Frankfurt Acquisitions and mergers in the pharmaceutical industry were rather sluggish in the first half of the year. But with speculation about US biotechnology company Seagen, forecasts for a new wave of mergers and acquisitions are now taking on new fuel.
According to a Wall Street Journal article, US pharmaceutical giant Merck & Co. is considering buying the public biotechnology company, originally known as Seattle Genetics. Business circles also see companies such as Pfizer, Johnson & Johnson and Sanofi as potential buyers of the company.
If an agreement is implemented, it would be equivalent to the largest acquisition in the industry so far this year. Seagen is currently valued at about $ 30 billion in the stock market after the stock rose about 13 percent last Friday in response to speculation.
The US company is currently in a leadership crisis, with former CEO and co-founder Clay Siegall due to resign in mid-May and medical director Roger Dansey taking over as interim chief. Therefore, it is considered vulnerable to takeover. Siegall faces charges of domestic violence and has since resigned as CEO and President.
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For Merck & Co., the acquisition would be a good way to diversify its own portfolio of anti-cancer drugs. So far, the US group’s business has been largely dominated by the big blockbuster Keytruda, which contributed $ 17 billion to total sales of $ 48 billion last year.
New class of anti-cancer drugs
Seagen is a pioneer in antibody-drug conjugates, a new class of anti-cancer drugs that is currently making waves in the market. The antibodies bind to a cytotoxin, which is then transported to the cancer cells in a targeted manner. A good dozen such antibody conjugates have been approved so far and another 100 are in clinical trials. Some German biotechnology companies, such as Heidelberg Pharma and the start-up Tubulis from Munich, are also working in the field.
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Seagen itself has so far brought four such active ingredients through approval and achieved sales of nearly $ 1.6 billion with these products and license revenues in 2021. Several other products are in clinical trials. In this regard, the company would also be an interesting addition to other players such as Pfizer, J&J, Novartis or Bristol-Myers Squibb (BMS).
An acquisition could also signal a stronger wave of mergers and acquisitions in the second half of the year, as the range of acquisitions has been rather limited in recent months. According to Bloomberg, trading volume in the pharmaceutical biotechnology industry fell to about $ 71 billion in the first half of the year, up from $ 82 billion a year earlier. Excluding supply and diagnostics transactions that are also recorded, the scope of transactions in the real pharmaceutical sector is likely to have been halved.
Overall, the industry is still considered an attractive and promising area for acquisitions. While many mergers and acquisitions are currently pending due to global uncertainty, such as the war in Ukraine and difficult financing markets, deals in areas such as healthcare, infrastructure and software are still ongoing. Companies with strong cash flows and stable long-term prospects that benefit from major trends, such as aging society, continue to be in high demand, investment bankers say.
High financial reserves in Big Pharma
Last but not least, the financial constellation in the pharmaceutical industry speaks of stronger mergers and acquisitions. Because both large companies and individual biotechnology companies are currently in an unusually strong financial position with high cash flow. Companies like Pfizer, Novartis and Johnson & Johnson have recently had liquid assets of about $ 30 billion each and are likely to generate high free cash flows this year. The basis for this was laid by the extensive sales of non-core business and, in some cases, the high revenue from the vaccine and drug business for Covid.
Pfizer has already agreed to buy biotech company Biohaven for $ 10 billion in May, but could easily face a number of other such deals. Analysts forecast more than $ 30 billion in free cash flows for the group in 2022. Exit from consumer healthcare company Haleon, which is part of the UK-based GSK and in which Pfizer still holds about a third, could generate additional revenue of tens of billions.
Biotechnology companies Moderna and Biontech also have significant leeway due to their high sales of vaccines. Both companies reported financial reserves (including trade receivables) of about $ 20 billion at the end of March.
At the same time, the valuations of many biotechnology companies fell sharply in the first half of the year. For example, many newcomers to the stock market over the last three years are now trading well below their IPO prices. First of all, biotechnology acquisitions therefore seem even more attractive.
However, the willingness to sell usually falls with the valuations. Therefore, there is no guarantee that there will be acquisitions in all areas of biotechnology. Many biotechnology companies may try to wait for a better stock market climate before trading large pharmaceuticals.
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