FirstWord Lists: Pharma M&A – or lack of – in Q1

M&A has a symbiotic relationship with company valuations, highlighted by the current period of downturn that the biopharma sector finds itself in; a series of acquisitions could act as the catalyst in reviving sector performance, but both buyers and sellers are cautious towards valuation.

Pharma M&A activity last year was valued in excess of $300 billion (see 2015 In Review: The year in pharma M&A and at $234 billion in 2014, which was more than three times the level recorded a year earlier. With the largest acquisitions announced during the first quarter of this year amounting to around $41 billion, the M&A party appears to be winding down.

Furthermore, over three quarters of first-quarter M&A value is accounted for by Shire's $32 billion acquisition of Baxalta – a deal that was initially proposed by the UK drugmaker in mid-2015, when a sharp downturn in M&A activity was unimaginable.

It is worth remembering that last year's record breaking deal haul was also dominated by one event: Pfizer's acquisition of Allergan for $160 billion, a deal which has still not been completed and continues to attract scrutiny from regulators. Furthermore, the acquisition of Allergan removed one serial acquirer from the fold, which has contributed to the slow-down in deal making. Valeant Pharmaceuticals has also seen its aggressive M&A growth strategy unravel over the past six months, which has contributed to sector malaise in the process.

Shire's ongoing acquisition of Baxalta is likely to attract scrutiny of a different type following last week's confirmation that the salary of CEO Flemming Ornskov was more than quadrupled at the time Shire initiated its approach. The company was concerned about losing Ornskov to a competitor, its recently published annual report notes; investors will be hoping that Ornskov can retain the impressive growth in Shire's market cap he has presided over now that the company has likely exhausted its recent spate of acquisitions – or any nagging feeling that its aggressive pursuit of Baxalta is designed to shield the company from lower-than-expected returns on its other deals.

While the majority of companies have been willing to wait and see where valuations settle, Mylan's acquisition of Meda – the only other billion dollar-plus play announced during the first quarter – reflected a need on Mylan's part to join the generic M&A bandwagon that it missed last year.

Other deals have been smaller, but notable for various reasons. Bristol-Myers Squibb continues to make bold early-stage moves and its recent acquisition of Padlock Therapeutics represents a second success story for CEO Michael Gilman, who previously led the Biogen-acquired Stromedix. Acorda's acquisition of Biotie Therapeutics showcased the role of small and medium-sized players at the vanguard of central nervous system drug development, while Novartis strengthened its biosimilar portfolio by acquiring Pfizer's biosimilar version of Remicade, which is currently in Phase III development. Pfizer was asked to divest the product as a result of another deal; its acquisition last year of Hospira.

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