Blog | 2/27/2019

Shifting Tides in Pharma Dealmaking

Are Double-Digit Billion-Dollar Acquisitions Riding Their Last Wave?

By Divya Harjani, Engagement Manager

Despite a number of recent large deals among pharma and biotech, signs are pointing to a shifting deal-making climate. Several billion-dollar deals in 2018 and early 2019 are indicative of big pharma’s continued use of external innovation to fill pipelines. 2018 closed out with over 50 billion-dollar deals globally including Takeda’s massive $62B acquisition of Shire, GSK’s $13B acquisition of Novartis’s stake in their consumer joint venture, Sanofi’s acquisition of Bioverativ for $12B, Celgene’s acquisitions of Juno Therapeutics for $9B and Impact Biomedicines for $7B, and Novartis’ acquisition of AveXis for $8.7B. 2019 started with a splash with BMS’ newsworthy acquisition of Celgene for a whopping $74B and Eli Lilly’s $8B buyout of Loxo Oncology. However, we believe that big pharma will move away from large deals to focus on strategic investments and this post explores four reasons to support this:

(1) A shrinking pool of high value assets means the probability of mega deals decreases

(2) Pharma will use smaller deals to bolster capabilities or intake revenue in core therapeutic areas

(3) Mega deals are increasingly seen as value killers, not creators

(4) Strong public markets means the next wave of promising biotech targets won’t need an early pharma buyout


(1) A shrinking pool of high value assets means the probability of mega deals decreases

There are only a few companies remaining that could command as high a price as Celgene ($74B) or Shire ($62B). At the time of purchase, both companies had substantial revenue and offered assets that would further strengthen the principal company’s core capabilities.

In purchasing Celgene, BMS acquires Celgene’s $15B in annual revenues, strengthens its core capabilities in oncology, and expands into CAR-T. Since Celgene’s revenues are likely to take a hit after the impending Revlimid patent expiration, this positions the company as an opportunistic buy. Celgene’s purchase price likely factors in Revlimid’s patent expiration, along with Celgene’s potential for its recently acquired CAR-T business to add a new revenue stream in oncology.

After purchasing Shire, Takeda positioned itself among the top 10 pharmaceutical companies by revenue. In addition to Shire’s $15B+ in annual revenues (2017), Takeda also acquired Shire’s rare disease portfolio and expanded its footprint in the US.

Gilead, Amgen, and Biogen are the few remaining large biotech companies with over $10B in revenue that could provide a healthy revenue stream for a large pharma company, while adding capabilities in various key therapeutic areas like cardiovascular, oncology, and neurology. Other potential targets like Vertex, BioMarin, Alexion, and Regeneron provide smaller revenues, but offer growth and a healthy pipeline.


(2) Pharma will use smaller deals to bolster capabilities or intake revenue in core therapeutic areas

There are two fundamental reasons pharma does big deals: (1) Acquire supplemental revenue and (2) Bolster capabilities in existing therapeutic areas or expand into new ones. The larger acquisitions that run over $15B, like BMS/Celgene, can span both advantages. BMS picks up $13B annual revenues and Celgene’s capabilities in hematologic disorders, immunology, and CAR-Ts. Meanwhile, smaller deals around $5-15B, such as Novartis/AveXis and Gilead/Kite, aim to bring new capabilities or targets in-house.

BMS and Eli Lilly’s moves have stirred many conversations of M&A with top pharma executives, many of whom are saying they are more interested in smaller partnerships and bolt-on deals. After taking on debt to buy Shire for $62B, Takeda’s President of R&D intends to shift to smaller collaborative deals and has allocated capital to support those partnerships, particularly in rare diseases. Novartis’s strategy is shaping up to favor value-added bolt-on deals, collaborations, and licensing of specific assets.1 Pfizer noted that its large and diverse pipeline is expected to provide strong revenue, which has “rendered large-scale acquisitions to boost short-term growth unnecessary”, further supporting that the company will focus on small-scale acquisitions or licensing assets to round out their existing pipeline.2 Roche’s $4.8B acquisition of Spark Therapeutics is viewed as a bolt-on deal in hemophilia, a new and emerging therapeutic area for the company.

Large biotechs will also step up as dealmakers for small- to mid-sized deals. Gilead's CEO Daniel O’Day emphasized that the company is focused on M&A potential and growing as a leader in cell therapy and core therapy areas of oncology, NASH and other liver diseases, and inflammation. Amgen’s Chairman and CEO, Bob Bradway, spoke of Amgen’s ability to look at large and small acquisitions thanks to its revenue growth from its existing portfolio.2 Several analysts are also reporting that large pharma will prefer earlier-stage deals or discounted late-stage assets as opposed to the $15B+ acquisitions we’ve seen lately.3




(3) Mega deals are increasingly seen as value killers, not creators

Despite the active debate on whether pharma will pursue more mega deals and who will announce the next big one, many experts still question the return on investment from large ($15B+) acquisitions. On the one hand, there is speculation that the industry will see more mega deals. Merck CEO Kenneth Frazier subtly addressed this during JP Morgan, “I think the fact that you haven’t seen a large deal coming out of Merck recently is not a reflection of the fact that we’re not looking at those. We are active. I think with the valuations coming down, it creates more possibilities.”5

However, several other CEOs have publicly positioned their companies for partnerships instead, often citing the challenges with mega deals and the lessons-learned along the way. Although they can provide short-term revenue boost, many large acquisitions fail to deliver shareholder value when cost synergies are not effectively captured, talent is displaced, and the company suffers the opportunity cost from internal research and drug development. Novartis CEO Vas Narasimhan concurs, “When I look at our industry over 20, 25 years, historically big deals have not worked out.”4 Johnson & Johnson CEO Alex Gorsky further supports, “Bigger is always more complicated. It’s always more challenging, just more disruption.”4 Pfizer’s CEO, Albert Bourla, stated that he intends to steer the company away from “destructive deals” and exercise caution, despite the company’s large cash reserves4.

