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A few days ago, Novo Holdings announced the acquisition of Catalent, a well-known CDMO company, for $16.5 billion**, creating a relatively rare transaction in the industry for a biopharmaceutical company to acquire a production organization.
While the biopharma company's move to acquire CDMO is somewhat "bucking the trend", the $16.5 billion deal makes sense considering the following five factors:
During the epidemic, the ** chain of pharmaceutical companies was broken.
Novo Nordisk's semaglutide is in short supply.
Novo Nordisk's highly concentrated product group.
Semaglutide is a highly durable market demand.
Novo ** will have a large amount of free cash flow from Novo Nordisk.
From the analysis of the fifth point of free cash flow as the starting point, it can be seen that after experiencing the low tide of mergers and acquisitions in the pharmaceutical market in 2022 and 2023, M&A transactions in 2024 may appear obviously**.
In fact, in the past year, there have been Amgen's $27 billion acquisition of Horizon Therapeutics, Merck's $10.8 billion acquisition of Prometheus Biosciences, Pfizer's $43 billion acquisition of Seagen, and Novo's $16.5 billion acquisition of Catalent, with the total value of these large deals exceeding $100 billion.
Significant cash flow is an essential catalyst for acquisitions
Judging from the deal of Novo ** to acquire Catalent, Novo Nordisk's free cash flow in 2023 should be close to $10 billion, far exceeding its debt level of $3.7 billion. And Novo also has $100 billion in available funds. Therefore, the expenditure of 16.5 billion US dollars is inevitable for the future development of Novo. The acquisition of Catalent will undoubtedly strengthen Novo Nordisk's manufacturing capabilities and support the high and stable production of Wegovy and Ozempic**.
According to Barron'S (Barron's) * The biopharma industry will see a flood of M&A deals in 2024 as many pharmaceutical companies generate significant free cash flow from their old blockbuster drugs, have manageable debt burdens, and are under pressure from investors to find new growth opportunities. This means that pharmaceutical companies face the challenge of finding new growth opportunities due to the need to meet investor expectations and use existing resources and funding to find future directions. Transaction activity in the biopharma space will continue, and pharmaceutical companies have the ability and need to purchase new assets.
M&A transactions have already shown a strong upward trend in the fourth quarter of 2023, and another possible reason for this is the significant increase in the number of FDA approvals for new types of goods in 2023. CDER saw a 50% increase in approvals last year, from 37 in 2022 to 55 in 2023. The number of CBER approvals has also reached 17. The number of new drugs approved by the FDA has reached a new high, which has also increased the determination and hope of big pharmaceutical companies to launch their products. The purchase of assets and small and medium-sized companies has become an important way for them to achieve new drug launches.
Merck and BMS have also chosen to borrow chickens to lay eggs
Merck Animal Health, a subsidiary of Merck & Co., Ltd., acquired Elanco Animal Health Incorporated's aquatic business, including an innovative portfolio of aquatic drugs and vaccines, nutraceuticals and supplements, for $1.3 billion** on Feb. 5. The acquisition will expand Merck Animal Health's aquatic product portfolio to include Clyn**, a next-generation DNA vaccine that protects Atlantic salmon from pancreatic disease, and IMVIXA, an anti-parasitic sea lice** drug. After this expense, Merck still has a lot of money available to move forward with the project or business acquisition.
According to investor Factset, Merck's free cash flow in 2024 will reach nearly $20 billion, not including the deal. In addition, their net debt (debt minus cash) is only about $13 billion. At Merck's recent earnings conference, the company said it would be looking at more deals, with a focus on $1 billion to $15 billion. This statement means that Merck has the capital and willingness to make more acquisitions and transactions, look for new growth opportunities and expand its business.
Looking at Bristol-Myers Squibb (BMS), there is also an urgent need for new growth opportunities. Analysts expect BMS product sales to be largely unlikely to grow in the coming years, with sales of about $45 billion in 2023. The lack of key catalysts was the main reason why BMS sales were sluggish. Sales of BMS's two pillar assets, multiple myeloma** Revlimid and thromboprophylaxis product Eliquis,** are gradually declining, because these two small molecule chemical drugs face a patent cliff and their inherent market will face cannibalization from generic drugs. In addition to its own hematopoiesis, borrowing chickens to lay eggs will be an important strategy to boost sales.
Although the future sales of BMS are not optimistic in the eyes of analysts, BMS has released a positive development signal - healthy finances. In 2024, it expects to generate EBITDA of about $19 billion (EBITDA), a measure of the company's profitability after excluding the impact of non-operating costs such as interest, taxes, depreciation and amortization, which can almost cover its net debt of $26.5 billion, according to a BMS press release. This means that the BMS is profitable enough to cover its debts, which reduces the company's financial risk and provides reliable financial stability.
