After a slow 2020, biotech dealmaking in 2021 is off to a good start. However, the industry is experiencing profound changes. By Michael Megarit


5 Trends That Will Define Biotech Dealmaking in 2021-22


2020 was a particular year.

In March, Coronavirus lockdowns halted global economic activity. However, pharmaceutical firms showed great resilience by developing an effective vaccine in record time. This feat will surely go down in history as one of the industry’s greatest accomplishments.

However, drug development is not the industry’s only preoccupation.

In fact, pharmaceutical companies are just as focused on Mergers & Acquisitions (M&A) as they are on drug development. Indeed, purchasing a company is usually cheaper than funding in-house R&D and it provides a firm with deeper product pipelines and immediate access to new markets.

Although biotech dealmaking picked up in the second half of 2020, the total dollar amount of deals struck in 2020 was far from the expected annual standard. Ernst & Young reported that $159 billion worth of deals were struck in 2020, which is 20% less than the $200 billion a year average. In fact, it’s one of the lowest totals since 2014.

The largest deal occurred in December 2020, when AstraZeneca announced the $39 billion purchase of US drugmaker Alexion Pharmaceuticals. This mega-deal, which will close in the third quarter of 2021, leads experts to believe that dealmaking will get back to normal levels in 2021 and beyond.

However, despite the recent rally, the landscape is evolving rapidly. Here are 5 trends to watch out for in biotech dealmaking in 2021.


1. Private Equity Firms and IPOs Competing with Big Pharma


The first major trends of biotech dealmaking in 2020-2021 are:

  • Private Equity’s increasing involvement
  • Blockbuster Initial Public Offerings (IPO)

Traditionally, young biotech companies are desperate for cash. Thus, they quickly get acquired by large pharmaceutical firms offering cash and equity.

However, 2020 marked a record-breaking year of venture capital and public market fundraising.

Pitchbook claims that venture capitalists invested $28.5 billion in biotech and pharma, a 60.5% year-on-year increase.

In April 2020, Blackstone invested $2 billion in Alnylam Pharmaceuticals. This is one of the largest ever private equity investments in a biotech company.

In October 2020, AMAG Pharmaceuticals was bought out for nearly $650 million by Covis Group, a specialty pharmaceutical company linked to private equity firm Apollo Global Management.

The momentum is not waning and carried over into 2021.

In the first quarter alone, venture capital funding for US-based biotechs topped $12 billion for the first time ever. This marks the fourth successive chart-topping quarter in a row.

5 Trends That Will Define Biotech Dealmaking in 2021-22

For example, American investment firm Kohlberg Kravis Roberts & Co., better known as KKR, invested $100 million in Danish biotech firm Nordic Biosciences. This investment was made through KKR’s $1.45 billion healthcare strategic growth fund. In fact, KKR has invested roughly $14 billion across the healthcare sector since 2004.

This type of dealmaking is becoming a common occurrence in the biotech sphere.

Another major trend is that venture-capital backed biotech IPOs are raising record amounts.

By all accounts, 2020 was a stunning year for biotech IPOs.

There were 71 offerings of at least $51 million, compared to $38 million in 2019 and $44 million in 2018. In total, these IPOs raised more than $11 billion.

Even more impressive is the fact that the top 10 IPOs of 2020 raised a whopping $3.19 billion:

  • Canadian company AbCellera Biologics raised $483 million
  • Chinese CAR-T player Legend Biotech’s raised $424 million
  • Relay Therapeutics raised $400 million
  • Atea Pharmaceuticals raised $300 million
  • Forma Therapeutics raised $278 million
  • Consult the entire top 10 list here
Incredibly, 2021 may eclipse the previous year’s record by a hefty margin.

As of June 30th, 2021, 49 biotech companies have gone public, collectively raising nearly $9 billion in capital. If this continues in the second half of 2021, the record will be broken. Experts believe that the frenzy of IPO activity is expected to continue well into 2022, and possibly beyond.

Venture capital and IPO fundraising results in young biotech firms having plenty of cash and solid balance sheets. This means that Big Pharma is no longer in the driver’s seat when it comes to negotiating deals.


2. Big Pharma Has to Negotiate and Improve their Terms


The consequence of Private Equity, Venture Capital and IPO money is that newer biotech companies are no longer desperate for Big Pharma’s cash.

In fact, Venture Capital and public offerings provide them so much capital that they can now afford the luxury of being demanding and reluctant to sell.

Thus, large pharmaceutical companies have to deal with a novel dilemma: rather than simply competing among themselves, they have to negotiate on level terms with their takeover targets.

Last year, pharmaceutical giant Gilead Sciences experienced this the hard way. In total, Gilead invested $27 billion on half a dozen deals to boost its cancer treatment pipeline. However, despite its position as one of the largest pharmaceutical companies in the world, the firm had to accept unconventional terms to complete their most important deal.

At the beginning of 2019, Gilead began talks with Immunomedics, a New Jersey-based biotech company developing cancer treatments. During the initial meetings, Immunomedics was waiting on the FDA’s approval of its most advanced offering. The two parties discussed a potential partnership and convened to pursue talks over the next year and a half.

5 Trends That Will Define Biotech Dealmaking in 2021-22
Gilead learned that the biotech dealmaking landscape has changed the hard way

What Gilead didn’t know was that other companies were also interested in Immunomedics’ work. When the FDA approved Trodelvy, the biotech’s breast cancer drug, Immunomedics reached out to a dozen pharmaceutical firms asking for a partnership to market the drug. One of the firms offered to outright acquire Immunomedics.

