Beyond borders: biotechnology industry report 2013

Deals

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In 2012, the total value of mergers and acquisitions involving US and European biotech companies increased 9% from the prior year (setting aside 2011’s megamergers, which each exceeded US$10 billion: Sanofi/Genzyme and Gilead/Pharmasset).

The US$27.4 billion in M&A transactions announced during the year represents the highest non-megadeal total achieved since 2008. The average deal size rose to US$566 million (the highest non-megadeal average achieved since 2005), and deal premiums for takeouts of public companies remained strong, with several in excess of 50%.

However, the number of deals with disclosed deal terms declined by 19% relative to 2011.

US and European M&As, 2006-12

US and European M&As, 2006-12

Meanwhile, on the strategic alliances front, the trajectory was relatively flat. In 2011, the industry had experienced a marked decrease — to the lowest levels in years — in both the volume of strategic alliances and the aggregate “biobucks” potential value of these transactions.

In 2012, the number of deals increased by 4% to 153. However, their potential value fell by 9% to US$27 billion — the lowest level in any year since at least 2005.

US and European strategic alliances based on biobucks, 2006-12

US and European strategic alliances based on biobucks, 2006-12

What matters most to the immediate operations of biotech companies, of course, is not the potential biobucks value of alliances as much as the up-front payments included in those deals.

On this front, the picture improved slightly after a steep decline in recent years. The total value of up-front payments increased from US$2.2 billion in 2011 to US$2.5 billion in 2012 — but this was still the second-smallest total since at least 2005. Up-front payments comprised 9% of the biobucks deal value — higher than 2010-11 but still well below levels seen from 2006 to 2009.

US and European strategic alliances based on up-front payments, 2006–12

US and European strategic alliances based on up-front payments, 2006–12

Larger companies, both pharma and biotech, continue to seek innovation and pipeline diversification externally. However, they also continue to be selective and price-sensitive — and this is helping keep deal values down relative to a few years ago.

Shifts in firepower

Big pharma returned to the M&A scene in a significant way in 2012. But even as pharma’s appetite for deals has increased, its capacity to spend on assets has declined.

To estimate the size of these shifts, we developed the EY Firepower Index. Simply put, a company’s firepower is diminished when its available cash and investments and market value decline, and/or when its debt level rises.

As big pharma has approached and gone over the patent cliff, its firepower has fallen markedly in recent years, primarily as a result of lower margins and increased debt. However, the next tier of companies — including big biotech companies with revenue in excess of US$1 billion — has seen its firepower increase as a result of strong organic growth and limited generic exposure. Indeed, big pharma is the buyer in less than 20% of M&A deals.

This shift in power has implications for deal-making. On the one hand, it could lead to more potential suitors for any particular transaction (favoring those companies that are nimble and retain financial flexibility), which in turn could drive higher premiums; on the other hand, big pharma may become more selective with respect to the types of companies it will pursue, in order to conserve resources.

To view more detailed transaction data and country-specific findings, download our complete report.

US and European M&As, 2006-12

US and European M&As, 2006-12

Source: EY, Capital IQ, MedTRACK and company news.
Chart excludes transactions where deal terms were not publicly disclosed.

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US and European strategic alliances based on biobucks, 2006-12

US and European strategic alliances based on biobucks, 2006-12

Source: EY, MedTRACK and company news.
Chart shows potential value, including up-front and milestone payments, for alliances where deal terms are publicly disclosed.

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US and European strategic alliances based on up-front payments, 2006–12

US and European strategic alliances based on up-front payments, 2006–12

Source: EY, MedTRACK and company news.

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Selected M&As by up-front payments, 2012

Company Country Acquired or merged company Country Up-front payments (US$m) Total potential value (US$m)
Bristol-Myers Squibb US Amylin Pharmaceuticals US 5,300 5,300
Hologic US Gen-Probe US 3,800 3,800
GlaxoSmithKline UK Human Genome Sciences US 3,600 3,600
Bristol-Myers Squibb US Inhibitex US 2,500 2,500
AstraZeneca UK Ardea BioSciences US 1,260 1,260
Amgen US Micromet US 1,160 1,160
Jazz Pharmaceuticals Ireland EUSA Pharma UK 680 730
Gilead Sciences US YM BioSciences Canada 510 510
Bausch & Lomb US Ista Pharmaceuticals US 500 500
Amgen US deCODE genetics Iceland 415 415
Upsher-Smith Laboratories US Proximagen Group UK 353 566
Celgene US Avila Therapeutics US 350 925
Sigma-Aldrich US BioReliance US 350 350
Amgen US KAI Pharmaceuticals US 315 315

Source: EY, Capital IQ, MedTRACK and company news.
"Total potential value" includes up-front, milestone and other payments from publicly available sources.

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