Pharma takes on massive risk when shelling out for a large acquisition. It pulls cash away from other value-added efforts, like R&D or other collaborations. Partnerships, on the other hand, require a smaller investment, reduces clinical and regulatory risk, and gives the target biotech the autonomy to compete more aggressively on timeline. Many pharma companies recognize the challenges of mega mergers, and we expect to see more careful movement towards collaborations and partnerships instead.


(4) Strong public markets means the next wave of promising biotechs won’t need an early pharma buyout

Towards the end of 2018, a decline in stock markets and poorer valuations meant that fewer companies were opting to raise funds through IPO or financing deals across the board. As a result, the number of pharma and biotech financing deals, including IPOs, FOPOs, and private investments, decreased in 20188


Notes: Includes worldwide deals from pharma or biotech companies, excludes terminated or withdrawn deals. FOPO = Follow-On Public Offering. IPO = Initial Public Offering. Financing includes convertible debt, nonconvertible debt, private investment from VCs, private equity, or a group of investors, or a spin-off. Source: Health Advances analysis, Strategic Transactions 2019.

However, 2019 has already shown promise, with many announced financing and partnership deals. Securing access to funds through the public market and financing through private investors give biotechs the necessary runway to take on more risk themselves, funds to push drug development to later phases, autonomy to run independently, and the potential for higher valuation upon evidence of clinical success. Given that, early biotechs are less likely to opt for a pharma acquisition if funding can be secured elsewhere. Therefore, we would expect the amount of private funding to increase and more companies to offer an IPO in 2019. From the pharma perspective, we would expect companies to continue engaging with biotechs through partnerships such as licensing or co-development in their core therapeutic areas, rather than through early-stage buyouts.

In January 2019 alone, pharma signed over 50 worldwide partnerships worth over $15B in spend, and several biotech companies have announced IPOs so far in February. Two biotech unicorns are off to the races, and three other biotech companies had successful IPOs so far this year. Four other biotech companies have filed for IPO. This clearly shows optimism in the public market, and although these companies have more to prove in the clinic with their newly raised funding, they are shaping up to be part of pharma’s next wave of potential targets, with focus areas covering immune-oncology, NASH, autologous CAR-T, and Alzheimer’s disease - all hot topics for the top pharma companies.


Source: Health Advances analysis, Yahoo Finance, Seeking Alpha, BioSpace, company websites.


Overall, we expect pharma to continue looking towards biotech to drive innovation through M&A within their core therapeutic areas. We will likely see a shift towards partnerships and smaller acquisitions ($5-15B) rather than large acquisitions due to a few reasons. Only a few large biotechs with the ability to command a massive price tag remain, but pharma’s skepticism of the value of mega mergers will likely skew them towards partnerships rather than buyouts. Many CEOs have publically supported partnerships as the key vehicle for innovation. Furthermore, small and mid-sized biotechs are successfully raising funding in the private and public sectors, which is reducing the need for an early pharma buyout. Promising biotechs like Gossamer Bio, Alector, and Harpoon Therapeutics could be part of the next wave of $5-15B buyouts targets. With several therapies expecting readouts in the first half of 2019, and many pharma companies enjoying cash reserves, 2019 will shape up to be an active year for pharma and biotech deal making.

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1. Grogan 2019, “Transglobal Pharma Consolidation Will Continue In 2019”, Scrip

2. Informa 2019, “2019 JP Morgan Healthcare Conference: Review”

3. RBC 2019, “2019 RBC Biotech Outlook Report: Navigating The Bridge to 2020”

4. Griffin 2019, “Gilead, Pfizer Execs Suggest Even More Pharma M&A Is on Way”, Bloomberg

5. Court 2019, “Big drugmakers are sitting on billions of cash — and top pharma executives are hinting about big M&A to come in 2019”, Business Insider

6. Scrip 2019, “Bristol/Celgene, Lilly Loxo Deals Boost Investor Sentiment”

7. Bell 2018, “M&A Trends in 2019: Will The Biotech Bubble Burst?”, Biopharma Dive

8. Health Advances analysis, Strategic Transactions 2019

About the Author

Divya Harjani is an Engagement Manager at Health Advances in the San Francisco office. She leads global commercialization strategy engagements for global biopharma and digital health clients, and their investors. Divya’s interests span cell and gene therapy, oncology, digital health, and real-world data. For further discussion on these topics, contact her at

About Health Advances

Health Advances is a strategy consulting firm that helps clients realize growth opportunities worldwide for healthcare technologies, products and services. Operating at the intersection of science, technology and business, our consultants work with senior executives and investors on their highest-stakes strategic decisions. The firm’s deep understanding of the healthcare ecosystem equips Health Advances to identify pragmatic, innovative strategies and business models. These same skills help executives set their M&A objectives and rigorously evaluate transactions. The firm employs over 150 full-time professionals in three main offices.

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