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Cancer-focused drugmakers, private equity drive healthcare M&A surge in 2019

The healthcare industry saw the largest surge in deal activity in the past five years with 2,184 businesses poised to change hands in 2019, according to data compiled by S&P Global Market Intelligence.

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The sector saw $334.67 billion in deal-making activity — nearly $10 billion more than 2018, but fell short of the highs of 2014 when the industry saw $342.27 billion in M&A transactions.

Novartis AG's costly $9.30 billion acquisition of Parsippany, N.J.-based The Medicines Co. dominated the fourth quarter of the year, but the closing months of 2019 also saw some private equity firms making deals at or above the billion-dollar threshold.

EQT Partners AB entered an agreement to buy Metlifecare Ltd. for nearly $1.19 billion, while Baring Private Equity Asia said it would purchase Lumenis Ltd. at an enterprise value of more than $1 billion. Though not reaching the billion-dollar mark, private equity firms Olympus Partners and Cinven Partners LLP agreed to pay $612.0 million and $865.4 million — above the $500 million threshold — to purchase Soliant Health Inc. and National Seating & Mobility Inc., respectively.

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Among the largest deals tracked by S&P Global, M&A activity during the quarter, and by extension 2019, seemed to have been directed at snapping up cancer assets — particularly those that have the potential to be highly personalized — as companies tried to maintain their hold in one of the most profitable disease areas of the healthcare industry.

For instance, Merck & Co. Inc.'s purchase of ArQule Inc., the developer of BTK inhibiting cancer therapy ARQ 531 — a medicine that has the potential to compete against Eli Lilly and Co.'s Loxo-305, an asset Lilly inherited after buying Loxo Oncology Inc. earlier in 2019.

French pharmaceutical giant Sanofi also agreed to dish out over $2 billion to acquire cancer and autoimmune disease therapy developer Synthorx Inc., which is based out of La Jolla, California. Meanwhile, Japanese drugmaker Astellas Pharma Inc. is betting on gene therapies with the purchase of Audentes Therapeutics Inc. for over $2.6 billion.

M&A activity in the digital health sphere also reached new highs in 2019.

"On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates and private equity firms alike have ample cash reserves and appealing debt financing options at their disposal," Beranger Guille, global editorial analytics director, said in Mergermarket's Global & Regional M&A Report for 2019. "The feeling that these conditions may not last and the desire to secure future growth are pushing valuations up."

Mergermarket noted in its report that global M&A activity in 2019 was down 6.9% versus 2018 to $3.33 trillion across 19,322 deals. Although activity was above 2016 and 2017 levels, dealmaking slowed down significantly in the latter part of the year, with the second half of the year recording a 24.2% fall in value versus the first half.

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M&A volume during 2020 is anticipated to remain high, but may not reach the levels of 2019, experts say. Bristol-Myers Squibb Co. CEO Giovanni Caforio — who spearheaded the largest deal of 2019 — has indicated the pharmaceutical giant would pursue further dealmaking this year, but some leading drugmakers, such as Johnson & Johnson, say they already have the assets they need to move forward.

Michael Levesque, a senior vice president at Moody's, expects mergers and acquisitions will continue to be a major theme in 2020 due to a combination of incoming generic and biosimilar competition and an abundance of dealmaking cash on hand.