According to the Q1 2014 trend report on Global Pharma, Medical & Biotech (PMB) published by MergerMarket earlier this month, PMB M&A activity totaled US $63.4 billion globally in Q1 2014, representing the second highest quarter in the sector since Q4 2010. Indeed, not only did Q1 2014 numbers represent a significant increase compared to the previous quarter (activity was up 54.4% compared to Q4 2013), but a 345.5% increase from the same period last year.
Closer to home, North America also saw a remarkable amount of M&A activity in the sector in Q1 2014, being the most active region in the PMB sector for the fourth consecutive quarter and accounting for 78.9% of total PMB deal activity. Interestingly, more than half of North American PMB deal activity was within the pharma sub-sector, which saw the average deal size increase 913.1% compared to last year. This increase was due in large part to the Actavis-Forest Laboratories deal, but there were also 10 other transactions which, collectively, amounted to US $30.6 billion, over 20x the value in Q1 2013.
And it looks like more big deals are on the way for big pharma.
A recent article in Newsday suggests that there will continue to be an uptick in deals in the pharma sub-sector as a result of drugmakers' efforts to satisfy shareholders:
The deals partly reflect a push by the pharmaceutical industry to boost sales and cut costs as drugmakers look for ways to return to the growth investors have come to expect after the bullish last two decades, when they continually churned out new blockbusters, drugs with annual sales of more than a billion dollars.
It also suggests that drugmakers may be looking to M&A as a means to avoid the fates of certain of their competitors who saw their revenues flat line over the past few years as generics entered the market. Swiss drugmaker Novartis AG, for example, is awaiting generic competition to Diovan, its blockbuster blood-pressure drug — perhaps having something to do with its recent announcement that it will be trading its vaccine business for GlaxoSmithKline Plc's cancer drug business and selling its veterinary drug business to Eli Lilly and Co.
But Novartis isn't the only drugmaker to enter the M&A space recently. Canadian drugmaker Valeant Pharmaceuticals International Inc. is partnering up with activist Bill Ackman in a bid for Botox-maker Allergan for approximately $45 billion. There's also speculation over a potential bid by Pfizer for AstraZeneca worth up to $100 billion. A recent article Financial Times titled Big Pharma Deals are Back in the Mix explains the appeal of a possible Pfizer-AstraZeneca transaction:
Put together, the pair would rival Johnson & Johnson as industry number one. AstraZeneca has been struggling in recent years as blockbuster drugs have lost market exclusivity. A further $9bn of annual sales are set to drop off the "patent cliff" in the next three years when its Nexium heartburn pill and Crestor cholesterol treatment run into generic competition.
Notwithstanding the significant increases in M&A activity in the PMB sector recently–and especially within the pharma sub-sector–critics suggest that pharma megamergers cause untold disruptions to pharma companies and ultimately decrease value to shareholders. A recent report published by McKinsey refutes this suggestion, and, to the contrary, concludes that pharma megamergers not only bring about positive returns to shareholders but are also "critical for the longer-term sustainability of acquirers". The McKinsey report and the benefits of M&A within the PMB sector will be canvassed in more detail in an upcoming post to this blog.
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