Articles · Amandeep Singh, Ph.D. ·
Buyer's market in Pharma
**2023 will likely stay a Buyer’s market in the biopharma and life sciences M&A**
Biotech companies are in a grim financial situation. The past year saw an unrelenting drought for biotech financing and a slump in IPOs due to poor market conditions. The companies were forced to make hard choices like slashing programs, culling staff, and reorganizing just to survive. While many thought that this tumultuous period had a silver lining – that the industry is now much leaner and ready to reclaim its strengths. However, the first quarter of 2023 tells a different story, with funding and the number of deals still at record low and optimism still at bay. The up-and-down nature of the macro environment is adding to continued uncertainty.
With dried funding and economic worries, biotechs have the looming threat of bankruptcy. Cash-strapped biotech companies may need to secure enough funds to prioritize their pipeline accordingly, at least to reach their next data readout. Clinical readouts often make a significant impact on the valuations and hence the ability to raise subsequent larger rounds. However, for those unable to reach the next trial phase or achieve favorable data, M&A deals with Pharma may be the only lifeline.
Accordingly, several biotechs may have to reset their expectations on valuations to align with the new market realities and the urgency of the situation. With the situation not in favor, acquirers/buyers have an upper hand on negotiations and deal structuring with heavily discounted valuations. While several biotechs are still expecting inflated valuations, buyers are using the promise of additional contingent value rights (CVR) to bridge the gap. It's a simple concept: if a seller thinks their company is worth more than what a buyer is willing to pay, the buyer will agree to pay that amount only if the company performs exceptionally well.
This is clearly visible in the 3 deals that happened during the JPM meeting in Jan 2023.
Acquirer Company Acquired Deal date Total Consideration 52-week high($) 52-week low($) Last traded Price($) Price /Share ($) Prem-ium* Additional Consideration
AstraZeneca CinCor Pharma 1/9/2023 $1.3B 43.15 10.53 11.79 26.00 121% CVR: additional $10 per share
Ipsen Albireo 1/9/2023 $952M 45.23 16.02 22.5 42.00 84% CVR: additional $10 per share
Chiesi Amryt Pharma 1/8/2023 $1.25B 14.77 6.41 7 14.50 107% CVR: additional $2.50 per ADS
In September 2022, AstraZeneca proposed to buy CinCor for $60/share plus (CVR) of $6/share, totalling $3.2 billion if all milestones were met. But CinCor's CEO and board wanted more upfront cash. Then in November, CinCor's stock dropped almost 47% when its lead drug baxdrostat failed the HALO trial and AZ walked with a ~60% discounted deal.
The other 2 deals, Ipsen acquiring Albireo and Chiesi acquiring Amryt, also had a CVR pay out included in the deals. While the buyers paid a substantial premium over the closing price, the offer is still below the 52-week high of acquired companies.
While use of CVRs is not new to the industry, it has been often used for early-stage companies. In this case, all three acquired companies are commercial stage or late-clinical stage companies. Investors are rarely in favour for including CVRs in deals, as it is seldom realised. BMS-Celgene and Sanofi-Genzyme are the two biggest examples of these notorious securities where billions were lost in investors earnings as the programs failed to meet the agreed milestones.
With the impact of Inflation Reduction Act (IRA) and its effect on pricing of drugs in the US now understood much more clearly (Box 1), many companies re-trying to prioritize pipelines/indications and business development strategies. The companies that were working on the common ‘pipeline-in-a-product’ strategy i.e., building a pipeline of different indications from a single product are likely to be further affected negatively for valuations.
As the markets remain unpredictable and the conditions expected to be tough until mid-late 2023, the biotech industry is going to be under immense pressure to survive. With plenty of biotech companies on their last legs, it may be a great opportunity for Pharma companies and CROs with financial resources to invest in acquiring assets and technologies that can accelerate their long-term growth strategies. This might be a pivotal moment for those with cash in hand to take advantage of the current situation and strengthen their position in the industry.