- Billion-dollar deals from drug giants Eli Lilly & Co. and Bristol-Myers Squibb could set the tone for a year full of healthcare acquisitions, analysts and investors say.
- Factors like biotech companies' slumping stocks and last year's tax cuts could drive the trend, compared with last year's competitive nature and high premiums.
- These are the drugmakers to watch, and what they've said so far about M&A.
Headline deals by drug giants Eli Lilly & Co. and Bristol-Myers Squibb could be just the beginning of M&A activity in healthcare this year.
Deal fever has been building among investors and analysts, many of whom gathered at this week's J.P. Morgan Healthcare Conference, a major industry event that's held in San Francisco each year.
January's banner $74 billion $4 and $4 could set a tone for the year, they say, especially in biopharma. That's something of a reversal from $4 this year, after $4 in 2018.
There could be more big pharma deals in 2019
Big companies hinted in recent days that hopes for more deals are justified.
"I think the fact that you haven't seen a $4 coming out of Merck recently is not a reflection of the fact that we're not looking at those," Merck CEO Kenneth Frazier said during this week's J.P. Morgan Healthcare Conference, the biggest industry event of the year.
"We are active," he said, adding, "I think with the valuations$4 it creates more possibilities."
Deal activity could be higher than in 2018 because of a confluence of factors, according to a research note from Stifel. Those include: the underperformance of many small-to-mid cap biotech companies, last year's tax cuts and a desire to pull ahead of any possible 2020 political changes.
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`First and foremost, we're focused on M&A.'
Steve Elms's venture capital firm has benefited from this year's dealmaking. His company, Aisling Capital, $4 when Lilly agreed to acquire Loxo this week. And he told Business Insider he expects to see more deals.
"With the market selling off from the highs, yes I do believe 2019 is going to be an M&A year," Elms said.
Read more: $4
Drugmakers with large cash holdings have been clear targets for questions about M&A. They include Amgen and Gilead, which "both have well over $30B in cash," Cantor Fitzgerald analyst Alethia Young pointed out.
Amgen "may be much more active in M&A this year," Young predicted.
Robin Washington, the chief financial officer of biotech giant Gilead, said at the conference that, when it comes to spending the company's cash pile, "first and foremost, we're focused on M&A."
Wall Street is watching Biogen and J&J too
Another company that Wall Street has its eye on is Biogen. Some of the company's most promising experimental drugs are intended for Alzheimer's disease - an area with high unmet need, where drug development is $4 prompting calls for more diversification.
The biopharmaceutical company has typically bought earlier-stage companies, translating to relatively smaller price tags, including paying $27.5 million upfront when acquiring two drugs, one in phase 1a and one preclinical, from AliveGen in July, and its $75 million upfront acquisition of a phase 2b ready drug from Pfizer in April.
See more: $4
But the company raised eyebrows with recent comments about having $13 billion in financing capacity - prompting "several" questions about M&A during a recent hour-long meeting at the JPMorgan conference, Mizuho analyst Salim Syed observed.
By Syed's math, Biogen's total purchasing power is between $17 billion and $18 billion. Even so, the analyst said that he doesn't expect a large deal in the immediate future.
Johnson & Johnson, meanwhile, seemed to signal its interest in smaller deals during a JPMorgan presentation. CEO Alex Gorsky described the company's best deals as "the tuck-ins, the bolt-ons."
"Bigger is always more complicated. It's always more challenging, just more disruption," he said. "We're willing to take a look as we did with Actelion, and we think that that's been an important addition to us. But it does raise the bar in terms of your thought process and the capabilities that you need to bear."
Deals don't always work out, and some companies are cautious
Of course, M&A is also notoriously difficult to predict, Aisling Capital's Elms pointed out.
Last year, for example, a few acquisitions were announced early in the year "and then it was kind of quiet," he said. "Pharma companies continue to need pipelines. But you also just saw AbbVie $4 their Stemcentrx acquisition - that must have been painful."
Read more:$4
Big drugmakers, health insurers and care providers agreed to a record high of about $421 billion in transactions in 2018, Business Insider has $4.
Notable biopharma deals included Sanofi's $11.6 billion bid $4 Celgene's $9 billion $4 and Roche's $1.9 billion acquisition$4.
But, by contrast, companies were also "paying high premiums...as competition drives prices higher," according to an Informa Pharma Intelligence report from 2018, raising concerns about too-high valuations.
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