Reform spurs dealmaking
Provisions, clarity in law clear path for partnerships
Nearly $7.1 billion in new drug and device deals are a harbinger of things to come now that dealmakers have more certainty about the future of healthcare reform. The pharmaceutical, diagnostics and medical equipment industries have seen several new big deals. Last week, Hill-Rom paid $400 million to buy Aspen Surgical Products, whose product lines include scalpels, specialty needles and other instruments and supplies used in operating rooms.
That acquisition followed GlaxoSmithKline’s sweetened $3.6 billion offer for Human Genome Sciences, private equity firm TPG’s $1.9 billion bid for Par Pharmaceuticals, Steris’ $270 million play for US Endoscopy Group, and Thermo Fisher Scientific’s $925 million move on One Lambda.
While the deals themselves—which include some perennial targets and aggressive acquirers—each had their own drivers, taken together they show evidence of an increased appetite for tie-ups in the healthcare space.
“I definitely see the logic of the activity picking up now,” said Alex Morozov, director of global healthcare equity research at Morningstar. He added that last month’s U.S. Supreme Court decision upholding the key elements of the Patient Protection and Affordable Care Act “really limited the uncertainty.”
He pointed to, for instance, the controversial medical-device excise tax, which now looks probable and is no longer a question mark for the sector.
Terry Hisey, vice chairman and U.S. life sci- ences leader at Deloitte, also noted that clarity on reform has paved the way for deals, such as the increased interest in companion diagnostics because of provisions in the law that expand funding for comparative-effectiveness research.
“Some of the questions that were out there have been answered and there’s less uncertainty than there has been,” he said. “The transactions
“Some of the questions that were out there have been answered.” —Terry Hisey, Deloitte
we’re seeing are consistent with the actions that we’d expect them to be taking.”
Of course, dealmaking has always been strong among pharmaceutical and biotech companies, which rely on acquisitions, licensing deals and partnerships to plug holes in their pipelines.
GlaxoSmithKline, for instance, has been pursuing Human Genome Sciences since April, when it first tabled a $2.6 billion hostile offer. The two companies also have a long history as GlaxoSmithKline is Human Genome Sciences’ partner on its sole commercialized product, lupus drug Benlysta, as well as two compounds for heart disease and type 2 diabetes.
That deal, as well as Bristol-Myers Squibb’s $5.3 billion bid to acquire Amylin, which was also announced in the aftermath of the Supreme Court decision, are both “somewhat independent of healthcare reform,” Morozov said.
Thermo Fisher, meanwhile, is a “serial acquirer,” Morozov said, and the $925 billion price tag for One Lambda, which makes transplant diagnostics, is relatively small change for a company with a $20 billion market capitalization.
“Nothing that Thermo is doing right now is any different than it has been doing,” he said.
However, Morozov categorized TPG’s proposed takeover of Par, a drugmaker that develops specialty pharmaceuticals as well as hard-to-produce generics, as one of the more unusual deals from the past two weeks. “We still haven’t figured out what drove TPG,” he said. “We’re a little puzzled by the value of the offer,” which represents a 37% premium over Par’s closing share price the previous trading day. Still, he noted, “Par has had a tremendous run over the past several years.”
A news release announcing the deal did not mention healthcare reform but gave a nod to the changing healthcare environment. Par “is positioned to benefit from the strong macro trends of a greater focus on cost-effective healthcare solutions and the increasing demands from an aging population,” Todd Sisitsky, a partner at TPG, said in the release.
Hisey noted that private-equity firms have generally been hesitant about investing in pharmaceutical companies, because the probability of success is uncertain and the time needed to see a return on investment often exceeds the length of time they typically invest in a company.
But he expected buyout firms to take a look at other parts of the therapeutic space. “I think there’s a better chance of private equity getting involved in medical technology,” he said.
Morozov noted that while the timing of these particular deals may be coincidental, collectively they speak to a somewhat brighter outlook for the space.
“We are seeing a little bit of uptick in healthcare utilization,” he said. “The growth prospects are looking a little bit better.”