Mergers and acquisitions have always been a regular staple in the biotech industry. However, the speculation that a “land grab” for attractive and product rich biotechnology companies would gather steam in the third quarter has not panned out so far. In fact, the list of companies that investors are betting on that will be take-out targets remains longer than the actual number of consummated deals.

Although the third quarter data was padded by the marquee deal that saw Amgen Inc. acquire South San Francisco-based Onyx Pharmaceuticals Inc. for a purchase price of $10.4 billion, the period recorded only 13 mergers and acquisitions, where financial terms were revealed, for a collective total of $13.4 billion in deal values, according to BioWorld Snapshots.

Thanks to the Amgen acquisition, this amount was 12.6 percent higher than the $11.9 billion of M&A deal values in the same period last year. This was the only bright spot because M&A deals were few and far between in the first half of 2013 generating a mere $5.5 billion as opposed to $28 billion in the first half of 2012.

Year-to-date M&A deal values have totaled $18.9 billion, a 52 percent drop from the $39.8 billion from deal values in the same period of 2012.

The lack of “billion dollar” acquisitions this year has certainly contributed to the low deal value even though deal volume has remained about the same year-over-year.

One of these deals saw Johnson & Johnson’s (J&J) takeover of Aragon Pharmaceuticals Inc. for $650 million in cash and $350 million more in potential milestone payments that brings aboard the Phase III-ready ARN-509 for castration-resistant prostate cancer (CRPC) behind the pharma firm’s approved androgen inhibitor Zytiga (abiraterone acetate) for the same indication. (See BioWorld Today, June 18, 2013.)

The other potential $1 billion deal was the acquisition of Pearl Therapeutics Inc. by Astrazeneca plc, which paid $560 million up front for the Redwood City, Calif.-based company that is developing a therapy for chronic obstructive pulmonary disease (COPD). Pearl launched a Phase III trial of PT003, a combination of a long-acting muscarinic antagonist (LAMA), glycopyrrolate, and a long-acting beta-2 agonist (LABA), formoterol fumarate. The triple-combo drug would add a corticosteroid to the LABA/LAMA mix. (See BioWorld Today, May 15, 2013.)

A further $450 million more is included in the deal, if all development and regulatory milestones are met with the triple-combination therapies. Another $140 million could be generated if all sales goals are reached, which puts the possible value of the agreement at $1.15 billion. (See BioWorld Today, June 11, 2013.)

Just shy of the $1 billion M&A valued deal was Allergan Inc.’s purchase of MAP Pharmaceuticals Inc. in a cash deal, acquiring the company’s shares at $25 each. The transaction valued MAP at approximately $958 million, with the offering price representing a 60 percent premium over MAP’s closing price of $15.58 in January. (See BioWorld Today, Jan. 24, 2013.)

Betting on Deals

With large public biotechs seeing their share prices push to new heights, potential shoppers for these companies will need deep pockets to purchase some of these companies because they will not come cheap when premiums to their current elevated share prices are factored in.

That has not stopped the speculation on the Street that more big deals are in the works, especially now that the Amgen/Onyx transaction set the premium price “needle” for others to follow.

For example, buyout speculation for two companies in the rare diseases space – Alexion Pharmaceuticals Inc. and Biomarin Pharmaceutical Inc. – has pushed up the valuation of both companies.

Shares of Biomarin hit $80 late September, but has since drifted down again, closing at $68.55 on Oct. 10, putting its market cap at $9.6 billion.

Movement in the shares to those new highs was linked to the buzz that Basel, Switzerland-based Roche AG might be arranging a debt financing to snag the biotech.

Deutsche Bank analyst Robyn Karnauskas wrote in a research update that Roche “is lining up $15 [billion] in debt financing for an M&A in rare disease space. This article noted that Biomarin could be the target citing the valuation in $95-$105 range.” (See BioWorld Today, Sept. 20, 2013.)

A deal in that neighborhood sounded reasonable, according to Karnauskas. She wrote that, assuming 25 percent synergy in R&D and overhead expenses, Biomarin’s fair valuation would be approximately $92 per share.

Speculation about a Biomarin acquisition came just a couple of months after Roche was thought to be targeting rare disease developer, Alexion, of Cheshire, Conn. In mid-July, Reuters reported that unnamed sources said the pharma was seeking financing for a potential bid. (See BioWorld Today, July 16, 2013.)

So far nothing has come of either speculation. If Roche were to opt for Alexion today then it may have to come up with around $25 billion to acquire the company. On October 10, Alexion’s shares closed at $108.67 putting the company’s market cap at over $21 billion.

With all the problems swirling around Washington D.C. currently and the nervous capital markets it is likely that any potential blockbuster M&A deals being contemplated will remain in a holding pattern.

Buyers will be hoping that the rise in biotech company valuations may now have peaked in the prevailing uncertain financial environment and playing a “waiting game” could pay off in lower deal costs down the road.