The number of biopharma deals and mergers and acquisitions completed are on a downward slide quarter-by-quarter, although when taken as a whole, the industry in 2019 has completed as many transactions and is hitting a higher deal value than the year before, while M&A values are up by 32%.
Data collected by BioWorld and Cortellis Deals Intelligence (CDI) indicate that 327 deals during the third quarter is the lowest number of the last five quarters, a decline of nearly 27% since deal volume peaked at 447 in the fourth quarter of 2018.
The $46.7 billion value of those deals, however, puts the third quarter of 2019 at the top for the past 11 quarters, and brings the total value of $121.1 billion for the first three quarters of the year above the $119.5 billion for all of 2018, including its fourth quarter. 2018's value was significantly more than that of 2017, which logged $81 billion for the year. (See Biopharma deal value and volume by quarter, below.)
By this time last year, there were 24% more deals that in total were worth 23% more than at the end of the third quarter of 2017. When comparing the first three quarters combined for each year, data from 2019 show a jump over 2018 of 25% in deal volume (1,151 vs. 917) and nearly 63% in deal value ($121.1 billion vs. $74.3 billion).
Deals include all collaborations, licenses and joint ventures worldwide, as well as asset purchases and company stakes.
While the values show a positive trend overall, the general feeling among some industry watchers is that the lower volumes of both deals and M&As is troubling. Although the interest in dealmaking has risen since 2017, biopharma executives have become increasingly gun-shy when encountering certain deal thresholds.
"The first half of 2017, the transactions were incredibly slow," said Adam Golden, an M&A attorney and partner at Hogan Lovells in New York. "There was just nothing going on. That was mostly driven by Trump just coming into office, and a lot of questions on tax reform and health care reform. It was just dead. Clients weren't calling. Midway through the year, it started to pick up."
But while Golden's clients are now very active in initiating new deals, many of those deals fail to come to fruition.
"My phone is ringing. New deals are coming in and new clients are coming in, but then they sit," he said. "Clients are being cautious and there is a high rate of deals that don't make it across the finish line."
Third quarter deals
According to BioWorld and CDI data, two of the largest deals of the year occurred in the third quarter. Without their $20 billion combined value, the quarter would have been more in line with the third quarters of 2017 and 2018, although still ahead for the year.
At the top is Thousand Oaks, Calif.-based Amgen Inc.'s $13.4 billion buyout in August of Summit, N.J.-based Celgene Corp.'s Otezla and related assets. In July, Mechelen, Belgium-based Galapagos NV and Foster City, Calif.-based Gilead Sciences Inc. agreed to develop GLPG-1690 for idiopathic pulmonary fibrosis, with an option to develop GLPG-1972 in the U.S. for osteoarthritis and other clinical programs outside of Europe. The deal value is the third largest for the year at $6.525 billion.
Squeezed in between those two top deals for 2019 is the March partnership between Daiichi Sankyo Co. Ltd. and Astrazeneca plc, worth $6.9 billion, to develop and commercialize Daiichi's antibody-drug conjugate, DS-8201, against HER2-expressing cancers worldwide.
Two other deals that made their mark in the third quarter include a $2.1 billion agreement between Silence Therapeutics plc and Mallinckrodt plc to develop and commercialize SLN-500 with an option for up to two RNAi therapeutics against autoimmune diseases worldwide, and a $2 billion deal between Skyhawk Therapeutics Inc. and Genentech Inc. to discover, develop and commercialize small molecules for oncology and neurological diseases using Skystar's technology platform worldwide.
The largest deal in August, worth $1.59 billion, occurred between Immatics Biotechnologies GmbH and Celgene to develop and commercialize T-lymphocyte cell therapies for multiple cancers worldwide. One of the largest in September, valued at $1.15 billion, was for Grunenthal GmbH to develop and commercialize Mesoblast Ltd.'s MPC-06-ID for chronic low back pain in Europe and Latin America.
Other notable deals during the quarter include the $1 billion July deal between Sosei Heptares and Genentech to discover, develop and commercialize G protein-coupled receptor modulating small molecules and biologics for a range of diseases worldwide. Sosei formed a similar deal in August with Takeda Pharmaceutical Co. Ltd., worth $1.23 billion, and focused initially on gastrointestinal disorders.
Analyst Stephen Barker and his team at Jefferies initiated coverage of Takeda and other companies that are part of the Japan pharmaceutical sector late in the quarter.
"Global spending on pharmaceuticals is rising as the population grows and affluence spreads," the team's report states. "Meanwhile, accelerating innovation across the life sciences is creating new opportunities. Japanese pharma companies are in our view a very attractive way to profit from these trends."
Some reasons the team values the sector is because "the Japan pharma industry earns the majority of its profits overseas, either directly or through licensing. Global exposure is being further enhanced by M&A deals, including Takeda's highly accretive acquisition of Shire Pharmaceuticals and Sumitomo Dainippon's planned acquisition of several potential blockbusters from Roivant Pharma."
Takeda acquired Shire in January for $62.32 billion. Sumitomo Dainippon Pharma announced in September its plan to buy Roivant's Myovant Sciences, Urovant Sciences, Enzyvant Therapeutics and Altavant Sciences, plus a 10% stake in Roivant, for $3 billion.
