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Healthcare M&A deal value drops to $20B in Q3 as buyers target biotechs

Aggregate M&A deal value for the healthcare industry dropped to $20 billion in the third quarter of 2019, the lowest recorded for the period in at least the last five years, data compiled by S&P Global Market Intelligence showed.

A total of 431 deals were announced in the healthcare space for the third quarter, down from 476 M&A transactions worth a combined $27.50 billion in the same period of 2018.

Biotechnology remains at the center of dealmaking, with almost half the top 20 healthcare deals including companies from the sector.

Fitch Ratings said that U.S. pharmaceutical companies are turning to deal-making to manage generic erosion, new product pipeline issues, regulatory setbacks and contingent liabilities.

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Deal sizes for the quarter were smaller compared to the multibillion-dollar transactions unveiled earlier in the year — Bristol-Myers Squibb Co. with its $95 billion acquisition of Celgene Corp. in January, and AbbVie Inc.'s deal to acquire Botox-maker Allergan PLC for about $84.23 billion in June.

August saw the two largest asset acquisitions for the period — Summit, N.J.-based Celgene selling the global rights to its psoriasis medicine Otezla for $13.4 billion in cash to Amgen Inc. and Elanco Animal Health Inc.'s $7.6 billion deal to acquire Bayer AG's animal health business.

The Otezla divestment was conducted to ease antitrust concerns related to Bristol-Myers' purchase of Celgene. The U.S. Federal Trade Commission said having both Otezla and Bristol-Myers' experimental psoriasis drug under one company posed an anti-competitive risk.

On the other hand, Bayer is off-loading its animal health unit to focus more on its life sciences business, in what is considered the largest transaction in a series of measures initiated by the German company in November 2018.

Meanwhile, the biggest merger for the quarter was Exact Sciences Corp.'s $2.71 billion acquisition of fellow cancer diagnostic developer Genomic Health Inc. The Redwood City, Calif.-based company offers a portfolio of tests, sold under the Oncotype DX brand, using personalized genetic and genomic data to help in cancer diagnosis and treatment.

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Madison, Wis.-based Exact Sciences, which specializes in colon cancer with its Cologuard screening test, hopes to drive platform growth through the transaction, citing the pipeline fit. The cash-and-stock deal, already approved by both companies' boards, will be completed by the end of 2019.

In August, life sciences company Cambrex Corp. agreed to be taken private by an affiliate of London-based private equity firm Permira Advisers Ltd. for $60 per share in cash, or a total value of about $2.55 billion. East Rutherford, N.J.-based Cambrex provides drug substance, drug product and analytical services for the small molecule industry.

The transaction is expected to close during the fourth quarter, following the expiration of a 45-day go-shop period with no alternative acquisition offers for Cambrex.

Another deal to pass the $1 billion mark during the period was Danish drugmaker H. Lundbeck A/S' purchase of Bothell, Wash.-based Alder BioPharmaceuticals Inc. in a transaction valued at up to $1.63 billion net of cash. Valby, Denmark-based Lundbeck will see the addition of potential migraine medicine eptinezumab to its portfolio of brain disease therapies upon completion of the transaction.

Eptinezumab, a drug administered via intravenous infusion is being evaluated in late-stage studies for preventing migraine in adults. The IV migraine therapy is currently under review by the U.S. Food and Drug Administration, with a target action date of Feb. 21, 2020.

During the third quarter, Japan's Taisho Pharmaceutical Holdings Co. Ltd. completed its $1.60 billion acquisition of Bristol-Myers' French consumer health unit UPSA SAS. The deal, made in December 2018, was part of New York-based Bristol-Myers' efforts to focus its resources on developing medicines for patients with serious diseases.

Siemens Healthineers AG's pending acquisition of Waltham, Mass.-based robotics maker Corindus Vascular Robotics Inc. for $1.09 billion was the largest transaction in the healthcare equipment market.

In September, Vertex Pharmaceuticals Inc. agreed to buy privately held Semma Therapeutics Inc. for $950 million in cash, the third-largest deal targeting a biotechnology company for the quarter. Boston-based Vertex will gain access to cell-based therapies for type 1 diabetes through the acquisition.

The quarter's largest pharmaceutical deal was from Swedish Orphan Biovitrum AB (publ), which agreed to acquire Durham, N.C.-based Dova Pharmaceuticals Inc. for $850.5 million, in a move to bolster its hematology product pipeline. Dova is developing Doptelet, also known as avatrombopag, as a potential treatment of chemotherapy-induced thrombocytopenia, a condition characterized by low blood platelets, for which there are no approved treatments.

As biopharmaceutical companies with large market capitalization look to M&A for growth, Leerink analysts anticipate that more deals with larger transaction values will be announced in 2019, with the total full-year deal value for the industry expected to reach about $250 billion or more.