Tech-driven upstart competitors pose a danger to Big Pharma. The values of more recent firms, such as $121 billion Vertex Pharmaceuticals, are convergent with those of larger, more established firms, such as Pfizer ($159 billion), Novartis ($230 billion), and Roche ($216 billion). Behemoths may find it difficult to stay relevant as they wrestle with the need to continuously refill their supplies of medications through deals.
It has taken more than a century for big pharmaceutical corporations to dominate the markets. The American pharmaceutical company Pfizer was established in 1849, when scarlet fever and typhoid were among the greatest diseases. The Swiss behemoth Roche was created in 1896. By making astute decisions on prevalent illnesses like cancer and infectious diseases, both titans rose to the top of the field. M&A is also essential to their success; in 2009, Roche paid $47 billion to acquire Genentech, and in 2023, Pfizer paid $43 billion to acquire Seagen, a cancer specialist.
However, a new generation of tech-savvy pharma manufacturers, who were previously their established competitors' prey, are increasingly challenging their dominance. The combined market valuations of Amgen, Genmab, Regeneron, and Vertex have increased by $270 billion in the last five years. In contrast, the combined market capitalization of Big Pharma companies like Pfizer, GSK, Sanofi, Novartis, and Roche has decreased by around $80 billion within the same time frame.
The expansion of the once-bite-sized drugmakers is producing an increasingly favorable environment for takeovers. Biopharma M&A has grown in value to $152 billion last year, a 79% increase. By 2022, $164 billion Amgen, which has grown five times since 2010 and is currently about the same size as Pfizer, invested $28 billion in Horizon Therapeutics. According to analysts, Horizon has long been a target for deals with more established businesses.
Executives of established drug companies, who will all eventually lose patent protection on some of their best-selling medications, find themselves in a particularly awkward position given the heightened competition. The cancer drug Keytruda Merck sells for over $25 billion in 2023 has a four-year patent that expires in 2023. Longer patents are granted to biologics — drugs produced by utilizing living cells — under the US Inflation Reduction Act than to more well-known pharmaceuticals. The companies that produce those more recent products are therefore even more valuable.
Finding deals is frequently the easiest method to restock a drug cupboard. Yet, the cost of smaller medicine manufacturers will rise if competition increases. With an eye-watering 95% premium, AbbVie's $10 billion acquisition of ImmunoGen earlier this year suggests the trend is already well underway. Furthermore, there are fewer obvious goals to pick from. The US saw a 25% decrease in new medicine approvals in 2022, the lowest since 2016. Big Pharma today and its biotech competitors may eventually swap places.