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Why Pharma Dealmaking is a Sector that’s Ripe for Growth

The global pharmaceutical sector is booming thanks to continued growth in R&D spend in new technologies and therapeutic areas, putting the industry back on a more normal track following a tumultuous period during the pandemic. According to a report by the IQVIA Institute, R&D expenditure by big pharma companies reached a record $138 billion in 2022, marking a huge 43% increase since 2017.

It’s been encouraging to see pipeline activity innovation regain its pre-pandemic momentum, and we expect this to drive a continued increase in M&A, as cash-rich, mature companies buy access to developing product areas and expertise to drive forward future growth.

According to a report from Goldman Sachs, the global pharmaceutical sector has a war chest of approximately $700 billion to acquire other companies and invest in R&D, a significant amount of potential M&A firepower. This is only growing, as combined total revenue for the largest global pharmaceutical companies reached $737 billion in 2022, representing a 4.7% rise in net sales compared to the $704 billion recorded in 2021, further increasing deployable cash flows.

As ever a major driver remains the need for pharma companies to continue to invest due to the “patent cliff” – the potential sharp decline in revenues upon patent expiry of one or more leading products which then become generics.

A Deeper Insight into Big Pharma

Record levels of drugs in the pipeline, improved speed productivity drivers in clinical trials and the emergence of increasing numbers of smaller biopharma companies are all factors widening big pharma’s interest in M&A. With the accumulation of substantial cash reserves during the coronavirus pandemic, coupled with investor worries regarding future growth prospects we believe there will be a further upsurge in activity.

Recent acquisitions in the pharmaceutical and biotech industries have completely bucked the overall trend in the M&A market which has been relatively lacklustre. Reuters Breakingviews echoed this sentiment in a recent article, stating that “drugmakers are primed for a shopping spree in 2023” with chief executives having a “potential half-trillion-dollar war chest to use on dealmaking”. Therefore, we could be well on track to reach exceptional levels of deals this year, far higher than last year’s total value of biopharma deals reaching $127bn.

If a company possesses promising late-stage R&D assets, it becomes that much more appealing as a potential acquisition target for the cash-rich major pharmaceutical companies. If the ongoing product development pipeline activity remains at a high, there’s no doubt we’ll see continued positive sentiment across the sector and M&A, both bolstering share prices and overall capital markets activity.