Leading into what has become the industry’s biggest annual meeting, the JPMorgan Healthcare Conference, biopharma megadeals have been strangely absent. Nevertheless, dealmaking is front-and-center as the event, which moved online due to Omicron fears, gets under way virtually on Monday.
Mergers and acquisitions are big pharma’s and biotech’s traditional route to restocking pipelines, picking up marketable assets and talent, and otherwise fueling growth. To wit: AstraZeneca’s $39 billion acquisition of Alexion, announced in December 2020. Leading into Monday’s kickoff of the JPM event, traditionally the starting gun for the year’s biopharma dealmaking, the level of industry M&A looked relatively modest.
While deal volume increased year-on-year in 2021, the total value of such transactions was one of the lowest on record at $108 billion. That was just 40% of 2019’s total, according to EY’s latest Firepower M&A report, debuting Monday. The report found that companies have been prioritizing smaller, bolt-on deals (88%) with lower upfront values.
It’s not for a lack of capital. Last year biopharma “firepower,” defined as a company’s capacity to fund transactions based on the strength of its balance sheet, rose 14% per EY’s analysis, which included 25 biopharma firms.
The balance sheets of Pfizer and Moderna, for instance, have reached historic levels, thanks to the billions in revenue generated by their COVID-19 vaccines. Novartis, meanwhile, sold its stake in Roche for $21 billion.
An earlier analysis by investment bank SVB Leerink showed that 18 U.S. and European drugmakers will have a combined $538 billion in cash by the end of 2022. They’ll also have billions more in debt-financing power, foreshadowing a wave of ambitious M&A activity in 2022.
The upshot, per Leerink: Johnson & Johnson, Pfizer, AbbVie, Novartis, GlaxoSmithKline and Bristol Myers Squibb will have the largest proportion of gross cash by the end of 2022. Not far behind are Merck, Sanofi, AstraZeneca, Amgen, Moderna, Gilead and BioNTech.
What’s more, several companies, namely BMS, Amgen and Pfizer, face the prospect of slow growth due to patent expiries in the 2024-2030 period. Acquisitions could blunt the impact of the expected revenue erosion.
Meanwhile, retreating valuations for potential takeout targets, due to deteriorating stock performance last year, could prompt smaller drug development companies to consider selling. Premiums for R&D- and commercial-stage companies alike are moderating, according to Evaluate’s 2022 Preview report.
Whether these factors will trigger a buyout rebound is anyone’s guess. Since the beginning of 2020, major biopharmas have deployed roughly one-and-a-half times more of their firepower to strike alliances with other companies versus executing buyouts, said EY.
Nor are there many rumored takeover targets, at least not credible ones. A preliminary report late last year that Samsung was interested in buying Biogen seems to have fizzled quickly.
Yet many a biopharma observer is anticipating a rise in M&A this year. So as company execs take to the virtual podium this week, they’ll be listening closely for clues as to whether and where firms are planning to park their pandemic and other cash windfalls. Targets may include acquisitions in immunology, immuno-oncology and infectious disease platforms.
MM+M will have coverage of the JPM conference throughout the week.