Opinion: 2024 Will Be a Buyers’ Market in Biopharma. It Already Is.

M&A projections

Pictured: A collage of M&A elements/Nicole Bean for BioSpace

The sale of listed contract drugmaker Catalent to Novo Nordisk last week follows Johnson & Johnson’s recent agreement to acquire Ambrx Biopharma for $2 billion, Gilead’s $4.3 billion acquisition of CymaBay, BMS’ $4 billion acquisition of Rayzebio, and Pfizer’s $43 billion acquisition of Seagen.

Collectively, these transactions illustrate the growing appetite among pharma companies for biotechs that can fill product development pipelines and increase top line revenues, particularly in sectors such as obesity, oncology and immunology.

The era of mega deals in the life sciences sector, epitomized by transactions like BMS’s $74 billion acquisition of Celgene in 2019, may be over, but biopharma M&As are once again growing more frequent and more valuable. PWC’s predictions that the pharmaceutical and life sciences sectors will see increased M&A activity in 2024, and its estimation that cumulative deal value in the industry could reach $250 billion, may be on target. That would be a nice improvement from 2023’s total of less than half of that ($128.8 billion across 112 acquisitions).

As chair of law firm Lowenstein Sandler’s Life Sciences practice for the past 17 years, and as general counsel for two specialty pharmaceutical companies—both of which were acquired in M&A transactions—prior to that, I’ve observed this industry for a long time. Currently, I suspect that we will see M&A deals more often and with bigger price tags. This trend will be driven by the industry’s continued embrace of innovative technologies like artificial intelligence (AI) and by the advancement of products addressing unmet medical needs through clinical development. After all, pharma companies do all tend to follow each other.

A Buyers’ Market

Today’s financial landscape and market conditions have created a buyers’ market. Valuations have diminished for many companies that possess good assets but little cash, so the Big Pharma buyers—as well as certain mid-size regional players—are in an excellent position to negotiate transactions that will ultimately benefit both public health and their bottom lines.

Smaller companies developing differentiated products in key indications, and those marketing products that are generating significant revenue and which show growth potential, are highly attractive to large life sciences companies trying to add to their product portfolios and fill their pipelines. Late-stage products are attractive to buyers in this industry because the developers absorb much of the regulatory and clinical risk; buyers with the means will simply pay more for a de-risked asset. The higher price is worth not having to bring a potential product all the way through the clinic.

A product or technology that is differentiated, can fill an unmet medical need and can address a large or underserved commercial market also attracts potential M&A activity. If a company’s product is generating revenue or is likely to gain regulatory approval within a reasonable timeframe, it will become a prime target. Collecting, analyzing and presenting compelling data is a persuasive way to make such a demonstration.

Licenses and ‘Change & Control’ Transactions

M&As aren’t the only transactions that are trending upward in biopharma. Large and medium-sized companies are also in-licensing products or product candidates to either continue development themselves or to gain rights to commercialize the products following approval. They are also licensing out some of their own products currently in development to smaller companies—with the right to buy them back at an agreed upon price. In the latter scenario, the smaller companies take on the risks inherent in clinical research in exchange for future consideration, and the big companies receive an approved product without having had to take on clinical risk, while continuing to focus on their own product development pipelines.

In today’s environment, the deep pockets of Big Pharma allow these companies to simply write a check, whereas smaller companies are obliged to consider a variety of transactions such as mergers, reverse mergers or using their equity to acquire other companies or other companies’ assets. Both licensing agreements and asset acquisitions offer pharmaceutical giants and innovative startups ways to productively collaborate for mutual benefit, integrating the formers’ established market presence and the latter’s superior flexibility.

The Influence of Government and Technology

One important factor in the life sciences landscape for 2024 and beyond is the Inflation Reduction Act (IRA), through which the federal government is putting pressure on the pricing of some of the pharmaceutical industry’s best-selling products. While the effects of the IRA have yet to be seen, Big Pharma is adapting to the changing regulatory landscape by developing and commercializing products in niche or specialty markets to secure premium pricing, especially in areas such as rare diseases, immunology and oncology.

As in all industries, artificial intelligence (AI) will likely have a huge impact on life sciences in the coming years, accelerating innovation, product design and development, and reshaping competitive dynamics. AI will enable developers to identify drug candidates and analyze and synthesize data more quickly and efficiently, facilitating the process of securing market approvals. Companies leveraging AI algorithms to analyze vast datasets and identify potential drug candidates are likely to see increased interest from investors. As always, compelling efficacy data for a product can dramatically and positively influence a company’s valuation and make it an extremely attractive candidate for financing or acquisition.

Thus, despite the financial, regulatory and developmental risks facing companies in the biotech industry, an increasingly positive economic outlook, together with rapidly evolving technological innovation, gives renewed hope to investors, life science companies, and patients in the months and years ahead.

Michael J. Lerner is a partner at Lowenstein Sandler LLP and chair of its Life Sciences group.

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