Gilead, Pfizer Execs Suggest Even More Pharma M&A Is on Way

Riley Griffin, Bloomberg

January 7, 2019

U.S. drugmakers are showing a new appetite for deals after saying for months that they were focused mainly on existing products.

Eli Lilly & Co. said Monday it will acquire Loxo Oncology Inc. for about $8 billion in cash. The announcement came just days after Bristol-Myers Squibb Co. and Celgene Corp. announced a $74 billion cash-and-stock deal, the biggest pharma deal ever.

Now some of their rivals want to get in on the action.

“First and foremost, we’re focused on M&A,” Gilead Sciences Inc. Chief Financial Officer Robin Washington said Monday at the J.P. Morgan Healthcare Conference in San Francisco. Washington noted the company may also pay down some of its debt and weigh share buybacks. But mergers will be the biotech’s “primary focus,” she said.

Pfizer Inc. also said it would include acquisitions among its growth options. Pfizer Chief Executive Officer Albert Bourla said the company was interested in picking up mid- and late-stage assets that it could develop and add to its existing pipeline.

“We do have the ability because of our balance sheet to do virtually any deal that one can think of in this industry,” Bourla said at the conference.

Merck & Co., too, is on the hunt.

“We actually tried to consummate some deals; they haven’t worked because we haven’t had a willing seller, or the asset was too robustly competitive because it was a late-stage asset,” Merck CEO Ken Frazier said at the conference. “But, broadly speaking I think with the valuations coming down, it creates more possibilities.”

The new M&A activity comes as biotech shares are the lowest they’ve been in more than four months. The Nasdaq Biotechnology Index of stocks is down about 13 percent since Sept. 1.

“We continue to believe in the strong fundamentals for the biotech space and view the recent significant pullback since October, which erased the past two years of gains, presents an opportunity to add some of the quality biotech names,” Peter Lawson, an analyst with SunTrust Robinson Humphrey, said in a note to clients Monday.

The Lilly acquisition “underscores enthusiasm on the part of large-cap pharma companies to do deals,” said Cantor Fitzgerald LP analyst Louise Chen in a note.

Lilly CEO David Ricks said on a conference call that the company would continue to evaluate other potential deal targets in various therapeutic areas, including cancer but also in immunology and neuroscience, areas where the company has had strong research programs. Despite its interest in other areas, Ricks said there were generally more potential deal opportunities in cancer given how many small and venture-backed biotech companies are studying the disease.

Pfizer Strategy

For Pfizer, any large new deal would represent a strategy reversal. When the pharma giant announced in October that Bourla would succeed Ian Read as CEO, the move symbolized the company’s shift toward emphasizing its internal pipeline efforts over a larger merger or acquisition. Pfizer grew to become the largest U.S. drugmaker in part by snapping up companies. In 2016, it acquired at least eight companies or product lines, including Medivation Inc. for $14 billion.

Not all industry leaders are confident about big deals, however. Novartis AG remains cautious.

“When I look at our industry over 20, 25 years, historically big deals have not worked out,” Novartis CEO Vasant Narasimhan said at the conference. “If you look at the track record, there’s a limited number of large transactions simply because it’s really hard to integrate large companies like ours with complex R&D operations — scientists, all of it.”

Narasimhan said “you need a very compelling reason or compelling case to actually want to do up a large transaction.”

Pfizer also said that while it has the cash for a transaction, it needs to be cautious.

“I don’t want a destructive deal,” Bourla said.

Posted in: M&A, Operations

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