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Drug developers have been hit by a succession of maladies. Higher interest rates have cut the value of their future breakthroughs. Sector M&A has swooned. Most recently, uncertainty over the health politics of US President Donald Trump’s administration has fogged up their vision.
The departure of Peter Marks, a top regulator at the US Food and Drug Administration who resigned after attacking the ‘misinformation and lies’ spread by Robert F Kennedy Jr knocked sector stocks on Monday. Vaccine maker Moderna fell by around a tenth. The closely watched XBI index is now down by more than half since its peak in 2021.
More broadly, uncertainty over the regulatory environment — further accentuated by reports of mass lay-offs at health agencies — will probably delay the resumption of sector M&A. The value of biotech acquisitions by US, European and Japanese companies fell to $35bn last year, a 70 per cent drop from 2023 and less than a sixth of 2019’s peak, on Bernstein numbers. Finding other ways to pay for drug development has also become harder. That is a bitter pill to swallow for companies whose ultimate quest is to be acquired by Big Pharma.
While there continues to be a trickle of acquisitions — including AstraZeneca’s recent $1bn bid for EsoBiotec — big pharma has largely focused on licensing deals, often with Chinese biotechs. These are cheaper punts on earlier-stage drugs, which entail a small upfront payment plus the promise of bigger bucks once the treatments are proven.
The best reason to believe in a revival of M&A is that biotech holds the cure for pharma companies’ chronic problem. The sector faces a patent cliff at the end of this decade, by which time drugs currently accounting for some $200bn of revenue will face competition from generics. These include blockbusters such as US group Merck’s Keytruda, which improves the immune system’s ability to fight cancer.
Snapping up biotechs is not the only way to fill a drug pipeline, of course. That is what in-house research and development departments are there for. And investors do not like pharma giants to just vacuum up any old growth prospect. They want potential blockbusters, and particularly those in hot therapy areas like immunology, oncology and obesity.
Yet, as the patent wall approaches, it is a fair bet that some of Big Pharma’s discipline will crumble. Strategic focus and financial nous are key to companies’ long-term health. But when momentum flags, it is hard to resist a shot in the arm.
camilla.palladino@ft.com
