Pharmaceutical M&A was impacted by stock market volatility, while new US regulatory rules struck down the $160 billion Pfizer-Allergan merger.
Oncology and dermatology were key areas of interest for big pharma, who were especially keen on acquiring biotech assets.
KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain moderately strong in pharmaceuticals.
The total value of the top 10 completed deals in HY1 2016 amounted to $67.2 billion versus $190.4 billion in HY1 2015. Only one transaction was above the $10 billion mark. Pharmaceutical firms focused on smaller targets, especially biotechs, to strategically reposition in high growth markets. US remains the most active country.
Major pharma players aimed to increase their presence in promising markets in HY1 2016. M&A activity was focused on therapy areas which are expected to grow strongly in the upcoming years.
Oncology is one of the growth markets for the industry, projected to more than double in size by 2022 with global revenues expected to increase from $83 billion in 2015 to $187 billion by 2022.
AbbVie Inc. is expanding its oncology business through the acquisition of Stemcentrx Inc., a Silicon Valley biotech. Its main asset is Rova-T, a late-stage lung cancer drug, which has been submitted to the FDA for a breakthrough therapy designation. The deal is worth up to $9.8 billion and is one of the five biggest acquisitions ever of a venture capital-backed company.
AbbVie substantially entered into the oncology business through the acquisition of Pharmacyclics Inc. for $21 billion, one of last year’s blockbuster deals. Through both deals, the US-based company decreases its reliance on Humira, the world’s best selling drug for rheumatoid arthritis which accounted for about 60% of AbbVie’s sales in 2015.
Pharma giant, Sanofi S.A., is looking to ramp up its oncology division, which contributed a mere 4% to its revenues in 2015. The French drugmaker launched a public offer to acquire Medivation Inc., a biotech specialising in oncology, for $9.4 billion. Despite its offer being rejected, Sanofi is looking to engage the Medivation Board into talks. It has in fact initiated a consent solicitation to remove and replace the Medivation directors.
Jazz Pharmaceuticals PLC placed a $1.5 billion bid to acquire Celator Pharmaceuticals, Inc. whose main asset is Vyxeos, a treatment for leukemia which has been granted a breakthrough therapy designation. Other major deals in oncology include the closing of Shire PLC’s acquisition of Baxalta Inc. for $32 billion in Q2 2016 which is to date the largest deal of the year. Baxalta recently put a strong focus on its cancer drug business. Additionally, AstraZeneca PLC acquired a majority stake in oncology biotech Acerta Pharma BV in Q1 2016 for $4 billion.
Novartis AG, stressed the importance of its oncology business by splitting the pharma division into two separate units, one focused on cancer drugs, the other on the remaining pharmaceutical business as, for instance, neuroscience and ophthalmology. Novartis is one of the market-leaders in oncology after acquiring GSK’s oncology business for $16.0 billion in 2015.
While dermatology is one of the smaller pharma markets, it has significant upside potential. Market size is expected to double from $12 billion in 2015 to $24 billion by 2022, mainly driven by ageing western societies. Today’s market fragmentation and rising product complexity is driving market consolidation.
Dermatology has been a strong focus area for Mylan N.V.’s expansion strategy this year, targeting complementary portfolios to add to its existing assets. The US-based company acquired the dermatology business of Renaissance Acquisition Holdings, LLC for $1.0 billion in Q2 2016. Prior to that in Q1 2016, it announced that it would acquire Meda AB for $7.2 billion.
After terminating its mega-merger with Allergan PLC, Pfizer Inc. is exploring options to bolster its drug pipeline. In Q2 2016, the leading US pharma company acquired Anacor Pharmaceuticals Inc. for $5.2 billion. The deal provides access to crisaborole, a topical gel for the treatment of eczema currently under review by the FDA and expected to hit the market in 2017. Analysts predict the gel will become a best seller in the dermatology market, thus earning Pfizer a spot among market leaders.
One of Pfizer’s main competitors in the field is Leo Pharma A/S, which ranks among the Top 5 dermatology players. Pursuing a strong growth strategy, Leo acquired Astellas Pharma Inc.’s dermatology business for $0.7 billion in Q2 2016, enabling new market entry into China and Russia and increasing sales by more than 20% to around $1 billion.
While domestic deals continue to dominate Chinese pharmaceutical M&A activity, two of the top 10 announced deals involve Chinese acquirers pursuing foreign targets in HY1 2016.
Shanghai Fosun Pharmaceutical (Group) Co. Ltd proposed the $1.3 billion acquisition of Gland Pharma Ltd., the first FDA approved Indian injectable drugs producer. Over the last ten years, only two Indian targets were acquired by Chinese investors, both by AIF Capital Asia III LP of Hong Kong. Also, Chinese Creat Group Corp. offered to invest $1.2 billion in Bio Products Laboratory Ltd., a leading UK-based manufacturer of plasma therapies.
While the S&P 500 Pharma (+4.5%) and the Bloomberg Asia Pacific Pharma (+1.2%) slightly rebounded from their falls earlier this year, the Bloomberg Europe 500 Pharma (-6.0%) did not recover in HY1 2016.
The sub-par performance was driven by declines of major players such as Roche AG (-7.3%), Novartis AG (-7.7%), and Bayer AG (-20.3%). Valeant Pharmaceuticals Inc. lost 81.3%. The industry’s best performing stock was Johnson & Johnson Corp. (+18.1%).