In the annals of biopharma M&A the first quarter of 2018 will go down as another strong start to the year, with $34bn in deals achieved without the benefit of a single mega-merger.

There were some big-looking deals, and the quarter will also be remembered as a time when companies desperate to buy in growth and innovation, such  as  Sanofi  and  Celgene , pursued some high-risk bolt-ons. On the other hand, the cascade of big pharma acquisitions predicted after the passage of US tax cuts has not quite materialised, and the number of transactions announced in the quarter was the lowest for at least  six years (see data below).

Looking big

The data below looks only at biotech and pharma deals - so companies developing human therapeutics - and excludes the likes of medtech and diagnositics.

With many hoping for a big M&A year from this sector after a moribund few months, the first-quarter dip compared to the same period in previous years could be taken as a negative sign.

Still, the analysis below shows that average values held up at least , helped by the meagre transaction volume, which dipped to 30. With valuations remaining very high in many fields like oncology and immunology, the fact that some large players are willing to swallow large premiums will provide some comfort to deal bankers and those hoping to tempt suitors.

Sanofi  and  Celgene

Sanofi  and  Celgene  dominated deal making last quarter - both companies are under investor pressure to make strategic moves to shore up faltering growth outlooks.

Sanofi ’s $11.6bn buyout of Biogen ’s blood-disease spinout, Bioverativ , was a bet that factor replacements will remain a mainstay of haemophilia treatment even as gene therapies approach the market, while its $4.8bn takeout of Ablynx  was a gamble on a rare disease asset with forecast 2022 sales of $334m.

Looking to remain relevant in oncology amid a slump, Celgene  for $9bn bought the CAR-T laggard  Juno Therapeutics , which has experienced setbacks in its clinical development and probably will not launch its first product until 2019. In other blood disorders, Celgene  also picked up Impact Biomedicines for $2.4bn to access the  Jak2 inhibitor  fedratinib , a myelofibrosis  agent that had passed through  Sanofi ’s hands before being placed in a private spinout.

Will they or won't they?

Still, only one deal topped the $10bn mark - in most years it is the $20bn-and-up club that drives record outlays. During the nadir of last year, only one of those happened, Johnson & Johnson ’s takeout of Actelion , and many deal bankers will be hoping a similar-sized takeover is around the corner

The hope for a resurgence in mega-deals in 2018 has probably been stimulated by the passage of a massive corporate tax cut bill in the waning days of 2017, which has permitted multinational pharma groups to repatriate overseas profits at a low tax rate as well as reducing corporate rates from 35% to 21%. Repatriation put around $170bn in play among big cap biopharma companies for use in M&A.

And none other than Ian Read, chief executive of the voracious acquirer Pfizer , had said that no deals could be made until the debate on tax cut legislation had been concluded because it had the potential to alter company valuations. This is believed to be one reason M&A was so moribund last year (M&A: 2017 proves snooze-worthy on the acquisition front, January 10, 2018).

Although Pfizer  is yet to take the plunge, rumours have swirled about an imminent acquisition, with Bristol-Myers Squibb the most frequently cited target (Vantage view – Mega-mergers are in Pfizer’s DNA, February 27, 2018). And the fact that Mr Read’s bullish comments had to be reined in by the company's finance chief, Frank D'Amelio, will have done nothing to quash speculation that Pfizer  is getting its chequebook ready.

However, a thirst for deals will need to be balanced against biotech valuations that are still regarded as frothy – the Nasdaq biotechnology index looks like it is in a slow climb back towards the peak of mid-2015 – and it should be noted that the Juno and Bioverativ  acquisitions look expensive.

Still, the availability of overseas cash will put biopharma executives in the position of using funds for strategic aims or facing shareholder demands for buybacks or dividend increases. And with the insurer and provider world already in the midst of consolidation frenzy – rumours of the consumer giant Walmart buying out the US insurer Humana emerged late last week – biopharma is facing customers with greater buying power and might need to bulk up even more.

In short, the elements of a new round of megamergers seem to be in place. The question is if and when the trigger is pulled.

This story has been corrected to remove Glaxo's takeout of the Novartis consumer health JV - historically, EP Vantage has excluded consumer health deals from this analysis.

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