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Big Pharma CEOs Indicate More M&A Deals at JP Morgan Meeting

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Several pharma and biotech companies participated in the prestigious J.P. Morgan Healthcare Conference held in San Francisco, CA this week. After two big M&A announcements early in the year, a key topic of discussion at the meeting was the possibility of more pharma and biotech M&A activity in 2019.

The year began with the announcement of the mega merger of cancer giants Bristol-Myers BMY and Celgene CELG. Bristol-Myers offered $74 billion in cash and stock to acquire Celgene.

In another big deal, Lilly LLY offered to take over Loxo Oncology for $8 billion to expand its oncology portfolio into precision medicines or targeted therapies. In December 2018, Glaxo GSK had offered to acquire TESARO for almost $5.1 billion, which will add the latter’s PARP inhibitor, Zejula, approved for ovarian cancer, to Glaxo’s portfolio.

After these announcements, it is widely speculated that more M&A activity, including mega mergers as well as strategic collaborations can happen. Chief executive officers (“CEO”) of some of the biggest biotech and pharma companies stressed on the same fact at the JP Morgan conference.

Big pharma companies are cash rich following the tax overhaul in 2017, which reduced the tax rate. The high premiums in the above deals also suggest the same. Moreover, the pullback in biotech stocks towards the end of 2018 lowered valuations of these companies, making them attractive buyout targets.

Albert Bourla, Pfizer’s PFE new CEO said that the company will continue on the same track though it will stay away from any “destructive deals”. Bourla showed interest in adding mid- and late-stage assets to its pipeline in its six therapeutic areas of focus. Merck’s MRK CEO Ken Frazier said that possibilities of more M&A activity are high as valuations are coming down. Merck has not made a big acquisition lately. Justifying this, Frazier said that though the company tried to ink some deals, none worked out due to lack of a willing seller or because the late-stage asset was too robustly competitive.

Lilly CEO David Ricks said that the company will continue to evaluate other potential deal targets — after the Loxo announcement — to enhance its position in its core therapeutic areas like cancer, immunology and neuroscience. Glaxo CEO Emma Walmsley also said that the company will look for early-stage assets and strike partnerships.

Biotech giant Amgen’s AMGN CEO, Robert Bradway said that the company’s strong balance sheet and cash flow should allow it to expand its portfolio by “acquiring or in-licensing attractive innovation.” AbbVie’s vice chairman and president, Mike Severino showed interest in strengthening the company’s pipeline through “strategic licensing, acquisition and partnering activity.”

Undoubtedly, the string of M&A announcements early in the year sets the tone for the rest of the year. However, it should be kept in mind that 2018 also began with a bang with expectations of record-breaking activity in the year. However, the number of mergers and acquisitions dwindled after the first few months, probably because potential acquisition targets demanded a premium.

So, it remains to be seen if M&A activity keeps up the momentum in 2019 or replicates last year’s trajectory.

Among the large drug and biotech companies mentioned in the article, Lilly, AbbVie and Merck carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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