Biotech and Pharma M&A in 2020

Biotech and pharma M&A total deal values slumped in 2020, despite an active year in life sciences dealmaking, with no big standout biopharma deals until late in the second half of the year. It could also be argued that big M&A deals were put on a backburner as Big Pharma, a major buyer, rushed to develop vaccines and therapeutics to combat and stem the COVID-19 pandemic and made only bolt-on acquisitions. Indeed, it wasn’t until mid-December when AstraZeneca announced it would acquire rare disease drug developer Alexion for $39 billion that total deal values rose to anywhere near industry expectations at the beginning of the year.

We looked at the extensive DealForma database to see how life sciences M&A, mainly biotech and pharma M&A, activity shaped up in 2020 in more detail.

Biopharma Deal Takeaways:

• 2020 was the most active year to date for biopharma M&A as far as number of transactions but not in total deal value as smaller bolt-on acquisitions dominated deal flow.
• Average M&A upfront cash and equity values fell to $1.4 billion, while median upfront values dropped to $61 million, the lowest level over the past 13 years, due in part to lack of mega deals.
• Buyers focused on innovative private companies (81), diagnostics providers (32), and tools and contract services companies (168).

Total M&A deal values of biopharma therapeutics and platforms, diagnostics, and medtech companies dropped 26 percent to $190.9 billion, after steadily rising for three years running, while the total number of acquisitions, acquisition options, and reverse mergers continued to rise reaching 384 completed or active deals, up 10 percent from 2019. While most of the value was in cash and equity upfront with 10 percent contingent on milestones, only 6 percent was contingent on milestones in 2019.

Although the COVID-19 pandemic hampered face-to-face meetings, life sciences partnering and capital raising activities were robust, including a sizzling IPO market, while M&A stayed in the doldrums the first half of the year. It was not until September, when Gilead Sciences disclosed that it was buying Immunomedics for $21 billion to beef up its oncology pipeline that things started to heat up with 219 deals announced in the third and fourth quarters of 2020 accounting for $173 billion in total deal value.

Average upfront cash and equity of 2020 M&A deals at $1.4 billion was 32 percent less than the average upfront cash and equity of 2019 deals at $1.8 billion, due in part to the two megadeals in 2019 when Bristol-Myers Squibb paid $74 billion for Celgene and AbbVie paid $63 billion for Allergan. The paucity of big dollar M&A deals during most of 2020 also caused median upfront cash and equity values to drop 39 percent to $61 million in 2020, compared to $100 million in 2019.

Big Pharma continued to have a major presence among the top acquirers in 2020 but some new names joined the list, including genomics firm Illumina, private equity firm Blackstone, and service providers Siemens Healthineers and Teladoc Health. Illumina snapped up Grail for $8 billion ahead of its planned IPO; Teladoc paid $18.5 billion for digital health company Livongo; Blackstone paid $4.7 billion for genetic testing company Ancestry.com; and Siemens acquired diagnostic and services provider Varian for $16.4 billion.

As in many years past, the 30 transactions valued at $1 billion or more accounted for 91 percent of the total 2020 M&A deal values, and Gilead Sciences topped the list as the most active acquirer striking four deals in oncology and one in viral diseases.

Big Pharma Expands Presence in Rare Diseases

AstraZeneca made a strategic move into the rare disease/orphan therapeutics space with the acquisition of Alexion in December for $39 billion, following a steady march by Big Pharma into precision genetic medicines and targeted therapies. Between Bayer’s deal to buy gene therapy biotech Asklepios at the end of October for $2 billion upfront and another $2 billion based on potential success-based milestones and the end of the year, life sciences M&A realized $67 billion in total deal values, more than one third of the year’s total. Of that amount $45 billion was in four rare disease/orphan drug deals.

CDMO and Services and Diagnostics Deals

In 2020, 44 percent of M&A targets were contract development, manufacturing, tools, and services companies, while private, small and mid-cap biopharmaceutical companies accounted for 30.5 percent of acquisitions. The number of CDMO and Services deals rose 26 percent in 2020, and total deal values doubled compared to the previous year.

Targeted therapies require diagnostic tests to determine the right patient populations, which have boosted the value of genetic testing companies and diagnostics makers in general. 2020 saw a 60 percent increase over 2019 in the number of M&A deals for diagnostic targets, and a 309 percent increase in average upfront cash and equity payments.

