Pfizer's $5.2 billion deal hints at action-packed second half

The deal was announced a few days after Amgen Inc. AMGN announced it plans to buy ChemoCentryx Inc. CCXI, for $3.7 billion in cash, and amid media reports that Merck Co. Inc. MRK plans to buy Seagen Inc. SGEN, for about $40 billion.

These deals hint at an action-packed second half. According to PwC, pharma deal activity is down 30% on a semi-annualized basis, despite the fact that pharmaceutical and life sciences companies spent about $61 billion on deals in the first six months of the year. As drug makers take steps to shore up their pipelines in advance of the generic competition coming this decade, there are signs that there will be a changing merger and acquisition landscape for the rest of the year.

The authors of PwC wrote that 2022 will be a year of bolt-on transactions in the $5 billion to $15 billion range. Consolidation is good for the health and efficiency, and doesn't rule out the possibility of larger deals. SPDR S&P Pharmaceuticals exchange-traded fund XPH has rallied 13.2% over the past three months and slipped 6.4% year to date, while the S&P 500 index SPX has gained 3.1% over the past three months and dropped 13.7% this year.

The biggest deal so far this year is Pfizer's $11.6 billion acquisition of Biohaven Pharmaceutical Holding Co. Ltd. BHVN, in cash. The deal is expected to add $6 billion to the business's peak sales. Pfizer, which has generated billions of dollars in sales of its COVID 19 antiviral and the vaccine it developed with BioNTech SE BNTX, had about $2.4 billion in cash on hand as of April 3, according to securities filings.

Aamir Malik, Pfizer's chief business innovation officer, told investors on the company's last earnings call that they left very few stones unturned when they look at opportunities. It is on scientific substrate that has the potential breakthrough for patients, deals that accelerate our top-line growth in the back half of the decade, and opportunities where we can add substantial value, whether that is through our scientific chops or our commercial capabilities. Analysts expect more deals from Amgen, with S&P Global Ratings predicting that the company will spend between $2 billion and $4 billion a year. The company has $5.2 billion in cash in its possession.

There are still some big unknowns for pharmaceutical companies, including legislation that is expected to pass this week that would allow the U.S. government to negotiate drug prices and a Federal Trade Commission that is paying close attention to pharmaceutical M&A.

Access to medicine is already imperiled by untenable costs, according to FTC Commissioner Rebecca Kelly Slaughter in June, according to Biopharma Dive. Higher prices are achieved when mergers diminish competition in the pharmaceutical market.