Pharmaceutical Stock Outlook: Acquisitions & Deals in Focus
2014 turned out to be one of the most active years in the pharma sector where mergers and acquisitions (M&As) and licensing agreements are concerned. While tax inversion deals were being actively pursued earlier, these cross-border deals lost their luster considering new rules imposed by the Treasury Department.
Deal-Making Frenzy Showing No Signs of Slowing Down
Nevertheless, M&As continue to play a major role in the pharma and biotech sector and are not showing any signs of slowing down. AbbVie’s (ABBV) $21 billion acquisition agreement with Pharmacyclics (PCYC) is one of the biggest deals to be announced in recent times. The deal goes to show that lofty valuations will not deter large companies from pursuing acquisitions to boost their pipelines and product portfolios. Other major deals include the ones involving Actavis (ACT) – Allergan (AGN), Shire (SHPG)-NPS Pharmaceuticals, Endo (ENDP) – Auxilium, and Pfizer (PFE)-Hospira (HSP). Salix (SLXP) is currently being wooed by both Valeant (VRX) and Endo.
Meanwhile, we expect small bolt-on acquisitions to continue. In-licensing activities and collaborations for the development of pipeline candidates have also increased significantly. Several pharma companies are focusing on in-licensing mid-to-late stage pipeline candidates that look promising, instead of developing a product from scratch, which involves a lot of funds and time.
Small biotech companies are open to such deals – most of these companies find it challenging to raise cash, thereby making it difficult for them to survive and continue with the development of promising pipeline candidates. Therefore, it makes sense for them to seek deals with pharma companies sitting on huge piles of cash.