Beyond Borders 2016

Biotech deals

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Biotech deal market soars

The same sector optimism that spurred biotech’s financing renaissance from 2013 through 2015 has also lifted alliance and acquisition activity. In 2015, scientific advances in critical therapeutic areas and a more positive regulatory environment gave both strategic buyers and investors greater confidence when it came time to place their bets.

Facing organic growth challenges, pharma acquirers continued to see M&A as a quicker and less risky way to fill pipeline and revenue gaps. Public investors, meanwhile, continued to provide biotech companies with significant capital via initial public offerings (IPOs) and follow-on raises. This prolonged access to capital and the resulting competition for assets meant biotech management teams enjoyed multiple strategic alternatives, even as valuations began to surpass pharmaceutical buyers’ comfort levels.

Indeed, as 2014’s warm transactional climate extended into 2015, the biotech sector set new standards in multiple categories:

  • Potential value of M&A deals (US$100.2 billion)
  • Volume of M&A deals (89 deals with disclosed terms)
  • Potential value of alliances (US$55.4 billion)

Most of the activity involved US-based biotechs. This cohort accounted for roughly 90% of all M&A dollars (US$90 billion) and about three-quarters of 2015’s deal volume. (Of those 89 biotechs acquired during 2015, 64 were based in the US.) US biotechs also captured 78% of the year’s potential alliance value, a metric that includes milestones and earn-outs, but not royalties.

Key financing insights

Merger and acquisition activity in the US and Europe reached new heights in 2015 as total potential value and volume records were set for our universe of biotechnology companies. Cumulative deal value jumped 120% over 2014, and, at more than US$100 billion, nearly exceeded the previous three years’ combined value.

The year’s 89 M&A deals easily surpassed 2014’s 69 deals, the previous 10-year high. Seven megadeals — deals worth US$5 billion or more — were responsible for a significant chunk of that aggregate total. Overall, the sector saw 20 acquisitions valued at over US$1 billion, compared with 10 each in 2013 and 2014.

Celgene’s US$7.2 billion acquisition of Receptos and Alexion’s US$8.4 billion acquisition of Synageva helped to push biotech-biotech M&A metrics to all-time highs and signaled robust competition for the kinds of assets only big pharma might have been able to acquire in years past. Thanks largely to half a dozen large acquisitions, biotech-biotech M&A deals were valued at US$37.1 billion in total, nearly doubling the metric’s previous high.

There were 17 alliances forged in 2015 with total potential value greater than US$1 billion.

With the exception of Valeant Pharmaceuticals’ US$11 billion purchase of Salix Pharmaceuticals, specialty pharmaceutical companies were less active acquirers in 2015. As Valeant contends with leadership changes and a re-examination of its M&A-driven business model, the subsector will likely remain largely on the sidelines in 2016.

The astounding growth in biotech-biotech strategic alliance value and volume pushed 2015’s cumulative potential deal value (again, for deals whose terms were disclosed) above 2014’s already robust and record total.

Overall, there were 17 alliances forged in 2015 with total potential value greater than US$1 billion, compared with 12 in 2014 and only five in 2013. Of the top 15 strategic alliances (by potential deal value), nine give large biotechs or pharmaceutical companies broad, or expanded, access to a biotech’s technology platform. These alliances, which tend to mete out fractions of their impressive milestone payments across multiple potential drug candidates, drove biobucks totals ever higher.

For the second year in a row, the most active in-licensor was Johnson & Johnson. The big pharma announced 20 alliances, of which eight featured disclosed terms worth an aggregate US$4.2 billion in biobucks. Sanofi (including its Genzyme division) inked 16 alliances, including seven with disclosed terms worth up to US$7.1 billion.