BREAKINGVIEWS-Big Pharma has rare shot at bargain hunting

By Aimee Donnellan

DUBLIN, Aug 11 (Reuters Breakingviews) - Big Pharma has a big problem. GSK GSK.L, Pfizer PFE.N and Novo Nordisk NOVOb.CO are among a growing cohort of healthcare giants facing loss of exclusivity on key drugs and resulting gaping holes in their earnings. The good news, however, is that the cost of buying promising new treatments and biotechnology companies is cheaper than it has been in years.

Biotech M&A used to be an expensive business. Low interest rates drove up investor appetite for promising, fast-growing companies, sending the S&P Biotechnology Select Industry Index soaring to an all-time high in 2021. Cheap borrowing costs also made large pharmaceutical companies more willing to shell out when scooping up promising targets. That same year $202 billion Merck & Co MRK.N paid a 134% premium in its near $2 billion takeover of Pandion Therapeutics. As recently as 2023 some half a dozen companies were sold at a premium of over 100%, according to Dealogic data.

In 2025, however, the animal spirits have died down. Interest rates are stubbornly high in both Europe and the U.S. Meanwhile, President Donald Trump has threatened to impose 200% tariffs on pharmaceutical imports, which could hurt profits. Both factors make drugmakers wary of gearing up their balance sheets.

This situation is reflected in the terms of recent deals. At the beginning of the year, $417 billion Johnson & Johnson JNJ.N paid a 39% premium to buy Intra-Cellular for just under $15 billion. In late April, after Trump had begun to threaten the sector with tariffs, German pharma group Merck KGaA MRCG.DE paid $4 billion for SpringWorks Therapeutics, a paltry 26% over its then market value. The average premium for the top three deals in 2025 is 30%, compared with nearly 60% in 2023, according to a Breakingviews analysis using Dealogic data.

The weak market backdrop also helps. The S&P Biotechnology Index has fallen by 18% since November, when Donald Trump won the U.S. presidential election. That not only means that companies are cheaper to buy, but also puts pressure on boards to deliver value to shareholders, making them more willing to sell.

Big Pharma’s need to find new drugs is as strong as ever. Novo Nordisk, for example, will lose patent protection in the U.S. on Semaglutide, the active ingredient in diabetes medication Ozempic, in 2031. Meanwhile GSK, run by Emma Walmsley, will lose some exclusivity in the U.S. on its top-selling HIV treatment in 2028. For now, they have a chance at least to replenish their medicine cabinets at relatively low cost.

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CONTEXT NEWS

The S&P Biotechnology Select Industry Index was at 6,647 on August 8, down 18% compared to November 2024.

On June 2 Sanofi agreed to buy U.S.-based Blueprint Medicines Corporation for $9.5 billion. The deal included a 27% premium over the target’s closing share price on May 30.