Pharma's checkbook keeps M&A flowing as biotech stays lukewarm

Despite soaring biotech valuations thanks to a then-boiling IPO market, Big Pharma wasn't shy about buyouts in the first quarter, according to PricewaterhouseCoopers, helping compensate for some fairly flat M&A activity among smaller drugmakers.

Per PwC's latest acquisitions report, pharma companies wrapped up 16 deals in Q1, a 33.3% jump over the prior quarter and equal to the same period in 2013. At $76.8 billion, though, the total buyout value dropped 74.1% from the year-ago quarter, but PwC points out that that period was a bit inflated by a few big transactions--a common problem in analyzing M&A trends. Biotech companies closed just 8 acquisitions on the period, four more than in Q4, but measuring up to an 82.7% dip in dollar value.

PwC expects the momentum to continue into the rest of 2014, and Q2's spree of deals bodes well for that prediction. It's likely to be a big year for M&A, the firm figures, thanks in part to pharma's appetite for promising biotechs but also due to the industrywide shift toward specification.

CEOs in the industry "are increasingly optimistic about their companies' prospects and are seeking opportunities to grow their businesses," PwC's analysts noted in the report. "These objectives, combined with strong equity markets, overall economic stability and trends in each of the sectors within the industry, are creating an environment ripe for continued M&A activity."

Among those trends is pharma's current affinity for slimming down. There were 13 divestitures across the life sciences in the first quarter, tallying $10.1 billion as the likes of Bristol-Myers Squibb ($BMY) and Johnson & Johnson ($JNJ) have favored investor-pleasing sell-offs and focused on their core units. That trend--as evidenced by unit swaps between GlaxoSmithKline ($GSK), Novartis ($NVS) and Eli Lilly ($LLY)--is alive and doing fine in the second quarter, too.

Hanging over any discussion of life sciences M&A in 2014, of course, are the two big will-they-won't-they stories of the past month: Valeant Pharmaceuticals' ($VRX) unwelcome $46 billion bid for Allergan ($AGN) and Pfizer's ($PFE) now $119 million passive-aggressive shot at taking over AstraZeneca ($AZN). If one or both of those deals comes true, PwC's prediction of "a heightened level of M&A activity in 2014" will look more than a little conservative.

- here's the release
- check out the report

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