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Big Pharma will find right formula for M&A binge

By Aimee Donnellan

LONDON, Dec 20 (Reuters Breakingviews) – Drugmakers are primed for a shopping spree in 2023. Companies like Pfizer (PFE.N) and GSK (GSK.L) are in relatively rude health, thanks to bumper sales from vaccines and a post-pandemic recovery in cancer treatments. Chief executives have a potential half-trillion-dollar war chest to use on dealmaking. Their likely targets, listed biotechnology groups, are not in a position to play hardball.

The year 2022 was relatively thin for pharma M&A, with deals worth nearly $66 billion being announced by early December – 60% below the 9-year average, according to Refinitiv data; 2023 will be better. It helps that drug companies are relatively healthy, with debt around just 1.6 times forecast EBITDA in 2023, according to Berenberg analysts. Assume they could double that to 3 times EBITDA, and the top 15 listed drugmakers including Pfizer, Moderna (MRNA.O), Novartis (NOVN.S) and Roche (ROG.S) would have $486 billion of firepower.

Expiring patents may put a fire under CEOs to use that money. Bristol-Myers Squibb (BMY.N), Amgen (AMGN.O), Pfizer and GSK will all lose exclusivity on some of their bestselling remedies in the coming years. Buying fast-growing biotech groups is the easiest way to find new revenue. Bristol-Myers Squibb alone reckons it could lose up to $14 billion of sales by 2025 as patents on Revlimid, a treatment for multiple myeloma, expire.

Takeover conditions also look favourable. The value of the Nasdaq Biotechnology Index (.NBI) had fallen around 20% by the middle of December from its peak in August 2021. Potential targets include Ascendis Pharma , which develops drugs that treat growth hormone deficiencies. Incyte (INCY.O), an oncology specialist, was worth $18 billion, or 23 times forward earnings, in early December, a sharp fall from its peak in 2021, when it was trading on 30 times, according to Refinitiv data.

Biotech CEOs may be reluctant to sell or demand a high takeover premium. Seagen (SGEN.O), for example, worth $22 billion in early December, has fought off Merck & Co (MRK.N). But higher interest rates and depressed stock prices will make it increasingly difficult for cash-hungry biotechs to raise funding or fresh equity. That puts Big Pharma in an ideal negotiating position.

(This is a Breakingviews prediction for 2023. To see more of our predictions, click here.)


Global pharmaceutical companies spent nearly $66 billion on takeovers in 2022, according to data from Refinitiv as of Dec. 7. That’s below the 9-year average of nearly $164 billion.

Editing by Neil Unmack, Oliver Taslic and Streisand Neto

Our Standards: The Thomson Reuters Trust Principles.

Source: Reuters