Dec 28, 2023 - Health

Health care deals a bright spot in 2023, primed for 2024

Illustration of falling pills surrounded by abstract shapes and sections of dollars.

Illustration: Gabriella Turrisi/Axios

Pharma and biotech deal values spiked more than 35% in 2023, per data from the London Stock Exchange Group, running counter to the broad market.

Why it matters: Health care dealmakers are primed for a busy 2024 as financing markets recover, competition heats up and drug pricing regulation takes shape.

By the numbers: Pharma and biotech deal value grew 38% and 45% respectively from 2022, LSEG data show, even as the number of deals fell slightly.

  • There were 679 pharma deals worth $135.5 billion in 2023, compared with 778 deals worth $98.5 billion in 2022.
  • There were 1,078 biotech deals worth $122.2 billion this year, compared with 1,088 deals worth $84.2 billion last year.

Driving the news: In the last week, Bristol-Myers Squibb said it would pay $18.1 billion to acquire two companies — a cancer company and a schizophrenia drugmaker — and AstraZeneca announced a $1.2 billion buy.

What's happening: Drugmakers are staring down a steep patent cliff, with with $200 billion-plus in annual revenue at risk through 2030, as well as new federal rules and regulations, so they are buying new growth.

  • This year patents for blockbuster drugs like AbbVie's Humira or Merck's Keytruda expired, which is yielding a flood of generic and biosimilars competitors that whack profits.
  • Meanwhile, the Inflation Reduction Act would let Medicare negotiate the price of drugs that have been on the market for several years but don't have competition from generics.
  • Plus, the Biden administration recently established contexts to break the patents of costly drugs, while GOP presidential hopefuls for 2024 have promised to crack down on drug prices.

What they're saying: "The reality is the boats are shaking," Cowen analyst Yaron Werber tells Axios.

  • As the financing market improves and federal interest rates stabilize, "there's a confluence of pharma sitting on dry powder while biotech (companies) have become willing sellers," Werber says.
  • "We don't expect M&A to slow down, especially given there are plenty of cheap smidcap biotechs with commercial/late-stage assets of interest to pharma," Jefferies analyst Michael Yee wrote in a recent note.

Meanwhile, weight loss drug giants Novo Nordisk and Eli Lilly will "likely continue to build their moat by buying programs with alternative or complimentary mechanisms and/or combinatorial effects with GLP-1s," Yee writes.

The intrigue: Antitrust regulators have been increasingly stringent across industries and pharma is no exception.

  • The FTC briefly challenged Amgen's $28 billion proposed acquisition of Horizon Therapeutics before approving in the fall.
  • This month, the regulator threatened to block Sanofi's licensing deal with biotech Maze Therapeutics, leading Sanofi to terminate the agreement.
  • "Geographic area coverage or lack thereof can be an angle to consider by the global biopharma as it may avoid the scrutiny of concentrated market power," says Arda Ural, EY Americas market leader of health sciences and wellness. "So, more in-bound merger or acquisition activity can be expected."
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