2021 forecast: M&A poised to rebound in 2021, fueled by pharma's $1.47T in deal-making firepower: analysts

When AstraZeneca said it would lay out $39 billion for Alexion on Dec. 12—just hours after the first COVID-19 vaccine was approved in the U.S., promising an end to the pandemic—it seemed as good a sign as any that M&A mania might be returning in biopharma.

In fact, industry watchers were already predicting that, after the down year that was 2020, biopharma deal-making would return to pre-pandemic levels in 2021. And it’s not just because the executives striking M&A alliances will be able to ditch Zoom meetings in a few months and actually shake hands in person.

“What’s important are the fundamentals. Big Pharma companies have the balance sheets to deploy against M&A, and the need to go into therapeutic areas where they can create eminence,” said Arda Ural, Ph.D., Ernst & Young’s Americas industry markets leader for health sciences and wellness, in an interview.

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Prior to AZ’s announced deal, there were 242 pharma and life sciences transactions announced in 2020, down 2.3% from the previous year, according to PwC. But the cumulative value of those deals plummeted by 61% to just $141 billion.

PwC figures 2021 will usher in between $250 billion and $275 billion worth of M&A. Several of those will be megamergers over $50 billion in size, while others will be smaller “bolt-on” transactions, the firm predicts.

Eli Lilly heralded a rise in bolt-on deals Dec. 15 when it pledged $1 billion for Prevail Therapeutics, a gene therapy player. The deal came just one month after Lilly teamed up with Precision BioSciences in a $135 million gene therapy development pact.

“Companies will be looking for acquisitions that help support their strategic agendas, but we also see an opportunity for at least one really transformational transaction,” said Sky Milch, U.S. pharmaceutical and life sciences deals leader at PwC, in an interview.

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Milch estimated that as of December, the biopharma industry had $1.47 trillion in capital that it could deploy against M&A. “That number is down only 6% over 2019. What that means is that while pharma was creating the resiliency to get through the pandemic, the industry still maintained enough firepower to put towards inorganic growth,” Milch said.

Signs of an M&A rebound first emerged in September, when Gilead Sciences announced it would buy Immunomedics for $21 billion. The deal, struck at a 108% premium, brought Gilead the first-in-class anti-TROP-2 breast cancer drug Trodelvy. And it came six months after Gilead laid out $5 billion for Forty Seven in another deal that contributed to the company’s effort to branch out from its flagship infectious disease franchise.

The AZ-Alexion deal didn’t just solidify the return of big M&A in the industry. It also marked the takeover of a U.S.-based biopharma by an overseas company—a trend that’s likely to continue, Ural said.

“Global biopharmas are looking for assets in the U.S. for two reasons,” Ural said. “Innovation is happening in the U.S. with the biotechs. And the tax penalties for coming to the U.S. have been mitigated, at least for now. That makes the U.S. a welcome target for nicely funded companies.”

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Which assets are likely to be hot in 2021? Oncology and gene and cell therapy top most analysts’ lists. And the deals won’t just be centered around trendy, early-stage assets, they predict.

“We’ve seen a lot of investment in oncology, and we could see some of the players who haven’t been successful start to move out of it,” Milch said. “That will create opportunities for them to sell or partner on their best assets. There could be a similar story in gene and cell therapy.”

Large-cap companies like Amgen, Biogen and Bristol Myers Squibb are widely cited as the most likely deal-makers in biopharma. Among the potential targets analysts have pegged are gene therapy pioneers BioMarin and bluebird bio, Global Blood Therapeutics and immuno-oncology startup Iovance Biotherapeutics.

One big question mark for 2021 is how the changing of the guard in Washington might affect biopharma deal-making. Some predict President-elect Joe Biden will make drug pricing a major part of his agenda. But the prospect of pharma companies losing some degree of pricing power is not a new issue. “I think people know there’s going to be a continued focus on drug pricing,” Milch said, “so I don’t anticipate it will have a heavy impact on M&A.”

It helps that venture financing has remained strong in 2020 despite the pandemic. The biopharma sector raised $15.7 billion through the third quarter, putting 2020 on track to surpass the $17.9 billion raised in all of 2018, predicted Evaluate Vantage.

That portends a return to big M&A in the sector, Evaluate Pharma said in its 2021 forecast.  “As long as financing is readily available next year, the power will remain in the hands of the sellers—and there are plenty of motivated buyers out there.”