Worth A Look At 2013: EvaluatePharma Report Puts 2014 in Perspective

By Louis Garguilo, Chief Editor, Outsourced Pharma

The M&A news for big pharma has come so quickly thus far in 2014 that we could easily overlook the events that transpired in 2013. Fortunately, the folks at EvaluatePharma did not. Their 2013 report on the industry is a nice look at where we are coming from and allows us some reflection on what preceded the events that have occurred in this first half of 2014.

Out of all the charts and analysis in the report, one in particular lends some key perspective. The chart shows total pharma M&A deals (and market value) for the years 2008-2013. According to EvaluatePharma, in 2009 there were 169 deals valued at $142 billion. In 2013 there were also 169 deals, but this time valued at just $76 billion. It would be easy to conclude from these numbers that we are entering a period of limited deal-making in the industry, but events during the first half of 2014 now inform us that would most likely be the wrong conclusion.  

The 2009 number, though, looks like a good one for us to use as a benchmark for 2014. It stands out as having about the average deal flow (179 over the 6-year period) but more of the megadeal kind. Here in 2014, although the number of deals might not get to the 2013 level (but who knows with six months left?), it will be interesting to see by how much we surpass that $142 billion value. Assuming for the moment that Pfizer does grab AZ for north of $100 billion, and at least a few more mid-sized deals transpire before December, we could easily surpass $200 billion this year. That is a number worthy of some contemplation. If the EvaluatePharma report had come out a few months earlier, many prognosticators would likely have been eating crow.

Investors Were In, And Rewarded

Although the $76 billion spread over 169 deals in 2013 seems less than exciting (and in fact was not far from the 6-year average of $85.5 billion), the real value came in the stock market. EvaluatePharma comments: “The Nasdaq biotechnology index ended the year at a record high, US investors became highly receptive to IPOs – even the more high-risk propositions – and secondary fundraisings no longer caused shareholders to flee in alarm at being asked for more money.”

The report further states that “few were willing to use the word bubble in 2013, but as share prices climb ever higher this will be heard more often. As such, the biggest question mark for the sector in 2014 will be the sustainability of these valuations.” Thus far in 2014, “bubble” is a word that has been thrown around quite often. We will have to wait and see what the last five months of intense M&A activity does for valuations.

Most important to long-term valuations, of course, is whether this flurry of activity results in streamlined and strengthened R&D. It will also be interesting to see if the end result is commercial success, and if so, how quickly those results materialize.

The report reminds us that 2013 was “The Year of Eight Blockbusters,” and that the FDA approved fewer novel molecules than in 2012. There are two points here worthy of consideration. First, 2012 was a record year for the industry’s R&D side, which undoubtedly caused many to release a collective sigh of relief. Second, “the value of 2013’s cohort was record-breaking in its own right.” The report anticipates combined fifth-year projected sales to reach $25.4 billion, the highest in the last decade and “50% more than even 2012’s 43 new drugs.”

It was also interesting to read how in hindsight 2013 played out as a major turnaround in the biotechnology IPO market. Recall that through 2012 and even a good part of 2013, biotechs were vocal about the lack of venture capital through the preceding years of a very dry spell. The year 2013 featured geographic areas of concern, while biotechs, particularly in Europe, were feeling starved for cash. Many of the CROs I spoke to during the year complained about the lack of capital investment holding back projects and new project starts at many of their biotech customers. This situation resulted in an adverse impact on these European CROs.

Now it appears VC has started listening to the needs of the industry and reevaluating this sector of the economy in a big way. Indeed, the report singles this out by stating that “in 2013 private drug developers raised $4.5bn from venture funds, a similar amount to 2012 but still an encouraging sign from the end of the sector that really struggled with the fallout of the banking crisis.” The report notes its data only covers companies developing human therapeutics, and excludes medtech or diagnostic investments.

Not The Year of Big Pharma

Finally, the advantage point of sitting here at mid-point of 2014 reminds us how much things can change year-to-year, because big pharma was not considered active in 2013. While that relative quiet period was not quite a point of puzzlement for investors and the industry itself, there is actually a positive side. If we divide the industry into biotech, specialty/mid-sized and big pharma, the 2013 data point out that the growing health of the former two bodes well for the health of the entire industry.

Here are the top 5 deals in 2013 from the Evaluate Report, with big pharma notably absent:

Acquiring	Target	Value ($B)
Amgen	Onyx Pharmaceuticals	10.4
Valeant	Bausch + Lomb	8.7
Perrigo Company	Elan	8.6
Actavis	Warner Chilcott	8.5
AstraZeneca	Bristol-Myers Squibb (diabetes)	4.3

What a difference half a year or so makes.

Do you have thoughts on how 2014 will continue to shake out? Please leave a comment below and let us know what you think.