- Fewer mega-deals in 2017 contributed to a four-year low in the amount spent on pharma, medical and biotech M&A, according to a new report from intelligence firm Mergermarket.
- Last year, there were 1,490 pharma, medical and biotech deals collectively valued at $265 billion — representing an 8.4% market share of global M&A. Those figures were down from 2016, when such deals accounted for $284.8 billion and 8.7% market share of global M&A.
- Within the sector, medical led in deal count with 984 transactions across 2017, while biotech scored its highest deal value year on Mergermarket record at $71 billion. Conversely, pharma declined in both categories for a second straight year, and hit its lowest level of deal value since 2011.
M&A has been a vital tool in those pursuits. Big-ticket transactions abounded in 2014 and 2015, as AbbVie Inc. snagged Pharmacyclics Inc. for more than $20 billion and Allergan plc entered a $66 billion merger with Actavis Inc. as well as announced it sold off its generics business to Teva Pharmaceutical Industries Ltd for $40 billion.
The days of the giant deal were limited, however.
While 2016 and 2017 were still solid years for dealmaking — with each recording total deal values of more than $200 million — the industry largely turned to less expensive transactions amid economic and political changes in Europe and the U.S.
"In recent times uncertainties have spurred major pharma companies to pursue smaller deals with more regulatory certainty and less financial and tax risk," Mergermarket said in its report.
"But while smaller deals are important for new product development, they do not move the needle in synergies and product growth that the hyper-competitive pharmaceutical industry thinks it needs to maintain profits."
Looking to 2018, the industry has mixed feelings about the year's M&A outlook.
Some expect an upswing in large deals as new U.S. tax laws incentivize drugmakers to repatriate billions of dollars kept offshore. Mergermarket and other analysis firms have also acknowledged a growing interest in biopharma from private equity groups — particularly those in China.
"Favorable equity markets and low interest rates will drive continued robust healthcare M&A activity in the first half of 2018," Mergermarket said in its report. "The market can expect big-ticket deals among insurers, hospitals and physician groups, particularly as pressure to scale and vertically integrate continues."
Others, however, assert the recent deal sprees have left the market with fewer viable takeout targets that would result in a mega-deal. What's more, it's hard to tell whether the industry will be able to shake the concerns that have arisen in recent years.
"[S]ome argue that regulatory and political uncertainty will put a damper on blockbuster M&A deals in the pharma sector in the coming year, with companies expecting a steady stream of smaller, less risky deals to enhance product portfolios," Mergermarket said.