Biotech M&A: 2022 market overview, 2023 M&A targets and forecasted trends

Mergers and acquisitions are often the drivers in the sectors of drug development and life sciences. Many of the modern and essential medicines, such as the cancer treatment Keytruda and the anti-inflammatory agent Enbrel, might not have seen the public without successful pharmaceutical company mergers and acquisitions. 

Over the past years, biotech and pharmaceutical M&A deals were hitting records, since large pharma companies were often interested in smaller companies for innovation through deals. Such deals were often focused on seeking solutions for rare diseases, cancer, and immune system disorders. These were areas of drug research that have seen some success in clinical trials and could potentially bring huge profits both for the consumer health industry and dealmakers. 

However, compared to increased deal activity during 2018-2019, the period of 2021-2022 was much quieter. 

Continue reading the article to explore what the biotech and pharma merger and acquisition sector was in 2022, what to expect in 2023, and what the main M&A biotech targets are for 2023.

Key takeaways:

• 2022 was a challenging year for the M&A biotech sector, with global deal value and number significantly dropping compared to the previous year.
• The biggest 2022 M&A deal between biotech and pharma companies is Amgen’s acquisition of Horizon Therapeutics for $27.8 billion.
• Despite a rather quiet M&A activity in 2022, 2023 is promising to bring more positive changes for dealmakers.
• The top 3 potential M&A targets in the biotech industry for 2023 are Krystal Biotech, Athira Pharma, and Icosavax.

How was biotech investment banking and M&A in 2022?

In a report of December 2021, RBC Capital Markets Analysts predicted that “a rebound in M&A is imminent,” given that large pharma companies had stronger balance sheets back then. However, 2022 was a rather tough year for the pharma and biotech sector.

According to Statista, the total deal value in the biotech and pharma industry has dropped to $237.53 billion in 2022 compared to the year-over-year’s $363.16 billion. According to PwC, the number of conducted M&A deals has also experienced a 30% drop compared to 2021.

Besides, the total enterprise value has also dropped 70% since February 2021. Such a sharp decrease occurred due to some macroeconomic reasons — inflation, high interest rates, and the threat of recession. As a result, it increased the number of companies with negative enterprise value — by August 2022, there were 250 such companies around the world.

Source: Ronald Berger

As of August 2022, the Nasdaq Biotech index has also decreased 16% compared to the rates that were at the beginning of 2022.

However, there still were several big deals that shaped the M&A market in the sector in 2022. Let’s have a look at the most prominent of them.

Top 7 biotech acquisitions of 2022

The table below summarizes the biggest pharmaceutical companies mergers and acquisitions that took place in 2022 and are worth at least $1 billion.

Note: Among the top advisory firms that assisted the biggest deals were J.P. Morgan, Morgan Stanley, PJT Partners, Citigroup, Centerview Partners, and Goldman Sachs.

Biotech mergers 2023 outlook

In short, M&A experts forecast 2023 to be rather an active year compared to 2022 and expect more public and private deals in the near future.
Below are a few projected M&A trends in the biotech sector.

General industry projections

• Abundant corporate cash, the need to keep investing to address medium-term problems, and the resetting of biotech valuations are to provide a strong background for the active year in terms of M&A.
• The whole pharma, biotech, and life sciences sector will continue facing uncertainties because of the rising cost of capital and antitrust scrutiny.
• The small and large pharma companies are likely to continue being acquired either at a relatively early stage or at quite late stages, with commercial assets already in hand. Such an interest in early- and late-stage assets is probably related to the pharma’s desire for new and disruptive science, as well as a desperate need for revenue.
• Many M&A experts believe that some mid- and mega-level deals might come back into the game in 2023.

Reevaluation and search for new approaches

• Because of rising capital costs, pharma companies will be reevaluating different therapeutic areas they would invest in to increase returns.
• Considering macroeconomic headwinds that influenced deal making in the sector in 2022 and are likely to keep influencing it in 2023, many pharma companies will probably consider alliances as a strategic priority rather than M&A.

Exploration of new markets

• The Chinese biotech market is expected to show significant growth in the near future. That will probably make many international biotech companies focus on gaining possibilities for entering the Chinese pharma market as local players and receiving domestic benefits.

Focus fields

• Oncology and immunology will continue being in the focus of the majority of M&A deals. However, medical areas such as the central nervous system, vaccines, and cardiovascular diseases will also be objects of interest for dealmakers.
• As per the MedTech field, the deal value and volume are still likely to be influenced by uneven capital performance, but strong cash flow and balance sheets are to create a good atmosphere for M&A in 2023. The deal making is likely to continue in such MedTech areas as orthopedics and cardiology.
• The rapid development of Artificial Intelligence products is to become a great potential for the Big Pharma industry.

3 biotech companies to watch in 2023

With positive predictions for 2023, M&A experts and advisory firms also keep the focus on certain companies that are likely to become M&A targets in 2023. 

1. Krystal Biotech

Reason for interest: Gene therapy innovations

In 2023, Krystal Biotech can join the short list of companies with approved gene therapy. Krystal Biotech has created various dermatology and respiratory disease programs on its gene therapy platform. 

While most biotechs deliver genetic materials to the targets in the body using adeno-associated viruses (Pfizer, for instance, plans to do it with the help of lipid nanoparticles), Krystal Biotech loads genes into the herpes simplex virus (HSV-1). The main advantages of this approach are that HSV-1 has a higher carrying capacity, can target more diseases, and supports repeat dosing.    

For now, the gene therapy is awaiting FDA approval in dystrophic epidermolysis bullosa, which speaks about Krystal’s opportunity to earn $500 million.

2. Athira Pharma

Reason for interest: Alzheimer drug development

2022 was quite a successful year for Alzheimer’s drug development — after many failures, Eisai and Biogen got industry approval for their Leqembi drug. 

This is more likely to benefit Athira Pharma. The company develops fosgonimeton, with a phase 2/3 study called LIFT-AD in mild to moderate Alzheimer’s. The registration is to be completed by the end of the first half of 2023, and the readout is planned for 2024. 

However, the company experienced several headwinds in development and administration. Despite this, it has the potential to solve those problems. 

At the latest J.P. Morgan Healthcare Conference, the company’s management mentioned it had taken “75 or more” meetings with investors and “strategics”, which definitely speaks about positive changes.

3. Icosavax

Reason for interest: Virus-like particle (VLP) technology

Icosavax claims that its virus-like particle (VLP) technology has a stronger effect on long-lived plasma cells than other vaccines. 

Its principle is based on the particles being designed with high-density, and a multivalent display of antigens that imitates the structure of viruses. This way, they can have a stronger immune response.

In March 2022, Icosavax’s COVID-19 vaccine showed unsatisfactory results, which raised a lot of concerns in the industry. However, phase 1 data for Icosavax’s respiratory syncytial virus (RSV) vaccine IVX-121 showed a sustained immunologic response at six months and faith in the vaccine was restored.

There’s also another vaccine of the company’s production — IVX-A12. It’s now in the early stages of phase 1 testing for RSV and human metapneumovirus. It’s expected that the testing will get positive results in mid-2023, which will restore Icosavax’s reputation and raise dealmakers’ interest in it.