Pharmaceutical M&A: The Rush to Acquire

Last week alone, there were three major consolidations in the pharmaceutical space:

  1. Teva will acquire the generic business of Allergan
  2. Hikma pharmaceuticals will acquire Roxane, Boehringer Ingelheim’s generic drug business
  3. Mylan will acquire Perrigo

These three deals in just a few days reflect the trend of pharmaceutical consolidation as companies seek new products in order to fill their pipelines and gain scale.  Consolidation is not limited to pharmaceuticals, but is rampant throughout the healthcare industry. Global healthcare M&A reached $398.5 billion as of July 23 (an 80% increase from one year ago), according to Reuters data. The Supreme Court’s ruling to uphold the Affordable Care Act will likely drive more activity.

Earlier, we saw major health care insurers Aetna and Humana announce a merger and Anthem and Cigna agree to an acquisition.  We can expect more robust mergers and acquisitions activity, including consolidation, in 2015.

Here’s what you need to know about this most recent wave of pharmaceutical deals:

Teva to acquire Allergan’s generic drug business

Teva will pay $40.5 billion in cash and stock for Allergan’s generic business, making it the largest deal in Teva’s history. The acquisition solidifies the Israeli drug company’s position as the No. 1 maker of generic drugs. Last year Teva had $20.3 billion in revenue. The deal will allow for stronger economies of scale, which is extremely important for low-margin generics.

Teva, on the prowl for acquisitions, was caught up earlier this year in a battle with Mylan Pharma. Its unsolicited offers were rejected on numerous occasions while Mylan simultaneously pursued an acquisition with Perrigo. (At the time, Perrigo had also rejected Mylan’s numerous offers).

Reports say this new acquisition with Allergan allows for a “graceful exit” from its bid for Mylan.  Teva executives cited a better cultural fit with Allergan, which it had approached a year ago. Ultimately, a willingness to get the deal done is probably what made the transaction most attractive.

Allergan has been busy acquiring and divesting as well.

Allergan became the third largest drugmaker after being acquired by Actavis in March 2015. Allergan plans to use the revenue from the generics sale to fund a large acquisition; it wants to accelerate its growth into a “branded growth pharma leader.” Allergan acquired Naurex (depression drug developer) on July 26 for $560 million.

Mylan to Acquire Perrigo

As noted above, Mylan was caught up in an unsolicited offer from Teva while also pursuing Perrigo in April of this year. Fast forwarding three months, Mylan has received approval from the European regulators clearing the way forward for its $28.9 billion acquisition of Perrigo. The combined company will be the world’s top seller of low-price medications, with more than $15 billion in annual revenues.

Hikma to acquire Roxane

Hikma will pay $2.65 billion in cash and stock for Roxane. Like Teva, Hikma is interested in building its generic drug business, especially in the US market. The acquisition will bolster Hikma’s position in the U.S.  and “significantly expand” its manufacturing and technological capabilities.

Based in Amman, Jordan, Hikma develops, manufactures and markets branded and nonbranded generic and licensed products in Europe, the Middle East, North Africa and the United States. It had revenues of $1.49 billion in 2014 and its generics business generated $216 million in revenue.

Roxane Laboratories, founded in 1885 in Columbus, Ohio, was acquired by German drugmaker Boehringer Ingelheim in 1978. Hikma previously acquired other Boehringer Ingelheim companies including Bedford Laboratories, an injectable business in the U.S., in 2014. Hikma expects the acquisition to generate revenues of $725 million to $775 million by 2017.

Healthcare M&A Trends to Watch

Below are some trends we’re seeing in the market today:

  • Even more consolidation throughout the industry. Look to insurers as the next wave.
  • Buyers feeling pressure to execute deals now since many in the industry are consolidating.
  • Pharmaceutical companies looking to increase margins either by gaining economies of scale (like Teva and Hikma) or through acquiring expensive, high-margin, brand-name drugs.