The takeout price of Tobira earlier this week raised eyebrows for good reason – no pharma and biotech deal has come close to the 498% premium Allergan slapped on the table, in the last five years at least.
This is according to EvaluatePharma data, which until now ranked Roche’s buyout of Anadys as the frothiest since 2011, at a 256% premium. In fact only eight takeovers have been sealed with premiums above 100% in this time, an exclusive club of which Tobira is now by far the richest member (see tables below).
Still, the acquisition of the NASH player is likely to represent something of an outlier as Tobira’s shares were severely depressed in the wake of what stock market investors considered a clinical failure. Situations where bigger industry partners take the opposite view are unlikely to come around very often.
So while the huge premium cannot really be read as evidence of a rampant bull market, it does show that equity markets valuations can sometimes be far off the mark.
|The 100%+ club – Top 10 pharma premiums since 2011|
|Acquirer||Target||Share price premium*||Deal value ($m)||Deal announced|
|Merck & Co||Idenix||239%||3,850||Jun 2014|
|Bristol-Myers Squibb||Inhibitex||163%||2,500||Jan 2012|
|Bristol-Myers Squibb||Amylin||101%||7,000||Jun 2012|
|GlaxoSmithKline||Human Genome Sciences||99%||3,600||Apr 2012|
|Note: *calculated from previous day's close or last unaffected share price; excludes transactions <$100m and medtech deals, and where CVRs are included the premium is based on the up-front fee.|
The premium can also be explained by Tobira’s NASH focus, a field that has attracted huge valuations elsewhere and can be described as a bubble therapy area.
Hepatitis C, one of the most famous bubbles, is well represented in the league table above – after Tobira the top three takeouts were all hep C players, whose valuations swelled in the wake of Gilead’s $11.2bn takeout of Pharmasset. This deal represented a comparatively paltry 89% premium, which ranks just outside the top 10 in eleventh place.
Interestingly, however, despite huge activity in the cancer space, only Human Genome Sciences can be loosely described as an oncology target.
This analysis also illustrates that these big premiums are far from just the territory of tiny deals where the percentages add up to relatively small amounts. The pharma sector is clearly prepared to pay up when a move is considered strategically important – seven of the transactions above breached the $1bn valuation mark, though admittedly in Tobira’s case only when the CVRs are included.
Still, while these premiums are eye-catching the deal values are dwarfed by the size of the acquirer. It is therefore no coincidence that that these buyers are almost all huge corporations – in market value at least. Allergan for example is capitalised at $95bn and, while executives will not offer these premiums lightly, in the end they can afford for the move to fail.
Judging whether these high premiums were worth it is another story. And while it is too soon to call for the likes of Meda and Synageva, the answer is unequivocal for Anadys, Idenix and Inhibitex – all ended up dry holes.
It is notable that Gilead paid the smallest premium for the biggest success story in this space, notwithstanding the fact it handed over by far the largest amount of cash. A closer look at Gilead’s M&A strategy elsewhere shows that the company is very willing to pay top dollar, but that this has only worked with Pharmasset.
It paid an 81% premium for YM BioSciences in 2012 and a 76% premium for CV Therapeutics, deals valued at $510m and $1.4bn respectively. In hindsight neither transaction was worth paying over the odds for.
But what about when the premium does start to matter, even to the big boys? The table below looks at $10bn-plus deals, and unsurprisingly here the layer of froth is decidedly thinner.
The success rate does seems to be higher, though – only the MedImmune deal looks to be a disaster. To make things worse, the premium is probably understated in this case, as the US biotech had effectively hoisted the for-sale sign two weeks before the Astra bid was disclosed.
However, companies with strong balance sheets can afford to overpay every now and again. And, as Gilead executives would probably agree, you have to be in to win it.
|Big premiums among the big deals|
|Acquirer||Target||Share price premium||Deal value ($bn)||Deal announced|
|Gilead Sciences||Pharmasset||89%||11.2||Nov 2011|
|Bayer||Schering AG||44%||21.3||Mar 2006|
|Allergan||Forest Laboratories||25%||28.0||Feb 2014|