Big pharma groups are snapping up biotechs at a record pace as they race to bolster their drug pipelines, spend windfalls from blockbuster medicines and capitalise on lighter-touch regulation under the Trump administration.
The number of biotechs acquired for at least $1bn this year has reached 37, already surpassing the annual record of 35 set last year, according to US investment firm Stifel.
Executives and bankers say the most powerful catalyst for the deal fever is what is known as the “patent cliff”, a recurring feature of the industry in which drugmakers lose the exclusivity on prized medicines, paving the way for generic manufacturers to sweep in and produce cheaper versions.
The cut-throat hunt for experimental drugs with the potential to become the next generation of blockbusters means the pharma industry stands out even amid the wider global boom in mergers and acquisitions this year.
“It’s the liveliest market I’ve ever seen,” said Eric Tokat, co-president of New York-based Centerview Partners, one of the sector’s best-known and busiest dealmakers. “There’s always these periods when certain pharma are active and others are on the sidelines. Today, everyone is active.”
In the latest sign of the deal frenzy, Eli Lilly last week agreed to pay up to $3.8bn for AtaiBeckley, a psychedelic drug developer backed by Peter Thiel.
The acquisition pushed the total value of biotech deals so far this year to $216bn, up from $118bn over the same period last year, according to LSEG data.
The hunt for the hottest biotechs has also made this year the second busiest on record for all pharma deals, including those struck between established drugmakers.
The dollar value of takeovers in the first half trails only the same period in 2019, when a wave of megadeals, including AbbVie’s $83bn takeover of Botox maker Allergan, boosted the total.
The deal bonanza propelled the XBI biotech index to a five-year high this month.
Ben Wallace, Goldman Sachs’ co-head of mergers and acquisitions in the Americas, said that while the patent cliff was the “biggest driver” of the wave of M&A, the “tremendous balance-sheet capacity” of pharma groups had emboldened chief executives to pursue deals.
“Investors like when pharma are using a decent amount of their balance sheet capacity towards adding next-decade growth and they are rewarding them for it,” said Wallace.
After AbbVie last month sealed a $10.9bn deal for Apogee Therapeutics, whose treatment for atopic dermatitis is in phase 3 trials, shares in the Chicago-based company jumped almost 10 per cent over the following week.
Flush with the windfall from its best-selling obesity drugs, Eli Lilly has led the charge, hoovering up a string of biotechs, including last week’s purchase of AtaiBeckley.
Eli Lilly, the world’s largest drugmaker with a market valuation of $1.1tn, spent up to $7bn on cancer biotech Kelonia Therapeutics and $7.8bn on Centessa, a maker of treatments for sleep disorders.
Biotechs that are already generating revenues or are on the cusp of launching a drug have also drawn interest from industry heavyweights.
London-listed GSK in June paid $10.6bn for oncology biotech Nuvalent, which has two drugs that could hit the market late this year if they secure approval from the US Food and Drug Administration.
“They’re looking for later-stage assets that are commercially ready,” said Ailsa Craig, fund manager at Schroders’ International Biotechnology Trust. “That makes sense since the intellectual property patent cliffs are around the corner, so they need the assets tomorrow.”
In a sign of how important patented drugs can be to a company’s fortunes, Keytruda, the world’s best-selling drug, last year raked in $31.7bn in sales for US-based Merck — almost half its total revenues. The cancer drug loses patent protection in 2028.
Biotechs are no longer the exclusive hunting ground of Big Pharma.
Rising interest from midsized drugmakers — such as France’s Servier and Ipsen, both of which have struck two deals this year — is also driving increased competition for coveted assets.
“Mid caps — both in US and overseas — are also competing for assets,” said Stuart Cable, a partner at law firm Goodwin Procter. “Another important trend is the sheer number of private targets selling in the billions.”
Industry executives say the spree of deals has also been spurred by a number of policy changes in the US.
The spectre of tariffs has been averted while agreements between pharmaceutical companies and the Trump administration on drug pricing have allayed most concerns over the risk to profits.
At the same time, the light-touch regulatory approach championed by the Federal Trade Commission, the competition watchdog, has allowed deals to pass through.
By contrast, the FTC under Biden-era appointee Lina Khan adopted a more stringent approach to takeovers, including biotech deals.
Dave Gardner, chief strategy officer at Incyte Pharma, a US biotech, said that large pharma groups were also gripped by “Fomo”, or the fear of missing out.
“With more buyers at the table and the feeling that you can miss out on exciting assets if you don’t take action, the path of least resistance” was to pursue deals, Gardner said.
This story has been corrected to reflect that Ipsen is headquartered in France.
