Sector News

Big pharma: dealing with fewer biotech targets

January 4, 2016
Life sciences

The torrid pace of consolidation among drugmakers is bound to slow at some point. But that doesn’t mean deal bankers and lawyers will be idle in 2016.

There have been more than 2,000 announced deals over the past two years within the pharmaceuticals and biotechnology sectors world-wide, according to Dealogic, for a total consideration north of $750 billion. This wave has arisen as big pharmaceutical companies hunted for promising biotechs as a way to conjure growth.

The pace isn’t likely sustainable. Consider that the second-most prolific two-year period of biopharma deals, in 2008 and 2009, yielded less than half the recent deal volume.

But even if volume falters, prices for targets might continue to rise. And that holds risk for shareholders in big pharma companies on the prowl, of which there are many.

For instance, Shire continues its pursuit of Baxalta, which sports a market value of $27 billion. Amgen has said it is on the hunt for a purchase of up to $10 billion. Gilead Sciences, meanwhile, sports a pile of cash and equivalents above $25 billion as it grapples with the maturation of its juggernaut hepatitis C franchise, which accounts for more than half of revenue in the 12 months ended Sept. 30.

And hunters need deals that are big enough to move the needle on growth. There are fewer of those around. For example, there are now just seven companies within the Nasdaq Biotechnology Index that sport a market value between $5 billion and $10 billion, according to FactSet. Over the past two years, 14 deals have been struck for a total transaction value in that range, winnowing the number of such candidates.

As the number of big targets dwindles, along with a multiyear biotech bull market, prices are rising. Earlier in December, AstraZeneca announced a $4 billion deal to acquire a 55% stake in closely held Acerta Pharma, a clinical stage biotech.

Meanwhile, the macroeconomic environment is still supportive of consolidation. Corporate borrowing costs remain low, despite the Federal Reserve’s move to raise interest rates for the first time in a decade. Economic growth is tepid, and the biggest pharma companies still face a future of slow growth.

So buyers will probably have to be prepared to pay more or be willing to take chances on products in earlier stages of development. That is good news for investors in potential prey.

But there is a clear danger for big-pharma shareholders: As deals get pricier, it will be tougher to add value.

By Charley Grant

Source: Wall Street Journal

Related News

June 13, 2021

Making drug-resistant bacteria susceptible to antibiotics

Life sciences

Antibiotic resistance remains one of the biggest public health challenges. New drugs are still needed to tackle tough-to-treat bacteria. But finding new therapeutics to kill off pathogenic bacteria has been difficult.

June 13, 2021

Vexed by vectors: How COVID-19 vaccine and cell and gene players are tackling the viral vector bottleneck

Life sciences

Viral vectors are engineered viruses used to deliver gene therapies, gene-modified cell therapies and certain vaccines. And their shortage is already upon us, thanks to manufacturing approaches that simply haven’t kept pace with the advance of cell and gene therapies.

June 13, 2021

Beigene expands into cancer cell therapy with Shoreline pact

Life sciences

Beigene, a fast-growing drugmaker based in Cambridge, Massachusetts and Beijing, will partner with Shoreline Biosciences to develop cell therapies for cancer, expanding its research beyond the small molecule and antibody drugs.

Send this to a friend