M&A activity in the healthcare sector has been fairly subdued 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 peaking lowest point in three years. However, analysts assume that business will pick up in the second half of the year.
One expert assumes that the biopharmaceutical sector in particular will see particularly strong M&A activity in the coming months. Matt Gardella, M&A Attorney at Mintzsaid there are three market circumstances that will lead to an influx of biopharma M&A deals: a looming patent cliff, falling valuations and a weak IPO market.
In a recent interview, Gardella predicted that the biopharmaceutical sector will end the year with approximately $180 billion in M&A deals, as industry deals surpassed the $100 billion mark in July. Closing out 2023 with that deal, the value would be “damn good,” considering its total value last year was $127 billion and its total value in 2021 was $108 billion.
One reason for this surge in M&A activity is that big pharmaceutical companies are increasingly concerned that there will be a massive patent cliff by 2030 that will affect some of the world’s most expensive blockbuster drugs. For example, AbbVie‘s Humira lost its market exclusivity this year, and MerckKeytruda’s patent will expire in 2028.
“Some of these companies still have six or seven years before they hit the patent cliff, but they are taking steps now to help late-stage biotech companies that could become a marketable drug within the next seven years.” which could offset some.” “The sales you’re forecasting are going to be down,” Gardella explained.
There are several recent examples of big pharma buying late-stage asset biotech companies. For example, biogenic said last month that it will buy Reata Pharmaceuticals for $7.3 billion, Sanofi bought prevention for $2.9 billion in April and AstraZeneca has completed it Acquisition valued at US$1.3 billion from CinCor in February.
Another reason the biopharma sector is poised for an M&A surge is that valuations of public biotech companies are cheap, making them attractive to buyers who have retreated from inflated valuations in recent years.
“I’m not saying that biotech companies get bargain prices, but these big companies can buy them at an attractive price,” Gardella noted.
Overall, biotech company valuations fell 30% from October 2021 to January 2023. For companies with pre-clinical and phase I products, ratings dropped by 69% and 45%, respectively.
The final requirement for the biopharmaceutical industry being ripe for M&A deals is that the sector’s IPO market is not very robust. There were only nine biotech IPOs through the end of July, the slowest pace in six years, Gardella said.
He predicted that many late-stage biotech companies would be acquired by big drugmakers because they simply had no alternative but to go public. When market conditions are favorable for mergers and acquisitions but hostile to IPOs, for many biotechs buying may be the only option they have to continue their business.
While he continues to expect biopharma M&A activity to increase in the coming months, Gardella noted that antitrust scrutiny by federal regulators could be a potential headwind. For example, amgen announced its acquisition plans Horizon Therapeutics for $28 billion in December, but the FTC is still working to block the deal. The agency claims the deal would allow Amgen to strengthen its monopoly on two Horizon drugs.
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