Even without U.S. tax reforms expected to spur M&A action, biopharma dealmaking hasn’t slowed down—and industry watchers shouldn’t assume it will, one consultant says. And prices aren't likely to come down, either.
As EY’s John Babitt argued in a recent interview, the fact that tax tweaks are missing “really hasn’t dampened the overall enthusiasm to actually go out and do M&A.” At the end of April, dealmaking in the sector had already hit $100 billion, putting biopharma “well on [the] clip” to get to the $200 billion dollar mark that’s become the yearly norm, said Babitt, a partner in the consulting firm's life sciences transactions group.
“Very quickly, everyone got very optimistic” about tax reform, “but also very quickly, everyone has not let it determine or deter them from executing on the real M&A strategy,” Babitt said on the sidelines of last month’s Biotechnology Industry Organization annual meeting in San Diego.
That optimism was on full display at January’s J.P. Morgan Healthcare Conference, where CEOs including Amgen’s Robert Bradway excitedly proclaimed that their companies would directly benefit from tax law edits, most notably a move to free up overseas cash.
But since then, U.S.-based companies have plowed ahead, even without the larger M&A war chests tax reform could have provided. Johnson & Johnson, for one, finally inked its $30 billion pact for Actelion’s marketed meds later that month.
The deals piling up in the biotech and pharma business haven’t come cheap, either. In a recent report, EY found that the life sciences arena’s average takeout premium is about 100%, which is “markedly above what it is for other industries,” Babitt said. That’s in part because a lack of organic growth among pharma companies has increased the need for buys.
And that won’t be changing anytime soon, in his view. “I think there’s a long tail on it, if anything,” Babitt said.