Tried and trusted: US M&A in 2017: Searching for the next big thing: Healthcare M&A

by White & Case LLP
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The hunt for blockbuster drugs is driving activity within the sector, while technology firms’ increasing presence in the market will be an area to watch in 2018.

Despite a fall in headline figures, the healthcare sector continues to produce large deals, as companies use M&A to consolidate, reduce cost bases and broaden product portfolios. M&A volume decreased 4 percent to 542 deals in 2017, and deal value fell 15 percent to US$155.2 billion.

Building new pipelines

Within the pharma sub-sector, companies have made acquisitions to bolster their R&D pipelines and enter new adjacent markets. “There is always the search for the next blockbuster drug. If you can’t develop it on your own, you will go out and you will buy someone that is developing it,” says Mort Pierce, partner at White & Case.

One such example is Gilead Sciences’ US$10.2 billion acquisition of Kite Pharma, which diversified its portfolio away from reliance on its hepatitis C drug pipeline. More recently, Gilead announced its US$567 million purchase of Cell Design Labs, providing it with access to new development pipelines for cancer treatments. Meanwhile, Japanese giant Takeda’s US$4.8 billion acquisition of Ariad delivered results when an Ariad lung cancer drug was approved by regulators a few months after the deal.

542
Number of deals in the US healthcare sector in 2017

Medical muscle

Deal activity within the medical sub-sector is being driven by increasing pressure placed on suppliers to consolidate, reduce prices and create larger product portfolios. These drivers resulted in the largest deal of the year: medical supplies company Becton, Dickinson & Co.’s US$24 billion agreement to buy rival C.R. Bard. Through the deal, Bard adds oncology and surgery devices to its portfolio—both high-growth areas.

15%

Percentage decrease in deal value targeting the sector compared to 2016

Tech infiltration

Healthcare companies are increasingly turning to M&A in response to challenges from technology companies encroaching on their markets. Pharmacy group CVS recently agreed to pay US$67.8 billion for health insurer Aetna in response to news that Amazon was preparing to move into medicine distribution. The deal also provides CVS with more purchasing power when dealing with pharmaceutical companies. “When a company like Amazon picks new areas that it wants to go into, that will spur deal growth by companies already operating in that sector, so that they can compete more effectively,” says Pierce.

TOP PHARMA, MEDICAL & BIOTECH DEALS 2017

1. Becton, Dickinson & Company agreed to buy C.R. Bard, Inc. for US$23.6 billion

2. Gilead Sciences acquired Kite Pharma for US$10.2 billion

3. Abu Dhabi Investment Authority and GIC Private Limited agreed to buy Pharmaceutical Product Development, LLC for US$9.1 billion

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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