It's rare to see any drug company willing to shell out $74 billion on a target. And yet, on Thursday, Bristol-Myers Squibb did just that as it revealed plans to acquire Celgene. As is customary whenever a large biopharma deal happens, investors and analysts soon questioned whether this one would spark more big-ticket M&A within the industry.
The answer to that question isn't clear cut. Historically, there have been boom and bust periods of pharma mega-deals, defined by consultancy EY as being about $40 billion or more in value. There were five such deals from 2008 to 2010 and then none until Actavis' acquisition of Allergan in 2015.
But drug companies don't typically justify their dealmaking strategy by pointing to another deal. Rather, their reasoning tends to be rooted in broader trends. Around a decade ago, the industry was bent on diversification, spurring tie-ups like Sanofi-Aventis, Pfizer-Wyeth and Novartis-Alcon.
More recently, the trend has been to double down on core businesses. That should continue to drive life sciences deals, as drugmakers evaluate their portfolios and sell off non-core assets, according to a recent report from another consulting group, PwC.
"The large-scale deals that have happened — and are happening — are about making sure that people can create category leadership ... making sure that they can be number one, number two, number three in a certain therapeutic category," Glenn Hunzinger, pharma deals leader at PwC and one of the report's authors, told BioPharma Dive.
Among therapeutic categories, oncology is one where many pharmas are keen on taking a top position. But to reach that level, they'll need scale.
Bristol-Myers, for instance, noted its oncology business combined with Celgene's would have generated around $23 billion in the year leading up to Sept. 30. The new company would also hold two solid tumor blockbusters, two blood cancer blockbusters, as well as a diverse pipeline and larger research engine (though cuts are expected to come in R&D).
"Scale will begin to matter more," Peter Behner, EY's global life sciences transactions leader, told BioPharma Dive in an interview.
"You need to build digital capabilities, to work differently with payers and providers. Building these infrastructures costs money and requires capabilities that pharma [companies] don't necessarily have today," he said. "The Celgene-BMS deal has a lot to do with scale."
Though reflective of cancer drugmakers' hunger for scale and infrastructure, Behner said Celgene's takeover won't by itself cause more large transactions. Others have suggested the same.
"There is a misconception in the healthcare industry that once you see one or two really large mega-deals, that means you're going to see 10 more follow it," Omid Ahdieh, head of healthcare services investment banking at Wells Fargo Securities, said in November at the Forbes Health Summit in New York.
Still, some contend the buzz that surrounds big-ticket deals can be enough to energize the M&A landscape.
Hunzinger of PwC said that in general, large-scale transactions fuel more dealmaking. Michael Yee of Jefferies also noted the Celgene buy could raise the takeover target prospects of Gilead Sciences, Biogen, Alexion and Vertex Pharmaceuticals.
Fern Barkalow, director of oncology and hematology at market research firm GlobalData, suggested in a Jan. 3 note that if the new Bristol-Myers performs well over the next year, it could coax more companies to pursue similar purchases. Maura Musciacco, another director at GlobalData, had a similar take on Takeda's acquisition of Shire, noting recently that competitors will use the deal as a barometer for whether they too should engage in a big buy.
Threat to partnering
Outside of large deals, analysts expect Celgene's takeover to send some ripples through the small- to mid-cap dealmaking landscape because of the biotech's propensity for partnering.
Mega-deal $BMY & $CELG: good news for more big cap M&A speculation, but bad news for private & small-cap names as consolidation removes 1 of the most active buyers/deal-makers. These two bid against each other in many deals in past few years, and that's no longer going to happen— Bruce Booth (@LifeSciVC) January 3, 2019
Celgene is well known within the industry for its strategy of inking collaborations with dozens of emerging biotechs. According to a presentation released at last year's J.P. Morgan healthcare conference, the biotech recorded more than 40 collaborators, including Jounce Therapeutics, Agios and Bluebird bio.
Investment bank Leerink foresees two such collaborations possibly running into trouble.
China's Beigene gave Celgene exclusive rights last year to develop and commercialize its PD-1 inhibitor tislelizumab in solid tumors in the U.S., Europe, Japan and rest of world excluding Asia. Leerink said BeiGene management expects tislelizumab rights will be returned if the Bristol-Myers deal closes.
Agios is also working with Celgene through an immuno-oncology partnership. While Leerink doesn't anticipate the Celgene takeover as a risk to this program, analyst Andrew Berens conceded that "some disruption is possible as the acquisition closes."