After six M&A deals for IBT in 2022, will 2023 be another bumper year for biotech M&A?

Marketing image in association with the international biotechnology trust plc


Ailsa Craig
Portfolio Manager
Marek Poszepczynski
Portfolio Manager

Could 2023 be the year of biotech M&A deals?

In 2013, in the aftermath of the material 2012 patent cliff, much was made in the UK press about the closure of research and development (“R&D”) centres at AstraZeneca and several other pharmaceutical companies, resulting in significant job losses. This was symptomatic of a change in strategy among the global pharmaceuticals to wind down “in house” R&D in favour of sourcing assets from outside.

This structure allowed smaller, nimbler, focused, cost-effective biotech companies to undertake high-risk early-stage research in a more effective way. The global pharmaceutical companies were then able to acquire more mature projects and incorporate them into their existing development and distribution infrastructure.

Ten years later, this ecosystem still underpins today’s global healthcare sector. There can be variations to the standard model, such as when biotech companies hold onto their assets and morph into quasi-pharma companies, undertaking their own manufacturing and distribution (eg. Amgen and Gilead), or when pharma companies, instead of making outright company acquisitions, opt for licencing deals or regional rights for assets, either as a first step towards a subsequent acquisition (eg Pfizer/Biohaven), or instead of an acquisition (eg Johnson & Johnson/Genmab).

Drug development – a conveyor belt system

Drug research, production and distribution is a conveyor belt system, with a sales ‘cliff’ at the end of the belt. Successful drugs are developed, put through clinical trials, approved, manufactured, distributed and then, after a certain amount of time, the patent for the drug expires opening it up to generic competition at which point the price of the drug falls, in some cases, to pennies in the pound. These drugs are then available at a much cheaper price to the whole world in perpetuity.

With the pace of innovation constantly accelerating, drugs are now more frequently overtaken by a new, more effective competitor before even reaching the end of the patent expiry date, further reducing the duration of the period in which development costs can be recouped from profits.

Pharmaceutical companies have to keep feeding products into the start of the conveyor belt in order to replace the revenues lost when products are outshone by a new competitor or fall off the patent cliff at the end. This puts pressure and emphasis on innovation, and the biotech industry has stepped up to the plate by working hard and discovering new drugs for diseases with an unmet medical need.

Of course, acquisitions of new products are unlikely to go ahead if the targets are overpriced, or the acquirors lack cash. During 2021, we saw M&A in the biotech sector grind to a halt as the market prices of biotech stocks soared to unjustifiable valuations. Some acquisitions of unquoted biotech companies took place, but the listed stocks were considered too expensive for acquirors. At that point, we would say we were at stage 5 of our ‘biotech valuation cycle’ which we discussed in our blog published in February 2022.

Acquirors yet to spend COVID cash

However, many of the pharma companies were stockpiling cash during this period, especially those that were making fortunes from the sales of COVID vaccinations such as Pfizer and Moderna. Those cash balances have not yet been fully deployed and so, in 2023, we are looking at reasonably priced assets and cash rich acquirors – could 2023 be the year of a new acquisition cycle, or even consolidation in the sector, and if so, which types of companies are likely to benefit?

The slow-down in M&A dealflow during COVID and the consequent hyped valuation period of 2021 has meant that pharma companies have edged nearer to their looming patent cliffs without filling the pipeline with new, innovative products. That means companies with “oven ready” products are going to be more attractive than those with years of clinical trials still ahead of them.

Revenue growth stage assets are the sweet spot

Biotech companies, as we at IBT define them, can be divided into three categories: development stage, where the companies do not have a product approved; revenue growth stage, where a product is approved or launched, but not yet turning a profit; and, lastly, profitable stage.

The time to market of development stage assets, especially if not yet in the latest stages of development, makes them less attractive to pharma looking to plug imminent gaps in their future cash flows, and profitable assets tend to be pricier. Revenue growth stage assets seem to be in the sweet spot, and we have seen a prevalence of this type of company being the target of pharma buying interest.

Spotting M&A opportunities

At International Biotechnology Trust, we usually work on the basis that if we back good companies with strong management teams that have innovative products meeting unmet medical need, then it is likely those same companies will attract the attention of potential acquirors. Our approach ensures we have a portfolio packed with companies that meet these criteria.

Our big picture overlay allows us to tilt the portfolio weighting in different categories, so we have increased our exposure to revenue growth names which, in addition to the potential of being acquired by product starved pharma, also have recession proof characteristics, offering growth and lower future financing needs. We can also keep an eye out for tell-tale signs like “toe in the water” licencing deals, although we have to beware of licencing deals that become an alternative to a full-scale acquisition.

We have had a string of M&A within IBT. Last year, the most significant deals for the trust were Pfizer’s acquisition of Biohaven and Amgen’s acquisition of Horizon. 2023 has already seen two portfolio companies being acquired, Albireo and Concert Pharmaceuticals. All four of these deals held the characteristics of relatively recent, or in the case of Concert, imminent approvals and strong growth potential. In totality, the trust has benefited from 13 acquisitions in the past two years since the current portfolio managers were appointed joint-lead fund managers of IBT in March 2021.


Ailsa Craig
Portfolio Manager
Marek Poszepczynski
Portfolio Manager


IBT Blog
Follow us

Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

This marketing material is for professional clients or advisers only. This site is not suitable for retail clients.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.