Top Pharma Giants Expected to Be Most Active in M&A
- By Barry Cohen
Pharmaceutical merger and acquisition activity is expected to pick up this year, and four of the industry giants are expected to lead the way, according to Moody's analysts.
FierceBiotech reported that Moody's said the most active U.S. shoppers are likely to be Merck & Co. Inc. (NYSE:MRK), Amgen Inc. (NASDAQ:AMGN), Johnson & Johnson (NYSE:JNJ), and Bristol-Myers Squibb Co. (NYSE:BMY). The reasons include their portfolio challenges, financial pictures and statements they've made about acquisitions.
But investors shouldn't expect any mega-deals. Moody's thinks the companies will continue the recent pattern of going after companies with promising drugs in the pipeline or those recently approved. However, a big hurdle could be gaining approval from the Federal Trade Commission. The agency is putting together a working group to re-evaluate its practices relative to pharma merger deals. More rigid standards could make deals tougher to pull off.
Merck has the most substantial resources of the quartet given its cash on hand, debt level and potential free cash flow, as well as a credit rating that is unlikely to get dinged by a deal. The New Jersey-based compnay needs medications to complement its cancer drug Keytruda, which is set to become the best-selling drug in the world.
Merck CEO Rob Davis has said the company will be seeking acquisitions in the same range as the $1.85 billion it paid for Pandion Therapeutics earlier this year, although he is open to bigger deals.
Moody's thinks Bristol-Myers will also be a player, even though the company recently laid out $74 billion for Celgene and $13.1 billion for Myokardia. CEO Giovanni Caforio said the company is looking for "mid-size bolt-on deals" that can spur growth in the second half of the decade.
Amgen's needs are pressing because of its top five drugs, only Otezia, which it got in the Celgene divestiture, is growing fast. The other four are all either flat or losing ground.
Johnson & Johnson's strong balance sheet enables it to be a well-financed buyer. The company has one of the lowest debt levels in big pharma and cash on hand of more than $25 billion. Last year, the diversified health care company paid $6.5 billion for Momenta Pharmaceuticals.
At the other end of the spectrum are AbbVie Inc.(NYSE:ABBV) and Gilead Sciences Inc. (NASDAQ:GILD). They appear to have had their fill of acquisitions--at least for the time being--both having made expensive purchases recently.
In 2020, the pandemic took its toll on mergers and acquisitions, with the 10 biggest pharma deals valued at $97 billion, a figure dwarfed by the 2019 total of $207 billion. According to FiercePharma, the 10 biggest deals last year were (acquirer/acquired):
AstraZeneca (NASDAQ:AZN)/ Alexion Pharmaceuticals (NASDAQ:ALXN)
Gilead Sciences/Immunomedics
Bristol Myers Squibb/MyoKardia
Johnson & Johnson/Momenta Pharmaceuticals
Gilead Sciences/Forty Seven
Sanofi (NASDAQ:SNY)/Principia Biopharma
Merck/VelosBio
Bayer AG (BAYN)/Asklepios BioPharmaceutical
Nestle SA (NSRGY)/Aimmune Therapeutics (AIMT)
Servier/Agios Pharmaceuticals Inc. (AGIO)
Disclosure: The author has positions in Amgen, Johnson & Johnson, Bristol-Myers, AbbVie, Gilead and Sanofi.
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This article first appeared on GuruFocus.
