A flurry of pharmaceuticals transactions in January has led several observers to describe the past month as the best start to M&A in recent years, and has further encouraged predictions of a surge in patent-driven acquisitions in 2018.
Yet, by a number of key measurements, recent life sciences deal-making actually fell short of activity in previous Januaries. And, while conditions are ripe for an uptick in acquisitions to boost product pipelines, 2018’s early transactions – more than half of whose value is accounted for by one company – are not a reliable predictor of what to expect in the coming months.
Sanofi’s $3.9 billion acquisition of Belgian set-up Ablynx this week is only the most recent in a spate of transactions to hit the headlines. Just days earlier, the French pharmaceutical company agreed to buy US-based Bioverativ for $11.6 billion. Meanwhile, Celgene bought a 90% stake in Juno Therapeutics for $9 billion. This was the New Jersey outfit’s second major deal in January, following its $7 billion purchase of Impact Biomedicines.
This activity – which has produced as much $29 billion worth of deals so far – has seen the volume of transactions in US biotechnology rise to its highest since the third quarter of 2010, with buyers willing to pay an unusually high premium to secure their targets. Sanofi’s fee for Bioverativ was 63% greater than the target company’s ‘undisturbed share price’, while the average premium paid for deals in January was 79%, compared to 42% across last year.
Many industry commentators (see here and here) are predicting a significant increase in patent-rich deal-making in 2018, following US tax reforms which create greater commercial certainty and could give pharmaceutical companies access to an additional $160 billion.
Events in January further encouraged such optimism, with KPMG’s global life sciences chief declaring that “the signs are good for biotech deal activity in 2018”. With patents often at the heart of such transactions, a jump in deal-making would be a reason for IP professionals to feel cheerful about the year ahead.
But a closer inspection reveals that January’s life sciences transactional activity was not as impressive as has been suggested. The total value of worldwide deals last month may have been significantly higher than in the January of 2014 and 2015, but it was lower than in the opening months of 2016 and 2017 – which saw $34 billion and $40 billion worth of acquisitions respectively. And the nine deals struck globally were fewer than in each of the previous four Januaries.
Indeed, while 2017 saw more than double the number of January deals than in 2018, with a combined value which outstripped previous years, it went on to be one of the most barren deal-making years in recent times.
There are some good reasons to expect big pharma companies to splurge their newfound cash this year. As I have argued before (see here and here), a number of technological and industry trends are creating ever-greater incentives to invest to boost pipelines through deal-making: a number of blockbuster drugs will lose their patent protection in the coming years, R&D is becoming more difficult and expensive, and there is a growing need to build strength in lucrative specialist treatment areas.
But pharmaceuticals companies will decide whether to make acquisitions, particularly large ones, on a case-by-case basis. They will factor in their needs, their own strategic approach and – especially given the growing specialisation of the industry – the particular assets available for purchase.