Gilead was caught by surprise. The company thought they were in pole position to strike a deal and was effectively forced to transition from a partnership discussion to an M&A transaction. Even worse: time was now of the essence. If Gilead didn’t act fast, another company would acquire Immunomedics. Thus, two days after the competitor’s proposed offer, Gilead agreed to buy Immunomedics for $88 a share, bringing the total transaction to $21 billion.

This story perfectly encapsulates the changing biotech dealmaking landscape.

The simple fact is that competition is heating up and even the largest pharmaceutical firms are no longer in the driver’s seat.

Thus, interested buyers have to get in early and take risks to stay ahead of their competition. For Big Pharma, this means establishing good working relationships with up and coming biotechs and paying over the odds to finalize purchases.

3. Valuations are Skyrocketing


The logical consequence of cash-rich biotechs and fierce competition is increasing valuations.

In 2020, Gilead bought Immunomedics for $21 billion, Nestlé bought Aimmune for $2.6 billion, and Alexion bought Portola for $1.4 billion.

What do these three deals have in common?

In each instance, the biotechs were acquired for more than double their estimated market value.

In fact, Ernst & Young revealed that in 2020, publicly traded biotechs were on average purchased at a 74% premium.

5 Trends That Will Define Biotech Dealmaking in 2021-22
Increasing premiums means that buyers and sellers are playing a psychological game of “chicken”.

While Big Pharma is growing accustomed to paying over the odds for promising biotechs, they don’t want to get publicly criticized for overpaying. Indeed, shareholders are particularly sensitive to paying over-the-odds for companies, no matter how innovative they are.

On the other hand, the founders of innovative biotechs understand that valuations are swelling to near-illogical heights but refuse to sell if they perceive the premiums as being too low. Every record-breaking purchase sets a new precedent of what is an acceptable over-valued purchase.

Nevertheless, bloated valuations are not a stumbling block preventing Big Pharma from getting deals done. Pfizer CEO Albert Bourla boldly claimed that the company doesn’t “have an upper bound” when it comes to brokering deals, and that “We have the ability to do everything that exists out there, if we wanted to“.

Biotech dealmaking in 2021 is characterized by sky-high valuations. The question is will this trend carry over into 2022 or will the market eventually correct?


4. Neuroscience is Hot Property


Traditionally, Big Pharma concentrated on very few, high-profit drug development sectors: cancer treatment, rare and immune diseases, and cell and gene therapy technology. Thus, biotechs specialized in these sectors were the most popular acquisition targets.

The emerging trend appears to be the acquisition of biotechs specialized in brain and central nervous system research (CNS).

In August of 2020, Biogen invested more than $1 billion in Denali Therapeutics, a biotech firm developing and commercializing drugs that may block Parkinson’s-linked proteins. In December of 2020, Eli Lilly paid $880 million to buy gene therapy developer Prevail Therapeutics – and agreed to pay an additional $160 million if the lead program hits the market.

This trend is carrying over into 2021.

In January 2021, Atlanta Therapeutics, a biotech company developing treatments for neurodegenerative diseases, raised $110 million of venture capital. In July 2021, Relmada Therapeutics announced the $150 million acquisition of development and commercial rights for a novel psilocybin and derivate program from a biotech company called Arbormentis LLC.

The rapid growth of AI technology is revolutionizing healthcare. As a result, biotechs specializing in CNS research are increasingly popular acquisition targets.

5. SPACs are Game-Changers


The final interesting biotech dealmaking trend in 2021 is the merging of biotech companies with Special Purpose Acquisition Companies, formally known as SPACs.

These deals often result in significant capital raises.

A SPAC is basically a shell company with no commercial operations. It is formed with the specific intention of raising capital through IPOs and using the proceeds to acquire existing companies. Also referred to as “Blank Check Companies”, SPACs are nothing new. While they have been around for several decades, they recently garnered plenty of media attention.

Indeed, in 2019, SPACs raised a record amount of IPO capital.

Revinitiv data revealed that SPAC listings raised a mind-boggling $56 billion in the first 10 months of 2020. This amount represents more than 12 times the total amount raised worldwide in 2015 over the same period.

Biotech SPAC filings are skyrocketing

For example, in July 2020, Pfizer spinoff Cerevel raised $445 million by merging with Arya Sciences Acquisition Corp II. This merger will provide Cerevel with enough cash to develop its pipeline of Parkinson’s, schizophrenia and epilepsy treatments.

In October 2020, Nuvation Bio, a cancer drug startup, agreed to merge with Panacea Acquisition. In February 2021, Panacea shareholders approved the $644 million deal.

Typically, SPACs have a two-year lifespan. There are several SPACs currently seeking mergers with biotechs and industry experts believe that deals will continue to be struck in 2021, and potentially beyond.


In sum, biotech dealmaking in 2021 is characterized by these 5 novel trends.


The main development is that large pharmaceutical companies have to compete with private equity, venture capital, IPOs and SPACS.

As a result, young biotechs are cash-rich and no longer tempted to sell for what are usually considered reasonable valuations. This means that all actors have to pay hefty premiums to complete their acquisitions.

The question is how long will these trends continue?

Some experts expect the market to correct in the near future.

Will 2022 be the year of the return to reality?


About the Author

Michael Megarit is a partner with Cebron Group. With over 25 years of domestic and international corporate finance experience, he provides M&A and capital advisory to high-growth technology companies.