.” At the same time, there is also a focus on cell and gene therapies. They would have “a formative influence on changes in current pipeline structures and on medical technology solutions”.
US Competition Authority Blocked – A Bad Sign?
However, the competition authority FTC is currently putting a damper on M&A activities in the USA. With a lawsuit, she wants to prevent the US company Amgen from swallowing up the Irish biotech company Horizon Therapeutics for almost 28 billion dollars. Although there is little overlap in the portfolios of the two companies, possible restrictions on competition are cited as a risk.
KPGM consultant Klingbeil believes that the blockade is also about concerns that big deals in the pharmaceutical sector will inhibit innovation. Investors now fear that other potential deals in the pharmaceutical industry could also be at risk. This increases the uncertainty, says the market expert.
More: Hope for Alzheimer’s patients: New therapy fully approved in the USA