At the end of January, BMS completed the acquisition of Mirati Therapeutics, Inc., which has become a wholly owned subsidiary of BMS. The Mirati transaction enables BMS to further achieve its strategic goal of diversifying its oncology portfolio and strengthening the company's pipeline by 2030. With this transaction, BMS has added the commercial lung cancer drug Krazati (adagrasib) to its oncology portfolio and added several promising clinical assets, including a PRMT5 inhibitor in Phase 1 development, and two Phase 1 KRAS assets. In addition, BMS spent $14 billion to acquire Karuna Therapeutics, whose core asset, Kartx (Xanomeline Trospium Chloride), has filed an NDA application for psychiatric disorders. Analysts expect Kartx to achieve $2.8 billion in sales in 2028 and has the strength to reach peak sales of $6 billion if it can expand its indication range.
For MNC like BMS and Merck, their total net debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) ratio is around 11 times. This means that their cash flow can easily cover their debts, allowing these companies to leverage cash for more transactions. These companies have a relatively healthy financial position and can afford to take on more liabilities to conduct business activities.
On the other hand, there are 124 companies traded on the SPDR S&P Biotech Exchange**, with an average market capitalization of $15.3 billion. There are many companies worth only a few billion dollars, as well as a few companies with lower market capitalizations. These companies could be candidates for acquisition by MNC such as BMS, Merck and Gilead. There are a number of potential acquisition targets to choose from in the market, providing the possibility for MNC to expand its business or capture new growth opportunities.
Which companies are expected to receive an olive branch from MNC in 2024? Genetic Engineering & Biotechnology News** has released M&A targets to watch in 2024, with 10 companies "on the list".
Top 10 M&A targets to watch in 2024
1. argenx
Headquarters: The Netherlands.
Key asset: Vyvgart Hytrulo (Efgartigimod Alfa and Hyaluronidase-QVFC).
Indications: Chronic inflammatory demyelinating polyneuropathy.
Phase: Phase III.
Market Cap: 235800 million euros.
2. arrowhead pharmaceuticals
Headquarters: United States.
Key asset: aro-apoc3
Indications: Hypertriglyceridemia.
Phase: Phase III (mid-2024 reading, 2024 Q4 application)
Market capitalization: $3.4 billion.
3. aurinia pharmaceuticals
Headquarters: Canada.
Key asset: Lupkynis (voclosporin).
Indications: Lupus nephritis.
Stage: Available.
Market Cap: 11$3.9 billion.
4. bioh**en
Headquarters: United States.
Key asset: taldefgrobep alfa
Indications: Spinal muscular atrophy.
Stage: Phase III (three top-line data in the second half of 2024).
Market Cap: 35$900 million.
5. biomarin pharmaceutical
Headquarters: United States.
Key assets: Voxzogo (Vosoritide, achondroplasia, marketed), Roct**ian (Valoctocogene-Roxaparvovec-RVOX, Haemophilia A, approved).
Market Cap: 169$1.5 billion.
6. exelixis
Headquarters: United States.
Key asset: cabometyx (cabozantinib, medullary thyroid carcinoma, renal cell carcinoma and hepatocellular carcinoma, marketed).
Market Cap: 67$8.9 billion.
7. hvivo
Headquarters: United Kingdom.
Key asset: Clinical research organization for vaccines and antivirals for infectious and respiratory diseases.
Market Cap: 2£100 million.
8. intra-cellular therapies
Headquarters: United States.
Key asset: Caplyta (lumateperone).
Indications: **Psychosis** and bipolar I and II depression.
Stages: **Psychiatric and bipolar I and II depression approved, major depressive disorder and bipolar depression stage III.
Market Cap: 67$4.5 billion.
9. madrigal pharmaceuticals
Headquarters: United States.
Key asset: resmetirom
Indications: Nonalcoholic steatohepatitis.
Stage: NDA application has been filed.
Market capitalization: $4.5 billion.
10. sarepta therapeutics
Headquarters: United States.
Key asset: elevidys
Indications: Duchenne muscular dystrophy.
Stage: Approved (Accelerated Approval, currently applying for Standard Approval).
Market Cap: 118$2.5 billion.
Summary
M&A activity picked up in the last quarter of 2023, and the start of 2024 will follow. The resurgence in M&A reflects the need for blockbuster pharma companies to create new revenue and replenishment channels, as well as the ability to fund deals, after losing patent exclusivity.
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