M&A: 2017 proves snooze-worthy on the acquisition front

Pharma and biotech takeover activity slumps to a five-year low in 2017.

The lack of acquisitions in the biopharma sector left industry commentators struggling to come up with alternatives to the word quiet at every quarterly review, and with the full year firmly behind us, the only word to accurately sum up deal activity in the whole of 2017 is quiet. A paltry 167 deals were struck across the year, raising just $77.5bn according to EvaluatePharma (see tables below).

This makes 2017 the slowest M&A year of the last five. And things could have been even worse if Gilead Sciences had not swooped in for Kite Pharma for $11.9bn in the third quarter, putting an end to the dearth of sizable acquisitions since Johnson & Johnson’s early $30bn bid for Actelion back in January. With US tax reforms finally delivered many are hoping that 2018 will see a pick up in dealmaking, but with valuations creeping back up there are good reasons why bigger drug makers could continue to sit things out.

Although the year is only a few days old, so far the signs do indicate continuing caution. JP Morgan, which in the past has been the starting point for the year’s industry deals, has disappointed. The only M&A activity announced around the conference was Celgene agreeing to buy an old Sanofi drug for $1.1bn and Novo Nordisk revealing it had been given the cold shoulder by Ablynx over its $3.1bn offer.

Five year M&A
Period  Combined deal value ($bn)  Deal count 
2017 77.5 167
2016 104.4 203
2015 188.9 290
2014 219.3 229
2013 79.5 226
Source: EvaluatePharma

While the fundamentals for deal-making remain strong, and arguably have been enhanced by the long-awaited tax reforms and continued cheap debt, some recent trends point to another quiet year for deal volumes.

Rather than megamergers, the sweet spot for the industry tends to be deals in the $1bn-$10bn range. Indeed 26 of these sized purchases were completed in the heady days of 2015; in 2017 this number plummeted to just eight. Even in what many considered the more ‘normal’ times of 2013 these manageable mid-sized deals were running at 14 a year.

M&A totals by valuation category 
<$250m  $250m-$1bn  $1-10bn  $10-25bn  $25+bn 
Year Count  Avg ($m)  Count  Avg ($m)  Count  Avg ($bn)  Count  Avg ($bn)  Count  Avg ($bn) 
2017 67 69 18 620 8 2.5 1 11.9 1 30.0
2016 72 54 28 564 14 2.8 1 14.0 1 32.0
2015 134 57 32 521 26 2.9 3 16.4 1 38.7
2014 86 47 35 524 23 3.6 1 16.0 2 49.3
2013 52 86 30 479 14 3.6 1 10.4 0 -
Source: EvaluatePharma

The falloff in deals in this bracket could be down to valuations, which have climbed steadily since 2016’s biotech selloff, leaving the Nasdaq biotech index up 18% over the course of 2017. The hobbling of several of the industry’s serial acquirers, the specialty pharma companies, might also have contributed to the drop. This analysis only includes acquisitions by pharma and biotech companies – it excludes medtech and diagnostic players, for example.

Interestingly, where companies have opened their wallets to do these more modest purchases, many of them have been acquisitions of divisions. For example Ipsen picking up Merrimack’s commercial and manufacturing infrastructure, with pancreatic cancer drug Onivyde being the main prize, and Melinta making a fourth-quarter raid on the Medicines Company’s infectious diseases business. Sawai Pharmaceuticals and Shanghai Pharmaceuticals also added chunks of other businesses to their core operations.

Biggest M&A deals in 2017
Date announced  Acquirer  Target  Status  Value ($bn)
Jan Johnson & Johnson Actelion Closed 30.00
Aug Gilead Sciences Kite Pharma Closed 11.90
Jan Takeda ARIAD Pharmaceuticals Closed 5.20
Apr Fresenius Akorn Open 4.30
Oct Novartis Advanced Accelerator Applications Open 3.90
Aug Bristol-Myers Squibb IFM Therapeutics Closed 2.32
Nov Shanghai Pharmaceuticals Holding Cardinal Health's China business Open 1.20
Jul Mitsubishi Tanabe Pharma NeuroDerm Closed 1.10
Apr Sawai Pharmaceutical Generic pharmaceuticals business of Upsher-Smith Laboratories Closed 1.05
Jan Ipsen Merrimack’s commercial & manufacturing infrastructure for Onivyde Closed 1.03
Source: EvaluatePharma

Those willing to spend more have largely chosen to invest in oncology companies and products. Although J&J and Gilead were the most obvious in their desire to increase scale in this white-hot area, Takeda and BMS were also keen to get in on the act, with their purchases of Ariad Pharmaceuticals and IFM Therapeutics, respectively. Novartis, however, took a slightly different tack with its $3.9bn gamble to give it a presence in the world of radiopharmaceuticals, in the process saving the fourth quarter from being one of the weakest for M&A in over 10 years.

Sentiment overall across the biopharma sector is far from weak, helped by a seemingly friendly FDA, drug pricing falling lower down the US administration’s agenda, and the added incentive of tax-reform. Optimism could be boosted even further by a return to deal making.

But the fact that 2018 has started with a whimper rather than the bang, at JP Morgan at least, indicates that for now an already cautious industry is remaining just that.

To contact the writer of this story email Lisa Urquhart in London at lisau@epvantage.com or follow @ByLisaU on Twitter

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