Pharma M&A Shows an Industry Looking to Specialize

Recent merger and acquisition activity in the pharmaceutical industry offers insight into where the industry is headed. While the stock market is coming off a bad year and the economy is showing neuropathy in its effort to regain full strength, the pharma industry reveals that the giants are using their pandemic wealth wisely. And what they are buying shows a major industry headed toward further specialization.

Two of the biggest acquisitions in the industry confirm a trend discussed earlier in our posts that the pharma players are trawling for opportunities in the rare-disease space. Amgen ( AMGN ) is shelling out $7.5 billion for Horizon Therapeutics ( HZNP ), a rare disease specialist. Pfizer ( PFE ) acquired Global Blood Therapeutics, a sickle-cell disease expert for $5.4 billion.

Sickle-cell disease affects 90,000 Americans — a well-defined market, indeed. By contrast, dementia is intriguing as a business opportunity — if only a breakthrough could be found — but the cost of research into mental illnesses can be massive and the track record is not so good. So expanding in better travelled destinations is the strategic choice for several giants who profited from the coronavirus.

Short of a blockbuster, rare diseases require a lot of medical care, especially blood tests and ongoing prescriptions. That means there will be plenty of medical activity and this is a good time to buy in.

These moves also imply that the industry is not expecting a repeat of the 2020-22’s intense focus on the coronavirus. Even the booster shot-makers are resorting to marketing ploys to sustain interest. Much like the Iphone for Apple, pharmaceutical giants are enjoying their wealth and moving into other areas that will expand their overall prowess and future profitability.

Among Horizon’s products is Actimune, used to treat Chronic Granulomatous Disease (CGD), a very rare condition. This company’s research capabilities bear great strategic interest to its new parent. Horizon offers products for this small, specialized group of patients. Together with mighty Amgen, new products for other diseases can be expected. 

Note that this is one of the positive outcomes of the coronavirus — opening the door to more specialized research and product development. These two mergers alone point the way for the continued development and dominance of the current pharmaceutical leaders. The proven efficacy of older medications also offers a stable business base.

Beyond the giant firms that played some role in the coronavirus, situations remain difficult for all healthcare providers, which include hospitals, medical equipment manufacturers, care facilities and  related businesses. Skilled nurses are hard to find; operations get more costly. Not-for-profits, especially those operating in inner cities, find revenue squeezed; regulations keep tightening. The search is on for various types of tax breaks and other benefits. Among the M&A efforts is Atrium Health topping off a sizable merger with Advocate Aurora Health covering a group of mid-western and southern hospitals.

While 2022 was a bad year for investments, 2023 offers new opportunities. At a minimum, expect pharma and healthcare M&A to stimulate considerable innovation. Attractive Phase II test results will bring more attention to smaller companies. Promising Phase III testing will start the acquisition process in earnest.