If there’s one word that describes 2016’s pharma M&A market, it’s “slow.” And while some industry watchers predict that the new year—and administration—could bring a jolt of energy to the dealmaking arena, no one’s expecting big changes fast.
Remember last year, when deals were flying left and right? These days, not so much. Targets are few, and competition is fierce. If you need proof, look no further than Medivation, which reportedly drew interest from Sanofi, Merck, Celgene, Gilead, Amgen, AstraZeneca and Novartis before being snapped up by Pfizer for a cool $14 billion. That’s a who’s who of Big Pharma and Big Biotech.
There are plenty of reasons for the slowdown. First, shares have been sagging under the weight of investor fears of drug-pricing reform. Companies aren’t all that keen on putting themselves up for sale while valuations are low.
Drug pricing is inhibiting M&A in another way, too. Specialty drugmakers have drawn unwanted attention since last summer with their buy-and-hike-prices strategy. In the meantime, they’ve been shying away from the dealmaking table, fearing they'd become the next Valeant, Turing or Mylan in the spotlight.
There’s also the fact that the U.S. Treasury has made it clear that, if you try to find a way around its tax-inversion rules, it’ll squash your deal like a bug, à la Pfizergan. (OK, so maybe that fact only erased one potential tie-up that we know of. But as the biggest healthcare deal ever agreed to, it bears noting.)
Those barriers aren't likely to disappear overnight—but Donald Trump's presidency could get the ball rolling, some experts say. For one, the president-elect has said he plans to work with Congress on a repatriation tax holiday. That would allow companies to pay a lower tax rate when bringing overseas cash back home, helping stateside companies (Pfizer, anyone?) free up funds for dealmaking.
If Trump sticks to his word, though—earlier this month he reiterated his promise to lower drug prices—his presidency might not solve the valuation problem, as some thought it might. After all, Democratic rival Hillary Clinton was much more vocal about the issue on the campaign trail, and relieved biopharma investors cheered the Trump victory. They may have celebrated too early.
Some sectors are showing signs of life. Specialty drugmakers have already begun returning to the table, Moody’s noted in October, and this time, they’re looking for innovative drugs that can help turn their reputations around. Dublin drugmakers Jazz and Horizon have already gotten things going with a $1.5 billion pickup of Celator and an $800 million acquisition of Raptor, respectively. “We anticipate more deals of this variety,” SVP Michael Levesque wrote in the company’s Healthcare Quarterly report.
And look for consolidation to keep coming in the generics industry, where pricing problems, accelerating approvals and margin pressure are taking their toll, RBC Capital Markets analyst Randall Stanicky has said.
All in all, as PwC put it in its Global Pharma & Life Sciences Deals Insights Q3 2016 Update, “deal volumes in the future have the ability to trend upward.”
More likely, though? They’ll stay “depressed” until “uncertainty around general economic factors and industry conditions” is cleared up.