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Smaller deals to drive healthcare M&A activity in 2020, experts say

Despite a lack of large biopharma deals since the start of this year, mergers and acquisitions are expected to continue at a robust pace, industry leaders and experts said on the first day of the 2020 J.P. Morgan Healthcare Conference, one of the largest industry gatherings of the year.

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The 38th annual J.P. Morgan Healthcare Conference being held Jan. 13-16 in San Francisco brings together more than 9,000 attendees and 450 public and private companies.

Source: S&P Global Market Intelligence

In previous years, the San Francisco conference was accompanied by a flurry of news on dealmaking, including 2019's pre-meeting announcement that Bristol-Myers Squibb Co. would acquire Celgene Corp. for $95 billion, followed by Eli Lilly and Co.'s $8 billion purchase of Loxo Oncology Inc. that week.

This year, Lilly's Jan. 10 announcement that it was acquiring Dermira Inc. at a valuation of $1.1 billion came just ahead of the conference.

Some financial advisers anticipate M&A volume will remain high this year, though the value of those deals might not reach 2019's heights.

"Last year was a very big year for deals, $350 billion with two large deals and a flurry of bolt-ons and divestiture spends," PriceWaterhouseCoopers U.S. Pharma and Life Sciences Deals Leader Glenn Hunzinger said in an interview. "We expect it to be very active this year — not the same large deals we saw last year, but you'll see more [of] the $5 billion to $15 billion type deals and a continuation of different partnerships."

The kinds of deals Hunzinger expects are those around smaller biotechs focused on oncology, as well as the growing fields of cell and gene therapy.

"With more data, more progression on some of these innovative drugs, people are willing to take more bets," Hunzinger said. "Most companies have pretty good organic growth so it's not the same burning desire to fill the pipeline, yet now is their time to reinvest for the long term around some of these innovative areas where there's going to be growth."

In 2018, PwC, also known as PricewaterhouseCoopers, was exceptionally busy consulting as companies explored the potential to make deals, Hunzinger said, and those deals came to fruition the next year as the markets ripened and they had more cash on hand.

"You need the innovative biotech companies to come up with the science, and you need the bigger companies to get access to the market and leverage the infrastructure — that model works exceptionally well for this industry," Hunzinger said.

Pharma, biotech leaders weigh in

During the conference's first presentation, Bristol-Myers CEO Giovanni Caforio, who spearheaded the largest deal of 2019, said the pharmaceutical giant would pursue further dealmaking this year.

"We're continuing to look at conferences like J.P. Morgan for opportunities to expand our reach and focus and bring even more attractive science and opportunities into the company," Caforio said.

Smaller biotechs are also interested in pursuing deals to bolster their pipelines and that trend would continue in 2020 and beyond, Tim Walbert, CEO of Horizon Therapeutics PLC, which acquired its two core assets through dealmaking, told S&P Global Market Intelligence.

"We think we're really well-positioned to accelerate business development activities and build our pipeline, and our goal is to bring additional development-stage medicine in via acquisitions and licensing," Walbert said in an interview.

However, some leading drugmakers have decided not to join the M&A bandwagon. Executives at Johnson & Johnson signaled the company already owns the assets it needs to move forward.

"We have confidence in our existing base of business and the company’s growth projections show that 75% of growth through 2023 is going to come from existing assets," said J&J Executive Vice President and Worldwide Chairman of Pharmaceuticals Jennifer Taubert. "The company is largely de-risked because these assets are approved, in market and have a lot of runway."

Japanese pharmaceutical company Takeda Pharmaceutical Company Ltd., which announced its acquisitions of ARIAD Pharmaceuticals Inc. in 2017 and of Shire PLC in 2018, is also unlikely to make any such announcement this time around, President of R&D Andy Plump said in an interview to Market Intelligence.