Is it prime time for the “next-gen” biopharma acquirers?
The headlines have flourished since April. Genmab and Ono Pharmaceutical made their first acquisitions. Vertex inked its largest M&A deal since its founding. Incyte went back to the acquisition well after a brief period on the sidelines. Biogen quickly returned to shopping mode after having just digested its first acquisition in four years. Asahi Kasei forged a biotech consummation for the first time since 2019.
The past three months were the best stretch of the previous five quarters in terms of M&A deal value and count by this so-called “next-generation” group, according to investment bank William Blair’s latest quarterly industry analysis.
Vertex, which has climbed into the $100 billion market capitalization club thanks to its cystic fibrosis drugs and successes in new fields, leads the cohort of companies characterized as mid-cap and “non-traditional pharma” by William Blair.
Initial public offerings remain relatively lukewarm — companies eyeing near-term IPOs are now “prime M&A targets,” according to a Monday report from Oppenheimer bankers. So now seems like a ripe moment for a new class of biotechs to step into the dealmaking spotlight. And with the FTC amping up scrutiny on larger deals, that could create a window for “this emerging cohort of consolidators,” the William Blair bankers wrote. Six of the 10 biopharma M&A deals announced in the second quarter came from this group, they noted.
“These emerging consolidators are sitting on meaningful cash reserves (average pro forma adjusted cash of $3.8 billion), thus paving the way for further M&A and/or stock buybacks as these companies face shareholder pressure to deploy this capital (e.g. Incyte’s $2.0 billion buyback in May 2024),” the bankers wrote in their report.
M&A firepower
There’s plenty of capital to deploy across the industry, with drugmakers holding about $1.5 trillion in firepower, EY life sciences deals leader Subin Baral told Endpoints News.
Multiple large pharma companies “continue to sit on pretty robust cash balances,” said Kevin Eisele, a managing director on William Blair’s healthcare equity capital markets team, in an interview. “They have ample room in terms of leverage capacity, as well, and a lot of them are sitting on pretty meaningful LOEs in the second half of this decade that they need to find ways to continue to replenish their pipelines.”
Seasoned buyers like Biogen are making it clear that they have the resources to write more checks. Biogen could dole out as much as $8 billion, its head of corporate development, Adam Keeney, told Endpoints last month.
For Asahi Kasei, a Japanese conglomerate covering materials, construction and healthcare, the Calliditas buyout offer in May marked its first biotech deal in more than four years. The multi-year gap wasn’t without trying.
“This is my 6th attempt to acquire [a] U.S. pharmaceutical company and hope it [is the] second successful one after Veloxis,” Seiji Nakano, VP of global strategy for Asahi’s healthcare unit, wrote on LinkedIn.
Not everyone in the “next-gen” suite will go shopping again right away, though.
Some will likely need time to integrate their first big deals, but other biotechs within their league can join, or rejoin, them on the M&A hunt. Also in the “next-gen” group, as defined by William Blair, are companies like Alnylam, UCB, argenx, BeiGene, Moderna, Neurocrine Biosciences, BioNTech and Ipsen. The latter two have been acquisitive in recent years, as well.
“If you asked me if Genmab is ready to do another deal of this size very quickly, the answer is no,” CEO Jan van de Winkel told Endpoints at the time of the Copenhagen-based drugmaker’s $1.8 billion acquisition of ADC maker ProfoundBio in April.
“We’ve gotten to stage 1 and 2 on a global level, but in order to start recording sales at a quicker pace, we need to obtain a pipeline from outside. This acquisition is the first step in that direction,” Ono Pharma CEO Gyo Sagara said after the company bought Deciphera in April, according to a Reuters report. “After this first M&A, this does not mean that we will do a second or third, but we will always keep an eye on acquiring good compounds from the outside and will make sure to go in if we have a chance.”
