Deal-depressed third quarter leaves nowhere to hide

Megadeals flattered the biopharma M&A scene in the first half of 2019, but the numbers took a nose dive in the third-quarter.


First, the good news for deal bankers and investors: in dollar terms 2019 is already the biggest year for biopharma M&A since 2015, the peak of the biotech boom.

But the bad news is that the $182bn spent on acquisitions so far this year has mainly been down to the Bristol-Myers Squibb-Celgene and Abbvie-Allergan megadeals. There were no big-ticket buys in the third quarter, exposing an M&A market that looks decidedly stagnant.

Indeed, the last time so little was spent on acquisitions was the first quarter of 2013. This analysis only looks at drug makers, and excludes medtech companies or genomics specialists. It also includes minority and majority stake purchases, business unit acquisitions and option deals, as well as whole company takeouts.

Perhaps the third-quarter numbers represent a collective pause after the spending spree of early 2019. And at least the number of deals, if not their value, ticked up again.

But with only 36 purchases in the most recent quarter, still one of the smallest quarterly deal counts in recent memory, there could be renewed worries about the underlying level of M&A activity (Biopharma set for a big buyout year – on dollar terms at least, July 9, 2019).

Perhaps buyers are waiting for valuations to fall even lower before they bite. The likes of Biohaven and Uniqure have been touted as takeover targets this year, but still do not look like bargains.

Desperation can force an acquirer’s hand, however. A case in point is Lundbeck’s $2bn purchase of the migraine player Alder Biopharmaceuticals, the biggest deal of the third quarter. The Danish group needed a reasonably priced CNS asset, and Alder, with its fourth-to-market CGRP inhibitor and a sinking valuation, fitted the bill.

This was only one of three third-quarter deals to hit the billion-dollar mark: the others were Gilead’s R&D deal with Galapagos, which included a $1.1bn equity investment to take Gilead's stake in the group to 22%, and Vertex’s purchase of the type 1 diabetes player Semma, a risky early-stage bet on which the jury will be out for some time.

Biggest M&A deals announced in Q3 2019
Date announced  Acquirer  Target  Status  Value ($bn)
September Lundbeck Alder Open 2.0
July Gilead Sciences Galapagos* Closed 1.1
September Vertex Semma Open 1.0
September Swedish Orphan Biovitrum Dova Open 0.9
September Novartis IFM** Open 0.8

*Cost of acquiring a 22% stake as part of a licensing deal. **Option deal: the value relates to maximum takeout price, including an upfront fee that was not disclosed. Source: EvaluatePharma. 

The lacklustre third quarter could be a blip, but there is still time for the whole of 2019 to fall short, given that several big deals have not yet been sealed amid a clampdown from the US Federal Trade Commission on acquisitions seen as anticompetitive.

Doubts about Roche’s $5bn purchase of Spark are growing after that takeout was recently delayed yet again on antitrust concerns; the offer has now been extended until October 30. Meanwhile, the Abbvie-Allergan tie up was hit by a second request for information last month. It is unclear what the sticking points are, and Allergan had already said it would offload its pancreatic insufficiency drug Zenpep and its investigational anti-IL-23 MAb brazikumab, a potential rival to Abbvie’s Skyrizi.

At least the Bristol-Celgene purchase now looks likely to go through, after Bristol sold Celgene’s psoriasis blockbuster Otezla to Amgen in August, though the debt-exchange part of the deal was delayed by 10 days today.

Investors will hope that M&A activity picks up towards the tail end of this year, but a further slump could raise fears that the lull will continue into 2020 – particularly if regulators continue to bare their teeth.

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