RE: Why These Results are huge23 Apr 2019 16:17
Blockbuster deals remain
Against this backdrop, blockbuster deals are still happening and have returned this year relative to the rather quiet 2017. The headline-stealing deal of 2018 so far has been Japan's Takeda's (TYO: 4502) $62 billion purchase of Irish rare-disease specialist Shire (LSE: SHP), which still faces some hurdles to get over the line, not least the need to convince a two-thirds majority of risk-averse Takeda shareholders concerned about the negative impact large debt will have on the company's credit ratings, as well as antitrust issues in Europe and competition from Roche to Shire's important hemophilia business. The deal did however receive approval from the US Federal Trade Commission in July, which clears one stumbling block and may help calm detractors’ nerves.
Despite the market valuing largely USA-based Shire at well below the offer price, Takeda's French-born chief executive Christophe Weber sees great potential in the deal with minimal disruption to R&D, which he identifies as a frequent stumbling block hampering the success of large mergers in the sector. Mr Weber, who dreams of taking Takeda truly global, believes Shire's relatively small investment in research will help in this regard, particularly bolstering Takeda’s late-stage gastroenterology and immunology pipelines.
However, many of those not supporting the Shire buyout believe the company should instead be investing its considerable resources into deals for smaller innovative companies, rather than putting all eggs in one potentially unprofitable basket.
Smaller deals in specialist therapies
A prominent trend is for such smaller ‘bolt-on’ deals. With the largest industry players still often unwilling to bet multiple tens of billions acquiring other large rivals, they look to minimize risk by cherry-picking smaller innovative companies with a few products in their portfolios or entering partnership deals for access to specific candidates. Milestone payments and sales royalties will potentially bolster the smaller figures involved in these acquisitions once they start to bear fruit in the form of new treatments making it past the regulators and onto the market.
It is nothing new for pharma companies to conduct licensing and marketing deals for specific products. These deals (and ones that Takeda's shareholder rebels may well favor) see companies spending relatively smaller but often still significant sums on a specific part of rivals' businesses, focusing on acquiring treatments and promising candidates in a specific therapeutic area. Some companies are willing to divest these business parts to service debt or free up cash to spend in other areas or indeed make their own acquisitions.
Shire itself offloaded its oncology portfolio to Les Laboratoires Servier for $2.4 billion in April. France's Sanofi (Euronext: SAN) meanwhile in January bought rare blood disorder specialist Bioverativ for $11.6 billion, later in the year recouping $2.2 billio
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