EY - Beyond borders: unlocking value

Beyond borders: unlocking value

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Biotech buyers

The big picture

With big pharmas in a period of revenue growth stagnation, we expected to see an uptick in 2013 in bolt-on acquisitions of biotechs aimed at bolstering their top lines. In reality, that strategy has been hard to implement, resulting in a relatively constant volume of pharma-biotech acquisitions even as the total deal value for such transactions slipped from US$20.7 billion (2012) to US$12.5 billion (2013).

This deal-making restraint was partly due to the rising valuations of public biotechs which placed certain acquisition targets, based on their market capitalizations, out of reach for many potential pharma buyers, including those most in need of growth. The newly opened IPO window, meantime, gave privately held biotech companies a realistic exit option — other than M&A — for the first time since 2007.

In absolute terms, big pharma’s purchasing power has continued to rise. However, based on the EY Firepower Index <link to recent Firepower report>, which aims to measure acquirers’ buying ability, this transactional capacity actually decreased in 2013 relative to biotech and specialty pharma.

As a result, for any particular transaction, there were more viable competitors in 2013 than in the past. Moreover, in certain cases, big pharmas found themselves at a disadvantage compared to certain specialty pharma acquirers that could afford to offer more for takeover targets because they were domiciled in lower-tax countries.

Relative firepower has decreased for big pharma but increased for specialty pharma and big biotech

EY – relative firepower has decreased for big pharma but increased for specialty pharma and big biotech.

Source: EY and Capital IQ
Data analyzed through 30 April 2014. Percentage change refers to the year-on-year change in firepower.

A closer analysis of 2013 M&A activity shows how those dynamics played out. Interestingly, none of the transactions inked in 2013 with values greater than US$5 billion (our defining threshold for “megadeal”) involved a big pharma acquirer: OTC player Perrigo captured Elan for US$8.6 billion, while Amgen signed one of the biggest acquisitions in its history, purchasing Onyx Pharmaceuticals and its multiple myeloma medicine Kyprolis for approximately US$10.4 billion.

In terms of total dollars, Thermo Fisher captured honors for the largest deal of the year — and the most expensive takeover since 2011’s Sanofi/Genzyme transaction — when it scooped up Life Technologies for US$13.6 billion to strengthen its position as a platform tools and technologies provider.

EY – US and European M&As 2007-13.

Of the 10 M&A deals in 2013 with potential deal values greater than US$1 billion, only three involved a big pharma buyer: Bayer HealthCare/Algeta (US$2.9 billion), AstraZeneca/Pearl Therapeutics (US$1.15 billion) and Johnson & Johnson/Aragon (US$1 billion).

In contrast, it was a strong year for biotech acquirers, with biotech-biotech deal making totaling roughly US$21 billion. Admittedly, nearly 50% of that total came from the aforementioned Amgen/Onyx Pharmaceuticals deal.

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US and European M&As, 2007-13

EY – US and European M&As 2007-13.

Source: EY, Capital IQ, MedTRACK and company news.
The chart excludes transactions where deal terms were not publicly disclosed. Also excluded are two 2013 deals: Thermo Fisher/Life Technologies (US$13.6b) and Perrigo/Elan (US$8.6b). Neither acquirer qualifies as a pharma or biotech.