Busiest day for health-care adds $17 billion to industry deal tally

Tuesday, March 31, 2015

It’s the busiest day for takeovers in the health-care industry.

UnitedHealth Group Inc. struck Monday’s largest purchase -- $13.2 billion for drug-benefit manager Catamaran Corp. Teva Pharmaceutical Industries Ltd. made a $3.1 billion splash back into dealmaking with Auspex Pharmaceuticals Inc. Horizon Pharma Plc agreed to buy Hyperion Therapeutics Inc. for $866 million to treat lucrative rare diseases. And Fujifilm Holdings Corp. is acquiring Cellular Dynamics International Inc., a maker of human cells, for $239 million. All figures include net debt.

The four transactions set a daily record for takeouts of publicly traded health-care and related businesses, according to data compiled by Bloomberg. The activity probably won’t stop there. Susquehanna International Group’s Chris Rigg says the Catamaran transaction helps put UnitedHealth’s OptumRX division on a path to becoming a stand-alone entity. That tees up another potential spinoff in a year that’s already on pace to exceed the record 248 that took place in 2014, the data show. On top of that, some investors are still anticipating a continuation of last year’s pharma mega-deal spree, led by Pfizer Inc.

“Health care is obviously dominating the M&A scene,” said Tom Burnett, director of research at New York-based Wall Street Access, which specializes in mergers and event-driven analysis. “There seems to be a self-imposed pressure that if they identify a target they like, then they have to move quickly because somebody else might come along and pick it off.”

Record Pace

This year’s health-care takeover tally is now $75 billion, about a quarter of which was generated on Monday alone. Should 2015 keep up the pace, it will top 2014’s record volume of about $220 billion.

The industry’s largest transactions so far this year are AbbVie Inc.’s $20 billion purchase of Pharmacyclics Inc. and Pfizer’s $17 billion takeover of Hospira Inc. Monday’s deal for Catamaran comes in third, with Salix Pharmaceuticals Ltd.’s $12.5 billion sale to Valeant Pharmaceuticals International Inc. close behind. All values include the target companies’ net debt.

Analysts have been saying that Teva needs to make a large enough bet to compensate for the earnings drop that may come when generic competitors start selling cheaper versions of its leading medicine, Copaxone.

Not Enough

Auspex’s experimental neurology treatments probably won’t be sufficient, according to Elizabeth Krutoholow and Curt Wanek, analysts for Bloomberg Intelligence. Because the Auspex deal won’t add to earnings until 2017, the company may still need another deal to offset losses from Copaxone, a multiple-sclerosis treatment, they said in a report Monday.

Teva Chief Executive Officer Erez Vigodman said on a conference call Monday that he’s “entertaining” other possible transactions in 2015 and is still open to the possibility of a “large” one. Analysts have flagged Perrigo Co. and Mylan NV, both $20 billion-plus, as well as $16 billion Endo International Plc and $5.9 billion Meda AB.

There’s talk of at least one more mega-merger -- from Pfizer, to make up for its failed run at AstraZeneca Plc last year. While a lack of earnings growth and low interest rates are still fueling takeovers, the health-care industry probably won’t be able to sustain this rapid rate of dealmaking for too much longer, said Burnett of Wall Street Access.

“When you get four in one day, you’re probably in a phase that can’t sustain itself,” he said. “I’m not saying this is the end of it, but we must be in the seventh inning by now.”