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J&J, Pfizer, Novartis Among Pharma Giants With Biggest War Chests

They are among the 12 drug companies with the most resources for acquisitions

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Dec 05, 2021
Summary
  • The cash-richest companies have more than $20 billion each at their disposal.
  • Some see M&A picking up after just a few large deals in 2021.
  • Top targets include Amicus Therapeutics, Portola, and Aimmune Therapeutics.
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Eighteen large U.S. and European drug companies will have more than $1.7 trillion in buying power by the end of 2022, according to SVB Leerink analyst Geoffrey Porges. That includes $500 billion in cash, which the companies can use for mergers and acquisitions, to pay down debt or reward shareholders via dividends or share buybacks, the Leerink analyst said. The $1.7 trillion figure is based on the ability of the companies to leverage their assets to borrow additional funds.

Given the resources at their disposal, it would seem that members of big pharma would be on the hunt for acquisitions. But that’s not necessarily the case. FiercePharma reported that at the end of 2020, PwC estimated drug manufacturers had access to nearly $1.5 trillion for M&A, but they were reluctant to spend big, with the largest buyouts being Merck & Co. Inc.’s (

MRK, Financial) $11.5 billion acquisition of Acceleron and Jazz Pharmaceuticals PLC’s (JAZZ, Financial) takeover of GW Pharma.

That was a big fall off from 2020, when the largest deal was the $39 billion AstraZeneca (

AZN, Financial) shelled out to buy Alexion. All in all, the three M&A deals pulled off in 2020 had values of more than $10 billion.

KPMG, for one, thinks deal-making may remain in a rut due to the Federal Trade Commission’s heightened scrutiny of pharma deals as well as the challenge of acquirers making the science work and integrating the acquisition.

That may not discourage 12 of the cash-richest companies, which will have more than $20 billion at their disposal. They include Johnson & Johnson (

JNJ, Financial), Pfizer Inc. (PFE, Financial), Novartis AG (NVS, Financial), Moderna Inc. (MRNA, Financial) and BioNTech SE (BNTX, Financial). Next in line are Regeneron Pharmaceuticals Inc. (REGN, Financial), Vertex Pharmaceuticals Inc. (VRTX, Financial), Novo Nordisk AS (NVO, Financial) and GlaxoSmithKline PLC (GSK, Financial), all of whose bank accounts register between $11 billion and $18 billion including debt.

Moody's Senior Vice President and Pharmaceutical Analyst Michael Levesque is a bit more bullish than KPMG, at least as lesser deals are concerned. In an interview with S&P Global Market Intelligence, he said the appetite for smaller, research-based pipeline acquisitions has remained high and is likely to continue as companies seek to bolster their portfolios

"It's just for many years been a key part of the strategy to enhance growth prospects and expand into new areas and bring in new pipeline compounds," Levesque said. "So we would say the appetite is rather high across the sector."

Of the 12 pharma companies with substantial resources, Pharma Intelligence suggested those most likely to be buyers are Bristol-Myers, Merck, J&J, Novartis, GlaxoSmithKline and Pfizer. High on the target list are companies with the largest market caps, such as Amicus Therapeutics Inc. (

FOLD, Financial), Portola Pharmaceuticals Inc. (PTLA, Financial), Aimmune Therapeutics Inc. (AIMT, Financial) and G1 Therapeutics, Inc. (GTHX, Financial), among others.

So how does an investor tell if a company is a good buyout candidate? According to an article in $ickenomics.com, one telltale sign is that the company has great science but not much money. “Look for biotechs with agents that have already passed through stage one and stage two studies,” the article suggests. Those that have promising drugs but are running out of cash often need the resources of major pharma companies to carry their treatments to the finish line.

Disclosures

I am/we are Long JNJ, NVS and VRTX.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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