LIVE MARKETS-Big pharma goes on a shopping spree
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BIG PHARMA GOES ON A SHOPPING SPREE
A wave of acquisitions is sweeping through the pharmaceutical industry is giving investors reason to cheer as companies look to offset looming patent expiries on blockbuster drugs, while cash‑rich rivals seek to bolster their pipelines through acquisitions, BMO Capital Markets analysts said.
Eli Lilly LLY.N, Gilead GILD.O, Merck MRK.N, Biogen BIIB.O have all announced major acquisitions in recent weeks.
The deals have helped push the SPDR S&P Biotech ETF XBI up 7.5% for the week.
Larger deal sizes and mostly healthy premiums serve to validate M&A upside after a strong end to 2025 and following a disappointingly uneventful J.P. Morgan Healthcare Conference at the beginning of January, the analysts said.
That conference, the industry's premier annual event, had fuelled expectations of multiple mega-mergers, but ended with just one deal signed.
Analysts say the buying spree this year makes strategic sense, with each company targeting businesses in disease areas it already knows well, spanning oncology, rare disease, and neuroscience.
Buyout premiums, the extra price paid above a company's stock value, have been generous in most cases, ranging from 38% to 140%, though Merck's offer for Terns TERN.O and Biogen's plan to buy Apellis APLS.O raised scrutiny from investors.
Contingent value rights, or CVRs, essentially bonus payments to sellers if certain drug milestones are hit, appear to be back in vogue as acquirer's look to reduce deal risk and takeout candidates look for more credit for pipeline programs, BMO said.
Lilly said it will pay $1.5 billion as CVR payment to Centessa Pharma if its drug gains US FDA approval.
"We anticipate that the strong deal making environment will persist," BMO said.
(Kamal Choudhury and Sneha S K)
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