Dealmakers hit reset on the biotech and pharma space

The pipeline of deals in the biotech and pharmaceuticals space is piling up, as dealmaking in 2018 gets off to a rollicking start.

Whether a juicy asset in search of a buyer, as in the case of Merck’s nearly $5 billion consumer health business, or the staggering $20 billion in combined deal value for a pair of transactions announced by Celgene and Sanofi earlier this week, it’s been a busy year thus far: Almost 80 deals have moved beyond rumour to reach some stage in the M&A process (such as in bidding, announced or postponed), per PitchBook data, including:

The public markets have greeted the latest developments enthusiastically, to say the least.

With exposure to companies like Bioverativ and Celgene, the iShares Biotech ETF has gained some 11.6% in the past three months, trailing the red-hot Dow Jones Industrial Average by only 0.5% and outpacing the S&P 500 by 0.72% over the same period. The tech-heavy NASDAQ, on which the iShares Biotech ETF is listed, has also outpaced it en route to record heights since late October, posting an uptick of nearly 13%.

This resurgence follows years of decline after global M&A in the space peaked in 2015, in part driven by concerns over inflated valuations, regulatory action and criticism of high drug prices in the US, all of which cut into investor enthusiasm.

But the recent spate of deals represents a return to form.

3 deals, over $20 billion in value

Sanofi’s $11.6 billion deal for Bioverativ secures the French business a US-based drugmaker with sales of $847 million in 2016 and expected revenues of around $1.3 billion this year. More importantly, it also affords Sanofi’s board some breathing space, following continued pressure from shareholders to refill its pipeline on the heels of dwindling sales of its blockbuster diabetes drug Lantus and mounting competition from generics makers.

Meanwhile, Celgene’s potential acquisitions of Impact Biomedicines and Juno Therapeutics represent a multibillion-dollar bid to bolster its blood-cancer drug offerings. Celgene first bought into Seattle-based Juno in 2015, striking a $1 billion deal to develop and commercialize immunotherapies for cancer and autoimmune diseases. Juno, like Impact Biomedicines, has a number of drugs in development, some on the cusp of regulatory approval, that would diversify Celgene’s aging portfolio of treatments.

All three deals add to the growth in massive transaction sizes for the biotech and pharma space, driven by the number of multibillion-dollar deals seeing traditional ‘Big Pharma’ businesses paying top dollar to refill their pipelines by acquiring biotechs.

For example, Johnson & Johnson bought orphan diseases specialist Actelion, a developer of treatments for pulmonary arterial hypertension, for $30 billion last year, while Pfizer acquired Medivation for $14 billion in 2016.

The biggest loser on those deals? Sanofi, which bid and failed to secure either of the companies.

Although this year isn’t even a month old, the biggest overhaul to the US tax code in generations has analysts predicting steady deal flow across life sciences, which bodes well for even more M&A activity in biotech and pharma over the months yet to come.