Pharmaceutical M&A turned its focus on biotech targets to seize late-stage assets. Generics and animal health were further key areas of interest.
According to a global survey conducted by KPMG in collaboration with Mergers & Acquisitions Magazine pharmaceuticals/biotechnology are expected to be among the top three industries most active in M&A in 2017.
KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain moderately strong in pharmaceuticals.
Pharmaceutical deal making remained buoyant despite a decline in landmark deals. Pharmaceutical players favored aspiring biotechs over conventional pharma assets. The value of deal activity decreased in comparison to the previous year: top 10 completions by 31%, top 10 announcements by 93%. US and China were the most active countries.
A series of biotech acquisitions, offering promising late-stage assets with blockbuster potential, were among the major transactions in 2016. Six of the top ten deal completions and 31% of the total sector acquisitions were biotech deals (versus 27% in 2015).
Shire PLC led the way with the landmark acquisition of Baxalta Inc. for $32.0 billion, accessing a distinctive portfolio of treatments for rare diseases and a cancer drug business. Previously, Shire had picked up Dyax Corp. for $6.5 billion, adding promising late-stage rare disease compounds. Both deals strengthen Shire’s position as a world leader in rare diseases.
Pfizer Inc. bolstered its oncology sales by acquiring Medivation Inc., a biotech specializing in cancer medication, for $14 billion. Pfizer also bought Anacor Pharmaceuticals Inc. for $5.2 billion, adding a topical gel under FDA review for which analysts predict best seller potential in dermatology.
AbbVie Inc. bought Stemcentrx Inc. to expand its oncology business in a deal worth $9.8 billion – one of the five biggest acquisitions ever of a venture capital-backed company. Acquiring a stake in Acerta Pharma BV for $4 billion, Astra Zeneca PLC complemented its immunotherapy portfolio, accessing a late-stage inhibitor for blood cancers and multiple solid tumors.
In late December 2016, Johnson & Johnson and Actelion Pharmaceuticals Ltd. confirmed exclusive talks regarding a potential strategic transaction. Actelion is a leader in pulmonary arterial hypertension, a disease which affects 100,000 people in the US and Europe.
In 2016, big pharma engaged in strategic additions to their pipelines, aiming to stabilize growth despite patent expirations. A total of around $250 billion sales are at risk between 2016 and 2022. For example, AbbVie’s Humira, the currently top-selling drug in the world, is likely to be impeded by various biosimilars. The FDA accepted a biosimilar application by Amgen. Merck & Co and Pfizer are also developing similar treatments.
Patent expiries also drive generics. From October 2015 to September 2016, the FDA received 60% more Abbreviated New Drug applications for generics compared to the previous year. Generics sales are expected to rise from $80 billion in 2016 to $103 billion in 2020 as these replace the original drugs. For example, Pfizer lost exclusivity for Lipitor in 2011, one of the best-selling drugs of all time. Lipitor’s annual sales plunged from $11 billion pre patent loss to $2 billion in 2015.
In 2016, Teva Pharmaceutical Industries Ltd. led the consolidation in generics by acquiring Allergan PLC’s generic drug business for $40.5 billion, solidifying its global leadership. As a precondition, the FDA requires Teva to sell over 75 drugs. The European Commission has requested several divestments including Actavis PLC’s British and Irish subsidiaries, which were part of Allergan’s purchase of Actavis. Accord Healthcare Ltd. agreed to acquire the latter.
Deal activity in the animal health market was led by C.H.Boehringer Sohn AG & Co. KG (BI). BI announced a $25 billion asset swap with Sanofi SA in 2015 under which it receives the animal health business Merial from Sanofi in exchange for its consumer health business.
BI has already initiated certain divestments to facilitate the regulatory approval process.
In Q3 2016, BI announced the divestment of its US feline, canine and rabies vaccines portfolio as well as its US manufacturing and R&D site to Elanco Animal Health Inc. for $0.9 billion. BI has also announced the sale of various assets including vaccines and pharmaceuticals for swine, bovine and companion animals to Ceva Santé Animale.
Pharmaceutical shares experienced high volatility in 2016 in the wake of Brexit and the US election with the Europe 500 Pharma Index falling 11.2% over the year.
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