The Key to Pharma M&A: Never Shopping Hungry -- Heard on the Street -- Update

By David Wainer

Everyone who has walked into a grocery store hungry knows how quickly discipline can evaporate. Everything looks like an immediate necessity.

The same psychological trap plays out in Big Pharma boardrooms, though the stakes are measured in tens of billions of dollars. Like shoppers trying to keep the fridge stocked, pharmaceutical chiefs are constantly hunting for promising biotech drugs to replace expiring blockbusters. And just like supermarket shoppers, a CEO who walks into the store hungry-staring down a patent cliff with an empty pipeline-is far more prone to expensive, panic-driven mistakes.

The better move is to make frequent, smaller trips to the store. In pharma terms, that means making a steady stream of small to medium-size bets rather than one gigantic deal.

For decades, large acquisitions were the classic answer to a patent cliff. When sales began to drop off because of generic entry, many pharma companies turned to mergers, which added scale and allowed them to strip out duplicative costs. But several of the more recent large deals, including Bristol-Myers Squibb's 2019 acquisition of Celgene for $74 billion, have failed to deliver positive shareholder returns.

As a result, investors have soured on that strategy. It's not that it can't work. But the fear is that they create enormous integration risk without necessarily improving the long-term growth trajectory.

That verdict was abundantly clear recently when AstraZeneca shares plunged following a Financial Times report that it had explored a merger with Bristol Myers. Regardless of how serious the talks were, the signal to pharma boardrooms was to keep it small.

So-called bolt-on deals have become the industry's staple in recent years. Across the 16 largest drugmakers, acquisitions for under $3 billion have been running at roughly two dozen a year over the past decade, according to Norstella M&A data provided by Evaluate. The pace has been higher in recent years, and 2026 is running hot, with 24 such deals so far this year.

Eli Lilly, whose executives have used the supermarket analogy, was behind many of this year's deals. Its Mounjaro and Zepbound franchise generates massive cash flow, with patent protection stretching into the middle of the next decade, which means Lilly has time. It can shop for the next decade rather than the next year, placing targeted bets across sleep, gene editing, cancer and psychedelics to diversify before the obesity-drug boom eventually slows.

That doesn't mean Lilly is the industry's best dealmaker. Its record is mixed, and buying early means many of these bets won't pan out. But it can afford to be wrong.

Most pharma companies don't have Lilly's runway. But a little hunger isn't necessarily bad if it focuses the mind. Some of the best deals come after early studies show that a drug works but before late-stage trial results chip away the discount. In other words, not too early, but not too late.

Novartis offers a look at a buyer that has grown more disciplined over time. Its best moves came from getting in early: long before radiopharmaceutical therapy became oncology's hot trend, Novartis paid about $2 billion in 2018 for the platform that yielded Pluvicto, a prostate-cancer drug now on track for roughly $4 billion in annual sales by the end of the decade. Not every bet pays off: It took a partial write-down on its $2.9 billion MorphoSys deal after the lead drug hit clinical delays.

But under Chief Executive Vas Narasimhan, the Swiss drugmaker has steadily narrowed its ambitions toward smaller, targeted bets across a few core fields, with the occasional larger swing on conviction, such as its recent $12 billion deal for neuromuscular-drug developer Avidity Biosciences. Now growing despite the fact that blockbuster heart drug Entresto is facing generic competition, Novartis has no need for a panic buy because it planted its seeds years ago.

Merck is the harder test. By all rights, Chief Executive Robert Davis should be the hungriest shopper in the aisle. Merck's cancer juggernaut Keytruda generated $31.7 billion last year-more than half of Merck's pharmaceutical revenue-and begins losing patent protection in 2028. A hole that size could make any executive lose their head, march into the store, and grab the most expensive thing on the shelf. And Merck has indeed repeatedly looked at deals over $30 billion.

But rather than bet the firm on one overwhelming acquisition, Merck has filled its cart with a string of targeted assets, including the 2021 $11.5 billion acquisition of Acceleron, which gave it the fast-growing pulmonary-hypertension drug Winrevair, and the $11 billion buyout of Prometheus in 2023, which was a bet on an autoimmune treatment.

Partnerships can be an even lower-risk way in. Merck teamed up with Moderna in 2016 to develop personalized mRNA cancer vaccines, and expanded the deal over time. The bet is paying off: on Wednesday, Merck's stock surged 13% after the vaccine delivered positive results in high-risk melanoma patients.

Many of Merck's deals are at that sweet spot-after the data shows the drug works but still before a late-stage trial has confirmed it. Those are calculated swings, without buying the whole store. Not every bet will pay off, but investors are increasingly rewarding the dealmaking. Merck's shares are up about 80% in the past 12 months, even as it approaches its patent cliff.

Risk is inherent in buying biotech companies. The best drugmakers, like the best shoppers, don't stop buying. They just make sure they're never so hungry that everything on the shelf looks good.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

August 19, 2026 17:05 ET (21:05 GMT)