Abbvie's Year-End Blockbuster: $20 Billion in Dual Acquisitions Signals Potential Surge in Pharma M&A for 2024

Dec 14, 2023 15:33 CST Updated 15:33

AbbVie

Innovative Drug Developer

ImmunoGen

Antibody-Drug Conjugates (ADC) Developer

Cerevel

Biopharmaceutical Manufacturer

Biotech M&A Suddenly Shifts from "Ground State" at the End of 2023 Amid Slow Recovery（In the normal state, atoms are at the lowest energy level, where electrons move in the orbit closest to the nucleus. This stationary state is called the ground state, which is the stable state of the electron.Transition to "Excited State"（(A higher energy state relative to the ground state)AbbVie, the owner of the drug king Humira, has spent nearly 20 billion US dollars to continuously acquire two biotechnology companies in less than a month, sounding the prelude to a possible industry merger and acquisition rebound next year.

AbbVie 2023 Year-End

Splurging Billions of Dollars to CompleteTwo paymentsAcquisition

AbbVie announced on November 30th the acquisition of cancer treatment company ImmunoGen for $10.1 billion, causing the latter's stock price to soar immediately by 80.9%.Under the terms of the agreement, AbbVie will acquire all outstanding shares of ImmunoGen at a price of $31.26 per share.^[1]This is a 95% premium over the stock's closing price of $16.07 the day before the official announcement. The transaction still needs approval from shareholders and regulators. AbbVie stated that if approved, the deal is expected to close by mid-2024 and is anticipated to be accretive to earnings in 2027.

Figure 1. Disclosure of AbbVie's Acquisition of ImmunoGen, Source: Its Official WeChat

Figure 2.ImmunoGen Daily K-Line Chart, Source: Baidu Stock Express

ImmunoGen's main asset, Elahere, is an antibody-drug conjugate used to treat certain forms of ovarian cancer. Analysts expect the company to report its first positive earnings this year. ImmunoGen is also testing treatments for other cancers and developing additional antibody-drug conjugates. Antibody-drug conjugates are a popular area in cancer drug development, attracting significant investment from large pharmaceutical companies. Pfizer is attempting to acquire Seagen, a biotech company focused on ADC, for $43 billion, with the deal expected to close in the coming months.

Figure 3.AbbVieAcquisitionCerevelSource of the disclosure:Its official WeChat

Only a week after the announcement of the ImmunoGen deal, AbbVie made another transaction announcement on the evening of December 6.Acquire Cerevel Therapeutics, LLC in an $8.7 billion all-cash transaction, hoping to make full use of its balance sheet by supplementing their neuroscience division, optimizing its financial situation through investment, acquisition, or other financial activities.^[2]Cerevel is a company that treats schizophrenia, Parkinson's disease, and mood disorders.

This acquisition shows that AbbVie is trying to make full use of the cash on its balance sheet. They recently lost patent protection for their super blockbuster drug Humira, which undoubtedly had a certain impact on sales. AbbVie's report showed a 36% year-on-year drop in third-quarter sales. Despite raising dividends and increasing full-year earnings guidance, AbbVie's stock price has still fallen nearly 10% this year.^[2]。

Industry Pressure Leads to Surge in Mergers and Acquisitions

AbbVie's acquisition reflects the characteristics of the pharmaceutical industry and the pressures of market competition. Under immense pressure, corporate mergers and acquisitions have gradually begun to shift back to pre-pandemic trends. The main reasons for this may come from the following aspects:

Expand the product line and R&D pipeline

By acquiring other companies, pharmaceutical firms can rapidly expand their product portfolios, particularly by introducing new drugs and treatments. This helps mitigate the risk of relying on specific products or areas while strengthening the company’s market position.

Acquire Professional Knowledge and Skills

Pharmaceutical companies often seek expertise in specific areas, such as biotechnology, gene therapy, or particular disease fields. By acquiring companies with relevant expertise and technology, they can acquire and integrate these capabilities more rapidly.

