Drugmakers’ deal making will plow ahead despite antitrust scrutiny, analysts say

The FTC’s stance on Amgen’s deal “throws some sand in the gears” and makes it harder to do larger deals, said Evan David Seigerman, biopharma analyst at BMO Capital Markets, but “these companies still have holes to fill.” That likely means fewer sizable deals like Pfizer’s
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$43 billion bid for Seagen
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announced in March, Seigerman said, and more deals like Eli Lilly & Co.’s
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June agreement to buy DICE Therapeutics
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for about $2.4 billion. So instead of buying a player like Seagen “in one fell swoop,” he said, big pharma companies will “have to assemble their own portfolio via multiple acquisitions.” 

Ultimately, that may contribute to even more deal making later in 2023, which was already shaping up to be a healthy year for mergers and acquisitions in the sector, analysts say. Biopharma companies spent more than $80 billion on M&A in the first half of this year, according to Evaluate Pharma, putting 2023 on track to be the liveliest year for deals since 2019. The median size of deals announced in the second quarter was $386 million, according to a William Blair report, up about 5% from the same period a year earlier. 

One major impetus for big pharma companies to continue striking deals is that more than $225 billion worth of revenues could be affected as blockbuster drugs go off patent through 2028, according to the William Blair report. AbbVie Inc.’s
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blockbuster rheumatoid-arthritis drug Humira, for example, one of the top-selling drugs of all time, lost U.S. exclusivity at the start of this year, triggering a rush of biosimilar competition. Drugs that have gone off patent so far in 2023 have a sales value of about $37.7 billion, according to William Blair. 

The looming “patent cliff” isn’t the only force driving continued deal making, analysts and consultants say. Biotech companies have often struggled to raise money lately, whereas some big pharmaceutical companies have tons of cash that they need to put to work. “Cash is in conservation mode for some biotech companies,” making offers from big companies more attractive, said Stephen Morehouse, a partner specializing in biopharma at PA Consulting. “When times are desperate, for some big companies this becomes a feeding frenzy,” he said. 

Provisions in last year’s Inflation Reduction Act designed to rein in drug prices, meanwhile, put additional pressure on drugmakers to find new sources of growth, Morehouse said. The new legislation may also affect the types of deals that get done, some analysts say. Under the law, biologics — pharmaceutical products made from living cells or organisms — are exempt from Medicare drug-price negotiation for at least 11 years, versus seven years for small-molecule drugs, a distinction that may make small-molecule drugs targeted to the Medicare population less valuable, analysts say.

Some analysts also saw positive news for biopharma deal making in a federal judge’s ruling Tuesday clearing the path for Microsoft Corp.’s
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acquisition of Activision Blizzard Inc.
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“We believe this ruling provides a favorable read across” to Amgen’s proposed deal for Horizon, Oppenheimer analysts wrote in a note Wednesday. 

Pfizer’s deal for Seagen, which accounts for a large chunk of the sector’s M&A so far this year, is still under FTC review. The companies refiled the merger documents in mid-June, and a 30-day window for the FTC to respond to the companies expires Friday night. 

In the months to come, big pharmaceutical companies are likely to continue shopping for immunology and oncology assets, Morehouse said, as well as investments in cardiology, neuroscience, obesity, diabetes and the fatty-liver disease known as NASH, for which there are currently few treatment options. “That’s where pharma is headed, looking for those gaps of unmet need,” he said.