Mega money well spent? Mammoth mergers fall short of the dream

Lynn: This is the BioWorld Insider podcast. I’m Lynn Yoffee, BioWorld’s publisher.
It wasn’t that long ago when it was unusual to hear about a biopharmaceutical mega merger coming in at or above a billion dollars. We would stop the digital presses at BioWorld and publish a breaking news bulletin. Now it’s relatively typical. But how are those billion-dollar deals working out?
BioWorld recently wrapped up a three-part analysis of M&As. There are a few shining examples of companies that have done well, and then there’s everyone else. Today on the show, we have Karen Carey. She’s BioWorld’s senior managing editor and chief analyst. She analyzed large M&As completed in the past 14 years to determine whether or not they met expectations. Welcome, Karen.

Karen: Hi Lynn, good to be here.

Lynn: She is here today to chat with Lee Landenberger, a Bioworld staff writer and the Bioworld Insider host. Lee, over to you.

Lee: Lynn, thanks very much. And Karen, great having you back. You know, when I look at a report that has this kind of a scope, I’m always curious about how it got started. And I know some of it was when we’d talk about deals. And it used to be, like Lynn said, a big deal. I mean, a really big deal when something came in over a billion. And now it’s just kind of normal. And we did kind of wonder about how did it all end up? That’s the way I remember how this report got started. Is that right?

Karen: Yeah, exactly. You know, the idea was to actually follow up on some of our big headlines to really see if these multi-billion-dollar mega mergers were worth the money. Every year we publish all of the big mergers and in the last few years we’ve shown that while there are fewer mergers overall, they do tend to be more and more pricey. Some have said that so much consolidation has happened that there aren’t as many companies of a certain caliber to acquire anymore within the biopharma industry. Others have said regulatory uncertainties like the FTC going after the Pfizer buyout of Seagen … and Amgen’s purchase of Horizon, that that has deterred some of the activity.

But in any case, we wanted to see if the big major mergers of the last decade or 14 years resulted in the buyer making more money than the purchase price off the assets acquired. Our only measure was drug sales. Did the drugs – the drugs that the company management said were the reason for the acquisition, did those drugs eventually earn more than the purchase price?

Lee: So this – it’s a three-part series. Can you give me an idea of how each of the three parts is broken down? I assume there’s a theme for each one of them.

Karen: I wish I could say that. I can’t even say that these are neatly divided into three parts. Basically, Lee, I wanted to look at 10 M&As, just 10. But what happened is the first 10 I looked at were not showing that the sales for products acquired brought in more money than the purchase price, indicating that buyers were paying way too much.

But, I thought, you know, there’s got to be some good examples here. So I added another three and then I didn’t find too many. And then I added another five and then another three. Basically, at 21, I stopped. I ended up with four M&As that based on sales acquired of acquired products, those M&As indicated that the price paid was a good deal for the buyer.

But the other 17 were either bad deals for the buyer or it’s just too early to say. I also started thinking about what other value I could apply to these deals. So things like expertise from employees, licensing and technology income, all of that was not figured into this. There’s also a possibility that the learnings from certain failed drugs evolve into a much better, more successful pipeline product down the road, this analysis doesn’t account for those possibilities. But because I looked at 21 companies, I did try to group them by buyer first. So I actually looked at five ABV deals and three Bristol-Meyer squib deals in part one. Three of those were what we called wins, meaning the buyer got its money’s worth.

Three were losses. The company paid way more than it earned back in sales. And two were too early to say, meaning they were more recent M&As and not enough time has gone by or certain approved products haven’t reached their peak sales yet. Then in part two, I looked at some of Gilead’s and Pfizer’s acquisitions and a handful of others, nine in total. Of those six were losses. One was a win, two were too early to call.

And then part three were four more and all of them were losses. But yeah, there was no, it really wasn’t broken down by themes or anything.

Lee: So there’s a big picture from this, which is fewer wins than the losses.

