Big Pharma’s Big Tuesday: A New Age of Megamerger?

What’s the opposite of Black Tuesday? White Tuesday? Bright Tuesday?

Because Tuesday the stock market was buzzing following the news that Novartis is to acquire GSK’s cancer drugs business, while selling its vaccines division to GSK. With the speculation of a $100bn Pfizer bid for AstraZeneca and Valeant Pharmaceuticals added in, prices went soaring.

As of lunchtime (GMT), London trading had seen GSK shares rise by over 5% and Novartis’s by 2%. AstraZeneca saw a 7% rise and even Shire’s went up by 4%. (In India, Novartis shares soared by 20%.)

Much of the clamor following the breaking news tended not to focus on the notion that, as an asset swap, the GSK/Novartis transaction is “a step on from the mega mergers of the past” (says GSK head Andrew Witty).

The Financial Times (FT) proposed that “big pharma deals are back in the mix”, Andrew Ward and Ed Hammond writing that, although the traditional big deal has been “out of fashion” since late the 1990s and early 2000s, the Pfizer speculation “suggests it may have been too soon to call an end to consolidation among the world’s largest drug makers.”

Market analysts Mergermarket agreed, explaining there have already been five pharma deals above $2bn announced in 2014, excluding the tentative Pfizer/Astrazeneca tie up. If this rises to more than seven it will amount to the most deals since 2007’s height of 11. Further, says Mergermarket, Q1 2014′s $39.4bn is over five times the value of Q1 2013 ($7.7bn), and is the first Q1 to reach double-digit values since the $112.9bn in Q1 2009.

Other reports pointed out that Pfizer and AZ  had broken off their talks. But as Motley Fool indicated, while this deal may not come to pass, the new trend of mergers, such as Actavis and Forest Labs, suggests “the proposed tie-up isn’t as implausible as it appeared at first glance”.