MW Will 2023 be the year that pharma M&A makes a comeback?
Jaimy Lee
A handful of acquisitions this week point to a more deal-friendly year for biopharma and biotech companies
A handful of acquisitions this week point to a more deal-friendly year for biopharma and biotech companies, though none has generated the kind of excitement seen in years past.
In a flurry of announcements, AstraZeneca (AZN.LN) announced plans to buy CinCor Pharma Inc. $(CINC)$ for about $1.8 billion; Italy's Chisi Farmaceutici said it is buying Amryt Pharma $(AMYT.UK)$, which focuses on treatments for rare diseases, in a deal worth up to $1.5 billion; and Ipsen said it will acquire Albireo Pharma $(ALBO)$ in a buyout worth up to $952 million. On Tuesday, BioNTech$(BNTX)$ announced plans to buy a privately held artificial-intelligence company it had partnered with in the past for about $682 million, including milestone payments.
"The deals within the past week are fairly small-scale but keep the drumbeat going," Subin Baral, EY's global life-sciences deal leader, told MarketWatch in an email. "We expect Big Pharma to shore up pipelines ahead of the major loss of exclusivity events coming in the next five years, and we expect companies to keep investing in [artificial-intelligence] technologies to try to optimize everything from drug discovery to supply chain and operations, and these initial M&A moves of 2023 are all pretty much [in] line with those expectations."
A better year for M&A
Last year was a dismal year for life-sciences deal making, with few major deals, even taking into account Amgen Inc.'s$(AMGN)$$27.8 billion acquisition of Horizon Therapeutics $(HZNP)$ in the final three weeks of the year, the sector's largest deal in 2022. But broader market dynamics are shifting, and investors are hopeful for a better 2023.
According to EY, many drugmakers have the cash to make the deals they need. At the same time, biotech valuations are shrinking, and there are fewer opportunities for initial public offerings and special-purpose acquisition companies now that recession worries and economic uncertainty have taken hold. And not all deals this year will have to do with molecules or gene therapies; some may focus on artificial intelligence, robotics and big data.
The week's deal activity, which coincided with the in-person return to the annual J.P. Morgan Healthcare Conference in San Francisco, also points to a changing M&A landscape -- both for legacy pharmaceutical companies in need of innovation to boost their pipelines and for biotechs struggling with declining valuations.
"We expect M&A in 2023 to revert to prior-year levels in terms of investment dollars, and [we] expect higher volume of transactions, including strategic business partnerships, joint ventures, and alliances," the authors of a new PwC report wrote. "Biotech deals in the $5 billion to $15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle."
What's next for biotech
The SPDR S&P Biotech ETF $(XBI)$ is down about 19% over the past 12 months, hitting a five-year low of $62.81 on May 11, while the SPDR S&P Pharmaceuticals ETF $(XPH)$ has declined about 7% over the past year.
"Great value has materialized in the sector following the last two years of devaluation," Baird analysts told investors last week. "It is hard to have confidence in a broad-based uptick for biotech, particularly amidst macro concerns around global markets. However, we believe the sector is positioned to be a relative outperformer in a bear market (think 2008) or a leader in a bull market."
That said, there is excitement about companies like Apellis Pharmaceuticals Inc. $(APLS.UK)$, which is waiting for the U.S. Food and Drug Administration to decide whether to approve a type of macular-degeneration drug in February; Karuna Therapeutics Inc. (KRTX), which is developing a promising schizophrenia treatment; and Xenon Pharmaceuticals Inc. (XENE), which is testing treatments for depression and seizures in clinical trials.
All three companies are considered top M&A targets by RBC Capital Markets.
-Jaimy Lee
(END) Dow Jones Newswires
January 12, 2023 13:30 ET (18:30 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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