Brexit Shock Dodged by U.K. Pharma as Innovation Spurs Dealsby
Companies such as Martindale, Morningside said to explore sale
Pharma companies seek to cash out despite market volatility
As the U.K.’s vote to leave the European Union wreaks havoc on the economy, dealmaking momentum in the country’s pharmaceutical industry is showing no signs of letting up.
Health-care acquisitions in the U.K. have risen 21 percent this year as total mergers and acquisitions fell 43 percent in Britain and dropped 16 percent worldwide, according to data compiled by Bloomberg. The industry, which was one of the strongest contributors to last year’s record-breaking $3.6 trillion of global M&A, is being propelled in part by a weaker pound, that’s making British assets more attractive, and by a vital need to keep pipelines supplied with new, moneymaking treatments.
“The global nature of the sector provides a natural hedge against perceived headwinds,” said Vincenzo di Nicola, managing director and senior health-care investment banker at Robert W. Baird & Co. “At this level of exchange rate, U.K. and European companies are cheaper for U.S. trade buyers.”
Much of the dealmaking is happening with specialized companies that ship globally, like Martindale Pharma, an English drugmaker that provides medicines used by emergency rooms. That company is working with advisers to explore options, including a sale, which could fetch more than 200 million pounds ($264 million), people familiar with the matter said. Martindale itself bought Viridian Pharma, another U.K.-based firm, in July to expand its product portfolio.
Morningside Pharmaceuticals Ltd., another English drugmaker, which makes generic medicines for the National Health Service and international markets, is also exploring a sale, said the people, who asked not to be named because the deliberations are private. That sale, which is at a preliminary stage, could fetch about 300 million pounds, they said.
A representative for Martindale declined to comment. Morningside didn’t respond to e-mails and calls seeking comment.
“Health-care deals in the U.K. remain insulated from Brexit,” said Henry Elphick, chief executive officer of health care market intelligence provider LaingBuisson in London. Global pharmaceutical and med-tech businesses “benefiting from a weaker pound makes for a resilient sector.”
On a larger scale, Teva Pharmaceutical Industries Ltd. is selling a portfolio of drugs in the U.K., Ireland and Iceland as part of its divestiture plans from its $40.5 billion acquisition of Allergan Plc’s generics business, people familiar with the matter have said. The sale of the portfolio could fetch about $1.5 billion and has attracted interest from both companies and buyout firms, they said.
GlaxoSmithKline Plc is forming a joint venture with Google parent Alphabet Inc.’s life-sciences business to explore using electrical signals to treat diseases, the company said in a statement Monday. The U.K.’s biggest drugmaker also announced plans last month to invest 275 million pounds at manufacturing sites in the country to boost production of medicines, mostly for export.
Ziarco Pharma Ltd., a U.K. biotechnology company whose investors include Pfizer Inc.’s venture capital arm, is exploring a sale after its experimental dermatology treatments attracted interest from potential buyers, people with knowledge of the matter said in June. That business could fetch more than $1 billion, one of the people said at the time.
“Health care is one of several sectors in which we would expect M&A to be active, driven by companies pursuing innovation, looking for growth by expanding their markets and seeking economies of scale,” said Andy Ryde, the head of corporate at law firm Slaughter & May in London.
To be sure, the health industry isn’t the only sector that needs deals to drive innovation. Technology deals in the U.K. are up more than 200 percent this year, and the three biggest deals were announced in July, according to data compiled by Bloomberg.
Most of the spending increase can be attributed to SoftBank Group Corp.’s agreement to buy Cambridge, England-based ARM Holdings Plc for 24.3 billion pounds, securing a slice of virtually every mobile computing gadget on the planet and future connected devices in the home. MasterCard Inc. agreed to buy VocaLink Holdings Ltd. and Hellman & Friedman LLC invested in Genesys Telecommunications last month.
“Brexit could represent an opportunity for foreign buyers seeking growth as some U.K. assets are looking very attractive now from a valuation standpoint,” said Jacky Scanlan-Dyas, a partner at Hogan Lovells in Tokyo. “The SoftBank acquisition of ARM could also serve a trigger for other transactions.”