In the first quarter after Britain voted to leave the European Union, life sciences deals took a nosedive–and while Asia booked impressive surges in M&A activity, the U.S. also saw a drop in deals as tax inversion rules and pricing pressures kick in.
First up, we cross the pond. In June, the U.K. voted in a major referendum to leave the EU, with the divorce set to be completed by the end of the decade.
While some, such as the IMF, have partially retracted their doom and gloom prospects for the British economy after the vote, the pound continues to struggle against the dollar and the Euro–with the picture mixed as to just what the immediate consequences of the decision are on the financial health of the country.
British biotechs were quietly (and some loudly) concerned about the flow of money and deals as a result of pulling out of the Union, and it seems the early trend is for some to wait and see when it comes to acquisitions.
According to the latest report from analysts at Merger Market, in the third quarter European M&A in the life sciences sector slowed in Q3 “following the Brexit referendum in June.” The analysts say that there were 96 deals worth $9.5 billion announced in the region during Q3–a 51.1% decrease in value and a 25% drop in deal count compared to Q2 2016 ($19.4 billion, 128 deals).
The report, which looks quarter-by-quarter at the M&A activity in the pharma, medical and biotech (PMB) space, found however that the Asian life science deal market was booming, with deal value more than tripling from $2.9 billion in the previous quarter to $9.7 billion.
“Moreover, Asia saw 84 deals in the third quarter of 2016, the highest number of PMB deals for the region on record,” the report’s authors note.
The drop in Europe saw overall PMB activity fall in the latest quarter, losing 31.4% of its deal value and 12.2% of its deal count compared to Q2.
But the authors said that despite the quarter-on-quarter downward trend, year-to-date activity in the PMB sector “remained relatively robust,” and amounted to just over 1,000 deals worth $228.7 billion during the first three quarters of the year.
The U.S., unsurprisingly, maintained its dominant position in the global PMB sector, seeing 103 deals worth $35.7 billion in Q3. This was, however, a 40% decrease in value and a 23.7% drop in deal count compared to Q2.
One of the largest mergers in this period was Pfizer’s $14 billion buyout–and a huge premium on what it had been trading at–of Medivation, although it was very nearly the U.S. giant’s $160-billion-plus attempt, failed as it turns out, to buy dermatology pharma Allergan.
Had this gone through, the figures for the U.S., and overall, would look very different.
Big deals not coming off has been a theme for Pfizer and several other big firms (see its 2014 attempt to buy AstraZeneca), and comes amid new tax inversion rules and deeper questions over drug prices, all of which has impacted the sector’s confidence to make big deals.
The report’s authors explain: “With the U.S. Treasury Department further clamping down on tax inversions this year, cross-border activity in the PMB sector has dwindled: cross-border M&A has declined for not only the past two quarters, but for the past two years as well, coinciding with the Treasury’s several rounds of new inversion rules.
“Reaching record-high levels in Q1-Q3 2014 ($172.8 billion), just before the first regulations were announced in September 2014, it dropped to $126.2 billion in Q1-Q3 2015, and further to $101.9 billion in the first three quarters of 2016. Its market share now stands at 44.6%, compared to 68.9% in 2014.”
The report concludes that, amid “regulatory concerns” and “a changing global geopolitical environment, PMB seems to be weathering the storm at the moment,” but foresees that M&A in the sector might “take a slightly different shape in the future, opting for fewer mega-deals in favor of ‘smaller’ transactions, the way Pfizer has done this year.”
By Ben Adams
Source: Fierce Biotech
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