Bristol-Myers Squibb's mammoth grab for Celgene. Eli Lilly's $8 billion bid for Loxo Oncology. It appears the beginning of what analysts predict will be a bountiful year for biopharma deals.
The predictions hinge on the staying power of catalysts that have spurred M&A in recent years. Large drugmakers haven't all found replacements for aging blockbuster franchises, leaving them on a hunt for the next breakthrough. And weaker returns on R&D investment should continue to promote the sale of non-core assets to free up research dollars for therapeutic specialties.
In any case, there's plenty of money for companies to work with. Consultancy EY recently noted how in 2018 life sciences companies used just 16% of their $1.2 trillion worth of firepower, defined as the debt, cash and other balance sheet items that can facilitate deals. Law firm Baker McKenzie, meanwhile, foresees healthcare transactions reaching $331 billion in 2019.
A big year for M&A isn't guaranteed, however. In 2018, a strong start tapered off as the months went by, leading total deal value across both life science companies and the larger healthcare sector to fall below EY and Baker McKenzie estimates. Which drugmakers are in a position to become acquirers is also in question — with little clarity offered from recent high-profile deals.
Buyers be where?
Celgene's takeout and, to a smaller extent, GlaxoSmithKline's purchase of Tesaro caused considerable buzz heading into the J.P. Morgan Healthcare Conference. The bellwether event's first day created even more noise as the Loxo announcement had Wall Street wondering whether similar biotechs would too see deal interest.
But what those three deals failed to do was paint a clear picture of biopharma's buyer landscape.

For example, shortly after its acquisition, Tesaro disclosed that GSK was the only company to submit a formal takeover bid during the roughly 18-month period where the biotech was reviewing strategic alternatives. Loxo also received a single takeover bid, though the speedy deal timeframe from Lilly's initial offer to the companies shaking hands makes it hard to gauge if another suitor would have come forward.
As for Bristol-Myers, the massive price tag on Celgene and the complicated process of merging suggests that if the deal goes through, then it will surely keep the new company off the big-ticket M&A market for a while.
That's not to say the current buyer pool is shallow.
PwC tallied 248 pharma and life sciences deals in 2018, including the purchase of Ablynx, a Belgian company focused on rare blood disorders that received bids from both Sanofi and Novo Nordisk. And buyers in the not-too-distant past proved willing to engage in bidding wars for the right target — like when six companies expressed interest in a Medivation transaction in 2016, with Pfizer being the ultimate winner and paying out roughly $14 billion.
Still, much of the recent chatter around buyers is speculation. Pfizer's been at the top of the rumor mill lately, with some proposing the company is interested in capturing Amarin and its fish oil pill, or even stepping in to acquire Bristol-Myers before the Celgene acquisition closes.
Gilead Sciences looks like a more surefire dealmaker, as its chief financial officer told investors at JPM the biotech's top priority for capital allocation is M&A.
Concentration on cancer
Whatever number of deals come in 2019, industry watchers anticipate a good chunk of them will target hot therapeutic areas and platforms like oncology and gene therapy.
"As we see some of these really cutting edge therapies get approved, I think we'll see pharma look to gobble up some complimentary technologies and companies," said Asher Rubin, global head of the Life Sciences Industry Group at Hogan Lovells, in an interview with BioPharma Dive.
That was borne out this past year, as Novartis bought AveXis and its spinal muscular atrophy treatment for $8.7 billion while Celgene inked a $9 billion deal for CAR-T specialist Juno Therapeutics.
Looking ahead, Credit Suisse's latest biopharma investor survey found cancer drugmakers Clovis Oncology and Incyte and gene therapy developers Sarepta Therapeutics and BioMarin are viewed as some of the most likely companies to get acquired this year.
The buzz surrounding Clovis stems both from the takeout of key rival Tesaro and from its CEO stating at JPM that the biotech is open to a potential acquisition. Sarepta, meanwhile, is quickly advancing its gene therapy for Duchenne muscular dystrophy (DMD) following a brief clinical hold last summer.
Martin Auster, a small- and mid-cap biotech analyst for Credit Suisse, noted during a Jan. 18 conference call that if Sarepta can prove its DMD gene therapy has strong efficacy and is in a first-mover position for marketing, then it "becomes a very attractive takeout as the company further de-risks the regulatory and ... manufacturing sides of this business, and that's what 2019 should be all about for Sarepta."
Auster also found it interesting that of the 41 investor responses about possible takeover targets, the findings were skewed toward larger companies in the small- to mid-cap biotech market.
Outside of pharmaceuticals, analysts have noticed considerable appetite for payer services, contract services and healthcare IT specialists.
"Our equity capital markets partners are frustrated because every time we go to get a healthcare IT IPO ginned up and ready to take to public market, a strategic comes in and offers to buy the company. I think that that is one of trends that will continue in the year forward," Cheri Mowrey, head of healthcare services investment banking at Morgan Stanley, said in December at the Forbes Healthcare Summit.
Bolt-on bonanza
Analysts from EY and Credit Suisse also expect a flurry of bolt-on deals this year. Notably, EY's latest firepower report determined such transactions accounted for 81% of deal volume and 43% of total deal value for life sciences M&A in 2018.
Bolt-ons are smaller acquisitions that, at least in pharma, typically happen because a buyer wants to build scale in a specific therapeutic area. They've been a popular deal type in oncology, particularly for companies trying to play catch-up to market leaders.
The Tesaro and Loxo purchases, for instance, hand each of their respective buyers targeted cancer therapies that could both broaden pipelines or serve as a platform to explore therapeutic combinations.
Even Takeda's recent mega-acquisition of Shire — widely seen as transformational for the Japanese pharma — can be viewed through the bolt-on lens. Andy Plump, Takeda's chief medical and scientific officer, noted in a January interview with BioPharma Dive that Shire's well-established businesses in rare disease and plasma-derived therapies shouldn't cause many R&D challenges as the two companies integrate.
"Rather than disrupt what we've already started, we kind of bolt on a part of Shire," Plump said. "I don't want to suggest that it's not complex, it's very complex. But I think we've created a foundation that allows us to now absorb the best parts of Shire in a way that's going to be very productive for our future organization."
On the other side of the ledger, sellers looking to offload pieces of their business that no longer drive revenue growth or fit into long-term strategies should create a pool of assets for bolt-on buyers. Last year alone saw Shire exit oncology, Johnson & Johnson ditch its diabetes diagonstics unit LifeScan, and Allergan put up for sale its women's health and anti-infectives businesses.
Buyouts are just one potential exit for early investors in biotech, however.
IPOs, or initial public offerings, can bring in hundreds of millions of dollars and provide an alternative path to capital beyond dealmaking.
Biotechs have turned to IPOs often, conducting more than 50 in 2018. Jordan Saxe, head of healthcare capital markets at Nasdaq, predicts 2019 will be another robust time for IPOs, with roughly 40 to 50 biotechs expected to hit the public markets.
"The foot may come off the accelerator a little bit depending on market conditions, but we're talking to over 250 companies globally that are looking to potentially go public in the next 24 months," he said in a Dec. 13 interview with BioPharma Dive.
A caveat applies there, though. The partial government shutdown has starved the IPO market so far this year, with important parts of the Securities and Exchange Commission shuttered.