With $1.7T in the coffers, biopharma M&A expected to be 'a different animal' in 2022

Biopharmas have $1.7 trillion to spend on deals this year, and big players like Novartis, Pfizer and Merck & Co. have made it pretty clear they’re on the hunt for acquisitions. 

Merck might want Mirati. Novartis has put out a plea for small biotechs to swim toward its $154 billion pool. Pfizer is eyeing late-stage assets with a $175 billion hoard to help boost 2030 revenue by $25 billion. And Johnson & Johnson, with a new CEO at the helm, will be “more aggressive” with a $200 billion pile as the company sheds its consumer health unit. 

After a slump in 2021, biopharma M&A is slated to pick up this year with an “innovation deficit” spurring shopping for new assets. Billions of dollars are obviously available for megadeals, and an endless sea of biotechs are giving shoppers a long list of options.

Coupled with that outlook is a warning that the rest of 2022 could reflect the action at the J.P. Morgan Healthcare Conference in January: lots and lots of licensing deals—not outright M&A—in this, the third year of the pandemic. 

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“2022, of course, will be a different animal,” said Arda Ural, Ph.D., Americas industry markets leader for health sciences at EY, in an interview. At $108 billion, biopharma M&A activity in 2021 represented a mere 40% of 2019 levels, the consulting firm noted.  

But the potential was there. Last year, companies had M&A firepower that reached levels not seen since 2014, with $1.2 trillion (PDF) at the ready. And, just as it does now, biotech sported an ever-expanding field of targets, thanks to record amounts of private financing that have spawned a flurry of nascent biotechs.  

High premiums, rising valuations and discord over pricing—especially for biotechs that have no clinical proof—dampened the market for buying and merging. But now, biotech valuations are coming down. And the “innovation deficit” among pharmaceutical companies expected over the next few years—plus pending patent exclusivity losses—could be a “propeller for deals,” Ural said. 

“That fundamental, foundational problem will be a concern,” Ural said. De-risked assets that have cleared pivotal trials and are on the path to market will appeal to Big Pharma because the behemoths can handle the commercial, regulatory and supply chain risks better than budding biotechs can, he said.  

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This longer-term outlook on dwindling internal innovation will push pharmas to seek biotech deals to fill pipeline holes in 2024 and beyond, said Glenn Hunzinger, U.S. pharmaceuticals and life sciences leader at PwC, in an interview. With that in mind, 2022 will be a “pretty buoyant year for M&A,” he said.  

With a steady string of carve-outs, divestitures and spinouts in recent quarters, the pharma giants have freed up capital. That gives Hunzinger the confidence to say “any of the larger pharma companies” could execute on a $50 billion-plus deal this year, which is five times the largest deal seen in 2021: CSL’s $11.7 billion Vifor acquisition.

Ural also noted this “transact to transform” strategy will make for high-level discussions in boardrooms. With so many Big Pharmas capable of pulling off a megamerger, we could see a return to the heyday of 2019, when Bristol Myers Squibb splashed out $74 billion for Celgene and AbbVie locked in Allergan for $63 billion.  

Record-high waves of venture capital investment have flooded the drug development industry, which translates to expectations for deal valuations of $5 billion to $50 billion this year because of the sheer number of biotechs available for purchase, the PwC leader said. Private equity shops are lurking around the corner, too, as they’ve beefed up their presence in the clinical research organization landscape through deals like the $8.5 billion purchase of Parexel. 

RELATED: JPM 2022: Licensing and research tie-ups trump M&A at conference in 'reflection of last year'

While PwC expects biotech investing to surpass $100 billion again in 2022, licensing deals will likely remain a mainstay as shown by BMS’ $3 billion cell therapy biobucks pact with Century Therapeutics and BioNTech’s $750 million milestone collaboration with Crescendo Biologics. Horizon, despite sitting in a “good position” to bring more acquisitions to fruition, also plans to continue focusing on licensing and business development partnerships, Horizon Chief Strategy Officer Andy Pasternak said, evidenced by a $1.5 billion biobucks pact with Alpine Immune Sciences for up to four protein-based therapies at the tail end of 2021. 

“Lofty valuations might be curtailing company buyouts but developers are still busily accessing external innovation via licensing,” Evaluate wrote in a report. Though the licensing trend is likely to stay, the size of these tie-ups decreased by about $30 million last year when it came to upfront payments, EY reported.