Biotech M&A

How important is dealmaking in this sector and how will the 2023 outlook impact future acquisitions?

M&A - Mergers and acquisitions, is a term thrown around frequently in financial circles. As the financial markets continue to decline in light of undesirable macro conditions, one might expect that acquisitions become more commonplace. Unfortunately, the biotech space is home to some of the most significant disparities between stock price and true valuation. Whether a company releases good data and the stock drops, or weakness in the public markets causes negative price movement in the stock prices of companies with commercial pipelines with improving success, the market downturn has resulted in a widening of this stock price-valuation gap. 

Historically speaking, M&A in the biotech sector, in conjunction with positive data readouts in major indications, has been responsible for propping up biotech indices since their inception (NBI, XBI). In the past year, a great deal of optimism surrounded a rumored acquisition of Seagen, a pharma giant in oncology, by Merck. This deal would have been the largest in two years, since AstraZeneca purchased Alexion Pharmaceuticals for $39 billion in 2020. Seagen already had drugs approved for 4 cancer indications, and a multitude of other therapeutic candidates in the pipeline. In spite of the promise Seagen has in developing transformative drug technology, Merck had to assess how valuable the pipeline would be in the long-term. Following the initial bid for Seagen posed by Merck, Seagen lost a bid for a percentage of Enhertu (an antibody-drug conjugate used to treat breast, stomach, and esophageal cancer) from Astrazeneca and Daiichi Sankyo and legislation was passed that could lower Seagen’s drug profits. That being said, having a larger presence in cancer where McKinsey found branded oncology pharma sales to reach $143 billion is quite attractive. Ultimately, the multitude of moving parts and unfavorable news surrounding Seagen caused Merck to opt out of acquiring the oncology giant. As a result, a large amount of momentum that the promise of the deal provided for the biotech sector was removed. 

Some of the trends in biotech M&A may also be centered on promising innovation. Most deals in recent years have involved pipelines in cancer, rare disease, and immune disease. Sometimes, buyouts might be precluded by companies’ ability to raise money from investors in the private and public markets. Recently, the public markets have made gaining funding increasingly difficult. As a result, M&A has begun to pick up once again from 2Q21, when dealmaking in biopharma was at a five-year low in terms of transaction quantity and value. The following deals that took place in 2022 were valued over $1 billion and provided insight into how big pharma goes about making M&A decisions:

1. Pfizer buys Biohaven Pharmaceuticals 

   1. Neurological disorders

2. GSK purchases Sierra Oncology for $1.9B

   1. Oncology

3. Bristol Myers Squibb buys Turning Point Therapeutics

   1. Oncology

4. Amgen buys ChemoCentryx for $3.7B

   1. Inflammatory and Autoimmune Disease

5. GSK acquires Affinivax for $2.1B

   1. Vaccine technology

6. Novo Nordisk buy Forma Therapeutics for $1.1B

   1. Rare blood disorders

7. Sumitovant acquires Myovant for $1.7B

   1. Oncology

8. Pfizer acquires Global Blood Therapeutics

   1. Sickle Cell Disease

9. Amgen buys Horizon Therapeutics

   1. Rare disease

As the regulatory landscape continues to evolve and large biotech players seek to maintain high levels of innovation and drug development, M&A will continue to play an important role in the sector. The rebalancing of biotech valuations in the public markets will contribute to a greater number of acquisition targets over the coming years. However, the maximization of company value is not always entirely realized over the course of company integration, and there are a countless number of factors that affect the deal-making process.