Some of the biggest pharmaceutical companies, sitting on large and growing sums of cash, are funneling those funds into major share buyback programs and acquisitions of smaller biotech companies.
On Thursday, Swiss drugmaking giant Novartis announced plans to buy back up to $15 billion worth of its shares by end of 2023, a program it will fund with proceeds from the recent sale of its long-held stake in crosstown rival Roche for nearly $21 billion. Three days earlier, Bristol Myers Squibb announced a similarly sized share buyback plan for the next few years.
And after a relatively quiet year for dealmaking in the industry, there are signs the largest drugmakers are moving more aggressively toward acquisitions, particularly as a pullback in biotech company valuations makes potential deals less expensive. Pfizer recently agreed to buy Arena Pharmaceuticals for $6.7 billion, while Merck & Co. in late September announced an $11.5 billion deal for Acceleron Pharma.
By the end of next year, more than a dozen of the largest pharmaceutical companies will have more than $20 billion in cash, and six will hold between $30 billion and $70 billion, according to estimates from SVB Leerink, an investment bank.
For several companies, most notably Pfizer, Moderna and BioNTech, highly lucrative sales of their respective coronavirus vaccines have ballooned their cash holdings. Pfizer, for instance, expects sales of its shot to reach $36 billion this year and at least $29 billion next year — easily making the vaccine the highest-selling pharmaceutical product in history on an annual sales basis.
Others, such as Novartis and GlaxoSmithKline, have divested or are considering offloading business they no longer view as essential to their future, potentially handing them tens of billions of dollars.
All told, SVB Leerink expects that "big biopharma" companies will collectively have more than $500 billion in cash to deploy by the end of 2022. Taking typical patterns of share buybacks and dividend investments into account, the bank estimates they will have around $400 billion available, potentially to deploy toward acquisitions.
Many large pharmaceutical companies have space to take on debt as well, expanding potential dealmaking options. In theory, J&J, Pfizer and Novartis could each have as much as $150 billion in financial capacity for acquisitions, according to SVB Leerink.
Dealmaking on that scale isn't necessarily likely, although there have been three acquisitions valued at $60 billion or more and two more above $20 billion in the past several years.
Novartis, for one, has indicated a preference for "bolt-on" deals, which typically refers to smaller acquisitions that can easily be integrated into a larger company.
Pfizer, on the other hand, may be interested in pursuing larger M&A. On a conference call to explain the recent Arena deal to investors, Aamir Malik, the company's chief business innovation officer, said Pfizer is seeking drugs in later-stages of development as well as promising early research opportunities.
But Malik also alluded to Pfizer's capabilities for something more significant as well. "We have significant firepower that we expect both through our ongoing operating cash flows, our current cash holdings and investments and, if warranted, the ability to raise substantial amounts through debt financing," he said.
So far at least, dealmaking in the pharmaceutical industry this year has receded to levels below that of the past three years. But if cash holdings and executive comments are any indication, 2022 might be more active.
Large companies like Bristol Myers Squibb, AbbVie, Amgen and Merck could also face pressure from investors to strike sizable deals to help fill expected revenue losses from patent expirations of top-selling drugs later this decade.