What's Driving the Boom in Big Pharma Deals?

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May 6 (Bloomberg) -- Bloomberg's Jeff McCracken and Cristina Alesci discuss the increase in M&A activity in the pharmaceuticals industry with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Right now?

I call it, almost like a dance that is going on.

What you're seeing all these companies are looking to come together and separate, if that makes sense.

They're getting out of segments where they do not have much of a dominant position.

That is what mark is doing.

-- that is what merck is doing.

And they are trying to buy into other areas.

They are saying let's get more into over-the-counter.

This deal actually tells us something about valuations going forward.

If you look at how much bayer paid for this unit, it is double its own value in terms of multiple cash flow.

It kind of indicates maybe there is a hint of desperation to get the deal done now and with this deal, we had a bunch of bidders that were interested.

Santa fee was in there.

And then when they first toured in marketing, everybody thought it would go for $10 billion.

Today we are at 14.2. merck was less interested in how much cash they can get.

It was a big deal bayer was willing to develop and market some drugs with them.

So the could of salt more cash or a deal -- sought more cash or a deal.

Cash was not the issue.

Let's hear more from the ceo.

I should say bayer, that is the correct pronunciation.

Here is what he had to say in terms of his company and how merck will help bayer.

We have good or granite growth, we have a record first quarter.

It is not that we needed to do a deal, but merck put up its consumer business for sale and we have a strong position in over-the-counter medicines, with bayer aspirin and other products.

So this was a great opportunity for us to strengthen that business and truly become a global leader.

He mentioned bayer aspirin as we call it in the u.s., what does this mean having these companies together?

What does it mean for consumers and the prices they pay?

For the company, one thing that is standing out is that bayer is very strong in europe.

This gives them an incredible foothold in the united states.

It gives them a foothold where they did not have one.

Right, they leap ahead of johnson & johnson.

They were number two.

They now become number one.

Novartis has a venture they are pursuing.

With glaxo.

There is a frenzy going on.

You have novartis and glaxo, you have bayer, what is j and j going to do?

They have not done a lot of things.

They got out of a surgical unit.

And allergan is actually reaching out to see if there is any interest in a large game changing -- there is a little bit of hesitation whether jay and would be interested.

It is not in their dna to do these deals.

Today they said they are getting out of the botox space, which might put them in a better position.

So what does this mean for the future?

It sounds like there is other stuff in the pipeline and that people are becoming more aggressive.

These companies are willing to pay up.

You're noticing in the last several weeks how much knock on effect of areas in the transaction.

Look at comcast, that is one of the reasons they want to go after t-mobile because he thinks that deal opens him up for other situations.

At&t talking to directv.

And then you bring it back to pharma, pfizer is going after astrazeneca because they saw what they were doing.

One add-on is that we have seen a large resurgence in mna when it comes to pharma and telecom.

We have not seen natural resources come back.

There are rockets of activity, but it is not an in cross the board -- pockets of activity, but it is not an across-the-board revival.

We are going to see more because what is going on with merck, they want to focus on the higher-margin business and possibly get out of their lower margin businesses.

I mean there are older drug portfolios.

On the call today, they were asked about whether they want to shed their older drug portfolios.

He did not answer the question.

So it may be on the block.

Merck has established divisions.

Pfizer also.

They are worth multiple billions of dollars.

Those are old drugs that have been paid for.

It is just a nice cash flow.

Overall, investors should take this is a bullish market.

It is a good sign.

A good sign people are willing to put money to work and are willing to take these chances.

Especially at ec suite level -- the c suite level.

I'm going to poor reality, pharma has to do something.

Between 2013 and 2018, they are going to lose $50 billion in patent exclusivity lawsuits.

Just like media has to do something.

The good news is they are willing to do it.

It is a synergy that makes sense for them.

A little different than some of the deals we have seen for tax purposes, but if you can combine something that strategically make sense.

You need the confidence.

There is always a driver, patent cliffs, taxes, it is not just about one strategic or.

In the case of bank m&a, which is dead, no one wants to be too big to fail.


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