Pharmas benefit from M amp A news flow

The pharmaceuticals sector has certainly been in focus today (22^nd April), with shares of players within the sector having enjoyed a bit of a lift on the back of a series of news flow regarding M&A activity.

Some of the current buzz is, of course, based on official statements, while some has been spurred by market chatter.

What’s been announced?

UK-based GSK and Swiss-based Novartis have entered a series of transactions.

The moves, which will help bulk up Novartis’ cancer drugs portfolio and position GSK as a leader in vaccines, will see Novartis acquire GSK’s oncology business for up to $16bn and sell its vaccine business (excluding flu) to GSK for some $7bn.

Novartis, which embarked on a strategic review of its businesses last year, is also set to sell its animal health portfolio to US-based Eli Lilly for $5.4bn.

Furthermore, Novartis and GSK plan to combine their consumer healthcare businesses in a deal that would see GSK holding a majority stake (around 63%).

The market seemingly approves of the deals: Novartis is up 2.3% and GSK is up 5.5%.

Elsewhere, both Canada-based Valeant Pharmaceuticals and US-based Allergan are up – 6% and 16% respectively – following an announcement by Valeant that it’s looking to put in an offer to acquire Allergan, maker of wrinkle treatment, Botox.

Market chatter

UK-based AstraZeneca is up around 7% (at time of writing) following reports of a recent takeover approach.

According to reports, heavyweight, Pfizer, had been in discussions with AstraZeneca regarding a potential £60bn takeover of the UK-based company.

While those talks are said to have since ended, speculation abounds regarding another approach from Pfizer.

Now, this talk might well be without basis, particularly given the downbeat sentiment towards previous large-scale deals embarked upon by Pfizer.

Nonetheless, the idea that Pfizer – in the face of declining sales – would look to chase growth via acquisitions seems plausible and it certainly has the financial flexibility for acquisitions, should the company choose.

AstraZeneca itself has also been faced with flagging sales recently, partly as a result of loss of exclusivity on some of its brands. That’s only set to be exacerbated this year, when it loses its patent cover on its heartburn and ulcer drug, Nexium, in May.

Still, efforts to reshape the business, together with a series of drugs in the works, leads to some optimism over AstraZeneca’s mid-long-term outlook. That’s been cited as one possible reason for the interest from its larger US rival.

Meanwhile, smaller players are riding high on the back of talk that Pfizer’s (or indeed AstraZeneca’s) eyes might swivel onto one of them.

That includes Ireland-based Shire, which is currently up around 5.6%. Of course, Shire is no stranger to takeover rumours. Only last month, analysts at UBS highlighted the company as a potential takeover candidate for AstraZeneca.

Whether Shire ends up a target remains to be seen, but one thing looks certain: consolidation in the sector seems set to continue.

That bodes well for relatively smaller players with attractive portfolios – such as Shire and BTG (up 5%) – as the anticipation of a potential takeout certainly doesn’t hurt shares.