The pace of pharmaceutical M&A is expected to continue next year, but the deals are likely to be smaller.
Rather than acquisitions the size of Bristol-Myers Squibb's (BMY) $74 billion purchase of Celgene, Big Pharma will probably go after "bolt-ons" like Amgen's (AMGN) recent $13.4 billion purchase of Celgene's psoriasis drug Otezla.
Two other smaller deals were announced recently: Sanofi's plan to acquire Synchro (THOR) for $2.5 billion and Merck's (MRK) agreement to purchase ArQule (ARQL) for $2.7 billion. Shareholders of Synthorx and ArQule pocketed premiums of more than 170% and 100%, respectively.
Small deals announced earlier in the year include Novartis's (NVS) acquisition of the Medicines Company (MDCO) for $9.7 billion and GlaxoSmithKline's (GSK) $5.1 billion buy of cancer drugs firm Tesaro (TSRO).
Other notable mentions include Eli Lilly's (LLY) $8 billion buy of Loxo Oncology and Pfizer's (PFE) $11.4 billion purchase of Array, another oncology specialist.
The size of several of these deals is a far cry from 2019, when pharma's average M&A price was $16 billion--a jump from the $13 billion average from the year before. Of course, the 2019 figure was skewed somewhat by the mega Bristol-Myers-Celgene deal.
The trend toward smaller purchases is being driven by a number of factors, a big one being that major pharmas have seen slow growth or even a decline in their stock prices while biotechs, on the whole, have outpaced their more established counterparts, according to an article in Fierce Biotech.
One exception to the move to smaller targets might be Biogen (BIIB). The future of the Boston-based firm, which has a market cap of $54 billion, could rest on whether or not the FDA approves its Alzheimer's drug aducanumab. If the treatment falls short of the mark, Biogen's stock price is likely to tumble hard, making the company vulnerable to buy offers from competitors that covet its neurology products that are already on the market.
Anti-trust scrutiny might also be putting a damper on huge deals. In November 2019, the Federal Trade Commission required Celgene to divest Otezla before it would approve the company's acquisition by Bristol-Myers. In September, consumer groups pressured the FTC to take a close look at AbbVie's (ABBV) $63 billion merger with Allergan, encouraging it to block the deal because of antitrust reasons. To avoid jeopardizing the deal, Allergan volunteered to sell two drugs of the same class as one at AbbVie.
Still, members of Big Pharma will likely continue on the acquisition trail as they continue to be squeezed by the threat of new competition and the loss of patent protection for several top-selling medications.
Pharmphorum reported that companies likely to be on the hunt include for new acquisitions include Gilead Sciences (GILD), Pfizer and Amgen, all seeking innovative therapies to boost revenue.
Which companies could they be eyeing? In an October 1 article in GuruFocus, I noted that among the potential targets are Alexion Pharmaceuticals (ALXN), Amarin (AMRN), BioMarin Pharmaceutical (BMRN), Bluebird bio (BLUE), Clovis Oncology (CLVS) and Incyte (INCY)
Disclosure: The author holds positions in BMY, AMGN, LLY, GILD.
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This article first appeared on GuruFocus.