Despite a slow start to the year for deals, PwC predicts a flurry of activity coming up
Despite whispers of a busy year for M&A, deal activity in the pharma space is actually down 30% on a semi-annualized basis, according to PwC’s latest report on deal activity. But don’t rule out larger deals in the second half of the year, the consultants said.
PwC pharmaceutical and life sciences consulting solutions leader Glenn Hunzinger expects to see Big Pharma companies picking up earlier stage companies to try and fill pipeline gaps ahead of a slew of big patent cliffs. Though a bear market continues to maul the biotech sector, Hunzinger said recent deals indicate that pharma companies are still paying above current trading prices.
“Pharmaceutical and life sciences companies continue to actively search for new capabilities and inorganic growth, which we believe will lead to a rebound in deal activity in the second half of the year,” Hunzinger said in PwC’s midyear outlook.
A handful of blockbuster drugs are staring down patent cliffs, including AbbVie’s Humira and Merck’s cancer star Keytruda. A handful of drugs have already lost exclusivity this year, such as Roche’s Lucentis — which gained its first biosimilar earlier this year — and Bristol Myers Squibb’s Revlimid.
Upcoming patent cliffs will put nearly $180 billion in sales from the largest companies at risk between next year and 2028, according to PwC. But unlike the patent cliff that welcomed copycat competition to molecule drugs back in the 2000s, “expect these sales to be eroded more slowly, as biosimilars are both harder to manufacture and have slower uptake than their generic counterparts,” the report states.
“With capital becoming harder to come by for most biotechs, pharma is in a good position to acquire many of these companies at a discount from their highs of just a couple years ago,” PwC added.
A handful of pharma chiefs have already hinted at a big year for business development, including AstraZeneca chief Pascal Soriot, who said back in April that the company is “constantly looking” for new opportunities.
“It is true that the current environment, which is rich in innovation but becoming a little more difficult from a funding viewpoint, that environment presents opportunities,” Soriot said.
GSK CEO Emma Walmsley said the company has “both appetite and capacity” for business development. Back in April, she doled out $1.9 billion to pick up Sierra Oncology and momelotinib, a drug formerly abandoned by Gilead.
Meanwhile, Pfizer’s new dealmaking chief Aamir Malik said on the company’s Q1 call:
On our BD focus, I think we’ve been very clear that compounds that have the potential to be breakthroughs are where our focus is. And these can be in the form of late-stage clinical development, they can be in earlier medical innovations as well as, as well as early launches.
It’s possible that increased scrutiny from the Federal Trade Commission could lead to more bolt-on deals in the $5 billion to $15 billion range, Hunzinger noted.
The FTC and its peers in Canada, Europe and the UK established a working group earlier this year to rethink the way they review pharma mergers — and some fear that antitrust regulators will slow things down across the entire industry.