The pharmaceutical industry has been the behemoth of healthcare M&A, usually accounting for the largest dollar amounts spent in any given year and often one of the most active in terms of number of transactions.
But since its record year in 2014, this sector has been on a slow decline. Big Pharma deal volume dropped 9% since 2015, from 171 that year to 156 deals in 2016. Dollars spent slid even further, down 39%, from $138.4 billion in 2015 to just $84.45 billion in 2016.
The Pharma sector is notorious for its multi-billion dollar mega deals. The largest pharma deal in 2016 is a prime example, as it was also the largest deal of the year. That was Shire plc’s (NASDAQ:SHPG) $32 billion purchase of Baxalta Inc. (NYSE: BXLT). The combination will create the number one rare diseases platform in revenue and pipeline depth.
In second place for dollars spent is Pfizer Inc.’s (NYSE:PFE) $13.54 billion purchase of Medivation Inc. (NASDAQ: MDVN), a biopharmaceutical company focused on developing and commercializing small molecules for oncology. The deal ended months of bidding for Medivation, which began with Sanofi SA‘s (NYSE: SNY) $52.50 per share offer in April.
But as 2016 wrapped up, only nine deals surpassed the $1 billion mark in the Pharma sector, a 50% decline from 2015’s total of 18. But without context, these numbers are misleading.
Big pharma acquirers are still out there with money to spend, but they have their sights set on the biotech industry.
Pharmaceutical companies are driving biotech’s M&A activity, as they actively compete for promising drug candidates to bolster their aging pipelines. The pharmaceutical industry has largely given up on in-house research and development, saying that the R&D timeline is too costly, long and uncertain to fund with shareholders’ money.
The industry has gone from bolt-on acquisitions of smaller companies with marketed products to battling it out for clinical-stage drug candidates. What’s surprised some industry observers is that these acquirers are now targeting early-stage and even pre-clinical drug candidates, to boost their own production pipelines, but as a way to stymie the competition, too.
Pharmaceutical companies still accounted for 83% of the 156 deals in their sector. However, only 60 (or 39%) of the deals announced in 2016 were full-on acquisitions of another pharmaceutical company, including divestitures of a pharmaceutical business unit. The remaining majority included drug portfolios, licenses or collaborations.
The largest of these deals was privately-held Royalty Pharma’s $1.14 billion purchase of UCLA’s royalty interest in XTANDI®, a leading prostate cancer medication, whose development was based on discoveries by campus researchers.