M&A Activity a Favored Prescription for Biopharmaceutical Companies
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.
- 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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