RE:Conditions are right for biopharma M&A to break outBiopharma’s 25 largest companies have almost $1.5tn in available “firepower”, EY estimates in its annual M&A Firepower report, a figure that has grown substantially since 2020.
EY’s defines firepower as a company’s capacity to fund transactions, and calculates this using various inputs including cash, debt capacity and market cap.
The biopharma sector has moved away from mega mergers not only because of the FTC's recent decisions against biopharma mega mergers but also because it is incredibly hard to extract value from such huge business combinations, and executive teams have realised that investors value focused developers more highly.
“We think bolt-ons will continue to dominate the M&A scene in 2023 and beyond,” EY's Subin Baral says.
As the Amgen/Horizon US$ 28 Bln deal showed, these bolt-ons can still amount to a lot of money. Even Astrazeneca’s $US39 Bln move on Alexion is probably described as a bolt-on, given that the target company was essentially based around a single franchise. But these larger bolt-on/tuck-in transactions could get harder to strike in the coming years, as seen with the FTC's decision to block several high-profile mega mergers including the Amgen/Horizon deal. This makes BioPharma's M&A 'sweet-spot' of US$5 Bln to U$15 Bln even more relevant.
Consequently, high value late stage transactions should flourish in 2023, as developers seek to access new technologies to address biopharma's looming patent cliff, diminished product pipelines, increased competition for limited assets, and rising interest rates that only make large mega deals deals harder to justify, even for those biopharma companies flush with cash.