Deal Watch December 2015

December saw the release of reports by two of the top accountancy and consulting groups, PWC and Deloitte. PWC’s report Top Health Industry Issues of 2016 – Thriving in the New Health Economy describes, among many other interesting points, that 2016 will be a year when merger mania will continue. Certainly 2015 has been interesting from an M&A perspective, not just in terms of company acquisitions but also asset swaps as seen this month with Boehringer Ingelheim and Sanofi exchanging animal health for consumer health. As the enterprise value of Sanofi’s animal business, Merial, was estimated at €11.4bn versus €6.7bn for Boehringer’s consumer health business, Boehringer is required to pay €4.7bn ($5.1bn) to Sanofi.

Also during the month AstraZeneca announced the acquisition of 55% for $4bn of Acerta which has a BTK inhibitor in phase III for blood cancer. AstraZeneca has an option to buy the remaining 45%. This deal reflects AstraZeneca’s intensive deal making activity to bolster its pipeline following the failed bid by Pfizer to acquire the company. The fashion for big pharma to rationalise their portfolios has continued with BMS’s decision to sell its HIV franchise to GSK for nearly $1.5bn and Takeda’s decision to sell its respiratory business to AstraZeneca for $575m.

Deloitte and GlobalData’s report Measuring the return from pharmaceutical innovation 2015 – transforming R&D returns in uncertain times describes the return on R&D as being 4.2% in 2015 compared to 10.1% five years ago due to the growing imbalance between declining forecast peak sales and increasing asset development costs. Interestingly the smaller big pharma companies such as Gilead, Celgene and Biogen are projected to achieve higher returns on R&D than the larger companies which incur higher costs to develop their assets. Also companies with a consistent therapeutic focus achieve better returns. Gilead has a consistent therapeutic focus historically with hepatitis C and HIV treatments but its licensing deals are also in other therapy areas such as oncology and, this month inflammatory disease, following the licensing deal with Galapagos for over $2bn. It will be interesting to see if Gilead retains its higher return on R&D following its move away from the traditional therapy areas.

A key feature of this month’s deals is the number of collaboration and licensing deals for technology platforms and to discover new molecules. Most of the deals are between big pharma and biotech companies, mostly based in the US. There are eight deals with a combined value of over $4bn if all the programmes are successful. Even if they are not, Christmas has come early for many of the biotech companies involved.

Finally, it should be noted that it is not only big pharma that buys and sells assets. Alliance Pharma in the UK, a company that has built its business mainly by product acquisitions and licensing deals, has announced the acquisition of 27 dermatology products with sales of £43.3m for £127.5m excluding inventory, representing a sales multiple of nearly three and an EBITDA multiple of 14. The latter is a high multiple but Alliance expects to make £5m of cost savings in 2016. This December report is a brief overview of the themes and deals this month. 

*Europe, Latin America and South Africa