3 Reasons Why The Biopharma M&A Market Is Ready For Takeoff

3 Reasons Why The Biopharma M&A Market Is Ready For Takeoff


M&A activity in the healthcare sector has been quite sluggish so far this year. The number of M&A deals in the industry continued to decline in the second quarter of 2023, with the number of deals reaching its lowest point in three years. However, analysts expect deals to pick up in the second half of the year.

One expert believes that the biopharma sector in particular will see especially robust M&A activity over the next few months. Matt Gardella, an M&A lawyer at Mintz, said there are three sets of market circumstances that will lead to an influx of biopharma M&A deals: a looming patent cliff, shrinking valuations and a weak IPO market.

In a recent interview, Gardella predicted that the biopharma sector will end the year with about $180 billion worth of M&A deals, given that the industry’s deals had surpassed $100 billion in July. Ending 2023 with that deals value would be “pretty darn good” considering last year’s total was $127 billion and 2021’s total was $108 billion.

One reason for this uptick in M&A activity is that large pharmaceutical companies are becoming increasingly concerned about a massive patent cliff coming between now and 2030 — one that affects some of the world’s most expensive blockbuster drugs. For example, AbbVie’s Humira lost its market exclusivity this year, and Merck’s Keytruda will go off patent in 2028.

“The patent cliff is six or seven years away for some of these companies, but they’re taking steps now to try and find late-stage assets that biotech companies have that could be an approvable drug within that next seven years that might offset some of that revenue that they’re forecasting will go down,” Gardella explained.

There are several recent examples of large pharmaceutical firms buying biotech companies with late-stage assets. For instance, Biogen said last month that it will purchase Reata Pharmaceuticals for $7.3 billion, Sanofi bought Provention for $2.9 billion in April, and AstraZeneca completed its $1.3 billion acquisition of CinCor in February.

Another reason the biopharma sector is poised for an M&A surge is that publicly traded biotech company valuations are low, making them attractive to buyers who retreated from overblown valuations in recent years.

“I’m not saying biotech companies are at basement bargain prices, but they can be bought at an attractive valuation by these big firms,” Gardella noted. 

Overall biotech companies’ valuations fell by 30% from October 2021 to January 2023. For companies with products in the preclinical phase and Phase I, valuations dropped by 69% and 45%, respectively.

The final condition making the biopharma industry a ripe one for M&A deals is the fact that the sector’s IPO market is not very robust. There have only been nine biotech IPOs as of the end of July, which is the slowest pace in six years, Gardella said.

Many late-stage biotech companies will get acquired by large drugmakers because they simply do not have an IPO alternative, he predicted. When the market conditions are hospitable to M&A but hostile to IPOs, getting bought might be the only option that many biotech firms have to keep running their business.

While he still believes M&A activity will grow in the biopharma sector over the coming months, Gardella pointed out that antitrust scrutiny from federal regulators could be a potential headwind. For example, Amgen announced its plans to acquire Horizon Therapeutics for $28 billion in December, but the FTC is still working to block the deal. The agency contends that the deal would enable Amgen to strengthen the monopoly positions of two Horizon drugs.

Photo: mikdam, Getty Images



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *