M&A: Buckle your seat belts for another big round of deals

With valuations down, buyouts and licensing deals become even more attractive. They're already a requirement. Anyone with a casual acquaintance with the state of Big Pharma R&D knows the giants in this business badly need promising mid- and late-stage assets to feed into their pipelines.

And it's not just pharma. We are ending the year with Gilead ($GILD) and Biogen ($BIIB)--two focused, model Big Biotechs--expected to pull off major acquisitions. A third model biotech, Celgene, has done big deals this year and will do more in 2016. 

When the Pfizer/Allergan megadeal goes through, which is likely in the absence of Congressional cohesion in the face of unpopular tax inversion deals, you'll still have an organization that ultimately needs more viable R&D projects. Pfizer's low historic productivity rate in R&D, as we all know, isn't going to be resolved by another megamerger. 

You can run down the list of the rest of the big 10, GlaxoSmithKline ($GSK), AstraZeneca ($AZN), Eli Lilly ($LLY) and others, and see a clear and compelling need for big late-stage drug development programs. Novartis and Roche, which are making significant progress, both have big pipelines that require regular feeding.

That won't come cheap. Anything that looks like a home run in Phase III is going to fetch a blockbuster M&A deal, even without a hot IPO market to pump up valuations. 

Brent Saunders

At one point in 2015, Allergan CEO Brent Saunders had started a very interesting argument that the highest and best use of research money should be focused on late-stage assets. Mistakenly, that was made to look as if he was shunning research, a subject that is verboten in Big Pharma and won't fly for Saunders--the consummate dealmaker--now that he's destined to step into a top role in Pfizer. You can waste billions on early-stage R&D in Big Pharma and win nothing but praise for your concern about curing diseases. And praise is what Big Pharma wants and to a certain extent needs for its lobbying efforts.

Over the last few years, though, as billions of dollars flowed into biotech, we've created a new world, one in which Big Pharma should devote a much larger budget to buying high-priced treatments that have earned solid data in human studies. Big Pharma can do one thing right: Take a promising asset and hustle it through a massively expensive Phase III program. It can buy much of the rest.

That's its proper role, and it's an extraordinarily important one. Let's roll with it. -- John Carroll