Drug Buying Spree Still Bustling as Pfizer Leads HuntCaroline Chen and Tara Lachapelle
After a record-breaking year of mergers and acquisitions in the health-care industry, bankers, venture capitalists and analysts say more is to come from companies such as Pfizer Inc. and Actavis Plc.
For big drugmakers, “the only real place they can find growth is through acquisition,” Jeff Stute, head of health-care investment banking at JPMorgan Chase & Co., said in a telephone interview from New York.
Investors will be listening for hints of coming deals at JPMorgan’s annual health-care conference in San Francisco next week. There, executives from more than 300 companies, including industry giants Merck & Co. and Roche Holding AG, will make presentations to fund managers and other attendees about the year ahead, while business development teams and bankers take over nearby hotel suites to meet with potential targets.
Drugmakers will likely be busy again after announcing a record $234 billion of acquisitions last year, almost triple the volume in 2013, according to data compiled by Bloomberg. Health-care mergers also led global takeover activity in 2014, a year defined by megadeals across various industries.
“2014 was clearly the year of the big deal,” Rich Jeanneret, Americas vice chair of transaction advisory services at EY in New York, said in a phone interview. “I think that’s going to persist in 2015 because there’s much more confidence in the M&A ecosystem.”
In health care, there are many reasons: The need for new products. Low interest rates have kept capital cheap. Discoveries in cancer have generated a new generation of treatments that big drugmakers are scrambling to acquire. Activist funds like Bill Ackman’s Pershing Square Capital Management have targeted companies for takeovers. None of those trends have changed in 2015.
Analysts say to keep an eye on Pfizer after its $117 billion hostile bid for AstraZeneca Plc failed last year. Actavis, Bristol-Myers Squibb Co. and GlaxoSmithKline Plc are possible alternative targets, as is AbbVie Inc. after it walked away from a more than $50 billion takeover of Shire Plc in October. Pfizer has also talked about a breakup into two or more separate companies.
Shire, meanwhile, has $4.4 billion NPS Pharmaceuticals Inc. high on its takeover list, people familiar with the matter said last month. Other companies said to be ripe for acquisition include Salix Pharmaceuticals Ltd. and Zoetis Inc. Ackman’s fund, which helped prompt 2014’s biggest deal, a $66 billion merger between Actavis and Allergan Inc., has a stake in Zoetis, which makes animal health drugs. Zoetis is said to be a good fit for Bayer AG.
Others companies are looking for new targets. Allergan’s deal with Actavis left its initial suitor, serial acquirer Valeant Pharmaceuticals International Inc., out in the cold. Valeant may now turn its attention to dental takeover candidates, according to a Cantor Fitzgerald report last week.
Big pharma will continue to search for prime assets to add to their pipelines, especially in immunotherapy, which harnesses the body’s immune system to fight the disease.
“There’s a new norm in the larger companies in the industry of outsourcing innovation,” said Kevin Starr, co-founder and partner at Boston-based Third Rock Ventures.
Pfizer agreed to pay $850 million for rights to Merck KGaA’s immunotherapy cancer drug last year, while Merck and Bristol-Myers received approvals for immunotherapy-based skin-cancer treatments last year, and a crop of biotech startups has joined the field.
“Oncology’s still the king of the hill and commands the broadest and deepest interest among buyers,” said JPMorgan’s Stute.
Tax Is Done
Tax inversions, which were behind some of the biggest deals of the past couple of years, such as those that gave Actavis and Valeant their tax-favorable jurisdictions, are now passe due to new regulations announced by the U.S. Treasury, said Stute. That means acquirers will need good strategic fits that complement their existing portfolios to justify transactions, he said.
Activist investors will also help to keep M&A activity ongoing. Pershing Square’s Ackman reaped about $2.5 billion from his stake in Allergan, even though it sold to Actavis instead of Valeant, the suitor he supported.
“Funds which have a lot of money are looking for more opportunities, and they’re going to look at the biotech and specialty pharma space,” said Myles Clouston, Nasdaq’s senior director of advisory services. Biotech valuations remained high even in the face of pricing pressure, and the Nasdaq Biotechnology Index finished the year up 34 percent, compared to the S&P 500 Index’s gain of 11 percent.
Absent other reasons, buyers may be prodded into action by continued low interest rates, which makes acquisitions one of the only ways to find growth, said Joe Rosenberg, a Nasdaq biotech and health-care specialist.
“We are not hearing anything that would suggest a decrease in acquirers’ M&A appetites heading into 2015,” he said.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.