Big Pharma has a problem, and a plan to solve it. The problem? A looming drug patent cliff that will unleash generic competition on some of the industry’s biggest moneymakers. The solution? A breakneck M&A spree for biotech stocks, funded by a massive war chest built on drug companies’ success in bringing new medical treatments to market.
But U.S. regulators could throw a wrench into this biotech M&A game plan. The Federal Trade Commission filed a lawsuit May 16 to block Amgen’s $27.8 billion takeover of Horizon Therapeutics (HZNP). The challenge raised new arguments against such mergers, which the FTC routinely cleared in the past when the companies had no rival drugs on the market.
Analysts expect Amgen (AMGN) will eventually close the Horizon buyout, but it may face an uphill court battle to get there. At risk are drug companies’ plans to head off revenue hits as important patents expire and a government drug-price squeeze looms.
The stakes also are high for biotech stocks and investors who own them. Many companies never turn a profit and lack the business wherewithal to market their products. They capitalize on their R&D successes by selling out to bigger companies.
‘Blistering’ M&A Pace
As of mid-April, pharma companies had announced $64 billion in biotech mergers and acquisitions this year, with big names like Pfizer (PFE) and Merck (MRK) on the list of shoppers. That put biotech on a “blistering” M&A pace in 2023, according to investment bank Torreya, now a Stifel unit.
The Amgen-Horizon roadblock from President Biden’s FTC reverberated across the industry, as biotech stocks pulled back from a recent run. Shares of takeover targets Seagen (SGEN) and Prometheus Biosciences (RXDX) fell 6% and 1%, respectively, the day of the FTC action. As of Thursday though, biotech stocks ranked a lofty 11th in six-month price performance among 197 industry groups tracked by Investor’s Business Daily.
Despite regulators’ chilly tone, some experts don’t expect a pause in the M&A pace for biotech stocks.

The macroeconomic environment, politics, drug prices, patent cliffs and regulatory concerns are in constant flux. What doesn’t change? Biotech and pharma need each other.
Biotech companies are often at the bleeding edge of innovation. But they lack the commercial power that pharmaceutical companies can bring to the table.
“It doesn’t really change the game of where pharma is going to acquire,” said Stephen Morehouse, a partner at PA Consulting, where he advises life-sciences companies. “They need to. It’s part of how the industry works. There’s innovation going on, and they’re going to acquire that innovation or seek other opportunities to continue to grow and find new treatments.”
Several factors are driving the biotech M&A spree, experts say, and much of the frenzy dates back to early days of the pandemic.
Valuations Of Biotech Stocks
Biotech stocks took off in 2020 as the world looked to companies like Pfizer and Moderna (MRNA) for new vaccine technology to save the world. Then, Covid-19 cases began to ease. And society peeled back many of the measures meant to keep the virus at bay.
Big Pharma may have been waiting for promising clinical news before jumping on the M&A bandwagon.
“There had been such a dramatic shift in valuations,” said Adam Golden, a partner at the law firm Freshfields Bruckhaus Deringer who helps life sciences companies ink mergers, licensing deals and collaborations. “I think it took a little bit longer for buyers and sellers to kind of adjust to the new world in terms of valuations.”