Pharma M&A Is all about Options

The days of mega-mergers in the pharmaceutical sector aren’t necessarily over, but those deals will be fewer and farther between, going forward. Nearly 60 deals have been announced in 2016 through the middle of May, and just 17 have an entire company as the target. The largest, so far, is Shire‘s (NASDAQ: SHPG) $32 billion takeover of Baxalta (NYSE: BXLT), announced in January.

The rest are either collaborations on product candidates, rights or license deals for marketed products or clinical-stage candidates, even the rights to royalties. That’s Royalty Pharma‘s $1.1 billion deal for the royalty interest in Xtandi, which is being sold by a co-owner, UCLA, where researchers discovered and developed a compound that eventually became the marketed medication for prostate cancer.

By coincidence, Medivation (NASDAQ: MVDN), the other co-owner of Xtandi, apparently agreed to explore being acquired, two weeks after turning down a $9.3 billion offer from Sanofi (NYSE: SNY). The likes of Pfizer (NYSE: PFE) and Amgen (NASDAQ: AMGN) are rumored to have made inquiries of Medivation management. Shareholder pressure had something to do with the move, no doubt.

We’re still sticking with our story, though. The bulk of pharmaceutical deals this year will involve pieces of companies, such as a product line or proprietary biotech platform. “The days of cash-on-the-barrel-head are behind us,” Matthew Hemsley, head of Piper Jaffray‘s pharma M&A practice, told attendees at the Private Equity Healthcare Investor Forum in April. “Going forward, companies want more structured deals, with lots of optionalities–on the buyer and seller side.”

 

 

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