Merck and Novartis chiefs outline what's on the M&A menu in 2017
Every quarter Big Pharma CEOs almost inevitably get to answer at least one question from a prominent analyst about their next acquisition. This year, the questions have become more pointed as more of the Big 10 players talk a good game, but rarely seem to deliver—unless their name is Pfizer.
Here’s the bottom line on what we found out on Tuesday: Bolt-ons are still all the rage in M&A.
Merck, which has been a very cautious player since its Cubist buyout, wants anything new on the deal table to be easily clipped into the company’s current structure. Sound familiar?
Basel-based Novartis, which spent part of the morning reviewing a dozen potential blockbuster programs, is in exactly the same spot.
And Merck execs are not really too concerned about being distracted from Keytruda. Though that may be because that with 360 clinical trials for the checkpoint underway, including 200 combo studies, Keytruda is absorbing massive amounts of attention that would make neglect all but impossible on that front.
Merck’s most recent deal to buy Afferent for $500 million down and $750 million in milestones provides an example of what the pharma giant is thinking these days. It also likes to pick up new tech for its immune-oncology group, as it proved early this year with the acquisition of the small UK company IOmet.
Here’s Ken Frazier, answering a question from Tim Anderson:
So I said that it remains an important priority, and you should know we’re actively engaged and looking for ways of augmenting our pipeline. And in so doing, it’s important to remember that we are not limited by size or by phase. We’re going to continue to look for the best partnerships and collaborations. But fundamentally, we’re looking for bolt-on opportunities as a company. Your question about whether or not Keytruda changes our approach to business development; not really. We need to augment our pipeline. We continue to be active in that area. But I would not say that the August 5 news has changed our fundamental approach to business development.
Novartis doesn’t seem preoccupied with M&A right now. Here’s CEO Joe Jimenez answering the M&A question from Andrew Baum at Citigroup:
And then Andrew on your question on large-scale M&A. Look, we have been pretty clear that bolt-on strategy is really where we are focused at this point, that is…we won’t do large-scale, but it would have to be very, very attractive for Novartis shareholders, if we did. Right now, we’re focused on bolt-on and I think if you look at our pipeline, if you look at the underlying growth of this company, as soon as we get through 2017, which will be the final year of the Gleevec patent expiration in Europe, the true growth rate of this company is going to come through in 2017 – in 2018, 2019 and 2020. So towards the back end of 2017, 2018, 2019 and 2020 and with – that’s without the 12 blockbusters that you just saw up there on the list. So on top of that, I think, we’re in a position of not, you know, having to do large-scale M&A and there are some companies in our sector that will just pick from a pipeline standpoint. And so, we’re going to see how things play out, but really focus on bolt-ons at this point.
Did I say megamergers are out? I probably shouldn’t have to at this stage. But count Merck and Novartis out. Eli Lilly as well, though they didn’t have much to say about M&A in their call. That might be a sign of the progress they’ve had with their pipeline.