Having access to overseas cash without tax will increase pressure on companies to use that money, S&P Global Ratings wrote in a Jan. 2 report. However, significant spending on share repurchases or M&A could materially weaken companies' credit, the agency said.
Some companies have gotten an early start on M&A in 2018. Connecticut-based health insurer Cigna Corp.'s $67 billion bid to acquire the last large stand-alone pharmacy-benefit manager, Express Scripts Holding Co., is setting up a big year for M&A activities in the healthcare sector.
Celgene Corp. paid about $9 billion for Juno Therapeutics Inc. in a deal that closed last week. The U.S. biotechnology company also announced the purchase of privately held Impact Biomedicines Inc. for about $1.1 billion early in the year.
Smaller takeovers pending in 2018 include Roche Holding AG's $1.9 billion acquisition of Flatiron Health Inc., an Alphabet Inc.-backed healthcare technology and services company. The Swiss pharmaceutical giant already owns 12.6% of New York-based Flatiron Health.
More deals may be on the horizon, according to a report from consulting firm EY that predicts the global value of healthcare dealmaking this year is likely to exceed that of 2017. S&P Global Market Intelligence estimates the sector recorded a total transaction value of $335.67 billion in 2017, including 20 deals with a transaction value of $2.4 billion or more.
Denmark's Novo Nordisk A/S is also scouting the market for potential M&A opportunities. The company plans to spend $2 billion to $3 billion on acquisitions this year, the company's CFO Jesper Brandgaard said during an earnings call.
Lower corporate tax rates and the weaker dollar are motivating Novo Nordisk to invest and acquire assets in the U.S., Brandgaard said. He added that if Novo Nordisk decides to change the scale of its dealmaking, the company would make sure that the transaction is going to bring additional value to shareholders.
Amgen Inc. CFO David Meline said the Calif.-based biotech company is "looking hard" for M&A opportunities to deploy any excess cash.
Sticking to business development priorities
Meanwhile, Gilead Sciences Inc. President and CEO John Milligan said in an earnings call that the Calif.-based drugmaker plans to expand the company's pipeline through purchases and partnerships with other companies.
Indiana-based Eli Lilly and Co. will be looking into M&A opportunities by deploying the additional funds acquired via tax reforms but it plans to stick to its business development priorities. Those include diabetes, oncology, immunology, neurodegeneration and pain, CFO Joshua Smiley said in an earnings call.
Medical device company Zimmer Biomet Holdings Inc. is planning to divest its dental products unit. Private equity firms are already tipped to be among potential suitors.
China's Sinocare Inc. is in talks to buy a diabetes care business from U.S. healthcare giant Johnson & Johnson. Sinocare plans to team up with state-owned China Jianyin Investment Ltd. to bid for the diabetes unit, which could be worth up to $4 billion, Reuters reported.
However, New Brunswick, N.J.-based J&J claims it will take a breather from M&A activity in the wake of the tax reforms, according to Chairman and CEO Alex Gorsky.
"The wise thing to do is to invest a good portion of that back into R&D," Gorsky said during the company's fourth-quarter 2017 earnings call.
Merck & Co. Inc. is also sidelining itself from M&A activities. The N.J.-based drugmaker plans to steer clear of a "large transformational deal" related to acquisitions as well, the company's CEO Kenneth Frazier said in the earnings call.
In spite of the surplus Pfizer Inc. received due to the tax reforms, the company's CEO Ian Read said that the New York-based company's underlying M&A strategy remains the same.
'We don't feel any pressure'
"We don't feel any pressure to immediately do any type of deal in the sense that we've just had a very good year in '17," Read said in the company's earnings call.
Meanwhile, U.K.-based Reckitt Benckiser Group PLC submitted a nonbinding bid for Pfizer's consumer health business, which includes the Advil painkiller and Centrum vitamins. J&J and Swiss food company Nestlé SA also considered making offers, but decided against doing so. Sanofi CEO Olivier Brandicourt confirmed that the French drugmaker has stepped away from bidding on the Pfizer unit.
British drugmaker GlaxoSmithKline PLC has also showed interest in a bid for Pfizer's consumer health business, but their CEO Emma Walmsley said in the earnings call that there is no immediate need for a large-scale acquisition. She said the company is "very happy" with its consumer business and its first priority is to strengthen the pharmaceutical pipeline organically.
Biogen Inc. is taking an "active but disciplined" approach to M&A, CEO Michel Vounatsos told analysts in the company's earnings call.
"I don't see a frenzy of increase because of more cash," he said.
There is more than the influx of cash from tax reform spurring M&A in the industry. The incipient partnership between Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. could compel competitors to seek consolidation or deals within their supply chains, Gurpreet Singh, a U.S. health services leader at PwC, said in an interview.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
