Acquisition activity among pharmaceutical companies is expected to continue in 2017 because the key drivers of mergers and acquisitions — slowing revenue growth, pricing pressure, numerous targets with attractive pipeline assets, low financial leverage of acquirers and low-cost financing — remain intact, according to a report from Moody's Investors Service.
Moody's also expects medical device companies to continue to engage in M&A in 2017, but they forecast there will be fewer transactions that stand up to the mega-deals that occurred over the last two years.
Here are six more findings from the report, called "M&A Rolls On, Raising Near-Term Leverage and Risk in Exchange for Benefits Over Time."
1. Many large branded pharmaceutical companies will be focused on acquiring growth in 2017, and Moody's sees the likeliest acquirers as Pfizer, Merck, Gilead Sciences, Amgen, Celgene and Allergan.
2. In the specialty pharmacy space, Moody's anticipates a return to more active M&A after a recent lull. Likely acquirers are Mallinckrodt Pharmaceuticals, AMAG and Horizon Pharma. Because of their smaller size and somewhat limited range of business, specialty pharmaceutical companies typically have limited research and development investment and instead rely on M&A for growth, according to the report.
3. Mega-deals in the generics industry in 2017 will likely be sparse in the wake of significant consolidation last year. However, smaller to mid-sized deals (from a few hundred million up to around $5 billion) will continue.
4. Moody's believes a one-time repatriation opportunity or more permanent changes to the U.S. corporate tax code could provide an even greater incentive for M&A among pharmaceutical companies in 2017.
5. Among medical device makers, Moody's believes there will be fewer large-scale mergers in 2017 because the most recent acquirers will still be deleveraging in 2017. Tax reform could prompt more activity if companies can access overseas profits and cash more "tax efficiently," according to the report.
6. Slower top line growth due to decreased hospital utilization trends and pricing pressure will continue to drive M&A in 2017, according to the report. In addition, a demand for value-based products from hospitals and private and government payers will push device makers to seek greater scale, or to expand into newer technologies or emerging markets.