Pharma, medical & biotech (PMB) M&A set a first half-year record during 2018’s first six months, according to Mergermarket’s H1 2018 report. A total of 727 deals took place during the period worth a combined $221.6 billion, dwarfing last year’s equivalent by 32.4% when $167.3 billion changed hands across 797 deals.
A more patient-centric approach and an outcome-based model, which looks at optimising healthcare costs by paying only for interventions that have proven efficacy, combined with a favourable financing environment have created the optimal ingredients to lure corporate and private equity investment.
Growing competition in the healthcare sector is also surfacing from non-traditional players, such as Amazon, who have made inroads into drug distribution through its $1 billion acquisition of US-based online pharmacy Pillpack in June.
The $79.7 billion tie-up between Japanese giant Takeda, and Ireland-based rare disease specialist, Shire, became the PMB sector’s largest deal on Mergermarket record. The acquisition will strengthen Takeda’s late-development stage pipeline, primarily in gastroenterology and immunology. It also comes at a time of uncertainty on haemophilia drug treatments, as Roche’s new gene therapy Hemlibra sets a new standard of care by outperforming existing Factor VIII prophylaxis treatments. The growing confidence in gene therapy for the treatment of haemophilia is also evidenced by Sanofi’s $10.9 billion acquisition in January 2018 of Bioverativ, which has a Phase I/II biologic for haemophilia A and a few early-stage candidates for various blood disorders.
The biotech space has seen remarkable growth in M&A activity over recent years, as targeted treatments, such as CAR-T cell therapies come closer to approval. The increasing investor appetite has been driven by the effectiveness of the treatments, despite ongoing concerns regarding the high costs.
Dealmaking in recent years in the biotech space has been increasing, by both value and volume. Since 2015, the subsector has seen its share of total PMB M&A value rising to 55.3% in H1 2018, accounting for 26.9% of the sector during the entire 2017 period. In the first half of this year, Mergermarket recorded 92 transactions worth a combined $122.5 billion, 30% higher than 2017’s full year value $71.9 billion, 194 deals).
The Medical subsector, which includes medical devices as well as healthcare facilities, such as hospitals, nursing homes, or rehabilitations centres, has also seen a sustained level of M&A in H1 2018. There were 480 transactions worth $45.7 billion in the first half of the year, maintaining the strong activity seen throughout 2017.
The opportunities and challenges arising from disruptive technologies have also led private equity firms to become increasingly active, further buoyed by the high levels of dry powder. Access to patient data and treatment options has derisked investment scenarios thereby drawing increased interest from private equity firms.
June saw the largest private equity buyout in the medical subsector since 2006, with KKR’s$9.4 billion take private of Envision Healthcare, illustrating the fierce activity around patient-centred care and the physician practice management space. There were seven buyouts over $1 billion in the first half of the year, a slight increase from the five seen over the same period last year.
Pharmaceutical M&A in the first half of 2018 was primarily driven by big pharma divestments. Shire sold its oncology portfolio to Les Laboratoires Servier for $2.4 billion and Sanofi divested its $2.2 billion generics portfolio Zentiva to Advent International in an effort to streamline operations and focus on drug development.
Furthermore, the uncertainty in the US with regards to drug pricing and tax reforms has driven dealmaking as players join forces to survive. For example, the consolidation of the pharmacy benefit management space with Cigna’s $67.6 billion vertical integration of Express Scripts announced in March is evidence of this. Compared to H1 2017, pharmaceutical M&A value increased 55.8% despite 12 fewer deals, reaching $53.4 billion across 155 transactions in H1 2018.
The medical cannabis space has also seen an uptick as stakeholders become more informed on its benefits through clinical studies. The growing confidence on cannabinoids as active ingredients for various conditions was crystallised this year with the first FDA-approved drug containing cannabidiol for the treatment of epileptic seizures. Among the largest acquisitions this year was the $2.2 billion takeover of MedReleaf by Vancouver-based Aurora Cannabis. With patients calling for a regulated environment for medical cannabis the sector may see increased confidence and therefore M&A and IPO activity.
By Olivier Gilkinet and Mintoi Chessa-Florea of Mergermarket