Dealing a Blow to Biopharma

August 2, 2020
Felicity Thomas
Volume 44, Issue 8
Page Number: 5

COVID-19’s impact on the global economy is dealing a blow to merger and acquisition activity in the biopharma industry.

Compared with last year, which was very strong, merger and acquisition deal activity in the global pharma and life sciences sector has plummeted. According to data from PricewaterhouseCoopers (PwC), pharma deal values have dropped by approximately 56% in the first half of 2020 compared with 2019, and in the biotech sector of pharma the drop is even more pronounced at 74% (1).

The analysis from PwC indicates that the deal values, although being impacted somewhat by the lessened deal volumes, have been largely impacted by the reduction in size and number of megadeals (1). Only two megadeals (those worth over US $5 billion [€4.3 billion]) have occurred in 2020 so far, Thermo’s acquisition of Qiagen and Gilead’s acquisition of Forty Seven (1). This number is half the quantity of megadeals that had been struck in the six months prior (1).

Although analysts had expected a drop off in value in 2020, after the huge acquisitions by Bristol Myers Squibb and AbbVie that occurred in 2019, COVID-19 has played a vast role by causing disruption to supply chains, giving rise to concern around the availability of capital, and general uncertainty regarding regulations and politics.

As reported by Torreya, capital investors are expecting more for their money, due to the currently volatile market environment (2). Overall, Torreya has interpreted that credentialed companies with strong stories will continue to be able to raise funds, but for other companies, financing rounds will be slow-going (2).

However, even with difficulties being experienced in raising capital, there is still money flowing into the biopharma venture sector (2). The Torreya analysts have found that the pace at which new venture capital has been raised for biopharma investments has been at $1 billion a week up to mid-April 2020, which is the highest volume period since 2009 (2).

Furthermore, companies have been employing alternative tools, other than mergers and acquisitions, to enable them to gain access to high potential assets, in efforts to preserve capital. As highlighted by PwC, there have been numerous alliances, partnerships, licensing agreements, and joint ventures formed during the pandemic so that companies can strategically advance.

Yet, the Nasdaq biotech index has not fared that badly and was up overall by 4.9% as of 20 April 2020. Torreya warned in its report that the index returns can give a distorted view of the market and, in fact, when the analyst excluded three stocks (those from Gilead, Moderna, and Regeneron, all major players in potential COVID-19 treatments) the returns would have been negative (2).

Evaluate Vantage analysts also made note that the industry had seen a similar situation in 2017, when the Nasdaq biotech index was buoyant in contrast to low acquisition values (3). The analysts stipulate, however, that this scenario may be completely coincidental (3).

Post-pandemic promise

Across the board, industry analysts agree that once the pandemic is over, the bio/pharma market is expected to rebound despite the impact COVID-19 will inevitably have on revenues. As businesses start to resume activities in most countries, economic recovery will begin to take shape, a fact that has been evident in China, where the economy has been gradually recovering since the first quarter of 2020 (2).

Merger and acquisition activity is anticipated to pick up in the second half of the year so that limited resources can be maximized (1). Even though megadeals may not be in the cards, there are expectations that opportunistic private equity buyers will be forthcoming and other routes of attaining ownership, other than acquisitions or mergers, will continue to be seen for the rest of the year (1).

It will be interesting to see how these predictions play out over the course of the next few months, or if the markets will see further turbulence due to secondary waves of inflated rates of infection of COVID-19. But, for now, please stay alert, stay safe, and stay healthy.

References

1. PwC, “Global Pharma and Life Sciences Deals Insights: Mid-Year 2020,” Sector Analysis, 22 July 2020.
2. Torreya, “COVID-19 and the Biopharmaceutical Sector: Outlook for the Financing and Deal Environment,” Report, April 2020.
3. Evaluate Vantage, “Biopharma Takeovers Show Quantity, If Not Quality,” Press Release, 13 July 2020.

Article Details

Pharmaceutical Technology Europe
Vol. 32, No. 8
August 2020
Page: 5

Citation

When referring to this article, please cite it as F. Thomas, “Dealing a Blow to Biopharma,” Pharmaceutical Technology Europe 32 (8) 2020.

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