December 14 2015

With returns from healthcare R&D halving to multi-year lows according to Deloitte it makes sense that consolidation is rife within a sector that spends dearly for the ‘chance of a chance’ of success, years in advance of any likely revenue generation. This despite drug approvals at their highest for 20yrs with the direct cost of bring a drug to market having risen considerably. Less competitive stateside tax laws are pushing certain US names abroad into the embrace of others. And while this is leading to predictable mega deals such as that seen with US names Pfizer Allergan (Irish-listed), it is also producing smaller deals likely designed to strengthen weakened hands to boost early stage pipelines and avoid being taken out on the cheap as patent cliffs and the loss of considerable revenues loom.

After Pfizer was warned against a deal with AZN last year, the latter’s recently announced talks with Acerta show its desire to beef up. Much like SHP after its takeover by Abbvie failed (similar US pressure against tax inversion) saw it go on the offensive for Dyax and NPS and still courting Baxalta. Nonetheless, multiple acquisition risk has seen SHP shares drop below key support to fresh 12 month lows showing that there is such a thing as too much too quick. Expect plenty more fun and games in the sector. Note things have been pretty quiet for GSK of late. Potential for more accretive deals to help, or messing around to hinder? It’s a key point for the sector. The choices today could affect the sector for another decade.

Mike van Dulken, Head of Research