A flurry of deal making towards the end of 2019 meant that the opening months of this year were already unlikely to see much M&A among drug makers. And then the coronavirus arrived.
Still, the first-quarter numbers are far from desperately low, suggesting that the real impact of the pandemic and resulting global lockdown will be seen in the coming months. Gilead’s $4.7bn takeout of Forty Seven in early March rescued the period from obscurity, and investors must hope that similar bolt-on deals continue to happen this year; the chance of more sizeable transactions getting off the ground is surely close to zero.
As well as straight company takeouts, this analysis also counts minority and majority stake purchases, acquisitions of business units, reverse mergers and options, and these are aggregated in “other deals”. The numbers also only concern deals between dedicated drug makers – diagnostics and medtech transactions are excluded – and do not cover licensing transactions.
The latest data from EvaluatePharma show that the volume of transactions fell to at least a four-year low in the opening months of 2020. Similarly slow periods have been reported in recent years, particularly following a strong previous quarter, and the final months of 2019 were certainly buoyant, with 10 $1bn-plus transactions announced (A big finish confirms 2019 as a takeover year to remember, January 8, 2020).
In any case, the pandemic will probably only really started hitting businesses in Europe and the US in March. This means that second-quarter numbers will be needed to start properly assessing the impact on M&A.
A look at the money deployed on these transactions, below, illustrates the strength of the late 2019 spike, particularly in terms of whole company takeouts. This also shows that the opening months of 2020 were far from disastrous, when held up against activity over the past four years.
After the Forty Seven deal, Lilly’s move on Dermira was the next biggest transaction in the first quarter; the rest of the top five were unit sales of legacy businesses, and were unlikely to have got biopharma investors’ hearts pumping.
M&A is still happening – Horizon bought Curzion for $45m up front last week – but one has to assume that negotiations in these cases had already started in the pre-Covid 19 world. It is hard to imagine that executives are keen to initiate complex takeovers in the current climate – if only because future valuations are hard to pin down, even before considering the logistical challenges.
A silver lining for buyers is that suppressed valuations will create opportunities, and perhaps this will provide sufficient motivation for some to overcome the barriers that the pandemic is throwing up. But for now it is very hard to know how long the disruption will go on for, and many organisations have more pressing concerns to contend with.
|Biggest M&A deals of Q1 2020|
|Acquirer||Target||Deal value ($m)|
|Hypera Pharma||Takeda's OTC & Rx portfolio in 7 S. American countries incl. Brazil||825|
|Dr. Reddy's||Wockhardt's branded generics business in 5 Asia countries incl. India||259|
|ANI Pharmaceuticals||Amerigen's US generics business||78|