At first glance, takeover activity in the third quarter looks to have rebounded to the level seen at the beginning of the year. But nearly two thirds of the total $63bn spent came from one big acquisition: Teva’s purchase of Allergan’s generic business.
Take this out of the mix and the remaining $23bn would have been even lower than the second quarter’s lacklustre total. As it stands 2015 looks unlikely to live up to last year, one of the biggest ever for M&A – particularly if the recent stock market downturn leaves companies cautious about spending money.
The first nine months of 2015 have seen bigger bucks spent than a year ago: $158.4bn versus $123.6bn. This also means that this year has already eclipsed 2009, the second-biggest year for deals in the past decade.
However, the tail end of 2014 put it in a different league entirely, with a monster fourth quarter that would be difficult to replicate. Several hostile takeover approaches remain unresolved, and if one or more come off this would push up 2015’s mega-deal tally. But investors should probably not hold their breath, with the Teva-Mylan-Perrigo merry-go-round looking particularly intractable.
|A decade in deal making|
|Year announced||Deal value ($bn)||Deal count|
|Note: data include mega-mergers.|
Apart from the Teva-Allergan deal, the rest of the last quarter’s acquisitions came in under the $10bn mark, echoing the trend for smaller buys seen in Q2 (M&A keeps up feverish pace in first half of 2015, July 15, 2015).
But, although Teva’s acquisition stands out in terms of value, it illustrates a broader move towards generics – perhaps not surprising as drug pricing comes under increasing scrutiny. Two other generics deals made the top 10: Hikma’s acquisition of Boehringer’s Roxane Laboratories and Lannett’s purchase of Kremers Urban Pharmaceuticals.
|10 biggest pharma and biotech M&A deals announced in Q3 2015|
|Deal announced||Acquirer||Target||Deal status||Value ($bn)|
|Jul||Teva Pharmaceutical Industries||Generics business of Allergan||Open||40.5|
|Jul||Hikma Pharmaceuticals||Roxane Laboratories||Open||2.8|
|Sep||Concordia Healthcare||Amdipharm Mercury Company||Open||2.1|
|Sep||Lannett Company||Kremers Urban Pharmaceuticals||Open||1.2|
|Aug||Valeant Pharmaceuticals||Sprout Pharmaceuticals||Open||1.0|
|Jul||Valeant Pharmaceuticals||Amoun Pharmaceutical||Open||0.8|
Valeant Pharmaceuticals, another speciality pharma/generics player and a big spender in recent years, has taken a different direction, splashing out $800m on Egypt’s Amoun Pharmaceutical, giving it a doorway to the Middle Eastern and African markets. It is wise to look to new areas for growth amid the clamour over price gouging; Valeant has been under fire as one of the worst culprits.
Valeant was the only company with two top-10 deals: it also bet $1bn on the uncertain but potentially lucrative new market of female sexual dysfunction by buying Sprout Pharmaceuticals.
While Sprout might be a risky proposition, at least its drug Addyi has already got the nod from the FDA, something that is looking increasingly unlikely for Dezima’s lipid-lowering candidate, the CETP inhibitor TA-8995.
Amgen might be regretting its purchase after Lilly’s evacetrapib became the third project in the CETP class to fail in clinical trials this week (Lilly’s evacetrapib failure the end of the road for CETP? October 12, 2015).
Now Dezima and Merck & Co are the only companies with late-stage CETP assets. Amgen could be kicking itself that it did not instead acquire Esperion, which is working on a rival approach, ACL inhibition.
Lilly’s evacetrapib failure has highlighted the sparseness of its pipeline – its other big hope is the equally improbable Alzheimer’s contender solanezumab.
The company is notable in its absence from the M&A tables, being the only big pharma player not to have struck a deal over the past three years. Indeed, its last big buy in pharma was the $6.5bn acquisition of ImClone Systems back in 2008.
All this would be academic if Lilly’s homegrown projects were faring a bit better, but right now M&A is starting to look like the only way forward (Another fail for Lilly’s labs – time to make a deal? October 13, 2015). The company needs to put its hand in its pocket, and soon.
But Lilly is not alone in eschewing acquisitions – large purchases are becoming increasingly rare for big pharma and, once again, speciality and mid-sized companies dominate the listings. And this trend should continue as defensive deals drive consolidation of the mid-tier players.
|The industry's big spenders – three-year M&A bill|
|Company||3yr spend ($bn)||3yr deal count||M&A ranking|
|Merck & Co||14.4||5||10|
|Total 10 big pharma||105.7||64|
|Other big drug makers (market cap ≥$20bn)|
|Teva Pharmaceutical Industries||45.3||7||2|
|Total 88 non-big pharma||337.7||251|
Of course, as we saw in the third quarter, everything can change with one big purchase. The question is whether there will be another one before the year is out.