Speciality pharma companies drive sector deal-making

Pfizer's latest proposed mega-merger might be capturing all the attention at the moment, but it is frenzied deal-making among the world’s speciality drug makers that is really driving the pharma sector’s M&A activity.

An analysis of EvaluatePharma data reveals that deals struck by these firms accounted for more than half of the sector’s M&A spend last year, the biggest proportion seen over the past decade. Should Mylan manage eventually to woo Meda, and if Valeant’s audacious move on Allergan ultimately succeeds – or indeed prompts a defensive move from the Botox maker – 2014 could witness a big acceleration of this trend (see tables below).

Meda’s latest rebuff of Mylan this week was largely lost among the noise created by confirmation of Pfizer’s intentions towards AstraZeneca, but the deal that the US speciality generics firm is trying to strike is by no means insignificant.

Worth $9bn – assuming press reports are accurate – the deal would rank as one of the largest takeovers in this space of the past 10 years, the table below shows.

Ten biggest speciality pharma takeouts of the last 10 years 
Acquiring company Target  Deal value ($bn) Year announced
Actavis Forest Laboratories 25.0 2014
Merck KGaA Serono 13.8 2006
Valeant  Bausch + Lomb 8.7 2013
Perrigo  Elan 8.6 2013
Actavis Warner Chilcott 8.5 2013
Teva  Barr Pharmaceuticals 7.5 2008
Teva  IVAX 7.4 2005
Mylan Merck Generics 6.8 2007
Teva  Cephalon 6.8 2011
Watson  Actavis 5.9 2012

Sweden’s Meda, with a market cap equal to $5.5bn and turnover of almost $2bn in 2013, has a strong presence in emerging markets and a broad portfolio of speciality and branded generics. It would add important size and scope to Mylan, which is pursuing acquisition-fuelled growth as enthusiastically as its peers, and equally importantly would help the US company lower its tax bill.

Mylan remains one of the few US-based speciality firms of substantial size that has not sealed a big, tax-driven deal. And with targets few and far between, a sweetened offer cannot be ruled out.

For its part Meda is holding out, bolstered by the fact that its 23% majority shareholder, Stena Sessan Rederi, has refused to entertain the offer. The company has been actively pursuing its own business development deals over the past few years and no doubt hopes to remain an independent player in this space.

Allergan has similarly been holding out against Valeant’s aggressive tactics (Valeant's move into shareholder activism, April 22, 2014). Should any transaction get done – the current offer is valued at around $48bn – this would dwarf all other speciality pharma deals of the last 10 years. With Allergan rumoured to be looking at a reactionary bid for Shire, whose speculation-inflated market cap currently sits at £20.4bn ($34.3bn), this situation looks highly likely to end up with at least one big deal being done.

Accelerating train

The table below shows that the machinations of speciality companies have already resulted in deals worth $40.3bn being agreed so far this year. The data include approved transactions that have yet to close, such Actavis’s $25bn takeover of Forest and Mallinckrodt’s acquisition of Questcor for $5.6bn.

In 2013, which saw Warner Chilcott, Bausch + Lomb and Elan subsumed, this space accounted for 56% of the total M&A spend. This is substantially higher than previous years, and 2014 shows all the signs of another dominant period for these companies.

Of course, the major caveat with this analysis is the pigeonhole "speciality pharma", a description that can mean different things to different people. Definitions can include a company selling off-patent products repurposed with new technology or one that focuses on drugs that address niche or well-defined patient populations. And as more and more companies choose to define themselves within this category, it will come to include a larger proportion of the pharmaceutical industry.

Nevertheless it is clear that deals in this space are getting bigger. And it might be some time before this accelerating train of market share-grabbing acquisitions runs out of steam. 

Speciality pharma deals over the last 10 years 
Year announced Deal value ($bn) Value as % of sector total (excl mega-mergers)
2014 YTD 40.3 59%
2013 43.8 56%
2012 15.3 35%
2011 17.5 32%
2010 18.6 26%
2009 9.3 22%
2008 19.1 31%
2007 14.4 20%
2006 31.8 32%
2005 21.0 34%
2004 4.5 13%

All data sourced to EvaluatePharma.

To contact the writer of this story email Amy Brown in London at [email protected] or follow @AmyEPVantage on Twitter

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