How pharma is reinventing its growth strategy through M&A

Not long ago, life science companies were flush with cash and eager to ink deals. Now, they're taking a more calculated approach to growth. With patent cliffs looming, high interest rates holding steady, and pricing pressure from the Inflation Reduction Act (IRA) mounting, the dealmaking landscape has become a high-stakes arena. Today, we're seeing fewer, but larger, transactions as companies aim to select targets that can deliver transformative growth.

The challenge lies in striking the right balance between bold bets on high-potential assets and cautious investment. Here's a look at how companies are increasing the depth of their portfolios without taking on the heavy costs of in-house development.

Biotech acquisitions by year and total value paid upfront, 2018 - 2024 YTD

Deal value	2018	2019	2020	2021	2022	2023	2024
Up to $500M	11	10	9	15	26	11	8
$500M to $999M	5	4	7	4	6	6	4
$1,000M to $4,999M	3	2	1	2	1	4	0
$5,000M to $9,999M	2	4	3	2	2	4	0
$10,000M or more	3	9	8	12	8	13	15
Total	24	29	28	35	43	38	27

Table 1. Values represent deal count as of July 23, 2024. Data is limited to deals valued at $50 million or more upfront. Total consideration can reflect both cash and equity offered upfront in exchange for the acquired company's shares. Source: Biopharma Dive.

Focusing on high-potential therapy areas to drive growth

With revenue pressures mounting, drugmakers are turning to alliances to find their next blockbuster and set themselves apart from the crowd. By zeroing in on strategic therapeutic areas, companies can really make their spending count.

This trend is evident in the surge of immune therapy acquisitions this year, signaling a growing industry interest in this high-potential area. Cancer-related acquisitions are also a key area of interest, even with some ups and downs in deals. The table below highlights biotech mergers and acquisitions (M&As) by therapeutic category since 2018.

Biotech acquisitions by therapeutic category and year, 2018 - 2024 YTD

Therapeutic category	2018	2019	2020	2021	2022	2023	2024
Immune	2	3	5	4	5	6	12
Cancer	10	7	6	9	11	8	8
Other	5	6	10	13	17	12	4
Rare	6	7	5	5	7	5	3
CNS	1	6	2	4	3	7	0
Total	24	29	28	35	43	38	27

Table 2. Values represent deal count as of July 23, 2024. Data is limited to deals valued at $50 million or more upfront. Source: Biopharma Dive.

One example of strategic spending this year is Vertex Pharmaceuticals' acquisition of Alpine Immune Sciences for $4.9 billion. It's the largest deal so far and shows Vertex's effort to branch out from its cystic fibrosis focus and expand its autoimmune and inflammatory disease pipeline. With this acquisition, Vertex gets access to povetacicept, an experimental therapy for IgA nephropathy (IgAN), a progressive autoimmune disease attracting attention from players in both the biotech and pharma sectors. Novartis' acquisition of Chinook Therapeutics and Phase 3 programs from Otsuka and Vera Therapeutics underscore the competitive landscape for IgAN therapies. This acquisition also complements Vertex's existing Phase 3 candidate, inaxaplin, for apolipoprotein L1 mediated proteinuric kidney disease, building on its efforts in kidney disease treatment.

In the oncology drug space, Japan-based Ono Pharmaceutical has agreed to buy Deciphera Pharmaceuticals for $2.4 billion to shore up its cancer drug portfolio and expand its foothold in the U.S. and Europe. Ono is best known for its blockbuster cancer drug Opdivo, which is sold in the U.S. by partner Bristol-Myers Squib. This move comes as Opdivo's patent protection nears expiration in major markets in 2028. The acquisition brings Deciphera's FDA-approved Qinlock (for a type of gastrointestinal cancer) and the promising Vimseltinib (for a specific joint tumor) into Ono's pipeline.

Maximizing revenue potential through advanced biologics

With the IRA creating a longer window for price negotiation on large molecule drugs-13 years compared to 9 years for small molecule drugs-companies also have a golden opportunity to drive growth through biologics. This extended protection period allows companies to recoup development costs, generate more revenue, and solidify their market position, making biologics a highly attractive area for investment.

Antibody-drug conjugates (ADCs) have emerged as a prime example of biologics poised to benefit from the extended exclusivity period granted by the IRA. Recent blockbuster deals like Johnson & Johnson's $2 billion acquisition of Ambrx Biopharma and Genmab's $1.8 billion purchase of ProfoundBio underscore the growing industry focus on this therapeutic class. Ambrx has a strong pipeline of ADCs targeting multiple cancers, including ARX517 for prostate cancer, ARX788 for HER2+ breast cancer, and ARX305 for renal cell carcinoma. Meanwhile, ProfoundBio's lead asset, Rina-S, is a Phase 2 ADC targeting ovarian and other solid tumors. Beyond Rina-S, Genmab gains access to ProfoundBio's ADC development platform.

In addition to ADCs, polyspecific antibodies are capturing the industry's eye. These engineered proteins can bind simultaneously to multiple different types of antigens. This broad targeting capability makes them highly effective for certain therapeutic applications, particularly in oncology and immunotherapy. A prime example of this trend is Johnson & Johnson's nearly $1.3 billion acquisition of Yellow Jersey, a spinoff from Numab Therapeutics. The deal grants Johnson & Johnson global rights to NM26, a novel, investigational bispecific antibody. NM26 targets two key pathways involved in atopic dermatitis-IL-4R alpha and IL-31. By securing NM26, Johnson & Johnson can strengthen its bispecific antibody pipeline and bolster its immune-mediated and inflammatory disease portfolio.

As companies aim to increase revenue and extend product lifecycles, investments in these complex biologics and partnerships in this space are likely to continue. ADCs and polyspecific antibodies, in particular, have become focal points for enhancing the value of biologic assets.

Accelerating innovation in biotech through M&As

When done right, M&As can be a powerful driver of innovation in the pharmaceutical industry. For smaller biotech firms, teaming up with a big pharma company can provide crucial funding and resources needed to push novel drugs and technologies forward-something that might be tough to achieve alone due to the high costs and risks involved in the development and commercialization of drugs. For pharma companies, acquiring a biotech can be a more cost-effective way to access innovative therapies without the extensive time and expense required to develop new drugs from scratch.

From the cancer drug Keytruda to the autoimmune disease medication Humira, many of today's top-selling drugs trace their success to M&As that accelerated their research, development, and market entry. As pharma companies actively seek to expand their pipelines, biotechs that align with their priorities become increasingly attractive targets or strategic partners. Even as dealmaking becomes more selective, the collaboration between pharma and biotech remains crucial for bringing new, life-saving therapies to patients.

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