2018 started with a bang, with the US Tax Cuts and Jobs Act providing a predicted $160bn cash boost. Businesses have been realigning their strategic focus, pushing into rare disease therapies and personalised medicine. The value and volume of deals in H1 were higher than in the full year 2017. However, a slow second half puts us a long way off 2015’s record numbers.
The big spenders
A few players have dominated M&A. Novartis chalked up the year’s first mega deal, exiting its Consumer Healthcare JV with GSK ($13bn), refocusing its Sandoz division by selling portions to Aurobindo ($1bn) and its cystic fibrosis products to Mylan ($500m). The proceeds were spent quickly, bolstering its neuroscience business with the $8.7bn acquisition of AveXis (gene therapy) and $2.1bn acquisition of Endocyte (personalised cancer treatment).
Celgene bought Juno Therapeutics ($9bn) for its pioneering Car-T therapies and Impact Biomedicines ($7bn), again for a rare blood disorder.
M&A is helping Sanofi establish market leadership. The $11.6bn acquisition of haemophilia specialist Bioverative was Sanofi’s largest deal since the 2011 $20bn purchase of Genzyme. This was followed by the $4.8bn acquisition of Ablynx and the £1.7bn sale of generic business Zentiva to private equity house Advent.
Alexion Pharma followed its April $900m acquisition of Wilson Therapeutics by buying Syntimmune for $1.2bn. Both deals help rebuild pipeline and diversify its clinical-stage rare disease portfolio.
Roche’s February $1.9bn acquisition of Flatiron was followed in June by the $2.4bn payment for the remaining shares of Foundation Medicines. Both companies improve Roche’s personalised medicine offering while the $800mn acquisition of Tusk Therapeutics expands its oncology pipeline.
Eli Lilly acquired ARMO BioSciences ($1.6bn) and AurKa Pharma ($600m), ramping up its oncology pipeline.
Any review of 2018 isn’t complete without mentioning Takeda’s $62bn acquisition of Shire, the sector’s second largest ever deal which propels Takeda into the pharma global top ten. Shire’s rare disease portfolio helps Takeda, which is struggling with patent expiries and lack of late stage molecules in development. Takeda also acquired TiGenix (stem cell therapy development) and sold its Guangdong Techpool JV. Shire sold its oncology business to Servier ($2.4bn).
Since June, deal activity at the large end has slowed. The largest deal has been Merrick’s $2.3bn acquisition of AI Medical. Total deal value in Q3 was less than half that in Q1 and Q2.
What’s slowing down M&A? Valuations for small and medium sized biopharma businesses, especially in sought-after fields like oncology, remain sky high. A record number of IPOs has given venture capital funders continued confidence, meaning early stage developers have more funding options and do not have to sell up. There are, however, several big deals on the cards. Allergan should be selling its infectious disease units and women’s health business, and cannabis appears to be the new vogue, with MedMen announcing the largest cannabis acquisition in US history spending $600m on medical-marijuana retailer PharmaCann.
Tom Cowap is a director at Alantra and a specialist in the pharmaceutical sector