Private Biopharma Deals

Of the 27 deals valued at $1 billion and above, seven were for private biotech companies: Illumina’s $8 billion cash and stock acquisition of early cancer detection testing company Grail; Bayer’s $4 billion purchase of gene therapy biotech Asklepios, of which $2 billion was paid upfront; Merck’s $2.75 billion buyout of VelosBio for its phase 2 first-in-class ROR1 antibody drug conjugate; NovoNordisk’s $2.1 billion acquisition deal for Corvidia Therapeutics, which received $725 million of that upfront for its IL-6 targeted antibody in cardio-renal indications; Gilead Sciences’ $1.8 billion deal for German biotech MYR, which is developing peptide treatments for viral infections; Boehringer Ingelheim’s $1.4 billion buyout of oncology-focused NBE-Therapeutics; and Eli Lilly’s $1.2 billion acquisition of neurology-focused biotech Disarm Therapeutics, of which $135 million was paid upfront.

While it could be argued that a strong market for IPOs gave investors in private companies a favorable exit instead of selling the company, 81 private biotech companies were acquired in 2020 for a total deal value of $24.4 billion, $11.3 billion upfront and $13.1 billion in contingent payments, an almost 21 percent rise from the 67 private biotech acquisitions in 2019. While the average upfront cash and equity payment for these companies rose to $264 million, a gain of 56 percent over 2019, the median M&A upfront cash and equity for these companies dropped 13 percent to $46 million from $53 million in 2019.

Small and Mid-Cap Biopharma

Unlike private biopharma M&A, public company acquisitions usually involve paying the total value upfront. In 2020, at $102 billion in total M&A deal values, they also made up the largest portion of total deal values, up 85 percent from 2019, in 14 percent fewer deals. Contingent payments accounted for less than 1 percent, or $800 million, of that total.

Three deals drove the rise in deal values in the sector, accounting for $73 billion, or two thirds of the total M&A deal values of these companies: AstraZeneca’s acquisition of Alexion for $39 billion, Gilead Sciences buyout of Immunomedics for $21 million, and Bristol-Myers Squibb’s payout of $13.1 billion for MyoKardia. The average premium was 71 percent and ranged from 45 percent for Alexion, which had been pressured to sell itself by disgruntled shareholders, to 108 percent for Immunomedics.

These deals also drove the rise in the average upfront cash and equity paid for small and mid-cap companies, which skyrocketed 88 percent in 2020 compared to 2019, but didn’t affect the median upfront cash and equity, which dropped 6 percent from the previous year.

Biotech and Pharma M&A Deals in 2021

It is unclear whether or not Big Pharma will make a definitive purchase in 2021 to boost biotech and pharma M&A numbers. If the first 48 days of 2021 are any indication, expect to see a continuation of bolt-on acquisitions and smaller deals as the year moves forward, especially in the rare disease, neurology, and oncology space. The two biggest deals in 2021 so far are Jazz Pharma’s $7.2 billion acquisition of GW Pharma for its marketed drug to treat rare epileptic seizures, and Horizon Pharma’s $3.05 billion buyout of Viela Bio and its approved drug to treat the rare condition neuromyelitis optica spectrum disorder that leads to vision loss.

Development of treatments and vaccines combatting the COVID-19 pandemic and future pandemics is still front-and-center and may impact a Big Pharma purchase. Still, mid-cap biotechs such as BioMarin, Alnylam, and Sarepta continue to be talked about takeover targets. And as more companies focus on targeted and precision genetic medicines and build out manufacturing capabilities, it bodes well for a strong year ahead.

This article is a sample from the DealForma Quarterly Deal Trends Report provided to database customers. Data for this analysis was compiled using the DealForma biopharma deals database. We applied initial filters for mergers and acquisitions, therapeutic areas, modalities, asset stages at signing, and deal payment terms. From there, we exported the data to Excel and used pivot tables and charts to do the rest. All data are based on publicly disclosed figures. We invite you to answer interesting questions on biopharma business development and licensing using our data and carefully curated profiles on deals, pipelines, companies, funding, and business executives by visiting dealforma.com to schedule your personalized demo.