Analysts say large drugmakers will have large cash piles to deploy in 2022. So far the biopharma industry has been relatively quiet in terms of mergers and acquisitions.
According to SVB Leerink analyst Geoffrey Porges and his team, 18 large-cap US and European biopharmas will have more than US$500 billion in cash on hand by the end of 2022. The analysts said the funds could be used to strike deals, pay down debt, or provide dividends or share buybacks to shareholders.
The 18 drugmakers’ theoretical firepower, at more than US$1.7 trillion, would be enormous because they can leverage their assets to borrow additional capital, according to the analysts.
When excluding existing debt, 12 of the 18 companies examined by Porges’ team are expected to have more than US$20 billion in cash by the end of 2022. Porges expects Pfizer, Moderna, Johnson & Johnson (J&J), Novartis, and BioNTech to have net cash of more than US$20 billion, even after debt.
Meanwhile, when debt is factored in, the team estimates that Regeneron, Vertex, Novo Nordisk, and GlaxoSmithKline will have between US$11 billion and US$18 billion in cash on hand.
Porges estimates that the 18 biopharma majors will have US$1.72 trillion in M&A capacity based on their cash positions and potential room to take on new debt.
With more than US$200 billion in M&A power, J&J topped the list. Pfizer and Novartis came in second and third with US$175 billion and US$154 billion, respectively. According to the team, AbbVie, GSK, Bristol Myers Squibb, and Merck will each have a market capitalisation of more than US$100 billion.
Using Wall Street consensus estimates, Porges and his team calculated each company’s cash flow by the end of 2022. Major one-time events have benefited some businesses. The sale of Novartis’ 20-year investment in Roche netted the company US$20.7 billion.
The spin-off of GSK and Pfizer’s consumer health joint venture, which is scheduled for mid-2022, is expected to bring in US$27.7 billion and US$16.3 billion, respectively. The analysis did not consider J&J’s planned spinoff of its world-leading consumer health franchise, which the New Jersey corporation expects to take nearly two years to complete.
For example, Pfizer, BioNTech, and Moderna are benefiting greatly from sales of their Covid-19 vaccines and treatments. According to consensus estimates cited by Porges, Pfizer could see total sales of US$84 billion from its BioNTech-partnered Covid-19 vaccine Comirnaty and its yet-to-be-authorised oral antiviral Paxlovid between 2021 and 2023.
However, having cash on hand does not always imply busy M&A activity. Consider 2021: PwC estimated that the biopharmaceutical industry had US$1.47 trillion in M&A firepower at the end of 2020. However, Merck & Co’s US$11.5 billion acquisition of Acceleron was the largest buyout announced in 2021 involving two drugmakers. Jazz Pharmaceuticals’ US$7.2 billion acquisition of GW Pharma was the only other deal worth more than US$5 billion.