Bret Schroeder, healthcare expert at PA Consulting, discusses healthcare and life sciences M&A opportunities post COVID-19.
Recent reports that U.K. drugmaker AstraZeneca PLC considered Gilead Sciences Inc. an acquisition target has spurred speculation that M&A activity could be making a comeback in the pharmaceutical sector after a pandemic slowdown.
Although experts disagree about the potential of such a deal, AstraZeneca's reported approach hearkens back to predictions from 2019 that M&A would rise because of attractive valuations and the amount of cash that pharmaceutical companies had in their coffers. With Gilead's market value at just under $97.3 billion, according to S&P Global Market Intelligence data, any takeover of the company would be one of the biggest in the industry's history.
Bret says that while the coronavirus pandemic has curbed deal-making in 2020, it may also have created opportunities for post-pandemic transactions. "What we now know after the last six months is there's a lot of change and uncertainty in pharma in terms of supply chains, regulatory approvals, fast-tracking certain drugs over others. If I'm a pharma company, I'm looking at this environment and these economics, and I think that those types of conversations, those types of mergers maybe make a lot more sense than they did six months ago."
He adds that companies looking to adapt to the new environment may be willing to take more drastic action than in a more stable market. "It may be an easier time to change than in the past."
Drivers of M&A from the year before, including upcoming patent expirations and the likelihood of drug pricing legislation, still point to a need for collaboration and potential mergers.
Bret adds that deals the size of AstraZeneca-Gilead are not outside the realm of possibility and could be the result of changes brought on by the pandemic. "The concept that the whole world is going to change in terms of the drug supply chain and drug manufacturing, my sense is that that in and of itself is a big enough lever to consider some of these larger deals. If you've got a company that has a lot of cash on hand and a geographically dispersed footprint, from a regulatory approval perspective, there might be more appetite for those types of things than in the past."
Gilead's share price had fallen from a peak in 2015 and only recently outpaced markets with the success of its COVID-19 therapy remdesivir. The company also reported cash and equivalents of $11.6 billion at the end of 2019, according to S&P Global Market Intelligence data.
Bret continues: "Any company with a lot of cash on hand is an interesting acquisition target. If I'm the buyer, I'm going to use the cash on hand to finance the purchase, and it also tells you they're well managed and have some good product lines."
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