After several years of dismal market activity, 2024 is already looking up for deals in the pharmaceutical industry, with a recent flurry of billion-dollar mergers and acquisitions. Is this trend being driven by the impending loss of revenue caused by soon-to-expire blockbuster drug patents? And what does it mean for earlier-stage biotech startups?
After two chilling and turbulent years for capital markets, it finally feels like spring has sprung in 2024: as green shoots emerge from the ground, we’re seeing a rush of Mergers and Acquisitions (M&As) for biotech and pharmaceutical companies. This inverse effect between interest rates and M&A activity is nothing new, but the positive trend in the life sciences seems set to last for a bit longer, according to Evercore, a global investment banking advisory firm. The public markets also seem to be coming out of their funk – with eight IPOs within the first six weeks of 2024. This high number is already closing in on the total of twelve IPOs in 2023.
This rotation of capital is the lifeblood of the innovative biotech industry, since reinvestments are an important driver of new company creation. As we highlighted in a recent article – ‘Lean years for company creation in Europe?’ – the last few years have seen this conveyor belt slow down, leading to significantly less biotech startups being formed. But it seems prospects are now looking up for both investors and patients.
The pharmaceutical sector is facing a dramatic loss of revenues in the coming decade, driven by a significant number of expiring blockbuster drug patents in the coming years. Bristol Myers Squibb alone has almost 90% of its revenue at risk in the coming 5 years – a deep hole to try and fill quickly. This loss of exclusivity has led to a significant number of high-profile pharma acquisitions in past few months. Bristol Myers Squibb inked two deals, buying out psychiatric disease specialist Karuna Therapeutics for $14 billion and radiopharmaceutical innovator RayzeBio for $4.1 billion. AbbVie also had a recent splurge, snapping up ImmunoGen and its ovarian cancer therapy ELAHERE for $10.1 billion, and then a week later buying neuroscience specialist Cerevel Therapeutics for $8.7 billion. Similarly, Novartis bought Morphosys for $2.7 billion in February and Gilead just announced that it will be buying Cymabay for $4.3 billion. The common theme for all these deals is that they all bringing late-stage or commercial assets into the pharmaceutical company pipeline, no doubt with the goal of plugging their impending dips in earnings due to patent expirations.
Bolstered by their windfalls from high-profile obesity drugs, Lilly and Novo Nordisk are better shielded from these headwinds than most, but even they appear to also be very active in setting up deals to maintain their lead in the cardiometabolic arena (e.g. with Novo’s deals with Catalent and EraCal Therapeutics). Other pharmaceutical companies seem to be trying to catch up to the leaders in the pack, for example, Roche recently announced their return to cardiometabolic disease – ironically an area Roche divested from just a few years ago – paying $2.7 billion upfront for Carmot Therapeutics.
Despite this flurry of M&A activity, the deals we’ve seen so far will likely only partially compensate for the projected deficits in earnings in the lead-up to 2030. Fortunately for pharma companies, their coffers are full to bursting, giving them the necessary ‘firepower’ for further M&A activity, as well as other means of creating future value for shareholders. According to EY, the top 25 pharmaceutical companies in the world have a combined $1.4 trillion of M&A capacity on the balance sheet which is ready to be deployed when needed, boding well for dealmaking prospects in the industry. In line with this information, the CEO of Novartis recently highlighted the company’s desire for bolt-on acquisitions in the $2-5 billion range.
Although the near-term picture looks more secure than it did 12 months ago, there is still a lot of work to be done by the pharma industry to maintain its revenue beyond 2030. Drug development is a craft measured in decades, not years, making it likely that the blockbuster drugs of the 2030s are still at a preclinical stage today. This will no doubt lead to the next stage of the M&A cycle in our industry: the rebuilding of the early-stage R&D pipeline. Activity in this sphere is the bread and butter of the life sciences investment industry and a prerequisite for keeping the innovation cycle going. Along with the billion-dollar M&A deals, it is likely that we will also see a rise in these smaller deals. These earlier-stage acquisition and licensing deals create less eye-catching headlines, but they are just as important for the ecosystem, and will provide a much-welcomed reprieve from the dearth of deals in recent years.
