Business
M&A: activity continues apace
within pharma
The general outlook for M&A may be shrouded in uncertainty caused by the current fi nancial turmoil,
but in the past 12 months pharmaceutical M&A has shown few signs of a slowdown.
The conservative nature of pharma has meant that M&A in the sector has been more resilient
than the general trend in other industries, reports Sita Shah
P
harma M&A activity over the past year pharma companies were relatively cash rich renewed interest in the sector, the share
has remained an important business and were exploring strategic options outside prices of pharma companies have
strategy. Roche’s proposed takeover of their home turf to make acquisitions. This is underperformed for some time, reflecting
Genentech, valued at $43.7 billion, for part of a wider trend of Japanese corporates investor concerns about patent expiries,
example, exceeds AstraZeneca’s $15.6 billion re-entering the M&A market, he added. regulatory risks and an unwillingness to put
acquisition of MedImmune, one of the More importantly, the challenges of value on pipelines. Generally, investors no
biggest deals of 2007. Other recent high- declining growth on the back of patent longer believe in over-capitalised pharma
profile transactions show that several expiries, the need to cut costs and growing balance sheets, they want more cash back
companies are prepared to pay the full price investor pressure have meant that pharma’s from these cash-generative companies in the
or above the odds for acquisitions. For need for M&A activity remains as strong as form of dividends and buybacks.”
example, some analysts believe that Lilly has ever. Dr Chris Phelps, head of company
overpaid for ImClone Systems at $6.5 billion, analysis at Datamonitor, says that for the first growth through diversification
or $70 per share. In an uncertain financial time in decades, pharma is experiencing a In recent years, pharma’s move into biologics
climate, price may cause some potential decline in sales and has nothing obvious to has tended to dominate M&A activity, as the
bidders to withdraw from an acquisition, but replace these drugs in terms of like-for-like industry looks to replenish its pipeline and
there will always be others queuing up to fill sales. As a result, pharma also has to diversify protect itself against patent expiries. An
the space. its business model, a strategy that has been industry outlook by Moody’s Investor Service
Unlike many other sectors, pharma is cash under way in the past few years, while at the in August 2008 said that companies with
rich. The Japanese firm Takeda announced same time having to keep investors on side. heavier exposure to biopharmaceutical drugs
that it had $20 billion to spend on At a time when investors are either fleeing had more protection against generic
acquisitions or licensing agreements in cash. from the stock markets or can be more competition because biosimilars had a more
In April 2008 it bought US-based Millennium choosy about the stocks they pick, pharma difficult path to approval. For example, Roche
Pharmaceuticals for $8.8 billion, still leaving it needs to prove that it can deliver results. has an advantage through its majority
with a substantial amount to spend on other Doug McCutcheon, managing director of shareholding in Genentech as the patents for
deals. Shane Griffin, partner of healthcare investment banking at UBS in Mabthera (rituximab) and Avastin
corporate/M&A and co-head of law firm London, says that pharma, traditionally (bevacizumab) run until 2013 and 2020
Linklaters’ healthcare team, says the rising regarded as a defensive-growth sector, is respectively.
influence of Japanese companies generally now producing single-digit or in some cases And the past 12 months have shown that
has been a noticeable trend in recent negative topline growth and is also now the move into biologics is continuing
months. Until the most recent significant associated with higher risks. “While recent unabated, shining examples being Lilly’s
downturn in the global economy Japanese market conditions have resulted in some acquisition of ImClone and Roche’s bid for
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