Michael Jewell, partner and head of healthcare & life sciences at Cavendish Corporate Finance looks back at the key trends across pharma industry funding in 2019 and gives his perspective on how 2020 will look.


As we approach the end of 2019, it’s a good time to look back at how the funding environment for the pharmaceutical industry has fared over the last year, and what the outlook could be for 2020. The most striking thing is that M&A in the pharma industry remained vibrant throughout 2019 despite a global downturn across most other sectors. In fact, in terms of deal value it actually increased, with the top ten transactions announced in the first six months of this year reaching a total value 47 percent higher than the top ten deals in the first half of 2018. Indeed, the last five years have seen more than 400 mergers and acquisitions taking place across the pharma industry, particularly in the fields of gene therapy, immuno-oncology, microbiome, and orphan drugs therapeutic categories.[1]

So what have been the factors that have characterised the dealflow? The first has undoubtedly been a number of very large transactions between the industry’s biggest companies, with firms consolidating to elevate their position in a highly competitive market. At the same time, smaller and mid-cap firms continue to be snapped up for their innovative abilities. Going forward, two other key factors are driving dealflow: the increased regulatory and legislative pressure from Governments to bring down drug prices and head off potential monopolies, and the relentless ubiquity of technology forcing Big Pharma to protect their position against potential market incursion by the Big Tech giants such as Apple and Google. It’s worth looking at all these factors in more detail.


Big Pharma seeking greater scale

Mega-mergers on the highest scale have been a growing feature of global pharma M&A in recent years. Indeed, figures from Bloomberg showing that the pharma industry has seen more USD 40 billion-plus deals in the last 10 years than any other sector, including Big Tech.[2] This was already a defining characteristic in 2018, when we saw a series of mega-deals including Takeda’s GBP 64bn purchase of Shire, catapulting Takeda into the global top 10 pharmaceutical firms by revenue. This was in addition to GSK’s buyout of Novartis’s stake in their consumer health joint venture for USD 13bn, as well as GSK also acquiring Tesaro for USD 5bn to strengthen its oncology capabilities.

This year has also been brisk, with high profile transactions including Bristol-Myers Squibb’s USD 74bn purchase of Celgene in January, expanding its oncology capacity and immunotherapy capabilities. In June AbbVie took over Allergan for USD 63 billion, growing the combined portfolio to include the world’s top-selling drug, AbbVie’s arthritis drug Humira, and Allergan’s flagship product, Botox. Though this is a sign that firms are looking to consolidate their market position by seeking greater scale and bolster product portfolios, what firms are really seeking is innovation to increase their pipeline, with M&A a key tactic.


Acquisitions increasing to drive innovation

From a long-term growth perspective, innovation is vital to maintain long term growth. Yet research carried out by McKinsey has shown that the share of revenues in the sector coming from innovations sourced outside of Big Pharma has grown from around 25 percent in 2001 to nearly 50 percent in 2016. The largest pharmaceutical companies have of course been acquiring smaller companies, typically independent biotech and speciality firms, to bolster their innovation for a long time, but this has undoubtedly accelerated considerably in recent years.

This is of course explained by the fact that early-stage drug development requires considerable investment for what is often a low probability of success. Strategically, Big Pharma will not invest in something that may never progress to the next stage. However, late-stage trials also require high level investment and crucially the ability to navigate complex regulatory pathways – capabilities that larger pharma companies do have. As a result, we are seeing a rapid rise in ‘bolt-on’ acquisitions whereby smaller, highly specialised, creative companies end up funding the innovation themselves, with large pharmaceutical companies stepping in once the research becomes more advanced and buying the firm, funding late-stage trials and large commercial marketing campaigns due to the higher probability of success.

But another factor driving innovation M&A is increased regulatory and legislative change. In the past, drug companies have relied on annual price hikes across their portfolios, typically on generic drugs such as Prozac and Vicodin, to drive revenue growth year on year. However, recent pressure to address drug prices from US lawmakers on both sides of the aisle, including a number of US state legislatures, has meant that this tactic is likely to return less revenue in years to come, forcing executives to turn to innovation M&A to add high revenue yielding drugs to their portfolios.


Tech’s continued encroachment into healthcare and pharma

Currently, Big Tech has only just started to disrupt the healthcare sector, and one of the key questions in the future will be how the relationship between the pharmaceutical and technology giants develops and whether or not they will become direct competitors. This is certainly something which is focusing the minds of many pharma company Board members. Indeed, former Teva chairman Dr Titzhak Peterburg stated in back in 2017 that “…a good part of our competitors are not only the Novartis’s of the world and the other pharmas but really the Amazons and the Googles.”[3]

One of the first examples of this new landscape starting to emerge was of course Google’s parent company Alphabet founding Verily Life Sciences in November 2018. Though not directly moving into pharma yet, ventures have included health-tech initiatives like AI product Google Brain to assist physicians during check-ups, partnering with y Gilead to study immunological disorders, and also with GSK to found Galvani Bioelectronics to research, develop and market new bioelectric medicines. Whilst it is currently yet to be seen whether Big Tech’s entrance into health will develop from cooperation to competition, it is clear that either way Big Tech is set to play a larger role in pharma in ways that will significantly alter the industry.


An Outlook for 2020

All of which brings us to the he outlook for M&A in 2020, which in my view is already looking strong. There are already signs on the horizon of several mega-mergers amongst the major industry players, with analysts speculating that Pfizer will acquire Bristol-Myers Squib, and that Merck is looking to purchase Eli Lilly (with both deals being completed at estimated 30 percent premiums).

But I certainly would not expect those to be the only deals. The relentless need to maintain a competitive edge in the market by acquiring other firm’s portfolios, driven by pressures to innovate and seek new revenue streams, means that M&A will certainly remain a key tactic of Big Pharma for the foreseeable future. And whilst the impact that Big Tech will have in healthcare remains to be seen, the pace of deal making in the pharma sector is likely to remain brisk in 2020.



[1] https://www.europeanpharmaceuticalreview.com/news/101528/ma-activity-within-pharmaceutical-industry-remains-high-report-finds/

[2] https://www.bloomberg.com/news/articles/2019-07-03/biotech-braces-for-busy-summer-as-2019-m-a-volumes-heat-up

[3] https://www.thepharmaletter.com/article/are-big-pharma-and-big-tech-on-a-collision-course