RE:Big pharma is set to keep signing bigger deals in 2024June 03, 2024 - EY Beyond Borders -
" In parallel, Big Pharma is in the midst of a US$350 billion patent cliff,1 driven by a loss of exclusivity for some of the best-selling biologic products of the last decade. Large pharmaceutical companies are facing a dramatic drop in revenue, especially those that profited most from vaccines and therapeutics made in response to the COVID-19 pandemic. At the same time, many pharma companies are finding it difficult to fill pipelines and will be unable to maintain current revenue levels over the next three to five years without significant M&A.
The good news is that Big Pharma currently commands record levels of firepower — dealmaking capacity — estimated at over US$1 trillion at the end of the first quarter of 2024, some of the highest totals since we began tracking this metric over a decade ago. Unsurprisingly, dealmaking has gained momentum with the pharma industry moving to acquire de-risked assets that can replenish threatened revenues. The dire sentiments that many biotech executives were expressing in mid-2023 when this report was last published were replaced with optimism and enthusiasm as the opening days of 2024 brought a flurry of deal activity.
Big Pharma acquirers are willing to pay high premiums for one simple reason: patent cliffs. Industry leaders stand to lose as much as US$350 billion in revenue over the five-year period from 2023 to 2028 as some of the best-selling biologics of the last decade lose patent protection and begin facing biosimilar competition in both the US and the EU. This innovation deficit on the pharmaceutical side of the biopharma ecosystem will continue to be a significant tailwind for the biotech sector as more pharma companies turn to M&A to fill their pipelines. However, as evidenced by Biogen and others, many legacy biotechs are now facing the same problems as their Big Pharma counterparts.
As detailed in our annual Firepower report, released in January 2024, the biopharma industry entered the new year with US$1.4 trillion in firepower (a metric that quantifies a company’s ability to make deals based on its overall balance sheet, cash and equivalents, existing debt, debt capacity and market capitalization) to spend on acquisitions of new innovations to fill pipelines. By the end of the first quarter of 2024, the industry’s total firepower had grown to US$1.50 trillion, with Big Pharma alone commanding over US$1 trillion in dealmaking capacity. In 2023, the industry began to deploy some of this capacity: the biopharma M&A market rebounded from the historic lows of the pandemic years to reach its highest investment levels since 2019, with 61 biopharma M&A deals (the highest annual deal volume since at least the 2008 financial crisis) garnering a total of US$154 billion.
Oncology remains the dominant commercial focus of the pharmaceutical industry as a whole, as it is both the largest and the fastest growing major therapeutic area. As discussed in our 2024 Firepower report, oncology is projected to account for over one-third of biopharma’s overall revenue growth in the next five years. Unsurprisingly, several key factors demonstrate oncology’s central importance: the number of new products reaching the market (15 in 2023, higher than any other therapeutic area), the number of clinical trials targeting cancer (again, outstripping other disease areas), and greater M&A investment in oncology products than in other biopharma assets.
In 2023, antibody-drug conjugates (ADCs) attracted the most investment from Big Pharma buyers, with Pfizer’s takeout of Seagen and AbbVie’s acquisition of Immunogen both major contributors to the year’s total deal spend. Yet, while ADCs are reaching commercial maturity, other new modalities are close behind.
An upward trend in clinical trial activity in the last two decades, along with the increasing R&D spend, further indicates that biopharma companies continue to invest in new drug development despite declining revenues.
A positive sign for biotechs looking to exit is that the 2023 partnership spend dipped in parallel with the rise in M&A spending, perhaps suggesting that Big Pharma partners may be pivoting back toward outright acquisition."