NorthWest Biotherapeutics Inc (NWBO)

[hyperopia]

Shifting from megamergers to strategic collaboration: M&A predictions for biopharma
30 March 2022 | By Hannah Balfour (European Pharmaceutical Review)

Some interesting highlights:

In 2021 we saw deals move away from the massive megamergers of 2019 to smaller collaboration and partnership agreements.

This trend of increasing activity but decreasing value, which Baral expects will continue through 2022, is due to it being a seller’s market. He pointed to several factors promoting a shift in negotiation power away from Big Pharma companies towards smaller enterprises: “One is the patent cliff. All the big pharmaceutical companies are exposed to this cliff looming from 2025 onwards.” According to Baral, the internal pipelines of these large companies are not sufficient to overcome the growth gap potentially created by the fall in revenues after branded medications go off-patent, making them heavily reliant on external innovation.

However, it is often not as simple as directly acquiring companies and assets, because the valuations for these smaller companies are extremely high. Given the ample capital that is accessible for these smaller enterprises to enable their continued development, they are “not in a desperate mood to sell” explained Baral. He added: “The existence of this valuation premium puts pressure on buyers to demonstrate quick returns on any acquisitions they make, acting as a deterrent to transactions – and increasingly making partnerships and collaboration the preferred method.”

“The 60 percent fall from the 2019 peak is because people are skeptical, cautious about doing big deals and paying up front,” explained Baral, adding that, combined with the reluctance of smaller companies to sell, organisations are entering into collaborations or partnerships. These deals enable access to some assets, allow the larger companies to go in small, gain an understanding of the technology, people or market and then, if it seems promising, potentially acquire the company or asset.

An example of this is Pfizer’s investment in – and subsequent acquisition of – Trillium in 2021. Initially in 2020 Pfizer invested $25 million in Trillium, buying approximately 2.3 million of its common shares;2 then in 2021, Pfizer went on to acquire the company for a further implied equity value of $2.26 billion.

As demonstrated above, the main impetus for M&A activity is the diversification and expansion of portfolios, according to Baral. He noted that these deals are occurring across a wide range of indications from oncology to immunology, neurology and more, but the key emerging areas are cell and gene therapy, mRNA, antibodies and protein degradation therapies. The first two are particularly key, according to Baral, who noted there has already been an uptick in interest and valuations for cell and gene therapies and mRNA. “These are platform based and people are really focused on how you can use that platform for not just one therapeutic area, but across many therapeutic areas and diseases,” he added.

M&A looking forward
Baral concluded that he anticipates 2022 will see very similar deals to 2021, with a lot of bolt-on acquisitions and a focus on collaborations and partnerships. “What is changing is there is ample capital in the market, so the power is shifting a little bit from Big Pharma to the mid-sized biopharma companies. They have a little more bargaining power now, with the innovation deficit and access to capital. Pharma companies are in desperate need to fill their pipelines for the looming patent cliff, so we expect a lot of deal making in 2022 and 2023. Now, they are not all going to be megamergers, but the valuations are high,” commented Baral.

https://www.europeanpharmaceuticalreview.com/article/169807/shifting-from-megamergers-to-strategic-collaboration-ma-predictions-for-biopharma/