Pharma M&A may see 'banner year' in 2017, EY predicts

Dive Brief:

  • Pharma will surely feel the squeeze of pricing backlashes and increased negotiating power among payers in 2017, and a primary result of that will be more M&A — perhaps much more.
  • That's according to a report released Monday from professional services company EY. While global deal levels have averaged $200 billion annually since 2014, the company predicts 2017 could be a "banner year" in comparison.
  • The "EY M&A Outlook and Firepower Report 2017" also said that M&A would contribute to another trend: the refining of pipelines, as big companies work to either acquire businesses in promising therapeutic areas such as oncology and rare disease or shed assets that are extraneous or not as profitable.

Dive Insight:

Pharma M&A activity over the past few years appears to have set a new benchmark, settling in at nearly double the average volume in the decade prior to 2014. This is indicative of a new standard spawned by a "structural evolution toward externalizing R&D and an acute response to the power exhibited by U.S. payers in the past few years," the report said.

Big players are sure to enlist or bring in palatable biotechs to fulfill their research and expansion needs, EY argues. The company predicts there are at least 50 potential biopharma targets, with 10 that could garner at least $100 billion if acquired.

As for payers, their reach is evident across several therapeutic areas. The increasing competition found in the diabetes market, for example, has pushed drugmakers to get in good graces with formulary managers, as seen in Eli Lilly's partnership with Express Scripts.

"More than any other time in the past several years, big pharma companies have the firepower advantage necessary to execute on the acquisitions they require to bolster revenue and drug pipelines," the report said. "And more than any other time in the past several years, those deals are necessary."

While the debt brought on by the high levels of M&A in recent years would normally dampen overall firepower — or a company's capacity to enter a deal based on its balance sheet — the aforementioned pressures of the industry should keep the dealmaking fire alive. Also helping that argument are large cash reserves held by companies like Gilead, Amgen or Johnson & Johnson that could easily be put toward acquisitions. 

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Filed Under: Mergers and Acquisitions / Deals Corporate News