Array-size deals don’t come around too often

A chunky buyout always raises hopes for more M&A action, although those anticipating further deals like the Array Biopharma takeout, launched by Pfizer yesterday, should remember that transactions of this size are relatively rare beasts. Still, the price gives 2019’s tally a well-needed boost: the acquisition ranks as the second largest so far this year, EvaluatePharma data show.

Described as a bolt-on by Pfizer, the $11.4bn bid is at the upper end of what many would consider the “sweet spot” for tuck-in acquisitions, though few truly comparable deals happen to enable any more rigorous benchmarking of this particular move. Only nine notable takeouts of commercial-stage oncology companies have occurred since 2015, as far as Vantage can determine.

This is largely because promising R&D projects tend to get snapped up before they reach the market, though it is notable that Array stands as fourth largest in this list. Gilead’s purchase of Kite has been included here because approval of the latter’s CAR-T therapy Yescarta happened only a couple of weeks after the takeover closed, and was widely considered a dead cert.

The table below shows how substantial a move the Array takeout represents, particularly when considering that oncology tends to dominate the deal-making space (Following the M&A money, by phase and therapy area, January 29, 2019).

Little wonder that Pfizer struggled to defend the price tag yesterday (Rich recognition finally arrives for Array, June 17, 2019).

NOTABLE TAKEOUTS OF COMMERCIAL-STAGE CANCER COMPANIES SINCE 2015
Acquirer	Target	Value ($bn)	Year
Abbvie	Pharmacyclics	20.8	2015
Pfizer	Medivation	14.0	2016
Gilead Sciences	Kite Pharma	11.9	2017
Pfizer	Array Biopharma	11.4	2019
Eli Lilly	Loxo Oncology	8.0	2019
Takeda	Ariad Pharmaceuticals	5.2	2017
Glaxosmithkline	Tesaro	5.1	2018
Novartis	Advanced Accelerator Applications	3.9	2017
Bausch Health	Dendreon	0.5	2015
Source: EvaluatePharma.

How companies define the “sweet spot” will vary greatly, of course, though traditionally this has been pitched at around the $5bn mark, for big drug developers at least. Whether this remains the case today, when valuations in many sectors remain testing, is a point for discussion, though a look at the distribution of deal values does point to a clustering around this price point.

The analysis below, extracted from EvaluatePharma, includes all full company takeouts struck by biopharma since 2015. It focuses only on those involved in the development of human therapeutics, and excludes medtech or genomics companies, for example. Deals between $1bn and $20bn only have been included, though the transaction on the far right just tips over this scale.

This was Abbvie’s huge $20.8bn swoop on Pharmacyclics, essentially a single-asset company and a move that could arguably be described as a bolt-on. That single asset was the blockbuster Imbruvica, but even so this analysis underlines just how infrequently deals of this size occur.

It also shows that deals above $10bn are rare; even for the world’s biggest drug makers, acquisitions that stray into this territory must prompt some serious board discussion. This is something for investors to bear in mind when they scroll through the list of purported takeout targets, whose market cap plus any premium could take them into this barren M&A territory.

Think Amarin, which is currently valued at $6.2bn, or Sage Therapeutics or Sarepta, both at over $9.2bn.

More recently, rumours have surfaced for the gene therapy company Uniqure, and Biohaven, which owns a late-stage migraine asset. At $3bn and $2.5bn market caps respectively their valuations would presumably take them into a more populated region of the deal space, though of course talk of any bid for either is little more than speculation at this stage.

Either way, Pfizer’s move yesterday means that biopharma companies have committed to spend $19bn on M&A so far this quarter. The Array deal counts for a large proportion of that, and has rescued the second quarter from looking like a very weak period for deal-making, in value terms.

Coming after Lilly’s acquisition of Loxo Oncology and Roche’s bid for Spark in the first quarter, hopes are high that 2019 will deliver more such deals. And, while the data suggest that Array could be an outlier, investors will hope that buyers have the appetite for at least one more sizeable transaction before the year is out.

https://www.evaluate.com/vantage/articles/data-insights/ma/array-size-deals-dont-come-around-too-often