Karen: Yeah, absolutely. And, you know, in most cases, buyers paid too much. Either drugs failed big time or the sales just weren’t what companies and analysts expected. So, for example, Gilead Sciences, they bought Kite Pharma in 2017, paying $11.9 billion. That was actually a 29.5 % premium at the time.

And they later gained approval of Kite’s CAR-T therapy, Yescarta. But there were a number of competitors that came into that immuno-oncology space, including Kymriah from Novartis. Now, this deal was supposed to replace lost revenues from Gilead’s hepatitis C virus franchise. What happened is Gilead discontinued development for two other Kite assets.
It did get approval for Tecartus for mantle cell lymphoma in 2020, but between Yescarta and Tecartus, sales have been just under $7 billion over seven years since the acquisition. So that competition, as well as stopping development of earlier pipeline assets, means this deal is definitely short of paying for itself.

You also have cases where there were some unexpected developments. So with J&J’s $30 billion acquisition of Actelion in 2017 for its pulmonary arterial hypertension franchise, that resulted in an approval for Ponvory. But sales of that product were kind of sluggish. So J&J divested to Vanda in 2023.

There was also a phase III failure in 2018 and J&J handed back rights to Tryvio six months before it was approved. That went back to Idorsia, which was a Actelion spin out. Even before the merger, J&J returned rights to what would later become Opsumit. While it gained that product back in the merger, it lost out on about four years of sales. There was also a $360 million false claims act settlement that J&J paid.

And then if you look at the sales of Opsumit, Uptravi, other hypertension products, they’re just under $26 billion. So it’s approaching the $30 billion paid for Actelion, but there were certainly a lot of bumps in the road with that one.

Also, sales are sometimes much lower than anticipated, as was the case with Bristol Myers’ purchase of Myokardia in 2020 for $13.1 billion. The big product there was Camzyos. That was their obstructive hypertrophic cardiomyopathy drug. It was expected to reach peak sales of $3.8 billion by 2028, but since its 2022 approval it has earned Bristol Myers only $634 million and a second myocardia product was removed from Bristol’s pipeline last year.

Lee: I wonder about timing on this. it in some cases it’s just too early to tell with some companies whether a deal is going to work out? Is that right?

Karen: Oh yeah, yeah, absolutely. And we definitely had a few examples of those and they were probably more the ones that are more recent. for example, know, Pfizer’s buyout of Seagen for $43 billion.
That one’s definitely too early to call. Seagen drugs though like Adcetris, Padcev, Tivdak and Tukysa, they brought Pfizer $3.4 billion in a little over a year since the acquisition closed and Pfizer’s oncology pipeline has now doubled in size with 60 programs spanning multiple modalities. So it’s too early to call but it’s definitely looking successful.
There was another one I was going to mention too. This one just happened in 2024, and I’m not sure we would say too early to call with this one. It seems like a loss. It’s Novartis buying Morphosys for $2.9 billion, gaining myelofibrosis drug pelabresib.

Basically, happened is pelabresib’s 48-week data raised safety concerns that was not seen with 24-week data. Basically, more cases of acute myeloid leukemia in the treatment arm. So the future of that program and its timeline are up in the air. Novartis recorded an $800 million impairment charge against the Morphosys assets, and it closed Morphosys facilities in the U.S. and Germany.

So, a very near-term M&A that does not look very good so far.

Lee: Yeah, is there a big win that everybody can look at and try to imitate?

Karen: Yeah, I mean, I’ll definitely lay out some of the wins here. So, you know, the wins went to three companies, Abbvie, Gilead Sciences and Bristol Myers. And, you know, if you want to look at out of the 20 when I looked at that was four, so roughly 20%, one in five, are wins.

Abbvie, for its 2019 offer of Allergan for $63 billion. Although it hasn’t earned all of that back yet, it’s at about $44 billion. It is well on its way and should make back the money by mid-2026 based on sales of Botox, Vraylar, Ubrelvy, the aesthetic products of Botox and Juvederm. Another win for Abbvie was its May 2015 buyout of Pharmacyclics, for $21 billion, pulling in cancer drug Imbruvica.
While partner J&J received some of those sales, Abbvie’s share of sales through 2023 were already at $35.8 billion. So that was a 154% return on investment for Abbvie. So that was a clear win. Also Gilead Sciences bought Pharmasset in 2011 for $11 billion.

