Biopharma’s buyout year ends with a bang

A recent buying spree swells 2021's meagre M&A tally, but the Pfizer-Arena deal could crystallise antitrust concerns.

Biopharma watchers have decried lean times for takeouts for some while now, naming lofty valuations and a hawkish stance from antitrust regulators as deterrents to deal making. Activity has picked up in the last couple of weeks, however, with a string of bigger purchases announced.

Yesterday saw CSL’s long-rumoured interest in Vifor formalised, with an offer worth $11.7bn, following Pfizer’s $6.7bn swoop on Arena. This buying spree takes 2021’s M&A spend above 2017's meagre record, which is some comfort after such a quiet year. Still, it should be remembered that several of these recent deals have yet to close. 

The potential for competition watchdogs to intervene in biopharma transactions has been a concern since the start of this year, when several regulators’ revealed their intentions to more closely scrutinise mergers that might result in excessive drug pricing power. Little evidence of this has emerged, possibly because few big moves have been announced in the drug development world since then.

Pfizer’s attempt to buy Arena is almost certain to attract regulatory attention. The main motivation for the deal was the inflammatory bowel disease project etrasimod, a contender in a space in which the pharma giant already has a strong presence with the Jak inhibitors Xeljanz and Cibinqo, which are already on the market, and several novel mechanisms in the pipeline.

The threat of oversight is not lost on Pfizer. On a call this week executives said they planned to “engage collaboratively with regulators to show the procompetitive rationale for this transaction”. It has also been suggested that the company’s recent offloading of a couple of Jak and Tyk2 inhibitors was a pre-emptive offer to the antitrust watchdogs.

SVB Leerink analysts described the Arena deal as a “test case for the FTC’s view of biopharmaceutical M&A”, and reckon that further divestments might be required for Pfizer to seal the deal.

Many biotech investors are expecting an uptick in M&A activity next year, largely because poor stock market conditions have hit valuations. Regulatory requirements stringent enough to force Pfizer to walk away from Arena would pour a lot of cold water over those hopes.

Fortunately, few such concerns exist around the CSL/Vifor combination, which remarkably represents the biggest buyout of a drug developer this year. 2021 is not over, of course, so the numbers above, from Evaluate Pharma, could yet rise. Note that this analysis concerns deals between pure-play drug developers only. 

After an alarmingly quiet second quarter it seems that 2021 might not be as bad as feared for biopharma buyouts. What next year holds could depend a lot on how easily Pfizer manages to swallow Arena.

Top five biopharma buyout so far in 2021
Buyer Target Price 
CSL Vifor $11.7bn
Merck & Co
Acceleron Pharma
Jazz Pharmaceuticals GW Pharmaceuticals $7.2bn
Pfizer Arena $6.7bn
Novo Nordisk Dicerna $3.3bn 
Note: M&A between pure-play drug makers only. Source: Evaluate Pharma. 

Please note that this is a corrected version of an article that ran earlier, that contained an incorrect number for 2021's deal total.

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