Subin Baral, EY global life sciences deals leader

SAN FRANCISCO—2024 will likely see a series of new, and significant, merger and acquisition (M&A) deals for biopharma, building on a flurry of buyout announcements seen in the closing weeks of 2023, according to a report released to coincide with the 42nd Annual J.P. Morgan Healthcare Conference opening here today.

EY—the professional services firm originally known as Ernst & Young—has calculated a 34% jump in the dollar value of biopharma M&A during 2023 through December 10, to $191 billion from $142 billion in all of 2022.

That figure does not include M&A deals announced in the last three weeks of 2023—a list that includes:

  • Bristiol Myers Squibb (BMS)’s announced plans to acquire neuro drug developer Karuna Therapeutics for $14 billion, the second largest M&A deal of 2023—as well as radiopharmaceuticals developer RayzeBio for $4.1 billion.
  • AstraZeneca’s purchases of Gracell for up to $1.2 billion (of which $1 billion is upfront), and Icosavax for approximately $1.1 billion (of which $838 million is upfront). Gracell is a developer of cell therapies designed to treat cancer and autoimmune diseases. Icosavax is a Seattle-based developer of protein virus-like particle vaccines profiled by GEN Edge in 2021
  • At least one smaller deal whose value was disclosed—Aditxt’s acquisition of Evofem Biosciences for $100 million. Evofem has developed an FDA-approved contraceptive gel, Phexxi® (lactic acid, citric acid, and potassium bitartrate).

Those late deals will result in a more even comparison for the total number of deals year over year. That number stood at 118 completed transactions in 2023 through December 10, down 6% from 126 in 2022.

Behind all the dealmaking in 2023, and M&A activity anticipated for 2024, are several factors: Drug developers, especially pharma giants, need to replenish revenue due to be lost as several longtime blockbusters lose patent exclusivity, and find it quicker and ultimately cheaper to do so through M&A rather than spending years developing candidates, in-house or via partnerships.

The top 25 biopharmas are sitting on heaps of capital set aside for the purpose of dealmaking—$1.37 trillion, to be precise, down only 4% from the all-time high $1.427 trillion tallied by EY just a year ago, according to the 12th edition of EY’s annual M&A Firepower report, which tracks global M&A investment in life sciences.

“Very active and very competitive”

How much of that $1.37 trillion can those top 25 biopharmas be expected to spend in 2024?

“We don’t know how much of that they will use,” Subin Baral, EY global life sciences deals leader, told GEN Edge. “Rather than speculating on how much they will spend, the bigger question is, there’s significant firepower with the biopharma companies that the deal market is going to be very active and very competitive.”

“They’re all having the same pressures on their revenue—topline pressures, and pressures to be able to continue to build their R&D pipelines, and their internal R&D is not sufficient enough for them to have enough of a pipeline to bridge the revenue gap. So we expect a lot of that [firepower] would be used,” Baral added.

EY defines “firepower” as a company’s capacity to fund transactions based on its balance sheet factors that include cash and equivalents; debt capacity, including credit lines; and market capitalization (the product of the share price and the number of outstanding shares).

Pharma giants dominated M&A during 2023, accounting for more than two-thirds (69%) of deals coming from big pharma, compared with just 38% in 2022.

According to EY, 11 large pharma companies signed at least one deal of $1 billion or more in value last year. Pfizer carried out the largest M&A deal of 2023, its $43 billion acquisition of Seagen, completed December 14. After BMS-Karuna, the year’s other eleven-figure buyout was Merck & Co.’s $10.8 billion purchase of Prometheus Biosciences, completed June 16.

The rising valuations of takeover targets, in part reflecting inflation, explains why the average deal size nearly doubled, soaring 77% to $2.18 billion during 2023 through December 10, from $1.23 billion in 2022.

Why was 2023 the year biopharma giants chose to deploy “firepower” capital toward M&A?

“[Buyers] were sitting on the sidelines because of lot of uncertainties around macroeconomics and regulatory issues, but also geopolitical situations. But what we have said in our Firepower report is, they cannot sit on the sideline too long, because the patent cliff isn’t waiting for anybody,” Baral said.

“Just a matter of time”

“I think it was just a matter of time this was going to happen, and it is just happening now, as the LoE [loss of exclusivity] pressures are more imminent for a lot of these biopharma companies, and them having to go access this external innovation to fill the gap,” Baral added.

Most attractive to buyers, Baral said, are companies with either approved drugs or candidates that have generated positive mid- or late-phase clinical data—especially in a handful of therapeutic areas. More than one-third (34%) of the dollar value of M&A deals by biopharma giants last year—$65.2 billion—covered oncology assets.

Those assets attracted multiple would-be buyers, which helped raise their price to the point where multiples for oncology acquisitions over the past decade have averaged 11.9 times total revenues of the target companies being acquired—compared with 11.8 times for blood disorders, 10.7 times for immunology and inflammation, and 9.9 times for rare diseases.

By 2028, biopharma is expected to grow into a $1.385 trillion market, up 42% from $978 billion in 2022.

But that growth, according to EY, will likely be tempered by challenges that include opposition to some blockbuster M&A deals by U.S. and European regulators, as well as the setting of prices by Washington for selected drugs through negotiations under the Inflation Reduction Act (IRA).

The IRA has been criticized by leaders of biopharma giants, who contend that the measure serves as a disincentive to innovation in new drug development. Defenders of the law say action was needed to curb sky-high and climbing prices for many of the bestselling drugs.

“What we hear from the executives is, well, this is not really helpful for the industry as a whole,” Baral said. “That headwind is a deterrent, clearly, that that is being factored in the deal model, or even in the deal process.”

Rare diseases drug developers have also emerged as significant M&A targets, commanding high multiples and driving some of the biggest deals of the past 12 months, EY reported, because the price of orphan drugs is unlikely to be affected by the IRA.

The 25 biopharma giants for which EY calculates its “firepower” measure of capital available for M&A deals includes in part AbbVie, Amgen, Astellas Pharma, AstraZeneca, Bayer, Biogen, Boehringer Ingelheim, BMS, Daiichi Sankyo, Eisai, Eli Lilly, Gilead Sciences, and GlaxoSmithKline (GSK).

Also included are Johnson & Johnson, Merck & Co., Merck KGaA Darmstadt, Germany, Novartis, Novo Nordisk, Otsuka Pharmaceutical, Pfizer, Regeneron Pharmaceuticals, Roche, Sanofi, Takeda Phara, and UCB.

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