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Biopharmaceuticals deal trends: What to expect in 2021


Competition for innovation will continue to drive deal making

When the COVID-19 outbreak slammed the economy, it seemed like deal making in the biopharmaceutical industry would also slow down. However, the volume of deals hit an all-time high in 2020, with transactions using creative deal structures such as asset licensing to strategic R&D collaborations powering the growth.

A new KPMG report, Biopharmaceuticals deal trends: Competition for innovation overcomes economic headwinds, explains that the industry’s perpetual need to find innovative assets to generate future revenue will continue playing out in 2021 in the deal market. But picking the best opportunities among unproven targets amid rising valuations will be a challenge.

In this paper, we take an in-depth look at how biopharmaceutical companies are deploying their capital. We analyze what types of targets they focused on in 2020 and present our expectations for 2021. The message: For the foreseeable future, biopharma executives will continue to use a wide range of deal strategies from M&A to creative partnerships to strategic R&D collaborations to balance opportunities and risks in pursuing innovation and building their pipelines. As in the recent past, the challenge will be to select the best opportunities amid rising valuations and stillunproven targets.

Key Insights

— 2020 was a banner year—more deals than EVER!

— The total value of company acquisitions was down in 2020 compared to 2019

— The number of strategic R&D deals were up over 2X compared to prior years

— Asset licensing deals were up 233 transactions

— The number of corporate acquisitions were up in 2020 versus 2019

— Only one deal was north of $30 billion in 2020 compared to 2019 which involved two deals over $60 billion

The quest for innovation

When the COVID-19 outbreak slammed the economy, it seemed like deals in the biopharmaceutical industry and other sectors would also slow down. Many observers predicted that transaction volume would be down in 2020.

However, a deeper analysis of the industry shows that the volume of deals hit an all-time high (Exhibit 1). The total number of deals in 2020 was 1,138 compared with 634 for 2019.

The growth was particularly dramatic for transactions using creative deal structures. Strategic R&D collaborations more than doubled from 161 in 2019 to 367 in 2020. Asset licensing deals jumped from 360 to 593. In contrast, there was only one headline-grabbing mega-merger (an acquisition we define as $30 billion or more). This deal was significantly smaller than two mega-deals in 2019, both of which were for more than $60 billion.

However, there were more acquisitions under $30 billion in 2020 (121 acquisitions) versus 2019 (79 acquisitions). The total value of these was $66.8 billion (when controlling for mega-mergers), down from $70.8 billion in 2019 (Exhibit 2). This means either that deal valuations fell or the acquisitions made were on average smaller than prior years. Analyzing the deal data, we concluded that it was smaller deal size.

In the annual KPMG survey of executives across healthcare and life sciences, more than 80 percent of 31 biopharma executives surveyed said valuations had increased in 2020, and nearly a quarter estimated that values jumped by 20 percent or more (Exhibit 3).

When we asked the executives what drove valuations in 2020, a large majority (61 percent) agreed that a primary driver was intense competition for high-value and innovative assets (Exhibit 4). This perspective from the pharmaceutical executives fits both our own advisory experience and our analysis of deal data, which shows growth in deals focused on innovation (e.g. cell and gene therapies). Across the biopharmaceutical industry, companies must sustain innovation or risk significant revenue cliffs as patent protections expire. This inherent characteristic of the industry means that this acceleration of the competition for innovative assets, particularly first-inclass or second-in-class assets, will remain a major driver of the deal market.

Over the past 10 years, growth across nucleic-acid-based therapeutics—e.g. RNA, oligonucleotide, and cell and gene therapies—has outpaced even the growth in large molecule mABs. A vast number of small biotechnology companies that are pre-revenue are powering this trend.

Deals in nucleic-acid technologies were an area of significant focus for the pharmaceutical industry in 2020 (Exhibit 7). The overall deal volume across cell and gene therapies rose to 141 from 83 in 2019, largely driven by a significant growth in asset licensing deals.

Implications for 2021

We believe that companies will continue to focus on creative deals for early-stage pipeline assets in 2021 and beyond, as companies seek to mitigate the risk of investing in early-stage assets. According to our survey, pharma will be:

— Early-stage, pre-revenue biotech acquisitions;

— Strategic partnerships; and

— Creative equity or financing deals with milestones.

Conclusion: Position to win

The competition for innovation pushes biopharmaceutical companies to
pursue earlier-stage pipeline assets in order companies to pursue earlier-stage pipeline assets in order compounded by the fact that these early-stage assets have lower probabilities of success, and many of the different emerging technologies are competing with each other for the same future commercial opportunities.

Predicting which technology will succeed or displace other emerging innovations is a gamble—the range of disruptive technologies in the global pharmaceutical pipeline is too diverse and it’s too early to know which will succeed. This is driving many savvy pharmaceutical and biotech companies to spread their bets and invest across multiple modalities.

We also expect more deals using creative structures focused on milestone-based investments in clinical-stage assets and increasingly, on pre-clinical-stage ones. The fight for innovation is now a battle for rights to own a wider range of platforms and individual assets that are early in development.


For Full Article Click on Link:
https://advisory.kpmg.us/content/dam/advisory/en/pdfs/2021/biopharmaceuticals-deal-trends.pdf