By Jaimy Lee
A string of multibillion-dollar pharmaceutical deals announced this week call attention to a record-setting year in which drug manufacturers and biotechs have spent $342 billion snapping up smaller companies to bolster their pipelines.
Merck /zigman2/quotes/209956077/composite MRK -1.10% said Monday it is spending $2.7 billion to buy ArQule , a biopharma developing cancer therapies that use the Bruton’s Tyrosine Kinase inhibitor. Sanofi /zigman2/quotes/201967021/composite SNY -2.01% , now under the leadership of former Novartis executive Paul Hudson, just announced plans to acquire Synthorx /zigman2/quotes/208337382/composite THOR -0.06% , another clinical-stage company developing cancer treatments, for $2.5 billion.
Meanwhile, XBiotech /zigman2/quotes/209181036/composite XBIT -5.31% sold Bermekimab, an experimental dermatology treatment, to Johnson & Johnson /zigman2/quotes/201724570/composite JNJ +0.07% for $750 million upfront and $600 million in potential milestones, it announced late last week. On Friday, Astellas Pharma /zigman2/quotes/205432752/delayed JP:4503 +0.40% scooped up gene therapy developer Audentes Therapeuticsfor $3 billion.
While the number of U.S. pharmaceutical and biotechnology deals has increased year over year, from 365 in 2018 to 484 so far this year, it’s the size of 2019’s mergers and acquisitions that’s notable, according to data provided by Dealogic.
This year’s $342 billion in M&A activity far surpasses any other year since 1995 when Dealogic began tracking deals. Big-dollar deals like AbbVie’s /zigman2/quotes/202428675/composite ABBV -0.01% pending $63 billion buyout of Allergan /zigman2/quotes/206377386/composite AGN -0.05% and Amgen’s /zigman2/quotes/209157011/composite AMGN -1.61% $13.4 billion purchase of a single drug, Celgene’s /zigman2/quotes/202559280/composite BMY +1.06% Otezla, are driving the 2019 tally.
Last year, companies spent only $97 billion on M&A, which is far lower than the previous buying record of $215 billion in 2016. That year, Shire, now Takeda /zigman2/quotes/201302442/delayed JP:4502 -0.32% , spent $32 billion on Baxalta, and Pfizer /zigman2/quotes/202877789/composite PFE -0.42% bought Medivation for $14 billion.
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The uptick in deals underscores a broader trend in the industry, one in which large, legacy drug makers are buying their pipelines rather than developing new therapies from scratch. In many cases, this kind of deal making has paid off. Keytruda, which was acquired through Merck’s $41 billion acquisition of Schering-Plough in 2009, has generated $103 billion in revenue since it was approved by the Food and Drug Administration in 2014, according to EvaluatePharma .
The cumulative deal value for a combination deal versus a bolt-on deal has changed significantly over the last five years, according to an Evercore analysis. Bolt-on deals, like the Otezla acquisition, tally $56 billion so far in 2019, compared with the previous five-year average of $46 billion. The total value of “combination” deals, like the behemoth AbbVie-Allergan tie-up, has reached $137 billion year-to-date, compared with $81 billion, the previous five-year average.
“2019 represents a high-tide mark,” when it comes to biopharma M&A, Evercore ISI analysts wrote on Monday.
Globally, deal count and dollar amount have also increased year over year, but it’s a far less dramatic jump than what’s been going on in the U.S. market, Dealogic data found. There have been 1,276 deals totaling $411 billion so far in 2019, up from 1,230 deals totaling $298 billion in 2018.
Investors are largely happy with the deals. In afternoon trading on Monday, the volatile shares of ArQule gained 100%, Synthorx was up 170% and XBiotech’s stock jumped 73%. Audentes’ stock was flat Monday.