|GlaxoSmithKline CEO Andrew Witty
As pharma companies jump left and right at dealmaking opportunities, GlaxoSmithKline ($GSK) CEO Andrew Witty is scratching his head.
The way he sees it, superlow interest rates--in other words, cheap money--are spurring companies to make "poor choices" in the M&A arena, including "stretched" valuations, he told the Financial Times--and he's not about to get involved.
"We're not going to get drawn into the idea that just because money is cheap we can do anything," he told the paper.
Since the start of last year, biopharma has struck a whopping $460 billion worth of deals, the FT notes, and Witty thinks that signals some buyers won't end up seeing the returns they were hoping for when they shelled out on hot drug prospects.
"Either only a few will make it and you get really good rewards, or lots will make it, in which case competition is going to bring the price down. In either scenario, the model that says everybody succeeds and everyone gets maximum returns doesn't work," he said.
Of course, that's not to say Glaxo has stayed completely out of the deal boom. It's hard to forget the multibillion-dollar asset swap it inked with Swiss rival Novartis ($NVS) last year, which, at a combined $23.05 billion, ranked third on pharma's list of 2014 transactions.
But like his current attitude toward M&A, that pact signaled that Witty--and Glaxo, by extension--was marching to the beat of his own drummer. The agreement set up a GSK-controlled OTC joint venture and sent the company's cancer meds--which many drugmakers count among their prized possessions--across the continent in exchange for most of the Basel-based drugmaker's vaccine assets.
"It's as if GSK is playing string music just as the market is getting into drum and bass," one healthcare analyst told the Times.
The thing is, the British pharma giant will now be relying on two traditionally low-margin businesses--vaccines and consumer health--to stay afloat, with aging respiratory behemoth Advair taking a huge toll on the company's pharma unit. And while Witty says sales volume can make up for lower prices, some industry watchers aren't convinced.
"Mr. Witty is running out of time," Stephen Bailey, a fund manager at Liontrust Asset Management, told Bloomberg earlier this month. "He's either got to deliver in the next 12 months or step aside."
Special Reports: The top 15 companies by 2014 revenue - GlaxoSmithKline | Pharma's top 10 M&A deals of 2014 - GlaxoSmithKline Oncology/Novartis Vaccines (excluding flu) | The 10 best-selling drugs of 2013 - Advair/Seretide