The initial outbreak of the COVID-19 pandemic delayed merger and acquisitions in the pharma sector, but evidence points to an uptick in activity because the rationale for sealing deals hasn’t changed
The COVID-19 pandemic slowed pharma M&A activity in 2020, but only temporarily with deals since June of that year suggesting drug firms are still hungry for the right takeovers.
At first glance, it would be fair to assume the pandemic had a huge impact on drug industry acquisitions in 2020.
According to PwC, the total value of pharmaceutical sector takeovers completed in the 12 months to December 31 was $184 billion, 48% lower than in 2019. In addition to value, M&A volume was down too. A total of 243 deals were carried out in 2020, down 2% from the tally in 2019.
But while the pandemic dampened activity, the contrast was exaggerated by the fact 2019 was a record year. There were $254 billion worth of takeovers in 2019, dwarfing the $155 billion and $76 billion worth of deals completed in the two prior years.
As the PwC analysts wrote, “2020 was a down year for deal making in the pharmaceutical and life sciences sector compared to 2019 which included many transformational deals. Compounding this was the impact of COVID-19 in 2020, which put a hold on many deals during the early stages of the pandemic.”
Of the deals executed in 2019, two mega-mergers skewed the figures. Bristol-Myers Squibb paid $74 billion for cancer and immunotherapy firm Celgene and Abbvie stumped up $63 billion for its move for Allergan. Excluding these, the total value of acquisitions in 2020 was bigger than the previous year.
A tale of two halves
Another thing to keep in mind in any assessment of pharmaceutical M&A activity in 2020 is that deal value and volume was only down during the first half of the year, during the initial months of the pandemic.
According to PwC, although deal volumes and value both declined in the first half of 2020 compared to the previous year, the effect was short lived.
“While much deal making paused during the shutdowns, many CEOs and investors view this as a temporary trend,” the analysts wrote.
Evaluserve analysts were of a similar opinion. In their H1 report, they suggested the initial response to the pandemic – substantial lockdowns and travel restrictions – had delayed deal making, particularly in relation to due diligence processes: “Successful M&A requires robust due diligence and evaluation, as well as substantial collaborative effort. The COVID-19 outbreak and the accompanying impediments have shifted the timeline of various M&A deals. As expected, M&A in the healthcare industry too slowed down in Q2 2020, mainly due to global lockdown measures and a distressed deal-making environment.”
The M&A situation changed in the second half of 2020, when the three largest acquisitions of the year took place. The biggest of these, in value terms, was AstraZeneca’s purchase of Alexion for $43 billion in December.
Gilead’s move for Immunomedics in October was the next biggest takeover in 2020 coming in at just under $21 billion and gain it was prompted by products. Bristol-Myers Squibb’s $13.8 billion purchase of MyoKardia in November was the third most valuable acquisition.
So while the pandemic may have caused delays, the effect was temporary according to Fintan Walton, Chief Executive, PharmaVentures, who says “COVID-19 pandemic did not have any real effect on companies doing licensing or M&A deals.”
Products
The reason COVID-19 had only a limited impact on M&A activity is because the rationale for making such acquisitions remains unchanged.
For example, many drug companies buy to fill out pipelines. Sometimes a company buys a firm with a product because it addresses a target market, or to reduce the competition in a market in which the buyer is already present. Equally, prod...
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