M&A

Who’s in line for the next big mega-merger? Morningstar handicaps the odds among the top players

The M&A deals we’ve already seen in Q1 have whetted analysts’ appetite for much, much more. And Morningstar has come up with its breakdown of the top buyers likely scouring the industry for takeovers — as well as the top targets.

And more mega-mergers, they say, are very much on the table in 2019.

Lack of growth through 2022 at Amgen and Gilead, in combination with healthy expected cash flows and fair financial health, gives them the desire and ammunition for large-scale deals, although the best pairings (Amgen/Astra and Gilead/Regeneron) are made less likely by the strong valuations of their intended targets. J&J, Merck, and Pfizer also have the ability and desire to bolster their portfolios with bigger deals, and their shares are relatively strong currency; we think the Merck/Lilly fit is strong enough to counter Lilly’s higher valuation, and Pfizer could consider buying Bristol after the Celgene acquisition if valuations remain compelling, as this would greatly expand its oncology portfolio and pipeline. Novartis could raise enough cash to do a large deal following the Alcon spin-off and the potential sale of its stake in Roche, and AbbVie could be an interesting fit for its oncology and immunology portfolios. We think AbbVie (significant debt, undervalued shares) and Roche (strong pipeline, focused on oncology tuck-ins) will stick to smaller deals, and Sanofi is likely to continue its rare-disease focus with Sobi (the other half of Bioverativ’s business) and BioMarin (rare disease with gene therapy expertise).

Now for the targets in play:

AbbVie, Amgen, and Gilead are present on both our acquirer and target lists, as they have significant growth issues but also compelling pipelines and, in the case of AbbVie and Gilead, are undervalued. We think Biogen could be a target for a number of firms, as its neurology focus, strong pipeline, and undervalued shares would make it a very large-scale tuck-in acquisition. BioMarin is small enough to be acquired by any of the other names, and its rare-disease focus and gene therapy are areas of high interest in the industry. Regeneron isn’t a perfect fit with all firms, and its shares look fairly valued, but strong Eylea cash flows, potential blockbuster sales in pain, and a large, early-stage oncology pipeline could be appealing, particularly as Regeneron and Sanofi have recently defined their immuno-oncology collaboration and given Regeneron full rights to several programs.

There’s been plenty of criticism of the mega-mergers that occurred a decade or more ago. But Morningstar says things could be different this time around:

Strategically, while megamergers often fail to see the cost synergies laid out at the deal’s announcement and can be costly for R&D productivity, we think they do put firms in a better position to fight consolidation among payers and PBMs, if done smartly. That is, gaining access to a larger portfolio of drugs in a given therapeutic area gives a drug firm more leverage to negotiate prices on drugs in that portfolio, as denying one drug could mean higher prices for the remaining portfolio. Firms without a clear therapeutic area focus may also be more likely to do deals.


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VP Oncology Biology
Skyhawk Therapeutics Waltham, MA
Associate Director CMC
Elektroki Boston, MA
Director Process Development
Elektroki Boston, MA
Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT

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