Growing demand for cancer drugs, along with patent expiries and AI innovation, are driving dealmaking in the red-hot oncology space

Global spending on cancer medicines is set to reach US$375 billion by 2027, with innovation in drug discovery and development ramping up to meet rising demand.

While the global biotech sector continues to grapple with elevated interest rates and plunging valuations, the oncology sector continues to attract dealmaker interest.

Pharma companies beef up oncology pipelines

Pharmaceutical companies have taken advantage of favorable valuations in the biotech sector to pursue opportunistic purchases. And they have the resources at hand, drawing on deep cash reserves amassed during COVID-19, estimated at US$1.4 trillion as of December 2023.

Several drugs lost their primary patents at the end of last year, and the “patent cliff” continues to threaten large drugmakers. As patent expiries draw closer, M&A is becoming a vital tool for pharma companies looking to bulk up near-term revenue and strengthen drug pipelines.

In October 2023, US pharma giant Bristol Myers Squibb (BMS) announced its intention to acquire California-based oncology company Mirati Therapeutics for US$5.8 billion. Following the deal, the group will gain ownership of Mirati’s FDA-approved lung cancer drug, Krazati.

The purchase comes amid the looming loss of patent protection in the coming decade for several key BMS drugs, and will enable the company to diversify its oncology offering. Mirati has been keenly sought-after in recent years; before BMS made its move, Bloomberg reported that French pharma company Sanofi had been interested in making a bid.

The Mirati deal wound up being BMS’s second largest of 2023, with the pharma group announcing in late December that it would acquire Boston-based biopharmaceutical company Karuna Therapeutics for US$14 billion. The transaction will bolster BMS’s position in the neuroscience space and adds Karuna’s primary asset, KarXT, to its portfolio. The drug is designed to treat schizophrenia and Alzheimer’s disease and is currently under FDA review. This year, BMS has already participated in a handful of funding rounds, including contributing to investments in cancer treatment specialists Ratio Therapeutics and Accent Therapeutics, as well as autoimmune specialist Cour Pharmaceuticals.

Another sizeable deal from Q4 2023 saw US drugmaker Eli Lilly enter the radiopharmaceuticals space through its US$1.4 billion acquisition of Point Biopharma. Eli Lilly paid a 90 percent premium for Point, whose radioligand therapy delivers radiation at close range to cancerous cells. Through the purchase, Eli Lilly will be looking to keep pace with Novartis which, with two radioligand drugs already approved, is currently leading the way in the space.

Several sizable oncology-related deals have been announced in early 2024. On January 8, Johnson & Johnson announced it would acquire cancer drug developer Ambrx Biopharma for US$2 billion. According to reports, the transaction is intended to improve Johnson & Johnson’s position in 2025, when Stelara, its best-selling drug, is forecast to face generic competition.

Also on January 8, Merck announced its US$680 million buyout of Harpoon Therapeutics, strengthening the group’s pipeline of cancer treatments and counterbalancing the approaching loss of exclusivity on its immunotherapy treatment Keytruda.

VCs place their bets on biotech

A flurry of biotech companies went public amid the industry’s valuation boom of 2021. But the bubble has since burst, with the NASDAQ Biotechnology Index—which enjoyed an upturn in the final months of 2023—dropping nearly a fifth from its 2021 peak. These companies are now in desperate need of cash.

These market dynamics drove California-based clinical-stage oncology company Revolution Medicines to acquire biotech company EQRx in August 2023, adding US$1 billion of cash to its balance sheet in the process.

Less than a week later, on August 7, Ikena Oncology acquired biotech startup Pionyr Immunotherapeutics for US$43 million. The deal gives the Boston-based cancer drug developer a much-needed boost, as the startup has seen its value drop by two-thirds since going public in 2021.

Venture capital investors are remaining faithful to the biotech industry, though, injecting vital funds into innovative startups despite the economic downturn and restrictive financing climate. Though down from the record highs logged during COVID-19, biotech VC funding in 2023 continued to surpass pre-pandemic levels, according to PitchBook.

In fact, according to biopharma news group Fierce Biotech, H2 2023 featured seven fundraises worth at least US$200 million each, compared to only four of that size in H2 2022.

The largest fundraise of 2023 saw Massachusetts-based first drug generation company Generate:Biomedicines raise US$273 million of Series C financing, bringing in new investors including Amgen and Nvidia. The funding will be used to build out the company’s machine learning algorithms, which it uses to identify antibodies, peptides, cell therapies and other medicines. AI-driven drug discovery is a fast-growing segment of the biotech space. According to Statista, the market will be worth US$7.7 billion by the end of the decade, a more than fivefold increase from its value of US$1.5 billion in 2023.

SPACs become more selective

Special purpose acquisition companies (SPACs), which offer private biotech companies a faster route to going public than an IPO, were widely used during the pandemic's biotech boom. While the trend has died down since its peak, a few oncology targets tipped for growth have been targeted in 2023.

Citius Oncology, a subsidiary of Citius Pharmaceuticals, is one such as example. The US-based late-stage biopharmaceutical company merged with China-based blank check vehicle TenX Acquisition in late October, in a deal valued at US$675 million. Following completion, the combined company will be listed on the NASDAQ stock exchange.

Citius Oncology intends to use the investment to further develop and commercialize its non-Hodgkin lymphoma treatment drug, Lymphir.

Outlook

Looking ahead, innovation in oncology looks set to ramp up even further. Exponential growth in demand will provide a steady stream of new assets coming to market, presenting prime deal opportunities for pharmaceutical companies and private investors alike.

The industry’s drive to snap up oncology targets shows no sign of slowing down. Oncology drugs are among the most profitable in the market, and pharma companies will be looking to replenish lost revenue streams in anticipation of impending patent expirations.

With these strong market tailwinds, dealmaking targeting oncology assets will be an exciting space to watch.