M&A values in healthcare decreased by over 60% in Q3 2017 compared to Q2, but volume remains consistent, led by biotech and pharma.
As a case in point, Swiss pharmaceutical giant Novartis recently announced that it will acquire French firm Advanced Accelerator Applications (AAA). The general downsizing of deals, including those in the pharmaceutical sector, is attributed to a cyclical pattern: Having already made a significant impact on merger activity in the healthcare sector, big companies tend to turn their focus to integrating purchases from the past few years, rather than pursuing new ones. The AAA deal, at $3.9 billion, is modest in size, given Novartis’s market value of over $200 billion.
The deal with AAA is also in keeping with the industry trend of buying up smaller drug-makers with emerging treatments rather than making hefty investments in R&D. As PwC noted in its Global Pharma & Life Sciences Deals Insights Q3 2017 report, “While some of the challenges in recent quarters may persist, deal activity is likely to increase in the near term. Companies will continue to turn to inorganic methods to supplement growth and innovate their business models.”
Acquiring AAA will help Novartis build up its cancer treatment portfolio. The French company, which was spun off from CERN, the developer of the Large Hadron Collider, specialises in radiopharmaceuticals used in nuclear medicine to treat tumours. Its main product, Lutathera, is a rival to a Novartis drug, Sandostatin. Since recent tests suggest that Lutathera could be more effective, owning both should help Novartis protect its earlier product. Lutathera sales are expected to grow quickly, according to the New York Times. It is already approved in Europe and under review in the US.
“It is with great satisfaction that we announce this proposed transaction with Novartis, who we have long felt would be an ideal partner,” said Stefano Buono, AAA’s Chief Executive. “We believe that the combination of our expertise in radiopharmaceuticals and theragnostic strategy together with the global oncology experience and infrastructure of Novartis, provide the best prospects for our patients, physicians and employees, as well as the broader nuclear medicine community.”
AAA is expected to grow more quickly under Novartis than on its own, though this may not be enough to satisfy everyone. Some pharmaceutical industry analysts have suggested that Novartis Chief Executive Joseph Jimenez could better enhance the company’s oncology division, and offset the loss of exclusivity on some critical drugs, by undertaking more radical surgery. A bigger merger, for example with AstraZeneca or Bristol-Myers Squibb, has been suggested. However the pressure on Novartis will likely ease with improvements in its eye care unit, Alcon, and recent approval of a new leukaemia treatment.
