Big Drugmakers That May Tread the M&A Path After Pfizer
In a surprising move, on Monday, drug giant, Pfizer PFE announced a definitive agreement to buy small cancer drugmaker, Array BioPharma ARRY for $48 per share in cash for a total enterprise value of approximately $11.4 billion. The offer price represents an impressive premium of 62% over Array BioPharma’s closing price of $29.59 on Friday.
The deal, if successful, will strengthen and diversify Pfizer's oncology lineup into melanoma and CRC from its existing strong portfolio of breast and prostate cancer drugs. Array’s new commercial medicine, Braftovi plus Mektovi is a treatment for BRAF-mutant melanoma, the deadliest form of skin cancer and was launched last year. The combination medicine is also being evaluated in label expansion studies for other cancer types including metastatic colorectal cancer (mCRC) with BRAF mutation.
The acquisition will also bring to Pfizer a large portfolio of royalty-generating out-licensed medicines. However, some analysts were not too happy with the deal, which they believe is expensive and will not add any significant near-term value. Array BioPharma may, however, prove to be a strategic fit for Pfizer over the long term.
Flurry of M&A Deals
As expected, there has been a flurry of M&A deal announcements this year in the pharmaceuticals/biotech industry.
Oncology and immuno-oncology, particularly, are key areas of focus. Bristol-Myers Squibb BMY, one of the largest pharma giants, is on track to close its previously announced acquisition of leading biotech company, Celgene CELG for a whopping $74 billion. This will be one of the largest acquisitions in recent times.
Other important acquisition announcements include Lilly’s purchase of small cancer biotech, Loxo Oncology, and Merck’s acquisition of Immune Design and pending acquisitions of small private cancer biotechs, Peloton Therapeutics and Tilos Therapeutics. Glaxo also closed its previously announced acquisition of small cancer biotech, TESARO for $5.1 billion in January. In non-oncology deals, Roche is due to acquire Spark Therapeutics for $4.8 billion per a deal announced in February.
Every time an M&A news surfaces, speculations are rife about which big drug/biotech company will tread on the inorganic growth path next.
Big pharma companies are cash rich, especially after the tax overhaul in 2017, which reduced tax rate. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies sitting on huge piles of cash may prefer to buy innovative small/mid cap biotech companies to build out their pipelines. Other than that, sloppy sales of mature drugs due to pricing pressure and generic/biosimilar competition, government scrutiny of drug prices and dwindling in-house pipelines are some other factors that fuel the M&A appetite of large drugmakers.
The spate of M&A activity is expected to continue as drug/biotech companies look to use huge cash reserve and combat rivalry woes.
However, with Lilly, Glaxo, Roche and now Pfizer already announcing decent size buyout deals, the chances of them making another buyout soon are low. Bristol-Myers’ buyout of Celgene is one of the largest pharma mergers. Merck has been making smaller but regular acquisitions of small cancer biotechs this year.
Here we discuss three big drug/biotech companies, which are most likely to announce the next M&A deal. Meanwhile, significant innovations in cancer and gene therapies suggest that the acquisitions could mostly be in these areas.
Amgen, Inc. AMGN
Amgen has not made any significant M&A announcement for quite some time now. Though it has an intriguing line-up of early and mid-stage programs, its late-state pipeline is not that strong after approval of Aimovig for migraine and Evenity/romosozumab for osteoporosis in postmenopausal women.
Amgen is mostly dependent on label expansion of its growth products – Prolia, Xgeva, Vectibix, Nplate and Kyprolis and Blincyto. Most of its mature and highly successful drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors. It thus looks in great need to buy mid- and late-stage assets to strengthen its pipeline.
Moreover, the company’s strong balance sheet and a moderate debt burden should allow it to expand its portfolio by acquiring or in-licensing attractive innovation. It had $26.3 billion in cash, cash equivalents and marketable securities at the end of March 2019.
Amgen could buy BioMarin or Alexion to diversify into the rare-disease market or Incyte to strengthen its cancer portfolio.
Gilead, Inc GILD
Gilead last bought Kite Pharma and Cell Design Labs in 2017 and has enough capacity to absorb an acquisition or two to bolster the company’s value. Gilead had $30.1 billion in cash, cash equivalents, and marketable securities at the end of March. Though its HIV franchise is doing well, it is struggling with sales of its HCV products. The company has long been looking to expand beyond antivirals into other therapeutic areas. It has regularly made collaborations to build a pipeline in newer areas like CAR-T therapy and NASH. Acquisition of a small biotech with a great oncology or NASH candidate or maybe even a large M&A deal could be in the offing.
Gilead could also buy BioMarin or Incyte or other smaller companies like Exelixis or Clovis Oncology. Interestingly, Gilead is also widely speculated to be a takeover target.
Johnson & Johnson JNJ
The last big acquisition for J&J was that of Swiss biotech Actelion for $30 billion in June 2017, which diversified its revenues in the pulmonary arterial hypertension (PAH) category. In February of the same year, J&J bought Abbott’s vision care business, Abbott Medical Optics for $4.325 billion, which has strengthened its Medical Device segment. Since then, it has bought only small companies like Auris Healthand BeneVir Biopharmor rights to innovative drug/medical device pipeline products.
Moreover, J&J has gained regulatory approvals for 18 new products since 2011 in HIV, cancer and cardiovascular areas. This year itself, it has already gained FDA approval for two new drugs, Balversa and Spravato. With most of its pipeline products getting approved in the past few years, J&J looks dependent on potential line extensions of its successfully marketed products like Simponi, Stelara, Zytiga, Darzalex, Xarelto and Imbruvica for sales growth opportunities. It hardly has any impressive candidate in the pipeline and could do well to build its pipeline through acquisition of a company with innovative technologies and pipelines.
We believe the company also has sufficient funds to pursue small bolt-on acquisitions to boost its portfolio. Its cash and cash equivalents totaled $14.7 billion at the end of March 2019.
Others Not Far Behind
Among the other bigshots, last year, Novartis bought gene therapy company Avexis while Sanofi scooped up two companies, Ablynx and Bioverativ, to strengthen its rare blood disorders portfolio. Biogen is due to close its previously announced (March 2019) acquisition of London based clinical-stage gene-therapy company, Nightstar Therapeutics soon. Despite the recent M&A deals, Novartis, Sanofi and Biogen still have enough capacity to make more such announcements in the near term.
Undoubtedly, the string of announcements in the first half sets the tone for the rest of the year. However, it should be kept in mind that 2018 had also begun with expectations of record-breaking M&A activity. However, the number of mergers and acquisitions dwindled after the first few months, probably because the potential acquisition targets demanded a premium.
So, it remains to be seen if the momentum lasts through 2019.
While Gilead carries a Zacks Rank #2 (Buy), J&J, Amgen and Pfizer have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click to get this free report
Bristol-Myers Squibb Company (BMY): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
Pfizer Inc. (PFE): Free Stock Analysis Report
Amgen Inc. (AMGN): Free Stock Analysis Report
Array BioPharma Inc. (ARRY): Free Stock Analysis Report
Celgene Corporation (CELG): Free Stock Analysis Report
Gilead Sciences, Inc. (GILD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.