M&A deals in Q3
Another large M&A deal still waiting in the wings is Bristol Myers Squibb and Co.'s $74 billion offer to buy Celgene, which was announced in early January. Completion is expected by the end of the year.
The 34 completed M&As in the third quarter of 2019 are a mediocre showing, considering five other quarters in the last three years are above that number and two others in 2018 tied with the same amount. The first and second quarter of 2019, however, are the two top quarters for M&A completions during the three-year span, and the $23.1 billion value of M&As in the third quarter are well above the $11.9 billion and $10.2 billion values for the third quarters of 2017 and 2018, respectively.
The numbers are deeply affected, however, in the first quarter by the Takeda/Shire merger, as well as the $8 billion Eli and Lilly Co. acquisition of Loxo Oncology Inc. Together, those two M&As account for about 88% of the value in the first quarter, and about 59% of the value so far this year. Without them, M&A values in 2019, at $49.7 billion, pale in comparison to the first three quarters of each of the two prior years of $57.5 billion in 2017 and $85 billion in 2018. Even with the two mega-mergers, the $120 billion M&A value so far this year is still well below the $256.4 billion M&A value of 2015.
The data include 138 completed M&As in the first three quarters of 2019 vs. 138 for all of 2018 and 125 in 2017. (See Biopharma M&A value and volume, 2017-2019, below.)Depending on how one looks at the data, however, some are optimistic about how the full year will play out. The research team led by Geoffrey Porges at SVB Leerink looked at M&A transactions for the 20 largest biopharma companies over the last decade, focusing exclusively on therapeutics acquisitions. They found that the companies spent or committed $714 billion in M&A since 2009. They expect about 20 deals involving those companies in 2019.
The team said in its report that global biopharma M&A activity is at a 10-year high, with "the full year announced transaction value likely to approach or exceed $250 billion."
Indeed, the $74 billion BMS/Celgene merger alone, expected to close in the fourth quarter, could bring the M&A value at close to $200 billion. BioWorld and CDI data currently list 45 pending M&As valued at $165.5 billion.
"Both transaction count and size have increased substantially since 2017, indicating companies are consolidating and expanding through M&A at a faster and more aggressive pace," the report said, noting that three large pending M&As make it unlikely the surge will end anytime soon. "The factors behind this consolidation – customer consolidation, pricing pressure, increasing R&D competitiveness, globalization – are still affecting the industry, and with hundreds of biotechs and a couple of dozen large companies, the industry remains relatively fragmented."
Large completed M&As during the third quarter include: Pfizer Inc.'s purchase of Array Biopharma Inc. for $11.4 billion in July; Merck & Co. Inc.'s buyout of Peloton Therapeutics Inc. for $2.2 billion in July; Taisho Pharmaceutical Co. Ltd.'s $1.6 billion purchase of BMS's UPSA business with an option in July; and Boston Scientific Corp.'s acquisition of BTG plc for $4.3 billion in August.
Aside from the BMS/Celgene deal, other large pending M&As include Abbvie Inc.'s $63 billion bid for Allergan plc, and Roche Holding AG's $4.8 billion offer to buy Spark Therapeutics Inc., which has been held up due to an asset overlap in their hemophilia A franchises.
"A divestiture seems more likely than not, although the best candidate/asset remains a point of debate," said Difei Yang, managing director at Mizuho Securities USA LLC, in a research note. "Overall, we believe the deal is more likely to close than not."
Glimpse into the future
Data collected by BioWorld and CDI show that the high values of both deals and M&As follow a year in which there was a record amount of money raised for the industry through IPOs and venture capital financings. While much of the value in the last few years can be attributed to mega-deals, the flow of money in 2018 and so far in 2019 could support more favorable financial terms in both future deals and M&As for biopharma companies.
"I think there is a correlation between M&A market and the venture financing environment," Golden said. "It's hard to know how the timing works out. If it's a really strong year on the venture side and there's private money available, how long does that take to have a measurable impact on the M&A market?"
A robust VC and IPO market creates more leverage for small biopharma companies that are negotiating M&A deals, he added.
The types of deals that seem to intrigue interest are those driven by platform technologies, such as gene editing, as well as those focusing on next-generation CAR T therapies and artificial intelligence. Companies looking to bulk up their manufacturing capabilities for gene therapies and biologics are also another big area of interest, Golden said, as are companies considering orphan drugs or niche markets.
"You do see some consolidation on the consumer side, on the generic side, and companies deciding, OK, I'm going to get out of the generics business or the small-molecule business and focus on gene therapy, oncology, orphan indications," Golden said, "because even in a challenging pricing market, that's where I'm likely to get the best value, or the best return on investment."
Although the volume of deals and M&As appear to be falling by the quarter, there is nothing specific to suggest the biopharma industry is moving into a dealmaking lull.
"There are some things on the horizon that could cause that," Golden said. "As the U.S. looks at pricing, companies could become nervous about that. We do have the election on the horizon which could depress transactions until we see how that shakes out. But at the end of the day, the fundamental drivers of deal activity remain."