Big Pharmas finally strike with GSK, Merck acquisitions, signaling accelerating pace of M&A

After circling around the crop of biotechs ripe for a takeover, Big Pharma companies have finally decided to strike.

Merck & Co. made the first jab, taking Prometheus Biosciences and its bowel disease candidate in a $10.8 billion transaction Sunday. Then GSK struck Tuesday, offering $2 billion for Bellus Health to challenge its fellow pharma dealmaker in the cough market.

The two deals are a long-awaited sign of green shoots in the industry, adding to a fairly short list that includes Pfizer’s $43 billion acquisition of Seagen and Amgen’s $27.8 billion buy of Horizon Therapeutics.

Moody’s Investor Services thinks these are just the start, with M&A activity expected to remain high over the next year to 18 months. Pharmas are trying to restock their pipelines due to approaching patent cliffs and long-term pricing pressure, Moody’s wrote in a Monday sector commentary note.

Other Big Pharmas that are likely to strike include Bristol Myers Squibb, Royalty Pharma and Merck again, according to Moody's. AbbVie, Biogen, Gilead, Pfizer and Viatris also have moderate potential for deals, the firm says, while Amgen, Eli Lilly, Johnson & Johnson and Regeneron are less likely.

The deals to come could be large. Moody’s thinks there is potential for acquisitions representing 10% or more of the acquirer’s market cap. That could come in one single deal or multiple over a short time frame.

Merck, even after the Prometheus buy, is looking to expand revenues beyond the blockbuster immunotherapy Keytruda.

“Although Merck's tone appears to have recently shifted towards smaller-to-medium sized deals, we believe the company would opportunistically pursue a larger deal,” Moody’s wrote.

Prometheus will give Merck more of a presence in immunology with PRA023, an anti-TL1A monoclonal antibody for ulcerative colitis and Crohn’s disease. The therapy is several years away from commercialization, Moody’s noted, with phase 3 trials in those indications beginning this year. Should PRA023 be successful, Merck could gain some protection from an over-reliance on Keytruda, which will begin to see market exclusivity erode in 2028.

GSK gains camlipixant through the Bellus transaction. The therapy is challenging Merck in refractory chronic cough, although it’s much further behind in the race to market. Analysts at ODDO BHF, however, say that the asset could be the best in the P2X3 antagonist class because it is highly selective. Bellus has been testing the med in two phase 3 trials called CALM-1 and CALM-2, with data expected in the second half of 2024 and 2025, respectively. A commercial launch could follow in 2026.

Merck, meanwhile, will likely get there with gefapixant sooner, so long as the company can complete additional analyses requested by the FDA and resubmit this half as planned.

Evercore ISI analysts were sad to see Bellus snapped up by a Big Pharma, calling the news “bittersweet.” The small biotech had impressed analyst Josh Schimmer with its open communication and execution of the cough program.

“BLU is like one of those gritty fan-favorite players who defines the game with great skills and a positive attitude; if they made biotech jerseys, I’d have a BLU one with 'Bellini' on the back carrying around one of those '#1' foam fingers,” Schimmer wrote.

The $14.75 per share offer from GSK represents a 100% premium over the most recent share price, according to Evercore, which is below the firm’s previous target. Schimmer, however, said “no complaints here,” as the usually informative company had been quite quiet as it executed on gefapixant’s phase 3 clinical program.

“The Canadiens might have missed the playoffs, but BLU still gave Quebec something to cheer about,” Schimmer said of the Laval, Quebec-headquartered biotech.

Elsewhere, BMS is approaching a full patent cliff in 2026 for multiple myeloma med Revlimid and another for anticoagulant Eliquis in 2028. The New York pharma’s last acquisition was MyoKardia for $13.1 billion in 2020. The company has a strong free cash flow, according to Moody’s.

Biogen just gained a new CEO, Christopher Viehbacher, who has signaled a desire for deals. But the company has some unfinished business as it awaits the FDA approval of Sage Therapeutics-partnered zuranolone and the pending full approval of Alzheimer’s med Leqembi with Eisai.

"Not only would approvals of these products materially improve Biogen's growth rates, but the company's focus would turn to commercial execution of those launches. However, adverse outcomes of these decisions would materially raise the potential for significant M&A,” Moody’s wrote.

As for J&J, Chief Financial Officer Joseph Wolk told investors that the healthcare juggernaut is of course always on the lookout for deals during a first-quarter earnings report Tuesday. But he previewed a cautious approach, promising to “deploy capital in a way that returns to shareholders to compensate them, quite frankly, for the risk that we're bearing on their behalf.”

“We're not going to do anything out of desperation based on the breadth of our product portfolio,” Wolk said. “We're lucky in that we've got a strong balance sheet to do whatever we'd like but we want to make sure it makes good strategic and financial sense.”

Moody’s believes J&J could certainly make some deals but does not expect them to be huge in relation to the company’s market cap, which is a whopping $502.32 billion.

With Pfizer’s Seagen deal working in process, Moody’s does not see any massive deals coming from the pharma giant’s boardroom for awhile. The Seagen buy will put Pfizer at 80% of its $25 billion risk-adjusted 2030 revenue target from acquisitions, according to Moody’s.

“This implies smaller acquisitions going forward. However, additional acquisitions to reach the target are still likely,” Moody’s said.