Whatever else it may have been, 2007 was a remarkable year for pharma mergers and acquisitions, with 44 completed deals worth
almost $80 billion dollars—with not a megamerger in sight. Pharma stock prices seem to have stabilized after several years
of being battered, though the glow is off European pharmas.
On the biotech side, the story was a bit different. M&A was down, and the traditionally strong performers in the industry—the
large-caps—stumbled. On the other hand, in a major surprise, mid-cap biotech stocks had an exceptional year, with prices increasing
by more than 50 percent.
These are just a few highlights from this year's Strategic, M&A, and Financial Trends Report prepared by Young & Partners.
The report looks at both the biotech and pharma industries and tracks:
» Stock prices and P/E ratios within proprietary index groups of pharmaceutical companies and biotechs
» Completed M&A deals of $25 million and up
» Issuance of non-bank debt and equity.
What follows are some of the report's key facts and figures. Pharma Stocks: Beaten No More
For purposes of analyzing market trends, we've created indexes for US ethical pharma, European ethical pharma, and generics
manufacturers. In 2007:
US was up The Y&P US Pharma Index rose by 4.1 percent (a bit better than the 3.7 percent boost for the Standard & Poor's 500).
Europe was down The Y&P European Pharma Index fell by 4.1 percent. This compares with a 1 percent increase for the FTSE European Top 100 index.
Generics were way up The Y&P Generic Index increased by 34.2 percent.
Both the US and European indexes were pummelled by the market in 2001–2. But the European index then had a nice recovery for
a few years while US went sideways to down. This year, the US index is doing fairly well, while the European is underperforming.
Top-10 Deals in 2007 by Equity Value PHARMACEUTICALS
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Why the US recovery when there's still bad news about pharma? It could be that the bad news is the same bad news as before. Investors have already removed substantial valuation from American companies, and it appears they don't
want to take them down much further. The generic index is another story. Last year's growth was spectacular—but so was the
industry's dip in 2006. Look at the two years together and you see a lot of volatility and a modest overall gain.
P/E ratios In the mid- to late-1990s, US and European pharmas commanded 12-month trailing P/E ratios in the high 40s. Since 1999, the
ratios have been on a mostly downhill ride. For the past three or four years, though, they've leveled off between 20 and 22.
You could tell a similar story about generics stocks, which had a P/E of 42.4 in 2000 and are now in the same range as pharma,
23.3 for 2007. That may seem unfair, given the generics industry's spectacular growth, but that growth came with lots of volatility,
which the market tends to punish. Besides, though generics get points for growth, they lose points for their low margins.
(By way of comparison, the Standard & Poor's P/E over the past 25 years has been, on average, 20.72.)
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