After a few lean years of tepid dealmaking, biopharma M&A roared back in 2013, as ever-inflating price tags brought in big numbers despite a drop in buyouts. Now, as valuations keep their skyward pace, the industry might be in line for some sticker shock in 2014.
According to EvaluatePharma, the industry shelled out $75.6 billion in acquisitions last year, well above 2012’s $43.2 billion and 2011’s $55.2 billion. Notably, last year’s 169 announced buyouts were the fewest clocked since 2009, per Evaluate’s numbers, and unlike the mega-merger-laden years following the financial crisis, 2013’s total wasn’t propped up by deals in the tens of millions.
Instead, an emerging biopharma middle class accounted for the bulk of the year’s large transactions, including Perrigo’s ($PRGO) $8.6 billion deal for Elan, Shire’s ($SHPG) $4.2 billion bid for ViroPharma ($VPHM) and Bayer’s $2.4 billion offer for Algeta. EvaluatePharma attributes that trend largely to some strong cash flows and cheap, available debt financing.
But there could well be a reckoning on the way in the coming year thanks to some overlapping trends poised to alter the M&A landscape.
Back in 2008, when assets were dirt cheap, Big Pharma went on a shopping spree to bolster its pipeline. Now, thanks to the triumphant return of the successful biotech IPO, things have swung in the other direction, and the promise of receptive public markets has helped would-be targets drive up asking prices.
That trend kept Big Pharma watching from the sidelines on many of 2013’s biggest deals–AstraZeneca ($AZN) is the only giant on EvaluatePharma’s top 10 list–and if that disinterest persists, investors may lose faith in those big exits they so crave, leading the biotech valuation bubble to up and burst.
At the same time, last week’s J.P. Morgan Healthcare Conference was abuzz with word that a huge crop of biotechs are queuing up to go public in the first quarter of 2014, leading many to speculate that a few Wall Street busts could sour the party for everyone else and thus affect the larger M&A market.