Amgen Inc., Biogen Inc., Gilead Inc. and Novo Nordisk A/S all have “very high” capacity for M&A activity, that is expected to increase, Moody’s Investors Service said in a report published Thursday.
Moody’s said factors including reduced pricing flexibility, regulatory threats that could further erode pricing and upcoming patent expirations could drive the increase in acquisitions in the biopharmaceutical industry, wrote Moody’s senior vice president Michael Levesque in the report.
“Companies use acquisitions to bring new growth drivers into the product portfolio or the pipeline, and to diversify away from blockbuster drugs that face patent expirations,” he wrote.
The four biopharmaceutical companies are especially well-positioned as acquirers, thanks to generous cash levels and “moderate” debt-to-earnings ratios, according to the report. Shares of Amgen AMGN, +0.51% gained 0.3% in afternoon trading, Biogen BIIB, +0.44% tacked on 0.3% and Gilead GILD, +0.97% rose 0.9%, while Novo Nordisk NVO, -1.46% fell 1.4%.
Bristol-Myers Squibb Co. BMY, -0.78% also has a “very high” capacity for M&A as a stand-alone company, but that will change following its acquisition of Celgene Corp. CELG, -0.17% , Moody’s said.
Other potential acquirers with more limited M&A capacity include Allergan Plc AGN, -0.99% , AstraZeneca Plc AZN, -0.09% , GlaxoSmithKline Plc GSK, -0.51% , Mylan N.V. MYL, +1.19% and Takeda Pharmaceutical Company TAK, -1.42% — companies with lower cash levels and higher debt-to-earnings ratios, the report said.
Moody thinks any acquisitions will remain in the oncology and gene therapy space, mirroring recent moves like Eli Lilly & Co’s LLY, -3.03% acquisition of Loxo Oncology and Biogen’s acquisition of Nightstar Therapeutics. Roche Holding AG RHHBY, +0.01% said in February it would acquire Spark Therapeutics, and Merck & Co Inc. MRK, -1.13% said earlier this week that it would buy cancer-treatment biotech Tilos Therapeutics in a deal that could be valued at up to $773 million.
But current biotech valuations could stand in the way of further acquisitions. Many potential acquirers view biotech valuations as much too high, especially considering the R&D risks associated with pipeline-stage drugs, Moody’s said. One example: In 2016, AbbVie ABBV, +0.15% acquired Stemcentrx Inc. for $5.8 billion. A succession of trial failures cast doubt on the companies’ ability to get Stemcentrx’s lead drug and other pipeline drugs approved. In 2018, AbbVie ended up booking an impairment charge of $5.1 billion.
Biotech valuations have more than doubled in the past five years, far outpacing the S&P 500. But a recent dip could push some acquisitions forward — the S&P 500 SPX, +0.21% has fallen 22% from a peak in mid-2015, and is down 15% from a second peak in the third quarter of 2018, Moody’s noted.
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