M&A Activity a Favored Prescription for Biopharmaceutical Companies

 In Market and Investment Insights

Global Life Sciences Portfolio Manager Andy Acker discusses how large-cap biopharmaceutical companies utilize M&A strategies to fill product pipelines and maintain steady cash flows.

Key Takeaways

  • This past week’s acquisition of Allergan by AbbVie is the latest in a string of deals within the sector where the acquirer was willing to pay a substantial premium for a target company.
  • In additional to their own research and development, large biopharma companies often pursue acquisitions especially for innovative products or franchises with consistent cash flows.
  • With more than $150 billion in free cash flow at the disposal of the 20 largest biopharma companies, we expect M&A to continue to be a driver of shareholder value within the sector.

Andy Acker: Earlier this week, AbbVie announced the acquisition of Allergan for $63 billion. This is actually … it is interesting, because this is the third major acquisition we have seen in the biopharmaceutical sector in just the last 18 months, and this is the third deal of over $60 billion. In this case, AbbVie is paying $63 billion, which represented a 45% premium. Earlier this year, we had Celgene getting acquired by Bristol-Myers. That deal is $73 billion and at a 50% premium. And then last year in just closing earlier this year, Takeda acquired Shire, also for more than $50 billion. So we have seen this trend now. I think the biopharmaceutical industry remains extremely interested in the M&A activity. And the 20-largest biopharmaceutical companies are generating over $150 billion in free cash flow each year. Interest rates remain extremely low and attractive, and so we think we will see more M&A activity.

Some of the activity is cash flow generation-focused and others are really focused on innovative products and adding additional products to the pipeline. We have seen a few of those deals as well earlier this year … we had Lilly pay $8 billion for Loxo Oncology. More recently, just in the last week, we have also had Pfizer pay over $10 billion for Array. So we think this interest in buying biotech innovation will continue. It is not clear if we will see more of these very large deals, but I do think we will continue to see companies generating, companies pursuing bolt-on acquisitions. More of these deals in the several billion up to $5 to $10 or even $20 billion, I think, will continue in the industry.

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The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

C-0619-24877 12-30-19

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