M&A

With $460B in borrowing capacity, will any of the Big-20 biopharmas go after one of the top-5 takeover targets?

Geoffrey Porges, Leerink

Leerink’s always interesting Geoffrey Porges knows how to get your attention. And nothing turns the head faster than a list of major league takeout targets.

Now that Takeda has lined up its $62 billion deal to buy Shire $SHPG, without working too hard to line up the money, Porges decided to bring out the calculator to see what industry leaders could do if they really wanted to buy Something Big. And then also added a few key targets that would get the bankers to stomp the ground in anticipation.

Just looking at incremental debt capacity, Porges concluded: 

The companies with the greatest incremental debt capacity on the basis of their prior trough ICR are AMGN ($17bn), CELG ($20bn), PFE ($19bn), MRK ($20bn), JNJ ($13bn), Roche ($45bn), GSK ($17bn), and SNY ($14bn). In total, these companies could issue $110bn in new debt (or decrease their cash balances via acquisitions equivalent to $110bn), with the largest capacity at GILD ($20bn) and RHHBY ($23bn)….

On the basis of incremental net debt/EBITDA to the group peak leverage of 2.8x, the companies that could take on the most incremental debt included AMGN ($33bn), BIIB ($21bn), GILD ($38bn), ABBV ($17bn), PFE ($41bn), MRK ($38bn), LLY ($19bn), JNJ ($66bn), Roche ($55bn), GSK ($21bn), NVS ($19bn), SNY ($21bn) and NOVO ($25bn)…Based on this “peak industry leverage” approach analysis, a number of companies could potentially issue over $30bn in new debt for such a transaction, including AMGN, GILD, PFE, MRK, JNJ, and RHHBY. 

Here’s Porges’ take on the top potential buyers.

J&J: The pharma giant’s last big hunt was for Actelion in early 2017. Porges says that the healthcare conglomerate is primed and able to go up to $65 billion on its own — separate from target-based financing. That makes J&J, which has long had a taste for 10-figure oncology development pacts, a leading contender for major M&A. Roche also registers very high on the clout-o-meter, but the Swiss company has repeatedly insisted it will limit itself to bolt-ons.

J&J could be far more opportunistic.

Roger Perlmutter

Merck: Merck’s been reserving its financial firepower for alliances like the $8.4 billion one it scored with AstraZeneca on the PARP inhibitor Lynparza. As a commercial alliance, the pharma giant didn’t have to wait to start capitalizing on the deal. But its R&D purchases have been much, much smaller, as research chief Roger Perlmutter tends to stay tightly focused on a few smaller things that get his attention. Merck, though, has the muscle to power lift a major player in an acquisition. Its success in moving Keytruda toward the number one slot in I/O hasn’t hurt, and could also persuade investors that diversification is good.

Pfizer: What big M&A list is complete without Pfizer? CEO Ian Read insists that the big deals can work, even as most of the industry hates them. Pfizer doesn’t mind going hostile and has the most ruthless rep for engineering brutal restructurings that cost plenty of jobs. Still, the company hasn’t been sounding quite so bullish, lessening the odds — unless Read decides to cap his career with the big one.

Gilead: Gilead did one deal for Kite that helped calm down analysts looking for a new business to replace the ailing hep C franchise, which is melting away. Now some would like to see John Milligan go even bigger. Never count Gilead out. This aggressive company tends to do what it sets out to do.

Amgen: CEO Bob Bradway is due for a deal, and one that could outshine the $10 billion Onyx acquisition. The pipeline could use a late-stage boost and Bradway is first and foremost a numbers guy. If the numbers work, he’ll go big.

So what about potential high-profile takeouts?

George Yancopoulos

Regeneron’s Len Schleifer and George Yancopoulos have built one of the most admired biotechs this side of Roche’s Genentech. Their R&D alliance with Sanofi has been hugely productive, though the full commercial potential hasn’t been realized, and they’ve proven able competitors against rivals like Novartis. Would innovation stay high if a company like Pfizer came along? That’s doubtful. Matching an ideal buyer with an ideal target is rare in biopharma.

Biogen has been and will remain a takeover target, even as analysts push the company to go big as well on M&A. The late-stage neurosciences pipeline is light on catalysts and heavy on risk, but the MS leader has remained an agile and potent player in its field. 

Takeda is on Porges’ list, but on a pre-Shire basis. Once that deal goes through, who would want to buy Takeda? Astellas, which is currently undergoing a major revamp under a new CEO, is also mentioned. Maybe Astellas will surprise everyone and do a deal along the lines of a Shire buyout.

Alexion is also on everyone’s top-5 list of takeover targets. It has a blockbuster drug on the market and a follow-up that can help extend franchise value. The company is also on the hop, looking to make a leap into the Boston hub as new CEO Ludwig Hantson rebuilds the pipeline after starting over on the top executive crew. 


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