The trend of smaller deals and greater risk in pharma continued in 2012. With many of the biggest companies not even playing in the M&A sphere, the average value of disclosed deals shrank again in 2012, according to an analysis of EvaluatePharma data.
However, the rising sales multiples paid suggest that bets are being placed on more speculative development-stage companies. The perfect storm of a cratered economy and 2012 patent storm has eased, to some degree, making a gamble on higher-risk ventures more attractive and diminishing the need to buy in an immediate revenue stream.
|Average deal values for disclosed deals|
|Deal announcement date||Total value ($bn)||Total count||Average deal value|
|*excludes deals above $20bn|
While the number of deals shows little signs of abating, 2012 was the first year since at least 2000 that not a single pharma deal exceeded the $10bn mark, a remarkable record given that more than 100 M&A transactions took place. The biggest was Bristol-Myers Squibb’s $7bn acquisition of Amylin Pharmaceuticals, which in any case was offset by a joint venture established with AstraZeneca (Joint-venture approach does little to hide risk of Amylin takeover, July 2, 2012).
The reluctance to pay out megabucks was reflected in shrinkage of the average deal value to $414m, down slightly from 2011’s $444m and still well below the pre-crash number of $625m.
EP Vantage’s analysis of deals with disclosed values excludes those of more than $20bn because such transactions as Pfizer’s $68bn buyout of Wyeth in 2009 would skew the data and hide underlying trends in the industry. In any case, none of these happened in 2012 or 2011, the last such being Novartis-Alcon and Sanofi-Genzyme in 2010; if anything, pharma shows signs of going the other way, toward many mini-mergers.
While the 2012 number represents a shrinkage in average deal values over 2011, the fact that in 2011 there were two deals of more than $10bn – Takeda’s takeout of Nycomed and Gilead Sciences’ swoop on Pharmasset – could explain a great deal of the difference. Indeed, 2012 had one more $1bn-plus deal – nine versus eight in 2011 – so the overall picture is not extremely different.
However, with so many of the biggest groups preparing for break-ups rather than acquisitions, and with signs of life from once empty pipelines, the incentive to buy simply might not have been as great in 2012 (M&A activity cools in 2012 as break-ups loom, February 7, 2013). A swelling biotech bubble certainly has made affordable biotech targets an endangered beast (Untempered expectations buoy Bristol and Lilly as valuation gaps open, August 9, 2012).
|Average sales multiple paid for $250m+ takeovers|
|Deal announcement date||Deal count||Deal value ($bn)||Sales ($bn) (target)||Sales multiple|
|*excluding mega mergers|
On the other hand, a growing average sales multiple is a sign of an industry increasingly comfortable with higher-risk transactions. From a trough of 1x sales in 2009, when caution was the watchword, the number has steadily grown to 6.1x in 2012.
The sales multiple measurement sheds little light on the metrics behind individual deals. But as an average it paints a picture of a sector more willing to snap up developmental-stage companies generating little or no revenue – Bristol-Myers Squibb’s $2.5bn buyout of Inhibitex, a transaction that it has already written off, is a clear example of the greater risk being taken (Bristol-Myers setback another blow to hep C field, August 24, 2012).
Tracing average sales multiples back five years also shows how much bolder the industry was before the crash. The 2007 average sales multiple of 14.7x came in a year that was marked by AstraZeneca’s fateful $15.6bn takeout of MedImmune – a move that could only characterise a different era.
It could take years before the sector sees a return to such numbers, if they ever are seen again, given the sluggish state of economic growth in the world’s advanced economies and continued worries about the return on R&D investment. There are signs of relaxing attitudes towards risk, but it is not clear that pharma has fully emerged from a cautious period.
All data sourced to EvaluatePharma.