Sector News

Careful, European drugmakers. Fitch says M&A may be a bit too heated

April 16, 2015
Life sciences
Fitch Ratings is raising the flag on pharma M&A. The credit ratings agency says the current spate of dealmaking is putting some pressure on European Big Pharma players.
No wonder: Competition for promising deals has intensified recently, with prices for some buyouts raising eyebrows among investors and analysts alike. AbbVie’s $21 billion deal for Pharmacyclics may be the most obvious example, but smaller deals have come with big premiums, too.
Drugmakers in Europe and Britain have been among the most active buyers in recent months. Pharma giants GlaxoSmithKline and Novartis wrapped up the biggest deal of the year so far, when GSK nabbed Novartis’ vaccines unit, and Novartis bought out GSK’s oncology business–and set up a consumer health joint venture to boot.
Meanwhile, Germany’s Bayer bought Merck & Co.’s consumer business for $14 billion, and its fellow German drugmaker Merck KGaA agreed to acquire Sigma-Aldrich for $17 billion. Smaller drugmakers, including Ireland-based Shire, have been on an acquisition binge as well; Shire snapped up NPS Pharmaceuticals in January for $5.2 billion.
These deals all have one thing in common: Drugmakers are working to exit businesses they don’t think they can dominate, while building up where they already are strong. Shire’s NPS deal helped beef up its gastrointestinal business, for instance, while Bayer’s consumer health buyout is part of a play to become top dog in that field.
The strategy may be sound, but Fitch is warning pharma investors to keep an eye on how drugmakers are financing their buys. “[T]he effects of recent M&A activity continues to negatively affect the ratings headroom for European pharma players,” the ratings agency noted Thursday, “as they seek to position themselves in key treatment areas and consolidate market positions.”
It’s not as if it’s a new idea, however. Merck & Co. executives recently remarked that they might prefer using cash to buy back shares, if prices rose too high; even more recently, they announced a $10 billion expansion to the company’s buyback program. And Sanofi ($SNY) Chairman Serge Weinberg told Les Echos that his company can do without dealmaking at today’s prices. In scouting for buys, Sanofi “found the asking prices to be too high for the businesses,” Weinberg told the French pub, adding that the company’s balance of innovation and diversification “makes acquisitions not indispensable.”
By Tracy Staton

Related News

September 18, 2020

Eli Lilly, Amgen join forces to scale production of COVID-19 antibody cocktails

Life sciences

Months of fervid research have whittled away most potential options to treat patients with COVID-19, a group of antibody cocktails still hold promise. Eli Lilly believes so strongly in its contender that it’s […]

September 16, 2020

Takeda unveils new Boston R&D manufacturing center for cell therapy pipeline push

Life sciences

Japanese drugmaker Takeda has trumpeted its plan in recent years to cut billions of dollars in costs and pivot around oncology and rare diseases. A key part of that strategy […]

September 15, 2020

AstraZeneca, Oxford restart stalled COVID-19 test as Pfizer ramps up trial numbers for its vaccine

Life sciences

Just under a week after it stopped its key phase 3 pandemic vaccine test, AstraZeneca and the University of Oxford have been given the green light to restart in the […]