Plunging valuations may be forcing biotechs to lay off staff and strip back their pipelines, but Big Pharma doesn’t think the price tags on offer are sufficiently tempting to justify a shopping trip quite yet.
Judging by first-quarter earnings calls over the past two weeks, CEOs of many of the world’s pharma giants believe biotech prices still have a way to drop before they became irresistible acquisitions. While M&A as a means to replenish pipelines is very much on the menu for the big players, it sounds like they are resigned to being picky.
Roche CEO Severin Schwan pointed out that a drop in valuations in recent months was only a course correction back to levels seen in 2019 and 2020.
“Already back then I was worried about high valuations, so even though there was the correction I still think we have to be very selective … for any M&A activity,” he said.
The high valuations by historic standards is one of the reasons the Swiss pharma giant is focusing on early-stage opportunities for the time being, the CEO said during an April 25 call with analysts.
“What we do see is that many companies are now very interested in working together with us, simply because the IPO route is more limited,” Schwan said. “So we see more interest in doing deals with the life science industry, big companies in general and certainly also Roche.”
‘It’s hard to find novel drugs effectively’
Fellow Swiss pharma Novartis is also not yet tempted by the easier pickings.
“First and foremost you have to be science-driven and really ask, is there science and good data to support an acquisition? And I think there, as we’re seeing in the broader biotech market, it’s been challenging,” said CEO Vas Narasimhan. “A lot of data readouts have pointed to the fact that it’s hard to find novel drugs effectively.”
Novartis is limiting its scope to companies in the sub-$2 billion bracket, Narasimhan said on an April 26 call with analysts.
“I do think over the course of this year expectations amongst ‘sellers,’ so to speak, will adjust and there may be more openness to think about how partnerships and M&A and business development could be conducted,” he said.
His comments reflect those of his R&D chief, Jay Bradner, who urged biotechs to reach out for partnership opportunities in a January interview with Fierce Biotech.
“So there could be more activity in the sector in the second half of the year, and we’ll of course be doing our part to diligently keep screening and see what’s out there that could be attractive,” Narasimhan said.
Merck is another big pharma that has not seen a drop in biotech valuations reflected in asking prices.
“We are not seeing a fundamental shift in seller expectations as of this point,” CEO Rob Davis said on an April 28 earnings call. “I think as time continues, if we see the market reset to become more permanent and, more importantly, if the IPO market continues to be challenged for biotech companies, that might change over time as companies become more cash-constrained.”
“There are some smaller players that do have cash challenges, so I think that’s where you could see movement first,” Davis added. “But fundamentally, we’ve not seen a change in the landscape yet. We’ll have to continue to watch.”
Bristol Myers Squibb CEO Giovanni Caforio expressed a similar sentiment in an April 29 call.
“Our experience is that whenever there is some type of realignment in market values, it always takes a little bit of time for those values to really be the values that boards of biotech companies look at in terms of their valuation,” Caforio said. “Having said that, of course, values were extremely high.”
While Sanofi CEO Paul Hudson said it was clear that “some prices have fallen,” the French pharma remains focused on picking the right target.
“It’s never been about size, it’s always been about the right thing,” Hudson said on an April 28 earnings call. “That hasn’t changed for us.”
GlaxoSmithKline opened its wallet as recently as April when it coughed up $1.9 billion for Sierra Oncology, and CEO Emma Walmsley said the deal was consistent with the company’s strategy of complementing its organic pipeline.
“We will continue to pursue business development that is aligned to our strategy, in line with our core therapy areas, and other opportunities too,” Walmsley said on a May 27 call with reporters.