Biotech M&A topped $100 billion in 2015 – report

Richard Staines

Biotech M&A activity topped $100 billion in 2015, amid soaring revenues and income – but the good times will not last forever as pressure on prices is set to intensify, according to an influential report.

Ernst & Young’s biotechnology industry report, Beyond borders: Returning to Earth, now in its thirtieth year, said 2015 set new records in revenue, net income, financing and deal values.

But slowing growth in many of these indicators, and an erosion of public investor interest, suggest the industry’s successes may have peaked according to the report launched at the BIO International Convention in San Francisco.

M&A activity was at a record high in 2015 for the second consecutive year. There were 89 biotech M&A deals, a 10-year high – and their cumulative value jumped 120% compared with the previous year to $100.2 billion, close to the combined value of the previous three years.

Major players in biotech M&A in 2015 were AbbVie with the potential $21 billion acquisition of cancer drug firm Pharmacyclics, and Shire, which bought Dyax for $6.5 billion and NPS Pharmaceuticals for $5.2 billion.

Shire spent the last part of 2015 attempting to buy Baxter spin-off Baxalta – and finally closed the $32 billion deal last week.

Another notable deal was Valeant’s $11 billion acquisition of Salix Pharmaceuticals and Alexion’s $8.4 billion acquisition of Synageva.

US and Europe-based biotech companies delivered a 13% increase in revenue, totalling a record $132.7 billion in 2015.

The year-on-year revenue growth was less than the 18% reported in 2014. Net income increased 18% in 2015 to another record high of $16.6 billion.

But net income growth was well down compared with 2014 – a massive 214% – driven largely by strong sales of hepatitis C drugs.

Market capitalisation grew 5.5% to $1.1 trillion, far below the growth rates of 65% and 28% seen in 2012 and 2014 respectively.

A key indicator of the sector’s future health, R&D spend, outpaced revenue growth – this increased 16% in 2015 to $40.1 billion.

EY Global Life Sciences leader, Glen Giovannetti, said: “Despite another impressive performance in 2015, commercial-stage biotechnology companies face numerous challenges, particularly as pricing pressures increase due to payers’ increasingly aggressive cost-containment efforts. To restore investor confidence in the industry’s long-term prospects and to set the stage for future growth, biotech companies must demonstrate the value of their products to payers, physicians, patients and the public.”

Data collated by EY, shared at a conference in April ahead of publication, show that 78 biotechs went public in the US in 2015, more than twice the annual average of the last 15 years, and biotechs raised $5.2 billion, down from 2014 but still the third-highest-ever total.

But in Europe, 33 companies went public in 2015, one less than the previous year, with total funds raised standing at $1.4 billion, down from $1.9 billion.

Related stories:

AbbVie swoops for Pharmacyclics in $21 billion takeover

Shire completes $32 billion takeover of Baxalta

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