1.4 trillion US dollars "firepower" in hand, global pharmaceutical companies are starting a wave of mergers and acquisitions!

According to data from investment bank Stifel, global pharmaceutical and biotech companies spent $85 billion on mergers and acquisitions in the first five months of this year, indicating a significant recovery in deal-making as they seek to supplement their drug pipelines. This is in stark contrast to the same period last year, when the total transaction amount was only $35.6 billion, and $49.1 billion in the same period two years ago.

According to an analysis by EY, the world's largest pharmaceutical companies had more than $1.4 trillion available for M&A deals at the beginning of this year. In addition, the motivation for these pharmaceutical giants to acquire start-ups is becoming more apparent this year, as many drug patents are about to expire, which will put pressure on these drug companies' best-selling drugs with annual sales of $200 billion to face competition from generic drugs and reduce company revenue.

In the M&A activity in the pharmaceutical industry this year, giants such as Pfizer, Merck, and Sanofi have announced multi-billion dollar M&A deals, becoming the leaders in M&A transactions.

Tim Opler, managing director of Stifel, said:

This is a huge shift that completely reverses the overall trend in the M&A market. If the pharmaceutical market maintains the pace of the first five months of this year, the scale of M&A transactions in the pharmaceutical industry is expected to reach $215 billion for the whole year, far exceeding last year's $127 billion and 2021's $149 billion.

The pharmaceutical industry's M&A faces increasing regulatory pressure

However, at the international biopharmaceutical conference held in Boston last week, pharmaceutical company executives, bankers, and industry analysts did not express similar optimistic views. Instead, they are concerned that the US antitrust regulatory agency's crackdown on industry integration and M&A will become increasingly severe.

Last month, the US Federal Trade Commission blocked Amgen's acquisition of Horizon Therapeutics, the latest example. The deal was announced in December last year with a transaction size of $28 billion. The US Federal Trade Commission warned that the "rampant" consolidation in the pharmaceutical industry is pushing up the price of medical services, and this is the first time in more than a decade that the agency has attempted to block industry mergers.

In the past twenty years, the importance of small and medium-sized biotech companies in drug development has grown rapidly. According to data from the Iqvia Institute, emerging biopharmaceutical companies developed nearly two-thirds of new drugs globally last year without the participation of large companies, a proportion that is much higher than less than half in 2016 and one-third in 2001.

Today, it has become customary in this industry for pharmaceutical start-ups to develop new drugs or be acquired by pharmaceutical giants when there is hope of developing new drugs, and to expand these types of drugs into the giants' product pipelines.

David Epstein, CEO of US start-up Seagen, which focuses on developing new cancer drugs, said that if regulatory agencies prevent large pharmaceutical companies from acquiring start-ups, the industry's "funding" and "innovation" will quickly dry up.

I hope the Federal Trade Commission can understand how the ecosystem works.

At a time when interest rates are rising, the IPO market is sluggish, and one of the largest financiers in the biopharmaceutical industry, SVB Financial, has collapsed, it is increasingly difficult for small and medium-sized pharmaceutical companies to raise funds.

According to a report released by Ernst & Young last week, biopharmaceutical companies raised $54.6 billion in funding last year, down 54% from 2021 and the lowest fundraising level for the industry since 2016.

Rich Ramko, head of biotechnology at Ernst & Young in the United States, said:

Not all of these companies facing financing challenges with cash clearly insufficient for two years can survive.