Thanks to deals signed on Monday alone, another $17 billion is set to change hands in the hyperacquisitive drug business, a single-day record that closes out a bracing quarter for buyouts. But with industry titans paying ever-higher prices for a shrinking number of assets, how long can the good times roll?
Monday's four deals mark the busiest buyout day in healthcare history, according to Bloomberg, pushing Q1's combined announced and completed acquisitions to more than $75 billion in sum. That means 2015's biopharma deal total has already outpaced 2010 and 2011, according to Reuters, and the first quarter's explosion of acquisitions is dwarfed only by that of 2009, which was inflated by megamergers from Merck ($MRK) and Pfizer ($PFE). And if 2015 keeps this pace, it'll top 2014's record $220 billion in industry deals and mark the biggest year of all time, per Bloomberg.
Such superlatives only underscore the conversation taking place in every corner of biopharma: Is this a bubble? On the one hand, an active M&A market affirms one of the major pillars of the bull case, which is that Big Pharma has both the cash and the compulsion to pay top dollar for pipeline assets. One of Monday's deals, Teva's ($TEVA) $3.2 billion acquisition of Auspex Pharmaceuticals ($ASPX), illustrates that principle quite well. Major drugmakers still have big gaps in their pipelines and need biotech's help, the thinking goes, and the wide-open IPO window has provided both a near-term liquidity option for investors and a lever for boosting the valuations of startups and their assets. And when those startups either go public or get bought, their backers are rewarded with cash to go out and find the next ones, creating what some believe is a self-sustaining system.
But, on the other hand, escalating valuations point to unrealistic expectations for in-development drugs, many analysts warn. No matter Wall Street's opinion, it remains true that the majority of investigational treatments fail to hit the market, and few among even those recoup the cost of development. A handful of major bumps--whether clinical, regulatory or commercial--could lead the whole industry to look down at the canyon below, swallowing billions in value. And the current arms race of valuations risks both accelerating the eventual decline and worsening its potential effects, bearish observers contend.
In the meantime, more deals mean more deal speculation. Last week, an unsourced blog post wondered whether Shire ($SHPG) might be taking a look at BioMarin ($BMRN), a shaky rumor that still managed to send the latter company's shares to an all-time high. In the days since, there has been no independent confirmation of the story, let alone an actual bid, but BioMarin is still trading more than 10% higher than before the Shire rumors took flight.
To this point, simply betting on biopharma to deliver more and more M&A has been lucrative for many investors, but what happens when market chatter starts amounting to just that?
"I'm not saying this is the end of it," Wall Street Access' Tom Burnett told Bloomberg, "but we must be in the 7th inning by now."
-- Damian Garde (email | Twitter)