Last month, drugmakers announced a smattering of billion-dollar M&A transactions, kicking off what industry insiders say could be an exciting few months for dealmaking in the space. Experts told Law360 that a looming patent cliff for Big Pharma is undoubtedly one of the biggest catalysts for big M&A transactions today. Stuart Cable, vice chair and global head of M&A at Goodwin, said he thinks of the uptick in March as just the start of more billion-dollar M&A activity to come. Goodwin advised Centessa and Ouro in their respective March transactions. “You’re going to see lots of transactions,” he said. “I can predict with some high degree of confidence that we’re going to have lots of M&A deals in the billions: one billion, two billion, three billion [dollar] deals.” That prediction is based on what he’s seeing on his desk today, he said, and the confluence of a host of other factors that make the industry ripe for activity.
One such factor is the number of mature private companies that Big Pharma is ready to bet on. “The thing people can’t forget is that there were [almost] no IPOs for three years,” Cable said. “That’s a long time to be out in the desert.” Limited initial public offerings over the past few years have meant that many private biotechs have continued to mature, develop their pipelines, and release solid data readouts even without the financial support of public markets. “So, while it doesn’t quite get the press notoriety that the public deals do, they are great transactions for law firms and banks, and we’re doing them now,” he said. Cable added that contingent value rights, or CVRs, which promise a future payout to sellers pending milestones, are also making a comeback today, helping to close valuation gaps between buyers and sellers. Several of the billion-dollar transactions in March had CVRs, including Lilly’s agreement with Centessa and Biogen’s buy of Apellis. “When you think about what a CVR is, it’s a risk-sharing exercise,” he said. “Not every deal will have a CVR, but I think the great majority of them will have CVRs in the immediate future.”