Pity the poor deal banker, trying to pitch M&A ideas in a period of huge demand for biotech IPOs and while the sector is awash with financing options. Why would a young drug maker sell out to a bigger company in these circumstances, without a huge sum of money being placed on the table?
This reality is surely having a huge impact on the biopharma buyout scene at the moment, where innovative upstarts are finding themselves in strong negotiating positions. The valuations that these fledgling companies are commanding are clearly too rich for the bigger beasts of the sector, who are responding by staying away from M&A.
Other deals are certainly happening. The licensing scene remains very active, partly because deals over individual assets are the only way that larger partners are able to access desirable projects (Pharma content to lease rather than buy, August 29, 2018). But in terms of clean takeovers, underlying activity has remained stubbornly low over the last two years, a couple of standout deals notwithstanding.
Were it not for Takeda’s bid for Shire this year the numbers would look even direr. The $64bn deal is worth more than all of the other M&A transactions combined so far this year. The Japanese company’s uncharacteristically aggressive move has probably saved 2018 from becoming one of the poorest M&A years for some time, in terms of dollars committed.
In terms of deal volume, 2018 will undoubtedly end up being one of the quietest in recent memory. EvaluatePharma registered only 36 company acquisitions, stake purchases or business unit buys in the third quarter, the second slowest three month-period since at least 2010. This data encompasses only companies involved in developing human therapeutics – it excludes medtech or broader healthcare firms.
|Five year biopharma M&A|
|Period||Combined deal value ($bn)||Deal count|
Of the deals that did get announced in the third quarter, Alexion takes the crown with its takeover of Syntimmune. Even so, the $1.2bn figure is not cash committed at this stage – the deal involved only $400m upfront. The target of the deal was Syntimmune’s mid-stage anti-FcRn antibody SYNT100, a hot mechanistic area right now. Alexion managing to negotiate a relatively prudent price tag in these times of plenty is another notable aspect of this deal (Alexion adds to rare disease pipeline, September 26, 2018). Overall, the dearth of $1bn-plus transactions over the last three months really stands out.
The real question is what will trigger any uptick. Those who assumed that tax reform or the easing of pricing concerns would tempt buyers back into the market have been proved wrong, though in fairness few could have predicted that the IPO opportunity would remain open for such a length of time, or the vigour of demand for high-risk new issues.
All things remaining equal, it is hard to see deal bankers lives getting noticeably busier in the coming months. But markets are cyclical and the power will swing back to the buyers eventually. When it does, they will find a substantially larger pool of young biotechs in which to fish.
|Biggest M&A deals announced in Q3 2018|
|Aurobindo Pharma||Sandoz’ US derm & Gx oral solids bus.||Open||1.0|
|Emergent BioSolutions||Adapt Pharma||Open||0.7|