Reduce R&D Risks

The R&D process in the pharmaceutical industry can be extremely expensive and risky in terms of economic cost. By acquiring companies that have already made progress in the R&D stage, large pharmaceutical companies can reduce the risks associated with new drug development while accelerating the time to market for new products.

Gain Market Share and Expand Global Business

By acquiring companies with strong market shares in other regions, pharmaceutical companies can expand their global operations. This helps increase the company's engagement in different global markets and better meet the needs of patients worldwide.

Achieve economies of scale

Large pharmaceutical companies, through economies of scale, are able to produce, distribute, and promote drugs more efficiently. Mergers and acquisitions can lead to greater scale, reducing unit costs and increasing profit margins.

Combat Patent Expiration

Large pharmaceutical companies may face the issue of existing drug patents expiring, thereby needing to confront the challenge of fierce competition. By acquiring other companies, they can obtain new patents and intellectual property, extending the lifecycle of their product portfolios.

Quickly adapt to market changes

The pharmaceutical industry is innovating rapidly, and market demands are constantly evolving. Through mergers and acquisitions, companies can more flexibly adjust their strategic direction to adapt to changes in the industry and market.

Biopharmaceutical M&A

Year-end Surge in Rebound

As 2024 approaches, biotech deals are heating up. Analysts say this trend may continue in the coming months, which could signal a rebound in biotech M&A that has been dwindling in recent years.

In addition to AbbVie's two major deals, Roche recently announced a $2.7 billion acquisition of privately held Carmot Therapeutics. According to BioPharma Dive,So far this year, 18 biotech acquisitions worth more than $1 billion have been announced, with one-third occurring since early October.^[3]。

Some analysts said that the surge in biopharmaceutical M&A at the end of 2023 is a good omen for 2024. The SPDR S&P Biotech trading fund performed strongly in November and December, although it is still down 3% year-to-date (XBI is currently trading at around $80, a significant drop from $140 at the end of 2020 and early 2021. It has fallen nearly 50% from its peak in February 2021, but rebounded significantly in November and December). The S&P 500 SPX index rose by 19.5%.^[4]。AbbVie's Acquisition of ImmunoGen Could Signal a Positive Start for Biopharma M&A Activity in 2024

According to statistics from the Royal Bank of Canada, the cumulative value of biopharmaceutical deals in 2023 has reached $128 billion, up from $61 billion in 2022.^[4]The major acquisitions announced this year include Pfizer's $43 billion acquisition of Seagen, a biotechnology company focused on cancer, and Merck's $10.8 billion acquisition of Prometheus Biosciences, a biotechnology company specializing in immunology.The recovery in M&A activity among biopharmaceutical companies also benefits from the gradually diminishing influence of antitrust regulators.For example, they initially halted Amgen's $27.8 billion acquisition of Horizon Therapeutics, but approved the deal this year.

Analysis suggests that the reasons for a potential rebound in biopharmaceutical M&A deals in 2024 could stem from the diminishing macroeconomic uncertainties, an emerging trend of larger deal sizes, and the aspirations of private equity backers. High interest rates have been one of the factors hindering transactions. Since March 2022, the Federal Reserve has raised interest rates 11 times to curb inflation. However, policymakers indicated at the early November meeting that they would keep rates stable, and many experts believe there will be no further rate hikes.^[5]These factors are all promoting the development of mergers and acquisitions in the biotechnology and pharmaceutical industries towards recovery.

References:

[1] Palumbo, A. ImmunoGen Stock Soars 81% on AbbVie’s $10.1 Billion Takeover. Barron’s. 30. 11. 2023.

[2] Swint, B. AbbVie Makes Another Big Pharma Acquisition. How It’s Putting Its Cash to Work. Barron’s. 07. 12. 2023.

[3] Pagliarolu, N. et al. Biotech M&A is picking back up. Here are the latest deals. BiopharmaDive. 06. 12. 2023.

[4] Nathan-Kazis, J. Biotech Deals Are Heating Up. Why 2024 Could Be Even Hotter for M&A. Barron’s. 08. 12. 2023.

[5] Iskowitz, M. Signs point to upturn in pharma commercialization M&A in 2024. mmm-online. 27. 11. 2023.

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