Tracking the ups and downs of pharma deals

In 2022, volatility resulting from the Russian war on Ukraine, residual uncertainty from the Covid-19 pandemic, and more led to fluctuating dynamics in the pharmaceutical space. However, despite external pressures, major pharma deals still came to pass, which some experts say could be a harbinger for things to come in 2023. 

The Covid-19 pandemic pushed most markets into free fall, leading to increased wariness for completing large mergers and acquisitions (M&As) in the pharmaceutical sector. Once lockdown measures eased and Covid-19 vaccines and boosters became available, the industry anticipated a significant recovery in the market and in the number of deals. While this recuperation did happen to a certain extent, several global events meant that the road to recovery was less than smooth. 

In 2022, Russia’s war on Ukraine struck the supply chain, eventually slowing manufacturing and causing shortages for multiple pharmaceutical companies.  This volatility has also reduced the appetites of investors and biotechs for riskier deals. 

“Generally speaking, the overall environment has been a little bit more volatile for dealmaking, and you've seen that not just in corporate venture capital,” says Subin Baral, Ernst & Young’s Global Deals Leader for Life Sciences. “Private equity deal volumes are down significantly because of the macroeconomic environment, inflation, and also the fear of potential recession,” he continues. 

In this exclusive analysis, Pharmaceutical Technology analysed data from GlobalData’s Deals database to investigate different aspects of M&A dealmaking throughout 2022 and over the last five years. 

The data indicates that the number of announced and completed deals plateaued in the first half of 2022, but picked up some steam within the latter period of 2022. In December, fewer companies announced new deals, in line with trends seen in the past.

However, the number of deals only tell one part of the story. In a continuation of the unpredictable nature of the 2022 financial climate, earlier this month, Amgen announced a multibillion-dollar acquisition of Horizon Therapeutics. On December 12, Amgen said it will acquire the rare disease biotech in a $27.8 billion deal, through which it stands to gain Horizon’s gout treatment Krystexxa and its thyroid eye treatment Tepezza, which both have FDA orphan drug designations, among other therapies. A few months prior, Amgen had closed its acquisition of Chemocentryx for $3.7 billion.

Despite predictions for a mild recession in the US, and expectations of conservative spending from private equity firms, Baral says 2023 may be a year when major deals are made given the direction in which the market is headed. “[We] believe that the fundamentals are so strong that there will be deals. There's no other way around it,” says Baral.

While the market for pharmaceutical M&A has shown a slight increase in terms of average deal values or sizes, especially in December, after the major dip in the average deal values in 2020, the recovery has not been consistent.

The exclusive analysis looked at all M&As announced and completed from Q4 2021 to December 21 2022, which includes all publicly available and company-released data surrounding these deals. While the average deal values have dipped, there have been some high-profile acquisitions announced in 2022. In August, Bristol Myers Squibb completed an acquisition of Turning Point Therapeutics for $4.6 billion. In this deal, BMS gained Turning Point’s lead asset, repotrectinib, which has already received three FDA Fast Track designations. 

But deals like those done by BMS and Amgen were few and far in between. Further analysis shows that the appetite for large acquisitions seen in 2018 and 2019 has not returned after the pandemic. “[We] have heard from clients that the volatility in the public markets is making them risk averse in terms of deal making capacity for large scale deals,” says Kyle Faget, a partner and co-Chair of Foley & Lardner’s Healthcare and Life Sciences Practices, Boston, Massachusetts.

However, among the deals included in this analysis, some themes have continued to stay constant. As seen in previous years, deals involving oncology and central nervous system (CNS) disease-related assets were the most popular for pharmaceutical M&As in 2022. Faget explains this trend, saying, “The drivers there really are the patient population and the need. The oncology community is huge. There's an absolute market demand.” Given the significant baby boomer population, at least in the US, neurodegenerative diseases are also becoming a much bigger issue, she adds.

Pfizer in particular stood out with its deal strategy in 2022, acquiring companies with diverse strengths. In October, Pfizer completed a $1.6 billion deal acquiring Biohaven, and with it, the latter’s migraine portfolio. In the same month, Pfizer completed the $5.4 billion acquisition of Global Blood Therapeutics (GBT), a life sciences company that develops treatments for several blood disorders including sickle cell disease. Part of this acquisition was the first-in-class drug Oxbryta (voxelotor), which targets hemoglobin levels in sickle cell disease. 

A relatively new area where pharmaceutical investment has picked up massively from previous years is digital health technologies like telemedicine. “During the pandemic, we saw a lot of innovation in the digital health space, particularly in telemedicine, both in digital health, medical device assets, and… how health care is being provided,” says Faget. Telemedicine is likely to see continual growth in 2023, she adds. 

As seen in 2022, Faget predicts that the main therapy areas, oncology and CNS diseases, will remain popular for investment. Moreover, within and outside of oncology, she predicts that personalised medicine may be a key driver of R&D investment. “[the personalised medicine field] is scientifically ripe for innovation,” says Faget. 

Separate from therapeutic asset-centered deals, Pierre Socha, partner at Amadeus Capital Partners, a VC firm that specialises in deep tech, predicts that more deals may be made involving innovations that address supply chain issues. Socha suggests that companies reduce costs by reducing their outsourcing of certain parts of their businesses. 

“[Over] the next five years there will be some tightening where corporations will internalise many parts of their processes beyond the drug discovery side of things,” says Socha.  He explains that a trend has already begun where, rather than externalising and outsourcing manufacturing processes, companies are looking to expand their operations to remove obstacles. This expansion could factor in deals with contract manufacturing organisations (CMOs) and other logistical companies. For the same reason, several CMOs have turned to more sustainable practices to reduce operational costs. 

Also, a decrease in company valuations over the last few years may open the space for a boom in larger deals and acquisitions. Looking to 2023, Baral predicts a small recovery from the difficult economic climate of 2022, saying, “We cannot lose sight, especially in the life science sector, of the fact that the industry fundamentals are very strong. It will just take a matter of time before things get back to normality.” 

With data analysis support from GlobalData analyst Ophelia Chan

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