Big pharma's under increasing pressure, and now everyone's just waiting for a 'detonator' to set off a wave of huge deals
- Healthcare dealmaking has taken off in the past few months, with mega-deals like CVS-Aetna and Cigna acquiring Express Scripts.
- The new combinations are redrawing the healthcare system, putting more power in the hands of the organizations paying for the prescriptions and medical care.
- That's likely going to put pressure on drugmakers, which will need to make some huge deals of their own.
- Goldman Sachs has identified six companies that could be the "detonator" that launches these mergers.
It's been a busy year for healthcare M&A.
Coming off the CVS-Aetna deal at the end of 2017, 2018 got off to a bang with some big-ticket biotech acquisitions, and a mega-deal between Cigna and pharmacy benefit manager Express Scripts.
The proposed deals will redraw the lines around what defines healthcare companies by putting different business all under one roof. In turn, the deals give the consolidated healthcare companies more leverage when it comes to paying for prescriptions and medical care.
That puts pressure on the biotech and pharmaceutical companies that make the drugs, putting them in a position where they have less leverage when negotiating how the drug will get paid for. To counter that, biotech and pharma will have to do big deals of their own, Goldman Sachs analysts wrote in a note Friday.
"We think large transformative deals would create companies with therapeutic leadership, more negotiating leverage with payers, synergy potential, and portfolio reshaping," they said.
But, the analysts said, it will take a "detonator" to initiate that consolidation, borrowing a phrase Pfizer CEO Ian Read used in a January 2018 earnings call.
Goldman Sachs said the companies in the position to be that "detonator" - those with the "highest M&A firepower" are:
- Roche
- Johnson & Johnson
- Gilead
- Pfizer
- Amgen
- Merck
On the flipside, Goldman Sachs said there's only three companies - AstraZeneca, Bristol-Myers Squibb, and Eli Lilly - that would make for good acquisition candidates based on their drug pipelines and low operating margins.