Summary of M&As in 2017

2018 is here. I’d like to summarize characteristics of the M&As in the pharmaceutical field of 2017. Looking back 2017, there were several points we will never forget: 1. FDA approved the marketing of 46 new drugs in total in 2017, which set a new record of new drug review in recent 20 years; 2. In 2017, Trump became the President of the U.S., new commissioner of FDA took office, the U.S. tax reform was finalized, and the FDA new drug review and generic drug/biosimilar policies underwent changes; 3. CAR T-cell immunotherapy left its own mark in 2017, with two products approved for marketing. Furthermore, there was also breakthrough progress of the gene therapy, with the gene therapy product Luxturna of Spark Company approved for marketing. However, the M&As were still not active in 2017. Next, I’d like to summarize the M&A characteristics of 2017.

I. M&As were still not active in 2017

1. The M&A transactions and scale slightly declined compared to 2016

By 2017 Q3, there were 122 M&A transactions, with total scale of USD 67.7 billion, slightly down compared to the same period of 2016. 2017 failed to reverse the decline of 2016.

2. There were still not many block trades, which was not surprising

The above figure shows that the number of block trades is always the lowest, which seems to be very correct nonsense, because after all, there are not many tycoons like Gilead/Pfizer. The transaction situation on each level in 2017 could be roughly understood from the above figure.

In my opinion, the uncertainty of tax reform should be a very important factor for the sluggish M&As in 2017. However, the U.S. House and Senate have passed the tax reform bill which would largely reduce the corporate tax, and tax burden of the wealthy class, and offer the temporary policy of varying tax reductions to the middle class, and cut the corporate tax rate to 21%, etc. The specific terms are not repeated here.

II. Brief description of the M&As of J & J and Gilead

J & J announced the acquisition of the Swiss biotech company Actelion for USD 30 billion at the beginning of 2017. Undoubtedly, J & J was confronted with the risk of biosimilar impacts, and this acquisition was considered as an important move of J & J’s innovative drug layout, as Actelion had unique products and R&D pipelines in the fields of special cardiovascular diseases, central nervous system diseases, immunological diseases, and orphan diseases, which was an important supplement to J & J.

Gilead’s two M&As in the CAR-T field in 2017 also attracted much attention. Although possessing the mouthwatering anti-HCV star products and anti-HIV products, Gilead’s expectations of its HCV business continued to decline in recent years, causing Gilead to actively look for the transformation opportunity. The two M&As of Gilead in the CAR-T field in 2017 attracted tremendous attention: it acquired Kite Pharma for USD 11.9 billion on August 28 to enter the cellular immunity field; it acquired Cell Design Labs recently for USD 567 million, to increase its strength in the development of the new-generation CAR-T products.

"Out of the depth of misfortune comes bliss". The M&A situation in 2017 was not worse than expected, however, the worldwide M&A scale and quantity will be likely to be better in 2018, as on the one hand, the U.S. tax reform will be officially implemented in 2018, and companies selling traditional products for diabetes and heart disease, etc. will become more active in product acquisition due to fierce competition, and on the other hand, the rational or depressed valuations of biotech companies will make big acquisitions possible. Pfizer has been rumored to acquire BMS and Biogen, and now it indeed has quite a good opportunity to take the action. Anyway, let’s look forward to every day of 2018!