Mainly for Sovaldi, which was U.S. FDA approved for hepatitis C in 2013, sales of that product were $10.3 billion in 2014, indicating basically that that one product alone completely covered the $11 billion purchase price in a little more than a year of sales. And the fourth win we found was Bristol Myers’ buyout of Celgene for $74 billion in 2019.
Since then, Celgene products that have launched are cancer drugs Breyanzi and Abecma. You add those two products to others that were already approved at the time of the acquisition, Revlimid and Abraxane, as well as four other products in the mix. And Celgene has brought Bristol Myers nearly $59 billion in the past five years, with several of the products having plenty of patent life and growth left.
So sales have not reached the purchase price, but it is clear they will. So we consider it a win, especially since there are orphan drugs currently in development that also came to Bristol Myers through Celgene.

Lee: Fascinating. So when you were researching all this, did you have a moment where you looked at something and thought, “I didn’t know that!” it helped you with the big picture?

Karen: Yeah, I guess my biggest wow moment was the realization of how many of these deals just don’t come to fruition. It’s easy to slap a billion-dollar M&A headline on these stories when they’re announced, but to really look and see the numbers is astonishing. And like I said, there’s probably value somewhere that we didn’t account for.
But these drugs we looked at are the very drugs that management touted as the reasons for the acquisitions. There may be other things that came, that, you know, come off a shelf later. Drug development is ever evolving, as you know, and there may be value later that we don’t see now. But with these high-dollar prices, it seems there should be a return seen within a certain number of years.

Lee: Great. Is there anything we didn’t touch on that you want to mention?

Karen: I guess I would just say the other thing I might mention is that M&As have been at their lowest levels in the past six years. In 2024, we tallied $108 billion, a 23% drop from the year before. We counted 120 biopharma M&As throughout the year, down from 136 the year before.
But the good news is I was reading McKinsey’s annual M&A report yesterday and they are saying that a few things improved economics, more favorable regulatory environment, and of course, as always, the need for companies to fill their pipelines as patents for other products expire. All of that suggests there will be a strong rebound in 2025.

There have been a few big deals already suggesting this may be true. J&J buying Intracellular for $14.6 billion. Eli Lilly buying Scorpion for $2.5 billion, both of those announced in January. The report also notes that biopharmas are targeting long-term value assets rather than immediate revenue contributors.
And I thought when I read that, if that’s the case, we’re going to have to look at longer timeframes to really evaluate these mergers going forward.

Lee: Great, that’s very helpful. Lynn, do you have any questions you want to ask?

Lynn: I do. I want to pick up on your last comment, Karen, about long-term value. I wondered in your analysis when you looked at these companies involved in the largest M&As, how many had early stage assets vs. did the majority of them have later stage assets and do you see that changing over time?

Karen: Honestly, most of these large mergers, multi-billion-dollar mergers, they may have had some early stage assets, but they all had either marketed products or products that were nearing the market. They were late stage, phase III, ready for filing products. So that’s where a few of these blowups occurred, where they just, there was a phase III product, there was a lot of high hopes, and then there were delays and things didn’t happen the way they expected. So I don’t know that I see that changing. You know, they do have to fill their pipelines. I believe, you know, the Celgene merger, that one brought like something like 30 more pipeline programs to the buyer. And, you know, these companies are trying to fill their pipelines. So the more the value though of what they’re paying, the amount of money they’re paying, I think has a lot more to do with these later stage products and the potential for sales of those products.

Lynn: That makes sense and I wonder if we’ll see a surge in, if there is a deficit in big pharma pipelines, if we’ll see a surge in more licensing deals going forward. TBD.

Karen: Yep, might be the case.

Lynn: Alright, thanks Karen and Lee.

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