The pandemic and the covid-19 crisis they put the biotechnology sector on the set of investors and also governments and regulators. Therefore, the fear of regulationsmore strict in the sector puts the agreements and mergers characteristics of the same that go back to 2020 lower levels according James Fontanella-Khan, Jamie Smyth and Nikou Asgari in the Financial Times.
The sector has seen only 116 deals this year, according Evaluate Pharma, a data set for industry, a 18% less than in 2020 and a little more than a fifth less than the average of the last ten years. The total value of the agreements reached this year reached 81,000 million dollars, a third less than in 2020.
Despite the setbacks in the sector, deals and mergers in general had an exceptional year. But the stricter lines for the biotech sector paralyze it.
What are the new regulations?
The industry was notified in March when the US Federal Trade Commission UU. and their counterparts in the EU, UK and Canada They said they would tighten the scrutiny of the pharmaceutical sector in general, pointing to the high volume of recent deals and skyrocketing drug prices.
Pharmaceutical executives said the new regulation would risk strangle the ecosystem behind biotechnologies, which are backed by venture capital firms when sometimes they are little more than an idea before being bought by big pharma.
“It has been very disappointing because mergers and acquisitions are always a great catalyst for our industry,” he said Brad Loncar, a biotech investor. “The possibility of an acquisition is always a purchase option that is included in the valuation of biotechnology companies. And if you eliminate that purchase option, it would be devastating for our industry. “
“Part of the headache for the industry,” Loncar added, was “if regulators are only targeting mega agreements between large groups or the acquisition of smaller biotechnology companies “.
Large and small work together
Historically, large pharmaceutical companies have outsourced much of the research and development of new drugs to smaller companies, often startups, that are faster and more agile in making cutting-edge medical advances.
The sharp slowdown in biotech deals also contrasts with the rest of the healthcare sector. The value of transactions in the sector, which includes diagnostic equipment and technology, medical technology and devices, reached almost $ 300 billion, about a 40% more than in 2020 and the second highest level in two decades, according to data from Refinitiv.
“Even with that, pharmaceutical companies still have billions of dollars in cash because they have been some of the winners of the pandemic,” he said. James Langston, Partner at Cleary Gottlieb Law Firm.
The benefits of the pandemic in the sector
“While the industry has seen ‘extraordinary consolidation in the last decade’, this year many pharmaceutical companies have focused on the pandemic, in addition to dealing with supply chain difficulties,” added Gottlieb.
The investment bank SVB Leerink predicts that large pharmaceutical groups in the US and Europe could have 500 billion dollars to implement in acquisitions, and Pfizer, Novartis y Johnson & Johnson will have the power to spend up to $ 150 billion, using cash and debt.
With the revenue momentum from Covid-19 likely to diminish in the coming years, many pharmaceutical groups will need to find new growth engines by 2025, which will force them to seek agreements, according to the investment bank.
But this depends on the approach regulators ultimately take towards trading, with the acquisition of Arena Pharmaceutical for $ 6.7 billion from Pfizer, which was announced earlier this month, which will become a test case.
“There is a significant overlap between the drug wallets of both companies that focus on inflammatory bowel diseases, which could raise concerns about the competence“, he pointed Andrew Baum, an analyst at Citi.
“The key question is whether the newly developed FTC headed by Lina Khan will allow it to continue,” Baum added.