If first-quarter data are anything to go by, M&A activity in the pharma industry looks to be running at full throttle. The $36.5bn in deals announced in the first three months of 2014 represents the biggest quarterly spend over the past seven years – excluding mega-mergers – and is already almost half of the $76.6bn paid out over the whole of 2013.
The recovery in the wider financial markets also looks be reflected in the numbers, with the last four quarters each generating total deal values of over $20bn, a feat not achieved since the start of the banking crisis. Of course the start of 2014 would have been a much more modest affair had it not been for the $25bn takeout of Forest Laboratories, which cemented Actavis’s transformation into a speciality pharma company (see tables below).
If comments from Valeant about future deals in the speciality pharma space are to be believed then competition for assets here is unlikely to wane, putting 2014 on course to become a bumper acquisition year (JP Morgan Healthcare Conference 2014 – Valeant’s success sees others copy the tax trick, January 17, 2014).
The table below shows that most of the activity so far this year has indeed been companies snapping up speciality assets, as mid-cap groups dominate the M&A space. These data exclude any acquisitions of companies with no involvement in pharmaceuticals – so pure medtech buys or the acquisition of animal health or infant nutrition assets are not included.
|Top five M&A deals announced in Q1 2014|
|Rank||Acquiring company||Target||M&A deal type||Deal status||Deal value ($bn)|
|1||Actavis||Forest Laboratories||Company Acquisition||Open||25.0|
|3||Forest Laboratories||Aptalis Holdings||Company Acquisition||Closed||2.9|
|4||Mallinckrodt||Cadence Pharmaceuticals||Company Acquisition||Closed||1.4|
|5||Sanofi||Alnylam Pharmaceuticals||Minority Stake||Closed||0.7|
Although a big step down from the $25bn committed by Actavis, Nestlé’s $3.6bn offer for Galderma is still sizeable. However, although Galderma does have prescription psoriasis products, the deal was ostensibly struck for its range of consumer skincare brands, especially the group’s acne products, so it only just earns a place in this analysis.
One transaction that was a clear speciality pharma deal was Forest’s last bite of the M&A cherry before it was itself snapped up by Actavis. Forest paid out $2.9bn for Aptalis Holdings in a move that gave it Zenep for pancreatic insufficiency, which has no generic competitors, and the anti-ulcer drug Carafate. Interestingly, Actavis, one of the names in the frame as a possible Aptalis suitor, gave it a pass.
Mallinckrodt started the year by opening its purse for Cadence Pharmaceuticals, paying $1.3bn, essentially for one product (Mallinckrodt pays through the nose for popularity, February 12, 2014). The company again this week demonstrated its need to shore up declining core sales with a surprise top-dollar $5.6bn offer for Questcor Pharmaceuticals.
These sky-high price tags reflect the intense competition in the speciality space, as companies look for stable earnings and the lack of generic competition.
The serial speciality acquirer Valeant was absent from the quarter’s league tables, as were big pharma, again. But, while the giants of the industry have lost much of their acquisition appetite after the easing of the patent cliff, Valeant has not.
Chief executive Michael Pearson has publically declared his desire to make the company one of the five biggest drug makers by the end of 2016. If he is to achieve this he will have to strike a lot more deals, a task that might be made harder by the growing interest in speciality assets.
However, it will take more than the intervention of Mr Pearson to keep the volume of transactions growing. Deal values might be setting records, but the number of transactions struck in the first quarter – 33 – was substantially below the average quarterly run rate since 2007 of 44. With assets prices still sky high and the biotech bull run filling companies full of cash and confidence, potential buyers and sellers are likely to find it very hard to agree on valuations.
Still, the markets are showing no sign of recovering from the March wobble at this stage. A sustained period of more tempered enthusiasm could well pursuade those hoping for an exit to consider their options.
|Five-year pharma and biotech M&A activity|
|Period announced||Deal value ($bn)||Deal count|
|2010 (excluding Novartis-Alcon)||69.4||189|
|2009 (excluding mega-mergers)||42.3||167|