Coming off a wobbly 2016 – a year when biopharma dealmaking could be viewed as a glass half empty or half full – the direction of the industry this year could hinge on several macro factors, including drug pricing and the ability to improve R&D productivity beyond business development. A review of 2016 data from Cortellis Deals Intelligence (CDI) presented in conjunction with the 35th Annual J.P. Morgan (JPM) Healthcare Conference showed a heartening increase in biopharma deals across companies and technologies but an ominous falloff in dollars compared to the previous year – diverging trends that are unsustainable over the long haul.
Using CDI, Laura Vitez, life sciences deals analyst and manager of analytic propositions, observed at the start of her presentation that JPM attendees could have reason to celebrate at the outset of 2017, but could just as easily justify a cautionary outlook. As opposed to the previous three years, where indicators moved steadily upward, such was not the case in 2016.
“It wasn’t an awful year, and there were still places where our indicators were up,” Vitez said, “but there were also a number of important numbers that were down.”
The good news was that more than 4,000 deals were made across the life sciences sector, with licenses and joint ventures representing approximately 29 percent and M&A 13 percent. Other types of transactions included grant, equity and royalty buyouts and related financings, at 20 percent of the total, as well as smaller proportions of deals in categories such as supply and distribution, contract services, research and asset acquisition.
In total, the number of 2016 biopharma deals eclipsed the previous year, by 130, but aggregate dollars were down 40 percent from 2015. Where did they go?
In short, “the megamerger party ended,” Vitez said, noting that the handful of transactions upward of $40 billion that occurred over the previous two years were absent in 2016. She blamed the U.S. Treasury action to end inversions for part of that shortfall, including the scuttling of a planned merger between New York-based Pfizer Inc. and Allergan plc, of Dublin. (See BioWorld Today, April 7, 2016.) The upside was that some biopharmas that successfully inverted their taxes in previous years began spending those “savings” on M&A – notably Allergan, which inked a string of 2016 deals that started days after walking away from Pfizer. (See BioWorld Today, April 8, 2016, April 25, 2016, Sept. 15, 2016, Sept. 21, 2016, Oct. 4, 2016, and Dec. 21, 2016.)
Pfizer Inc.’s $14 billion acquisition of Medivation Inc. – the largest biopharma M&A of the year – actually represented an outlier for 2016, resulting from an auction process that involved approximately a dozen biopharmas before the deal was sealed, Vitez said. (See BioWorld Today, Aug. 23, 2016.)
Although the fourth quarter was the slowest period of the year – potentially, an “uncomfortable” omen for 2017 – Vitez attributed a certain amount of inactivity to the desire by big biopharmas to disclose their matinee deals at JPM. Several large M&As were revealed Monday morning before the first presenter took the stage in the Grand Ballroom at the Westin St. Francis.
And a deeper look at the 4Q numbers showed that November, when the world collectively waited and then debated the outcome of the U.S. presidential election, was the slimmest dealmaking period of all. With the results of that election and the politically charged Brexit vote now known quantities, for better or for worse, “businesses can plan and move forward accordingly,” Vitez said. “For that reason alone, we may see some big M&As return” in 2017.
